smruthi organics ltd share price Management discussions

During the year under review, Net Sales & Other Income of the Company was 14114.83 lakhs as compared to 13395.48 lakhs in the previous year, registering an increase of 5.4% over the previous year. The net profit for the year eroded to 413.09 lakhs compared to 1038.18 lakhs in the previous year.

COMPANYS PERFORMANCE

The decline in profitability experienced by the Company can be attributed to multitude of factors including increase in the raw material prices owing to global supply chain issues, inflationary pressure arising out of turmoil in energy and commodity markets and finished product price erosion owing to a lower global demand. Raw material prices increased in line with the increase in global oil and commodity prices, owing to the Russia and Ukraine war. This has directly increased the prices of our inputs. The prices of our top 20 raw material purchased, which account for 90% of total purchases, have experienced a notable increase, ranging from 3% to 53%. Particularly the prices of raw materials sourced from China have risen significantly. Due to Chinas Zero COVID policy and strict lockdown measures imposed in many industrial regions, factories were forced to shut down or operate at limited capacity. This disruption in production caused a shortage of intermediates, leading to higher prices. The net effect was a 5% increase in raw material cost as a percentage of our sales compared to the previous year. To mitigate these challenges, the company is exploring alternative sourcing options, working on backward integration, negotiating favourable contracts, and implementing cost-saving measures. The high inflation in US and EU region has created a cost of living crises in several countries. The concurrent high interest rate regimes led to lower demand of pharmaceuticals products globally. Due to the resulting low global demand, a higher supply of API products became available in the domestic market led by domestic and international competitors. This excess supply led to depressed prices in the domestic market. Hence, we were unable to increase our average sale price of our products proportional to the increase in input costs and had to take a hit on profitability. Lastly, our manpower cost grew above normal rate in the current year, due to our strategy of accessing more regulated markets such as EU, Brazil, South Korea, etc. We have strengthened our quality, regulatory and production teams for the same. This involved hiring additional skilled professionals and allocating more resources. We are pleased to inform that we have obtained approval from Korean FDA for the marketing of our Telmisartan product in the Korean market. This achievement marks a significant milestone for our business, and we are excited to commence commercialization in the FY 2023-24. We firmly believe that by prioritizing regulatory compliance and innovation, we are positioning ourselves for long-term success in a rapidly evolving business landscape.

We have managed our funds prudently in the current year without increasing our debt majorly. The company has invested 947 lakhs towards capex which is 44.4% greater than previous year. However, due to raw material supply issues, our short term borrowing increased slightly to fund higher inventory. We have used some of the cash generated for distribution of dividend of 343 lakhs as well.

In FY 2022-23, in line with our targets the company has successfully developed 3 API products. In addition, as part of our backward integration strategy and demand from our customers, our R&D has developed 7 critical intermediates. For FY 2023-24, company shall continue to focus on expanding its product portfolio by developing additional API products. We recognize the importance of maintaining a diverse and comprehensive range of API and intermediates to cater to the varying needs of our customers. The company has filed 11 Drug Master Files (DMF) covering 5 products in 8 countries globally. Additionally, company will be actively involved in filing several DMF in Europe, Brazil, South Korea and China during FY 2023-24. These filings are essential for complying with regulatory requirements and ensuring the entry of our products in these high value markets.

Finished Dosage Formulations (FDF)

During the year under review, the secondary sales of the FDF division amounted to 91.98 lakhs, which represents a notable increase compared to the previous years sales of 48.11 lakhs. The sales growth stands at 91.19% over the previous year, indicating a positive trend for the division. This increase in sales demonstrates the divisions ability to effectively capture market demand and generate revenue. In FY 2023-24 the company is focusing on achieving the breakeven point. To effectively reach the breakeven point, we are focusing on enhancing our sales efforts by expanding our customer base and increasing market penetration. This will not only boost overall sales revenue but also contribute to achieving breakeven sooner.

In FY 2022-23, our company launched two new brands, namely ENERLIN and SOLSITA. Former is a multivitamin and later is anti-diabetes medicine with Sitagliptin as the API. This significant milestone marks our commitment to innovation and expansion in the market. In FY 2023-24, company shall launch new brands as well. This strategic move is aimed at expanding our product portfolio and capturing new market segments. By introducing these innovative brands, we aim to strengthen our position in the market and drive sustainable growth. In addition to its existing geographical presence, FDF division has expanded in some parts of Maharashtra in the current year. The company shall cautiously expand in the rest of Maharashtra in FY 2023 – 24 and adhere to the companys strategy to consolidate its operations in limited geographies until breakeven.