Smruthi Organics Ltd Management Discussions.

MANAGEMENT DISCUSSION AND ANALYSIS

COMPANYS PERFORMANCE

During the year under review, Net Sales & Other Income of the Company was Rs.13395.47 lakhs as compared to Rs.12706.20 lakhs in the previous year, registering an increase of 5.4% over the previous year. However, the net profit for the year is Rs.1038.18 lakhs compared to Rs.1710.74 lakhs in the previous year, registering a decrease of 39.3% over the previous year.

Increase in raw material prices was the most significant factor contributing to the reduction in profitability. We have seen an increase of up to 120% rise in both key and commodity raw material prices. Factory closures, global shipping disruption, increased demand in alternative applications, etc. are some of the reasons for unprecedented increase in raw material prices in FY 2021 - 22. On the other hand, we were unable to increase our sale price proportionally and hence had to absorb some of these costs. To mitigate some risk from rising raw material prices, we are working towards backward integration to manufacture some key raw materials in house.

Another major overhead increase was in manpower cost. This is mainly attributable to finished dosage formulation (FDF) division, which was operationally active since April 2021. In addition, we have increased our team strength in R&D as well to targeted levels. All other costs were reasonably controlled given the achieved operational performance.

In terms of the cash utilization, we have deployed our own funds for various operational and investment activities, thus limiting debt utilization and borrowing costs. The company has invested Rs.656 lacs towards upgradation and debottlenecking of facilities without taking on any additional debt. We have also purchased certain key raw materials with cash in order to secure supply and get discounted rates, which has reduced creditor days. In addition, we had to increase inventory in order to avoid supply disruption. We have used the rest of the cash for repayment of short term borrowing amounting to Rs.707 lacs and dividend distribution of Rs.343 lacs.

FUTURE PLANS & STRATEGY

The focus area going forward is on execution of our adopted strategy that we have mentioned in the previous annual reports. There are no new major strategic initiatives planned in FY 2022 - 23.

ACTIVE PHARMACEUTICAL INGREDIENTS (API)

As discussed in our previous annual reports, a key component of our growth strategy is expansion of our product portfolio. We are glad to inform that we have developed 4 API as targeted in FY 2021 - 22. These are in the diabetic and platelet therapeutic category.

Reduction on import dependency and cost optimization are key reasons behind adopting a backward integration strategy. Our R&D has developed 6 key starting materials and undertaken several cost optimization projects to implement our backward integration strategy.

On the market access and regulatory front, we have filed Drug Master Files in several countries for market access. We are expecting a regulatory audit from a Pharmaceutical Inspection Co-operation Scheme (PIC/S) signatory country in FY 2022 - 23, which will enable us to access markets in 52 PIC/S signatory countries of Asia, EU, Latin America and Africa. We are moving forward consistently in executing our strategic plan, which was discussed in the previous annual reports.

FINISHED DOSAGE FORMULATIONS (FDF)

The companys Finished Dosage Formulations (FDF) division was operational fully from April 2021. The company is currently operating with 40 medical representatives in 4 South Indian states of Telangana, Andhra Pradesh, Tamil Nadu and Karnataka. We have faced a few challenges in the initial phase due to Covid-19, however operations stabilized in due time. We shall be focusing on the existing areas of operation to consolidate our position in the market. However, we shall be adding a few more brands and line extensions in FY 2021 - 22 to improve our product portfolio.