sms lifesciences india ltd Management discussions


[Pursuant to part B of Schedule V of SEBI (Listing Obligations and eActiv Pharmaceutical YourCompanyhasemergedas oneofleadingmanufacturerof Ingredients (API) and Pharmaceutical Intermediate like manufacturing of supplier of KSMs and Intermediates to customers.

The Company is proud of developing products, processes and systems according to industry benchmarks and achieving sustained improvements to deliver new and quality products. The Company has created required capacity and capabilities and has made concerted efforts to add new Management Discussion & Analysis report sets out developments in the business, environment and Companys performance since our last report. The analysis supplements the Directors Report and audited financial which together form part of this Annual Report.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Indias pharmaceutical industry is known for its global presence and exports to various markets worldwide. Frontier markets, which typically refer to emerging or developing economies with significant growth potential, present opportunities for Indias pharmaceutical exports.

These markets often have a growing demand for affordable healthcare solutions them potential targets for Indian pharmaceutical companies.

Indias expertise in the sourcing, producing and exporting pharma products across a wide range at low-cost can be particularly advantageous in frontier markets where access to scale manufacturing capabilities, coupled with its reputation for cater to the pharmaceutical needs of these global markets.

Key factors contributing to Indian pharma companies for global market:

Cost-Effective Production Diverse Product Range:

Regulatory Expertise: Collaborative Initiatives:

Over the past few years, the pharmaceutical sector in India has experienced healthy growth. pharmaceutical ingredients (APIs), India boasts 500 API API industry. Indias pharmaceutical exports totalled $25.39 billion in the year 2022-23, a shade better than short of the $27 billion target as headwinds, including the impact of the Russia-Ukraine war, hampered the pace of growth. An increase in raw material costs and withdrawal of GST exemption on ocean and air freight charges were among the headwinds despite which pharma exporters clocked year-on-year growth.

Despite significant impact caused due to Covid-19 fallout, prolonged Russian-Ukraine conflict and monetary tightening by central banks across the world economies, India maintained its position of the fastest growing economy in the world. The sustained resilience of Indian economy amidst global uncertainties is expected to continue in year 2023- 24 as well.

Opportunities, Threats and Outlook

Company is engaged in only one segment viz. APIs, Intermediates and Contract Manufacturing.

Currently, Company in its manufacturing unit located in Jeedimetla (Unit IV) which has an installed capacity is 50 KL for manufacturing of API and intermediates. Major products are Sibutramine, Domperidone, Itraconazole and Famotidine. Further, your Company aims to establish its presence in a few more frontiers and regulated markets over the current decade. The Companys short-term goal is to capture incremental market share in the existing geographies and establish strong foundation for sustained organic growth in the United States and European Union.

The successful USFDA audit in April 2022 is a testimony to the same.

It has also set its eyes on entering various additional markets and also aims to develop 3 to 4 products each year, in collaboration with ChemWerth Inc, a full-service generic API company based in the United States; given the growing importance of health and disease management by the worlds population, The Company plans to leverage and grow in challenging frontier markets where affordability and health consciousness within the population is steadily increasing. Given its existing business model, solidmarket knowledge.managementexpertiseand In a way, the Company is not only charting out its short-term potential for growth but also its long term ambitionsof achieving the reputation of being one of the best Bulk Drug / API / Intermediates manufacturer with comprehensive excellence in all aspects and presence in both semi and highly regulated markets.

Opportunities:

China plus one strategy - As global companies look for alternate manufacturing locations outside China, the opportunity available to Indian manufacturers, including your Company, shall be encouraging. R&D and manufacturing capabilities -the R&D skills and relatively lower labour costs in India sets a good platform to capitalise on the new demographics. Improving domestic Governments focus on Make-in-India / Atmanirbhar Bharat businessenvironment-projects / Performance Linked Incentive (PLI) schemes and ease of doing business, opens new doors for the Indian pharma companies.

Rising Income Levels: As per the Government reports, 8% of the Indians will earn more than US$ 12,000 per annum by 2026. 73 million households are expected to move to middle class in next ten years boosting their purchasing power.

Threats:

Increase in Competitive intensity:Given the continuously changing business scenarios, there is a need for continuous evaluation of the competitive scenario and for taking necessary Regulatory Headwinds: While the Government has been incrementally supporting the pharma sector especially afterthepandemic,theregulatoryenvironmentkeepscreatingchallenges.

Pandemics: Despite the undaunted response that the healthcare system mounted against Covid-19, the threat of future pandemics is not a highly remote possibility.

Shortage of skilled Manpower: Given the niche vertical, specialised and well-trained manpower remains a challenge which is further being compounded by the inevitable brain-drain.

New API and Intermediate Facility:

Company has statically acquired Mahi Drugs Private Limited in the year 2018, which is located in JN Pharma City, Visakhapatnam, which has 2 API lines and intermediate capacity of 190 KL and mostly being revamped to cater to regulated markets.

Financial performance with respect to Operational Performance

in Crores)

Particulars

FY 2022-23 FY 2021-22 Growth%
Revenue from operations 315.24 345.63 (8.79%)
Other Income 2.88 1.53 88.24%

Total Income

318.12 347.16 (8.37%)

EBITDA

29.29 32.90 (10.97%)
Depreciation 8.17 7.99 2.25%
PBIT 21.12 24.91 (15.21%)

Profit Before Tax

16.02 20.28 (21.01%)
Exceptional income 2.35 12.69 -
Tax Expense 5.15 7.60 (32.24%)

Profit after Tax

13.22 25.38 (47.91%)

 

Break-up of Sales:

( in Crores)

Particulars

>FY 2022-23 FY 2021-22 Growth%
APIs 230.92 214.92 7.44%
Intermediates 64.86 112.06 (42.12%)
Others 17.24 15.46 11.51%

Total Sales

313.02 342.44 (8.59%)

Reason for decline of profitability:

During the year, various reasons like lower business growth, increase in the material cost, energy cost as well as increase in the other overhead expenses due to inflationary trend in the economy, the operating margins have reduced. This has resulted in lower operating profit margin, lower net profit margin and lower return on net worth as compared to previous financial year. Also operations from newly created capacities will take some time to create sustainable revenues while the expenditure is being incurred, creating an impact in bottom line in the short term. Return on Net Worth for the year is lower than the previous year due to decline in profit for the year due to challenging market conditions as mentioned above.

Integrated Management System (IMS) policy:

Company is committed to focus primly on Quality, Environment, Occupational Health and Safety in our regular its applicable standards, congenial and operations healthy work environment to our employees, community at large and strive for continual improvement, quality excellence and customer satisfaction through safe and good manufacturing practices.

Human Resources

Your Company strives to provide its employees with a congenial work environment that encourages a balanced, healthy, and safe lifestyle. The Company offers various growth opportunities, rewards merit, and recognises employee achievements. Training programs are available to enhance employees skills and promote inclusive growth and knowledge sharing. The Company continues to upgrade its HR processes and institutionalise them to create a value system and behavioural skills necessary for achieving short and long term goals. The total employee strength of the Company as on 31st March, 2023 stood at 567.

Details of significant changes in key Financial Ratios and Net-worth

Particular

FY 2022-23 FY 2021-22 Variance (%) Reason
Debtors Turnover Ratio 7.95 10.84

(27)

Variance is due to increase
Days 45.90 33.67 36 in average receivables
Inventory Turnover Ratio 3.90 4.93

(21)

Variance is due to increase
(Days) 93.68 73.99 27 in average inventory
Interest Coverage Ratio 5.55 8.22 (22) -
Current Ratio 1.52 1.36 11 -
Debt Equity Ratio 0.52 0.40 32

Variance is due to increase

in debt
Operating Profit Margin 9.21% 9.48% (3) -
Return on Networth 8.39% 18.29% (54)

Variance is due to

Exceptional Income

Internal Control Systems & their adequacy

Your Company has adequate internal controls in place designed and developed to: Safeguard its assets from unauthorised use or losses policies efficie Conductitsbusinessoperations Maintain accuracy, completeness and reliability of the Financial and accounting records Compliance on laws and regulations Detect and prevent any fraud the frauds in the accounting and reporting system

The internal controls of the Company are being reviewed by an independent chartered accountants firm i.e. M/s Adusumilli and Associates, Internal Auditors and the report is an unbiased and independent examination of the adequacy and effectiveness of the internal control systems to achievetheobjective of the optimal functioning of Company.

The statutory auditors while conducting the statutory audit, review and evaluate the Internal Auditors and their ardiscussed with the Audit committee of the Board. observations

Research & Development

Departmentof of India, Ministry of Science and Technology,

New Delhi has accorded prestigious recognition to in-house Research and Development (R&D) Unit of the Company situated at Sanath Nagar, Hyderabad.

The Lab is well equipped with the latest and sophisticated equipment and machineries and is focused on Novel route synthesis, Process Robustness and Cost effectiveness in Process / Analytical method development of APIs and intermediates.

Currently, your Company has 50 members with 2 Ph.Ds. in the R&D Team and has incurred an expenditure of 453.73 Lakhs on R&D related matters during the year 2022-23.

Risks & Concerns

Company faces risks and uncertainties commonly encountered by global players in the risks have the potential to impact the companys earnings and future operations significantly.

The Board of Directors conducts robust assessments to determine and evaluate these risks within the companys risk context. The Board is confident that these risks are being appropriately and consistently managed.

Few major potential risks:

Regulatory Compliance Supply Chain Disruptions Market Competition and Pricing Pressure Economic and Currency Fluctuations Intellectual Property Infringement

These are determined via robust assessment considering our risk context by the Board of Directors with inputs from the executive management. The Board is satisfied that these risks are being managed appropriately and consistently. Note: Risk Management Committee is not applicable to the Company pursuant to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Moving ahead

Your Company aims to capture incremental market share in existing geographies while establishing strong positions for sustained organic growth in selected markets.

By Order of the Board

For SMS Lifesciences India Limited

TV Praveen TVVSN Murthy
Date: 08.08.2023 DIN: 08772030 DIN: 00465198
Place: Hyderabad Executive Director Managing Director