sms pharmaceuticals ltd share price Management discussions

Global economic overview

Geopolitical uncertainty pushed inflation to an unprecedented level at the beginning of the year. In the last few quarters, inflation has been perceived to be stabilising, indicating a positive outlook.

The global economy appears poised for a gradual recovery from the powerful blows of the pandemic and Russia-Ukraine war. The global economic output is expected to witness steady growth, driven by stabilising inflationary pressures, reviving consumer sentiment and investor confidence. The employment scenario in the US and other advanced economies has recovered from pandemic levels and rising disposable income is also likely to support growth in the coming years. Emerging and developing countries are also witnessing growth across multiple sectors, powered by government focus on infrastructure and manufacturing sectors. China has also recovered from the COVID impact on its economy and industries and is on the mend.

Central banks monetary policies are expected to bear fruit, leading to a decline in global inflation from 8.7% in CY22 to 6.8% in CY23 to 5.2% in CY24.¹ It is anticipated that the pent- up demand in numerous economies, along with a significant reduction in inflation, will contribute to accelerated economic growth in CY23.

Outlook

Despite inflationary pressures, the global economy is supported by a robust labour market, increased domestic spending, an influx of foreign capital and a prudent response to the energy crisis in Europe.

Many emerging markets and economies (EMDEs) have already recovered, which has bolstered real incomes. An optimistic global outlook would also be determined by the speed and effectiveness of fiscal and monetary policy actions implemented to boost economic expansion. The central banks have been tightening monetary policy, which is expected to curb sticky inflation and foster long-term growth.

A stronger boost from pent-up demand in numerous economies or a faster fall in inflation is likely in the course of 2023. The governments and central banks of the world are expected to play a major role in accelerating economic growth through targeted, need-based measures.

Indian economic overview

The Indian government has managed to maintain a favorable domestic policy environment and prioritise structural reforms, allowing the countrys economy to remain resilient amid global challenges. Projections indicate that Indias economy will continue to progress and expand at a rate of 7.2% during the fiscal year 2022-23.³ Additionally, the countrys stable inflation rates, higher disposable income and continued investment in infrastructure development are expected to contribute positively to economic growth in the future.

Various high-frequency indicators, such as GST collections, railway and air traffic, electronic toll collections and E- Way bill volume, suggest a robust economic recovery in India. This persistent growth momentum has positioned India as an attractive investment destination.

Moreover, India is expected to retain its status as the fastest-growing G-20 nation in the coming years. Indias presidency of the G20 Summit in 2023 has also bolstered its international stature.

Despite the challenges, the Indian governments prudent initiatives, such as the PM Gati Shakti - National Master Plan, the National Monetisation Plan (NMP) and the Production- Linked Incentive (PLI), have been instrumental in fostering economic growth. The Reserve Bank of India (RBI) has also taken prudent and proactive measures to ensure financial stability and address liquidity constraints. These factors have contributed to the Indian economys resilience and stimulated substantial investments.

In response to monetary policy actions by the RBI, together with other supply side measures, headline CPI inflation has gradually declined from its peak of 7.8% in April 2022 to 5.7% in March 2023 and is projected to moderate further to 5.2% in Q4, 2023-24.

Outlook

Despite global challenges, Indias economic activity has remained robust due to a favourable domestic policy environment and the Governments continued emphasis on structural reforms.

India is expected to be among the fastest growing major economies of the world in 2023- 24, accounting for 15% of global growth—the second largest contribution, and higher than that of the US and EU put together.

A combination of rising disposable income, easy access to credit and lowering interest rates in the wake of a stabilising inflation trajectory will bode well for economic growth of the country, going forward.⁴

Industry overview Global Pharma Industry

Despite severe macroeconomic challenges and upheavals, the global pharmaceutical business remained robust and maintained consistent growth. At the same time, overall spending and demand for medications are expected to rise, resulting in a 3-6% annual growth rate over the next five years to around USD 1.9 trillion through 2027, in spite of fluctuating trends in the pharmaceutical business.

The usage of medications has increased by 36% over the last decade, with the biggest volume forecast in Latin America, Asia, and Africa, and a low growth in Northern America and Europe.⁵ In 2022, the healthcare system of the United States underwent significant expansion in both the utilisation of pharmaceuticals and the corresponding financial outlays. The pharmaceutical market within the U.S. observed a growth rate of 5%, resulting in a combined valuation of USD 429 billion. Substantial increases in expenses are expected in the domains of oncology, obesity, and neuroscience over the ensuing five-year period.⁶ In Europe, an anticipated increase in spending amounting to $59 billion is foreseen until 2027. This surge in expenditure will primarily concentrate on generics and biosimilars, while concurrently intensifying the scrutiny on the value and negotiated costs of innovative medications.

In China, the pace of spending growth is projected to decelerate. This trend is influenced positively by a higher acceptance and utilization of new original medicines, yet counterbalanced by the pressures exerted on pricing related to off-patent and generic products.

Developed economies continue to experience growth at relatively stable rates, characterised by the introduction of novel products to counteract patent expirations. In contrast, Latin America, Eastern Europe, and specific regions within Asia are poised for robust growth driven by increased consumption and adoption of innovative medications.⁷

Outlook

Following a substantial rebound in 2021 as global markets recovered from the effects of the pandemic, the utilisation of medications experienced a stabilisation in 2022. The overall usage volume is predicted to experience a growth of 1.6% in terms of days of therapy up until 2027. This growth is expected to be primarily driven by regions such as Asia-Pacific, India, Latin America, Africa/Middle East, and China, all of which are expected to surpass the global volume growth rate. Conversely, higher-income countries in Western Europe, North America, Japan, and Eastern Europe are projected to exhibit slower growth rates, ranging from 0.1% to 0.4% through 2027. This is partially attributed to their already elevated per capita medication usage.⁸

API market analysis

The global API manufacturing market is estimated to increase at a CAGR of 9.1% to $195.29 billion by 2022. Although geopolitical issues and economic sanctions on many countries have distorted the supply chain and led to an increase in commodity prices, the API manufacturing market is expected to reach $250.66 billion in 2026 at a CAGR of 6.4%, up from 6.08% previously.⁹

Global Pharmaceutical API Manufacturing Market Market forecast to grow at CAGR of 6.4%

The ageing population accelerates the expansion of the API production market. As the population ages the demand for pharmaceutical treatments increases. API serves as a specialist drug in the production of medicines to treat such old age ailments.

Indian pharmaceuticals industry

The Indian pharmaceutical sector is critical to the Indian economy and also plays a significant part in the global medicines industry. In terms of the Indian economy, the Indian pharmaceutical market is predicted to increase to US$ 65 billion by 2024 and to US$ 130 billion by 2030. India ranks third in terms of output volume and fifteenth in terms of output value. Indias pharmaceutical exports increased by 103% in 2013-14, from INR 90,415 crores in 2013-14 to INR 1,83,422 crores in 2021-22. India is the worlds pharmacy since it accounts for 20% of all generic pharmaceutical exports worldwide.¹⁰

Under the automatic route for greenfield pharmaceuticals, 100% Foreign Direct Investment (FDI) is permitted in the pharmaceutical industry. ¹¹

In terms of Active Pharmaceutical Ingredients (APIs), 500 domestic API firms account for around 8% of the global API market and 57% of the APIs on the WHOs prequalified list. The Indian API market is anticipated to grow at a CAGR of 13.7% in the first four years, which is roughly 8% faster than the generic API industry. Indias enormous domestic market, complicated chemical industry, experienced labour force, stringent quality and production requirements, and low cost of starting up and operating a new facility (about 40% less than in the West) give it a competitive edge.

India is the primary source of generic drugs. It generates over 60,000 distinct generic brands across 60 therapeutic categories, or about 20% of the worlds supply of generics.

Exports

The pharmaceutical business has experienced remarkable expansion in recent decades, opening the door to export opportunities. India, being one of the largest providers of low-cost vaccinations, accounts for 60% of worldwide vaccine production, meeting WHOs need of 40-70% for Diphtheria, Tetanus, and Bacillus Calmette-Guerin vaccines and 90% for Bacillus Calmette-Guerin vaccines. India accounts about 20% of world supply by volume. According to government data, India has approximately 3,000 pharmaceutical enterprises with a robust network of 10,500 well-equipped production facilities. ¹³

Growth in Pharmaceutical Industry

Drugs, pharmaceuticals and fine chemicals In US$ billion

Continuing the development trajectory of the Indian pharmaceutical business, exports in the pharmaceutical sector have been relatively robust, generating consistent growth despite trade disruptions. Drug and pharmaceutical exports have increased by more than 22% over the previous year. The growth of the local pharmaceutical industry, as well as the growing demand for medications, has drawn global investment to India. The cumulative FDI have crossed US $ 20 billion mark in September, 2022 and the FDI inflows has increased four times over five years aided by policies that attract investment and also aid the growth momentum of the industry.

FDI Inflow in Pharma

FDI in Pharma In US$ billion

Small molecule API market

The global market for small molecule active pharmaceutical ingredients (APIs) attained a valuation of USD 146.14 billion in 2022 and is anticipated to attain USD 246.22 billion by 2030, reflecting a Compound Annual Growth Rate (CAGR) of 6.8%.¹⁶ Small molecule APIs have conventionally served as a pivotal foundation within the pharmaceutical sector.

These products offer distinct therapeutic advantages, given their oral administration capability and the ability to permeate cellular membranes, thereby accessing intracellular targets. Approximately 58% of drugs in developmental stages are categorised as small molecules. This scenario is influenced by the escalating prevalence of chronic ailments on a global scale, prompting pharmaceutical manufacturers to focus on expanding therapeutic drug portfolios. Consequently, the demand for such products has observed a notable upsurge. Moreover, manufacturers specialising in contract production have directed their efforts towards augmenting their production capacities for small molecules, which has resulted in substantial growth for this segment.

Emerging trends

The drug development portfolios of prominent pharmaceutical firms prominently feature Highly Potent Active Pharmaceutical Ingredients (HPAPIs). These molecules are notably associated with pioneering cancer treatments and demonstrate effectivenessinaddressingautoimmunedisorders,diabetes,and various other medical conditions. At present, HPAPI molecules constitute more than 30% of the drug development pipeline. These HPAPI molecules introduce a novel approach to leveraging small molecules for advanced patient therapies, incorporating refined delivery mechanisms. The gradual transition towards embracing HPAPI has resulted in the emergence of a more efficient pipeline for impactful medications, characterised by reduced dosage requirements and mitigated side effects. This trend is stimulating the adoption of such products across diverse therapeutic applications.

The impetus behind the development of HPAPIs predominantly stems from the pursuit of targeted therapies for cancer treatment. This motivation is spurred by the escalating incidence of cancer, which has amplified the global demand for oncology medications. Consequently, the concerted endeavours of pharmaceutical enterprises to address this mounting requirement have significantly escalated the proliferation of HPAPI development, thereby propelling the market growth.

Government initiatives

The Indian Pharmaceutical Industry is expected to be worth $130 billion by the end of 2030, based on an agreement to provide new and innovative medications to patients at a CAGR of 12.3% from 2020 to 2030.¹⁷ With a view towards strengthening the Pharmaceutical Industry, the Department of Pharmaceuticals and Ministry of Chemicals and Fertilizers have implemented a scheme of Strengthening of Pharmaceutical Industry (SPI) with a financial outlay of INR 500 crores in the tenure between FY 2021-22 and FY 2025-26. The scheme has three sub-schemes – Assistance to Pharmaceutical Industry for Common Facilities (APICF), Promotion of Technology Upgradation Assistance Scheme (PTUAS) and Pharmaceutical and Medical Device Promotion and Development Scheme (PMPDS).¹⁸ The Department of Pharmaceuticals also have implemented two PLI schemes namely PLI for bulk drugs and PLI for medical devices. The PLI for bulk drugs has a financial outlay of INR 6,940 crore which has the objective to boost domestic production of 41 selected bulk drugs in the country. Out of these 41 selected bulk drugs, 22 projects have been commissioned on fermentation-based APIs. India has already started generating 35 active pharmaceutical ingredients (APIs) under the PLI scheme, or around 67% of the APIs for which it is 90% dependent on imports. ¹⁹

Growth drivers of the pharma industry

• Governments efforts to boost domestic production of Critical APIs in the first year of production of PLI schemes where the financial outlay under this PLI scheme is Rs.15,000 crores allotted over a period of six years.²⁰

• Low- cost drug manufacturing with strong generic patented drugs is also one of the reasons for the growth of the pharmaceutical industry.

• Implementation of largest National Health Protection scheme also becomes a driving force for a strong domestic demand.

• Investment-friendly schemes of the Government and continuous innovation and development in the Indian pharmaceutical industry helps to attract foreign direct investments to India.

Growth drivers of API market

The rising prevalence of cardiovascular disorders and cancer has resulted in an increase in the manufacturing of Active Pharmaceutical Ingredients (API) in India. The increasing prevalence and increased awareness of these chronic illnesses will boost consumer interest in APIs for cardiology medications during the predicted period.

This sector is expanding due to supportive government policies that support API manufacturing. An increase in demand is projected for personalised pharmaceuticals and suggested treatments, which are employed by highly potent API chemicals such as HPAPI, which have unique handling issues. Government incentives include a reimbursement of INR 21,940 for PLI versions 1.0 and 2.0. Indias drug security should be ensured by three bulk drug parks in Gujarat, Himachal Pradesh, and Andhra Pradesh, which also provide a consistent supply of bulk drug active components.

Company overview Domestic API business

Established in 1987, SMS Pharmaceuticals, headquartered in Hyderabad is one of Indias top API manufacturing companies, with superior world-class facilities geared for manufacturing specialty large-volume compounds and a wide range of equipment that complies with cGMP and WHO requirements. The Company maintains robust research and production divisions that facilitate the development and commercial manufacturing of market relevant active pharmaceutical ingredients (API). The Company holds a prominent position as a prime exporter of full range of anti-migraine product triptans. Possessing essential capabilities and infrastructure, the Company ensures the seamless functioning of quality assurance processes, encompassing raw material scrutiny, production procedures, and final product analysis for quality assurance and regulatory compliance. The Company has two facilities which are multiple times approved by international health authorities like USFDA and has been a major supplier into regulated markets. Based on customer requests looking at our experience of handling volume products and regulatory strength demonstrated through our niche molecules supply into regulatory markets, company has established one of Asias biggest production blocks dedicated for manufacturing of Ibuprofen in 3 times USFDA approved facility at Vizianagaram. The production block has a manufacturing capacity of 1000 MT per month and a direct API batch size of 10 MT which is quite rate in API industry giving huge advantage of providing uniform material to customer and cutting down on analysis costs for the volume product. In recognition of its commitment to sustainability, the Company has been awarded the EDQM sustainability certificate. The domestic market for Ibuprofen is substantial, with a majority of companies oriented towards formulation exports into regulated markets and ROW markets like Africa. Regarding the domestic Ibuprofen market share, there is an anticipation of growth from 18% to a range of 25-30%, contingent upon the geographical area. The initial phase of ibuprofen production boasts a monthly capacity between 300 and 400 tonnes. The Company stands out with the industrys largest batch size for this product. With a relatively modest investment, the production capacity could be further increased to 700 tonnes per month. SMS Pharmaceuticals benefits from a strong cost position for this product, driven by a batch size of approximately 10,000 kg. Significantly, Ibuprofen is poised to contribute significantly to the Companys endeavours. SMS Pharmaceuticals aims to secure a competitive stance in a dynamic market where the anticipated pricing split between domestic and export markets stands at around 30% domestic and approximately 70% for exports.

International business

SMS Pharmaceuticals specialises in manufacturing Niche molecules with excellent quality and robust regulatory compliance system and now a large volume commodity product like Ibuprofen which is already approved for two customers by USFDA and many other customers focussed on USA market have initiated applications for adding SMS Pharmaceuticals as a supplier of the product. CEP is also approved and many European customers are initiating qualification process to enrol SMS Pharmaceuticals as their supplier. Many molecules which were developed as part of JV with a European partner have gone off patent now and are getting commercialised. This strategic approach has enabled the Company to foster strong global market relationships and obtain GMP certificates affirming authenticity.

The Company engages in sales to other enterprises operating in regions with a substantial number of manufacturers producing similar items. Notably, the Company has achieved moderate sales in Bangladesh, Indonesia, Brazil, and the MENA region. Particularly significant sales are concentrated in the US market, with the Company predominantly operating from US FDA-approved facilities.

The Companys comprehensive production processes are sufficiently robust to withstand regulatory inspections, bolstered by a highly experienced and skilled team with three decades of proficiency in GMP facilities, alongside well-established internal procedures. The Company has a portfolio of over 80 plus authorised drug master files, accredited by regulatory bodies such as the USFDA, PMDA, EU, and KFDA. Furthermore, the recent CEP certification for Ibuprofen has opened doors to new opportunities within the contemporary and well-regulated European market.

Strategy

The Company has strategically established a robust foothold within intricate and specialised API therapies, having global leadership in a variety of products. During FY21, the Company allocated a significant brownfield capital expenditure of

200 crores, aimed at enhancing the forthcoming phase of growth. The Companys strategic approach encompasses a global presence, substantial domain expertise, cost-effective practices, and longstanding partnerships, which, combined with economies of scale, contribute to its success.

Through strategic initiatives of backward and vertical integration, SMS Pharmaceuticals leverages synergies in costs and unlocks avenues for growth. Its focused approach on backward integration and intermediates has notably mitigated supply chain and forex risks, significantly reducing their dependence on imports from China (approximately 10%-15% reduction). This multi-faceted strategy underscores the Companys commitment to sustainable expansion and risk management, positioning it as a formidable player within the pharmaceutical sector.

Product portfolio

The Company has presence in multiple margin-lucrative, non-commoditised therapeutic areas like ARV, Anti-Epileptic, Anti- Migraine, Anti-Fungal. Comprehensive details about the product portfolio are shared below.

• Anti-retroviral like Tenofovir, Doultegravir, Raltegravir, Lamivudine, Efavirenz.

• Anti-inflammatory like Ibuprofens, Dexibuprofen, Fenoprofen calcium

• Anti-viral like Penciclovir, Valaciclovir.

• Anti-diabetic like Vildagliptin, Sitagliptin, Rosiglitazone, Empagliflozin, Dapagliflozin.

• Anti-ulcer like Ranitidine, Famotidine, Pantoprazole Sodium and others.

• Anti-fungal like Itraconazole, Lanoconasole, and Luliconazole

• Anti-epileptic like Levbetiracetam, Perampanel, Lamotrizige.

• Anti-migraine like Sumatriptan, Almotriptan, Zolmitriptan, Rizatriptan and Eletriptan

• Anti-coagulant like Apixaban and Rivaroxaban

• Anti-psychotic like Aripiprazole, Clozapine and Pimavanseric

Financial highlights

( in crore)

Particulars	FY 2022-23	FY2021-22	YoY Changes (in %)
Net Revenue from Operations (Net Excise) ( in Crore)	522.05	519.87	0.42%
EBITDA	59.59	119.68	(50.21%)
PAT	4.08	68.04	(94.00%)
EPS	0.48	8.04	(94.03%)
Net Worth	495.10	493.76	0.27%

Details of significant changes in key financial ratios, net worth along with detailed explanations therefore:

Particulars	As at 31st March,2023	As at 31st March,2022	% Change	Reasons
Debtors Turnover Ratio (Days)	104.18	34.39	69.79	Increase in Debtor turnover ratio(days) due to increase in trade receivables as against Previous year
Inventory Turnover Ratio (Days)	207.61	277.45	(69.84)	Decrease in inventory turnover ratio (days) is due to decrease in inventories
Interest Coverage Ratio (Times)	2.80	6.64	(3.84)	Decrease in interest coverage ratio due to decrease in revenues and increase in finance cost compared to previous year
Current Ratio	1.61	1.92	(0.31)	Decrease in ratio is on account of increase in Trade payables .
Debt Equity Ratio	0.51	0.53	(0.02)	Slight decrease in ratio on account of increase in Reserves.
Operating Profit Margin	11.12%	22.60%	(11.48%)	-
Net Profit Margin	0.78%	12.97%	(12.19%)	-
Return on Net worth	0.82%	13.79%	(12.96%)	-

Research and development

The R&D division stands as the cornerstone of SMS Pharmaceuticals API operations, serving as a driving force behind its advancements. With an impressive track record, the Company has successfully integrated 20 new products into its product portfolio in recent years, reinforcing its commitment to innovation. Particularly noteworthy is the strategic optimisation of numerous Anti-Migraine APIs, positioning SMS Pharmaceuticals as a prominent leader within this therapeutic domain.

Equipped with cutting-edge technology and sophisticated equipment, the R&D division demonstrates its capacity to support the entire lifecycle of research and development. The Companys extensive accomplishments are evident through the filing of over 80 plus DMFs and more than 30 process patents. A pivotal aspect of this progress is the product scale-up infrastructure, which encompasses a kilo lab and a pilot plant. The latter, in particular, encompasses the ability for DMF filing and possesses a substantial scale-up capacity of 4,500 litres. In a remarkable display of environmental responsibility and innovation, the Company devised an inventive approach to recycle methyl mercaptan gas into a valuable solvent, DMSO, within ranitidine production. This accomplishment, driven by a commitment to environmental preservation, earned the Company the prestigious Indo-US Green Chemistry Network (GCNC) award.

Quality and compliance

SMSPharmaceuticalsisdedicatedtoupholdingandstreamlining operational excellence by adopting state-of-the-art global quality management systems. The Companys ongoing endeavours are geared towards achieving sustainable growth while consistently upholding the highest quality standards for its manufactured products within its sector. Furthermore, the Company aspires to establish a global presence in accordance with relevant legal obligations. Through the implementation of a premium-quality control system, the Company ensures that all products it conceives, produces, and disseminates conform to the legal regulations of the target country. The Companys commitment to excellence is underlined by its continuous refinement of quality processes to align with evolving requirements. The Company actively seeks achievement and endeavours to remain at the forefront of its field, meticulously adhering to essential compliance benchmarks without compromising product quality in any capacity.

Human resource

The human resource management at the Company reflects a deep commitment to nurturing a skilled and motivated workforce. Recognising that employees are the cornerstone of the Companys success, SMS Pharmaceuticals places a strong emphasis on creating a conducive work environment that encourages growth, innovation, and collaboration. The Companys HR policies prioritise employee development through comprehensive training programs, continuous learning opportunities, and skill enhancement initiatives. By fostering a culture of diversity and inclusion, the Company ensures that all employees are valued and their contribution acknowledged. Furthermore, the Company recognises the importance of work-life balance, offering flexible arrangements and benefits that support the well-being of its workforce. Regular performance assessments and feedback mechanisms help in recognising and rewarding excellence, while also identifying areas for improvement. The Company takes pride in providing a safe and secure workplace, adhering to stringent health and safety regulations.

In addition to focusing on individual growth, the Company fosters a sense of belonging by encouraging teamwork and open communication. The HR department plays a pivotal role in aligning the Companys goals with the aspirations of its employees.

1095

Total employee strength (As at 31st March 2023)

Safety and health

The Company has established and maintains proficient safety teams within its facilities, demonstrating a strong dedication to ensuring the well-being of its workforce and stakeholders. SMS unit II is complying with ISO safety standards. The Company diligently conducts regular training sessions to continuously enhance the knowledge and skills of its personnel, underscoring its commitment to staying updated with the latest safety practices. In line with its robust safety measures, the Company has thoughtfully equipped its premises with pertinent firefighting apparatus such as hydrant systems and extinguishers, effectively bolstering its emergency response capabilities. Moreover, the Company prioritises the safety of its staff by providing personal protective equipment and meticulously training dedicated first aid teams on-site. As part of its holistic approach to safety, the Company also employs a qualified medical professional and maintains an ambulance on location, ensuring immediate medical attention if required.

Environment

The Company demonstrates a steadfast dedication to sustainable development, as evident through its guiding principle of "Fostering the natural environment that sustains us." The Company gives constant attention to ensure that its operations have no adverse impact on the environment. By means of awareness initiatives, employee training, technological integration, and resource stewardship, a standard of excellence is achieved. Notably, the Company takes pride in having been honoured with the Indo-US GCNC award for its pioneering efforts in adopting green chemistry practices.

We comply with environmental regulations and closely monitor emissions and our waste disposal practices. We collaborate with ESG-compliant suppliers and prioritise sustainable procurement practices. Along with efforts to optimise energy efficiency, and minimise paper and plastic waste. This resolute commitment propels the Companys initiative to implement Zero Liquid Discharge plants throughout its facilities. The ethos of environmental safeguarding is deeply embedded within the Companys product development processes, influencing the selection of synthesis pathways and raw materials.

The Company has achieved accreditation for its integrated management system, encompassing both the environmental management system ISO 14001 and the occupational health and safety (OH&S) management system ISO 45001.

Corporate social responsibility (CSR)

The Company has taken meaningful strides to contribute positively to society and the environment. Through its CSR initiatives, SMS Pharmaceuticals focuses on various areas such as healthcare accessibility, education, environmental sustainability, and community development. By extending support to underprivileged communities, the Company helps enhance healthcare facilities and educational opportunities, thereby making a tangible impact on peoples lives. To promote social and economic inclusion by ensuring that marginalised communities having equal access health services and also to the educational opportunities. The main focus of the Company CSR to provide Health & Education to the people who really required. The company is also creating infrastructure for school buildings year on year and contributing to health care development activities as well as establishing drinking water facilities in villages, rural development activities. Some of the initiatives during the year provided below.

CSR initiatives during FY23

• Construction of class room at MPUP School situated in Ayyanapet, Vizianagaram Dist., Andhra Pradesh.

• Continuing Support to poor people crippled with heart, lung and vascular diseases, through Dr. Alla Gopala Krishna Gokhale, Sahrudaya Health, Medical and Educational Trust

• Continue Campus Challenge support for physical disability and mental disability children at Coastal and Tribal areas.

• Construction of Community hall for the usage of village people and nearby villages people for agricultural reforms, social and cultural gatherings at Kumili Village, Pusapatirega Mandal, Vizianagaram Distirict, Andhra Pradesh. -ongoing project

Outlook

The brownfield capital expenditure (capex) strategy pursued by the Company is focused on augmenting the capacities of multiple products and therapies. Notably, this capex endeavour is expected to add an incremental capacity of 1,300 KL, primarily aimed at expanding the Ibuprofen production capabilities. With this strategic move, the Company is poised to emerge as one of the largest global manufacturers of Ibuprofen.

Leveraging its established relationships, domain expertise, and robust R&D knowledge, the Company is also embarking on ventures into new therapies, products, and geographic markets. The majority of the capex is funded through internal accruals, supplemented by minimal debt, thus bolstering the Companys strong Balance Sheet position.

The implementation of this capex strategy is anticipated to yield higher margins and improved profitability ratios, driven by enhanced operating leverage and incremental revenue streams. This strategic direction underscores the Companys proactive stance in maximising growth opportunities, solidifying its position as a innovative player in the pharmaceutical industry.

Internal control systems and their adequacy

The Company maintains comprehensive internal control systems and procedures that encompass all financial and operational functions. The Company firmly asserts the necessity of a robust internal control framework to uphold principles of Corporate Governance. These measures have been meticulously devised to furnish reasonable assurance in matters concerning the accurate recording and provision of dependable financial and operational information. Furthermore, they ensure adherence to relevant regulations, the safeguarding of assets against unauthorised use or losses, the proper authorisation of transactions, and the enforcement of corporate policies. The Company has established a well-structured manual outlining the delegation of authority for the approval of revenue and expenditure. SMS Pharmaceuticals is dedicated to continually improving the responsiveness of its control systems in addressing unauthorised use or losses.

The audit committee diligently evaluates all internal facets and offers guidance on corrective measures as deemed necessary. Additionally, the committee apprises the Board of Directors of its significant observations periodically.

Cautionary statement

The management of SMS Pharmaceuticals Ltd. has meticulously prepared and assumes responsibility for the financial statements featured within this report. These financial statements align with Indian Accounting Standards and Other Applicable Standards, in accordance with directives issued by regulatory authorities. As a consequence, these statements incorporate figures derived from well-informed judgments and estimations.

Certain declarations in this report may take the form of forward-looking statements. The Company has provided such forward-looking information to furnish investors with an understanding of potential prospects, facilitating informed investment choices. It is essential to acknowledge that these forward-looking statements are subject to various risks and uncertainties, including but not limited to regulatory alterations, local, political, or economic developments, technological risks, and myriad other factors that could potentially lead to outcomes differing from those envisioned in the pertinent forward-looking statements.

While the Company exercises prudence in its assumptions, it is unable to guarantee the realisation of these forward-looking statements. The Company recognises that multiple variables could influence the achievement of such statements. Key factors that may impact the Companys operations encompass economic conditions that influence demand, supply, and pricing in both domestic and international markets where the Company operates, alterations in governmental regulations, tax legislation, statutes, and incidental factors. Readers are advised to take cognizance of these aspects.

The Company pledges no obligation to publicly revise or modify any forward-looking statement, regardless of whether it is prompted by new information, future events, or other circumstances.