Solvay Pharma India Ltd merged Management Discussions

SOLVAY PHARMA INDIA LIMITED ANNUAL REPORT 2010 MANAGEMENT DISCUSSION AND ANALYSIS The business of the Company continues to be pharmaceuticals, its only segment of business. a. Industry structure and developments In the last two years, though most of the matured economies were adversely impacted by Global recession there was hardly any impact on Indian economy. It is expected to grow by 8.5% in 2011. Considering present scenario, the growing inflation, high fiscal deficit level, infrastructure constraints, downward trend in foreign direct investments, might affect the growth trajectory of the economy in the near future, The year 2010 was second successive year of strong growth of 16,5% for the Pharmaceutical Industry, It is now the third largest in the world in terms of volume and stands 14th in terms of value, To ensure sustained growth serious initiative are necessary to develop healthcare infrastructure for rural masses on the part of both Government and Pharma Industry b. Opportunities and threats Looking healthier on a strong dose of global alliances, Indian Pharmaceutical and healthcare sectors have repeatedly hit headlines this year on account of mergers and acquisitions, Our company was also part of those headlines. These may well be steps towards the bigger role Indian Pharma and healthcare sector seek globally in the coming years, The domestic market which is currently growing at the rate of 16+ per cent is expected to accelerate further in the coming times. Both the market segments, Acute and Chronic, are showing a healthy growth, though there is a clear trend of moving towards chronic therapies, Similarly, preventive medical care is getting increasing importance, and hence, Vaccines have emerged as one of the most lucrative segments of the industry. The domestic vaccine market has recorded a growth of 15% in the last fiscal year and is expected to grow 15-20% over the following years. The Pharma Industry in India also face challenges from factors like effects of new product patent regulations, drug price control, regulatory reforms, infrastructure development, quality management and R&D productivity. The challenge of counterfeit and spurious drugs is still daunting and remains effectively unresolved. On the broader regulatory horizon, the imminent major events like introduction of GST, new Direct Tax regime as also the Companies Act modifications are certain to pose a challenge to all the industries, Pharma included. c. Companys Performance The Company achieved sales of Rs. 302 crores in 2010. The sales for the year showed a healthy 22% growth over last year. During the year the Company introduced two new products SolfeTM an Iron supplement and AcuvertTM an anti-emetic and anti-nauseant. During the year 2010 all the products of the Company performed well. Duphastonr maintained the 1st rank contributing 23% of the total Company turnover. Personal costs and other expenses showed an upward trend from the previous year on the parameter of % to sales, Personal costs to sales ratio showed an increase of 0,4%-points over the previous period mainly driven by the expansion of the sales force while other expenses as a percentage to sales went upto 23,5% from last periods 19.9% mainly owing to higher marketing spending and to a lesser extend owing to merger process. As the exchange rates improved in favour of the company, the manufacturing costs to sales were lower as compared to the previous period costs to sales ratio. d. Outlook The Company continues to lay emphasis on sustainable growth through ethical means, While there is an element of uncertainty in the economy and business, the Companys endeavor is to accelerate operational growth in line with the industry growth both in terms of turnover and profitability, A stable and growing urban demand coupled with the unexploited market potential, especially in the rural markets, which we will try to tap in the coming years, bodes well for the future of the Company. e. Risks and Concerns Pricing pressures because of greater-than-expected increase in competition could challenge the profitability of the Pharma companies. This would remain a key risk factor for future margins. Regulatory issues can also have an impact, mainly regarding approvals for new products. The risk due to uncertainties of the future policy of the government on drug pricing, drug policy changes or revision of price controlled drug list remains. f. Internal control systems and their adequacy The Company follows a robust internal control system which helps to safeguard the Companys assets against losses of unauthorized use and improper handling. The Companys internal control and standard operating processes built in its operations are supplemented by an equally strong outsourced internal audit firm which is empowered to assess the adequacy and compliance of the internal controls systems, statutory requirements etc, The internal audit work is assigned to a well established and experienced firm, who conducts the internal audit on the basis of the areas of audit and schedule, finalized by the Audit Committee. The internal auditors submit their reports to the Audit Committee which recommends the control measures to be followed by the Company from time to time. g. Material Developments in Human Resources The Company believes in creating a work environment in which people will choose to be motivated, contributing and happy. Fostering effective methods of goal setting, communication and empowerment through responsibility, builds employee ownership of the organization. The Company establishes the organizational culture and climate in which people have the competency, concern and commitment to serve customer well. The initiatives are designed at large to ensure employee satisfaction and its philosophy revolves on recognizing the human resource as the greatest asset of the organization. The total number of employees as on December 31, 2010 was 559. CAUTIONARY STATEMENT The statements forming the part of the Directors Report may contain certain forward looking statements within the meaning of applicable securities laws and regulations. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward looking statements.