Sudarshan Pharma Industries Ltd Management Discussions

<dhhead•MANAGEMENT DISCUSSION AND ANALYSIS</dhhead•

CORPORATE GOVERNANCE

Good Corporate Governance is an integral part of our work culture and best followed industrial practice lies at the foundation of our companyRs.s business ethos. The Company believes that the management carries fiduciary responsibility towards all the investors and stake holders and is responsible for protection of their interest in the company and increase in their wealth. It is committed to high levels of ethics and integrity in all its business dealings that avoids all conflicts of interest. In order to conduct business with these principles, the company creates simple corporate structures based on business needs and maintains a high degree of transparency through regular disclosures and a focus on adequate control systems. The report of Corporate Governance is prepared in accordance with SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015 (hereinafter referred to as Rs.SEBI LODRRs.). A report on Corporate Governance is annexed to this Report.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Company was incorporated on 23^rd July, 2008 as a Private Limited Company as "Sudarshan Specialty Chemsolve Private Limited" under the provisions of the Companies Act, 1956 with the Registrar of Companies, Mumbai. Later in the year 2016, the name of the company was changed from "Sudarshan Specialty Chemsolve Private Limited" to "Sudarshan Pharma Industries Private Limited" under the Companies Act, 2013 vide certificate of incorporation dated 17^th December, 2016 issued by the Registrar of Companies, Mumbai. Subsequently, Company was converted from a Private Limited Company to Public Limited Company and consequently, the name of our Company was changed to Rs.Sudarshan Pharma Industries Limited. and a Fresh Certificate of Incorporation consequent to Conversion was issued on 05^th January, 2017 by the Registrar of Companies, Mumbai. The company has successfully completed Initial Public Offe ("IPO") in financial year 2022-23. Our management includes Mr. Hemal V Mehta, Chairman and Managing Director (CMD) having around 22 years of experience. Mr Sachin V Mehta having 14 years of Experience in Pharma and Chemical Industry.

Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK. The domestic pharmaceutical industry includes a network of 3,000 drug companies and ~10,500 manufacturing units. India enjoys an important position in the global pharmaceuticals sector

GLOBAL OVERVIEW

The global active pharmaceutical ingredients market size was valued at USD 222.4 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 5.90% from 2023 to 2030. The growth can be attributed to the advancements in active pharmaceutical ingredient (API) manufacturing and the rising prevalence of chronic diseases, such as cardiovascular diseases and cancer. Favorable government policies for API production, along with changes in geopolitical situations, are boosting market growth. The API market is undergoing immense changes due to supply chain disruption by COVID-19. Countries such as India are being preferred over China for the export of API owing to geopolitical situations and the demand to reduce dependence on China for API products. Furthermore, governments of many countries have formulated plans and granted incentives to promote the production of API.

The global geriatric population is rising. According to the UN, in 2018, the population aged 65 and above is anticipated to increase from 962 million in 2018 to 2.1 billion by 2050. Aging weakens the immune system and increases a patientRs.s susceptibility to acquiring infectious diseases. Moreover, impairment in body functions enhances the chances of getting other diseases, such as CVD and diabetes.

The captive API segment accounted for the largest revenue share of approx. 51.5% in 2022. It is anticipated to grow at a significant rate in the upcoming years owing to the easy availability of raw materials and extensive investments by major players to develop high-end manufacturing facilities. Furthermore, recent developments and initiatives by key players suggest that they are highly focused on in-house manufacturing over outsourcing

INDIAN OVERVIEW

The India Active Pharmaceutical Ingredients (API) Market size is expected to grow from USD 12.59 billion in 2023 to USD 18.76 billion by 2028, at a CAGR of 8.31% during the forecast period (2023-2028).

The COVID-19 pandemic not only impacted the entire pharmaceutical supply chain but also disrupted the supply of APIs from China. This led to an increase in the cost of many prescription medications and the shortage of essential drugs in the country.

The Indian pharmaceutical industry is the worldRs.s third-largest drug producer by volume. India operates over 250 facilities approved by the USFDA and UKMHRA and provides generic pharmaceuticals at affordable prices to millions of people worldwide.

The rising burden of infectious, genetic, and other chronic diseases such as cancer, diabetes, and neurological disorders is the key factor driving the market growth. For instance, as per the 2022 statistics published by IDF, about 74 million people had diabetes in 2021 in India, and this number is estimated to reach 92.9 million by 2030.

Furthermore, the government of India is taking initiatives to boost API products in the market, which will benefit market growth.

The India Active Pharmaceutical Ingredients (API) Market is Segmented by Business Mode (Captive API and Merchant API), Synthesis Type (Synthetic and Biotech), Drug Type (Generic and Branded), and Application (Cardiology, Oncology, Pulmonology, Neurology, Orthopedic, Ophthalmology, and Other Applications). The report offers the value (in USD billion) for the above segments.

The Indian active pharmaceutical ingredients market is relatively fragmented. The API market has several manufacturers focusing on expanding their footprints by adopting various business strategies such as collaborations, facility expansion, and drug approvals.

COMPANY OVERVIEW

Sudarshan Pharma is into Specialty Chemicals & Intermediates for Pharma, agro chemicals, Coating, various other industries. We are also into Active Pharmaceuticals Ingredients manufacturing. Our main focus is on Vitamin and API. We believe that vitamins play a major role in day-to-day life and it is observed during COVID period. As a learning our focus is mainly towards factors improvising immunity more and more, it is a belief that usage of vitamin supplements on daily basis may not be good, however we have been working toward improvised supplements in various flavors and multivitamin. It is very well accepted concept "Precaution is better than cure", we follow the same and for the betterment of society we spread awareness by arranging camps and seminars.

The company had received an approval under the Production Linked Incentives (PLI) scheme for promotion of domestic manufacturing of critical Key Starting Materials (KSM), Drug Intermediates (Dis) and Active Pharmaceutical Ingredients (APIs) in India. The key details are as under :

1) The first unit for Vitamin B6 (PYRIDOXINE HYDROCHLORIDE) and other APIs / Intermediates will be ready around the end of calendar year 2023, the production will commence post necessary approvals. This plant has maximum incentives of around 75% of total investment amount maximum upto Rs. 15 crores. The Company has already acquired land to set up factory for Vitamin B6 and it has applied for necessary approvals for construction of the factory.

2) The second unit Vitamin B1 and other APIs / Intermediates is expected to start operations around first quarter of calendar year 2024, it has a subsidiary incentive(s) upto Rs. 100 Crore. The Company has already acquired land to set up factory for Vitamin B1 and it has applied for necessary approvals for construction of the factory.

The company has recently setup its Unit at Palghar, Maharashtra. Key activities at this unit includes testing of raw materials to dispensing raw materials for formulations, to batch manufacturing as per approved standards, to packing of finished formulations, to storage and dispatch. Maharashtra Government policy(ies) and subsidies for new project is supportive and eases the initial financial burden required for setting up a large scale manufacturing unit

INDUSTRY STRUCTURE AND DEVELOPMENTS

"Vitamins are Vital"

The global pharmaceutical industry has witnessed a major drift post COVID-19 pandemic and rapidly mitigating the disruptions caused by it. Along with COVID vaccination precautions for COVID-19 was accepted at global levels resulting into health awareness and treatment. The global vitamin supplements market size was valued at $47.9 billion in 2021, and is projected to reach $98.6 billion by 2031, growing at a CAGR of 7.6% from 2022 to 2031.

Nutrient requirements for Indians - ICMR-NIN, 2020 has advised the requisite levels of different types of vitamins, the study and recommendation by top notch regulator in India itself is a barometer on how vital vitamins in daily life. The global pharmaceutical market is approximately valued at US$1.5 Trillion in 2023 and is expected to reach ~US$1.8 Trillion by 2026, growing at a CAGR of 3-6%.The industry is expected to record ~5% CAGR between 2021 and 2026. Growth in developed markets will be driven by the adoption of new treatments and specialty medicines, offset by the loss of exclusivity and competition from generics and biosimilars.

SEGMENT WISE PERFORMANCE OF THE COMPANY

The company performs in one segment only

Key Financial Ratios:

Ratios	FY 2022-23	FY 2021-22	YoY change
Current Ratio	1.68	1.26	33.33%
Debt-Equity Ratio	0.52	1.17	-55.56%
Inventory Turnover Ratio	7.10	9.46	-24.95%
Trade Receivables Turnover Ratio	5.95	5.33	11.63%
Net Capital Turnover Ratio	8.61	16.50	-47.82%
Net Profit Ratio	1.53%	1.47%	4.08%

• Current Ratio:

The Current Ratio is a liquidity ratio that measures a CompanyRs.s ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities. During the financial year 2022-23, Groups current assets has been increased substantially as compared to previous year due to which its Current Ratio has been increased.

• Debt - Equity Ratio:

The ratio is used to evaluate a Companys financial leverage. It is a measure of the degree to which a Company is financing its operations through debt versus wholly-owned funds. It is calculated by dividing a Companys total liabilities by its shareholders equity. During the financial year 2022-23, Groups has raised Fresh Equity through SME IPO at the end of March 2023 due to which its Equity has been increased, resulting into decrease in Debt Equity Ratio as compared to previous year.

• Inventory Turnover Ratio:

I nventory Turnover is the number of times a Company uses and replaces its inventory during a period. It is calculated by dividing the cost of goods sold by average inventory. During the Financial year 2022-23, sales turnover of the group increased substantially as compared to previous year due to this inventory turnover ratio improved.

• Trade Receivables Turnover Ratio:

The above ratio is used to quantify a Companys effectiveness in collecting its receivables or money owed by customers. The ratio shows how well a Company uses and manages the credit it extends to customers. It is calculated by dividing turnover by average trade receivables.

• Net Capital Turnover Ratio:

The Net Working Capital Ratio is useful tool for evaluating how efficiently a company is utilizing its working capital to produce more revenue. It is calculated by diving revenue from operations by average working capital. During the financial year 2022-23, Sales turnover of the Group increased substantially as compared to previous year as a consequence of this decrease in net capital turnover ratio.

• Net Profit Ratio:

The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing the profit for the year by turnover. During the Financial Year 2022-23, with an investment in the new manufacturig plant, EBIDTA margins of the Company improved resulting into better net profit ratio as compared to previous year.

OUTLOOK

The Company will mainly focus on expand over specialty chemicals pharmaceuticals along with continuing major segments of the Company. The management is committed to make persistent efforts to utilize IPO funds towards objective of the IPO. The company is self-sufficient in terms of business operations and cash flow. The core competency lies in quality that gives an edge over the competitors of the company.

*Sudarshan Pharma Industries Limited (The Company) is in the process of acquiring shares in "Ratna Lifesciences Private Limited "and making it a wholly-owned Subsidiary Company since the latter is in the same line of business and this will enable the Company to grow and reach to a new height.

*Company Management is also at advance stage for about Two Project Takeover or Tie ups and is at negotiation stage with other companies and management for expansion and enhancement of Business verticals.

RISK AND CONCERNS

Looking at the scenario in India in case of pharmaceutical industry the competition is with the giant companies from abroad and, Risks associated with operating in a particular industry and include risks arising from its dynamics, in our industry it is very challenging as while exceling in our work and achieving milestones it is also an important aspect to focus on human life. There is no analogy of risk when it is human life, the same is an integral and vital part of our industry.

The Company manages monitors and reports on the quality of its products and industrial supplies to ascertain that strategic growth is not affected in any possible way. The organizational structure is designed in a way to ensure that, processes, protocols, standards, code of conduct and behaviors govern how the company conducts the business and manages associated risks.

FACTORS AFFECTING OUR OPERATIONS

• Chemical and Pharma Industry

The Pharma Industry is one of key industry to human life which also goes hands in hands with growth of Indian economy as pharma industry is as vital in economical as it is vital to protect human assets. These fundamentals are akin globally. In Indian economy pharma sector contributes approximately 1.80% of GDP as per public information for year 2022 and India is included intop 10 in global position in terms of pharma sectors. The statistics mentioned here are not statutory and based on data available on public platform.

• The Company may be exposed to dynamic health conditions

The recent past has witnessed a high volatility in general health conditions, which makes pharma industry very much demanding with each such major change and development which increases Research expense of the Company. We as a unit are prepared and ready to meet the challenges and believe it to be a treasure hunt.

• High Working Capital Intensive Industry vis-a-vis high Priority Sector for Research

In the pharma industry, research is an uninterrupted process and is cost intensive.

• Competition

The main focus of the Company is in API and vitamin supplements giving us an excellent balance in terms of growth and cashflow. API gives us access to both established long-term players with a brand and at the same time vitamin supplement, allows us to cater to the end user in Indian Market. In a way we have competition with ourselves, with carrying such a unique market share.

• Global Economic Scenario

Global economic scenario has changed in past couple of years wherein awareness towards health has given a boost and also simultaneously has pushed the industry to its extreme limits with robust developments at a gigantic pace. It has been a common belief that "Health is Wealth" and is being followed in letter and spirit.

• Human Capital

Company recognizes their employees to be a significant part of its accomplishments. The Company helps employees foster ambitions and sees them improve through their learning and skill development. The Companys employees are well motivated through the performance rewarding programme.

• Internal Controls

The company adheres to the internal control and procedures laid down in respective policies of the company.

The system supervises its internal business processes across departments to ensure operational efficiency, cost reduction, accountability, compliance with internal policies, applicable laws and regulation, optimum resources and assets utilization and accurate reporting of financial transactions. These transactions are well authorized, recorded and reported to the management. The company follows all Indian Accounting Standard (Ind AS) for maintaining the books of accounts and reporting of financial statements. The Audit Committee of the Board of Directors, comprising of Non-Executive Independent Directors review the quarterly Internal Audit Report provided by Internal Auditor of the Company.

Cautionary Statement

This report contains statements that may be .forward-looking including, but without limitation, statements relating to the implementation of strategic initiatives and other statements relating to Companys future business developments and economic performance. While these forward looking statements indicate our assessment and future expectations concerning the development of our business, a number of risks, uncertainties and other unknown factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, general market, macroeconomics, governmental and regulatory trends, movements in currency exchange and interest rates, competitive pressures, technological developments, changes in the financial conditions of third parties dealing with us, legislative developments and other key factors that could affect our business and financial performance. The Company undertakes no obligation to publicly revise any forward-looking statements to reflect future/likely events or circumstances. Important factors that could make a difference to the Companys operations include changes in the government regulations, tax laws, statues and other incidental factors as applicable to the company

Acknowledgement

Your Directors take this opportunity to express their deep sense of gratitude to the vendors, business associates, employees, investors and banks for their continued support and co-operation during the year under review.