Surya Pharmaceutical Ltd Management Discussions

Global Pharmaceutical Industry

The world pharmaceutical market has grown two times in value since 2000 primarily due to increased use of medicines around the world, global economic growth and faster regulatory approvals. The transformation of the global pharmaceutical market continues unabated, with focus steadily shifting from developed to developing countries and from patented drugs to generics. The overall pharmaceutical market is anticipated to reach US$ 1.1 Trillion by 2014. (Source: IMS Data).

In most of the European countries, a considerable share of health care expenditure is public expenditure and there have been significant regulatory changes over the past years on account of austerity measures and attempts to reduce health care expenditure. The EU markets are also focusing on genericization in order to bring down the health care costs. Owing to the pressure of reducing the cost of heath care, this market has also opened up and is poised to give new opportunities for the generic companies to cater the needs. In recent years, many small molecules have been converted into generics and loss of exclusivity of blockbuster drugs has increased the importance of the Generic Drugs in the industry.

The world population is expected to grow to around 8 Bn by 2050. In addition, there has been increase in the number of people having access to healthcare. Global spending on medicines is expected to reach USD 1.2 trillion by 2016 reflecting growth of 3-6% over the four year period compared to 6.2% annual growth over the past five years.

Major Markets

The top five pharmaceutical markets in the world remained in US, Japan, Germany, France and China with US representing 39% of the global prescription pharmaceuticals sales. It is also the largest generic market with a sizeable generic substitution (75% in terms of volume).

Indian Pharmaceutical Industry

The Indian pharmaceutical industry ranks 14th in the world by value and 3rd in volume. With a well-established domestic manufacturing base and cost effective skilled manpower, India is emerging as a global hub for pharma products and the industry continues to be on a growth trajectory. It is one of the fastest growing pharma markets in the world. Indian pharmaceutical market is dominated majorly by branded generics constituting nearly 70% to 80% of market. The market is estimated to be among the top 10 by 2015. (Souce: IMS).

Some of the major factors that would drive growth in the industry are growing population, increase in drug penetration levels, aspiration to seek better healthcare as income levels increase, growing incidence of chronic ailments, availability of newer forms of treatments (such as vaccines) rising insurance penetration, improving medical infrastructure and increasing government spend on healthcare.

According to industry estimates, the Indian pharmaceutical industry produces about 60,000 generic brands in 60 therapeutic categories and manufactures more than 400 different APIs. India is considered a high-value hub for clinical trials due to the presence of genetically diverse population and availability of skilled doctors.

Indian Pharmaceutical Industry is now broadening the scope of its service offerings by providing a wide range of services spanning the entire pharmaceutical value chain. The future outlook for the pharmaceutical sector seems to be extremely positive. A number of acquisitions by the Indian Pharmaceutical Companies outside, particularly in the US and Europe, are helping Indian players to make their presence felt at the global level.

FINANCIAL REVIEW

During the F.Y. 2012-13, the Company has posted decrease in the revenue by 96.28%. EBIDTA/PAT as on March 31, 2013 is at Rs. (174.62) Crores/Rs. (314.52) crores as against Rs.(192.75) Crores/Rs.(272.50) crores respectively as on March 31, 2012. Total operational costs decreased from Rs 123.21 crores in 2011-12 to Rs. 34.46 crores in 2012-13. The Shareholders funds have decreased by 121.95% from Rs.247.48 crore as on March 31, 2012 to Rs. (54.33) crore as on March 31, 2013.

INTERNAL CONTROL SYSTEMS

The Company has adequate internal control systems commensurate to its size, business scale and operational complexity. Effective internal control gives reasonable assurance, though not a guarantee, that all business objectives will be achieved. It extends much beyond the aim of ensuring that financial reports are reliable. It includes the efficient achievement of operational objectives and ensuring that laws, regulations, policies, and contractual obligations are complied with. The Company constantly engages in practicing best financial and operational control systems as per international practices and standards.

INDUSTRIAL RELATIONS AND HUMAN RESOURCES

The Company remains committed and focused on its most valuable resource-its people. The Company is constantly looking to retain and train best available talent. The Company has maintained a balanced and pleasant environment at all its corporate offices and manufacturing units.

RISK MANAGEMENT

Every business is susceptible to risks. The Company relentlessly endeavours not only to minimise risks but convert them into business opportunities that allow it to maximise returns for shareholders from diverse situations. The Company s risk conversion approach is built on a comprehensive and integrated framework, leveraging its strengths to create growth opportunities, institutionalising prudent norms, structured reporting and control. This approach ensures that risk management and growth creation discipline are centrally initiated but efficiently decentralised across the organisation. The Company believes in constant monitoring and decision-making to balance risks and rewards to translate into a perfect parity between revenue generating initiatives and risks taken.