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ECONOMIC OVERVIEW

GLOBAL ECONOMY

The world economy grappled with significant headwinds during 2022, mostly on account of mounting inflationary pressure, the geopolitical strife in Europe and disruptions in the supply chain. The resurgence of COVID-19 in China further impeded growth in 2022, but the recent resumption of economic activity has set the pace for a more rapid recovery. Moreover, global central banks resorted to rate hikes, resulting in a softening of inflation. The global inflation rate is projected to decrease from 8.7% in 2022 to 7.0% in 2023, followed by a further drop to 4.9% in 2024.1

Emerging markets and developing economies, such as India, are demonstrating remarkable progress, with growth rates projected to experience a considerable surge this year.

GDP growth (%) of major economies of the world for 3 years in a row

Particulars

2022 2023 2024
Global economy 3.4 2.8 3.0
Advanced economies 2.7 1.3 1.4
Unites States 2.1 1.6 1.1
Euro Area 3.5 0.8 1.4
Japan 1.1 1.3 1.0
United Kingdom 4.0 (0.3) 1.0
Canada 3.4 1.5 1.5
Other advanced economies 2.6 1.8 2.2
Emerging Market and Developing Economies 4.0 3.9 4.2
Emerging and Developing Asia 4.4 5.3 5.1
China 3.0 5.2 4.5
India 6.8 5.9 6.3

(Source: IMF, April 2023 World Economic Outlook.)

Note: For India, data and forecasts are presented on a fiscal year basis, with FY 2022-23 (starting in April 2022) shown in the 2022 column. Indias growth projections are 5.4% percent in 2023 and 6.3% in 2024 based on the calendar year.

There are encouraging indications that suggest a rebound from the adverse effsects of the pandemic and disruptions in the supply chain. The developing economies and emerging markets (EMDEs) are poised to assume a crucial role in propelling the resurgence of the economy in the years ahead.

The speed and effisciency of the fiscal and monetary policies aimed at bolstering economic growth will significantly influence the economic forecast. While central banks worldwide tighten their monetary policy stance to curb inflation, it remains to be determined whether these measures will be successful in controlling persistent inflation and achieving durable growth. Fiscal policies will also be crucial, particularly in providing assistance to businesses and individuals impacted by the pandemic.

INDIAN ECONOMY

The Indian economy demonstrated resilience amid geopolitical tensions and high inflation-induced global economic headwind and, according to the final advance estimates of the National Statistical Office (NSO), is set to register a growth of 7.2% in FY23. The better-than-expected performance in FY23 can largely be attributed to the relatively strong performance of the economy in the fourth quarter.

The Reserve Bank of India (RBI) is maintaining a stable monetary policy stance given the sliding inflation trajectory, positive macro tailwinds and increasing consumer aspiration. Opting for a hawkish pause, it decided to keep the repo rate unchanged for the second consecutive time.

The Indian governments initiatives, such as the PM Gati Shakti (National Master Plan), the National Monetisation Plan (NMP) and the Production Linked Incentive (PLI) plan, helped in fostering economic growth. Additionally, stronger prospects for manufacturing, services, agriculture, and related industries, along with improved business and consumer confidence, are expected to support domestic consumption. These factors, coupled with accelerated credit expansion, are anticipated to contribute to the overall economic growth in the near term.

The sustained growth momentum of India has improved sentiments and created an ideal environment for attracting investments. India is predicted to be the fastest-growing economy in the G-20 in the coming years2. Moreover, Indias leadership of the G20 Summit in 2023 presents a significant opportunity to guide international coordination towards economic stability and prosperity.

With measures to rein in inflation, manage depreciation of the Indian currency, and mitigate the immediate impact of the fiscal deficit on the economy, business prospects are expected to improve considerably

2https://indbiz.gov.in/india-fastest-growing-economy-among-g-20-nations-pm/

INDUSTRY OVERVIEW

GLOBAL VETERINARY HEALTHCARE INDUSTRY

The global market for veterinary healthcare is expanding rapidly. It has experienced a rise in value from USD 180.32 billion in 2022 to USD 195.77 billion in 2023, representing a compound annual growth rate (CAGR) of 8.6%. Further, it is expected to show growth of CARG 7.5% to reach a value of USD 261.48 billion by 2027.3

The World Health Organisation (WHO) has defined zoonosis as infections that can be naturally transmitted from animals to humans. The outbreak of various zoonotic diseases has resulted in significant public health concerns. As a result, the importance of veterinary healthcare is becoming increasingly prominent. Moreover, the growth of the market is being propelled by positive actions taken by governments and animal welfare organisations. Numerous governments worldwide are implementing specific measures to enhance animal healthcare management by improving the diagnosis and treatment of animals. This focus on veterinary healthcare is projected to increase, thus driving the expansion of the global veterinary healthcare market.

Technological progress has contributed to enhancing the quality of life for both human beings and animals. Moreover, the utilisation of technology has resulted in better treatment outcomes for pets and their owners. Medical treatments once reserved for humans, such as magnetic resonance imaging (MRI), ultrasound scans, and laparoscopy, are now being used to care for animals. Additionally, the advent of digital communication has facilitated the replacement of traditional X-ray films with digital radiographs. The availability of digital dental X-rays and advanced oral surgery instruments has enabled veterinarians to improve the oral health of pets. Innovative devices are now capable of addressing pet healthcare concerns, not only within clinics but also beyond, for prevention of diseases and improved care.

The COVID-19 pandemic served as a significant impediment to the veterinary healthcare industry in 2020, as supply chains were disrupted owing to trade restrictions, and consumption declined due to lockdowns imposed globally. However, it is expected that the veterinary healthcare market will recover from the ‘black swan event, which is not related to ongoing or fundamental weaknesses in the market or the global economy.

Global veterinary service market (in USD billion)

Source: https://www.precedenceresearch.com/veterinary-services-market

The veterinary services market has witnessed a significant growth trajectory in recent years, with its market size expanding from USD 114.41 billion in 2022 to an estimated USD 241.76 billion by 2030. This growth is expected to be sustained at a compound annual growth rate (CAGR) of 9.8% from 2022 to 2030.4 The increasing demand for veterinary services is attributed to the numerous benefits they oRser in the realm of animal healthcare. Moreover, with the increasing prevalence of zoonotic diseases, veterinary clinics oRser a range of services to prevent and control infectious diseases in animals.

3https://www.reportlinker.com/p06281012/Veterinary-Healthcare-Global-Market-Report.html 4https://www.precedenceresearch.com/veterinary-services-market

INDIAN VETERINARY HEALTHCARE INDUSTRY

The Indian veterinary healthcare industry has played a crucial role in the growth of animal husbandry in the country. In FY 2022, the market size of this industry reached Rs 73.4 billion.

(Source: https://www.infah.org/animal-health/indian-ah-industry)

The sector is predicted to expand at an 8.9% compound annual growth rate (CAGR) to reach Rs 120.3 billion by 2028.5

According to the Indian Federation of Animal Health Companies (INFAH), various categories of animal health products are expected to contribute to the industrys growth. Nutritional products are anticipated to provide 39%, parasiticides 20%, antibacterials 17%, biologicals 13%, and miscellaneous categories 11%.6

The increase in the prevalence of zoonotic diseases, along with rapid advances in the veterinary pharmaceutical industry, contributes to the growth of the market. Moreover, due to the countrys reliance on the dairy sector, the government of India is increasing its investments on animal healthcare practises. Both governments and nongovernmental organisations (NGOs) are involved in animal health research and development (R&D).

The Indian Federation of Animal Health Companies (INFAH) is an organisation established under Section 25 of the Companies Act to extensively work towards raising awareness about disease control and effective treatments. Additionally, the widespread adoption of feed additives, which aid in improving overall animal health

5https://www.imarcgroup.com/india-animal-health-market 6https://www.infah.org/animal-health/indian-ah-industry and enhancing the quality of produce, such as milk, meat, and eggs, is impacting the market positively.

Moreover, the growth of the veterinary healthcare market in India is being driven by various technological advancements, including the integration of the internet of things (IoT) with animal health monitoring solutions. Moreover, the rising adoption of pets and the increasing utilisation of mobile sensors and wearables to monitor animal behaviour and health are other factors contributing to market growth.

INDIAN LIVESTOCK INDUSTRY

The livestock industry plays a significant role in alleviating poverty in India by providing a steady and reliable income stream. Apart from their economic advantages and ability to provide a consistent supply of food and income for households, livestock also contributes to rural employment opportunities. The quantity of livestock owned by a farmer impacts their social standing within the community and serves as a form of insurance during crop failures. Livestock-rearing carries lower risk and demonstrates resilience, as animals can feed on crop residues during droughts.7

The livestock industry is a crucial component of the Indian agricultural sector, with significant potential to contribute to the overall economy, generate employment, and facilitate global trade. According to the Department of Animal Husbandry and Dairying, over 85% of Indias poultry meat is produced by commercial farms, while the remainder comes from backyard poultry reared mainly in rural areas. Among commercial broiler producers, vertically integrated operations are dominant, accounting for approximately 60-65% of output. The poultry industry currently provides employment opportunities to roughly six million small and medium-sized farmers.

INDIAN POULTRY INDUSTRY

The Indian poultry sector has experienced significant growth driven by the increasing demand for protein-rich products and the growing popularity of poultry items. The Indian poultry industry was valued at approximately USD 28 billion in FY2022. Supported by the rising prominence of online services and expanding online food delivery channels, the market is expected to experience further growth in the next 5 to 10 years, with a compound annual growth rate (CAGR) of 8.1%.

(Source: Poultry punch, Magazine)

INDIAN PET CARE INDUSTRY

In recent years, there has been a significant increase in pet adoption in India. The India Pet Care Market is expected to achieve a compound annual growth rate (CAGR) of 19.2% and attain a value of Rs 210,000 million by 2032. The rise in pet ownership worldwide is attributed to several factors, such as rapid urbanisation, a shift towards nuclear families, double-income households, changes in lifestyle, and pet humanisation. India has contributed significantly to this trend, with a burgeoning pet population of 32 million that is growing at a rate exceeding 12% annually. This surge in pet ownership has bolstered the pet-care ecosystem, including retail chains, pet nutrition and services, and pet care services. The emergence of e-commerce has also acted as a medium for the distribution of pet products.

The shift in peoples attitudes towards pet humanisation, the trend of delayed parenthood observed in urban areas and among newly-married couples, the rise of nuclear families and double-income households, and changes in lifestyle have resulted in pets becoming an integral part of the family. This has led to a surge in demand for pet care products and services in India. With the market in the western world reaching a saturation point, international pet care brands are increasingly entering the Indian market, creating significant opportunities for growth and development.

The Indian pet care market has witnessed robust growth owing to the increasing number of pet owners. The dog segment dominates the market, accounting for more than half of the market share, while the rabbit segment is expected to grow at a CAGR of more than 26%. Branded pet grooming kits and accessories have been widely accepted, and consumers recognise the significance of diRserent food and sustenance products for the nutrition and growth of their animals. Dog food sales have also demonstrated a promising CAGR of over 21%. This has resulted in significant market expansion, which is projected to continue in the near future. Moreover, with the growing diversification of distribution channels, domestic pet care companies have intensified their competition with foreign players. This is expected to contribute to a substantial growth of the India pet care markets growth trajectory in the coming years.8

7https://www.tribuneindia.com/news/features/focus-on-livestock-sector-for-income-growth-498193 8https://www.marketdecipher.com/report/india-pet-care-market

RECENT TRENDS IN THE PET CARE INDUSTRY

Pet humanisation

Pets are increasingly being treated as family members, with owners willing to spend more on their pets health, nutrition, and overall well-being.

Premium pet foods and specialised diets

Premium pet food and specialty diets, such as grain-free, raw, and organic alternatives, are in high demand. Pet owners are becoming more aware of their pets nutritional requirements and preferences, with an emphasis on natural, high-quality products.

Pet health and wellness

Pet owners are more proactive about their pets health, leading to increased demand for preventive care, supplements, and alternative therapies. Veterinary telemedicine and pet insurance have also gained popularity, making it easier for owners to manage their pets health needs.

Technology integration

Pet tech products, including wearables, smart collars, and GPS trackers, have become more advanced and widely available. Mobile apps for pet care services, such as dog walking and pet sitting, have also become popular.

Pet-friendly spaces and travel

Pet-friendly establishments, such as hotels, restaurants, and workplaces, have become common. Pet travel has also evolved, with pet-friendly airlines and accommodations making it easier for pet owners to include their furry friends in their travel plans.

Online retail and subscription services

E-commerce has transformed the pet care industry, making it convenient for pet owners to shop for pet products and services online. Subscription services for food, toys, and other pet supplies have also grown in popularity.

MAJOR INDUSTRY DRIVERS

Increasing pet ownership

With a growing number of households owning pets, there is a higher demand for veterinary health services and products such as vaccines, diagnostics, and pharmaceuticals.

Rising livestock production

The demand for animal-based food products is on the rise, leading to an increase in livestock production. This creates a need for animal health services and products to maintain the health of these animals.

Advancements in technology

The new technologies such as genomics, precision medicine, and telemedicine are rapidly advancing the field of veterinary medicine. This is driving the development of new products and services and improving the accuracy and eRsciency of animal healthcare.

Increasing pet insurance coverage

As more pet owners purchase insurance for their pets, they are more likely to seek out veterinary care when needed, driving demand for veterinary health products and services.

Increasing awareness of zoonotic diseases

India has the highest incidents of zoonotic diseases among developing nations, resulting in widespread illness and death. The key drivers driving the Indian animal health market are the rising frequency of zoonotic illnesses and the significant development of the veterinary pharmaceutical sector. Increasing usage of feed additives, which aid in strengthening animal health and enhances the quality of milk, eggs, and meat, is an additional factor driving market expansion.

Increasing demand for animal protein

With growing population and increasing income levels, the demand for animal protein such as milk, eggs, and meat is on the rise. This has led to an increase in the number of livestock, which in turn has created a need for better animal health management.

GOVERNMENT INITIATIVES

A robust regulatory framework is required for the animal health business in India to thrive, ensuring that high-quality vaccinations, medicines, and diagnostics are provided to farmers in time. The ORsce of the Principal Scientific Adviser (PSA) is collaborating with the Central Drugs Standard Control Organisation (CDSCO), the Department of Animal Husbandry and Dairying (DAHD), the Indian Council of Agricultural Research (ICAR), the Indian Pharmacopoeia Commission (IPC), and the industry to enhance animal health regulatory ecosystem. The Empowered Committee for Animal Health (ECAH) has been established as a nodal advisory body to oversee all animal health programmes in collaboration with allied ministries and independent experts.

National Programme for Dairy Development (NPDD)

The National Programme for Dairy Development (NPDD) is being implemented with the objective of increasing milk and dairy product sales by increasing farmers access to organised markets, upgrading dairy processing facilities and marketing infrastructure, and strengthening producer-owned institutions.

National Animal Disease Control Programme (NADCP)

It is a flagship scheme launched by the Honble Prime Minister in September 2019 for control of Foot & Mouth Disease (FMD) and Brucellosis by vaccinating 100% cattle, buRsalo, sheep, goat and pig population for FMD and 100% bovine female calves aged 4-8 months for brucellosis with a total investment of Rs 13,343 crore for five years (2019-20 to 2023-24).9

The Department of Animal Husbandry and Dairying

The Department of Animal Husbandry and Dairying received an allocation of Rs 4,328 crore, an increase from Rs 3,105 crore in the revised projections for 2022-23. A significant part of the total allocation went to the livestock health and disease control programme, amounting to Rs 2,350 crore.

COMPANY OVERVIEW

Hester Biosciences Limited (henceforth referred to as ‘the Company or ‘Hester) is one of Indias leading animal healthcare companies and the countrys second-largest poultry vaccine manufacturer. Founded by Rajiv Gandhi in 1987, Hester is headquartered in Ahmedabad, Gujarat. The Company exports products to several countries in Asia, Africa, Europe and South America and has a strategic presence in over 35 countries, focusing on key market needs in India, Nepal and African continent. It has also partnered with various organisations over the years, including Bill & Melinda Gates Foundation, GALVmed, Golchha Organisation, to name a few.

Hester operates through two broad verticals— Vaccines, and Healthcare Products. It oRsers 50+ vaccines and 70+ healthcare products. It also provides seroprofiling kits and operates diagnostic labs for poultry flocks and mastitis control programmes for cattle.

The Company is dedicated to the research, development, manufacturing, and marketing of veterinary biologicals and pharmaceuticals. Hester is also the first commercial manufacturer of Goat pox vaccine in India and manufactures PPR vaccines from both Nigerian and Sungri strains.

It operates with a singular focus on improving animal health, to monitor and prevent diseases in animals. With its in-depth knowledge of the market, cutting-edge R&D capabilities and incisive thinking, it is poised to unlock the untapped potential of the growing poultry and animal vaccine market across the globe. In 2010, Hester Biosciences was honoured as ‘The Best Animal Vaccine Company by The New Economy in the UK.10

Hester is a major player in the poultry vaccine market and currently has a 30% share in the Indian market. It oRsers more than 45 poultry vaccines (live and inactivated) and started manufacturing and marketing vaccines for larger animals. At present, it produces five types of large animal vaccines (live and inactivated) — Goat pox vaccine, Brucella abortus (S19) Calf vaccine, PPR Vaccine, CBPP vaccine and Lumpy Skin Disease (‘LSD) vaccine.

Hester also produces healthcare products like feed supplements, pharmaceuticals, disinfectants and diagnostic kits like ELISA (Enzyme-Linked Immunosorbent Assay) & PCR (Polymerase Chain Reaction) diagnostic kits. The Company develops and sells NDV (Newcastle Disease Virus) and IBV (Infectious Bronchitis Virus) kits for poultry Sero-monitoring and PCR molecular diagnostic kits for a number of diseases. The Company has a capacity to deliver 6.25 billion doses in India and 1.24 billion doses in Nepal and 1.50 billion doses in Tanzania. Currently, Hester has two diagnostic labs operational in Kadi, Gujarat and Hyderabad, Telangana. The diagnostic services are provided free of cost and the Company urges its potential customers to directly contact their sales or technical services teams to avail the service.

The Company produces Cefshot Tazo injection, a highly effective third-generation cephalosporin. This product is particularly useful in post-surgical interventions. Additionally, Hester Biosciences manufactures Hestacef CV, which are broad-spectrum antibiotic tablets designed to treat a range of infections in dogs and cats.

These infections include those affecting the skin, respiratory system, urogenital tract, and gastrointestinal system. In addition to the aforementioned products, Hester Biosciences also manufactures Hestaflam Tablets, which are specifically formulated to address musculoskeletal disorders. These tablets aid in the recovery process before and after surgery and provide relief from pain and inflammation. Moreover, the Company produces Sateline Spot-On, a product suitable for both cats and dogs. Sateline Spot-On acts as an insect growth regulator, effectively controlling infestations of fleas, ticks, and lice. It also serves as a repellent, keeping flies and mosquitoes at bay.

BUSINESS STRENGTHS

1. Diversified portfolio of healthcare products:

Hester Biosciences has a diverse portfolio of animal vaccines, poultry vaccines, pharmaceuticals, diagnostic kits, and healthcare products for a range of animals, including poultry, livestock, and pets. Hester has 50+ vaccines and 70+ healthcare products. This allows the Company to serve a broad customer base and generate revenue from multiple product lines.

2. Dedication to research and development:

Hester Biosciences has a dedicated research and development team that works to develop new and innovative products to meet the evolving needs of the animal healthcare industry. The Company has achieved GMP certification for its plants in India, Nepal and Tanzania. In addition to this, Hester has earned over four decades of experience in developing poultry and animal healthcare products with the assistance of their dedicated scientists at their Department of Scientific & Industrial Research (DSIR)- recognised R&D laboratories.

3. Strong supply chain:

Hester Biosciences has a strong distribution network that spans many countries across the globe. The Company has a strong distribution network that spans across India and other countries. This allows the Company to reach a wide customer base eRsciently.

4. High-end products:

Hester Biosciences adheres to strict quality and safety standards to produce superior quality products. This has helped the Company to build a reputation for producing high-quality products that are eRsective in treating and preventing animal and poultry diseases. The company is accredited in Good Manufacturing Practices (GMP) and Good Laboratory Practices (GLP), as well as ISO 9001:2015, ISO 14001:2015, and ISO 45001:2018.

5. Strong manufacturing capabilities:

Hester Biosciences has state-of-the-art manufacturing facilities in Mehsana, Gujarat with a 6.25 billion dose manufacturing capacity that complies with international quality standards. It is Asias largest animal biological manufacturing unit.

6. A key player in Africa:

Africa is still an untapped market when it comes to the immunisation of animals against diseases. It is expected to be one of the largest markets for animal vaccines in the next decade, with Tanzania having the 3rd largest herd of domestic livestock in the world. Hester Biosciences Africa Limited has begun producing vaccinations against PPR, LSD and CBPP in Tanzania with a capacity of 1.5 billion doses. The Bill and Melinda Gates Foundation had partially funded this project as it emphasises animal healthcare. This initiative will enable Hester to become a prominent player in Africa and greatly contribute to the social and economic prosperity of Tanzania and the African continent. The Company has already started manufacturing and marketing of the PPR Vaccine - Nigerian Strain; the Newcastle Disease Vaccine for poultry, LSD and CBPP.

7. Improving global presence:

Hester is expanding its distribution network in Africa to distribute vaccines and health products from its plants in India, Nepal, and Tanzania, with a focus on the domestic market and East African countries. The Company is also developing a specialised animal vaccine manufacturing facility in Africa. Hester has also entered into a technological collaboration with Novapharma in Egypt, which is expected to unlock tremendous possibilities. In addition, Hester Nepal won the tender from World Animal Health Organisation (WOAH) to create a vaccine bank for the PPR vaccine and acquired a 50% stake in Thrishool Exim Limited (TEL), a distribution Company in Tanzania that supplies and distributes animal health and nutrition products sourced from recognised international producers.

Hester acquires technology from ICAR

Hester has entered into a formal agreement with the Indian Council of Agricultural Research - National Institute of High Security Animal Diseases (ICAR-NIHSAD) for obtaining domestically-developed technology, aimed at producing and marketing the inactivated vaccine for poultry against the Low Pathogenic Avian Influenza (H9N2 strain).

Hester has also signed an agreement with the Indian Council of Agricultural Research - National Research Centre on Equines, Hisar (ICAR-NRCE) for obtaining domestically-developed technology, aimed at producing and marketing the inactivated vaccine for cattle against the Lumpy Skin Disease.

BUSINESS STRATEGIES AND DEVELOPMENTS

1. Expansion of product portfolio:

Hester Biosciences has expanded its product portfolio to include vaccines, biologics, and diagnostics for various segments such as poultry, large animals, and aquaculture. The Company has also launched several new products over the years, such as the Mareks disease vaccine for poultry and the Classical swine fever vaccine. To diversify and reduce reliance on a single product, division, or region, Hester Biosciences has strategically increased the sale of health products, which may have lower gross margins but, will benefit the top and bottom lines in the long run. The Company is also exploring global manufacturing and distribution opportunities for animal health products and biologicals.

2. Exports:

The Company is planning to increase its exports to the African region owing to great market potential and the need for animal vaccines in the region. Hester Biosciences has been expanding its exports to various countries such as South Africa, Vietnam, and Bangladesh. The Company has obtained several international certifications, such as GMP and ISO, to ensure compliance with international quality standards.

3. Investment in manufacturing facilities:

Hester Biosciences has invested in the expansion and modernisation of its manufacturing facilities to increase its production capacity and improve eRsciency. Hester has four subsidiaries — Texas Lifesciences Private Limited (TLPL), Hester Biosciences Kenya Limited (HBKL), Hester

Biosciences Nepal Private Limited (HBNPL), and Hester Biosciences Africa Limited (HBAL). These subsidiaries will assist Hester in reducing the demand and supply imbalance in African and Asian countries for animal healthcare products and vaccines.

4. Analysing global trends:

Hester Biosciences has emerged as a leading player in the animal healthcare industry, diversifying its portfolio from poultry vaccines to a range of veterinary vaccines, pharmaceuticals, and healthcare divisions. The Company plans to expand its product mix by introducing new natural or herbal products and services. In keeping with the global trend of reducing antibiotic use, Hester has opted to concentrate on herbal therapies, with the bulk of the future products for both the Poultry and Animal divisions being natural or herbal in nature. The Company introduced a new line of herbal products for livestock and poultry to promote the general health of animals.

5. Alliance with government:

The Indian government plans to immunise 40 million female calves against Brucella. Hester is also launching an improved poultry vaccine and has signed agreements for low-cost, high-quality swine and sheep vaccines. The Company has also secured a government contract to supply PPR vaccines over the next year, resulting in significant revenue growth. These initiatives are part of the governments Atmanirbhar Bharat mission to make India self-suRscient in vaccine production and reduce losses in the livestock industry.

6. Exploring opportunities in pet care:

Hester entered the pet care industry in 2022, leveraging its four decades of animal healthcare experience, extensive knowledge of animal biology, and R&D skills. Their pet care portfolio includes dermatological, grooming, anti-infective, and speciality products, with a focus on making pet-specific items. Hester plans to expand its portfolio to include pet biologicals and diagnostics that meet the demands of veterinarians and pet owners. This expansion is in line with Hesters goal of improving human health through healthy animals.

FINANCIAL OVERVIEW

The Companys sales increased by 16% to Rs2,540.00 million in FY 2022-23, as compared to Rs2,193.51 million in FY 2021-22.

The Poultry healthcare segment produced revenues of Rs1,391.70 million in FY 2022-23, down by 17% from Rs1,673.82 million in the prior fiscal year. The section provided 55% of the Companys total revenues in FY 2022-23 as compared to 76% in FY 2021-22.The poultry industry continues to be under pressure due to high feed costs and low product realisations, leading to significantly lower new bird placements and poor collection cycles. Nonetheless, considering that we have been able to recover in last quarter compared to the yearly degrowth, we hope to see a positive trends in coming quarters.

Animal segment sales increased by 106% to Rs992.81 million in FY 2022-23, compared to Rs481.20 million in the prior fiscal year. The division produced 39% of the Companys total revenues in FY 2021-22 as compared to 22% in FY 2021-22. The sales of the Animal healthcare division got a big boost due to the demand for Goat Pox Vaccine consequent to the outbreak of Lumpy Skin Disease (LSD) in cattle and also supplemented with a good growth in the sales of health products.

Petcare segment sales produced revenue of Rs17.67 million in FY 2022-23. The Petcare division, launched during the year is gaining traction. Until date, since the inception of this segment, 10 products have been launched in 15 sales territories. The market response has been very encouraging, and this division is set to grow in geometric progression.

Revenue from the others which are not from the above stated three major segments of Rs88.69 million in the year and License & services fees Income increased to Rs49.13 million in FY 2022-23 from Rs38.49 million in the prior fiscal year.

Overall gross profit margin reduced by 2% to 68% in FY 2022-23 as compared to 70% in FY 2021-22, which is mainly due to the change in product mix between vaccines and health products, health products sales having gone up.

The Companys operating EBIDTA decreased by 12%, from Rs567.20 million in FY 2022-23 to Rs499.73 million in FY 2021-22. The reduction in EBITDA margin was due to the reduction in Gross Profit margin, accompanied by higher market development costs in the animal health division and the new pet division.

The Companys Net Profit decreased by 5%, from 18% of sales in FY 2021-22 to 13% of sales in FY 2022-23. Reduction in net profit due to an increase in selling and distribution expenses along with an increase in employee costs.

For FY 2022-23, the Company has recommended a dividend of Rs8 per share i.e. 80%. This is in accordance with the Companys dividend policy of distributing at least 18% of net income as dividends.

SIGNIFICANT FINANCIAL RATIOS

Sr. Ratio Current Period (2022-23) Previous Period (2021-22) % Variance

Reason for variance

1 Current ratio 1.58 2.22 -29% Increase in current liabilities due to increase in short term borrowings and trade payable
2 Debt-equity ratio 0.56 0.45 24%
3 Debt service coverage ratio 2.47 2.77 -11%
4 Trade payables turnover ratio 7.96 10.39 -23%
5 Return on Net Worth (%) 10.82% 13.91% -22%
6 Net Profit Margin (%) 12.73% 18.02% -29% Reduction in net profit due to increase in selling and distribution expenses along with increase in employee cost

BUSINESS OUTLOOK

BUSINESS OUTLOOK

In the vaccines sector, Hester has made significant progress in the PPR disease national immunisation programme. Of the total order value of Rs 406.80 million under the tender agreement, the Company has supplied Rs 21.05 million in FY2022-23 and the balance is expected to be executed in FY 2023-24 in a phased manner. Additionally, the Company will actively promote the annual immunisation against Lumpy Skin Disease (LSD) and carry out preventive vaccine programmes based on the advisory issued by the Ministry of Fisheries, Animal Husbandry & Dairying.

Complementing the vaccination market, the health products market for poultry as well as ruminants, presents a significant growth opportunity. Hester plans to introduce diRserentiated and value-added products to meet the emerging market needs and focus on increasing the field force productivity in order to capitalise on the larger health products market compared to vaccines, both domestically and globally. The Companys Petcare division will focus on expanding sales territories and launching new products to further drive growth.

In terms of production and capacity expansion, Hester Biosciences is on track to complete the commissioning of its Fill-finish facility (Drug Product) in FY 2023-24. This expansion, coupled with the earlier expansion of Bulk Antigen (Drug Substance) production capacity, will double the Companys vaccine production capacity, ensuring its ability to meet growing demand.

The Company, in consortium with Gujarat

Biotechnology Research Centre (GBRC), Government of Gujarat (GoG), has entered into an agreement with Bharat Biotech under the Mission Covid Suraksha Scheme to manufacture the Drug Substance for Covaxin. The BSL-3 facility has been constructed and regulatory approval of the facility has been received.

With the regulatory approvals for manufacturing PPR, CBPP, LSD vaccines for ruminants and ND and IBD vaccines for poultry, Hester Africas plant is now accredited with GMP certification by the Tanzanian drug authorities and is now prepared to commercialise in the domestic as well as international markets.

KEY RISKS AND MITIGATION STRATEGIES

Economic risks: The Companys products play a crucial role in facilitating the production of the most affordable kinds of animal protein, including milk, eggs, and meat. As these products are sensitive to changes in economic conditions, any economic slowdown is expected to have a direct effect on the demand for these commodities, potentially resulting in a decrease in sales of the Company. This could have an adverse impact on the Companys overall performance.

Mitigation strategy: As part of its risk mitigation strategy, the Company regularly monitors the business and economic environment. This practise allows the company to keep on top of developing trends, risks, and opportunities and modify its operations accordingly. Additionally, the Company is committed to the adoption of new technologies that can help to optimise operations, reduce costs, and improve efficiency. The organisation also aims to increase its market penetration by exploring new markets, developing new products and services, and enhancing its brand image. The Company has also been strategically working on reducing the relevance of any one division or any one product line, whether it is vaccines or health products. Through these efforts, the Company seeks to counteract the impact of any potential incidents and maintain its position as a market leader.

Regulatory risks: The Company operates in a global environment that is highly regulated and fiercely competitive. This regulatory landscape is subject to constant change, and any unfavourable developments in major areas could potentially have a negative impact on the Companys operations. It is essential for the organisation to remain vigilant and ensure that it complies with all relevant regulations and standards. Failure to comply or any infringement may result in the revocation or suspension of licenses, imposition of fines, and even criminal penalties. As such, the Company places high priority on maintaining compliance with applicable regulations and standards to safeguard its operations and reputation.

Mitigation strategy: The Company places great emphasis on maintaining compliance with all applicable laws and regulations and regularly seeks legal consultations to ensure that it is up-to-date with any changes or new developments. Additionally, the organisation maintains proper documentation to facilitate efficient and effective management of any potential risk. By adopting these measures, the Company aims to minimise regulatory risks and sustain its growth trajectory.

Peer risks: The manufacturing processes as well as geographical expansion requires complex registration processes. The use of superior technology by new market entrants may simplify the process and pose a threat to the Companys operations. Similarly, the

Companys rivals may adopt eRsective marketing strategies to capture a larger market share. It could pose a formidable risk for the business.

Mitigation strategy: Hester has demonstrated unmatched competency and technical expertise in the sector. It allows the Company to retain its position as a leading player in Asia. Besides, the Company has built a strong reputation among its clientele, has extensive reach and has a diversified product portfolio to stay ahead of the curve.

Product development risks: Any alterations made to the current product development process could potentially disrupt the Companys operations, as it has likely established procedures, protocols, and resources to support its current approach. Additionally, new developments could require different investments, technologies, and talent, which may not be readily available or easily integrated into the Companys existing framework. As a result, the Company may face challenges adapting to changes and maintaining its competitive edge in the industry.

Mitigation strategy: The Company adheres to a well-structured procedure for creating new products. Moreover, it places significant emphasis on creative thinking, allocates resources towards enhancing technology and infrastructure, cultivates a proficient and varied workforce, and consistently evaluates and enhances the process of creating new products.

Foreign exchange risks: The Company has operations in varied geographies and is, therefore, exposed to risks related to currency fluctuations. Any unfavourable fluctuation in the exchange rate can negatively impact the Companys finances.

Mitigation strategy: The Company uses hedging instruments, diversifying currency exposure, monitoring currency risk, and maintaining adequate cash reserves. These strategies help the Company to reduce its exposure to currency risk and improve its financial stability in a global market.

In FY2022-23, the Company derived 14 % of revenue from exports, and it also imported a portion of its raw materials. Hester maintains a continuous evaluation of the risk associated with exchange rates that arises from transactions involving foreign currencies. To eRsectively manage these risks, the Company employs a stringent hedging strategy.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Companys CSR initiatives primarily focus on eradicating hunger, poverty, and malnutrition and actively promote healthcare, including preventive healthcare and sanitation, as well as educational programmes. Moreover, The Company is dedicated to employment and vocational skill development, supporting differently-abled individuals, and enhancing livelihoods, and it believes in promoting gender equality and empowering women through the establishment of homes, hostels, old age homes, orphanage houses, and day care centers, it also extends their support to senior citizens by providing necessary facilities. Environmental sustainability is a key priority for the Company. The Company actively contributes to ecological balance, flora and fauna protection, animal welfare, agroforestry, and natural resource conservation. Rural development and slum development projects are also undertaken to uplift communities and make a positive impact.

Companys robust CSR Policy allows the company to embrace sustainability through tangible actions. From plantation drives to inoculation programmes, the Company firmly believes in contributing to society and the environment.

In accordance with the Companies Act, 2013 and the CSR rules notified by the Ministry of Corporate Affairs, Companys CSR Committee creates and recommends a CSR Policy to the Board. The committee oversees the implementation of CSR operations and proposes the amount of money to be spent on these initiatives. Through their CSR outreach drives, Company understands the challenges faced by emerging economies and aims to bring about positive change through various initiatives, especially in the animal husbandry and poultry farming sectors.

The Company has spent and allocated Rs 1 million to the Nehru Foundation for Development Centre for Environment Education Society (CEE) in Ahmedabad, Gujarat, to support environmental sustainability and a tree plantation drive in the city under the initiative named "Hariyalu Amdavad". Furthermore, to address issues related to hunger and malnutrition, spending of Rs 0.50 million has been spent through the agency Ramroti Annakshetra Asharam Kotharia in Bhavnagar, Gujarat.

The Companys emphasis on healthcare is evident through spending of Rs 0.50 million through the Gujarat Cancer Society and Rs 0.50 million through the Madad Trust at Amreli, Gujarat. The Company actively engages in providing education and vocational skill training to underprivileged children. The Company had spent Rs 6.20 million for education and vocational training initiatives in Ahmedabad and Rs 1.50 million to educate impoverished children through their programme in Dang.

Companys commitment to creating educated, healthy, sustainable, and culturally vibrant communities is truly commendable. The Companys CSR initiatives exemplify their dedication to making a positive difference in society.

HUMAN RESOURCES POLICY

The human capital of the Company plays a crucial role in its success. The Human Resources (HR) team has developed a comprehensive plan to recruit, train, retain and recognise employees. The Company empowers its employees and provides them with a professional work environment that supports collaboration and high-performance. It encourages womens leadership and has appointed women as executive directors and heads of all three plants in India, Nepal, and Tanzania.

The human vaccines division has recruited young women and men with the aim of infusing young talent into the organisation. The Company employs eRsective selection tools during the recruitment process to determine whether an applicant possesses the appropriate skill set for the job. Hester creates opportunities for employees to enrol in learning programmes that help bridge skill gaps through targeted interventions and assist employees in reaching their full potential. The Company believes in meritocracy and recognises individuals for their achievements through various reward programmes systems.

Performance is evaluated periodically against predefined standards using an industry-leading performance management process. Hester is in the process of building an organised talent development procedure, which is part of the Talent Management Philosophy, focusing on employee performance, behaviour, diRserentiation, accountability, transparency, and career growth and development.

A structured and digitalised performance management system has been created, focusing on performance-based remuneration tied to both Company and individual performance, with equal weightage given to both. Structured Compliance Management, Learning & Development, and structured cadre development for succession planning are additional areas of concentration for the Company. The Company remains committed towards building a high-performance culture that prioritises employee engagement, productivity and talent development.

690+

Total employees (As of 31 March 2023)

INTERNAL CONTROLS

Hester has implemented a robust system of internal control to preserve all of its assets and maintain operational excellence. In addition, the process scrupulously documents every transaction detail and assures regulatory compliance. The Company also employs a team of internal auditors to monitor the effectiveness of internal controls in order to provide the Audit Committee and the Board of Directors with independent and reasonable assurance regarding the organisations risk management, internal control, and governance processes. The framework is proportional to the businesss type, size, scope, and complexity of activities. The organisations systems of internal financial controls ensure that all transactions are properly authorised, recorded, and reported. Regular internal audits and inspections guarantee that responsibilities are carried out successfully. It is the responsibility of the audit committee to implement and maintain effective internal financial controls to ensure the orderly and efficient conduct of its Company.

Periodically, the Audit Committee reviews significant concerns and material weaknesses reported by the Internal and Statutory Auditors. Timely and adequate eRsorts are made to ensure that the risk is effectively minimised with the necessary corrective procedures.

CAUTIONARY STATEMENT

The following statement is in the Management Discussion and Analysis of this report and pertains to the Companys objectives, projections, estimates, expectations, or predictions, which may be considered "forward-looking statements" under applicable security laws or regulations. These statements are based on specific assumptions and expectations of future events. However, actual results may diRser from those expressed or implied. Several important factors, including global and domestic estimates, changes in government regulations, tax laws and other statutes, and force majeure, may aRsect actual results and may diRser from the directors anticipated future performance and outlook.