Vimta Labs Ltd Management Discussions

Macro Economy Global Economy

More than a year later, repercussions of Russias intervention in Ukraine and emergence of highly contagious variants of COVID-19 continue to have a bearing on several economies. Additionally, the global economic recovery is being hindered by the tightening of financial conditions worldwide. As a result, several economies are anticipated to experience a slowdown in income growth, along with an increase in unemployment in 2023. Despite the central banks efforts to tackle inflation by raising interest rates, achieving price stability may take longer than expected. In the long term, the prospect for economic growth appears less encouraging than it has been for several decades. Global demand remained dampened driven by various economic factors, however, the gradual decline in commodity prices and Chinas reopening of its economy, normalized shipping conditions are expected to slightly boost global demand.

Outlook - Global

The global growth outlook remained uncertain due to sticky high inflation, weakened demand, and the ongoing war. The global economic growth is expected to slow from 3.4% in 2022 to 2.8% in 2023, with advanced economies experiencing the highest deceleration from 2.7% growth in 2022 to an expected 1.3% growth in 2023.

Indian Economy

In the fiscal year 2022, the Indian economy saw substantial growth due to private consumption and investment, though slower than the year before. However, in the fiscal year 2023, Indias growth will be influenced by several factors, including the worldwide economic slowdown, restricted monetary conditions, and high oil prices. Despite these challenges, the governments conducive policies, decreased non-performing loans in banks, and considerable corporate deleveraging will serve as a boost to the economys growth.

Private consumption is likely to grow due to improved labour market conditions, consumer confidence, and increased capital expenditure by the government. Services sector is expected to see a strong recovery whereas agricultural sector expected to sustain the growth momentum in FY2023. Inflation is expected to further cool due to base effects and slowing demand, although adverse weather and higher global oil prices present downside risks.

Outlook - India

Indias GDP growth rate was 6.4% during FY2023 due to a combination of factors such as expected global economic slowdown, strict monetary policies, and high oil prices. Despite these obstacles, Indias growth rate remains higher than that of comparable economies, primarily due to strong domestic consumption and lower dependence on global demand.

Industry Overview

(Opportunities and Threats)

Testing, Inspection & Certification Market Global

According to the forecast, the global testing, inspection, and certification (TIC) market is expected to experience growth from USD 223.9 billion in 2023 to USD 265.0 billion by 2028, with a projected compound annual growth rate (CAGR) of 3.4% during the forecast period.

Several key factors are anticipated to contribute to the growth of the TIC market, including stringent government regulations aimed at ensuring product safety and environmental protection. Additionally, the deployment of Internet of Things (IoT) technologies necessitates interoperability testing, while the increasing trade in counterfeit and defective pharmaceutical products calls for robust TIC measures. Furthermore, the growing emphasis on digitalization to enhance customer experience and the escalating significance of food safety and hygiene are expected to drive the TIC markets growth in the foreseeable future.

Testing, Inspection and Certification (TIC) Market Forecast to 2028

By adopting secure and effective testing and inspection practices, companies can uphold optimal quality standards, enhance productivity, and maximize efficiency. Leveraging TIC practices allows companies to tailor their supply chain activities to their specific requirements, streamlining their business processes.

The growing transportation and logistics sector offers promising growth prospects for the TIC industry, driven by increasing global trade and the adoption of intelligent logistics systems. These systems enable the use of TIC solutions to ensure timely product delivery, reducing operational expenses across the value chain. Reliable TIC practices are crucial in optimizing supply chain operations and maximizing profitability in a highly competitive market.

Moreover, regional governments persistent endeavours to enhance transportation facilities, such as increasing frequency and improving safety measures for public vehicles, are driving the adoption of well-organized TIC practices. These efforts contribute to the establishment of a robust TIC environment, promoting efficient and safe transportation for people.

The COVID-19 pandemic has had a notable impact on the TIC market, with disruptions in manufacturing and production activities in various regions due to lockdown measures implemented by national governments. Despite these challenges, the healthcare sector has witnessed increased TIC practices, driven by the growing demand for healthcare services and related products, including medical supplies. Similarly, the consumer goods industry has also embraced TIC practices during the pandemic, as there has been a heightened demand for safe and high-quality food products to meet consumers needs.

In 2022, the testing segment dominated the TIC market, representing the highest revenue share of over 70%. This can be attributed to the widespread use of testing practices across industries such as automotive, energy & utilities, oil & gas, petroleum, and manufacturing. Implementing rigorous testing of products enables companies to uphold stringent quality parameters and meet customer requirements. As a result, companies in various sectors are increasing their operational expenditure on testing equipment investments, thereby driving market growth. The emphasis on maintaining high-quality standards and customer satisfaction is acting as a catalyst for the adoption of testing practices in the TIC market.

(Source: MarketsandMarkets, Grand View Research, and EY) India

India is a dynamic market for testing and inspection in the Asia-Pacific region, driven by its status as one of the fastest emerging economies in the region with significant growth in the production sector and increasing export of goods. The Indian TIC market is projected to grow at a CAGR of 8.03% and reach USD 14.93 billion by 2027. Among the fastest-growing sectors in the region, TIC activities for the healthcare sector are prominent. The competitive advantage of Indian pharmaceutical companies is bolstered by low production costs and robust R&D efforts, leading to increased exports. Furthermore, the Indian governments Pharma Vision 2020 initiative aims to establish India as a global leader in drug manufacturing. The potential for product recalls is also expected to drive the demand for TIC activities in the pharmaceutical industry.

In the consumer electronics sector, the Indian government has permitted 100% foreign direct investment (FDI) in electronic hardware manufacturing through the automatic route, which is expected to attract increased investment in the sector. The National Electronics Policy is also anticipated to further stimulate investment in the electronics industry. Additionally, the "Made in India" policy promotes domestic manufacturing, encouraging companies to produce their products in India and comply with Indian TIC standards.

The food industry in India is expected to drive significant growth in testing and inspection practices, fuelled by increasing concerns about food safety and the need to reduce food recalls. To improve transparency and accountability in food safety inspection and sampling, the Food Safety and Standards Authority of India (FSSAI), the countrys food regulator, has established a nationwide online platform. The FSSAI has urged states to adopt this system to eliminate discrepancies and ensure food safety officers are held accountable. Additionally, the FSSAI has developed inspection checklists to facilitate efficient inspections of Food Business Operators (FBOs) by food safety officers. These checklists are used to assess compliance with regulatory requirements and determine the level of adherence to each requirement. This emphasis on standardized inspection processes by the FSSAI is expected to drive growth in testing and inspection activities in the food industry in India. Indias EV Testing, Inspection and Certification Market is expected to grow at a significant rate on the back of growing EV adoption, rising focus by the Government to impose stricter regulatory standards on the automotive industry, increasing sales of EVs, among others. Statutory Indian bodies such as Bureau of Energy Efficiency, Structural Energy Research Centre and others have been playing a crucial role in enabling the EV sector by focusing on building standards, safety provisions, tariff categories. These, along with the growing consumer awareness on product quality and safety will drive the nations EV-TIC market in the times to come.

Outsourcing has emerged as a lucrative option for companies that are unable to invest in setting up their own testing laboratories. As the Asia-Pacific region, including countries like India and China, transitions from developing to developed status through rapid industrial growth, several TIC firms have emerged to meet the increasing demand for testing services. This demand is expected to drive the growth of the TIC market in the region. However, a key concern for clients in this area is the potential infringement of proprietary technology while obtaining necessary permissions to establish testing units.

(Source: Morder Intelligence Report, 6wresearch Report and EY)

Contract Research Organisation Market Global

The estimated value of the global CRO services market in revenue for 2023 is $76.6 billion, with a projected growth to reach $127.3 billion by 2028, representing a compound annual growth rate (CAGR) of 10.7% from 2023 to 2028. This

growth is primarily attributed to factors such as the continuous expansion of pharmaceutical, biopharmaceutical, and medical device R&D pipelines, as well as technological advancements in the clinical trials process. Additionally, the increasing demand for novel clinical trial designs to support cell and gene therapies is expected to create growth opportunities for companies operating in this market.

In the past decade, the field of drug discovery and development has witnessed consistent growth, with an increasing number of clinical studies being conducted and novel drug molecules advancing through various phases of the drug development cycle. According to the pharma R&D Annual Review 2022, the number of drugs in the R&D pipeline grew from 17,737 in 2020 to 20,109 in 2022. Additionally, data from clinicaltrials.gov shows that the number of registered studies increased from 32,517 in 2019 to 36,770 in 2022, at a CAGR of 4.2%. This growth in the R&D pipeline of novel drugs has resulted in an increased outsourcing of the drug development process, as companies seek to leverage external capabilities and access scientific and process innovations to develop cost-effective and efficient drug molecules. This trend is expected to drive the growth of the CRO services market.

(Source: MarketsandMarkets and EY)

India

The CRO market in India is projected to reach USD 979.8 million by 2030, with a CAGR of 7.5% during the period from 2022 to 2030.

The Indian CRO industry is driven by several factors, including the favourable climatic testing conditions in the country and the adoption of international norms and intellectual property rights. Regulatory agencies such as the Director Controller General of India (DCGI), the Indian Council of Medical Research (ICMR), and the Directorate General of Foreign Trade (DGFT) are actively working towards creating conducive conditions for research in India, which is further bolstering the industry.

The Indian government has taken significant steps to streamline regulations related to clinical trials to promote drug development and innovation. The removal of restrictions on the number of clinical trials investigators can conduct has facilitated the growth of the Contract Research Organizations (CROs) market in India. Mandating trial sites to maintain emergency medical care and rescue arrangements has further improved trial safety and led to the development of experienced investigators and key opinion leaders who are driving the growth of CROs in India. These regulatory changes have made India an attractive destination for clinical trials, resulting in increased clinical research in the country. It is important to note that ethical conduct and participant safety remain a priority, with strict adherence to good clinical practices (GCP) and ethical guidelines. The government and regulatory authorities such as the Central Drugs Standard Control Organization (CDSCO) continue to monitor and regulate clinical trials to ensure compliance with established standards. Overall, these changes have promoted clinical research, stimulated drug development, and fostered innovation in India.

The COVID-19 pandemic has had a significant impact on the CRO market in India. The global efforts towards developing a vaccine for the coronavirus have also influenced the development of other vaccines and medicines. During the peak of the pandemic, a substantial portion, accounting for 30% of all clinical trials in the US, focused on vaccines and therapies for COVID-19.

The In-vitro Diagnostics (IVD) contract research organization market in India is projected to grow at a CAGR of 9.0%, reaching US$ 314.92 million by 2028, up from US$ 172.00 million in 2021. This growth is attributed to factors such as increased demand for IVD diagnostics due to rising prevalence of autoimmune disorders, infectious diseases, cancer, and other conditions. Additionally, heightened awareness among people, a surge in clinical trials, high research and development expenditure in the region for IVD, and low operational costs in India are expected to promote market growth. Furthermore, the COVID-19 pandemic has further accelerated the need for clinical trials for the development of IVD testing kits for COVID-19, contributing to the overall growth of the IVD contract research organization market in India.

Clinical Diagnostics Industry Global

The global clinical diagnostics market reached a size of US$76.2 billion in 2022 and is expected to grow at a CAGR of 8.56% to reach US$124.7 billion by 2028.

Clinical diagnostics involve detecting, identifying, and monitoring diseases through a patients signs, symptoms, health history, and physical examination. These diagnostics include developing, manufacturing, and selling automated test systems, informatics systems, test kits, and specialized quality controls. They are widely used in hospitals, diagnostic laboratories, and point-of-care testing worldwide to aid in disease management, patient stratification, and predicting therapeutic efficacy to improve patient outcomes.

The market growth is driven by rising chronic disease prevalence, increasing adoption of automated platforms for disease management, growing awareness about laboratory tests, and healthcare providers using clinical diagnostics to develop targeted therapies. Furthermore, the market is positively influenced by the escalating demand for personalized medicine among patients.

(Source: Globe Newswire and EY)

India

The diagnostics industry in India is volume-driven and highly fragmented, with a few large, organized players and numerous small and regional players dominating 80-85% of the market. Factors such as higher life expectancy, changes in lifestyle, and a health-conscious population are expected to contribute to industry growth.

The COVID-19 pandemic led to an increase in demand for testing services, resulting in higher volumes and realizations for the industry. While the Indian government has promised to increase healthcare spending, pricing pressure remains a challenge for industry players, with stiff competition from small regional players.

Pathology and radiology are the two categories of the diagnostics industry, with pathology accounting for 58% of revenue and radiology for 42%. The industry offers potential for growth, especially in rural areas where there is a low penetration of testing centres, and consolidation may occur with the introduction of government healthcare policies. (Source: Groww and EY)

Environment Testing Industry

Global

The global environmental testing market was valued at USD 11.07 billion in 2022 and is projected to grow at a CAGR of 7.8% from 2023 to 2030. The increasing concern over environmental degradation due to industrial activities and pollution in many economies is driving the growth of the industry. Governments are investing in high-tech testing tools and services to maintain hygienic and environmental standards and safeguard the environment, leading to the growth of the market.

The demand for wastewater management is also expected to increase due to rising temperatures, depletion of freshwater resources, and the need to reduce carbon footprints. In addition, the industry is being driven by the privatization of testing services and the need for third-party testing. Service providers are adopting various strategies to gain a higher market share and meet changing technical demands from end-use industries. Finally, the COVID-19 pandemic has further emphasized the need for sustainable development and increased attention to Environmental, Social, and Governance (ESG) indices.

India

The Indian environmental testing market is projected to reach $391.3 million by 2026 due to increasing pollution levels in the country and the need to adhere to government regulations. Customized testing services and demand from regulatory bodies for regular testing are driving market growth, along with the need for specific testing methods to provide efficient results.

The National Water Mission, launched in 2009, highlights the need for conservation of water and equitable distribution across India, which has led to a greater need for environmental testing services. However, the high initial investments required for deploying environmental testing equipment, especially for high sensitivity sensors used in analytical instruments, pose a challenge for the market.

(Source: Industry Arc and EY)

Food Testing Industry

Global

The Food Safety Testing Market has surpassed a value of USD 19.5 billion in 2022 and is expected to grow at a 7% CAGR from 2023 to 2032, driven by the rising demand for food consumption globally. The market growth is fuelled by the increasing population suffering from foodborne illnesses due to contamination from various sources.

Rapid urbanization, surging consumer income, and changing dietary habits are expected to support industry growth. Rising concerns about product quality and recalls have led businesses to adopt food safety testing methods.

Meat, poultry, and seafood testing dominate the market share. The increasing need for proper food handling and preparation procedures to reduce the possibility of contamination will promote growth in the pathogens segment which is expected to reach USD 1 billion by 2032.

The rapid technology segment is expected to observe a 7% CAGR through 2032. Rapid technologies produce results in less than 48 hours, lowering the likelihood of contamination in products scheduled for testing and allows corrective actions to be performed in advance.

The market share from the processed food segment is expected to exceed USD 9.5 billion by 2032. Food safety is a critical concern for producers since contaminants can appear at any stage of production or supply.

The COVID-19 pandemic has positively amplified market revenue as technical solutions were adopted to safeguard food safety. The introduction of alternative rapid technologies and solutions for food testing is expected to complement industry development in the future.

(Source: GMI and EY)

India

The Indian food safety testing market is rapidly growing due to the high prevalence of foodborne illnesses in the country, particularly among young children. The market is expected to reach USD 923.4 million in 2027.

The Food Safety and Standards Authority of India (FSSAI) is a government-regulated organization that focuses on enhancing food safety testing procedures in the country. To this end, it has developed the "Food Safety on Wheels" initiative to provide mobile units for food testing. This initiative has been expanding and now has 60 mobile vans and 95 modified mobile vans operating in different states and union territories of the country. Additionally, according to a study conducted by the Ministry of Food Processing Industries, 585 of the total number of food products testing laboratories in the country have been accredited to international standards, such as ISO/IEC 17025/ NABL. Overall, the increasing demand for food safety testing services in India presents a significant growth opportunity for both government-regulated organizations and private players in the market.

(Source: Mordor Intelligence Report and EY)

Electrical and Electronics Testing Global

The worldwide market for testing, inspection, and certification (TIC) services in the electrical and electronics sector has experienced consistent growth in recent years. The key drivers behind this expansion include rising demand for household appliance testing, growing emphasis on electrical equipment validation, and the increasing trend of globalization and brand protection.

The market for Electromagnetic Compatibility (EMC) Testing is projected to grow significantly and reach $3.87 billion by 2028. EMC testing ensures that electronic and electrical devices do not emit excessive electromagnetic interference and continue to function as required in the presence of several electromagnetic phenomena. EMC is crucial for the installation of electrical equipment in various industries. As the number of electrical and electronic devices increases, governments are investing heavily in EMC testing. EMC testing services are in high demand by manufacturers to ensure compliance with regulatory standards, improve product marketability, and reduce manufacturing costs in pre-production phase. Consumer appliances and electronics are driving the growth of EMC testing applications due to the proliferation of wireless technologies and the interconnection of various systems and components in electronic devices.

India

India EMC testing market is expected to grow at a CAGR of 7.7% and reach $231.5 Million by 2028.

The manufacturing industry in India has emerged as a rapidly growing sector. The Indian government has introduced the "Make in India" program to bolster the manufacturing sector and establish it as a prominent global manufacturing hub. The objective of this initiative is to elevate the contribution of the manufacturing sector to 25% of the countrys GDP by the year 2022.

The electronics industry in the region is experiencing robust growth, fuelled by the increasing demand for advanced technological solutions. The widespread adoption of smartphones, smartwatches, and other electronic devices is a key driving force behind the markets expansion in the country. The consumer appliances and electronics segment of the electromagnetic compatibility (EMC) testing market is anticipated to reach a value of US$ 55.8 million by 2028, with a projected compound annual growth rate (CAGR) of 6.4% during the forecast period. Similarly, the automotive segment of the EMC testing market is estimated to be valued at US$ 49.2 million by 2028, with an expected CAGR of 9.3% during the forecast period.

(Source: Asia-Pacific EMC Testing Market Report and EY)

3.1 COMPANY OUTLOOK

Your Company is positive about its growth prospects in the biopharmaceutical, food, environmental, and electronics & electrical contract testing and research markets all of which have a strong positive outlook despite the current global economic uncertainties, large competition, and stricter regulatory compliance requirements. The Company has a strong customer base, and promising pipelines which give it good visibility of growth over the medium term. Over the long term, the Company expects it would strategically look at acquisition opportunities or alliances or partnerships to enhance its market reach, capabilities and service portfolio, to gain further market share in various countries. Penetration into overseas markets would be an important lever of growth going forward. Domestic market continues to hold immense potential led by economic growth in the country. However, inflationary pressures in terms cost of manpower, technology and material, and pricing pressures due to proliferation of laboratories in the country will be the key risks to watch out for. VIMTA continues to maintain its dominance in the domestic food testing and contract research services to biopharmaceuticals industry. Its expansion into electronic and electrical products testing services should contribute to the Companys growth. The Companys leading position in the domestic market should help it sustain its growth.

3.2 OUR STRENGTHS & STRATEGIES

Your company believes it is well-positioned to serve the global biopharmaceutical, agrochemical, specialty chemical and medical device industries through its integrated product development services. VIMTA provides services to its customers through processes and procedures that are oriented to deliver strong compliance to regulatory requirements, thereby maintaining the integrity of data and the reports, and minimizing risks to the customers. VIMTA has a track record of strong science and quality over a 40-year history, earning it a reputation as a leading, sophisticated contract research and testing organization. Over the years it has developed wide range of capabilities and offers high-value, advanced testing services, including GMP lab services, bioanalytical, bioassays, ultra trace analyses and central laboratory infrastructure to support product research and development. VIMTA believes it is the leader in the domestic market for GMP analytical services and GLP nonclinical services. The GMP, GLP and GCP compliant facilities have been successfully audited more than 100 times during the year by customers, regulatory agencies, accrediting and certifying bodies, and Companys track record of quality has earned it a strong reputation in the market.

Similarly, in food testing business, VIMTA is recognized as the leader not only in its testing expertise, technologies, and quality, but also in its scale. VIMTA has the largest pan India network of laboratories positioning it to take more market share within the industry and continue to grow. It is counted as a center of excellence for the country by the government organizations as well.

In both food and above-mentioned product development services for biopharmaceutical companies, the broad spectrum of services, cutting edge instrumentation and facilities with large footprint allows VIMTA to offer a comprehensive set of scientific laboratory services. Further, the scale of services enables us to continuously develop and refine our expertise and enhance our ability to bend the cost and time curve of services to our customers.

In Electronics and Electrical testing, VIMTA has invested over Rs.300 million in capital expenditure to set up a state-of-the-art EMI/EMC testing facility which has capabilities to test electronics used for even military/ defense components. VIMTA believes that this capability is a differentiated offering to the industries in the domestic market. The safety and environment tests capabilities of Emtac Laboratories Pvt. Ltd., the WOS of VIMTA, complement well the EMI/EMC services. In future years the breadth of the menu offered by Emtac will be strengthened to widen the customer base, which will benefit VIMTA as well in expanding its reach in the market.

The environmental services comprise of again a diverse range of offerings. The experience of the company and its team in environmental services in second to none in the domestic market. Geographic expansion of VIMTAs Environment offices into more States has been undertaken to reach more customers. Company has long-standing relationships with its customers as demonstrated by having provided services for decade or more to several of its top customers. These relationships tend to have larger and longer-term contracts, which provide stability and visibility to Companys revenues in environmental services.

VIMTAs clinical diagnostics laboratory services are spread across 9 cities including central reference lab in Hyderabad, regional reference labs and satellite labs. Company has a strong B2B reputation in the local markets. Despite the tough market conditions in diagnostics industry, company has been able to retain its customers thanks to its reputation as a high quality service provider. Company will focus on

B2B business to grow its reach in its local markets and in the future should be able to grow through professional partnerships with hospitals and other healthcare centers.

Across all its business units, the company believes that the technical and scientific expertise of its dedicated employees provides it with a competitive advantage. With a large pool of scientists holding advanced, masters or equivalent degrees, including PhDs, VIMTA has an edge due to the varied-scientific talent pool. The cross pollination of scientific domain expertise is leveraged often to create innovative as well as comprehensive solutions for customers across industries.

VIMTA has strategically developed and oriented its contract research and testing laboratory services towards the lucratively growing industries and their outsourcing needs, to position itself to win high value-add business. The service model is focused on providing to customers both standalone services as well as a mix of full-service contracts. VIMTA leverages its experience in managing laboratory operations for 40 years, to create efficient processes delivering quality outputs that helps in maintaining long term stable customer relationships. Furthermore, company is focused on continuous operational improvements and prudent cost management. Company believes that its strong financial profile demonstrates the quality and robustness of the business model and positions it for continued growth.

3.3 KEY FINANCIAL RATIOS

In accordance with SEBI (Listing Obligations and Disclosure Requirements), Regulations as amended in 2018, following are the details of significant changes (changes of 25% or more as compared to the immediately previous financial year) in key sector specific financial ratio.

Key financial ratios:

Ratio	Financial Year 2022-23	Financial Year 2021-22
Debtors Turnover Ratio (in days)	90.03	98.66
Inventory Turnover Ratio (in days)	22.94	20.99
Interest Coverage Ratio	50.38	46.20
Current Ratio	2.86	2.60
Debt Equity Ratio	0.05	0.08
Operating Profit Margin*	20.18%	20.47%
Net Profit Margin**	15.14%	14.85%
Price Earning Ratio	13.94	16.85
Return on Capital Employed	21.95%	24.72%

Brief reasons for significant change in the ratios when compared to previous year are as under:

Debt Equity Ratio: Debt-equity ratio improved due to debt repayments and higher cash accruals.

Price Earning Ratio: Price Earning ratio declined with increase in Earnings Per Share.

Return on Capital Employed: ROCE declined due to increase in total equity.

*Operating Profit Margin: Operating EBTDA to Revenue from Operations.

**Net Profit Margin: Net Profit to Revenue from Operations.

3.4 MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS, INCLUDING NUMBER OF PEOPLE EMPLOYED

With the growth in business, the companys human resource strength grew by 16% and as on 31^st March 2023, Company had 1368 employees. Companys focus is on increasing productivity of manpower and engaging them well for achieving greater connect to business goals and objectives. Company has increased reliance on technology to drive these initiatives.

3.5 INFRASTRUCTURE

Vimta is one of Indias largest Contract Research & Testing Organisations, equipped with state of art Testing. Headquartered in Hyderabad, Vimta has a network of 20 laboratories, including 03 Environment branches, 09 Clinical Diagnostics branch/satellite lab, 08 Food branch labs in India. The total built up area of the labs is ~ 4,00,000 sq.ft.

3.6 INVESTMENTS

VIMTA has consistently been committed to adding and improving its capabilities and service offerings. The broad range of industries that it serves and likewise its wide spectrum of services, are leveraged to stay resilient and pursue long term strategic objectives for growth. Company believes that the contract research and testing industry is constantly evolving, giving rise to newer opportunities. VIMTA is adept at evaluating opportunities in a disciplined manner that is both capital efficient and growth oriented.

It firmly believes that it is on a strong growth path and has made the right investments over the years. In order to sustain the growth momentum in coming years, company requires more capacities and therefore has embarked on almost doubling infrastructure capacities in its Life Sciences campus, Hyderabad. This significant investment is a strong reflection of the companys confidence on the increasing demand for its services.

3.7 RISKS & CONCERNS

Risks are inherent to any business. They are managed by the Company through a risk management process of risk identification and risk mitigation, through risk reduction strategies & plans and continuous monitoring of the effectiveness of the risk mitigation measures to control them.

The Risk Management Committee duly constituted by the Board has formulated a Risk Management Policy for dealing with different kinds of risks attributable to the operations of the Company. Risk Management Policy of the Company outlines different kinds of risks and risk mitigating measures and this is reviewed periodically by the Audit Committee and the Board. The Company has adequate internal control systems and procedures to combat risks.

Vimta continues to strive to stay ahead on the competition curve through creation of new service opportunities, operational excellence and uncompromising commitment to quality, regulatory compliance, and customer service. However, there may be certain risk factors that could adversely impact business.

Quality related risks: Poor performance in regulatory audits and accreditation body audits could adversely impact our business. Maintaining quality and compliance is part of every activity in the organization. The management leads the quality culture, understanding very well that this is critical for business success and survival. However, unforeseen poor or inadequate performance by employees could lead to regulatory risks. There are adequate built in controls and checks to mitigate this risk. Nevertheless, these risks cannot be ruled out.

IT related risks: Our ability to serve customers effectively depends on the reliability of our data & information management and communication systems. We leverage computerized technologies and IT tools to perform many business critical activities hence we depend on the efficient and uninterrupted operation of our data & information management and communication systems, including systems we use in the laboratory, data management systems, systems used to deliver services to our customers, and failures in, breach of, or unauthorized access to or use of these systems or data contained therein may materially limit our operations and result in significant harm to our business. IT risk management is a part of our quality management system and thus the security and operation of our data management systems and communication systems, including data management systems and communication systems. Cyber-attacks could lead to disruption in operations. These are addressed through adequate back-up mechanisms and Disaster recovery process. A dedicated team is set up to constantly keep upgrading the IT Assets and implement the latest technologies to keep the environment safe and secure. Despite the extensive risk mitigation measures in place, the risk of disruption to our operations and business cannot be completely ruled out.

Service failure related risks: We are a scientific services organization and quality of service to the customers is critical for growth of our business. Quality of service is related to our ability to deliver reports and projects with scientifically reliable and accurate information; compliance to contractual requirements, regulations, standards, guidelines as applicable; and service customers with professional and ethical conduct. If we fail to perform our services per these expectations, we could lose confidence of our customers who may choose not to award further work to us, or make claims against us for breach of our contractual obligations. Any such action could have a material adverse effect on our reputation, business, results of operations, financial condition and/ or cash flows. Our mitigation strategy is directed towards continuously strengthening our capabilities, and learning and implementing best practices. Further, stringent review systems and suitable preventive actions are in place.

Financial risks: Vimta makes continuous investments in capacity expansion, market reach and new business streams. These investments are based on good business judgement through market study, backed by strong planning and risk mitigation measures. However, time factors and market dynamics could delay results and/ or create risks in obtaining returns on such investment. Other financial risks include bad debts from customers for various reasons; and liquidity risks as a result of any poor cash flows that could further lead to non-servicing of loans. Your company has dedicated groups for customer relations management and credit control. There are adequate checks to identify risky customer accounts and control business with them to minimize risks. Nevertheless, these risks cannot be completely ruled out.

Data risks: As a third-party provider of services, we often get into various service agreements, with customers including requirements on data confidentiality, data security and IP protection. Given the large scale of human resources involved in our organization, and the inherent vulnerability of IT solutions deployed, we may be at risk as a result of unintentional violations of customer contracts and agreements, which could further lead to significant legal risks for the business. This is mitigated through strong physical security and electronic security systems; trainings to employees, business continuity processes such as electronic data disaster recovery systems; confidentiality oaths from employees; well-propagated whistle blower policies etc. Nevertheless, these risks cannot be completely ruled out.

Growth and personnel related risks: Our business has been having sustained growth over the past few years and growth if not managed well places a strain on human, operational and financial resources. To manage our growth, we must continue to attract and retain talented staff across the business operations. Management pays strong attention to continuously building and improving operating and administrative systems to enhance productivity of personnel and processes and also to have a stronger administrative control on the businesses spread at various locations across the country. Given the dependency of business on quality of personnel there are inherent risks associated with personnels abilities and ethical conduct, which may impact adversely customer satisfaction. Thus, if we are unable to manage our growth effectively, we could lose business from our customers. Further, if we are unable to recruit, retain and motivate key personnel, our business could be adversely affected. Our success depends on the collective performance, contribution and expertise of our senior management team and other key personnel throughout our businesses, including qualified management, professional, operational, scientific, technical, and business development personnel. There is significant competition for qualified personnel in all the industries that we operate in, particularly personnel with significant experience and expertise. The loss of any key executive, or our inability to continue to recruit, retain and motivate key personnel in a timely fashion, may adversely impact our ability to compete effectively and grow our business and negatively affect our ability to meet our short and long-term business and financial goals. Company takes several steps to maintain a motivated and engaged team. Initiatives such as ESOPs to attract & retain talent, rewards and recognition programs, personnel competency enlargement programs etc., are among the many best practices followed by the company. Nevertheless, the risks related to growth and personnel cannot be completely ruled out.

Other risks: A few more such risks and concerns are, change in regulations and regulatory environment; downturn in economies that our business operates in; steep drop-in service prices from competition; increase in prices of input material; changes in laws such as tax laws etc. External risks also include foreign exchange risks; interest rate risks; risks from terrorism etc. Further there are also risks of critical equipment breakdowns, power breakouts, short supply of any input material or consumable, fire, and other natural calamities. These are handled through a robust business continuity plan where adequate backups are created and tested from time to time for their effectiveness, nevertheless these risks cannot be completely ruled out.

It is possible that the above list of risks does not cover all risks exhaustively. However, being an experienced organization, the mitigation measures are in-built into the organization, its strategy and processes, which have so far helped the organization go through, and grow through, various phases of business and the market situations. It will be managements continuous endeavour to develop strategies that would help the organization de-risk its business & grow with opportunities.