vineet laboratories ltd Management discussions

Indian pharmaceutical industry is known for its generic medicines and low-cost vaccines globally. Transformed over the years as a vibrant sector, presently Indian Pharma ranks third in pharmaceutical production by volume. In the last nine years, Indian Pharma sector has grown steadily by CAGR of 9.43%. Indias share of pharmaceuticals and drugs in the global market is 5.92%. Formulations and Biologics constituted the major portion of Indias exports with a share of 73.31% followed by drug intermediates and bulk drugs. During April-February 2023, the exports of drugs and pharmaceuticals stood at US$ 22.9 billion. During 2021-22, the country exported pharma products worth US$ 24.62 billion, while in 2020-21, the exports grew at 18% YoY to US$ 24.4 billion. This robust performance was achieved despite the global supply chain disruptions, lockdowns, and subdued manufacturing. In February 2023, India exported US$ 2.05 billion worth of drugs and pharmaceuticals, a 4.72% increase from US$ 1.96 billion in February 2022. USA, UK, South Africa, Russia, and Nigeria are Indias top five export destinations. India played a key role during the Covid-19 pandemic and demonstrated its ability to be a consistent and reliable pharma supplier to the world even during time of crisis.

Major segments of Indian Pharmaceutical Industry include generic drugs, OTC medicines, bulk drugs, vaccines, contract research & manufacturing, biosimilars and biologics.

Indian pharmaceutical industry plays significant role globally, supplying affordable and low cost generic drugs to millions of people across the globe. The sector offers lower cost without compromising on quality as is reflected by the fact India has the highest number of United States Food and Drug Administration (USFDA) approved pharmaceutical plants outside the US and also a significant number of World Health Organization (WHO) Good Manufacturing Practices (GMP)-compliant plants as well as plants approved by regulatory authority of other countries. Indias pharmaceutical sector forms a major component of the countrys foreign trade and has been consistently making trade surplus as may be seen from the Graph 1A. During 2021-22, total exports of pharmaceuticals stood at Rs. 1,74,955 crore (USD 23.5 Bn) while total imports were to the tune of Rs. 60,060 crore (USD 8.06 Bn) resulting in a trade surplus of Rs.1,14,895 crore (USD 15.44 Bn).

There are 500 API manufacturers contributing about 8% in the global API Industry. India is the largest supplier of generic medicines with 20% share in the global supply by manufacturing 60,000 different generic brands across 60 therapeutic categories. Access to affordable HIV treatment from India is one of the greatest success stories in medicine. India is one of the biggest suppliers of low-cost vaccines in the world. Because of the low price and high quality, Indian medicines are preferred worldwide, thereby rightly making the country the "pharmacy of the world”

The Indian pharma industry has also played an important role in meeting the challenges for mitigation of the infection in COVID pandemic. The industry worked in close collaboration with the government and academic institutes etc., to quickly develop and refine manufacturing processes which helped to ensure a consistent supply of medicines needed for the management of COVID-19 (e.g. Remdesivir, Ivermectin, Hydroxychloroquine, Dexamethasone, Tocilizumab, Favipiravir etc.). Indian drug supplies throughout the COVID-19 pandemic period have provided relief to over 120 countries for Hydroxychloroquine (HCQ), 20 countries for paracetamol and about 96 countries for vaccines across the world.

Major Credentials of Pharma Industry:

• India provides generic medicines to more than 200 countries

• 8 out of 20 Global Generic companies are from India

• Over 55% Exports to Highly Regulated Markets

• 90% of WHO Pre-Qualified APIs are sourced from India

• 65-70% of WHOs vaccine requirements are sourced from India

Foreign Direct Investment (FDI):

Pharmaceutical sector has emerged as a favourite destination for the foreign investors and is one of the top ten attractive sectors for foreign investment in India. The Government has put in place an investor- friendly Foreign Direct Investment (FDI) policy to promote investment in the Sector. 100% foreign investment is allowed under automatic route in Medical Devices. In pharmaceuticals, up to 100% FDI in greenfield projects and up to 74% FDI in brownfield projects is allowed under the automatic route. Foreign investment beyond 74% in brownfield projects requires Government approval. After the abolition of the Foreign Investment Promotion Board (FIPB) in May 2017, the Department of Pharmaceuticals has been assigned the role to consider the foreign investment proposals under the Government approval route.

Apart from this, the Department considers all FDI proposals of the pharmaceutical sector and medical devices sector arising out of Press Note 3 dated 17.04.2020 wherein investors/ultimate beneficiaries in the investment proposals are from the countries sharing land border with India.

The sector contributes about 3.71% of total FDI inflows in the country across various sectors. Total FDI inflows in Pharma and Medtech Sectors have been Rs 1,32,568 crore from April 2000 to September 2022. During the financial year 2022-23 (till December 2022), Department of Pharmaceuticals approved 13 FDI proposals that would result

in foreign investment inflow of S 2,814 crore in the brownfield projects of pharmaceutical sector.

b) Opportunities and Threats.

Opportunities:

Market Size: According to the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade. Indias domestic pharmaceutical market stood at US$ 42 billion in 2021 and is likely to reach US$ 65 billion by 2024 and further expand to reach US$ 120-130 billion by 2030. Indias biotechnology industry comprises biopharmaceuticals, bio-services, bio-agriculture, bio-industry, and bioinformatics. The Indian biotechnology industry was valued at US$ 70.2 billion in 2020 and is expected to reach US$ 150 billion by 2025. Indias medical devices market stood at US$ 10.36 billion in FY20. The market is expected to increase at a CAGR of 37% from 2020 to 2025 to reach US$ 50 billion. As of August 2021, CARE Ratings expect Indias pharmaceutical business to develop at an annual rate of ~11% over the next two years to reach more than US$ 60 billion in value.

In the global pharmaceuticals sector, India is a significant and rising player. India is the worlds largest supplier of generic medications, accounting for 20% of the worldwide supply by volume and supplying about 60% of the global vaccination demand. The Indian pharmaceutical sector is worth US$ 42 billion worldwide. In FY 2023, the Indian pharma market saw a year-on-year growth of nearly 5%, reaching $49.78 billion. While exports grew a modest 3%, the domestic market increased 7% year-on-year. Among export markets, emerging markets remained relatively flat, while developed markets recorded an 8% growth in FY 2023 .

Financially speaking, the pharma sector is expected to grow. A report by EY and FICCI recently stated that the Indian Pharmaceutical market is expected to reach a value of USD 130 billion by the end of 2030. The global Pharmaceutical market is estimated at an astronomical USD 1 trillion in value.

In the Pharmaceutical industry, AI and big data technologies will allow companies to restructure their business models. They will rationalize biopharma manufacturing, improve financial decisions, reduce human error, increase performance and accelerate time-to-market. The power of AI I already being leveraged to create pipelines of precision-engineered ontological and immunological treatments.

Exports: India is the 12th largest exporter of medical goods in the world. Indian drugs are exported to more than 200 countries in the world, with US being the key market. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally. Indian drug & pharmaceutical exports stood at US$ 24.60 billion in FY22 and US$ 24.44 billion in FY21.

Road Ahead: Medicine spending in India is projected to grow 9-12% over the next five years, leading India to become one of the top 10 countries in terms of medicine spending. Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers, which are on the rise. The Indian Government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.

Threats:

Counterfeiting: is viewed as a serious public health menace promoted by criminals with little regard for the health and safety of patients which requires a combined public -private sector response. The counterfeit medicine market is more lucrative than the narcotics business with the World Health Organization estimating that counterfeiting costs the global pharma industry $75 billion USD a year. The Criminal Intelligence Service Canada says that "Most estimates range in the billions annually for global losses.”

With that in mind, its unsurprising that the majority of pharmaceutical companies believe that the illegal use of their brand name on these counterfeit products threatens the integrity of the company that they are trying to represent.

In addition to lost revenue, counterfeiting imposes other costs including increased costs to secure the supply chain, investments in anti-counterfeiting technologies, potential reputational damage and risk of liability.

Supply Chain Disruptions: While global pharmaceutical supply chains did not collapse under the pressure of COVID-19, the pandemic revealed serious weaknesses in pharmaceutical logistics. The lean supply chains the industry cultivated over the past decades are not resilient to sudden shocks or issues with production caused by events like a pandemic. As a result, long manufacturing lead times and unpredictable demand are likely to cause problems through the end of the year. The supply chain may also be vulnerable to intentional disruption by cyber criminals. Moreover, poor visibility and transparency in the supply chain may make a number of these challenges worse.

Insider Threats: Pharma companies also need to be aware of threats from their employees. This often occurs because of disgruntled employees trying to disrupt day-to-day operations or sell customer data to a third party or competitor. Threats can also be caused by well-intentioned users not following corporate policies or through human error.

c) Segment-wise or product-wise performance.

Pharmaceutical Intermediates Market - Segment-wise performance:

The Pharmaceutical Intermediates Market is Segmented by Type (Chemical Intermediate, Bulk Drug Intermediate, and Others), Application (Analgesics, AntiInfective Drugs, Cardiovascular Drugs, Oral Antidiabetic Drugs, Antimicrobial Drugs, and Others), End-User (Biotech and Pharma Companies, Research Institutions, and Others), and Geography (North America, Europe, Asia-Pacific, Middle-East and Africa, and South America).

The pharmaceutical intermediates market studied is anticipated to grow with a CAGR of nearly 5.3%, during the forecast period (2022 - 2027).

According to a study that was published in the American Chemical Society Pharmacology and Translational Science, 2020, new potential therapeutics for COVID-19 were discovered using a combined virtual and experimental screening strategy. Furthermore, they choose among the medications that were already in use and were examined to check for structural similarity against a library of almost 4,000 medications that were already in use, with hydroxychloroquine (HCQ) serving as a reference medication. The study suggested remdesivir and favipiravir therapies as prospective adjuvants in COVID-19 treatment and zuclopenthixol, nebivolol, and amodiaquine as potential candidates for clinical trials against the early phase of the SARS-CoV-2 infection. Thus, the pharmaceutical intermediates market is likely to increase both during and after a covid pandemic. As a result, market growth is anticipated in the coming years.

Given that these pharma intermediates are used in the treatment for cancer detection and a variety of chronic diseases, the rise in the prevalence of chronic diseases is projected to propel market expansion in the area under study. For instance, chronic diseases account for around 41 million annual fatalities, or 71% of all fatalities worldwide, according to the World Health Organizations key facts on no communicable diseases published in April 2021. The high fatality rate from these diseases increases the demand for early intervention, which in turn propels the markets expansion.

There has been an upsurge in the usage of advanced technologies, such as high throughput, bioinformatics, and combinatorial chemistry for better drug candidate identification. The discovery and development of novel drugs to treat, prevent, or cure a number of diseases, including cancer, diabetes, cardiovascular disorders, and chronic kidney disease, has been hampered by the significant rise in disease incidence rates around the world.

Additionally, increased investments in R&D are a significant driver of market expansion. Hence, owing to the rising R&D activities in the pharmaceutical industry,

the usage of pharmaceutical intermediates is expected to observe a steady growth as well.

Product-Wise Performance

Our Company Vineet Laboratories has been involved in developing and manufacturing of API Intermediates through innovative technology. We are an expert in designing, developing, and manufacturing API Intermediates which are key ingredients for manufacturing drugs for saving human race. Our products are cost- effective, and they cater to customers across the nation and overseas.

Name of the Product	No. of batches	Quantity dis patched kgs	Sales Rs. In Lakhs	Remarks
(2S,3S,5S)-2-Amino-3- hydroxy-5-(tert-butyloxy carbonyl) amino-1, 6- diphenyl hemi succinic acid salt. (BDH	75	10654	1704.19	Intermediate of Ritonavir API, for treating HIV patients. It works by decreasing the amount of HIV in the blood.
Carbonic acid, 4-Nitro phenyl-5-thiazolyl methyl ester (NCT)	123	17818.47	1450.29
N-((N-Methyl-N-((2-iso propyl -4-thiazolyl) methyl) carbonyl)-L- valine (MTA)	45	7148.25	854.1
(3R,3aS,6aR)- Hexahydrofuro [2,3- b]furan-3-ol (BIS)	32	3995	579.26	Intermediate of Darunavir API, for treating HIV patients. It works by decreasing the amount of HIV in the blood.
N-[(4S,6S)-6-Methyl-7,7- dioxo-5,6-dihydro-4H- thieno[2,3-b]thiopyran- 4-yl]acetamide (DZE)	35	2966.50	1761.56	Intermediate of Dorzolamide API, which is used to treat glaucoma, a condition in which increased pressure in the eye can lead to gradual loss of vision
Trans-4-Methycyclohexyl isocyanate (ICY)	14	2170	224.79	Intermediate of Glimepiride, which is used to treat high blood sugar levels caused by type 2 diabetes
Name of the Product	No. of batches	Quantity dis patched kgs	Sales Rs. In Lakhs	Remarks
Phenethyllsocyanate (pcy)	20	3060	73.97	Reagent used for making Intermediates & APIs
1-Methyl-1-phenyl-1-(2- pyridyl) methanol. Hydrochloride (MPH)	34	9000	528.250	Intermediate of Doxylamine, which is an antihistamine medication which is used in the treatment of insomnia and allergies
1-Hydroxy-4-methyl-6- (2,4,4-trimethylpentyl)- 2(1H)-pyridone ethanol ammonium salt (CNT)0	276	118960	3931.009	Piroctone Olamine is a cosmetic product used as anti-dandruff .
(2S,3S,5S)-2-Amino-3- hydroxy-5-(1-tetra hydro pyrmid-2-onyl)-3- methyl butanoyl)amino- 1,6-diphenyl hexane-S- pyro glutamate (THP)	12	2431.8	259.54	Intermediate of Olmesartan, which is used alone or together with other medicines to treat high blood pressure (hypertension).
Lopinavir (DPC) OR 2,6-DimethylPhenoxy Acetyl Chloride	69	10045.25	183.825	Intermediate of Lopinavir API, for treating HIV patients. It works by decreasing the amount of HIV in the blood.
IsoPropyl-B-{D}- ThioGlactoPyranoside (iptg)	4	194	56.86	Fine chemical. Its a molecular biology reagent.
E-2(2 ETHYLEXYLP-AMINO BENZOATE) (eht-ii)	95	75825.82	857.31	Intermediate of Cosmetic product - CI, it is an organic compound used in sunscreens to absorb UVB radiation.
EthylhexylTriazone (EHT-III)	106	29250	543.6	Cosmetic product - CI, it is an organic compound used in sunscreens to absorb UVB radiation
N-Butyl Lithium (NBL)	75	38384.84	3727.07	Reagent - used in various types of reactions
Name of the Product	No. of batches	Quantity dis patched kgs	Sales Rs. In Lakhs	Remarks
1-Methyl-1-Phenyl-1 (2-pyridyl) Methanol Hydrochloride (dhn)	4	510	24.00	Intermediates of Nadolol API - it is a medication used to treat angina and hypertension, which are significant risk factors for the development of coronary artery disease, heart failure, stroke, and a host of other cardiovascular conditions. Nadolol belongs to the class of beta-blocker medications

Our Company achieved a turnover of Rs. 21229.33 Lakhs in FY 2022-2023 as against Rs.19117.23 Lakhs in FY 2021-2022. Our Profit after tax in FY 2022-2023 stood at Rs.125.25 Lakhs as against Rs.663.86 Lakhs in FY 2021-2022 . Sales of API intermediates carry a potential of generating up to 100% of the product sale value. Revenues will continue to grow as the demand for products are increasing.

As per Annual Quality Review, we have identified that all products being manufactured are improved in quality and obtaining improved yields.

d) Outlook

The rapidly increasing prevalence of chronic diseases and growth of the aging population across the world are among factors that are expected to increase the need for drug formulations for the prevention of chronic diseases. For instance, as per the International Diabetes Federation Diabetes, the global diabetes prevalence in 2019 is estimated to be 9.3% (463 million people), rising to 10.2% (578 million) by 2030, and the number is rising rapidly. Pharmaceutical drugs have remained key to management of chronic diseases and other diseases.

For instance, according to the World Health Organization (WHO), the prevalence of chronic diseases is expected to increase by 57.0% by 2020, which indicates that a significant percentage of population is suffering from chronic diseases. According to FMIs analysis, pharmaceutical intermediates sales have grown at 3.7% CAGR between 2015 and 2019.

Various small- and medium-scale companies are also focusing on enhancing their production capacity, which is another factor that is expected to fuel growth of the pharmaceutical intermediates demand. Hence demand for pharmaceutical intermediate is increasing and sales are set to grow significantly through 2030.

Moreover, major pharma companies are increasingly relying on contract manufacturing organizations for the manufacturing of pharmaceutical intermediates and final formulations. These companies are focusing on enhancing the capacities of their manufacturing plants in various countries of the world, such as India and China, where the cost of production is comparatively lower. These developments present a positive outlook for growth. FMI expects global pharmaceutical intermediates market to grow at 4.3% CAGR through 2030.

e) Risks and concerns.

0 Highly Regulated Industry: The pharmaceutical industry is a tightly regulated industry where all production must comply with good manufacturing practices (GMP) and quality requirements should be strictly satisfied. Historically, manufacturing in the pharmaceutical industry has been carried out in batch mode which potentially results in expensive, inefficient and poorly controlled processes. Recently, both pharmaceutical industries and regulatory authorities have recognized that continuous manufacturing has significant potential to improve product quality. Moreover, environmental, health and safety issues are driving the industry towards more efficient and more predictive manufacturing.

0 Liquid damage and contamination: Manufacturing medicines and drugs requires a complex process with different equipment and ancillary systems. Each equipment and system poses a contamination risk. A few of the common sources are pathogens and physical contamination. Other contaminants include smoke and liquid damage. Power outages and issues beyond an organizations control can cause contamination of process or batches of drugs, which can affect the business. Liquid damage from water lines used for fire protection, or for cooling is often over looked contaminants. These have caused large damage to many companies in the industry. Similarly, smoke damage due to a controlled fire in one area can spread to other areas, if the plant is poorly designed. An effective equipment maintenance program together with proper building materials can minimize this risk.

0 Equipment breakdown: Pharmaceutical companies use reactors, dryers, and sterilizers in their plants, a breakdown in one of them can stop production. The lack of an effective maintenance system can lead to:

• Excessive machine breakdowns.

• Shortened life-span of the facility.

• Sub-standard products.

• Delay in delivery dates.

• Disproportionate investment in spare parts and maintenance materials.

0 Pharmaceutical fraud

Pharmaceutical fraud remains a major challenge for the industry ? and it was possibly even worse during COVID-19. Globally and in the U.S. in particular, pharmaceutical fraud account for a large number out of all crimes in health care, which result into severe costs to the society.

0 Qualified workforce

In order to define qualified workforce, we can say that it concerns people who carry out technical or intellectual work that requires thorough knowledge in a particular field of its discipline. It should be noted that work productivity within an industry depends on the qualification of the employed workforce.

Relying on qualified workforce is all the more one of the essential elements that ensures a promising future in the pharmaceutical industry. In fact, the pharmaceutical industry needs workforce that has significant knowledge, experience and skills. The pharmaceutical sector has to increase its investment in highly-qualified workforce to continue progress.

f) Internal control systems and their adequacy.

The internal audit and other internal checks implemented in the Company are adequate and commensurate with the size and nature of operations providing sufficient assurance and safe guarding all assets, authorizing all transactions and its recording and timely reporting. The Audit Committee of the Board of Directors regularly reviews the internal audit reports and the adequacy and effectiveness of internal controls.

g) Discussion on financial performance with respect to operational performance.

The Revenue from Operations for the current year is at Rs. 21,229.33 compared to Rs. 19,117.23 lakhs in the previous year. The Profit before tax was Rs.202.99 Lakhs against the previous Profit of Rs.934.55 Lakhs. The Profit after Tax was Rs.125.25 Lakhs vis-a-vis Rs.663.86 Lakhs in the previous year.

h) Material developments in Human Resources / Industrial Relations front, including number of people employed.

Industrial relations are harmonious. People form the foundation of organisations and their growth. The company recognized the importance and contribution of the human resources for its growth and development. As on 31st March, 2023, the

Company has total strength of 72 employees.

I) Key financial ratios :

Sl.No Financial Ratios	FY2023	FY 2022
I Debtors Turnover	5.54	4.68
ii Inventory Turnover	3.84	3.50
iii Interest Coverage Ratio	1.60	5.48
iv Current Ratio	1.17	1.08
v Operating Profit Margin (%)	2.55	5.98
vi Net Profit Margin (%)	0.59	3.47
vii Return on Net Worth (%)	3.74	22.19

Since the Net profit of the Company has decreased from Rs. 6.63 crores in FY 2022 to Rs. 1.25 crores FY 2023 there is a decrease in the Return on Net Worth Ratio.

Cautionary Statement:

The Statement in this section describes the Companys objectives, projections, estimates, expectations and predictions which may be "forward looking statements” within the meaning of the applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make difference to the Companys operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates changes in the Government regulations, tax laws and other incidental factors.