Vivimed Labs Ltd Management Discussions.
One year ago, economic activity was accelerating in almost all regions of the world and the global economy was projected to grow at 3.9% in 2018 and 2019. And in that one year, a lot has changed which has contributed to a significantly weakened global expansion, especially in the second half of 2018. With this weakness expected to persist intoflthe first half of 2019, the World Economic Outlook projects a decline in growth in 2019 for 70% of the global economy. Global growth, which peaked at close to 4% in 2017, softened to 3.6% in 2018, and is projected to decline further to 3.3% in 2019.
Changes that derailed the world from becoming better
The escalation of US-China trade tensions
Macroeconomic stress in Argentina and Turkey
Disruptions to the auto sector in Germany Tighter credit policies in China
Financial tightening in the larger advanced economies
Fiscal 2018-19 was a year of benign growth for the Indian economy. Growth dropped to 6.8% in FY19.
So what led to the decline?
India started on a healthy note with an 8% GDP growth in the first quarter and a 7% growth in the second. But in the second half growth slipped to below 6.5%. This was due to the poor performance of farm, mining and manufacturing sectors-it led to an overall deceleration in economic progress.
During the year private final consumption expenditure grew 8.1% and capital investment as measured by gross fixed capital formation expanded from 9.3% to 10% in FY19. However, the slowdown in Agriculture and Manufacturing has been a major cause of concern.
On the investment front, FY19 witnessed a rebound with fixed investment growing 12.2% from 7.6% in FY18.
The investment ratio has also seen an uptick from 30-31% in FY18 to 32.9% in FY19. The impetus has come in the form of huge Government spending (both Centre and State) on construction of rural roads, highways, and affordable housing.
Outlook for FY20
Food Inflation could be a reason for worry for policymakers in FY20, given that it has remained subdued for a considerable period.
Fuel Inflation might be under control in FY20 given the trend in global crude oil prices, which have come off their peak in October18 with low probability of rebounded to those high levels.
Current account deficit is expected to reduce to 2.4% of GDP in FY20, compared to 2.6% in FY19. The import bill is expected to be lower, consequent to lower oil prices. However, exports will also languish on the back of weak global growth outlook and global trade impacted by escalating trade wars.
The Indian rupee will remain volatile and settle at 72/$ by March 2020. Again, the low oil prices and slowing rate of monetary policy normalisation will act as a support for the Indian currency.
Domestic Interest rates are also expected to head southward, the dampening mood of consumption in household sector will be a key catalyst for rate to hover lower than FY19.
(Source: Ministry of Finance, The Economic Times, CRISIL Research)
The Indian economy is expected to grow at 7.0% in FY20 owing to internal challenges such as a weak domestic demand forecast.
Global pharmaceutical sector
The global pharmaceutical industry has remained in the spotlight in almost every nation for its strong correlation with the nations economic strength and improved standards of healthcare. As a result, quality of healthcare and spend continues to occupy sizeable mind space of policy makers, patients, payers and drug manufacturers.
The global market for pharmaceuticals reached US$1.2 trillion in 2018, up US$100 billion from 2017, according to the Global Use of Medicines report from the IQVIA Institute for Human Data Science. For the US specifically, the 2018 spending was US$485 billion, up 5.2% over the previous year.
The growth phase of the Global Pharmaceuticals market is expected to continue unabated in the next five year cycle. Driven mainly by higher spending on medicines, it is expected that the market size will reach US$1.5 trillion by 2023, growing at 3-6% CAGR which is comparatively lesser than the growth over the last five years (5-6% CAGR).
This subdued demand is owing to the impending slack economic conditions across the advanced economies which will have a spillover impact on the progress of the Global Pharmaceuticals Industry.
Trends expected to play out between 2019 and 2023
Uptake of newer brands and products is expected to remain strong
Lesser impact of price cuts on brand than other products
Generic usage in the unprotected markets to exceed the target (80%) Product mix to continue its shift towards specialty and orphan products
Global API sector
China dominates the global API space is largely owing to consistent investment in business-critical factors such as chemistry expertise, technology and large infrastructure.
The global API market witnessed steady growth in 2018 in terms of volume and value despite disruptions from the conventional supplier base. The Chinese Governments efforts to curb pollution impacted certain API and intermediate manufacturing zones, mandating them to shut operations. The resultant production shortfall impacted the price and supply of these products across the pharmaceutical value chain globally.
Going forward: The market size of the Global active pharmaceutical ingredients market as of 2018 was valued at US$165.74 billion; this size is expected to grow to US$236.7 billion by 2024 growing at a CAGR of 6.1%.
The major forces that are driving the market include the increasing prevalence of infectious diseases, cardiovascular conditions, and other chronic disorders. Apart from these diseases, genetic disorders are significantly driving the usage of active ingredients worldwide.
Moreover, a significant number of drugs are in the pipeline to develop treatments for cancer, autoimmune disorder, and metabolic diseases. Given the extent of prevalence of cancer, many manufacturers are venturing into the development of highly potent APIs (HPAPI) and specialty APIs, in order to cater to the rising demand for these products.
Indian pharmaceutical sector
The third largest in the world by dint of volume growth, the Indian Pharmaceutical industry supplies around 50% of the global demand for various vaccines, 40% of generic drugs in the US and 25% of all medicine demand in UK.
Indias domestic pharmaceutical turnover reached CI29,015 crore (US$ 18.12 billion) in 2018-19, growing by 9.4% year-on-year from C116,389 crore (US$ 17.87 billion) in 2017-18. The healthy uptick was owing to the lower base of the previous year (2017-18) and the limited impact of the Fixed-Dose combination ban during the period under review.
Fiscal 2018-19 was challenging for some of the leading Indian pharmaceutical companies having a sizeable exposure to the US markets. Regulatory challenges linked to plant- specific issues and/or price erosion in the base portfolio resulted in a decline in their US business.
Despite these headwinds, overall export of pharmaceutical products stood at an all-time high, crossing the US$19 billion mark in 201819 against US$17.27 in the previous fiscal.
Optimism and outlook: The Industry is expected to grow at a CAGR of 15% over the next few years from the value of $38billion in 2019. It has played a key role in bringing about better health outcomes across the world through its cost-effective and superior quality generics drugs. Better accessibility to reasonably priced drugs has been one of the key enablers for lowering the disease burden in India. Indias per person disease burden measured as Disability Adjusted Life Years (DALYs) dropped by 36 percent between 1990 and 2016 after adjusting for changes in the population age structure.
The demand in the pharmaceutical industry will remain high and hence act as a market driver on account of the following:
The expected spend on medical infrastructure in the next couple of years will be to the tune of US$200billion.
New business models to envisage entry into tier-2 and 3 towns.
Over 160,000 hospital beds expected to be added each year in the next decade. Patients with better education levels will be more prone to self-medicate, a huge catchment area for the OTC market.
Medical tourism on the rise with patient inflow from foreign countries.
Due to the growing population, patient pool will also increase by nearly 20% in the next 10 years.
The Government plans to phenomenally increase the reach of generic medicines to half the population at an estimated outlay of US$5.4billion.
An estimated 650 million citizens to have health insurance cover by 2020.
Domestic API sector
India produces a third of the worlds medicines, mostly in the form of generic drugs.
But, unfortunately it relies primarily on imports (from China) of Key Starting Materials, intermediates and APIs for manufacturing those generics. According to the Department of Pharmaceuticals, currently, over 70% of APIs are sourced from China; for some specific APIs, the dependence is over 80-90%.
The Government is proactively encouraging API manufacturing in India to offset reliance on imports. The major steps being considered are:
Commissioning large scale SEZs that are located close to the ports to foster global linkage and leasing these to the private sector as manufacturing units.
Ease of operations in terms of extended environmental approvals and regulatory clearances.
Enabling low cost borrowing to set up plant in such API hubs by collaborating with multilateral financing firms. Innovative land acquisition policies and commercialisation that aids reduced capital requirement for plant commissioning.
Exports of bulk drugs and intermediates from India grew in double digits during FY2019, a period that was marked by drug shortages in the global market owing to supply disruptions in China.
According to data released by the Pharmaceutical Exports Promotion Council (Pharmexcil), exports of bulk drugs and intermediates in FY19 stood at US$3.9 billion, up 10.5% over the previous year. The category contributes accounts for about 20.3% of Indias overall pharmaceutical exports.
The API industry in India is expected to grow to US$18.8 billion by FY22. In order to grow the domestic market for APIs, a high-level task force was entrusted with recommending policy roadmap to the government in April2018.
The specialty chemical space
Mainly driven by the spurt in domestic demand, the Indian Specialty Chemicals sector could be in more a long term growth trajectory.
Specialty chemical end-use industries such as textile, automotive, personal care, construction chemicals and agrochemicals, as well as application-driven segments such as surfactants, paints, coatings and colorants, to experience high growth in the medium-term.
According to a report by Crisil, the specialty chemicals market is likely to clock a compounded annual growth rate of 1213% over the next five years, with the intensity of specialty chemicals in end-use domestic markets expected to rise.
The closure of plants in European Union and China, owing to increasing, environmental concerns have opened doors for Indian manufacturers to invest further in specialty chemicals.
Moreover, global players are looking to diversify the supply risk, thereby improving export opportunities for Indian players.
Further, the per capita chemical consumption in the country remains low compared with that in developed countries and emerging economies such as China, indicating latent demand potential in the Indian market.
To capitalise on these opportunities, the domestic specialty companies have planned capacity expansions which are expected to be operational in the next 18-24 months.
Established in 1991 in Hyderabad, India, Vivimed Labs has metamorphosed from a domestic small, entrepreneurial family-operated business to a globally renowned supplier of niche molecules and formulations across Healthcare.
Within the healthcare space, the Company has two business division namely APIs and FDF-they contribute more than 80% of the Companys topline, the balance accrues from specialty chemicals.
Vivimed manufactures Hair Dyes, Photochromic Dyes, Anti-Microbials and Imaging Chemicals.The Company is a world leader in the development of innovative photochromic dyes. It has patented processes for novel dyes targeting a range of applications
Revenue from the Specialty Chemical division stood at C1,627 million in 2018-19. EBIT declined to र 436 million-a degrowth of 30.16%.
Vivimed has, over the years, created an integrated business model with product offering across the value chain. The manufacturing capabilities include APIs and formulations across varied therapeutic segments. The focus is mainly on the niche category of APIs, generic and branded formulations with deep seated collaboration with globally acclaimed pharmaceutical brands in the contract manufacturing space.
In 2018-19, revenue from the Pharmaceutical segment grew by 16.9% y-o-y to reach C11,525 million. Its profitability de-grew by13% registering an EBIT of र 896 million in 2018-19.
Active Pharmaceutical Ingredients (APIs)
This is the flagship division of the Company which is managed by its international subsidiary UQUIFA s.a. The Company has USFDA approved manufacturing units in Spain (2 units) and Mexico(1 unit) that manufactures APIs for Pharmaceuticals and animal health industry globally.
UQUIFA is well positioned in the Pharmaceutical industry, in Europe and the US with a diversified product portfolio, consistently compliant production infrastructure, over 80 years of experience and is a well-known supplier to the industry. In addition to manufacturing generic APIs, UQUIFA also undertakes CDMO (Contract Development and Manufacturing Operations) projects for numerous large and reputed global pharmaceutical companies. This segment accounts for about 73% of the Companys revenue.
Performance in 2018-19
Revenue from the API business stood at C962.02 crore in 2018-19 against C795.54 crore in the previous year. Increased cost of production hampered profitability as EBIT declined from C62.69 crore in 2017-18 to C41.03 crore in 2018-19.
1) Generic APIs
The generic API business is the key revenue earner for the API segment accounting for more than 75% of UQUIFAs topline. The Company manufactures generic APIs which is marketed to a global customer base with clients in more than 70 countries worldwide.
More than 75 years of experience in the pharmaceutical industry.
Multi-regional manufacturing presence (Spain, Mexico, Hungary, and India) with a strong transnational management team.
Global customer base with clients in more than 70 countries worldwide.
Enjoys 42 distributor arrangements across 56 countries.
Combination of quality manufacturing and track record of reliability with marquee clients.
Rich intellectual property comprising more than 150 active DMFs filed and 20 CoS approved.
A strong underdevelopment pipeline of new products.
Initiatives in 2018-19
1) Successful inspection at UQUIFAs facility in Mexico by USFDA; EIR obtained.
2) The Company executed capex projects at various facilities for debottlenecking and modernisation.
3) To capture better value addition, now evolving with a new go-to market strategy with the new pipeline of APIs which are going off-patent till 2023 on a finished formulation format by filing MAs and offering the finished formulation direct to customers thus bringing in value addition to the high value APIs.
Growth from current products; more products per customer, more customers per product; improve market shares in Generic 50+ DMFs and 20+ approved CoS
Leverage the molecule portfolio in capitalise on the growing demand in areas such as anti-ulcer, CNS, and CVS
Operational and cost efficiency is improving market share Expansion in Japan, Korea, and India
Based in Barcelona, Spain, UQUIFA is one of the first API/ advanced intermediates manufacturing companies offering R&D and cGMP manufacturing (at its three US FDA approved facilities) across three continents. This segment accounts for about 25% of UQUIFAs topline.
Post Soneas acquisition, the Company will also use manufacturing facilities in Budapest, Hungary. Over the last few years, the Company has built a reputation for itself as a trusted development partner for global pharmaceutical majors.
The services include: Development of novel synthetic routes and optimisation of existing laboratory processes
Scale-up from Laboratory to Pilot Plantand from Pilot Plant to commercial
Optimising laboratory developed routes of synthesis to reduce isolation steps, improve yield, reduce batch production time and eliminate the use of toxic and/or dangerous reagents
Transfer of commercial scale processes
Integrated solution provider following acquisition of Soneas.
Protect clients intellectual property.
Strong quality-control system approved by regulators and customers.
Technical expertise in manufacturing a wide range of APIs benefits in the codevelopment of the CDMO products.
Superior cost-efficiencies owing to backward integration in the business.
Initiatives in 2018-19
UQUIFA acquired the business of SONEAS from Lochlomond and Euroventures which are both based out of Hungary. The acquisition broadens UQUIFAs market offering in the CDMO space by enhancing its ability to now undertake preclinical, Phase I, II and III NCE project development.
Leverage strengths of chemistry and manufacturing presence to gain market share in the European Union (EU) and North America.
Scale up current relationships and leverage preferred supplier relationships with big pharma to increase wallet share
Leverage new technologies and big pharma customer base in EU and Japan to widen growth opportunities
Showcase the full range capabilities (Lab-Pilot- Commercial Production) to capitalise on opportunities
Finished Dosage Formulation
This is the value-added segment within the pharma business delivering quality formulations and offering novel drug systems across different delivery platforms. The offerings basket comprises generic, branded and contract manufacturing segments. The Company manufactures its formulations at its facilities in India.
A dedicated team of 60 scientists working on formulation developments for USA/Australia/EU and
India market holding IP for more than 85 bio-equivalent products
Manufactures formulations for leading companies like GSK, Dr Reddys, Cipla, P&G, Wockhardt, Abott etc.
Pan India presence in Institution Businesses like ESIC, Railways and many Central Government rate contracts
Performance in 2018-19
This value-added vertical registered revenue of C190.45 crore in 2018-19 against C189.77 crore in the previous year. This high-margin vertical registered an EBIT of C48.64 crore in 2018-19-a 20.7% growth over the previous year.
Initiatives in 2018-19
The Company has exited the joint venture with Strides towards the close of the year for which has received C75 crore. This fund was utilised for deleveraging the organisation and for funding existing verticals. This step will augment management focus to grow the FDF portfolio across India, RoW and CIS markets. Other initiatives during the year include:
CDMO business managed by Finoso Pharma Pvt Ltd.
Total 25 projects signed for formulation development in 2018-19
Signed the first out licensing deal (for Ranolazine) with Celltrion, Korea for the US market
Signed an out licensing deal for two projects with Jubilant, Paliperidone ER and Sildenafil PFOS
Signed six projects signed for Canadian market under the CDMO initiative; filings are targeted for March 2020.
Multiple other projects for product development are under active consideration with multiple players for the Canadian and Russian markets.
Completed the development of Bilastine; manufactured the exhibit batches and necessary work for filing was completed.
Negotiating with a leading South East Asian company for collaborating on five products under the CDMO initiative.
Initiated work on securing the EU GMP certification which has become necessary for establishing a meaningful presence in the Canadian, Australian and European markets.
Domestic generic business
Sustainable CMO business and delivering growth in the branded segment
Approved suppliers for many government institutions like AFMSD, Railways, RMSCL and Central Government Health Scheme.
Domestic branded business
Expanded the Companys presence in three states namely Assam, Madhya Pradesh and Gujarat.
Plan to launch 5-6 new products in the gynaecology, paediatric and dermatology segments in the current year.
Launched new brands and new therapy segments in Maharashtra, Orissa and Chattisgarh territory with an additional field force of 80+ people to complement our existing team of 200+ people under the Viilberry division.
Developing and launching formulations based on UQUIFA APIs in India and other parts of the world.
Developing innovative formulations across multiple delivery platforms for different parts of the world.
Focusing on expanding into non-USA based regulated generic markets such as CIS and African countries
Vivimed is a globally renowned player in specialty chemicals space manufacturing active ingredients for home care, personal care and industrial products. The product range comprises of active ingredients for hair dyes, photochromic dyes, photochromic products, anti-microbials and imaging chemicals.
The Companys manufacturing unit at Bidar, Karnataka is designed in compliance with US FDA norms and the highest environmental standards. It maintains world-class R&D capabilities with scientists who have a combined dye chemistry experience of greater than 100 years, both in Huddersfield-UK and Hyderabad-India.
Significantly large product portfolio
Experience and expertise in manufacturing complex products across multiple applications
Capability in managing stringent expectations of global MNCs
Regulatory compliant infrastructure
Performance in 2018-19
Revenue from the business declined by 19% from C200.34 crore in 2017-18 to C162.69 in 2018-19 while profitability dropped sharper-EBIT stood at C43.63 crore in 2018-19 against C62.23 crore in 2017-18.
This performance was primarily owing to reduced offtake by customers and an increase in input costs which could not be passed on to customers owing to the dull environment.
Initiatives in 2018-19
Initiated strategic manufacturing alliance with multi nationals poised for robust growth.
The globally recognised trademark "Jaracol" catering to a 10 billion retail market notched up a growth of 5-6% y-o-y.
Lateral shift into the Paint Industry by manufacturing Anti-fungal ingredients.
Lateral shift into the Automotive Industry through manufacturing air bag actives.
Ventured into Printable Electronics, water treatment, lens projects in India.
Undertaken development efforts to bring in-house higher volumes products which have been traded from China.
Strengthened relation with key customers in the Hair Dye space; new products being added to the basket which positions Vivimed as a key supply partner.
(based on Consolidated Financial Statements)
The Company financial performance was rather subdued during the financial year under review. The heartening aspect for the year was a conscious effort in reducing the debt burden and streamlining of day-to-day operations.
Statement of Profit and Loss
Revenue from operations increased from RS.11,856.60 million in 2017-18 to RS.13,151.70 million in 2018-19 primarily due to an increase in the pharmaceutical business; revenue from the specialty chemicals segment declined over the previous year levels.
Business profitability took a hit as raw material costs increased primarily owing to the spike in prices of Key Starting Material (KSM) (raw materials for making APIs and active ingredients) owing to the supply chain disruption originating from China.
Employee related expenses and other operating expenses have also increased owing to the acquisition of the Soneas.
As a result, EBITDA declined from RS.2,216.14 million in 2017-18 to RS.2,000.97 million in 2018-19. Interest liability during the year reduced owing to the Managements concerted efforts in reducing its borrowings-it declined from C794.83 million in 2017-18 to C672.62 million in 2018-19.
Net Profit slipped from C760.90 million in 2017-18 to C573.65 million in 2018-19.
The Capital Employed in the business declined from र 11,116.87 million as on March 31, 2018 to र 10,985.58 million as on March 31, 2019 owing to the Companys efforts in strengthening its core and exiting the non-remunerative, non-core businesses.
Shareholders Fund declined from र 12,386.78 million as on March 31, 2018 to RS.9,437.94 million as on March. 31, 2019 owing to a reduction in reserves and surplus.
The Companys total debt (current and non-current) increased from C8,239.95 million as on March 31, 2018 to RS.9,547.10 million as on March 31, 2019. This is due to loans by offshore entities for operations.
Significant changes i.e. change of 25% or more in the key financial ratios
In accordance with the amendments notified by SEBI in Regulation 17 of the SEBI (Listing Obligation and Disclosure Requirement) Regulation, 2015 on 9th May, 2018, the details of significant changes i.e. change of 25% or more in the key financial ratios as compared to the immediately previous financial year along with detailed explanations are reported hereunder
|Operating Profit Margin (%)||9.96%||13.82||386 Bps|
|Net Profit Margin (%)||4.28%||6.36%||208 Bps|
"If you dont invest in risk management, it doesnt matter what business youre in, its a risky business."
Risk management at Vivimed is an integral part of the business model and focuses on making the organisation emerge stronger and profitable.
Thephilosophy of risk management is underpinned by identifying, assessing, measuring and monitoring risks on an ongoing basis.The risk management framework goes beyond traditional boundaries and seeks to involve all key managers of the Company.
The risk management department is guided by well- established policies and procedures that are continuously benchmarked with national and global best practices. The key risks that challenge the Company progress and their mitigations are narrated for a better understanding of the Companys risk management strategy.
The Company may not have the adequate levers to accelerate its growth momentum over the coming years.
Mitigation: The Companys growth is not dependent on a single business segment-its growth is being driven by two divisions within the healthcare space APIs and Finished Dosage Forms (FDFs). In both these segments, the Company has made strategic investments to grow each vertical.
API vertical: The Company has a pipeline of molecules which will be commercialised in the next 12-18 months.
These should provide healthy volumes. Moreover, the Company has acquired SONEAS which will provide a shot in the arm to the CDMO vertical (within the API business) in terms of capability and geographic coverage. This acquisition is expected to accelerate growth over the medium term.
FDF vertical: The Company have developed new products for its existing markets which are to be launched in the current year and beyond. Moreover, the team is focused on extending its presence beyond its traditional markets to the pharmerging nations. As this strategy plays out, volumes are expected to increase.
The API segment is a competitive business space with low margins. This could impede the overall profitability of the Company.
Mitigation: Globally, API manufacture is concentrated in the Asian countries, especially in China and India owing to cost efficiencies. Recently, China clamped down the operations of some API manufacturers owing to environmental concerns which impacted the global supply chain. Hence, global formulators are seeking for more reliable API partners in India. The Company becomes a preferred choice owing to the proximity of its manufacturing presence (in Spain and Mexico) with large global formulators.
Moreover, post-acquisition of the CDMO unit, the Company will remain focused on growing this vertical which is a high-margin vertical with long-term revenue visibility. More importantly, it reduces the pressure of competitive intensity on the Company.
The Companys high reliance on debt is eating into its profitability and hampering its ability to undertake growth initiatives.
Mitigation: The Company is cognizant of its leverage position and is making continuous efforts in deleveraging its financial statements. During 201819, the Company repaid borrowings which has helped in reducing its financial liability during the year under review. Further, the exit from the Strides joint venture has brought in funds which the Company has utilised in reducing its debt burden. Further increased scale of operations should generate adequate cash flow to repay its scheduled debts. This strategy will, over the near term, will strengthen the financial position of the Company.
Regulatory non-compliance could threaten business continuity.
Vivimed has been at the forefront of complying with stringent global regulatory standards. This is reflected in an important reality-its key customers for all its business verticals are global pharmaceutical giants. The Companys facilities, systems and processes regularly undergo customer audit. During the year under review, the Company API facility successfully cleared a USFDA audit without any observation. Further, the Companys endeavour in exploring the Japanese pharmaceutical market (the most stringent global market) bears testimony to its disciplined adherence to regulatory standards.
Geographic concentration risk
More than 80% of the Companys revenue accrues from exports. Increasing protectionist strategies adopted by lawmakers of various nations could impact the Companys performance.
Mitigation: Even though more than 80% of the Companys revenue accrues from exports, the Company enjoys a global presence across nations. Moreover, going forward, the Company is working on widening its global footprint for both its revenue verticals-APIs and FDFs. In addition, the Company is also trying to increase its domestic presence which, over a period of time, should mitigate any geographic concentration.
Further, healthcare is a topic which have always remained high on priority list of every government across the world for it impacts every individual across the societal pyramid. Hence, policies announcement are largely favourable towards the healthcare sector across the globe.
Internal Control Systems and their adequacy
Vivimed maintains a system of well-established policies and procedures for internal control of operations and activities. It continuously strives to integrate the entire organisation-from strategic support functions like finance, human resource, and regulatory affairs to core operations like research, manufacturing and supply chain management.
The internal audit function is further strengthened in consultation with statutory auditors for monitoring statutory and operational issues.
The Company has appointed independent agencies as internal auditors. The prime objective of this audit is to test the adequacy and effectiveness of all internal control systems and suggest improvements. Significant issues are brought to the attention of the audit committee for periodical review.