vivo bio tech ltd share price Management discussions

GLOBAL ECONOMY OVERVIEW:

The global economic growth was estimated at a slower 3.2% in 2022, compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic effect). The relatively slow global growth of 2022 was marked by the Russian invasion of Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.

Regional growth (%)	FY 2022-2023	FY 2021-2022
World output	3.2	6.1
Advanced economies	2.5	5
Emerging and developing economies	3.8	6.3

OUTLOOK:

The global economy is expected to grow 2.8% in 2023, influenced by the ongoing Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally to 7%. Interestingly, even as the global economy is projected to grow less than 3% for the next five years, India and China are projected to account for half the global growth (Source: IMF).

INDIAN ECONOMY OVERVIEW:

Even as the global conflict remained geographically distant from India, ripples comprised increased oil import bills, inflation, cautious government and a sluggish equity market. Indias economic growth is at 7.2% in FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23. India overtook UK to become the fifth-largest global economy. India surpassed China to become the worlds most populous nation (Source: IMF, World Bank)

GROWTH OF THE INDIAN ECONOMY:

	FY 20	FY 21	FY 22	FY 23
Real GDP growth (%)	3.7	-6.6%	8.7	7.2

OUTLOOK:

India is expected to grow around 6-6.5% (as per various sources) in FY 2023-24, catalysed in no small measure by the governments 35% capital expenditure growth by the government.

GLOBAL PHARMACEUTICAL INDUSTRY OVERVIEW:

In FY 2022-23, the global pharmaceutical market is anticipated to reach USD 1,115 Billion. By 2028, the market is poised to expand even further, reaching a volume of USD 1,478 Billion, exhibiting CAGR of 5.80% during FY 2023-28. United States is predicted to lead the revenue charts in 2023, with expected revenue of approximately USD 603.40 Billion. The dynamic push for advancements in Research and Development (R&D) and the pursuit of innovative therapies to combat the multifaceted landscape of cancer are pivotal factors propelling the growth of the Oncology market.

Pharmaceutical firms are offering customized drugs for individualized disease treatment through personalized medicine, catering to patients unique traits and genetics. This shift from the one-size-fits-all approach is driving precision therapies for common conditions. However, the biologics market expansion is constrained by a shortage of skilled professionals skilled in developing these specialized drugs. Such expertise is primarily found in select US and European research organizations and medical equipment companies.

The global clinical trials market size was valued at USD 48.68 Billion in 2022 and is predicted to reach USD 83.55 Billion by 2032 with a CAGR of 5.6% during the forecast period. U.S. clinical trials market was valued at USD 24.61 Billion in 2022. North America has held 51.7% of the total market share in 2022. Asia Pacific region is growing at a CAGR of 6.8% during FY 2022-32. The growth of the global clinical trials market is driven by significant factors including the rising incidence of chronic ailments, a surge in clinical trials within developing regions, the proliferation of biologics and a growing appetite for cutting-edge treatments like personalized medicines.

In 2022, there was no significant growth in the research and development pipeline. A total of 6,147 products were actively being developed, spanning from Phase I to regulatory submission. This marked a modest 2% increase over the preceding two years and a substantial 49% growth since the year 2017.

(Source: statista, investigating news, iqvia.com, precedenceresearch. com)

INDIAN PHARMACEUTICAL INDUSTRY OVERVIEW:

The Indian pharmaceutical sector is experiencing a consistent expansion propelled by the growing elderly population, increased prevalence of age-related health conditions, evolving lifestyles, heightened healthcare awareness, wider insurance coverage and government initiatives. In 2022, this sector recorded total revenue of USD 48.4 Billion. In 2023, it has achieved a year-on-year growth of approximately 5%, elevating its earnings to USD 49.78 Billion. The Indian pharmaceutical sector, has set its sights on generating revenue of USD 57 Billion by the year 2025, with a subsequent ambitious goal of reaching USD 102.7 Billion by 2028.

India plays a significant role in the global drugs and pharmaceuticals sector, constituting approximately 5.71% of total exports in this domain. On a global scale, it holds the third position in drug and pharmaceutical production. Over the span of the past nine years, pharmaceutical exports from India have surged by 125%, escalating from Rs 90,415 Crores in FY 2013-14 to Rs 2,04,110 Crores in FY 2022-23. These exports reach out to a

broad spectrum of 200 countries and territories, with its primary export destinations being the USA, UK, South Africa, Brazil and Belgium. Around 43% of pharmaceutical products are sourced from China to facilitate the production of high-demand drugs. However, Indias efforts have borne fruit as it has successfully transitioned to manufacturing 35 out of the 53 drug raw materials that were previously imported. There are 500 API manufacturers contributing about 8% in the global API Industry. India is the largest supplier of generic medicines. It manufactures about 60,000 different generic brands across 60 therapeutic categories and accounts for 20% of the global supply of generics.

(Source: livemint, imarcgroup, insights10, finance.yahoo, prnewswire, Times of India, pib.gov, pharmabiz, businesstoday, economictimes and theprint)

GLOBAL CRO SEGMENT OVERVIEW:

The global contract research organization (CRO) services market is projected to grow from USD 82.60 Billion in 2023 to USD 188.52 Billion by 2030. Research and Development (R&D) activities are being outsourced by many pharmaceutical and biotech companies. The larger CROs acquire smaller ones to broaden their array of services and extend their geographic influence. This industry improves operational efficiencies among research entities and fosters collaborative research alliances with both sponsors and service. CRO is targeting rising markets like India and China for potential clinical trials.

The largest share of the Contract Research Organization (CRO) industry is anticipated to be observed in North America between 2022 and 2029. This projection is attributed to the concentration of significant players within the region and the escalating, extensive advancement of drug development initiatives. Major pharmaceutical companies have directed their efforts towards subcontracting clinical trials. This strategic move is poised to enhance the expansion of the market throughout the anticipated timeframe.

Europe is poised to make a significant contribution to the market share of the Contract Research Organization (CRO) industry, driven by the escalating occurrence of diseases and the expanding allocations for healthcare expenses. Similarly, the United States market is anticipated to experience robust growth owing to the increasing reliance of pharmaceutical companies on the CRO sector to enhance operational efficiency and productivity.

The growth trajectory of the CRO market is being propelled by the improving foundational elements of the biopharmaceutical sector. Many biopharmaceutical companies are reaching the conclusion of multi-year patent expiration periods, prompting them to amplify investments in the later stages of their pipelines. As a result, a moderate upswing in research and development (R&D) expenditures within the biopharma domain is projected for the foreseeable future.

In 2022, the worldwide biologics market reached a valuation of approximately USD 461.74 Billion and will sustain a compound annual growth rate (CAGR) of 10.3% from 2023 through 2030. The escalating prevalence of cancer, genetic disorders and autoimmune diseases, combined with the endorsement of numerous disease-modifying treatments for these ailments, is a key driver behind the expansion of this market.

The emergence of personalized medicine and the integration of companion diagnostics also play a pivotal role in propelling market growth. These advancements facilitate the development of more precisely targeted and efficacious treatments, consequently heightening the demand for biologic products. This upward trajectory is set to reshape the landscape of the biologics sector in the coming years.

(Source: fortune business in sights.com, grandviewresearch.com)

INDIAN CRO SEGMENT OVERVIEW:

The size of the India CRO market reached USD 0.6 Billion in 2022. This industry is expected to expand from USD 0.7 Billion in 2023 to USD 1.2 Billion by 2032, demonstrating a steady CAGR growth rate of 7.50% throughout the projected period from 2023 to 2032.

The India CRO sector is impacted by diverse climate conditions for testing, global standards, and intellectual property rights. Factors such as a large patient base, numerous hospitals, accessible skilled workforce, and cost advantages due to affordable labor contribute to market growth. India has become a prime choice for clinical trials due to its diverse patients, growing healthcare sector, skilled professionals and cost-effectiveness. The market is expected to grow through increased investment from local and international players, along with expanding research areas like diagnostics.

The burgeoning oncology studies and increased government support are fueling the India CRO market. The Indian Council of Medical Research (ICMR) forecasts a rise in cancer cases among men, from 6,79,421 in 2020 to 7,63,575 by 2025, driving oncology trials. The cost-effective trials in India also contribute to the flourishing CRO market.

(Source: market research future.com, globenewswire.com)

COMPANY OVERVIEW:

Vivo Bio Tech stands as a premier and primary provider of SPF lab animals in India. It holds the distinction of being the largest breeder and distributor of rodent models, in addition to offering custom rodent models and stem cell products through Cyagen Biosciences. The Company also serves as an authorized distributor of lab animal diets from Special Diets Services (UK) in India. Vivo Bio Tech has pioneered the commercial distribution of SPF guinea pigs, sourcing breeders from Elm Hill Labs (USA). Employing top- quality SPF breed in their in-house lab animals, the Company upholds excellence in all preclinical studies. Their comprehensive services span a wide array of preclinical toxicology disciplines, encompassing In-vitro and In-vivo studies, analytical chemistry studies, bioanalytical studies, and physico-chemical studies. These are conducted in strict alignment with international agency guidelines. The Companys advanced preclinical research facility ranks among the largest in India. Moreover, Vivo Bio Tech boasts supplementary satellite facilities situated in Pregnapur Village, Siddipet District, Hyderabad, Telangana.

FINANCIAL OVERVIEW:

ANALYSIS OF PROFIT AND LOSS STATEMENT:

Revenues: Revenue from operations reported a 1.6 increase from Rs 5,139 Lakh in FY 2021-22 to Rs 5,223.02 Lakh in FY 2022-23. Other income of the Company reported a 63.5 degrowth and accounted for a 0.1% share of the Companys revenues, reflecting the Companys dependence on its core business operations.

Expenses: Total expenses decreased by 13.6 from Rs 3,557.73 Lakh in FY 2021-22 to Rs 3072.83 Lakh in FY 2022-23. Though employee cost increased by Rs 410.16 Lakh, material cost and administrative expenditure together decreased by Rs 895.06 Lakh, resulting in a net decrease in total expenditure of Rs 484.90 Lakh. Raw material costs, accounting for a 12.9% share of the Companys revenues decreased by 40.8% from Rs 1,144 Lakh in FY 2021-22 to Rs 677 Lakh in FY 2022-23 due to decrease in imported material cost and holding period of the experimental animals, leading to increase in consumption of feed, which is imported. Employees expenses accounting for a 25.9% share of the Companys revenues increased by 43.5% from Rs 942 Lakh in FY 2021-22 to Rs 1352 Lakh in FY 2022-23.

BALANCE SHEET ANALYSIS:

SOURCES OF FUNDS:

The capital employed by the Company decreased 1.2% from Rs 11,338 Lakh as on March 31, 2022 to Rs 11,204 Lakh on March 31, 2023 owing to decrease in borrowings Return on capital employed, a measurement of returns derived from every rupee invested in the business increased by 173 basis points from 9.2% in FY2021-22 to 10.9 % in FY 2022-23 due to slight fall improvement in EBIT during the year and decrease in debt of Rs 727 Lakh during the year.

NET WORTH AND DETAILS OF ANY CHANGE IN RETURN ON NET WORTH COMPARED TO THE IMMEDIATELY PRECEDING FINANCIAL YEAR:

The net worth of the Company increased by 12.9% from Rs.4,595 Lakh as on March 31, 2022 to Rs.5,187 Lakh as on March 31, 2023 due to increase in accruals during the year. The Companys equity share capital, comprising 1,49,03,520 equity shares of Rs. 10 each, increased by 6,40,000 equity shares of H10 each during the year under review. The total debt of the Company decreased by 10.8 % to Rs.6,017 Lakh as on March 31,2023 due to repayments during the year. The debt-equity ratio of the Company stood at 1.16 in FY 2022-23 compared to 1.47 in FY 2021-22. Finance costs of the Company increased by 91.6% from Rs.399 Lakh in FY 2021-22 to Rs.765 Lakh in FY 2022-23 due to increase in cost of borrowings.

APPLICATIONS OF FUNDS:

Fixed assets (net) of the Company decreased by 5.6 % from Rs.9,604 Lakh as on March 31, 2022 to Rs.9,068 Lakh as on March 31, 2023. Depreciation on tangible assets increased by 25.9% from Rs.736 Lakh in FY 2021- 22 to Rs.927 Lakh in FY 2022-23 due to increase in fixed assets.

INVESTMENTS:

The Company had not made any Non-current investments on March 31,2022. On March 31,2023 also it has not made any Non current investments.

WORKING CAPITAL MANAGEMENT:

Current assets of the Company increased by 22.0% from Rs.2,603 Lakh as on March 31,2022 to Rs.3,179 Lakh as on March 31, 2023. The current and quick ratios of the Company stood at 1.27 and 0.95, respectively at the close of FY 2022-23 compared to 1.07 and 0.67, respectively at the close of FY 2021-22. Inventories including raw materials, work-in-progress and finished goods among others decreased by 18.7% from Rs.981 Lakh as on March 31,2022 to Rs.797 Lakh as on March 31, 2023. Trade receivables increased from Rs. 1,202 Lakh as on March 31,2022 to Rs.1,238 Lakh as on March 31, 2023, an increase of 3.0 %. The debtors turnover cycle increased slightly to 86 days of turnover equivalent in FY 2022-23 compared to 85 days in FY 2021-22. Cash and bank balances of the Company decreased by 19.9% from Rs.171 Lakh as on March 31,2022 to Rs.137 Lakhs as on March 31,2023. Short-term loans and advances made by the Company increased by 333.3% from Rs.159 Lakh as on March 31,2022 to Rs.684 Lakh on March 31,2023.

MARGINS:

The EBIDTA margin of the Company improved by 1025 basis points from 30.9% in FY 2021-22 to 41.2% in FY 2022-23 while the net profit margin of the Company increased 79 basis points from 4.28% in FY 2021-22 to 5.07% in FY 2022-23.

KEY RATIOS:

Particulars	F.Y. 2022-23	F.Y. 2021-22
EBIDTA/Turnover (%)	41.21	30.96
EBIDTA/Net interest ratio	2.81	3.98
Debt-equity ratio	1.20	1.43
Return on equity (%)	5.35	4.91
Inventory turnover ratio	0.76	0.99
Book value per share (H)	34.81	33.04
Earnings per share (H)	1.78	1.56
Debtors turnover (days)	85.00	69.00
Interest coverage ratio (x)	1.60	2.12
Current ratio (x)	1.27	1.12
Operating profit margin (%)	23.48	16.47
Net profit margin (%)	5.07	4.28

OPPORTUNITIES AND THREATS:

In 2023, the global market for CRO services reached a valuation of approximately USD 76.6 Billion. This market is set to ascend and attain a worth of USD 127.3 Billion by 2028, exhibiting a solid compound annual growth rate (CAGR) of 10.7% during 2023 to 2028. The industry displays fragmentation, encompassing a spectrum of participants. These range from specialized functional service providers, often from smaller companies with focused capabilities, to integrated service providers offering a comprehensive range of services spanning early-stage drug discovery to early development services.

The Company is strategically positioned to capitalize on market opportunities due to its unwavering commitment to integrated drug discovery solutions and substantial investments in advanced technologies and platforms. The ongoing development of an advanced laboratory has bolstered its growth trajectory. The Companys primary focus remains on addressing the needs of its long-term strategic partners through investments in novel capabilities and consistent enhancements in services offered within these partnerships.

In terms of risk management, the Companys leadership team regularly evaluates critical risk areas. They define the nature and scope of notable risks, outlining corresponding plans to mitigate and address them. The identified risks are as follows:

• Ensuring business continuity

• Workforce health and safety

• Product quality and efficacy

• Supply chain disruptions and growing input costs

• Price-erosion and competition in the regulated markets

• Cyber-security and data privacy regulations

• Environment, Health and Safety (EHS) risks

• Regulatory and compliance management

RISKS AND CONCERNS:

The biotechnology sector carries inherent high-risk elements due to substantial capital invested in researching and developing new products. However, the outcome might not guarantee a products successful development. Moreover, even after creating a new product, generating revenue and achieving profitability remain uncertain. Factors like competition, patent protection, and regulatory dynamics can impact the potential profitability of a product.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Companys internal audit system has been constantly assessed and updated to ensure that assets are safeguarded, established

regulations are complied with and pending issues are promptly addressed. The Audit Committee reviews reports presented by the internal auditors on a timely basis. The Committee makes note of the audit observations and takes corrective actions, if required. It maintains constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively.

HUMAN RESOURCES:

As of March 31, 2023, the Company had a workforce of 150 employees, including officers and workmen. The Companys emphasis on advancing individual and collective skills has contributed to the growth of its human capital, keeping it attuned to market dynamics and demands. The Company has devised initiatives for skill enhancement and upgrading employee capabilities. Knowledge-sharing programs were organized, and employees participated in external programs to broaden their understanding of emerging standards. Several innovative ideas from employees were put into action, leading to improved quality, cost efficiency, and productivity.

CAUTIONARY STATEMENT:

This statement made in this section describes the Companys objectives, projections, expectation and estimations which may be forward looking statements within the meaning of applicable Securities Laws and Regulations. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual results could differ materially from those expressed in the statements or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent development, information or events.