Vivo Bio Tech Ltd Management Discussions

Global economic growth declined from 3.5% in 2022 to an estimated 3.0% in 2023. A disproportionate share of global growth in 2023-24 is expected to come from Asia, despite the weaker-than-expected recovery in China, sustained weakness in USA, higher energy costs in Europe, weak global consumer sentiment on account of the Ukraine-Russia war and the Red Sea crisis resulting in higher logistics costs. A tightening monetary policy translated into increased policy rates and interest rates for new loans.

Growth in advanced economies is expected to slow from 2.6%in 2022 to 1.5% in 2023 and 1.4% in 2024 as policy tightening takes effect. Emerging market and developing economies are projected to report a modest growth decline from 4.1% in 2022 to 4.0% in 2023 and 2024. Global inflation is expected to decline steadily from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024, due to a tighter monetary policy aided by relatively lower international commodity prices. Core inflation decline is expected to be more gradual; inflation is not expected to return to target until 2025 in most cases. The US Federal Reserve approved a much-anticipated interest rate hike that took the benchmark borrowing costs to their highest in more than 22 years.

[Jamila]Global trade in goods was expected to have declined nearly USD 2 Triillion in 2023; trade in services was expected to have expanded to USD 500 Billion. The cost of Brent crude oil averaged $83 per barrel in 2023, down from $101per barrel in 2022, with crude oil from Russia finding destinations outside the European Union and global crude oil demand falling short of expectations.

Global equity markets ended 2023 on a high note, with major global equity benchmarks delivering double-digit returns. This outperformance was led by a decline in global inflation, slide in the dollar index, declining crude and higher expectations of rate cuts by the US Fed and other Central banks.

(Source: UNCTAD, IMF)

United States: Reported GDP growth of 2.1% in 2023 compared to 2.1% in 2022 China: GDP growth was 5.0% in 2023 compared to 3.0% in 2022 United Kingdom: GDP grew by 0.5% in 2023 compared to 4.1% in 2022 Japan: GDP grew 2.0% in 2023 unchanged from a preliminary 1.0% in 2022 Germany: GDP contracted by 0.5% in 2023 compared to a growth of 1.8% in 2022

(Source: PWC report, EY report, IMF data, OECD data, Livemint)

Asia is expected to continue to account for the bulk of global growth in 2024-25. Infiation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy has demonstrated resilience amid high inflation and monetary tightening, growth around previous levels for the next two years. (Source: World Bank)

Overview: The Indian economy grew 8.2% in 2023-24 fiscal against 7.0% in 2022-23 mainly on account of the improved performance in the mining and quarrying, manufacturing and certain segments of the services sector. India retained its position as the fifth largest economy. The Indian rupee displayed relative resilience compared to the previous year; the rupee opened at H82.75 against the US dollar on the first trading day of 2023 and on 29 December was H83.15 versus the greenback.

In FY 2023-24, the CPI inflation averaged 5.4% with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5%, a sharp decline from 6.2% in FY 23. The softening of global commodity prices led to a moderation in core inflation.

The nation?s foreign exchange reserves achieved a historic milestone, reaching $670 Billion. The credit ratio (the ratio of entities upgraded to those downgraded) moderated in the second half of fiscal 2024 but remained elevated at 1.79 times, compared to 1.91 times in the first half. Overall, there were 409 upgrades and 228 downgrades. India recorded about 131 Billion Uni_ed Payments Interface (UPI) transactions with a total value of H200 Triillion in FY24.

(Source: Budget FY 2023-24; Economy Projections, RBI projections, Deccan Herald) India?s monsoon for 2023 hit a five-year low. August was the driest month in a century. From June to September, the country received only 94% of its long-term average rainfall. Total rice production is estimated at 1367.00 LMT in 2023-24, against 1357.55 LMT in 2022-23, marking an increase of 9.45 LMT. Wheat production is estimated at 1129.25 LMT, higher by 23.71 LMT over last year?s production. Total Kharif pulses production for 2023-24 was 71.18 LMT, lower than the previous year due to climatic conditions. As per the first advance estimates of national income released by the National Statistical Office (NSO), the manufacturing sector output grew 9.9% in FY2023-24 compared to 4.7% in FY2022-23. The Indian mining sector grew 7.5% in FY2023-24 over 4.1% in FY2022-23.

Real GDP or GDP at constant prices increased from to H160.71 lakh crore in 2022-23 (provisional GDP estimate released on 31^st May, 2023) to an H173.82 lakh crore in 2023-24. Nominal GDP or GDP at current prices was at H295.36 lakh crore in 2023-24 as compared to the provisional 2022-23 GDP estimate of H269.50 lakh crore. The gross non-performing asset ratio for scheduled commercial banks improved from 4.1% as of March 2023 to 2.8% as of March 2024.

India?s exports of goods and services touched USD 778 Billion in 2023 compared to $770 Billion in the previous year. Merchandise exports marginally declined from USD 451.1 Billion to USD 437.1 Billion, while services exports increased from USD 325.3 Billion to USD 341.1 Billion. India?s net direct tax collections surged by 17.7% year-on-year to H19.58 crore in fiscal year 2023-24. Gross GST collection of H20.2 lakh crore represented an 11.7% increase; average monthly collection was H1,68,000 crore, surpassing the previous year?s average of H1,50,000 crore.

During FY 2023-24, the construction grew by 9.9% each, while agriculture recorded growth of 1.4%. Financial, real estate and professional services grew by 8.4% in FY 2023-24.

India reached a pivotal phase in its S-curve, characterized by acceleration in urbanization, industrialization, household incomes and energy consumption. India?s Nifty 50 index grew 30% in FY2023-24 and India?s stock market emerged as the world?s fourth largest with a market capitalization of USD4 Triillion. Foreign investment in Indian government bonds jumped in the last three months of 2023. India?s unemployment declined to a low of 3.2% in 2023 from 6.1% in 2018.

Outlook: India withstood global headwinds in 2023 and is likely to remain the world?s fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. Growth in India is projected to remain strong at 7.0% in 2024 and 6.5% in 2025, with the robustness reflecting continuing strength in domestic demand and a rising working-age population.

The Indian economy is anticipated to surpass USD 4 Triillion in 2024-25. The growth in nominal GDP during 2023-24 is estimated at 9.6% as compared to 14.2% in 2022-23. Strong domestic demand for consumption and investment, along with Government?s continued emphasis on capital expenditure are seen as among the key driver of the GDP in the second half of FY 2023-24 Union Budget FY 2024-25: The Union Budget FY 2024-25 retained its focus on capital expenditure spending, comprising investments in infrastructure, solar energy, tourism, medical ecosystem and technology. In FY 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. Of these, the Ministry of Defence reported the highest allocation at H6,21,941 crore, accounting for 13% of the total budgeted expenditure of the central government. Other ministries with high allocation included Road transport and highways (5.8%), Railways (5.4%) and Consumer Affairs, food and public distribution (4.5%).

(Source: Times News Network, Economic Times, Business Standard, Times of India)

In 2024, the global pharmaceuticals market is anticipated to reach at a revenue of USD 1,155 Billion. The market is growing at a rate of 4.71% CAGR from 2024 to 2029. The market is expected to reach USD 1,454 Billion by 2029, highlighting the sector?s robust expansion. A key player in this global market is the United States, which is expected to generate the highest revenue, amounting to USD 630 Billion in 2024. The U.S. maintains its leading position due to its advanced healthcare infrastructure and strong research and development (R&D) capabilities, which drive pharmaceutical innovation and development.

The Pharmaceuticals market spans various countries worldwide, the United States stands out for its contributions to pharmaceutical advancements and its capacity to spearhead growth in the industry. This dynamic environment underscores the pivotal role of the U.S. in shaping the future of global healthcare through continued innovation and investment in the pharmaceutical sector.

Pharmaceutical firms are increasingly offering customized drugs tailored to individual patients through personalized medicine, addressing unique traits and genetics for more effective disease treatment. This shift from a one-size-fits-all approach is driving the development of precision therapies for common conditions. However, the expansion of the biologics market faces constraints due to a shortage of skilled professionals pro_cient in developing these specialized drugs. Such expertise is primarily concentrated in select research organizations and medical equipment companies in the United States and Europe.

The global clinical trials market valued USD 48.2 Billion in 2023 and it is expected to grow to USD 73.2 Billion by 2028, reflects significant advancements driven by increasing investments in pharmaceutical research and development (R&D) and a burgeoning pipeline of drug candidates. Key trends shaping this growth include the outsourcing of R&D functions to Contract Research Organizations (CROs), especially for biologics and biosimilars, which demand specialized testing services. This strategic shift towards CROs enables pharmaceutical companies to leverage specialized expertise and advanced technologies, thereby accelerating the development of innovative therapies and maintaining a competitive edge in the market.

(Source: Statista, Markets and Markets)

India has emerged as the medical tourism hub of the world providing cost-e_ective treatments with the latest technology enabled by several pathbreaking reforms and provisions. The pharmaceutical industry in India is expected to reach USD 65 Billion by 2024 and, it is estimated to reach USD 130 Billion by 2030. The pharmaceutical industry in India valued USD 50 Billion in 2023. India is a major exporter of pharmaceuticals, with over 200 countries served by Indian pharma exports. India plays a crucial role in the global pharmaceuticals market by supplying over 50% of Africa?s generic drug requirements, 40% of the generic drug demand in the U.S. and 25% of all medicines in the UK. India is a significant contributor to the global vaccine supply, accounting for 60% of all vaccines worldwide. Notably, 70% of the World Health Organization?s (WHO) essential immunization vaccines are sourced from India.

India is the largest supplier of generic medicines, manufacturing approximately 60,000 different generic brands across 60 therapeutic categories. The country accounts for 20% of the global supply of generics. Additionally, with 500 API (Active Pharmaceutical Ingredient) manufacturers, India contributes about 8% to the global API industry. India has traditionally been a strong player in the pharmaceutical sector, boasting manufacturing costs that are 30% to 35% lower than the US and Europe. The country also benefits from cost-e_cient R&D, which is approximately 87% less expensive than in developed markets and an abundance of affordable skilled labour.

(Sources: Invest India, IBEF)

Rising incidence of non-communicable & infectious diseases: Non-communicable diseases (NCDs) claim the lives of 41 Million people annually, accounting for 74% of all global deaths. This staggering prevalence drives significant growth in the pharmaceutical industry as the demand for treatments, therapies and preventive measures increases.

Growing population: In FY 2023-24, India surpassed China as the world?s most populous country, with a current population of 1.44 Billion. This number is expected to rise to 1.51 Billion by 2030, creating substantial opportunities for growth in the pharmaceutical industry. As the population expands, the demand for healthcare services, medicines and medical innovations, driving the need for increased production and distribution of pharmaceutical products.

Improved access to healthcare: India ranks as the fifth-largest life insurance market among the world?s emerging economies, experiencing annual growth of 32% to 34%. This robust expansion in the insurance sector supports the growth of the pharmaceutical industry by increasing access to healthcare services and medications.

Higher a_ordability: India?s per capita disposable income is projected to reach H2.14 lakh in FY 2023-24. This increase in disposable income is a significant driver of growth for the pharmaceutical industry. As individuals have more financial resources, they are more likely to invest in healthcare, leading to higher demand for medications, preventive care and wellness products.

Government support: In 2024-25 Union Budget, The Department of Health and Family Welfare?s allocation of H87,656.90 crores represents a 12.93% increase from the revised allocation of H77,624.79 crores in the previous year. This significant boost in funding aims to enhance health services and infrastructure, which in turn benefits the pharmaceutical industry.

(Sources: World Health Organization, Countrymeters.info, IBEF, The Economic Times, Business Today)

The global contract research organization (CRO) services market reached USD 79.54 Billion in 2023. The market is expected to grow from USD 86.33 Billion in 2024 to USD 175.46 Billion by 2032, with a growing CAGR of 9.3%, from 2019 to 2032. Contract research organizations (CROs) offer a range of services, including preclinical research, data collection and clinical trial management, biotechnology, pharmaceutical and medical device companies.

By partnering with CROs, life science companies can significantly cut down on the costs, required time to develop and launch new therapeutics and medical devices.

The growing number of patients with chronic medical conditions and the increasing geriatric population are expected to enhance growth opportunities for the contract research organization (CRO) industry. The rise in clinical trials is likely to drive more companies to outsource services to CRO providers. North America dominates the overall CRO market, accounting for an estimated 43% to 52% of the market share. Meanwhile, regions such as Europe and Asia-Pacific are experiencing rapid growth, fuelled by an increase in clinical research activities, favourable government initiatives and the availability of skilled professionals.

The global was valued at USD 461.74 Billion in 2022 and it is expected to grow at a rate of 10.3% CAGR from 2023 to 2030. The increasing prevalence of cancer, genetic diseases and autoimmune disorders, along with the approval of several disease-modifying therapies are driving market growth. The advancement of personalized medicine and companion diagnostics is further propelling the market expansion. The incidence of cancer is expected to increase from 19.3 Million in 2020 to 24.6 Million by 2030. Autoimmune diseases are seeing an annual prevalence increase of 3% to 9%. Neurological conditions, including Alzheimer?s and Parkinson?s diseases, are also on the rise. The prevalence of Alzheimer?s disease is anticipated to reach 78 Million by 2030 and 139 Million by 2050. The development of disease-modifying therapies, such as monoclonal antibodies, is driving growth in the biologics industry.

(Sources: Fortune Business Insights, Alimentiv, Grandview Research)

India contract research organization (CRO) services market reached USD 0.69 Billion in 2023. The CRO market industry is expected to grow from USD 0.73 Billion in 2024 to USD 1.32 Billion by 2032, with a growth rate of 7.23% CAGR during the forecast period from 2024 to 2032.

The market is propelled by several key drivers such as the globalization of clinical trials, the adoption of new technologies in clinical research, the increasing diversity and prevalence of illnesses and the rise in research and development outsourcing. The Indian government is actively working to enhance R&D efforts, which is anticipated to foster market growth. To further boost R&D operations, the Department of Pharmaceuticals in India proposed a new strategy in October 2021 aimed at reducing the approval time for innovative products by at least 50% over the next two years. Such initiatives are expected to support continued market expansion. 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 labour contribute to market growth.

(Sources: Market Research Future)

Cost efficiency: India provides a cost-e_ective environment for conducting clinical trials and research, making it an attractive destination for global pharmaceutical and biotechnology companies. Clinical trials in India can be conducted at 40% to 70% lower costs compared to similar trials in Europe or the U.S, enhancing its demand as a research hub for global firms.

Skilled workforce: India has a large pool of highly skilled scientists, researchers and healthcare professionals. The availability of expertise in various fields, including pharmacology, biotechnology, and clinical research, enhances the capabilities of CROs in India.

Favourable regulatory environment: The Indian government has been actively streamlining and enhancing regulatory frameworks to boost clinical research and trials. These efforts include faster approval processes and policies that attract foreign investment in the CRO sector. From 2017 to 2023, phase II and phase III clinical trials in India grew by approximately 15% to 18%, largely due to the 10 key modifications made to the Drugs and Cosmetics Act of 1940.

Growing pharmaceutical industry: India?s pharmaceutical industry is witnessing rapid expansion, Contract Research Organizations (CROs) are crucial in advancing the drug development pipeline, resulting in increased demand for their services. The industry is set to achieve ambitious growth targets, aiming for a market of USD 130 Billion by 2030 and USD 450 Billion by 2047.

Technological advancements: The adoption of advanced technologies such as artificial intelligence (AI), big data analytics, and digital health tools is enhancing the efficiency and accuracy of clinical trials and research conducted by CROs.

Rising outsourcing: Many global pharmaceutical and biotechnology companies are outsourcing their research and clinical trial activities to Indian CROs to take advantage of cost efficiencies, specialized expertise and quicker time-to-market. With over 3,000 drug companies and 10,500 manufacturing units, India has established itself as a major drug production and export hub.

(Sources: BioVoice News, The Economic Times, Livemint, Centurion Health Care)

Vivo Bio Tech stands as the leading provider of SPF lab animals in India, recognized as the largest breeder and distributor of rodent models. Partnering with Cyagen Biosciences, Vivo Bio Tech offers custom rodent models and stem cell products. Additionally, the company is an authorized distributor of lab animal diets from Special Diets Services (UK) in India. Vivo Bio Tech is a pioneer in the commercial distribution of SPF guinea pigs, sourcing breeders from Elm Hill Labs (USA). Utilizing top-quality SPF breeds in their in-house lab animals, the company ensures excellence in all preclinical studies. Their comprehensive services cover a wide array of preclinical toxicology disciplines, including In-vitro and In-vivo studies, analytical chemistry studies, bioanalytical studies and physico-chemical studies, all conducted in strict accordance with international agency guidelines. The Company?s advanced preclinical research facility ranks among the largest in India. Vivo Bio Tech has its main facility located in Pragnapur Village, Siddipet District, Hyderabad, Telangana.

Revenues: Revenue from operations reported a 13.1% decrease from H51.62 Crore in FY 2022-23 to H44.88 Crore in FY 2023-24. Other income of the Company remained at the same level as the previous year and accounted for a 0.1% share of the Company?s total revenues, reflecting the Company?s dependence on its core business operations.

Expenses: Total expenses decreased by 21% from H30.13 Crore in FY 2022-23 to H23.80 Crore in FY 2023-24. Employee cost decreased by H3.01 Crore, material cost and administrative expenditure also decreased by H2.92 Crore and H0.40 Crore respectively, resulting in a net decrease in total expenditure of H6.34 Crore. Raw material costs, accounting for a 8.6% share of the Company?s revenues decreased by 43.1% from H6.77 Crore in FY 2022-23 to H3.85 Crore in FY 2023-24 due to reduction in scale of operations. Employees? expenses accounting for a 22.6% share of the Company?s revenues decreased by 22.9% from H13.15 Crore in FY 2022-23 to H10.13 Crore in FY 2023-24.

The capital employed by the Company increased 8.8% from H114.27 Crore as on March 31, 2023 to H125.23 Lakh on March 31, 2024 owing to an increase in borrowings to setup the large animal facility. Return on capital employed, a measurement of returns derived from every rupee invested in the business decreased by 89 basis points from 10.8% in FY 2022-23 to 9.9% in FY 2023-24 as the returns on the investment being made in the large animal facility will accrue in FY 26 while the debt increased by H8.44 Crore as at the end of the year.

The net worth of the Company increased by 4.9% from H51.87 Crore as on March 31, 2023 to H54.40 Crore as on March 31, 2024 due to increase in accruals during the year. The Company?s equity share capital, comprising 1,49,03,520 equity shares of H10 each, during the year under review remained the same as in the previous year. The total debt of the Company increased by 13.5 % to H70.84 Crore as on March 31, 2024 due to [increase in borrowings to setup the large animal facility during the year. The debt-equity ratio of the Company stood at 1.30 in FY 2023-24 compared to 1.20 in FY 2022-23. Finance costs of the Company increased by 1.7% from H7.65 Crore in FY 2022-23 to H7.7 Crore in FY 2023-24 due to increase in borrowings for setting up the large animal facility.

The Company had not made any Non-current investments on March 31, 2024.

Current assets of the Company increased by 48.6% from H31.79 Crore as on March 31, 2023 to H47.23 Crore as on March 31, 2024.

The current and quick ratios of the Company stood at 3.62 and 3.39, respectively at the close of FY 2023-24 compared to 1.27 and 0.95, respectively at the close of FY 2022-23. Inventories including raw materials, work-in-progress and finished goods among others increased by 10.1% from H7.97 Crore as on March 31, 2023 to H8.77 Crore as on March 31, 2024. Trade receivables decreased from H12.38 Crore as on March 31, 2023 to H11.80 Crore as on March 31, 2024, an decrease of 4.7%. The debtors? turnover cycle increased to 96 days of turnover equivalent in FY 2023-24 compared to 86 days in FY 2022-23. Cash and bank balances of the Company increased by 1.1% from H1.37 Crore as on March 31, 2023 to H1.39 Crore as on March 31, 2024. Short-term loans and advances made by the Company increased by 254.2% from H6.84 Crore as on March 31, 2023 to H24.22 Crore as on March 31, 2024.

The EBIDTA margin of the Company improved by 536 basis points from 41.7% in FY 2022-23 to 47% in FY 2023-24 while the net profit margin of the Company increased 51 basis points from 5.1% in FY 2022-23 to 5.6% in FY 2023-24.

The Company is strategically positioned to seize market opportunities, driven by its unwavering commitment to integrated Preclinical CRO solutions and substantial investments in advanced technologies and platforms. The development of an advanced GLP certified laboratory has significantly bolstered its growth trajectory. The Company?s primary focus is on addressing the needs of its long-term strategic partners through investments in novel capabilities and continuous enhancements in services within these partnerships. Regarding risk management, the Company?s leadership team regularly evaluates critical risk areas. They define the nature and scope of notable risks and outline corresponding plans to mitigate and address them. The identified risks are as follows:

Maintaining business resilience

Health and safety of the workforce

Product effectiveness and quality

Increased input costs and supply chain disruptions

Competition and price erosion in regulated markets

Data privacy and cyber security laws

Environment, Health and Safety (EHS) risks

Management of regulations and compliance

The Preclinical CRO sector inherently carries high-risk elements due to the substantial element of accuracy and quality of services Despite significant investment, there is no guarantee of sharp increase in revenues as building brand and trust is a long drawn process in the sector. Factors such as competition, regulatory dynamics and the position in the value chain in which the company operates can impact potential profitability.

The Company?s internal audit system is continually assessed and updated to ensure asset protection, compliance with established regulations and prompt resolution of pending issues. The Audit Committee regularly reviews reports from internal auditors, noting observations and taking corrective actions when necessary. It maintains ongoing dialogue with statutory and internal auditors to ensure the effective operation of internal control systems.

As of March 31, 2024, the Company had a workforce of 150 employees, including officers and workmen. The Company focuses on advancing individual and collective skills has significantly contributed to the growth of its human capital, ensuring alignment with market dynamics and demands. The Company has implemented initiatives for skill enhancement and employee capability upgrades. Knowledge-sharing programs have been organized and employees have participated in external programs to broaden their understanding of emerging standards. Several innovative employee ideas have been put into action, leading to improved quality, cost efficiency and productivity.

This statement made in this section describes the Company?s objectives, projections, expectations 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.