Zota Health Care Ltd Management Discussions

Economy review 2024

Global economy

In 2024, the global economy successfully navigated through a complex array of challenges such as geopolitical strife and volatile commodity markets and showed remarkable adaptability. This year, global economic growth is anticipated to accelerate, largely driven by the robust performance of the U.S. economy, which is a key contributor to the worlds economic prospects over the next two years.

However, the expected reduction in global interest rates has been tempered due to persistent inflationary pressures in major economies.

Worldwide inflation is on a downward trajectory, inching closer to the targets set by central banks in both advanced and emerging market and developing economies (EMDEs), albeit at a slower pace than initially forecasted. Core inflation, particularly in the services sector, has remained high across numerous economies. Moving forward into

2024, stringent monetary policies and a deceleration in wage growth are projected to further curb inflation. Global inflation rates are predicted to fall to

3.5 % in 2024, and then to 2.9 % in 2025, eventually settling at 2.8 % in 2026, aligning with the average inflation targets of various countries.

Despite the most aggressive monetary policy tightening in the last forty years, global economic growth has been resilient. It is expected to stabilize at

2.6 % in the fiscal year 2025, marking the first time in three years that growth has remained steady amidst escalating geopolitical tensions and elevated interest rates. Central banks, both in advanced economies and EMDEs, are likely to proceed with caution before easing their policies. As the global economy edges towards a soft landing, the immediate focus for central banks is to manage a smooth reduction in inflation, avoiding premature policy easing or excessive delays that could lead to missing their targets. An upswing in global activity is anticipated, fuelled by enhanced productivity and lower policy rates, which would lead to more favourable financial conditions, increased real incomes, and improved market sentiment. Additionally, EMDEs may experience a boost from stronger capital inflows. In many EMDEs, domestic demand is expected to recover this year, reflecting a moderate cyclical rebound from the impacts of high inflation, stringent financial conditions, and sluggish industrial activity. Growth in emerging and developing Asia is forecasted to decrease from an estimated 5.6 % in 2023 to 5.2 % in 2024, and further to 4.9 % in 2025.

Indian economy

The Indian economy concluded the fiscal year 2024 on a strong note, outperforming market expectations despite significant external challenges. Indias growth is set to remain robust at 72 % in 2025, buoyed by sustained domestic demand and a growing working-age population. Industrial activity is on the rise, as evidenced by improved industrial capacity utilization and positive trends in the Index of Industrial Production and the Purchasing Managers Index (PMI) for manufacturing. Surveys conducted by the Reserve Bank of India also indicate an uptick in consumer confidence and a brighter industrial outlook.

India continues to be an attractive destination for investments, offering global enterprises considerable scale, skilled workforce, and advanced technology. Micro, small, and medium enterprises (MSMEs) will continue to play a crucial role in generating employment, income, capabilities, and ecosystems that support sustained growth in consumption, manufacturing, and infrastructure investments.

Key sectors that are inviting foreign investment in India in 2024 include healthcare and insurance, fintech, renewable energy and climate tech, electric vehicles and automotive, IT and services, real estate and infrastructure, fast-moving consumer goods (FMCG), and research and development (R&D), tech innovation, and artificial intelligence (AI). These sectors have experienced significant growth in 2023, spurred by relaxed foreign direct investment (FDI) policies and production-linked incentive (PLI) schemes that have encouraged industry-specific capacity expansion.

Despite global economic headwinds, Indias foreign exchange reserves remain robust, and the Indian rupee has shown notable resilience against the US dollar in recent times. Indias merchandise exports saw a modest year-over-year increase of 1.08% in April 2024, amid gradually improving economic conditions and consumer sentiment in Europe, coupled with a stable U.S. economy. The primary contributors to export growth were sectors such as electronic goods, organic and inorganic chemicals, petroleum products, and pharmaceuticals.

The nations economy experienced strong growth in the fiscal year 2023-24, propelled by vigorous investment activity, despite a subdued external demand environment. The manufacturing and services sectors were the main drivers of growth on the supply side, while agricultural output was hampered by irregular and insufficient monsoon rains. The growth outlook remains positive, supported by the governments continuous emphasis on capital expenditure and fiscal prudence. Other factors contributing to growth include solid corporate financials, increased capacity utilization, double-digit credit expansion, a robust financial sector, and ongoing disinflation. However, persistent geopolitical tensions, the risk of geoeconomic fragmentation, and potential adverse climate events pose downside risks to the economic forecast.

Source: World Economic Outlook April 2024, Global Economic Prospects 2024.

Industry overview

Global pharmaceutical industry

Following a period of plateaued growth in 2023, attributed to a deceleration in the biologics sector and reduced demand for COVID-19 related vaccines and treatments, the pharmaceutical drugs industry has seen a significant resurgence.

The market is forecasted to expand from a value of US$1199.86 billion in 2023 to US$1267.05 billion in 2024, achieving a compound annual growth rate (CAGR) of 5.6%. This growth during the historical period is linked to several key factors: an increase in public health consciousness, a surge in respiratory illnesses, lifestyle changes, heightened investment in pharmaceutical research and development (R&D), an expanding elderly demographic, an uptick in surgical operations, vigorous economic advancements in developing markets, and a boost in the authorization of drugs for hematology and oncology (cancer). While vaccine production is anticipated to bolster market expansion, its contribution is expected to be more modest compared to prior years.

In developed economies such as the United States and Europe, year-on-year (YoY) growth is anticipated to remain modest. Economic challenges like recession, persistent inflation, and rising interest rates are affecting household purchasing power, leading to a decreased demand for products like over-the-counter medicines. Additionally, efforts to reduce fiscal deficits and government debt are likely to curtail public healthcare spending. In regions including the EU, US, and UK, the introduction of new or revised drug pricing regulations aims to reduce state healthcare costs, though this has been met with resistance from the pharmaceutical industry, which cautions that such regulations could hinder their ability to fund R&D.

Conversely, emerging markets in Asia-Pacific,

Latin America, and other regions are expected to exhibit stronger single-digit YoY growth. Changes in work patterns, such as the increase in sedentary jobs and busy lifestyles, along with evolving consumer health preferences, are influencing the global disease profile, particularly the incidence of non-communicable diseases (NCDs) like cancer, diabetes, and cardiovascular diseases. Factors such as long working hours, reduced physical activity, and poor dietary choices are significant contributors to chronic conditions like diabetes.

The World Health Organization (WHO) reports that NCDs are responsible for 41 million deaths each year, accounting for 74% of global mortality. This statistic highlights the escalating demand for biologic drugs to manage conditions such as diabetes, which is expected to enlarge the global patient base and, in turn, drive growth in the pharmaceutical drug market. Additionally, the increasing prevalence of rare diseases is anticipated to propel the market forward. Rare diseases, which have a lower incidence compared to more common health issues, affect a small fraction of the population. Pharmaceutical drugs are vital in managing these conditions, aiding in the discovery of potential treatments, and avoiding unnecessary interventions that could lead to severe side effects, thus contributing to more effective treatment strategies.

Overall, the pharmaceutical sector continues to exhibit a solid financial foundation, characterized by substantial equity, strong solvency, and ample liquidity. The majority of companies within the pharmaceutical and biotechnology fields benefit from favourable access to external capital, which is instrumental in sustaining their substantial investments in research and development. This financial stability is crucial for fostering innovation and bringing new, life-saving drugs to market. Moreover, the industrys robust financial position is expected to underpin future growth and enable companies to navigate the complexities of global health challenges while continuing to invest in groundbreaking medical research and development.

Source: Research & Markets, Atradius.

Indian pharmaceutical industry

The Indian pharmaceutical sector, as of 2024, has established itself as a formidable force on the international stage, known for its vigorous expansion and innovative breakthroughs. India has a storied tradition of manufacturing generics that are both cost-effective and of superior quality, cementing its crucial role in the worldwide health sector.

The industry is distinguished by its energetic R&D efforts, substantial exports, and a robust internal market. In the wake of the pandemic, the Indian pharmaceutical industry is well-positioned to further solidify its contribution to global health security and the advancement of medical research.

A recent report by EY FICCI indicates a growing agreement on the delivery of innovative therapies to patients. The Indian healthcare market, valued at around US$180 billion in FY 2023, is projected to surge to approximately US$320 billion by FY 2028. The sector is witnessing the dawn of innovation as firms increasingly harness new technologies to introduce fresh vectors of innovation, including novel business models, software-driven solutions, and products that go beyond traditional value engineering. These innovations have spawned a variety of solutions for both consumer and enterprise segments in healthcare, spurring market growth by improving access and affordability, and enhancing health outcomes.

The Indian Pharmaceutical industry has undergone significant transformations, with substantial investments and government backing in recent times. The availability of a skilled labour force and high levels of managerial and technical expertise make India an attractive destination for private investment. Pharmaceutical companies are ramping up investments to penetrate rural markets and upgrade infrastructure. India fulfils over half of the global vaccine requirements, 40% of generic drug demand in the U.S., and a quarter of the UKs medicinal needs. The Drugs and Pharmaceuticals sector has seen a cumulative FDI equity inflow of USUS$ 22.38 billion from April 2000 to December 2023, accounting for about 3.4% of the total sectoral inflow.

Outlook

Post-Covid-19, the Indian pharmaceutical industrys performance has remained buoyant through 2023. With a current valuation of US$50 billion, innovative advancements are anticipated to drive the sectors value to between US$120 and US$130 billion in the coming decade. The domestic formulations market is poised for an 8-10 % CAGR growth (US$ 20-22 billion) in FY24, albeit slightly lower than prepandemic growth rates due to stiff competition from China. The API segment has witnessed a modest growth with a near 5 % CAGR from FY18 to FY23.

As the worlds third-largest pharmaceutical industry by volume, exporting to over 200 countries, India is on a positive growth path with significant potential for expansion in the years ahead. Medical spending in India is forecasted to climb by 9-12% over the next five years, positioning it among the worlds top 10 spenders. The Indian government has unveiled substantial incentives to bolster local API production and compete with China. Ambitious goals have been set to grow the medical devices industry from a current value of USUS$ 11 billion to UsUs$ 50 billion by 2030. To promote self-sufficiency and reduce import reliance on critical bulk drugs, the Department of Pharmaceuticals has launched a PLI scheme to encourage domestic manufacturing through the establishment of greenfield plants across four separate Target Segments, with a total investment of D6,940 crore (USUS$ 951.27 million) from FY21 to FY30.

Moreover, pharmaceutical manufacturers in the U.S. and Europe are considering partnerships with Indian contractors to decrease dependence on China. The shift of Indian companies towards chronic disease therapies, such as cardiovascular, diabetes, anti-depressants, and cancer treatments, is expected to fuel domestic sales growth. The swift market entry of generic drugs remains a priority and is likely to yield advantages for Indian pharmaceutical firms.

Source: Bain & Company Report, India Brand Equity Foundation.

Key emerging trends & growth drivers

The Indian pharmaceutical industry is expected to see significant growth in coming years, driven by several key factors:

Government Support and Initiatives: The Indian government has been a strong proponent of the pharmaceutical industry, implementing various strategies and policies to stimulate domestic production and foster innovation. There has been a significant increase in government healthcare spending, which rose by 33 % from 1.4 % of GDP in 2019 to 2.1 % in 2023. Additionally, the government is channelling funds to nurture healthcare startups and the broader ecosystem.

Surge in Generic Drug Demand: As a leading global provider of generic drugs, India fulfils a considerable share of the demand in international markets, including the US and UK. The trend of rising demand for these cost-effective alternatives is expected to persist.

Global Value Chain Reconfiguration: The restructuring of global pharmaceutical value chains is anticipated to enhance the prospects for export- driven segments. According to Bain research, outsourcing, which currently represents 58% of the total expenditure on drug discovery, development, and manufacturing, is projected to increase to 61% by 2027. With companies diversifying their sourcing away from China and Indias growing expertise, the country is set to become a more appealing outsourcing hub in the coming years.

Expansion of Healthcare Accessibility: Increased awareness and improved healthcare access, particularly in semi-urban and rural regions, are driving up the demand for pharmaceutical products.

Boost in Domestic Manufacturing: India is placing greater emphasis on the indigenous production of medical devices and components. Government initiatives such as the successful Production Linked Incentive (PLI) scheme, the Public Procurement Order (PPO) mandating government entities to prioritize local products, the Government e-Marketplace, and the development of MedTech clusters are set to further this trend.

Competitive Manufacturing Costs: Indias pharmaceutical industry benefits from cost-efficient manufacturing, thanks to lower labour costs and the benefits of scale, positioning it as a competitive force in the international arena.

Technological Progress: The industry is embracing cutting-edge technologies, including automation, machine learning, and AI, to boost productivity and streamline the pharmaceutical supply chain. The integration of digital technologies into manufacturing and supply chain operations, featuring smart sensors, advanced analytics, and automated systems, is poised to optimize efficiency and enhance quality control.

Export Expansion: Indian pharmaceutical exports are on the rise, particularly to regulated markets, making a substantial contribution to the industrys revenue growth. Exports are expected to accelerate, with successful Indian exporters offering a diverse portfolio that includes conventional products, complex generics (such as injectables, inhalation products, and sprays), biosimilars, and branded new products.

The imperative for generics medicines in India

As global healthcare shifts toward more accessible and economical options, Indias journey in exporting generic medications stands as a pivotal chapter in healthcare transformation. The nations dedication to research and development, along with an increasing emphasis on exports, is driving the expansion of the generic drugs sector. Indias generic pharmaceutical industry thrives on an abundant and skilled workforce, a robust regulatory environment, and lower production costs, which the manufacture of high-quality generics at economical prices. With the escalating need for affordable healthcare solutions, the Indian Generic Drugs Market is poised for continued growth and innovation in the years ahead. The market for Indian generic drugs, valued at US$ 24.91 Billion in 2024, is projected to experience substantial growth with a CAGR of 6.02% up to 2030 as per GlobeNewswire reports. This growth trajectory is fuelled by the affordability of generics, the rising demand for budget-friendly healthcare, and a strong foundation in pharmaceutical production. India is recognized as a leading global provider of generic drugs, with exports in the financial year 2024 reaching around US$16 billion. Accounting for 20 % of the worlds generic drug exports by volume, India predominantly serves the North American market.

With chronic conditions like hypertension, diabetes, obesity, and tobacco-related diseases on the rise, there is a consistent demand for generic drugs to prevent and manage cardiovascular diseases. Healthcare professionals frequently prescribe generic cardiovascular medications such as antihypertensives, statins, antiplatelet drugs, and anticoagulants due to their effectiveness, safety profile, and affordability. Government initiatives like the NPCDCS ( National Programme for Prevention and Control of Cancer, Diabetes, Cardiovascular Diseases and Stroke) and AB-PMJAY(Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana) are instrumental in bolstering the demand for cost- effective cardiovascular drugs, ensuring that patients throughout India have access to necessary treatments.

Indias stature as a premier provider of generic cardiovascular drugs is reinforced by the numerous pharmaceutical firms specializing in these products, along with government incentives and regulatory support for local production. This solidifies the countrys role in supplying these essential medications to both the Indian population and the international market.

Nonetheless, the cardiovascular drug market faces hurdles such as patent disputes, intellectual property rights challenges, and pricing pressures. These issues necessitate a united approach among industry players, regulatory bodies, and healthcare professionals to navigate these obstacles and maintain the supply of affordable cardiovascular drugs for patients within India and beyond.

PMBJP - Pradhan Mantri Bhartiya Janaushadhi Pariyojana

In November 2008, the Department of Pharmaceuticals under the Ministry of Chemicals & Fertilizers, Government of India, inaugurated the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP). This program was conceived with the vision of making quality generic medicines accessible and affordable for all, especially for those in dire need. To facilitate this, the initiative set up a network of outlets called Pradhan Mantri Bhartiya Janaushadhi Kendras (PMBJK) throughout the country. These centres provide the public with generic drugs at prices that are substantially lower than their branded counterparts.

Importance/need for the policy

The Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) is a critical policy implemented by the Indian government to ensure the availability of affordable generic medicines to the population, particularly the underserved. Despite Indias status as a leading supplier of generic drugs globally, there is a disparity in access to medication, with branded drugs often being prohibitively expensive. The PMBJP addresses this by pricing medicines at a maximum of 50% of the average cost of the top three branded drugs, resulting in Janaushadhi medicines being about 50% to 90% cheaper than branded equivalents.

Key features:

> The PMBJP has significantly reduced the cost of medicines, offering 1965 drugs and 293 surgical items.

> Operated by both government and private entities, the scheme ensures affordability with prices 50%-90% lower than market rates.

> Quality is guaranteed through procurement from WHO-GMP (Good Manufacturing Practices) certified suppliers and batch testing by NABL (National Accreditation Board for Testing and Calibration Laboratories) accredited labs.

Highlights:

> The network of Kendras has expanded from 80 in 2014 to over 10,000, nearly covering all districts.

> As of January 31, 2024, there are 10,607 operational Janaushadhi Kendras.

> The Janaushadhi Suvidha Sanitary Napkin initiative has sold over 50.41 crore napkins.

> The Janaushadhi Sugam Mobile App provides convenience in locating Kendras and comparing prices.

> PMBJP reached a sales milestone of D1000 Crore in FY 2023-24, with cumulative savings of D25,000 Crore over nine years.

> The scheme has saved the public around D5000 Crore, with Kendras present in over 785 districts.

> The government aims to open 25,000 Kendras by March 2026.

> The scheme now includes Ayurvedic products for immunity boosting at affordable prices.

> International outreach includes helping Nepal establish Janaushadhi Kendras, following Mauritiuss adoption of the scheme for sourcing quality medicines from India.

Financial performance

In the fiscal year 2024, Zota Health Care Limited has showcased a strong financial performance with a notable increase in revenue and gross profit. The Companys Consolidated Revenue from Operations escalated to D18,048.9 Lakhs, achieving a sales growth of 29% over the previous years D13,995.7 Lakhs. This significant rise reflects the companys successful expansion and operational strategies.

The Gross Profit for the year stood at an impressive D8,378.8 Lakhs, registering a 48% growth from the previous years D5,668.7 Lakhs. This substantial increase is a testament to the companys improved operational efficiencies and cost management.

Despite these gains, EBITDA saw a slight decrease, standing at D871 Lakhs, a 6% decline from the previous years D929.2 Lakhs. Additionally, the company faced a challenge with its net profit, which was reported at a negative D1,434.8 Lakhs, compared to the previous years negative D577.3 Lakhs.

From a strategic perspective, the company anticipates a positive shift in its financial metrics as the Davaindia stores continue to grow and occupy a larger portion of the business. This expansion is expected to lead to a reduction in working capital days and an improvement in return ratios due to negligible Receivables Days. With the planned increase in the number of stores, Zota Health Care Limited aims to establish a more extensive market presence and attract a larger customer base, supported by the stores maturity cycle. The company projects an upward trajectory in Gross Merchandise Value (GMV), indicating a vision of sustainable growth and a broader market reach.

Zota Health Care Limited is focused on leveraging its financial strengths and addressing areas for improvement, with a commitment to creating long-term value for its stakeholders and maintaining its strong presence in the healthcare industry.

Financial ratios

Particulars	FY24	FY23	Variation % 1
Current Ratio	2.56	3.00	-14.56%
Debt -Equity Ratio1	0.12	NA	100%
Debt Service Coverage Ratio2	18.51	NA	100%
Return on Equity Ratio3	0.03	0.07	-60.24%
Inventory Turnover Ratio	4.39	4.34	1.15%
Trade Receivables Turnover Ratio	2.84	3.38	-15.94%
Trade Payables Turnover Ratio	3.91	4.46	-12.34%
Net Capital Turnover Ratio	2.12	2.36	-10.37%
Net Profit Ratio4	0.02	0.05	-57.42%
Return on Capital Employed5	0.04	0.09	-55.64%
Return on Investment6	0.03	0.07	-60.24%

Note: Financial Ratios have been calculated based on the Standalone numbers

1. During the year the Company has taken loan from various banks for the working capital requirement and accordingly borrowings of the Company increased as compared to no debt in the preceding financial year.

2. During the year the Company has taken loan from various banks for the working capital requirement, accordingly the Company has incurred the interest payments on the same as compared to no interest in the preceding year.

3. As the Companys main object is to expand the Davaindia network, the operational expenses during the year has surged and due to this net income during the year has declined as compared to the preceding financial year.

4. As the Companys main object is to expand the Davaindia network, the operational expenses during the year has surged and due to this net income during the year has declined as compared to the preceding financial year.

5. As the Companys main object is to expand the Davaindia network, the operational expenses during the year has surged which resulted in declining of net income and increase in current liability during the year as compared to the preceding financial year. Further during the year pursuant to allotment of equity shares and fully convertible warrants, equity and other equity have surged.

6. As the Companys main object is to expand the Davaindia network, the operational expenses during the year has surged which resulted in declining of net income during the year as compared to the preceding financial year. Further during the year pursuant to allotment of equity shares and fully convertible warrants, equity and other equity have surged.

Company overview

Founded in 2000 with a strong commitment to democratizing healthcare, Zota Health Care Limited (ZHCL) began its mission in the bustling city of Surat, Gujarat. We are dedicated to providing affordable healthcare solutions to the masses, and we take pride in improving access to high-quality, cost-effective medications for chronic diseases such as diabetes, cardiovascular ailments, and thyroid conditions. Our efforts have been crucial in advancing the Indian healthcare industry, offering significant support and impetus to the sector.

Over time, Zota has garnered acclaim for our exceptional capability to supply premium generic pharmaceuticals at prices that ensure widespread accessibility. Our business comprises of three specialized segments: Domestic, Exports, and our Retail Pharmacy Chain known as Davaindia. While each segment operates autonomously, they are united by a singular vision to make healthcare accessible to everyone.

Our cutting-edge manufacturing facility located in Sachin SEZ empowers us to cater to over 30 countries in the export market. Concurrently, Davaindia, our generic retail pharmacy chain, has established a robust network with 880 outlets with the blend of FOFO & COCO outlets across 25 states, exemplifying our commitment to affordable medicine and catering to the varied healthcare needs of Indias multifaceted populace.

At the core of our operations lies the fundamental ethos of prioritizing our customers. This core value motivates us to advocate for affordable healthcare for all. As we forge ahead, our zeal to effectuate a tangible difference in global healthcare remains strong and resolute. It gives us a sense of fulfilment to have made a significant difference in the lives of numerous individuals through our commitment. With our eyes set on the future, we continue to strive for meaningful transformations in the healthcare domain and leaving an enduring mark on lives across the globe.

Business verticals

Retail pharmacy chain (Davaindia)

Within the sphere of our Retail Pharmacy Chain division, Zota Health Care Limited proudly operates under the Davaindia brand, which has emerged as the most expansive generic pharmacy chain in Indias private sector. Davaindias core mission is to offer high- quality generic medicines at discounts of 30% to 90% compared to branded equivalents, making healthcare more affordable for consumers.

Davaindia is committed to a range of private-label products that include pharmaceuticals, nutraceutical, over the counter (OTC) items, and ayurvedic treatments, with a special focus on chronic disease management. Since its inception, Davaindia has rapidly grown from four modest stores in 2017, to become the leading private-sector generic pharmacy network, boasting 880 active stores as of March 31, 2024.

The business model of Davaindia is characterized by an innovative and efficient asset-light franchise approach for the majority of its stores. Our growth strategy encompasses both company-owned, company-operated (COCO) and franchisee-owned, franchisee-operated (FOFO) store formats. These larger, walk-in COCO stores are managed by our fully owned subsidiary, Davaindia Health Mart Limited, and are focused on selling Davaindia products, with over 95% being private-label items.

Davaindia stands at the forefront of the generic retail pharmacy sector, setting a benchmark for accessibility and affordability in medication. We are confident that Davaindia will continue to be a transformative force in meeting the healthcare needs of Indias vast population. Our dedication to delivering cost-effective healthcare solutions is unwavering, with the well-being of our customers at the heart of everything we do.

Domestic

The Domestic Marketing division of Zota Health Care Limited is a dynamic force driving our growth, serving as the primary contributor to our success. This vertical is dedicated to the direct distribution of a comprehensive range of pharmaceutical products, including generic drugs, over the counter (OTC) items, and a variety of other pharmaceutical essentials. Our extensive distribution network is the backbone of this operation, spreading across the length and breadth of India.

Our domestic strategy is centred on procuring finished dosage forms (FDFs) from reputable domestic formulation manufacturers and marketing these products under our own array of trusted brands. We place immense emphasis on product quality, which is why we choose to collaborate exclusively with manufacturing partners accredited by the World Health Organization (WHO).

Our portfolio is vast and varied, encompassing over 4,000 products across multiple categories such as generics, OTCs, allopathic, and ayurvedic medicines, addressing a broad range of healthcare needs. Our business model is meticulously crafted to facilitate direct distribution through a robust network of over 1,050 distributors, each of whom is carefully selected to cover specific districts across India. This ensures dedicated coverage and reduces competitive conflicts by granting exclusive distribution rights within their territories.

Our distributors are the linchpins of our marketing efforts. They independently undertake ethical marketing, sales, and promotional activities, bypassing the need for additional intermediaries like stockists, super-stockists, carrying and forwarding agents, and wholesalers. By directly incentivizing our distributors, we empower them to optimize sales effectiveness and efficiency.

This strategic distribution model not only refines our operational processes but also guarantees a more streamlined and impactful delivery of our products to consumers. Our approach is designed to ensure that our high-quality pharmaceuticals are accessible to customers nationwide, reinforcing our commitment to improving healthcare access and affordability.

Exports

Zota Health Care Limiteds foray into the international arena began in 2010 with the establishment of our state-of-the-art formulations manufacturing facility within the Sachin Special Economic Zone (SEZ). This strategic move has propelled our presence in the global market, securing product approvals in over 30 countries, with an emphasis on semi-regulated and regulated markets throughout Africa, Asia, the Commonwealth of Independent States (CIS), and Latin America.

Our Sachin SEZ facility is the cradle of innovation and production for 250 formulations that cater to both direct export demands and contract manufacturing services. The past half-decade has witnessed our commitment and substantial investments in product registration, culminating in a series of successful approvals and a significant expansion of our export footprint.

Our current export portfolio is impressive, with 325 dossiers approved across various international territories, and an additional 261 dossiers in the pipeline awaiting approval. The upward trajectory of this business vertical is a testament to our proactive strategies, which include expediting the clearance of product approval backlogs, transitioning towards direct exports in lieu of merchant exports, and the strategic engagement of exclusive distributors for our international markets.

These concerted efforts have not only enhanced our global reach but also reinforced Zota Health Care Limiteds reputation as a trusted name in the pharmaceutical export sector. Our commitment to excellence and strategic market penetration continues to drive our success, positioning us as a key player in the international healthcare landscape.

Potential threats, risks and concerns

Navigating the complex and highly regulated pharmaceutical and healthcare industry, Zota Health Care Limited adheres to a comprehensive array of regulations mandated by pertinent governing bodies:

> Any changes in the regulatory landscape, either within India or in our export markets, could significantly alter our business operations.

> Unethical conduct by certain industry players may negatively influence the reputation and performance of up-and-coming companies in the sector.

> Our business operations necessitate substantial working capital. Ineffective management in this area could adversely impact our financial health and operational efficiency.

> The success of our retail pharmacy chain is closely tied to the integrity of our brand. Any lapses in ethical practices or customer service could diminish our brand value and, in turn, affect our business viability.

> Our involvement in international markets subjects us to the risks associated with currency exchange rate fluctuations. Without proper hedging strategies, these variations could lead to potential financial setbacks.

> Intellectual property rights are crucial in protecting our product formulations and brand identity. Infringements on these rights could disrupt our competitive advantage and market position.

> The healthcare industry is sensitive to technological advancements and innovations. Our ability to keep pace with these changes is vital to maintaining our market share and growth trajectory.

> Dependence on key suppliers for raw materials could pose a risk if supply chain disruptions occur. Diversifying our supplier base may mitigate this risk.

> Global health crises, such as pandemics, have the potential to disrupt both supply chains and demand patterns, necessitating robust contingency planning.

> Regulatory compliance costs are subject to increase as we expand into new markets, which could affect our profitability if not managed effectively.

By acknowledging and strategically addressing these potential threats, risks, and concerns, Zota Health Care Limited aims to fortify its resilience and ensure sustained growth in the ever-evolving pharmaceutical and healthcare landscape.

Internal control and adequacy

Zota Health Care Limited has established a comprehensive internal control framework designed to match the complexity and scale of our business activities. This framework is meticulously developed to provide a high degree of assurance in protecting our assets, deterring unauthorized use or disposition. Additionally, it ensures that all transactions are authorized, recorded with precision, and reported accurately. Collectively, these controls oversee the conduct of our business operations, ensuring strict compliance with our established policies and procedures.

Our Audit Committee, along with the management team, has performed thorough evaluations of the effectiveness of these internal control systems. Where enhancements were deemed necessary, we have proactively taken steps to strengthen these controls.

> We regularly update our internal control framework to reflect changes in regulatory requirements and business processes, ensuring ongoing relevance and effectiveness.

> Our internal audit function plays a pivotal role in independently reviewing and assessing the adequacy of our internal controls, thereby providing additional assurance to management and the Audit Committee.

> We engage in continuous training and development programs for our staff to maintain a high level of competency in internal control procedures and risk management practices.

> The use of advanced technology and information systems is integral to our internal control mechanisms, enhancing our ability to monitor and manage risks across the organization.

> We maintain open lines of communication with our stakeholders, including employees, suppliers, and customers, to foster transparency and accountability in all aspects of our operations.

By continually refining our internal control systems and practices, Zota Health Care Limited is committed to maintaining the integrity of our financial reporting, operational efficiency, and compliance with applicable laws and regulations.

Human resources development & industrial relations

At Zota Health Care Limited, we recognize our human resources as the driving force behind our companys advancement, making them an invaluable asset. Our prosperity is entwined with the growth and fulfilment of our employees ambitions. In light of this crucial connection, we dedicate considerable resources to the development and empowerment of our workforce, simultaneously creating a compelling employer brand that attracts and retains the industrys finest talent.

Our dedication to our team has fostered a culture of positive employee relations throughout the period under review, marked by a supportive and collaborative environment across all levels of the company. We are committed to maintaining and enhancing these trusted relationships with our employees. As of March 31, 2024, our team comprises 1447 members with 445 belonging to ZOTA and 1,002 to Davaindia Health Mart (DIHML).

> We implement comprehensive training programs designed to upskill our employees, ensuring they are equipped to meet the evolving demands of the healthcare industry.

> Our performance management system is structured to objectively evaluate and recognize individual contributions, driving motivation and encouraging personal and professional growth.

> We prioritize the well-being of our employees by offering competitive compensation packages, health benefits, and a work-life balance that respects their personal time and family commitments.

> Our open-door policy encourages employees to voice their ideas and concerns, fostering a culture of transparency and mutual respect.

> We actively promote diversity and inclusion within our workforce, recognizing the value of varied perspectives and experiences in driving innovation and excellence.

By continuing to invest in our human capital, Zota Health Care Limited aims to not just achieve our strategic objectives but to contribute to the development of a skilled and satisfied workforce that is integral to the long-term success of our company.

Cautionary statement

Within the Management Discussion and Analysis section of our report, we present the companys goals, forecasts, estimations, and expectations. It is essential to recognize that these narratives may be prospective in nature. As we look to the future, there exists the potential for actual outcomes to deviate significantly from those depicted or inferred, largely due to a range of risks and uncertainties that may arise.

A multitude of critical elements has the capacity to influence our business operations substantially. These elements encompass the economic and political conditions in India and other nations where we conduct business, fluctuations in interest rates, alterations in governmental regulations and policies, modifications in taxation laws, and other relevant factors. It is important to underscore that our company does not assume any obligation to revise or publicly update any forward-looking statements in response to new information, future events, or otherwise, subsequent to the date of this report or to reflect the occurrence of unanticipated events.