Zota Health Care Ltd Management Discussions.


Global spending on medicines crossed USD 1.26 Trillion in 2020; and is projected to grow at a compound annual growth rate (CAGR) of 3-6% in the next few years, reaching over USD 1.58-1.61 Trillion by 2025, excluding the estimated additional spending on COVID-19 vaccines. The developed markets like the USA, Europe and Japan and emerging markets would be the ones leading growth in the global pharmaceutical markets, with emerging markets ranking the highest in rate of growth. New product launches, especially speciality and innovative products, will be the key growth catalyst in developed markets. While the emerging market expansion is expected to be driven by multiple factors such as - improving per capita income, increasing volumes of branded generics, increasing healthcare awareness, ageing population, and rising incidence of chronic ailments. Emerging technologies are enabling healthcare providers to innovate and engage better with key stakeholders.


With a significant presence in the global pharmaceutical industry, India is a vital player. India continues to play a crucial role in the performance of high-quality, low-cost pharmaceuticals for both the home and international markets. In terms of size globally, the Indian pharmaceutical industry ranks 11th, and it remains the worlds largest provider of generics, accounting for 20% of all international pharmaceutical exports (volumes). India is the country with the largest proportion of USFDA-approved pharmaceutical manufacturing facilities outside of the United States. It meets more than half of the worlds demand for different vaccinations and more than 40% of the demand for generic products in the United States. The Indian pharmaceutical industry currently exports its products to more than 200 nations throughout the world. Indian pharmaceutical companies have played a significant role in supplying the world with therapeutic medicines, COVID-19 vaccinations, and other medical supplies since the outbreak of COVID-19 began in 2020. The ability of the Indian pharmaceutical industry to align its product portfolios with chronic therapeutic segments will play a role in the countrys pharmaceutical growth for the coming decade. It is also pertinent to note that India has among the lowest spends on healthcare, at about 4.5% of the GDP against the global average of 9%. This gap, along with the recent pandemic, has prompted the Government of India to actively focus on policies that provide impetus to the healthcare sector.


According to projections, Indian pharmaceutical spending would reach US$28-32 billion by 2025, with a CAGR ranging between 7.5% to 10.5%. It will place India in the top ten nations in terms of pharmaceutical spending. In the future, the capability of the industry to orient their product portfolio towards chronic therapies for diseases such as cardiovascular disease, anti-diabetes, anti-depressants, and anti-cancer would also be critical in achieving superior growth in domestic sales. The Indian government has made a number of efforts to make healthcare affordable and to lower the overall expenditure. In recent years, there has been a renewed emphasis on the rapid entry of generic pharmaceuticals into the market, likely to help the Indian pharmaceutical industry. Another positive development for pharmaceutical companies is the increased emphasis on rural health initiatives, lifesaving medicines, and preventative vaccinations.




Although India is one of the leading generic drug exporters worldwide, the majority of the population does not have access to medicine at affordable prices. According to a recently published study article based on a cross-sectional examination of NSSO data, 55 million Indians slipped into poverty in a single year because of healthcare costs, and out of this 38 million were driven below the poverty line owing to the money they had to spend only on medications. The medicines purchased for non-hospitalized diseases accounted for 72% of the total outlay in the rural sector, and 68% in the urban sector.

PMBJP - Background

To make quality generic medicines available at affordable prices to all, especially for the poor and the deprived, Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) was launched by the Department in the year 2008. Under this scheme, dedicated outlets known as Pradhan Mantri Bhartiya Janaushadhi Kendras (PMBJK) are opened all over the country to provide generic medicines to the masses.


T o make available quality medicines, consumables, and surgical items at affordable prices for all Reduce out of pocket expenditure of consumers/patients T o popularize generic medicines among the masses and dispel the prevalent notion that low-priced generic drugs are of inferior quality or less effective T o ensure easy availability of menstrual health services to all women across India Gener ate employment by engaging individual entrepreneurs in the opening of PMBJP Kendras


Zota Health Care Limited is a renowned pharmaceutical company that manufactures, markets, and exports pharmaceutical, ayurvedic, nutraceutical, and over-the-counter (OTC) products. The Company is based out of Surat, Gujarat, and was founded in 2000 with a vehement desire to provide affordable healthcare to all. Zota meets the requirements of millions of people by increasing access to high-quality, affordable medicines for chronic illnesses including heart disease, diabetes, thyroid disease, and others, giving Indias pharmaceutical industry a boost. The Company has three business verticals: Marketing - a traditional business vertical, and driving business verticals - Exports and Retail Pharmacy Chain. Through its chain, Davaindia, the largest private-sector generic pharmacy chain, the Company is making strong inroads into the generic retail pharmacy business. The Company also has a state-of-the-art manufacturing facility at Sachin SEZ that caters to the Companys exports business in over 30 countries.



Our Marketing business vertical involves the direct distribution of generic drugs, OTC products, and other pharmaceutical products through the Companys distribution network across India. Marketing remains our largest business vertical, and in the past, has single-handedly driven the Companys growth. In our domestic Marketing business, we procure finished dosage forms (FDFs) from domestic formulation manufactures and then market them under our portfolio of brands. We have a set of manufacturing partners recognised by the WHO with a rigorous focus on product quality. With a portfolio of more than 3000 products in various categories, such as generics, OTC products, allopathic, ayurvedic, etcetera, we cater to a wide variety of ailments. Our business model for this vertical is built on direct distribution to our distributors spread throughout the country, which in turn market products to retail pharmacies in their respective areas. Currently, we have over 1050 distributors spread around the country. Our exclusive distributors are located in each district to retain exclusivity while minimising unhealthy competition across our value chain. Instead of the Company directly engaging in sales, distribution, and promotion activities, our distributors engage in ethical marketing or other sales, distribution, and promotion activities on their own. As a result, several intermediaries in our distribution chain, such as stockists, super-stockists, carrying and forwarding agents, and wholesalers, have been eliminated from the value-chain. Instead, we provide our distributors directly with incentives to help them sell our products more effectively.


Our exports business vertical started in 2010, following the establishment of our formulations manufacturing facility in the Sachin SEZ. We are required to export all of the products from this unit in accordance with the laws governing this SEZ. At present, we have product approvals in 30 countries, particularly in the semi-regulated and regulated markets in the African, Asian, CIS, and Latin-American countries.

In this facility, we make around 250 formulations for direct exports and contract manufacturing. During the last five years, the Company has significantly increased its efforts and investments towards product registration, the results of which are now apparent in the form of product approvals and the expansion of export operations. At present, the Company has 253 dossiers approved across multiple countries, and another 311 dossiers have been filed and are pending aprroval. Several factors, such as the backlog in product approvals, the increase in direct exports over merchant exports, and the use of exclusive distributors in international markets, have contributed to the performance of this vertical over the last few years.

Retail Pharmacy Chain

In the Retail Pharmacy Chain business vertical, the Company operates a chain of pharmacy stores under the brand - "davaindia". Davaindia is a retail generic pharmacy chain whose core value proposition is providing quality generic medicines at substantial discounts, i.e. 30% to 90%, to their branded equivalents. Davaindia focuses only on private-label products in the medicinal, OTC, and ayurvedic categories, with a greater emphasis on chronic therapies and ailments. This one-of-its-kind concept started with three pilot stores in 2017 and has been scaled up to become the largest private-sector generic pharmacy chain with more than 591 stores as of March 2021.

Davaindia operates on a unique asset-light franchise model for the majority of its stores. These stores are engaged in exclusive sales of Davaindia products, with more than 95% of products being private-label. Through Davaindia, the Company has been a front runner in generic retail pharmacy, which it believes will be a critical enabler of affordable access to medicines—keeping itself aligned with the needs of 1.3 billion Indians; the Company stand by our philosophy of providing affordable healthcare to the masses by keeping customers at the centre of our operations.





For the year under review, the Company reported Revenue from Operations of J 106.79 crores compared to J 95.11 crores, a growth of 12.3% year on year. Exports and Davaindia sales primarily drove revenue growth, partially offset by a decrease in Marketing sales. Davaindia nearly doubled its sales from J 12.13 crores in FY20 to J 24.07 crores in FY21, while Exports registered a sales growth of 53.2%, increasing from J 19.89 crores in FY20 to

J 30.47 crores in FY21. On the profitability front, Operating Profit Margins stood at 0.6% in FY21 compared to 4.7% in FY20, primarily due to higher operating, advertisement & promotional expenses on account of an aggressive expansion of Davaindia operations. As a result, Profit after Tax for the year stood at J (0.21) crores compared to J 2.74 crores in FY20, a decline of 107.7% year on year.



Marketing vertical witnessed slower business in FY21, primarily on account of lower demand for prescription drugs in H1 of FY21. This was due to disruptions induced by Covid-19 pandemic and resulting lockdowns. The Company has witnessed a steady comeback in this vertical thereafter, and expects to maintain similar levels of growth in this vertical going forward, as it has delivered in the past.


Exports vertical has performed well in FY21, despite a challenging external environment including the rise in ocean freight and container shortages disrupting global supply chains. The Company has reported a 53% increase in sales in this vertical, along with a growing share of direct exports over merchant exports in the same. Dossier registrations, in existing as well as new export markets, are expected to be key levers for the Companys growth momentum in this vertical.

Retail Pharmacy Chain

The Company has nearly doubled its sales business in this vertical i.e. Davaindia. This was achieved through multiple growth levers, including store rollout, a substantial increase in Average Wallet Spend coupled with a higher number of customers served. The Company has been focusing on advertisement & promotional expenses along with an increased product portfolio to drive Average Wallet Spends and Customers Served. The Company will keep on expanding the footprint of Davaindia across the country to achieve its envisioned scale of operations.


Pursuant to Schedule V (B) to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended

Debtors Turnover Ratio 3.3 3.7 12% Due to optimization on Trade Receivables.
Inventory Turnover Ratio 3.8 3.8 0% NA
Interest Coverage Ratio 56.6 (11.7) (121%) Primarily due to lower operating profitability on account
of aggressive davaindia expansion
Current Ratio 3.2 3.4 6% Due to optimization on Trade Receivables and increase in
Debt to Equity Ratio 0.0 0.0 0% NA
Operating Profit Margin (%) 6.3 1.8 71% Primarily due to lower operating profitability on account
of aggressive davaindia expansion
Net Profit Margin (%) 2.9 (0.2) (107%) Primarily due to lower profitability on account of
aggressive davaindia expansion


Ours is one of the most regulated industries in the world. Being a pharmaceutical company, we have to adhere to various rules and regulations prescribed by respective authorities Changes in the regulatory norms of India or the exporting countries may affect the operations of our company Malpractices by some of the players in the industry may affect the overall performance of emerging players Our business is working capital intensive, and our inability to manage the same may adversely affect our business Our retail pharmacy business is brand-centric. Therefore, any malpractices or dissatisfaction with our products may harm our brand and, subsequently, our business Our export business exposes us to the risk of currency fluctuations. Any unhedged exposures may lead to future losses


The Company has, in place, an adequate system of internal control commensurate with the size and nature of its business. These systems have been designed to provide reasonable assurance that all assets are safeguarded and protected against loss from unauthorized use or disposition and that all transactions are authorized, recorded and reported correctly, and the business operations are conducted as per the prescribed policies and procedures of the Company. The Audit Committee and the management have reviewed the adequacy of the internal control systems, and suitable steps are taken to improve the same.


Your Company firmly believes that its human resources are the key enablers for the growth of the Company and an important asset. Hence, the Companys success is closely aligned with the goals of the Companys human resources. Taking into this account, your Company continues to invest in developing its human capital and establishing its brand on the market to attract and retain the best talent. As a result, employee relations during the period under review continued to be healthy, cordial and harmonious at all levels, and your Company is committed to maintaining good relations with the employees.


Statements in the Management Discussion and Analysis describing the Companys objective, projections, estimates, expectations may be forward-looking statements. Actual results may differ materially from those expressed or implied due to various risks and uncertainties. Important factors that could make a difference to the Companys operations include economic and political conditions in India and other countries in which the Company operates, volatility in interest rates, changes in government regulations and policies, tax laws, statutes, and other incidental factors. The Company does not undertake to update these statements.