J B Chemicals & Pharmaceuticals Ltd:Annual Report 2023-24 Analysis

JB Chemicals & Pharmaceuticals Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

JB Chemicals & Pharmaceuticals Ltd. was established in 1976 by Mr. J. B. Mody.

Headquarters Location and Global Presence #

The company’s headquarters are located in Mumbai, India. JB Pharma has a presence in India and exports its formulations to over 40 countries across the globe. Key markets include India, Russia, South Africa, and other emerging markets.

Company Vision and Mission #

• Vision: To be a leading global healthcare provider improving lives through innovative and affordable solutions.
• Mission: Not publicly available.

Key Milestones in Their Growth Journey #

• 1976: Incorporated as JB Chemicals & Pharmaceuticals Ltd.
• 1985: Launched Rantac, an anti-ulcerant drug, which became a significant revenue generator.
• 2011: Sold its over-the-counter (OTC) brands business to Johnson & Johnson for ₹3,100 crore.
• 2020: Acquired a portfolio of brands from Sanzyme Private Limited.
• 2020: Acquired a portfolio of brands from Novartis AG.

Stock Exchange Listing Details and Market Capitalization #

JB Chemicals & Pharmaceuticals Ltd. is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Recent Financial Performance Highlights #

• JB Pharma reported strong results for FY24, with revenues growing 12.2% to ₹3,459 crore and EBITDA increasing 18.4% to ₹1,017 crore.

Management Team and Leadership Structure #

• Nikhil Chopra: CEO & Whole-time Director

Any Notable Awards or Recognitions #

• Consistently recognized for its strong financial performance and corporate governance practices.

Their Products #

Complete Product Portfolio with Categories #

JB Pharma’s product portfolio covers various therapeutic areas, including:

• Cardiology: Azmarda, Cilacar, Nicardia Retard
• Gastroenterology: Rantac, Metrogyl
• Respiratory: Dilosyn, Alex Cough Syrup
• Dermatology: Oxerute

Flagship or Signature Product Lines #

• Rantac: A well-known brand in the anti-ulcerant segment.
• Cilacar: Used in the treatment of hypertension

Key Technological Innovations or Patents #

Focus is on developing and marketing formulations with established APIs. While not heavily focused on novel molecule discovery, they continually improve existing formulations and delivery mechanisms.

Manufacturing Facilities and Production Capacity #

JB Pharma operates several manufacturing facilities in India. Details on exact production capacity are not readily available in the public domain.

Quality Certifications and Standards #

JB Pharma maintains high quality standards across its manufacturing facilities, complying with:

• Good Manufacturing Practices (GMP)
• WHO-GMP

Any Unique Selling Propositions or Technological Advantages #

• Strong brand recall in key therapeutic areas.
• Focus on affordability and accessibility of medicines.

Recent Product Launches or R&D Initiatives #

• JB Pharma continues to launch new products and line extensions within its existing therapeutic areas.

Primary Customers #

Target Industries and Sectors #

Healthcare, Pharmaceuticals, Retail Pharmacies, Hospitals, Clinics.

Geographic Markets (Domestic vs. International) #

• Domestic (India): A significant portion of its revenue comes from the Indian market.
• International: Exports to over 40 countries, including Russia, South Africa, and other emerging markets.

Distribution Network and Sales Channels #

• Well-established distribution network across India and in international markets.
• Uses a combination of direct sales teams and distribution partners.

Major Competitors #

Direct Competitors in India and Globally #

• Sun Pharmaceutical Industries Ltd.
• Cipla Ltd.
• Dr. Reddy’s Laboratories Ltd.
• Lupin Ltd.
• Zydus Lifesciences Ltd.
• Glenmark Pharmaceuticals Ltd.
• Torrent Pharmaceuticals Ltd.

Competitive Advantages and Disadvantages #

• Advantages: Strong brand recognition, well-established distribution network, focus on affordability.
• Disadvantages: Faces intense competition from larger players, vulnerability to pricing pressures, dependent on mature brands in some segments.

How They Differentiate From Competitors #

• Focus on specific therapeutic areas and maintaining leadership positions within those segments.
• Emphasis on affordability and accessibility of medicines in emerging markets.

Market Positioning Strategy #

JB Pharma positions itself as a provider of quality and affordable medicines, particularly in key therapeutic areas like cardiology, gastroenterology, and respiratory.

Future Outlook #

Expansion Plans or Growth Strategy #

• Focus on strengthening its presence in India and key international markets.
• In-licensing and acquisitions to expand its product portfolio.
• Investing in R&D for new formulations and line extensions.

Sustainability Initiatives or ESG Commitments #

• Details regarding specific sustainability initiatives are not readily available in the public domain.

Industry Trends Affecting Their Business #

• Increasing healthcare expenditure in emerging markets.
• Rising incidence of chronic diseases.
• Growing demand for affordable medicines.
• Stringent regulatory requirements.

Long-Term Vision and Strategic Goals #

JB Pharma aims to become a leading global healthcare provider by focusing on innovation, affordability, and accessibility of medicines.

Comprehensive Performance Overview #

Key Financial Metrics: 3-Year Trend Analysis #

• Revenue demonstrated a 3-year Compound Annual Growth Rate (CAGR) of 19%, reaching INR 3484 crores in FY24 from INR 2043 crores in FY21, including contributions from acquisitions.
• Operating EBITDA also showed a 3-year CAGR of 19%, increasing to INR 939 crores in FY24 from INR 560 crores in FY21.
• Net Working Capital improved, decreasing to 87 days in FY24 from 98 days in FY21.
• Operating Cash Flows as a percentage of Operating EBITDA significantly improved to 85% in FY24 from 56% in FY21.
• Consolidated EPS increased to 35.66 in FY 2024 From 26.50 in FY 2023.

Business Segment Performance #

• The domestic formulations business exhibited a 16% growth, reaching INR 189,791 lakhs in FY24, outperforming the Indian Pharmaceuticals Market (IPM) growth.
• The international business grew by 5%, reaching INR 158,627 lakhs, affected by strategic decisions in the South Africa business, offset by growth in the CDMO and other international formulation businesses.
• The CDMO business grew by 6%, reaching INR 43,185 lakhs.
• API business recorded sales of INR 8,588 lakhs in FY24, a decrease compared to INR 9,359 lakhs in FY23.

Major Strategic Initiatives and Progress #

• Realignment of the Go-To-Market (GTM) model has improved field force productivity to INR 6.8 lakhs per person per month (PCPM).
• The strategic focus on chronic therapies resulted in 14% growth, outpacing the IPM chronic segment growth of 10%.
• Five major brands (Cilacar, Rantac, Metrogyl, Cilacar-T, and Nicardia) now rank among the top 150 IPM brands.
• Acquisition of a portfolio of 10 ophthalmology brands from Novartis Innovative Therapies AG has solidified JB Pharma’s position in the ophthalmology segment.

Risk Landscape Changes #

• The primary risks identified are those common to the pharmaceutical industry, including regulatory risks, exchange risks, cyber risks, and commercial and business-related risks, with a strong risk mitigation plan deployed and regularly reviewed.

ESG Initiatives and Metrics #

• Total energy consumption within the organization reduced by 9%.
• Scope 1 and Scope 2 emissions reduced by 16.67% in FY24 compared to FY23.
• Renewable energy sources constitute 13% of total energy demand.
• Water consumption intensity per rupee of turnover reduced by 9.4%.
• All manufacturing plants maintain Zero Liquid Discharge status.
• Female representation is at 11% of the permanent workforce.
• CSR initiatives positively impacted lives in areas of healthcare, education, and environment.

Detailed Analysis #

J.B. Chemicals & Pharmaceuticals Limited - Financial Position Analysis #

Balance Sheet Analysis (3-Year Comparative) #

Comparative financial data for the past three fiscal years (Consolidated, ₹ in lakhs):

Significant Year-over-Year Changes (>10%) #

• Non-Current Assets: Increased by 5.67% mainly due to Increases in Capital work-in-progress, Intangible assets and investments.
• Current Assets: Increased by 21.29%, mainly driven by increases in inventories, trade receivables, and investments.
• Non-Current Liabilities: Decreased by 61%, primarily due to significant loan repayments for brand acquisition, and reduction of Lease liabilities.
• Current Liabilities: Increased by 56.6%, primarily due to rise in borrowings and trade payables.
• Other Equity: Increased by 17.98% due to profit for the year and share-based payment expenses.

Working Capital Trends #

Working capital trends (Consolidated, ₹ in lakhs):

• The Current ratio decreased significantly, although it remains healthy above 2, the increase in current liabilities (particularly borrowings) outpaced the rise in current assets.

Asset Quality Metrics #

Asset Quality is slightly affected.

Debt Structure and Maturity Profile #

• The company significantly reduced its non-current borrowings but increased its short-term debt.
• The debt-to-equity ratio improved significantly, indicating lower leverage.

Maturity Profile of Term Loans:

• The provided data gives a current portion of long-term borrowings as ₹31,815.98 lakhs for FY24.
• Details of loan structure and maturity periods for the remaining long-term borrowings is presented in the Notes.

Off-Balance Sheet Items #

• Contingent liabilities related to tax and other claims increased.
• Letters of credit and bank guarantees are standard off-balance sheet items for a company involved in international trade.

Operating Performance Analysis of J.B. Chemicals & Pharmaceuticals Limited #

Revenue Breakdown by Segment/Geography with Growth Rates #

• Domestic Formulations: FY24 revenue was ₹189,791 lakhs, a 16% growth YoY.
• International Formulations: FY24 revenue was ₹106,855 lakhs, growing 6% YoY. Excluding South Africa, the business grew by 12%
• CDMO Business: FY24 revenue was ₹43,185 lakhs, a 6% growth YoY.
• API Business: FY24 Revenue was ₹8,588 Lakhs, showing decline from ₹9,359 lakhs in FY23.
• Geographical Revenue (Consolidated):
  • India: Contributed a major share. FY24 Domestic Formulation revenue was ₹189,791 lakhs.
  • International: Contributed 46% of total revenue, with ₹158,627 lakhs in FY24, a 5% growth.

Cost Structure Analysis #

• Cost of Materials Consumed: ₹81,604.51 lakhs in FY24 (Standalone), increased from ₹78,378.09 lakhs in FY23.
• Employee Benefit Expenses: ₹56,538.43 lakhs in FY24 (Standalone), up from ₹49,994.59 lakhs in FY23.
• Other expenses: ₹74,477.05 lakhs in FY24, increased from ₹68,279.67. Major contributors included sales promotion, freight, and transport.

Margin Analysis (Consolidated) #

• Gross Margin: Improved from 62.9% in FY23 to 66.1% in FY24.
• Operating EBITDA Margin (excl. ESOPs): Increased by 270 basis points to 27.0% in FY24 from 24.3% in FY23.
• Net Profit Margin: 15.86% in FY24, up from 13.02% in FY23.

Operating Leverage #

• Improved Operational efficiencies with an improvement of Operating EBITDA, which is a signal that Fixed Costs have contributed to higher profits before interest and taxes.

GAAP vs. Non-GAAP Reconciliation #

• The report uses Ind AS (Indian Accounting Standards), which are converged with IFRS. A reconciliation to another GAAP (like US GAAP) is not provided. However, “Operating EBITDA” is presented excluding ESOP costs, representing a non-GAAP measure, to showcase operational profitability.

EPS Analysis (Basic/Diluted) #

• Basic EPS (Standalone): ₹35.07 in FY24, increased from ₹25.15 in FY23.
• Diluted EPS (Standalone): ₹34.30 in FY24, increased from ₹24.85 in FY23.
• Basic EPS (Consolidated): ₹35.66 in FY24, increased from ₹26.50 in FY23.
• Diluted EPS (Consolidated): ₹34.85 in FY24, increased from ₹26.17 in FY23

Cash Management #

Cash Flow and Liquidity Analysis #

Operating Cash Flow (OCF) #

FY24: ₹ 78,903.31 Lakhs; FY23: ₹ 62,864.40 Lakhs. The increase in OCF is primarily due to higher profit before tax, with positive adjustments for depreciation, finance costs, and share-based payment expenses.

Investing Cash Flow (ICF) #

FY24: ₹ (41,244.97) Lakhs; FY23: ₹ (95,588.38) Lakhs. Significant cash outflows were due to the purchase of property, plant, and equipment, and intangible assets, as well as the purchase of current investments.

Free Cash Flow (FCF) #

Using a simpler OCF - Capex calculation:

• FY24: ₹ 78,903.31 - ₹ 12,611.28 = ₹ 66,292.03 Lakhs
• FY23: ₹ 62,864.40 - ₹ 7,246.13 = ₹ 55,618.27 Lakhs

Working Capital Management Efficiency #

Debtors Turnover Ratio #

FY24: 5.52 times; FY23: 5.57 times, represents a minimal change.

Inventory Turnover Ratio #

FY24: 2.53 times; FY23: 2.78 times. A slight decrease in inventory turnover suggests a marginal decrease in efficiency.

Trade Payables Turnover Ratio #

• Consolidated FY24: 4.37 times; FY23: 5.18 times.
• Standalone: FY24: 4.45 times; FY23: 5.27 times. Represents a decrease.

Capex Analysis by Segment #

All Capital expenditure incurred during FY24 is on:

• (a) conservation of energy, technology absorbtion, ₹ 50 Lakhs at Panoli and ₹ 140 Lakhs in Daman and
• (b) on Research and Development with ₹ 471.23 capital.

Dividend and Share Buyback Trends #

Dividend #

• Interim dividend of ₹ 5.50 per share (550%) was paid in FY24.
• A final dividend of ₹ 6.75 per share (675%) is proposed for FY24.
• The combined dividend payout for FY24 is projected to be ₹ 19,009.42 Lakhs.
• FY23 saw an interim dividend of ₹ 8.50 and a final of ₹ 9.25. After the share split, dividend per share is ₹ 12.25.

Share Buyback #

No share buybacks were mentioned for FY23-24.

Debt Service Coverage #

Debt Service Coverage Ratio #

Consolidated: FY24: 1.91 times; FY23: 2.97 times. This indicates higher debt repayment in FY24.

Liquidity Position #

Current Ratio #

• Consolidated: FY24: 2.09:1; FY23: 2.64:1.
• Standalone: FY24: 2.10:1; FY23: 2.65:1. Decrease indicates a small reduction in short-term liquidity.

Financial Analysis of J.B. Chemicals & Pharmaceuticals Limited #

Profitability Ratios (3-Year Trends - Consolidated) #

• Return on Equity (ROE): FY24: 18.92%, FY23: 16.53%, FY21: 23.55%. ROE increased, indicating improved profitability relative to shareholder investment.
• Operating EBITDA Margin (excl. ESOP Cost): FY24: 27.0%, FY23: 24.29%, FY21: 27.4%. Operating profitability improved significantly.
• Net Profit Margin: FY24: 15.86%, FY23: 13.02%, FY21: 22.3%. Net profit margin has also increased, demonstrating better conversion of revenue to profit.

Liquidity Metrics (Consolidated) #

• Current Ratio: FY24: 2.09, FY23: 2.64. A decrease, but still indicates a healthy ability to meet short-term obligations, though slightly less buffer than the previous year.

Efficiency Ratios (Consolidated) #

• Inventory Turnover Ratio: FY24: 2.53, FY23: 2.78. A slight decrease, indicating a potentially slower inventory movement.
• Trade Receivables Turnover Ratio: FY24: 5.52, FY23: 5.57. Remained relatively stable.

Leverage Metrics (Consolidated) #

• Debt-to-Equity Ratio: FY24: 0.129:1, FY23: 0.231:1. Decreased, showing reduced reliance on debt financing.
• Interest Coverage Ratio: FY24: 1.91, FY23: 2.97. A decrease, reflecting the rise in debt from acquisitions, but still indicates the company has a strong ability to cover interest obligations.

Working Capital Ratios #

• Days of Inventory: FY24: 150.6 Days, FY23: 136.79 Days
• Days of Sales: FY24: 69.8 days, FY23: 67 days
• Days of Payables: FY24: 106.7 days, FY23: 75 days
• Net Working Capital Turnover Ratio: 3.69 in 2024, and 3.24 in 2023. The net working capital is increasing because of a significant increase in payables.

Comparison with Industry Averages and Significant Deviations #

• Profitability: The increase in profitability metrics are positive indicators of good company performance.
• Liquidity: The current ratio above 2 is generally considered healthy.
• Leverage: A decreasing debt-to-equity ratio and a solid interest coverage ratio demonstrate financial stability.
• Efficiency: The ratios are within the acceptable range.

The material impact of the Company’s acquisitions, expansions and other projects has clearly affected the current year ratios.

Business Segments Performance Analysis #

Revenue and Profitability Metrics with Growth Rates #

• Domestic Formulations: FY24 revenue was ₹189,791 lakhs, a 16% growth year-on-year.
• International Business: FY24 revenue was ₹158,627 lakhs, a 5% growth year-on-year. Excluding South Africa business, revenue registered YoY growth of 12%.
• International Formulations: FY24 revenue was ₹106,854 lakhs representing a 6% increase.
• CDMO Business: FY24 revenue was ₹43,185 lakhs, demonstrating a 6% growth.
• API Business: FY24 sales were ₹8,588 lakhs, decreased from ₹9,359 lakhs in FY23.
• Consolidated Revenue: FY24 revenue reached ₹348,418 lakhs, an 11% growth year-on-year.
• Consolidated Operating EBITDA (excl. ESOP cost): Increased by 23%, from ₹76,513 lakhs to ₹93,886 lakhs.
• Consolidated profit before tax: Grew by 35%, from ₹55,523 lakhs to ₹75,151 lakhs.
• Consolidated Profit after tax: Increased by 35% to ₹55,263 lakhs from ₹41,001 lakhs in FY23.

Market Share and Competitive Position #

• Indian Pharmaceutical Market (IPM): Ranked #22 (IQVIA MAT Mar'24), up two positions, with a 10% year-on-year growth rate versus the industry growth of 8%.
• Chronic Therapies: Outperformed the IPM, growing at 14% versus the segment growth of 10%, holding a position among the top 20.
• Cardiology: Ranked #8 in the cardiology market and among top 10.
• Prescription Ranking: Ranked #16 in terms of prescriptions in the IPM.
• Ophthalmology: Ranks amongst the top 4 in covered market.

Key Products/Services Performance #

• Top Brands: Five brands (Cilacar, Rantac, Metrogyl, Cilacar-T, and Nicardia) are among the top 150 brands in the IPM.
• Cilacar Franchise: Registered 22% growth, and volume growth 11%
• Metrogyl Franchise: Crossed the ₹30,000 lakh mark.
• Razel Franchise: Registered a 24% of growth.
• Sporlac Franchise: Grew by 21% to ₹12,237 lakhs.
• Rantac and Metrogyl: Among the top 10 most prescribed brands in the IPM.

Geographic Distribution and Market Penetration #

• Direct Presence: Russia and South Africa.
• Distributor Relationships: U.S. and markets in Asia, Africa, and Latin America.
• Exports: To over 40 regulated and semi-regulated markets.
• International subsidiaries: Russia, South Africa and UAE.
• CDMO Business: Targets $100 million in revenue within the next three to five years

Segment-wise CAPEX and ROIC #

• Capital investment on energy conservation:

  • Panoli Unit: ₹50 lakhs
  • Daman Unit: ₹140 lakhs

• Return on equity:

  • FY24: 18.92%
  • FY23: 16.53%

Operational Efficiency Metrics #

• Field Force Productivity (excluding ophthalmology): Improved to ₹7 lakhs per person per month from ₹6.20 lakhs in FY23.
• Field Force productivity (including ophthalmology): Improved to ₹6.80 lakhs per person per month.
• Gross Margins: Increased from 62.9% to 66.1%.
• Operating EBITDA Margin (excl. ESOPs): Improved by 270 basis points to 27.0%.
• Net Working Capital: Improved to 87 days in FY24 from 98 days in FY21.
• Operating Cash Flows: Improved to 85% of operating EBITDA in FY24 from 56% in FY21.

Growth Initiatives and Challenges #

• Growth Initiatives:

  • Realigned Go-To-Market (GTM) model.
  • Increased focus on chronic therapies.
  • Strengthening of major brands.
  • Strategic acquisition of ophthalmology brands from Novartis.
  • Expansion of CDMO by addition of new concepts in logenzes.
  • New product launches in branded generics markets.

• Challenges:

  • Muted acute season in India.
  • Lower South Africa revenue due to strategic decisions.
  • Elevated freight costs.
  • Geopolitical uncertainties impacting the international business environment.
  • Emission (Scope1 & Scope2) intensity per rupee of turnover reduced by 25%
  • 16.67% reduction in Scope 1 and Scope 2 emissions.
  • Energy intensity per rupee of turnover reduced by 18%
  • Water consumption intensity per rupee of turnover reduced by 9.4%.

Forward Outlook: J.B. Chemicals & Pharmaceuticals Limited Analysis #

Management Guidance and Assumptions #

• Management anticipates sustained revenue growth, driven by domestic and CDMO businesses.
• Management expects the IPM to experience improved growth, led by the chronic segment.
• Strategic focus on diluting the low-margin South Africa business to improve overall margin profile.
• Assumptions used to arrive at the valuation of acquired ophthalmology brands from Novartis.

Market Growth Forecasts #

• The IPM grew at 8% in FY24.
• The chronic segment within the IPM is forecasted to outperform the acute segment (14% vs. 10%).
• The ophthalmology market is expected to grow at a 3-year CAGR of 15%.

Planned Strategic Initiatives #

• Continued focus on the four-pillar strategy:
  • Realigned GTM model to drive productivity.
  • Increasing contribution from Chronic Therapies.
  • Making big brands bigger and building a strong franchise.
  • Acquisition-led growth via a strong brand franchise.
• Strategic focus on expanding the chronic portfolio.
• Emphasis on heart failure, hypertension, and lipid management therapies within the cardiology segment.
• Focus on new product introductions in the home and branded generics markets.
• Expansion into newer areas within the CDMO business.
• Planned diversification of the lozenge portfolio, entering into new categories like sleep disorder, pain management, immunity boosters, and anti-inflammatory products.
• Introducing newer technologies to sustain technological lead in herbal and medicated lozenges manufacturing.
• Target to achieve $100 million in revenue from the CDMO business within the next three to five years.

Capital Expenditure Plans #

• Capital investment in energy conservation equipment of approximately ₹50 lakhs at the Panoli unit and ₹140 lakhs at the Daman unit.
• Plans to expand manufacturing capacity annually, specifically for lozenges, anticipating rising demand.

Efficiency Improvement Targets #

• Improvement in field force productivity, targeting ₹7 lakhs per person per month (excluding the ophthalmology portfolio).
• Drive operational and cost efficiencies.
• Improve EBITDA, profitability, net working capital, and operating cash flows.
• Targeted improvement in gross margins and operating EBITDA (adjusted for non-cash ESOP costs).

Potential Challenges and Opportunities #

Challenges #

• Geopolitical uncertainties impacting the cost environment and logistics, particularly in international operations.
• Pricing pressure, particularly in international markets.

Opportunities #

• Growth in the chronic segment of the IPM.
• Opportunity in the CDMO business, especially in medicated and herbal lozenges.
• Expansion in the rapidly expanding Ophthalmology market.
• New launches in the branded generics markets.
• Increase in demand in covered International markets.

Scenario Analysis and Sensitivity to Key Assumptions #

• Geopolitical Instability: A worsening of geopolitical issues presents a risk. Sensitivity analysis is not explicitly quantified, but the impact on freight costs and overall international business is acknowledged.
• IPM Growth: The company’s domestic business performance is sensitive to the overall growth rate of the IPM and the specific growth rates of the chronic vs. acute segments.
• Exchange Rate Sensitivity: The provided data only provides a generic +/- 1% sensitivity to changes in major currencies (USD, EURO, RUB, AED, AUD, GBP, CAD, UAH) without details on the net effect on the Company’s financial performance, only reporting the impact on the profit and other equity, with positive indicating an increase and negative indicating a decrease.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Auditor’s Opinion: Unmodified opinion on the standalone and consolidated financial statements, indicating a true and fair view in conformity with Ind AS and other generally accepted accounting principles in India.
• Qualifications: A qualification is present regarding the maintenance of accounts, specfically: “except for not complying with the requirement of audit trail as stated in (i)(vi) below”. Audit trail was not enabled at the database level for direct data changes. In all other respect, proper books have been maintained.

Key Accounting Policies and Changes #

• Consistency: Accounting policies are applied consistently across all periods presented, except where new standards or revisions necessitate changes.
• Revenue Recognition: Revenue is recognized upon transfer of control of goods to the customer, net of estimated incentives, discounts, and returns.
• Foreign Currency Translation: Transactions are translated at the exchange rate prevailing on the transaction date. Monetary assets and liabilities are translated at the balance sheet date rate.
• Employee Benefits: Defined contribution plan expenses are recognized when the related service is rendered. Defined benefit plan costs are determined using the Projected Unit Credit method.
• Property, Plant and Equipment: Depreciation is provided on the straight-line method, with useful lives as prescribed in Schedule II of the Companies Act, 2013, with some exceptions based on technical evaluation.
• Intangible Assets: Amortization is provided over estimated useful lives, ranging from 2 to 25 years.
• Impairment of Non-Financial Assets: Annual assessment for impairment indicators is conducted.
• Inventories: Stated at the lower of cost or net realizable value. The cost is determined on the Moving Average Method.
• Leases: The Group has elected not to recognise right-of-use assets and liabilities for leases that, at the commencement date, have a term of 12 months or less or for low-value assets.

Internal Control Effectiveness #

• Auditor’s Opinion: The Company has adequate internal financial controls over financial reporting, and these controls were operating effectively as of March 31, 2024.
• Risk Management: A Risk Management Committee is in place, delegated with monitoring and review of the risk management plan.

Regulatory Compliance Status #

• General Compliance: The Company has complied with applicable Secretarial Standards. Declarations of independence have been received from Independent Directors.
• Specific Compliance: The Company is compliant with provisions relating to the constitution of the Internal Complaints Committee under the Sexual Harassment of Women at Workplace Act, 2013.
• Cost Records: Cost records as specified by the Central Government are duly made and maintained.
• Audit Trail: The company used accounting software, but no audit trail enabled at the database level.

Legal Proceedings and Their Potential Impact #

• Pending Litigations: The Company has disclosed the impact of pending litigations on its financial position. Provisions have been made where required.
• Specific Cases: Demand notices from the Department of Chemicals & Fertilizers for ₹461.47 lakhs (Metronidazole) and ₹591.05 lakhs (Oxyphenbutazone) are under dispute, with Writ Petitions filed. The Company has furnished a Bank Guarantee of ₹402.35 lakhs. Based on legal advice, the Company believes it has a strong case.
• Contingent liabilities disclosed are central excise, service tax, customs, income tax and sales tax.

Related Party Transactions #

• Disclosure: Related party transactions were in the ordinary course of business and on an arm’s length basis, with disclosures made as per Ind AS-24.
• Materiality: None of the related party transactions were deemed material under Regulation 23 of the Listing Regulations. No material conflict of interest.
• Transactions included: Remuneration to key management personnel and non-executive directors, transactions with holding and subsidiary companies (sales, purchases, ESOP receivables, etc.).

Subsequent Events #

• Proposed Dividend: The Board of Directors has recommended a final dividend of ₹6.75 per share, subject to shareholder approval.
• New Subsidiary: A new step-down subsidiary was incorporated in Philippines on April 2, 2024. Share capital in UPL FZE was augmented.

Accounting Quality Analysis #

• Conservative Approach: The Company appears to follow conservative accounting practices, as evidenced by the provisioning for expected credit losses, inventory obsolescence, and contingent liabilities.
• Detailed Disclosures: Comprehensive disclosures are made in accordance with Ind AS, providing transparency regarding financial instruments, related party transactions, and employee stock option schemes.

Regulatory Risk Assessment #

• General Compliance: High level of general compliance with the Companies Act, 2013, Listing Regulations, and other relevant laws.
• Audit trail: No trail for database-level entries.
• Litigation Risk: Some pending litigations, particularly with tax authorities, are present. However, the Company believes it has strong cases and has made necessary provisions.