Marksans Pharma Ltd: Annual Report 2023-24 Analysis

Executive Summary #

Comprehensive Performance Overview #

1) 3-Year Trend Analysis of Key Financial Metrics #

2) Business Segment Performance #

Note: Marksans Pharma operates primarily as a single reportable segment (Pharmaceuticals) according to the report. Revenue breakdown by therapeutic segment prior to FY24 is not provided.

3) Major Strategic Initiatives and Their Progress #

• Acquisition of Tevapharm’s Goa Manufacturing Facility: Completed. This facility is expected to double the Company’s existing Indian production capacity, aiming for 8 billion units per annum. It is equipped to manufacture tablets, ointments, liquids, and creams.
• OTC Market Expansion: Ongoing. The Company aims to become a significant player in the OTC market, focusing on therapeutic segments like pain management, upper respiratory, and gastrointestinal. Over the past seven years there is a CAGR of 17%.
• Forward Integration and Acquisitions: Ongoing. The Company is pursuing forward integration to enhance profit margins and secure distribution. Calibrated inorganic growth through targeted acquisitions of marketing and distribution companies, especially in growing markets and the EU, is a priority.
• R&D Investment/ Product Portfolio: Ongoing, 76+ products are in the pipeline. Focus is on new filings in the UK, US, Australia, New Zealand and ROW markets.

4) Risk Landscape Changes #

• Supply Chain Disruptions: Increased transit times and freight rates due to the Red Sea crisis are identified as a significant challenge. The company mitigated this by increasing inventory levels in US warehouses.
• Economic Risk: Acknowledged, but mitigated by a diversified global presence in over 50 countries.
• Competition Risk: Addressed through continued R&D investment and a focus on niche therapeutic areas.
• Technology Risk: Managed by continuous investment in cutting-edge technologies and adoption of advanced manufacturing and R&D practices.
• Compliance/Regulatory Risk: Mitigated through quality management systems and adherence to regulatory norms.
• People Risk: Focus on Teamwork skills and talent enhancements, training and a robust human resource management program.

5) ESG Initiatives and Metrics #

Environment:

• Water Management: Implemented a three-step water treatment process (primary, secondary, tertiary) and reuses treated water to minimize consumption.
• Waste Management: Focuses on waste reduction, recycling, and proper disposal of hazardous waste through authorized facilities.
• Renewable Energy: Future plan to install solar panels.
• Environmental Conservation: Tree plantation drives.

Social:

• Healthcare Infrastructure Development: Construction of a new building for a government-aided nursing institute, free food provision, and healthcare camps for underprivileged communities.
• Women and Child Development: Initiatives for the well-being of women and children, including support for Anganwadis and participation in the national nutrition mission.
• Education Promotion: Support for school building construction and improving access to quality education.
• Support for Farmers: Providing equipment, medical assistance, and knowledge sharing.
• Employee Well-being: Emphasis on a safe and inclusive work environment, with zero complaints on discrimination or sexual harassment.

Governance:

• Board Diversity: The Board comprises 8 directors, including 4 independent directors and 2 women directors.
• Committees: Five board committees (Audit, Nomination and Remuneration, Stakeholders’ Relationship, CSR, Risk Management) to ensure oversight.
• Corporate Governance Policy: Adherence to ethical business practices, transparency, and accountability.
• Whistle Blower Policy: Implemented to address fraud and mismanagement.

Key ESG Metrics

• Energy Consumption: 82,308,912.12 MJ
• Water Withdrawal: 78,387.66 KL *Waste Recycled: 15.199 TN *Share of Renweable Energy in total energy mix: 0 *CSR Investment : 29.45 Mn *Diversity ratio : 14.31 *Attrition Rate : 15%

6) Management Outlook #

• Continued Growth: Expects sustained growth and expansion, driven by increased market share, new market entry, and a strong product pipeline.
• OTC and Rx Market Potential: Focus on leveraging opportunities in both the over-the-counter and prescription drug markets.
• Margin Improvement: Expects enhanced capacity utilization, moderation in raw material prices, and a favorable product mix to drive gross margin improvement.
• Strategic Acquisitions: Actively pursuing acquisitions to expand market access and distribution capabilities, particularly in the EU.
• R&D Focus: Continued investment in R&D to maintain a competitive edge and develop innovative products.
• Operational Efficiency: Ongoing efforts to optimize operations and manage costs.
• Geographic Expansion: The ROW segment shows a lot of revenue generating opportunity.
• Capacity Expansion: Planning to further increase production capacity by end of FY25.

###Comparative Analysis with Industry Averages.

Not enough information to complete this section.

Detailed Analysis #

Financial Position #

Balance Sheet Analysis #

Balance Sheet Analysis - Marksans Pharma Limited (Consolidated) #

1. Three-Year Comparative Analysis #

2. Significant Changes in Major Line Items (>10% YoY) #

3. Working Capital Trends #

4. Asset Quality Metrics #

5. Debt Structure and Maturity Profile #

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6. Off-Balance Sheet Items #

Operating Performance #

Income Statement Deep Dive #

1. Revenue Breakdown by Segment/Geography with Growth Rates

Revenue by Delivery System (FY 2023-24)

Geography-wise Revenue (Rs. in million) & Growth (YoY)

Revenue by Therapeutic Segment (FY 2023-24)

2. Cost Structure Analysis (FY 2023-24)

3. Margin Analysis (Consolidated)

4. Operating Leverage

Operating leverage details are not explicitly provided in the report and cannot be directly calculated.

5. Non-Recurring Items

The provided document does not specify any non-recurring items.

6. GAAP vs. Non-GAAP Reconciliation

The provided document uses Ind AS, which is the Indian equivalent of IFRS. A reconciliation to U.S. GAAP is not provided and is not feasible with the available information.

7. EPS Analysis (Consolidated)

8. Quarterly Trends

The provided document does not provide quarterly results, precluding a quarterly trend analysis.

Visualization

It’s not possible to create visual in this text enviroment.

Peer Comparision Peer comparision is not possible since the document only contain data regarding the company.

Cash Management #

Cash Flow and Liquidity Analysis #

Cash Flow Analysis: Marksans Pharma Limited #

1. Detailed Cash Flow Components (Consolidated, in Millions of INR) #

2. Working Capital Management Efficiency #

Interpretation: -Inventory turnover days has increased. -Trade receivable turnover days has decreased. -Trade payable turnover days has increased.

3. Capital Expenditure Analysis #

4. Dividend and Share Buyback Trends #

5. Debt Service Coverage #

Note: The significant increase is primarily due to enhanced profitability.

6. Liquidity Position and Cash Conversion Cycle #

# Note: Estimated based on available inventory, receivable, and payable turnover data. A precise CCC requires detailed cost of goods sold data.

7. Free Cash Flow Yield Trends #

Because Free Cash Flow and Market Capitalization data has varied, this section cannot be fully analyzed.

Peer Comparison #

A meaningful peer comparison requires identifying publicly listed companies with similar business models (OTC, Rx, geographic focus). This data is not provided in the provided annual report extract. A peer comparison would normally include the same metrics calculated above for comparable companies.

Forward Projections (Based on Historical Trends) #

Without specific growth rates or management guidance, a rudimentary projection can be made:

• Revenue: Assuming continued growth, but possibly moderating from the high teens, a conservative estimate could be 10-15% growth.
• OCF: Likely to grow in line with revenue, assuming stable margins. However, working capital needs could impact this.
• Capex: Difficult to project without specific investment plans. The large acquisitions in recent years may not be repeated annually.
• Dividends: If the company maintains a payout ratio, dividends would increase with net income.
• FCF: Dependent on the interplay of OCF and Capex.

Important Considerations:

• These projections are highly simplistic and based solely on the limited historical data provided.
• No account is taken of external factors (market conditions, regulatory changes, competition, etc.).
• No specific management guidance or strategic plans are incorporated. *The acquisition of Tevapharm’s Goa facility represents a significant strategic move.
• The annual report indicates a focus on both OTC and Rx markets, and continued expansion in regulated markets.

It should be added that The Red Sea crisis presented challenges, directly impacting the company’s cost structure through increased transit times and freight rates.

Operational Metrics #

Key Performance Indicators #

Profitability Ratios #

Significant Deviations/Insights:

• ROE shows slight decline because of aquisitions.
• ROCE shows an overall positive upward trend.
• Operating and Net Profit Margins have improved consistently, indicating good cost management and increasing operational efficiency.

Liquidity Ratios #

Significant Deviations/Insights:

• All liquidity ratios are well above the commonly accepted thresholds (e.g., Current Ratio > 2, Quick Ratio > 1), indicating a very strong ability to meet short-term obligations.
• Slight Decrease in all ratios compared to previous year

Efficiency Ratios #

Significant Deviations/Insights:

• Asset Turnover Ratio has shown a slight decrease.
• Inventory and Receivables turnover ratio remains consistent.

Leverage Ratios #

Total Debt is Lease Liabilities + Short Term Borrowings

Significant Deviations/Insights:

• The Debt-to-Equity ratio is very low, highlighting a very conservative capital structure with minimal reliance on debt financing.
• The Interest Coverage Ratio is exceptionally high, meaning the company has more than sufficient earnings to cover its interest obligations.

Segment-wise ROIC #

Due to the lack of EBIT data for individual segments and the capital employed specifically for each segment, a precise calculation of Segment-wise ROIC cannot be performed directly from the provided annual report.

Working Capital Ratios #

Significant Deviations/Insights

• There is improved collection of trade receivables.
• Slight increase in Inventory holding period, can be connected to strategic risk mitigation due to Red Sea Crisis.
• Increase in Days Payable Outstanding, which means more credit days were given.

Market Performance #

Market and Valuation Metrics #

Market Performance Analysis of Marksans Pharma Ltd. #

1. Market Cap Trends #

• Market Capitalization as of August 13, 2024: ₹8,500.00 million

2. Trading Multiples #

(Data for comprehensive calculation not fully available in the provided document. Available relevant metrics are presented.)

• P/E Ratio (Based on provided EPS):

  • Using EPS of 6.92 and a share price rebased to 100 as on April 30, 2023, reaching 151.55 as on March 2024, an approximate current share price can be estimated.

  • Approximate Current Share Price: ₹151.55

  • Approximate Trailing P/E: 151.55/6.92= 21.90

  • Using EPS of 6.4 for FY 22-23, and a share price rebased to 100, reaching to 80.74 on Apr-23. -Approximate trailing PE:80.74/6.4=12.61

• P/B Ratio: (Data not provided)

• EV/EBITDA: (Data not provided; Enterprise Value requires debt and cash details not fully specified for consolidated entity’s external borrowings)

3. Dividend Metrics #

• Dividend Payout Ratio (FY24): 16.94%
• Dividend Per Share (FY24): ₹0.60
• Dividend Yield: (Requires current market price, calculation not fully possible without precise current price)
• Dividend Coverage: (Inverse of payout ratio, approximately 5.90)

4. Shareholder Return Analysis #

• Provided data gives increase of rebasing of 100 to 151.55, representing a 51.55% increase.

5. Beta and Volatility Metrics #

• (Not directly provided in the document. Requires external market data correlation with a benchmark index.)

6. Analyst Coverage and Recommendations #

• (Not provided in the document.)

7. Institutional Ownership Changes #

• (Not provided in the document.)

Valuation Compared to Peer Group and Sector Averages #

• (Not provided in the document, comparison not possible with the provided details.)

Business Segments #

Segment Performance Analysis #

OTC (Over-the-Counter) Segment #

1) Revenue and Profitability Metrics:

• Revenue (FY24): ₹16,130 million
• YoY Growth: Not directly stated, but overall revenue grew 17.6%, suggesting strong OTC contribution.
• Profitability: Not directly stated, but the report mentions “margin development” and that “enhanced capacity utilisation, moderation in raw material prices and favourable product mix will continue to drive our gross margins, going forward”, these factors may influence this segment.
• EBITDA (FY24): ₹4,586 million (Company-wide, not segment-specific).

2) Market Share and Competitive Position:

• Market Share: Positioned as a leading player, particularly in store brands for major retailers in the UK and US. Specific market share percentages are not provided.
• Competitive Position: Strong in store-brand manufacturing, leveraging cost-effectiveness and reliability.

3) Key Products/Services Performance:

• Key Categories: Pain Management, Upper Respiratory, Digestive Health, Vitamins, Minerals, and Supplements (VMS), Skin Care.
• Performance: Growth driven by increased volumes, new product launches, and wallet share gains.

4) Geographic Distribution and Market Penetration:

• Primary Markets: US, UK, Europe, Australia, New Zealand.
• Market Penetration: Strong presence in regulated markets. Deep relationships with major retailers (Walmart, Walgreens, CVS, Tesco, ASDA, etc.).

5) Segment-wise Capex and ROIC:

• Capex: Not broken down by segment.
• ROIC: Not broken down by segment.

6) Operational Efficiency Metrics:

• Operational Capacity: Expanding to produce 26 billion tablets and capsules per annum.
• Supply Chain: Addressed Red Sea crisis disruptions by strategizing routes and optimizing delivery time.

7) Growth Initiatives and Challenges:

• Growth Initiatives: Expanding product offerings in key therapeutic segments, forward integration, and acquisitions. Focus on becoming a major player in the OTC market.
• Challenges: Navigated moderate pricing pressure on Rx products. Supply chain disruptions (Red Sea crisis) led to increased expenditure.

Competitor Comparison and Market Size/Growth Data:

Market Size: Projected to grow with a CAGR of 3.49%, from USD 137.39 Billion in 2024 to USD 163.10 Billion by 2029. *The Cough, cold and flu segment is expected to dominate.

• Competitor Comparison: Not directly provided in the report.
• Market Size/Growth: Multi-billion dollar OTC market, with a 17% CAGR over the past seven years for Marksans.

Rx (Prescription) Segment #

1) Revenue and Profitability Metrics:

• Revenue (FY24): ₹5,664 million.
• YoY Growth: Not directly stated, but overall revenue grew 17.6%.
• Profitability: Not directly stated, but the report mentions “margin development” and that “enhanced capacity utilisation, moderation in raw material prices and favourable product mix will continue to drive our gross margins, going forward”, these factors may influence this segment.
• EBITDA (FY24): ₹4,586 million (Company-wide, not segment-specific).

2) Market Share and Competitive Position:

• Market Share: Focus on regulated markets. Specific market share percentages are not provided.
• Competitive Position: Specializes in Rx drugs across various therapeutic areas.

3) Key Products/Services Performance:

• Key Categories: Cardiovascular System (CVS), Central Nervous System (CNS), Oncology, Anti-Diabetics, Anti-Biotics.
• Performance: Successful product launches and increased sales volume contributed to growth.

4) Geographic Distribution and Market Penetration:

• Primary Markets: US, UK, Europe, Australia, New Zealand.
• Market Penetration: Focus on regulated markets, selling finished products through subsidiaries.

5) Segment-wise Capex and ROIC:

• Capex: Not broken down by segment.
• ROIC: Not broken down by segment.

6) Operational Efficiency Metrics:

• Cost Optimisation: Not segment specific, the overall cost structure of the company was negatively affected by factors such as the Red Sea crisis.

7) Growth Initiatives and Challenges:

• Growth Initiatives: Strengthening pipeline of products, entering new markets.
• Challenges: Moderate pricing pressure on Rx products in the US.

Competitor Comparison and Market Size/Growth Data:

*The global generics drugs market is anticipated to grow to $574.63 Billion by 2030.

• Competitor Comparison: Not directly provided in the report.
• Market Size/Growth: Growing market, particularly in developed economies like North America.

Overall Company-level Geographic Analysis #

1. US and North America:

• Revenue (FY24): ₹9,181 million.
• YoY Growth: 18.5%.
• Subsidiary: Time-Cap Laboratories Inc. (TCL).
• Key Clients: Walmart, Walgreens, CVS, Dollar General, Target, Kroger.

2. Europe and UK:

• Revenue (FY24): ₹9,430 million.
• YoY Growth: 22.9%.
• Subsidiaries: Bell, Sons & Co. (Druggists) Limited (OTC), Relonchem Limited (Rx).
• Key Clients: AAH, Lloyds, NHS, TESCO, ASDA, Morrisons, Coop, Boots-Almus.

3. Australia and New Zealand:

• Revenue (FY24): ₹2,188 million.
• YoY Growth: 4.4%.
• Subsidiary: Nova Pharmaceuticals Australasia Pty Ltd.

4. Rest of the World:

• Revenue (FY24): ₹974 million.
• YoY Growth is not directly provided.
• Regions: South East Asia, Middle East, Africa, CIS countries.
• Subsidiary: Access Healthcare for Medical Products LLC in UAE.

Risk Framework #

Comprehensive Risk Assessment #

Risk Assessment Matrix - Marksans Pharma Limited (FY2023-24) #

Severity Scale: 1 (Insignificant) - 5 (Critical) Likelihood Scale: 1 (Rare) - 5 (Almost Certain) Trend: Increasing, Decreasing, Stable Control Effectiveness: Weak, Moderate, Strong Potential Financial Impact: Quantified in millions of Indian Rupees (INR) where possible, otherwise categorized as Low, Medium, High

1. Strategic Risks #

2. Operational Risks #

3. Financial Risks #

4. Compliance/Regulatory Risks #

5. Emerging Risks #

Quantitative Risk Metrics:

• Overall Risk Exposure (Simple Average): Calculated by averaging the Severity and Likelihood scores for each risk, then averaging across categories. (Not calculated here due to the qualitative nature of some mitigation strategies and control effectiveness)
• Weighted Risk Score: Could be calculated by assigning weights to Severity and Likelihood based on business priorities. (Not calculated here due to lack of weighting information)
• Total Potential Financial Impact: Sum of the midpoint of Potential Financial Impact ranges (where quantified). This would provide a high-level estimate of total financial exposure. (Not calculated here)

Year-over-Year Changes: The “YoY Change in Risk Profile” column qualitatively describes changes based on trends in severity, likelihood.

Notes: The financial impacts are broad estimates. Specific events could have a much larger or smaller impact. Control Effectiveness has impact on liklihood. Not all risks can be mitigated.

Strategic Direction #

Strategic and Management Analysis #

Here’s an evaluation of Marksans Pharma based on the provided document, following all instructions and constraints:

1. Long-Term Strategic Goals and Progress #

Strategic Goals (Stated):

• Become a respected, profitable, and integrated global pharmaceutical company.
• Strengthen global footprint in regulated markets (US, UK, Europe, Australia, New Zealand).
• Expand into Pharma emerging countries.
• Become a major player in the multi-billion-dollar OTC market.
• Forward integration to enhance profit margins.
• Calibrated inorganic growth through targeted acquisitions.
• Continued product innovation.

Progress Indicators:

• Revenue growth of 17.6% Y-o-Y (FY24), reaching ₹21,774.07 million.
• EBITDA growth of 35.1% Y-o-Y (FY24), reaching ₹4,586 million.
• PAT growth of 18.7% Y-o-Y growth(FY24), reaching H 3148.95 Million.
• Presence in 50+ countries.
• Acquisition of Tevapharm’s Goa manufacturing facility.
• Pipeline of 76+ products. *Net Debt negative for last 5 years

2. Competitive Advantages and Market Positioning #

Competitive Advantages:

• Strong R&D infrastructure.
• Expertise in OTC and prescription (Rx) drugs.
• Diverse product portfolio (tablets, capsules, liquids, ointments).
• FDA, TGA, MHRA-approved facilities.
• Largest manufacturing capacity of soft gelatin formulations in India.
• Cost-optimization initiatives.
• “Made in the USA” product offering.

Market Positioning:

• Leading Indian pharmaceutical company in the UK.
• Significant presence in the US, UK, Europe, Australia, and New Zealand.
• Specialization in OTC and Rx drugs.
• Strong presence in regulated markets.
• Partnerships with major retailers in key markets.
• One of the top 5 Indian Companies in UK.

3. Innovation Initiatives and R&D Effectiveness #

Innovation Initiatives:

• Focus on development of soft gels and different delivery systems.
• Development of OTC products for pain management, upper respiratory, digestive health, etc.
• Development of prescription medications for CVS, CNS, and diabetes.
• Collaborations with academic institutions, hospitals, and research organizations.

R&D Effectiveness Indicators:

• R&D expenditure: ₹346.08 million (FY24).
• R&D expenditure as % of sales: 1.6% (FY24).
• 4 R&D centers.
• 50+ scientists.
• 300+ approved ANDAs/MAs.
• 350+ dossiers filed.
• 76+ products in the pipeline.
• 25+ Filed ANDAs/MAs

4. M&A Strategy and Execution #

M&A Strategy (Stated):

• Strategic acquisitions to enhance manufacturing capacity and market access.
• Focus on acquiring established marketing and distribution companies.
• Targeted acquisitions in growing markets and the EU.

Execution Indicators:

• Acquisition of Tevapharm’s Goa manufacturing facility (FY24).
• Acquisition of Time-Cap Laboratories Inc. (USA).
• Acquisition of Bell, Sons & Co. (Druggists) Limited and Relonchem Limited (UK).
• Acquisition of Nova Pharmaceuticals Australasia Pty Ltd. (Australia and New Zealand).
• Acquired Access Healthcare For Medical Products LLC in UAE.

5. Management’s Track Record in Execution #

Indicators of Execution:

• Consistent revenue and profitability growth.
• Successful new product launches.
• Market share expansion in key regions.
• Successful navigation of the Red Sea crisis and supply chain disruptions.
• Strategic investments in infrastructure and workforce.
• Exceeded revenue target of ₹2,000 crore for FY24.

6. Capital Allocation Strategy #

Capital Allocation Priorities:

• Investment in R&D.
• Capacity expansion (Tevapharm facility).
• Strategic acquisitions.
• Dividend payments to shareholders.
• Capex of INR 208 crores.
• Maintaining a net debt negative balance sheet.

Capital Expenditure Breakdown (FY24):

• Tevapharm facility: ₹125 crore.
• Existing Goa facility: ₹30 crore.
• US facility: ₹31 crore.
• UK manufacturing facilities: ₹22 crore.

7. Organizational Changes and Their Impact #

Organizational Changes: *Hiring of 200 new Employees at Tevapharm unit.

Impact:

• Increased operational capacity.
• Short-term increase in expenses.
• Expected long-term revenue contribution.

KPI Tracking Against Strategic Objectives #

Industry Trend Analysis #

Global Pharmaceutical Industry Trends:

• Steady growth projected for the global economy (3.2% in 2024 and 2025).
• Gradual acceleration of growth in advanced economies.
• Resilience of emerging markets.
• Declining but persistent global inflation.
• Increased demand for generic drugs due to cost pressures.
• Expansion of the biologics market.
• Growth in the OTC market.
• Technological advancements, including AI and robotic process automation.

Regional Trends:

• US: Resilience, steady growth, potential for a “soft landing.”
• UK: Modest growth projected, recovery from stagnation.
• Russia: Resilience despite sanctions, growth driven by defense spending.
• Australia: Slowdown in growth, followed by a projected comeback.
• Emerging Markets: Stronger performance compared to developed economies.
• Indian Pharma: Indian pharma industry is positioned as a preferred market for Global Investments. PLI of INR 6940 Crores.

ESG Framework #

ESG and Sustainability Analysis #

Energy Consumption:

• Total Energy Consumed (FY24): 82,308,912.12 MJ
• Total Electricity Consumption: 23,774,940 kWh (FY24), 13,560,600 kWh (FY23)
• Renewable Energy Share: 0%

Water Management:

• Water Withdrawal (FY24): 78,387.66 KL
• Water Withdrawal (FY23):89775 KL.
• Water Treatment: Three-step process (primary, secondary, tertiary)
• Treated water reused within operations.

Waste Management:

• Waste Recycled (FY24): 15.199 TN
• Hazardous Waste: Proper disposal/treatment through authorized facilities.

Emissions: Specific emission values for NOx, SOx, and Particulate Matter (PM) are provided for various generators and boilers. No overall GHG emissions target.

Targets:

No explicit quantitative targets for energy reduction, renewable energy adoption, or water conservation. Stated focus on optimizing resource utilization and minimizing waste. Plans to install solar panels.

Social Responsibility Programs #

Healthcare Infrastructure Development:

• Construction of a new building for Sai Nursing Institute.
• Free food provision for needy individuals via NGOs.
• Healthcare camps for underprivileged communities (cancer and blood disorder patients).

Women and Child Development:

• Promotion of well-being for women and children.
• Support for Anganwadis and national nutrition mission.

Education Promotion:

• Support for new school building construction.
• Improving access to quality education.

Environmental Conservation:

• Tree plantation drives.

Women Empowerment:

• Provision of sanitary pads.

Support for Farmers:

• Provision of equipment, medical assistance, and knowledge sharing.

CSR Spending:

• CSR Spend (FY24): ₹29.45 million
• Number of CSR Projects: 10
• Prescribed CSR Expenditure Requirement (FY24): ₹26.21 million
• Excess amount spent for set-off availability.

Employee Metrics:

• Number of employees: 2000+
• Diversity Ratio: 14.31
• Attrition rate: 15%
• Complaints on discrimination: 0
• Employment(Sexual Harassment Complaints):0
• Fatatlies and accidents: 0

Governance Structure and Effectiveness #

Board of Directors:

• 8 Directors: 3 Executive, 5 Non-Executive (4 Independent).
• 2 Women Directors (1 Independent).

Committees:

• Audit Committee
• Nomination and Remuneration Committee
• Stakeholders’ Relationship Committee
• Corporate Social Responsibility Committee
• Risk Management Committee

Policies and Codes:

• Code of Conduct for Directors & Employees
• Code of Conduct to Regulate, Monitor and Report Trading in Securities
• Policy on Related Party Transactions
• Corporate Social Responsibility (CSR) Policy
• Whistle Blower Policy (Vigil Mechanism)
• Policy for Determination of Materiality of Events
• Code of Practice and Procedure for Fair Disclosure of Unpublished Price Sensitive Information
• Policy for Determining Material Subsidiary
• Dividend Distribution Policy

Compliance:

• Adherence to ethical business practices.
• Compliance with Secretarial Standards SS-1 and SS-2.

Sustainability Investments and ROI #

The report did not provide details on sustainability investments.

ESG Ratings and Peer Comparison #

No data provided on ESG ratings or peer comparison.

Regulatory Compliance and Future Preparations #

Regulatory Compliance:

• Manufacturing facilities accredited by USFDA, UK MHRA, Australian TGA, EU, Health Canada, and Japanese Health Authority.
• Compliance with environmental regulations at plant sites.
• Adherence to Prevention of Sexual Harassment Policy and Act.

Future Preparations:

• Stated commitment to integrating ESG principles.
• Alignment with UN Sustainable Development Goals (SDGs).
• Focus on energy-efficient technologies and waste reduction.
• Engagement with suppliers for sustainable practices.
• Continuous monitoring of emission and waste.

Forward Outlook #

Management Guidance and Assumptions #

Revenue Target: Exceeded the initial FY24 revenue target of ₹2,000 crore, achieving ₹2,177 crore.

Growth Assumption: 17.6% year-on-year growth in operating revenue driven by increased sales volume, new product launches, and expanded market share.

EBITDA Margin: Maintained an EBITDA margin of 21.1% for FY24, with a 35.1% year-on-year increase in EBITDA to ₹459 crore.

Market Focus: Continued emphasis on regulated markets (US, UK, Europe, Australia, New Zealand) and expansion into emerging markets.

Acquisition Impact: Tevapharm acquisition expected to double India’s production capacity and contribute meaningfully to revenue in FY25.

Market Growth Forecasts #

Global Pharmaceutical Market (General): Expected to witness positive growth in 2025 and beyond, driven by industry evolution and customer engagement strategies.

US Pharmaceutical Market: Estimated at USD 574.37 billion in FY23, with health service utilization returning to pre-pandemic levels.

UK and Eurozone Pharma: Projected growth, influenced by new drug development and a shift in economic and research activities.

Global Generics Market: Anticipated growth to $574.63 billion by 2030, fueled by cost-saving demands and patent expiries.

Global OTC Market: Projected to reach USD 163.10 billion by 2029, with a CAGR of 3.49%.

Indian Pharmaceutical Industry: Forecasted to reach $65 billion by the end of 2024 and $130 billion by 2030, maintaining its position as the 3rd largest globally by volume.

Planned Strategic Initiatives #

OTC Business Strengthening: Aiming to become a significant player in the OTC market, focusing on pain management, upper respiratory, and gastrointestinal segments.

Forward Integration: Pursuing forward integration to improve profit margins and secure distribution capabilities.

Acquisitions: Targeting established marketing and distribution companies in growing markets and the EU to enhance market access.

Product Innovation: Continuous investment in R&D, with a pipeline of over 76 products, to cater to unmet medical needs and evolving market trends.

Geographic Expansion: Focus on increasing market share in existing markets (US, UK, Australia, New Zealand) and entering new markets.

Capital Expenditure Plans #

Total Capex (FY24): ₹208 crore.

Allocation: - Tevapharm facility acquisition: ₹125 crore. - Existing Goa facility: ₹30 crore. - US facility: ₹31 crore. - UK manufacturing facilities: ₹22 crore. - R&D Investment: INR 34.6 crores, Representing 1.6% of sales.

Phased Approach: Capital expenditure divided into three phases, with expectations of strong revenue generation in the medium term.

Capacity Expansion: Plan to further increase production capacity by the end of FY25.

Efficiency Improvement Targets #

Cost Optimization: Focus on efficient operations and maintaining strong profitability margins through cost-control measures.

Supply Chain Management: Addressing disruptions (e.g., Red Sea crisis) by strategic route planning and delivery time optimization.

Inventory Management: Increased inventory levels of finished products and key raw materials in US warehouses to mitigate supply shortages.

Capacity Utilization: Scaling operations and enhancing utilization of the acquired Tevapharm unit, with expected revenue contributions in FY25.

Potential Challenges and Opportunities #

Challenges:

• Economic Risk: Political and social instability in operating environments.
• Supply Chain Disruptions: Issues like the Red Sea crisis impacting transit times and freight rates.
• Pricing Pressure: Moderate pricing pressure on Rx products in the US market.
• Regulatory Compliance: Adherence to stringent global regulatory norms.
• Technological changes: Need to implement cutting edge technologies.
• Competition Risk: Pharma Companies face intense competition from market players.

Opportunities:

• Global Economic Growth: Steady growth in advanced economies and resilience in emerging markets.
• OTC Market Expansion: Potential in the multi-billion-dollar OTC market.
• Acquisition Synergies: Leveraging Tevapharm’s scalable capacity to double Indian production.
• Product Portfolio Diversification: Expanding product offerings in key therapeutic segments.
• R&D Pipeline: Strong pipeline of 76+ products to drive innovation.
• Market Expansion: Foray into new geographies.

Scenario Analysis and Sensitivity #

Scenario 1: Favorable Economic Conditions

• Assumptions: Sustained global economic growth, stable political environments, and easing of supply chain disruptions.
• Impact: Higher sales volumes, successful new product launches, and increased market share.
• Sensitivity: Revenue and EBITDA growth could exceed projections.

Scenario 2: Adverse Economic Conditions

• Assumptions: Economic downturn, increased geopolitical tensions, prolonged supply chain disruptions, and higher inflation.
• Impact: Reduced sales volumes, pricing pressure, increased operational costs, and potential delays in product launches.
• Sensitivity: Revenue and EBITDA growth could fall below projections.

Scenario 3: Successful Acquisition Integration

• Assumptions: Seamless integration of Tevapharm facility, achieving projected capacity utilization, and realizing cost synergies.
• Impact: Significant revenue contribution from FY25 onwards, enhanced production capabilities, and improved market position.
• Sensitivity: EBITDA margins could improve beyond current levels.

Scenario 4: Regulatory Challenges

• Assumptions: Increased regulatory scrutiny, delays in product approvals, and compliance issues.
• Impact: Delayed product launches, potential fines, and reputational damage.
• Sensitivity: Revenue and profitability targets could be negatively impacted.

Sensitivity to Key Assumptions:

• Raw Material Prices: Fluctuations in raw material prices can impact gross margins.
• Exchange Rates: Volatility in exchange rates, especially USD, GBP, and AUD, can affect revenue and profitability.
• Interest Rates: Changes in interest rates, while currently not a major risk, could impact future borrowing costs.
• Capacity utilization Enhanced capacity utilization will drive future growth.

Audit & Compliance #

Audit and Regulatory Analysis #

Auditor’s Opinion and Qualifications #

Opinion: Unmodified opinion on both standalone and consolidated financial statements.

Qualifications: None reported in the Auditor’s Reports for FY 2023-24.

Key Accounting Policies and Changes #

Policies: The standalone and consolidated financial statements are prepared in accordance with Indian Accounting Standards (Ind AS). Key policies include:

• Revenue recognition: Revenue from the sale of products is recognized upon transfer of control to the customer.
• Property, plant, and equipment: Stated at cost less accumulated depreciation and impairment. Depreciation is provided on a straight-line basis.
• Intangible assets: Amortized over their estimated useful lives on a straight-line basis.
• Inventories: Valued at the lower of cost and net realizable value. Cost is determined on a weighted average basis.
• Financial instruments: Measured at fair value or amortized cost, depending on classification.
• Employee benefits: Defined contribution plans expensed as services are rendered. Defined benefit plans are actuarially valued.
• Leases: The Company implemented IND AS 116.

Changes:

• Adoption of amendments to Ind AS 1, Ind AS 8, and Ind AS 12, effective April 1, 2023, did not have a material impact. These amendments relate to the disclosure of material accounting policies, the definition of accounting estimates, and deferred tax related to assets and liabilities arising from a single transaction, respectively.

Internal Control Effectiveness #

Assessment: Adequate internal financial controls with reference to standalone and consolidated financial statements were in place and operating effectively as of March 31, 2024.

Exception: Audit trail feature was not enabled at the database level during the year, preventing logging of direct data changes. There have been no reported material weaknesses.

Regulatory Compliance Status #

Compliance: The Company is compliant with applicable laws and regulations, including:

• Companies Act, 2013
• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
• SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021
• Secretarial Standards
• Applicable environmental regulations (Water Act, Air Act, Environment Protection Act)
• Drug and Cosmetics Act
• U.S FDA, UK MHRA, TGA, EU.

Non-Compliance Instances: No instances of non-compliance, penalties, or strictures imposed by regulatory authorities reported during the last three years.

Legal Proceedings and Potential Impact #

Pending Litigation: The company has not reported any pending litigation that would impact its financial position.

Contingent Liabilities: Tax liability demands exist, these have not been recognized as a liability on the balance sheet. The company does not expect the outcome of these proceedings to be material.

Related Party Transactions #

Transactions: The Company engaged in transactions with subsidiaries, including sales and purchases of goods.

Materiality: Transactions with Time-Cap Laboratories Inc. exceeded materiality limits but are exempt from audit committee and shareholder approval as it is a wholly-owned subsidiary.

Disclosure: Related party transactions are disclosed in Note No. 39(c) of the Standalone Financial Statements and Note 43 of the consolidated financial statements.

Arm’s Length Basis: All related party transactions were conducted in the ordinary course of business and on an arm’s length basis.

Subsequent Events #

Dividend Recommendation: The Board of Directors recommended a final dividend of ₹0.60 per equity share (60%) on May 30, 2024.

Accounting Quality Analysis #

Consistency: Accounting policies are consistently applied.

Transparency: Disclosures comply with Ind AS requirements.

Estimates and Judgments: Key estimates relate to useful lives of assets and employee benefits. These are reviewed periodically.

Audit Trail: The accounting software used by the Holding Company maintains an audit trail, but it was not enabled at the database level during the year ended March 31, 2024 for the Standalone Financial Statements, and the audit trail feature was not available for all transactions.

Regulatory Risk Assessment #

Compliance: The Company demonstrates compliance with key regulations.

Monitoring: Systems and processes are in place to monitor regulatory compliance.

Risk Mitigation: The Company has established a Risk Management Committee and proactively addresses identified risks.

Areas for Improvement: A point for observation regarding the audit trail feature should be considered in future reviews.

Regulatory Risk Level: Moderate, with strong compliance systems but requiring attention to database-level audit trail and ongoing monitoring.