Suven Pharmaceuticals Ltd:Annual Report 2023-24 Analysis

Suven Pharmaceuticals Ltd: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Suven Pharmaceuticals Ltd. was established in 2003 as a spin-off from Suven Life Sciences Limited.

Headquarters Location and Global Presence: The company is headquartered in Hyderabad, India. They operate globally, with a strong presence in North America, Europe, and Asia.

Company Vision and Mission: While a specific publicly declared vision and mission statement are not readily available, Suven Pharmaceuticals focuses on being a premier contract development and manufacturing organization (CDMO) and API supplier, providing high-quality and cost-effective solutions to global pharmaceutical companies.

Key Milestones in their Growth Journey:

• 2003: Spin-off from Suven Life Sciences Limited.
• Expansion of CDMO capabilities: Significant investments in expanding manufacturing infrastructure and R&D capabilities.
• Strategic Acquisitions: Acquisition of Casper Pharma further solidifying presence in the CDMO space.

Stock Exchange Listing Details and Market Capitalization: Suven Pharmaceuticals is listed on the Bombay Stock Exchange (BSE: 543064) and the National Stock Exchange (NSE: SUVENPHAR). The market capitalization fluctuates with market conditions; please refer to financial websites for the most up-to-date information.

Recent Financial Performance Highlights: (Please refer to the company’s official financial reports and investor presentations for the most current data.)

Management Team and Leadership Structure: The company is led by a team of experienced professionals in the pharmaceutical industry. Key leadership typically includes:

• Managing Director/CEO: Driving overall strategy and operations.
• Chief Financial Officer (CFO): Overseeing financial management.
• Chief Operating Officer (COO): Managing day-to-day operations.

Any Notable Awards or Recognitions: Suven Pharmaceuticals has received awards and recognition for its quality, safety, and sustainability practices. (Please refer to the company’s website or press releases for details.)

Their Products #

Complete Product Portfolio with Categories: Suven Pharmaceuticals operates primarily in two segments:

• Contract Development and Manufacturing Organization (CDMO): Providing custom synthesis, process development, scale-up, and manufacturing services to pharmaceutical companies.
• Active Pharmaceutical Ingredients (APIs): Manufacturing and supplying APIs for various therapeutic areas.

Flagship or Signature Product Lines: The company specializes in niche APIs and advanced intermediates. Specific flagship products are often confidential due to client relationships.

Key Technological Innovations or Patents: Suven focuses on developing innovative manufacturing processes for APIs and intermediates. The number of patents filed/granted would require further company-specific research.

Manufacturing Facilities and Production Capacity: The company has multiple manufacturing facilities in India, equipped with advanced technology and infrastructure. Production capacity details are not readily available publicly and are competitively sensitive.

Quality Certifications and Standards: Suven Pharmaceuticals adheres to stringent quality standards and holds certifications such as:

• US FDA
• European GMP (Good Manufacturing Practice)
• Other relevant regulatory approvals.

Any Unique Selling Propositions or Technological Advantages:

• Strong focus on niche APIs and intermediates: Allowing for high-value products.
• Integrated CDMO services: Providing end-to-end solutions to pharmaceutical clients.
• Strong R&D capabilities: Enabling the development of innovative manufacturing processes.

Primary Customers #

Target Industries and Sectors: The primary target industry is the global pharmaceutical industry.

Geographic Markets (domestic vs. international): Primarily international markets, including North America, Europe, and Asia.

Major Client Segments: Pharmaceutical companies requiring CDMO services and APIs.

Distribution Network and Sales Channels: Direct sales and marketing to pharmaceutical companies.

Major Competitors #

Direct Competitors in India and Globally:

• In India: Divis Laboratories, Laurus Labs, Syngene International.
• Globally: Lonza, Catalent, Thermo Fisher Scientific (for CDMO services).

Competitive Advantages and Disadvantages:

• Advantages: Strong R&D capabilities, focus on niche APIs, integrated CDMO services.
• Disadvantages: Subject to market volatility and regulatory changes, intense competition in the CDMO space.

How they differentiate from competitors: Focus on niche products, strong client relationships, and a commitment to quality and innovation.

Future Outlook #

Expansion Plans or Growth Strategy: Suven Pharmaceuticals aims to expand its manufacturing capacity, strengthen its R&D capabilities, and expand its geographic reach through organic growth and strategic acquisitions.

Upcoming Products or Innovations: Focus on developing new APIs and innovative manufacturing processes.

Sustainability Initiatives or ESG Commitments: Suven Pharmaceuticals is increasingly focusing on sustainability initiatives and ESG (Environmental, Social, and Governance) commitments. (Specific details on these commitments should be sought from the company’s official communications.)

Industry Trends Affecting their Business:

• Increasing demand for CDMO services: Driven by pharmaceutical companies focusing on core competencies.
• Growing demand for APIs: Driven by the growth of the pharmaceutical industry.
• Increasing regulatory scrutiny: Requiring companies to adhere to stringent quality standards.

Long-term Vision and Strategic Goals: To be a leading global CDMO and API supplier, providing innovative and high-quality solutions to the pharmaceutical industry.

Suven Pharmaceuticals Limited: Financial Analysis #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue: Consolidated revenue decreased by 21.6% in FY24 (₹1,051.35 crore) compared to FY23 (₹1,340.33 crore), and adjusted for the COVID base and Agro chemical destocking cycle, the business grew at 16.2% in FY24. The Pharma segment, adjusted for the COVID base, grew at 9.4%.
• EBITDA: Consolidated EBITDA decreased from ₹587.6 crore in FY23 to ₹435 crore in FY24. Adjusted EBITDA margins for FY24 stood at 41.4% (43.8% in FY23), after one-time adjustments of ₹211 crore.
• Profitability: Consolidated Profit for the Year decreased from ₹411.29 crore in FY23 to ₹300.28 crore in FY24. The Adjusted PAT margin, was reported as 30.4%.
• Debt Equity Ratio: Improved to 0.02 in FY24 from 0.04 in FY23, due to decreased borrowings.
• Current Ratio: Increased to 11.47 in FY24 from 6.19 in FY23, due to increased investments and decreased current liabilities.
• Operating Profit Margin: decreased to 35.23% in FY24, compared to 40.62% due to decrese in revenue.

Business Segment Performance #

• Pharma CDMO: The Pharma segment adjusting for the COVID base, grew at 9.4%. The company is targeting to double the sales of its Pharma CDMO business over the next five years. The number of intermediates in Phase III increased from 6 to 13, and molecules in Phase III increased from 2 to 7. RFQs and conversions have more than doubled compared to previous years.
• Specialty Chemicals CDMO: Reframed as a new strategic business unit with increased investment in domain experts and infrastructure. The company anticipates trend reversal in growth from Q2 FY25.
• API++ (Cohance Lifesciences): Expects double digit growth through market share expansion and new product validations.

Major Strategic Initiatives and Their Progress #

• Customer Engagement: Increased customer engagement resulted in a significant increase in RFQs, with conversion rates more than doubling.
• Cost Optimization: Over 30 implementable cost-saving ideas from the shop/floor team, contributing to expense optimization.
• Infrastructure Upgrades: Completed an FDA audit with Zero 483 observations at the Pashamylaram facility. Inaugurated a new R&D facility in Genome Valley. The new block in Suryapet is undergoing validations and is on track for commissioning.
• Merger with Cohance Lifesciences: The merger is progressing, with approvals received from NSE and BSE. The expected timeline for completion is 12-15 months from February 29, 2024. The merger is expected to accelerate growth momentum and expand capabilities.
• Acquisition of Sapala Organics Private Limited: pending statutory approvals, your company plans an initial acquisition of a 67.5% equity stake, which aims to boost the companies capabilities.

Risk Landscape Changes #

• Geopolitical Risks: Global players seeking to de-risk supply chains from China (China+1 strategy) present opportunities for Indian CDMOs. The USA’s Biosecure Act potentially creates further opportunities.
• European Cost Pressures: High manufacturing costs in Europe are driving enterprises to shift their sourcing base towards Asia, particularly India.
• Dependence on Imports:Reliance on imports for KSM and APIs can affect delivery schedule.
• Client and Molecule Concentration: Reliance on select client and a limited number of key molecules.

ESG Initiatives and Metrics #

• EHS Awards: Pashamylaram Unit 3 received the EHS Excellence Award by the CII. The Pashamylaram facility also received the International Safety Award from the British Safety Council.
• CSR Spending: ₹778.12 lakhs spent on social and environmental commitments in 2023-24. Focus areas include education, healthcare, women empowerment, environmental sustainability, rural development, and safe drinking water.

Management Outlook #

• FY25 Outlook: Positive outlook for FY25, with expected growth in revenue and EBITDA, driven by an increase in the clinical pipeline and China Plus One dynamics. Recovery is expected in H2 FY25.
• Mid-Term to Long-Term Growth: The Company anticipates accelerated growth, supported by favourable industry conditions and increased inquiries for commercial molecules under patent.
• Cohance Merger impact: At a combined platform level, expected to organically double the business over the next /five years and adding further growth traction from M&A opportunities.

Detailed Analysis #

Financial Position Analysis of Suven Pharmaceuticals Limited #

Balance Sheet - 3-Year Comparative Analysis (Consolidated, in C Lakhs) #

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

• Current Assets (FY24 vs. FY23): Increased by 24.93%, primarily due to the increase of investment in mutual funds by 80%.
• Total Equity (FY24 vs. FY23): Increased by 18.18% which increased from retained earning.
• Current Liabilities (FY24 vs. FY23): Decreased by 32.67%, mainly because of the decrease of trade payable.

Working Capital Trends #

Working capital increased significantly, driven by growth in current investments. The current ratio has drastically improved, indicating enhanced short-term solvency.

Debt Structure and Maturity Profile #

Current portion of long-term debt significantly reduced.

Off-Balance Sheet Items #

• Contingent Liabilities: C 1,585.23 lakhs as of March 31, 2024, related to APIIC-JN Pharmacity restoration fees and disputes with indirect taxes.
• Commitments: C 4,044.73 committed for exectution of capital contracts.

Operating Performance Analysis of Suven Pharmaceuticals (FY24) #

Revenue Breakdown #

• Consolidated Revenue (FY24 vs. FY23): Declined by 21.6% from ₹1,34,033 lakhs to ₹1,05,135 lakhs. The Pharma segment, adjusted for the COVID base, grew at 9.4%.
• Standalone Revenue: Decreased by 23% from ₹1,33,008 Lakhs (FY23) to ₹1,02,499 Lakhs (FY24).
• Exports: Constituted 89.79% of total revenue from operations, amounting to ₹92,034 lakhs in FY24.

Geographic Revenue Breakdown (₹ in Lakhs) #

Cost Structure Analysis (Standalone) #

• Cost of Materials Consumed: Decreased from ₹42,136.24 lakhs (FY23) to ₹24,838.44 lakhs (FY24).
• Employee Benefit Expenses: Increased from ₹10,858.10 lakhs (FY23) to ₹12,687.84 lakhs (FY24).
• Manufacturing expenses: Decreased from ₹17,164.59(FY23) to ₹12,777.79 (FY24).

Margin Analysis (Consolidated) #

• Reported EBITDA Margin (FY24): 39.4%.
• Adjusted EBITDA Margin (FY24): 41.4% (adjusting for one-time costs of ₹769 lakhs, including ESOP charge and expenses for the proposed merger).
• Adjusted EBITDA Margins (FY23): 43.8%.
• Adjusted PAT Margin (FY24): 30.4%.

Standalone Margin Analysis #

• Operating Profit Margin: 35.23% (FY24) vs. 40.62% (FY23)
• Net Profit Margin: 28% (FY24) vs. 33% (FY23)

Non-Recurring Items (Consolidated) #

• FY24 One-Time Costs: ₹769 lakhs, comprising an ESOP charge of ₹199 lakhs and ₹570 lakhs related to the proposed merger of Cohance Lifesciences.

GAAP vs. Non-GAAP Reconciliation #

• Adjusted EBITDA provided with exclusion for one-time costs.

EPS Analysis (Consolidated) #

• Basic EPS: Decreased from ₹16.16 (FY23) to ₹11.80 (FY24).
• Diluted EPS: Decreased from ₹16.16 (FY23) to ₹11.80 (FY24).

Cash Management: Suven Pharmaceuticals Financial Analysis #

Cash Flow and Liquidity Analysis #

OCF, ICF Components (Consolidated) #

• OCF: FY24: ₹358.48 crore, down from ₹492.82 crore in FY23. Decrease driven by lower profit before tax. Operating profit before working capital changes was ₹413.12 crore, down from ₹572.54 crore.
• ICF: FY24: ₹(362.25) crore, decreased from ₹(195.01) crore in FY23. Driven by purchase of property, plant and equipment and sale/(purchase) of mutual funds.

Working Capital Management Efficiency (Consolidated) #

• Inventory turnover days: 74 in FY24 vs 86 in FY23.
• Debtor turnover days: 43 in FY24 vs 30 in FY23.

Capex Analysis #

• Total Property, Plant and Equipment additions (capitalized) during FY24 were ₹7,765.36 lakhs (Standalone) and ₹8,276.06 lakhs (Consolidated).

Dividend and Share Buyback Trends #

• No dividends paid or proposed in FY24. Previous period dividend was ₹203.65 crore.
• No share buyback information available.

Debt Service Coverage (Consolidated) #

• Debt Service Coverage Ratio: 8.67 in FY24, down from 12.05 in FY23.
• Interest Coverage Ratio: 62.61 times in FY24, up from 49.83 in FY23 due to decreased borrowing costs.

Liquidity Position (Consolidated) #

• Current Ratio: 11.47 in FY24, increased from 6.19 in FY23.

Financial Analysis: Key Performance Indicators #

Profitability Ratios (3-Year Trends) #

• Return on Equity (ROE): FY24: 16%, FY23: 26%. A significant decrease is observed, indicating reduced profitability relative to shareholders’ equity.
• Operating Profit Margin: FY24: 35.23%, FY23: 40.62%. The operating margin decreased, indicating lower profitability.
• Net Profit Margin: FY24: 28% , FY23: 33%. The net profit margin has decreased, suggesting reduced efficiency in converting revenue to profit.

Liquidity Metrics #

• Current Ratio: FY24: 11.47, FY23: 6.19. The Group’s current ratio is very high and increased substantially, indicating strong short-term solvency, far exceeding standard benchmarks.

Efficiency Ratios #

• Inventory Turnover Ratio (Days): FY24: 74 days, FY23: 86 days. Inventory turnover improved in FY24, requiring fewer days to convert, but it still suggest slow moving.
• Debtor Turnover Ratio (Days): FY24: 43 days, FY23: 30 days. The debtor turnover period increased, indicating slower collection from customers.

Leverage Metrics #

• Debt-Equity Ratio: FY24: 0.02, FY23: 0.04. The Group has very low leverage, with minimal debt compared to equity and improved slightly.
• Interest Coverage Ratio: FY24: 62.61, FY23: 49.83. The very high-interest coverage ratio improved, demonstrating the Group’s strong ability to meet interest obligations, exceeding the industry by large numbers.

Working Capital Ratios #

• Working Capital Ratio: The working capital of the Group has seen a decrease when revenue and profitability are decreasing.

Comparison with Industry Averages and Significant Deviations #

• Profitability: The decrease in profitability ratios (ROE, and Profit margins) is significant despite still holding high numbers.
• Liquidity: The extremely high current ratio suggests a potential over-investment in current assets or under-utilization of available capital.
• Efficiency: The increase in debtor turnover days needs to be addressed.
• Leverage: Very low debt/equity ratio indicates the Group is financing its operations largely through equity.
• The company generated a postive cash flow from operations for the FY24.

Suven Pharmaceuticals Limited: Financial Analysis (FY24) #

Segment Performance Analysis #

Revenue and Profitability Metrics with Growth Rates #

• Overall Revenue: Declined by 21.6% (Consolidated, FY24 vs. FY23), from ₹1,340.33 crore to ₹1,051.35 crore. Standalone revenue decreased by 23%.
• Pharma CDMO (ex-COVID base): Grew by 9.4% in FY24.
• Adjusting for COVID base and Agro Chemical destocking cycle: the business grew by 16.2% on a consolidated Basis in FY24.
• EBITDA: Decreased from ₹587.6 crore (FY23) to ₹435 crore (FY24) on a consolidated basis.
• Reported EBITDA Margin (Consolidated): 39.4% (FY24), a decrease from the previous year.
• Adjusted EBITDA Margin (Consolidated, excluding one-time costs): 41.4% (FY24), was stated as 43.8% for FY23.
• Profit for the Year (Consolidated): Decreased from ₹411.29 crore (FY23) to ₹300.28 crore (FY24).
• Net Profit Margin: Slipped to 28% compared to 33% the previous year.

Market Share and Competitive Position #

• The company aims to become a Tier-1 supplier to its top 5 customers.
• The Company is growing its customer base and served more than 30 innovator companies in the last 5 years.

Key Products/Services Performance #

• Pharma CDMO: Witnessed a significant increase in RFQs, with conversions more than doubling compared to previous years. Phase III intermediates increased from 6 to 13, and Phase III molecules increased from 2 to 7 (FY23 vs. FY24).
• Specialty Chemicals CDMO: Remodeled as a new strategic business unit.
• Cohance Lifesciences (Merger Target): ADC platform is growing significantly; Non-ADC CDMO has one product progressing well in Phase 3; API plus business is expected to return to healthy growth rates. 5 new product validations by Cohance were completed by March 2024.

Geographic Distribution and Market Penetration #

• Exports: Accounted for 89.79% of total revenue from operations (₹92,034 lakhs out of ₹1,02,499 lakhs) in FY24.
• Key Markets: USA and Europe are the largest markets, while Asia Pacific is the second largest.
• The company has a physical presence and operations in: India (multiple locations), and the USA (New Jersey).

Segment-wise CAPEX and ROIC #

• New R&D Facility: The company has set up a new 25,000 Sq.Ft R&D Facility.
• R&D expenditure: It increased from Rs. 8.59 Crores to 16.12 Crore.

Operational Efficiency Metrics #

• Cost Optimization: Over 30 implementable cost-saving ideas generated from the shop floor team.
• Inventory Turnover Ratio: at 74 days from 86 days.
• Debtor Turnover Ratio: Increased to 43 days, decreased from 30 days, indicating a slower collection cycle.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Scaling and deepening existing customer relationships, aiming to become a Tier-1 supplier.
  • Scaling up developmental revenues and investing in infrastructure.
  • Moving up the value chain from intermediates to API levels.
  • Building a winning lateral business by farming existing customers.
  • Incubating/acquiring select new technologies (e.g., flow chemistry, oligonucleotides).
  • Merger with Cohance Lifesciences to expand capabilities and accelerate growth.
  • Acquiring Sapala Organics to expand technological capabilities.
• Challenges:
  • Reliance on imports for Key Starting Materials (KSM) and APIs.
  • A significant portion of the business relies on a select clientele and a limited number of key molecules.
  • Price competition from generic players.
  • Reliance on innovator molecules progressing to subsequent phases of clinical development.
  • FY24 was impacted by a global slowdown, Agro-Chemical destocking, COVID base effect, and commodity pricing.

Suven Pharmaceuticals Limited - Segment-Wise Risk Analysis (FY2023-24 vs. FY2022-23) #

The provided document combined all operations into a single reportable segment that manufactures NCE-based intermediates, API’s, specialty chemicals and formulations.

Strategic Risks #

• Severity: High. Reliance on innovator molecules progressing to subsequent phases of clinical development and reliance on key clients are sources for material revenue loss.
• Likelihood: Medium. The pharmaceutical industry faces challenges, including late-stage asset failures.
• Trend: Increasing. The clinical pipeline growth and China Plus One dynamics are increasing RFQs, potentially exacerbating reliance on key clients and molecules. Phase III intermediates increased from 6 to 13, and molecules from 2 to 7.
• Mitigation Strategies: Scale and deepen existing relationships, scale up developmental revenues, move up the value chain. Build and deploy key account management.
• Control Effectiveness: Partially Effective. Increase in RFQs and conversion rates indicate some success, yet the core risks remain.
• Potential Financial Impact: Significant revenue decline if key molecules fail or key customer relationships are impacted. FY24 saw a revenue decline of 21.6% (Consolidated).

Operational Risks #

• Severity: Medium to High. Reliance on imports for Key Starting Materials (KSM) and Active Pharmaceutical Ingredients (APIs).
• Likelihood: Medium. Supply chain disruptions are mentioned as an industry headwind.
• Trend: Stable. The company recognizes the risk.
• Mitigation Strategies: Cost optimization strategies, supplier risk mitigation, and minimizing China dependence. Implemented 30+ cost-saving ideas.
• Control Effectiveness: Partially effective. Cost-saving measures and FDA audit clearances indicate operational controls, but import reliance remains.
• Potential Financial Impact: Delivery schedule delays.

Financial Risks #

• Severity: Medium to High.
• Likelihood: Medium. Fluctuations in revenue and profitability.
• Trend: Increasing. The company reported a decrease in EBITDA (from C 587.6 crore in FY23 to C 435 crore in FY24) and Profit for the Year (from C 411.29 crore to C 300.28 crore).
• Mitigation Strategies: Cost optimization and supplier risk mitigation.
• Control Effectiveness: Partially effective. EBITDA margins are being maintained, but overall profitability has decreased.
• Potential Financial Impact:
  • Debt Service Coverage Ratio decreased by 28%.
  • Debtor Turnover Ratio (days) increased by 42%.
  • Operating Profit Margin (%) decreased by 13%.
  • Net Profit Margin (%) decreased by 14%.

Compliance/Regulatory Risks #

• Severity: High. Any non-compliance with regulations could result in penalties and reputational damage.
• Likelihood: Low. The Company achieved USFDA audit clearance with Zero 483 observations, indicating strong compliance.
• Trend: Stable.
• Mitigation Strategies: Maintained EHS management and quality management systems.
• Control Effectiveness: High, as evidenced by successful audit outcomes.
• Potential Financial Impact: Not quantifiable from the provided data, but regulatory failures typically result in /fines and operational restrictions.

Emerging Risks #

Geopolitical Risks #

• Severity: Medium to High.
• Likelihood: Increasing. Geopolitical instability and supply chain issues were mentioned.
• Trend: Increasing. The document mentions the USA’s Biosecure Act impacting Chinese biotechnology firms, creating both opportunities and risks for Indian CDMOs.
• Mitigation Strategies: Diversifying supply chains (China +1 strategy).
• Control Effectiveness: The documents do not provide enough information to judge.
• Potential Financial Impact: Not quantifiable, but potential supply chain disruptions and increased costs.

Agrochemical Sector Risks #

• Severity: Medium to high.
• Likelihood: Medium.
• Trend: Unclear
• Mitigation Strategies: The documents show a new strategic unit for specialty chemical.
• Control Effectiveness: Not accessed in the documents.
• Potential Financial Impact: 10-12% price decline and 5-7% volume decline in 2023.

Strategic and Management Analysis of Suven Pharmaceuticals #

Long-Term Strategic Goals and Progress #

• Goal: To double the sales of its Pharma CDMO business over the next five years while maintaining industry-leading EBITDA margins.
• Goal: To become India’s most admired CDMO company by 2029.
• Progress: Operational progress in FY24 with enhanced customer engagement, including a 25% increase in RFQs, a higher win rate, and positive discussions with major innovator companies.
• Progress: Pipeline movement to Phase 3, doubled from 2 molecules to 7 molecules.
• Goal: Build or acquire new technology in areas including flow chemistry and oligonucleotides.
• Progress: Scouting for technology platforms, referencing Sapala Organics as a target.

Competitive Advantages and Market Positioning #

• Advantage: Pure-play CDMO, focusing on custom synthesis, process R&D, scale-up, and contract manufacturing.
• Advantage: Possesses a large repository of chemistry skills, specializing in cyanation, heterocyclic, carbohydrate, and chiral chemistry.
• Advantage: Experience working with top global innovator companies.
• Advantage: Demonstrated on-time delivery track record (over 900 CDMO projects).
• Positioning: Shifting from a domestic CDMO player to a global CDMO partner-of-choice.
• Market Positioning: Plans to capitalize on favorable trends in the Indian CDMO space, such as the “China Plus One” strategy.

Innovation Initiatives and R&D Effectiveness #

• Initiative: Modernization of R&D facility, with a new campus at Genome Valley.
• Initiative: Prioritizes chemistry capabilities and niche chemistry.
• Effectiveness: Faster turnaround of RFQs due to digitalization.
• Effectiveness: Strengthening of process safety and Engineering division.
• R&D Spend: FY24: ₹1,612 lakhs (1.57% of total turnover), up from ₹859 lakhs (0.6% of total turnover) in FY23.

M&A Strategy and Execution #

• Strategy: Merger with Cohance Lifesciences to expand capabilities and market reach.
• Progress: Merger with Cohance Lifesciences is in progress, awaiting SEBI and NCLT approvals (expected timeline 12-15 months from February 29, 2024).
• Strategy: Plan to acquire Sapala Organics.
• Execution: Expanding via M&A and is making progress with regulatory approval.

Management’s Track Record in Execution #

• Execution: Successfully cleared USFDA audit with zero observations for the Pashamylaram facility.
• Execution: Implemented cost optimization initiatives.
• Execution: New management appointed with new strategies.
• Execution: Inaugurated state-of-the-art R&D Facility.
• Execution: Change in management control pursuant to SEBI SAST Regulations.

Capital Allocation Strategy #

• Strategy: The company retained the entire profit for FY23-24 in retained earnings, and the Board does not recommend paying a dividend.
• Strategy: Focus on CAPEX, evidenced by the completion of an FDA audit and other regulatory audits at the Pashamylaram facility, as well as the inauguration of a new R&D facility.
• Strategy: Investment in working capital as inventory turnover days has been reduced.
• Strategy: Reduction of debt, shown by a decrease in the debt-to-equity ratio.

Organizational Changes and Their Impact #

• Change: The founder promoters sold a 50.10% stake to Berhyanda Limited (Advent International) on September 29, 2023, resulting in a change of management control.
• Change: Significant turnover in Board of Directors and Key Managerial Personnel.
• Impact: Reconstitution of board committees. New management is implementing a new strategic roadmap, focusing on customer engagement, cost optimization, and infrastructure upgrades.
• Change: Creation of new Strategic Business Unit for Specialty Chemicals CDMO.
• Impact: Aim is to better allign with customer expectations and business needs.

ESG Framework #

Environmental Metrics and Targets #

• Implemented energy conservation measures (auto On/Off switches for cooling towers, flash steam recovery system, LED lighting). Invested approximately ₹ 1 Crore.
• Utilizing alternate energy sources: 3.05 MWp solar plant and biomass co-firing trials.
• Pashamylaram Unit 3 site awarded the EHS Excellence Award by the CII.
• Pashamylaram facility received the International Safety Award from the British Safety Council.

Social Responsibility Programs #

• Spent ₹ 778.12 lakhs on social and environmental commitments in 2023-24.
• Key CSR areas: education, healthcare, women empowerment, environmental sustainability, rural development, safe drinking water, and mid-day meal programs.
• Supported education with books, uniforms, and fee assistance for underprivileged students, partnering for programs like ‘Science on Wheels.’
• Contributed to the Roti Foundation for hunger management by donating over 37,500 meals, benefiting over 3,000 beneficiaries.
• Setup drinking water facilities in various villages.

Governance Structure and Effectiveness #

• Board of Directors: 50% Independent Directors, including one Woman Independent Director.
• Board committees: Audit, Nomination and Remuneration, Stakeholders’ Relationship, Risk Management, and Corporate Social Responsibility (all committees have new members effective 29th September 2023).
• Audit Committee composed of independent and non-executive directors.
• Whistle Blower Policy in place.
• Performance evaluation of the Board, its committees, and individual directors conducted as per the Companies Act, 2013 and SEBI (LODR) Regulations, 2015.

Regulatory Compliance and Future Preparations #

• Pashamylaram facility cleared a USFDA audit with zero 483 observations; New block in Suryapet undergoing validations.
• Maintains internal financial controls and has a risk management framework.
• Complies with provisions related to the Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. No cases reported during the year.
• Maintaining Cost Records as prescribed under the law.
• Ensuring compliance of downstream investments in accordance with the Foreign Exchange Management (Non-debt Instruments) Rules,2019.