Bajaj Healthcare Ltd Management Discussions

Global economy overview

The year 2022 marked a significant milestone in the global economic recovery from the devastating impact of the Covid-19 pandemic. While the world witnessed substantial growth and stabilization, it also faced ongoing challenges stemming from the pandemic and geopolitical developments.

In 2022, the global economy experienced an estimated growth rate of approximately 3.4%. This growth was supported by a combination of effective monetary and fiscal policies, increasing vaccination rates, and the gradual easing of restrictions, which allowed for the resumption of economic activities. However, the pace of global recovery was hindered by various factors, including the Russian invasion of Ukraine, unprecedented inflation, a pandemic-induced slowdown in China, higher interest rates, a global liquidity squeeze, and quantitative tightening by the US Federal Reserve.

Consequently, global growth is projected to decline to 2.8% in 2023, as central banks raise interest rates to combat inflation and geopolitical issues continue to exert pressure on economic activity. Despite these challenges, the global economy continues to demonstrate resilience and modest improvement. However, it is important to note that these estimates fall below the long-term global growth average of 3.0%.

(Source: https://www.imf.org/-/media/Images/IMF/Publications/WEO/2023/April/ English/growth-projections.ashx?h=2160&w=3841&la=en)

In 2022, the global economy experienced a significant rise in inflation due to various factors such as moderate spending, disrupted trade, and higher energy expenses. However, the situation began to change in the last quarter of 2022 when central banks responded by increasing interest rates, and fuel and energy commodity prices started to decrease. As a result, global headline inflation started to decline. Although the decline is happening at a slower pace than initially predicted, it is expected that global inflation will decrease from 8.7% in 2022 to 7.0% this year and further drop to 4.9% in 2024.

The year 2022 witnessed significant progress in the global economic recovery, but it was not without its share of obstacles. While the world experienced notable growth and stabilization, it also grappled with ongoing risks arising from the pandemic and geopolitical developments. Looking ahead, the global economy is expected to face further challenges in 2023, leading to a slight decline in growth. Nonetheless, the global economy remains resilient, and although the estimates fall below the long-term average, there is still room for cautious optimism.

Outlook

While the balance of risks remains skewed towards the downside, there has been a moderation in these risks. There is a possibility of a stronger boost from pent-up demand in various economies or a faster decline in inflation. However, it is important to note that certain factors could exacerbate debt distress and lead to sudden repricing in financial markets. These factors include the rise in central bank rates to combat inflation, ongoing geopolitical conflicts, and the potential tightening of global financing costs. Therefore, it is crucial for most economies to prioritize achieving sustained disinflation. This necessitates the implementation of macro-prudential tools and the reinforcement of debt restructuring frameworks to maintain financial and debt stability.

In conclusion, the global economy is gradually recovering from the repercussions of the pandemic, and there are positive projections for inflation and growth in the upcoming years. Nevertheless, the persistent geopolitical and economic challenges continue to pose risks to the economy. To mitigate these risks effectively, it is imperative to adopt measures that are targeted and provide better fiscal support. Additionally, strengthening multilateral cooperation is essential to safeguard the gains from the rules-based multilateral system and attain sustainable economic growth.

Indian economy overview

India has once again demonstrated its unwavering determination and ability to achieve robust economic growth, even in the face of global uncertainties, persistent inflation, and ongoing geopolitical challenges.

According to the latest report from the Ministry of Statistics and Programme Implementation, Indias GDP is projected to grow by 7% in FY23, compared to 9.1% in FY22. This slight decrease in the year-on-year growth rate can be attributed in part to the fading of pandemic-induced base effects, which had contributed to higher growth figures in the previous fiscal year.

The governments substantial capital expenditure disbursements, along with the recovery in auto sales and improved capacity utilization at a macro level, have played a crucial role in driving Indias economic progress. The Centre for Monitoring Indian Economy (CMIE) reported that new projects worth C6 trillion were announced in the December quarter, marking a significant 44% increase compared to the previous year. Additionally, Indias exports surged by 14% to reach a record US$770 billion in FY23, primarily driven by the services sector. However, imports reached a new peak of US$892 billion due to subdued demand for goods amid global challenges.

Looking ahead, the World Bank expects Indias GDP growth to moderate to 6.3% in FY24, mainly due to a sluggish recovery in private capital expenditure and a projected decrease in urban consumption. Furthermore, the recent increase in interest rates by the central bank (with the benchmark repo rate raised by 250 basis points between May 2022 and February 2023) is anticipated to impact private sector performance and capital expenditure. The International Monetary Fund (IMF) has also revised its GDP growth estimate for India in FY24 to 5.9%, down from its initial projection of 6.1%.

As India forges ahead, it is essential to acknowledge the challenges that persist, such as inflationary pressures and geopolitical fractures. These factors necessitate a proactive approach from policymakers and stakeholders to ensure sustainable and inclusive growth. By addressing these challenges head-on, India can further strengthen its economic foundations and create an environment conducive to long-term prosperity.

Despite high inflation, the Indian economy achieved a remarkable GDP growth rate of ~7% in FY23. This impressive performance can be attributed to the sustained growth in GST collections, electronic toll collections, and the volume of e-waybills generated, all of which indicate a promising momentum. Furthermore, key indicators of manufacturing activity, such as the PMI-manufacturing, the Index of Industrial Production, and the Index of Core Industries (ICI), demonstrate a steady growth in this sector. Similarly, indicators of the services sector, including UPI transactions and high credit demand, also point towards sustained expansion.

In order to foster a virtuous cycle of infrastructure investment and job creation, the Union Government has significantly increased the capital expenditure outlay to C10 lakh crore, representing a remarkable 33% increase compared to the previous year. This substantial boost in infrastructure spending, particularly in tier II and tier III cities, is expected to have a profound impact on the Indian economy, generating new employment opportunities and stimulating overall growth. Overall, the demand conditions in India remain favorable for supporting economic activity. As we approach the coming financial year, India stands with confidence, underpinned by a foundation of macroeconomic stability. However, it is important to remain vigilant against potential political and geo-economic risks that may arise.

Outlook

According to projections from the World Bank, Indias GDP is expected to grow by 6.3% in FY24, driven by domestic demand and increased public investment. Additionally, there is a possibility of a decline in Indias retail inflation rate from 6.6% to 5.2% in FY24. This growth is likely to be supported by various factors, such as broad-based credit expansion, improved capacity utilization, and a reduction in trade deficits.

The governments implementation of production-linked incentive schemes is expected to provide further momentum to the economy, particularly benefiting downstream sectors. Despite an increase in interest rates, the outlook for private business investment remains positive. Moreover, Indias economy has minimal exposure to Chinese economic weakness, which helps protect its long-term growth prospects.

With broad-based credit growth, improved capacity utilization, and the governments focus on capital spending and infrastructure development, investment activity is expected to receive a significant boost. As a result, firms operating in the manufacturing, services, and infrastructure sectors are optimistic about their business outlook. However, there are some downside risks to consider, including prolonged geopolitical tensions, tightening global financial conditions, and a slowdown in external demand.

Global pharmaceutical industry

The global pharmaceutical industry is poised to witness steady growth, with a projected compound annual growth rate (CAGR) ranging from 3% to 6% between 2022 and 2027. This growth is expected to result in an impressive market size of approximately $1.9 trillion. However, its important to note that these advancements wont be evenly distributed across regions. Established markets may experience more moderate growth, while emerging markets in Eastern Europe, Asia, and Latin America are expected to see substantial growth in both volume and spending.

When it comes to specific therapeutic areas, Oncology stands out as the frontrunner, projected to experience the fastest growth with a CAGR of 13% to 16% until 2027. On the other hand, Immunology is forecasted to grow at a slower pace, with a CAGR of 3% to 6%. These disparities underscore the dynamic nature of the medicine market, revealing diverse growth opportunities depending on the region and the specific therapeutic area.

The U.S. medicine market, being the largest globally at invoice prices, is projected to experience a growth of USD 134 billion, reaching a substantial USD 763 billion by 2027. This anticipated growth, although slower than the previous five years, will be primarily driven by an increased uptake of existing and newly launched protected branded medicines. However, this growth might be dampened by the loss of exclusivity for both small and large-molecule drugs.

The revised estimates take into account the projected impact of the Inflation Reduction Act (IRA), which aims to enhance patient affordability by reducing out-of-pocket costs and imposing inflation penalties on manufacturers through direct price negotiations, especially in the Medicare program. Despite these factors, the U.S. market is expected to maintain its dominant position.

Meanwhile, in China, the rate of spending growth is projected to slow down. Nevertheless, the market is still anticipated to experience substantial expansion, with estimates suggesting it will reach USD 194 billion by 2027, up from USD 166 billion in 2022. The growth in medicine spending is expected to receive a boost from a higher number of innovator medicines being reimbursed through the National Reimbursement Drug List (NRDL).

Turning our focus to Japan, the third-largest global market, medicine spending is expected to remain relatively stable at around USD 75 billion. This is due to the increasing expenditure on protected innovator drugs, which will be partially offset by policies encouraging annual price cuts and the promotion of a continued shift to generics.

As for Europe, the combined medicine spending in the top-5 markets (France, Germany, Italy, Spain, and the U.K.) is projected to surge by USD 59 billion, reaching USD 263 billion over the next five years. Similar to the U.S., the growth in these markets will be primarily driven by protected branded drugs, while generics and biosimilars will also play a role in contributing to the overall growth. In other developing countries, medicine expenditure is anticipated to follow its historical trends. The primary factors influencing medicine spending and growth will be the uptake of new treatments, balanced by patent lifecycles and competition from generics and biosimilars. In the past, the significant expansion in healthcare access played a pivotal role in driving changes in medicine usage. However, this trend is now decelerating, leading to volume declines in numerous markets.

The therapy areas with the highest expected spending are oncology, immunology, anti-diabetics, and cardiovascular treatments. It is projected that oncology and immunology will experience significant growth, with compound annual growth rates (CAGR) of 13 to 16% and 3 to 6% respectively until 2027.

In the field of oncology, this growth will primarily be fuelled by the introduction of innovative therapies and an increased utilization of medicines. On the other hand, immunologys growth rate is tempered by the loss of exclusivity for certain medications and the rising adoption of biosimilars.

The forecast for the cancer treatment sector alone is promising, with approximately a hundred new drugs anticipated to be introduced over the next five years. This influx of innovations is predicted to contribute around USD 184 billion, resulting in a substantial expansion of the total market size to over USD 370 billion by 2027.

Among the top therapy areas, diabetes spending is expected to rank third globally, with an estimated growth rate of 3 to 6% over the next five years. Notably, a range of highly effective treatments within the glucagon-like peptide-1 (GLP-1) aginst category, such as liraglutide and semaglutide, as well as glucose-dependent insulinotropic polypeptide and glucagon-like peptide-1 receptor (GIP/GLP-1) agonists like tirzepatide, are anticipated to gain widespread usage across different regions. These treatments represent multi-billion-dollar opportunities, and they have shown promise in aiding patients with weight loss, making them potentially applicable for weight management prescriptions as well. Given the prevalence of obesity affecting millions of patients globally, analysts project a substantial addressable market worth over USD 100 billion for these newer diabetes and obesity treatments in the next decade.

As for neurology or Central Nervous System (CNS) medicines, their growth is expected to be driven by increased adoption of newer treatments for migraine and forthcoming therapies for Alzheimers, Parkinsons, and other rare diseases.

Global prescription drug sales

The global prescription drug market is expected to witness robust growth, with a projected Compound Annual Growth Rate (CAGR) of 6.0% from 2021 to 2027, reaching an impressive value of USD 1.4 trillion. The COVID-19 pandemic played a significant role in driving this surge in drug sales, fueled by the escalating demand for pandemic-related products such as vaccines, antivirals, and antibodies, which led to a substantial increase in sales throughout 2021.

Despite this positive outlook, there are potential factors that could affect the growth rate of the pharmaceutical sector. For instance, recent drug price reforms in the United States, coupled with upcoming patent cliffs, might have an impact. However, the growth rate could still be sustained by the rise of biologic drugs, whose significance continues to grow. These biologic drugs are anticipated to represent approximately 40% of the total drug sales and account for about 60% of the sales among the top 100 selling medicines by 2027. Their advantages lie in their higher cost and stronger patent protection, providing them with increased durability compared to small molecules and thus reinforcing their dominant position in the market.

The global expenditure on pharmaceutical Research and Development (R&D) is projected to undergo a shift, with annualized growth expected to decrease to low single digits from 2022 to 2027, ultimately reaching USD 278 billion. This contrasts with the historical Compound Annual Growth Rate (CAGR) of 7.3% observed between 2014 and 2021. The surge in R&D during the COVID-19 pandemic has led to a more cautious approach, particularly among biopharma companies, especially the smaller ones, who now prioritize conserving cash in the face of a tighter financial climate. Fortunately, the increased adoption of digital methods is enhancing R&D efficiencies, thereby promising cost reductions in drug development for the upcoming years.

Emerging trends in the global pharma industry

The pandemic changed the pharma landscape considerably. As treatment paradigms and the healthcare delivery systems across the globe continue to evolve, some key trends impacting the global pharmaceutical industry have emerged:

Over the Counter (OTC) Drugs Market

Over-the-counter (OTC) drugs are pharmaceutical products that can be purchased without a prescription and are commonly used to address various everyday health issues such as cold symptoms, body pain, allergies, flu, heartburn, acne, and other basic ailments. The market size of OTC drugs was valued at an impressive $162 billion in 2022, and experts predict a steady growth with a compound annual growth rate (CAGR) of over 5%, reaching an estimated $266 billion by 20324. The widespread impact of the COVID-19 pandemic has been felt across various industries, and the pharmaceutical sector is no exception.

During the pandemic, there has been a significant increase in peoples focus on personal health, leading to a surge in the sales of OTC drugs. The demand for cold and flu products, as well as vitamin supplements, has witnessed a considerable upswing. However, to manage stockpiling and ensure supply, some regions-imposed restrictions on OTC drug sales.

The increasing availability and production of OTC drugs targeting a wide range of common health conditions are expected to drive substantial revenue growth in the OTC drugs market in the coming years. The ongoing prevalence of common flu and cold symptoms continues to create a demand for therapeutic solutions. Additionally, there is a growing awareness and demand for vitamin supplements and weight loss products, which will play a significant role in shaping the industrys value during the forecast period from 2022 to 2032.

The attractiveness of over-the-counter drugs lies in their cost-effectiveness, positive results, and ease of accessibility, factors that are poised to fuel the demand for these products even further. As a result, the OTC drugs market is expected to witness robust growth in the foreseeable future.

Opportunities for the OTC drug market

OTC drugs, short for over-the-counter medications, are pharmaceutical products considered safe for purchase without the need for a prescription from a medical professional. You can find these products readily available in hospital pharmacies and regular medical stores, without the necessity of a doctors note. OTC medicines serve as remedies for a range of common symptoms, including the likes of the common cold, body aches, allergies, the flu, heartburn, acne, and other basic health issues. The significant uptick in manufacturing, resulting in a surge in new product launches, is expected to drive the demand for over-the-counter products. Furthermore, the expansion of product availability in the market, with a shift from prescription (Rx) to

OTC drugs, will make these medications accessible to a broader patient population, thus fostering industry growth. OTC products play a crucial role in reducing treatment costs, making healthcare more affordable for people from various economic backgrounds. They are also cost-effective alternatives for millions of individuals lacking insurance coverage, eliminating the expenses associated with physician visits. Given this overall shift from Rx to OTC and the cost savings associated with it, the market is poised to experience a substantial surge in demand in the upcoming years. Backed by these positives, the global OTC drug market is expected to grow to USD 209 billion by 2027, growing at a CAGR of 5.1%.

Indian pharma industry

The Indian pharmaceutical industry, currently valued at approximately US$50 billion, is expected to experience remarkable growth over the next decade, reaching US$ 65 billion by 2024 and US$130 billion by 2030 at a commendable CAGR of 12.3%. This rapid expansion will propel it to become the worlds third-largest in terms of volume and the 11th largest in terms of spending. According to the government data, exports of pharmaceutical products from India contributed over US$ 25 billion.

Indian pharmaceutical companies hold a prominent position on the global stage, playing a vital role in the production of active pharmaceutical ingredients (APIs) and formulations. India has successfully established itself as a major player in the pharmaceutical sector, excelling in both manufacturing and exportation. Remarkably, the Indian Pharmaceutical Industry stands as the largest provider of generic medicines worldwide, contributing to

20% of the global supply by volume, and is also a leading vaccine manufacturer. Additionally, the industry significantly contributes to Indias economy, providing direct and indirect employment opportunities to over 2.7 million skilled individuals in fields like research and development (R&D) and manufacturing. Despite these achievements, the Indian pharmaceutical industry heavily relies on imports from China, with a staggering 68% of APIs being imported from that country. This over-dependence on a single supplier for several critical intermediaries and APIs, including those listed on the National List of Essential Medicines, makes the Indian pharma sector vulnerable to disruptions in Chinas bulk drugs market. This vulnerability was glaringly evident during the COVID-19 pandemic when Chinese factories faced lockdowns, causing a shortage of raw materials for the Indian pharmaceutical sector. Consequently, the prices of commonly used APIs surged due to increased costs in China and other pandemic-related concerns. In response to this challenge, the Indian government has taken proactive steps to bolster domestic production of APIs, biopharmaceuticals, complex generics, patented drugs, and various medical devices. Initiatives such as the Production Linked Incentive (PLI) schemes and the establishment of medical devices and bulk drug parks aim to make India a global manufacturing hub for pharmaceuticals.

Overall, the Indian pharmaceutical industry has made impressive strides, but diversifying its sources of critical ingredients remains a priority to ensure sustained growth and resilience in the face of future challenges.

Emerging trends to shape the Indian pharma industry

In the past year, the pharma industry has demonstrated remarkable collaboration, adaptability, and innovation to ensure a consistent supply of high-quality medicines throughout the pandemic and beyond. Their unwavering commitment extends not only to meeting the healthcare needs of the country but also to expanding their global presence.

Looking ahead to 2023, Indias pharmaceutical sector holds a promising outlook with a strong focus on quality manufacturing, affordable medicines, and the integration of cutting-edge innovation and technology. However, there are challenges to address, including low R&D investment, a shortage of skilled workers, intellectual property regulations, and potential export constraints. Overcoming these hurdles will require a high level of agility and resilience.

Emerging trends to shape the Indian pharma industry

In the past year, the pharma industry has demonstrated remarkable collaboration, adaptability, and innovation to ensure a consistent supply of high-quality medicines throughout the pandemic and beyond. Their unwavering commitment extends not only to meeting the healthcare needs of the country but also to expanding their global presence. Looking ahead to 2023, Indias pharmaceutical sector holds a promising outlook with a strong focus on quality manufacturing, affordable medicines, and the integration of cutting-edge innovation and technology. However, there are challenges to address, including low R&D investment, a shortage of skilled workers, intellectual property regulations, and potential export constraints. Overcoming these hurdles will require a high level of agility and resilience.

Proactive quality management system

The Indian pharmaceutical industry has a long and complex supply chain for medicine manufacturing and distribution. In order to improve the system, there is a need to adopt advanced tracking systems and better tracing-related technologies. In line with this tenant, the government introduced a traceability system called Drug Authentication & Verification Application (DAVA) in 2015. The DAVA program aimed to prove drug authenticity and protect Indias reputation in international markets. However, now pharmaceutical companies will prioritize strengthening their own monitoring systems to meet higher ethical standards.

Increased adoption of digital technologies

India, known for its affordable generic medications, is using technology to improve its pharmaceutical manufacturing processes and meet global standards. The International Society for Pharmaceutical Engineering (ISPE) recommends digitalization, cloud technologies, and process automation to enhance efficiency and quality while being environmentally conscious. Indian pharmaceutical companies are also using digital technologies to communicate with healthcare professionals, patients, and conduct drug research. Data analysis allows for a comprehensive view of a patients journey, which aids in drug development and has the potential to improve patient outcomes in the future.

Increased adoption of precision medicine

Precision medicine is a growing focus in the Indian pharmaceutical industry, aimed at personalizing medical care for individual patients. It involves diagnosing and treating each patient as unique and using real-time insights to understand their bodys response to medications. This is done through data management, privacy, and analysis using Machine Learning. Precision medicine is expected to improve clinical manufacturing procedures by predicting how drugs will interact with a patients body based on factors like age and medical history.

Growing focus on emerging markets

Pharmaceutical companies in India are seeking opportunities in emerging markets to offset slowing sales in developed countries. To remain competitive, they are focusing on global capabilities while tailoring strategies for local markets. The "pharmerging" market, consisting of rapidly growing countries with low market positions, is expected to have strong growth at a rate of 10.4% annually from 2021 to 2026, as per market research.

Company Overview and key facts

Bajaj Healthcare Limited (BHL) is an Indian pharmaceutical company founded in 1993 with a mission to improve healthcare accessibility worldwide. It has experienced rapid growth and offers over 250 products, including APIs and Finished Dosage Formulations. BHL is known for its innovative processes and efficient operations, making it a respected bulk manufacturer of active pharmaceutical ingredients (APIs) and formulations.

BHL operates 9 advanced manufacturing facilities, has strong research and development capabilities, and distributes its products to more than 62 countries. It has become a preferred supplier for global pharma brands and generics companies, with exports accounting for more than 33% of its revenue.

Over the years, BHL has shifted its focus to a value-driven approach, investing in research and development to become a significant player in amino acids, nutritional supplements, and APIs. The company is committed to quality, demonstrated by its numerous accreditations such as EU-GMP, KFDA, ISO 9001:2015, and WHO-GMP. These certifications have given BHL a competitive advantage in regulated pharmaceutical markets. Additionally, BHL has expanded its presence in international markets through the development of generic products with varying complexities, emphasizing quick product launches.

Business segment overview

Bajaj Healthcare Limited has emerged as a prominent contender within the Indian Pharma industry, making its mark across pivotal segments including Active Pharmaceutical Ingredients (APIs), Finished Dosage Formulations (FDFs), and Intermediates. Supported by a network of nine cutting-edge manufacturing facilities, the Company stands as a preeminent producer of Neutraceuticals, Ascorbic Acid IP, Sodium Ascorbate, Ferrous Ascorbate, and more.

Encompassing a robust portfolio, the Company extends its footprint to over 50 nations through exports, fortified by a proficient in-house product registration team. With a firm commitment to research and development, the company not only has an in-house R&D center but also channels investments into comprehensive training and strategic acquisitions. These endeavours collectively enrich our product repertoire, ensuring sustained international growth and prosperity. Today, BHL proudly offers a diverse range of FDF forms, including tablets, caplets, capsules, and oral powders, all available in bulk quantities.

BHLs manufacturing capacity for key molecules:

Ascorbic Acid: 120 metric ton/month CH Base: 24 metric ton/month Citicoline Sodium: 8 metric ton/month Theobromine: 25 metric ton/month Carbamazepine: 14 metric/month

Key business update FY23

New molecules launched in Nutraceuticals, APIs, Formulations: Glycine, Piperaquine phosphate, Amodiaquine hydrochloride, 4,7 DCQ, Hydroxy Novaldamine, 6-Chlorohexanone, Lafutidine, Zinc Ascorbate, Rivaroxaban Enhanced the revenue contribution from the formulations business Engaged on developing products that are off-patented through reverse engineering Focused on reducing our dependency on imports for raw materials Added many new geographies during the year

Road ahead

Moving ahead, our strategic vision involves a robust expansion of our pharmaceuticals enterprise, achieved through targeted acquisitions and the introduction of cutting-edge reverse engineering APIs that have garnered success in recent years.

In the near future, we are eagerly anticipating the unveiling of an array of pioneering products stemming from our unwavering commitment to reverse engineering. Amidst this product lineup, particular focus will be directed towards the amplification of our global footprint for APIs such as Vildagliptin, Sitagliptin, Deferasirox, Chlorhexidine Gluconate, Fosfomycin, Theobromine, and Octenidine Hydrochloride. This endeavor fuels our confidence in ascending to unprecedented market peaks, thus effectively catering to a more extensive clientele.

Furthermore, our aspiration entails elevating the contribution of the FDF business segment within the overall revenue amalgamation, achieved by the integration of novel formulations. On the front of intermediates, recognizing a substantial share of these components being allocated for in-house consumption, our primary aim remains the enhancement of overarching efficiency, ensuring heightened levels of cost-effectiveness.

Research and Development

Our company has made significant progress in research and development (R&D), transitioning from being a bulk manufacturer and supplier to becoming a value-driven player in the pharmaceutical industry. This progress is due to our commitment to investing in R&D initiatives. Through our research efforts, we have successfully translated scientific and technological advancements into superior pharmaceutical products and more efficient manufacturing processes. This has not only improved our position in the industry but also established a strong brand presence both domestically and internationally.

We have strong capabilities in process research, development, and engineering. Our expertise in creating intellectual property assets through the development of non-infringing, novel, cost-effective, and environmentally friendly API processes sets us apart and gives us a competitive advantage in driving innovation.

Our innovation infrastructure includes a cutting-edge research facility in Gujarat, Vadodara. This facility has been recognized by the Department of Scientific & Industrial Research (DSIR) and is equipped with state-of-the-art instruments and equipment. Our team of dedicated research scientists are at the forefront of driving innovation at this facility, enabling us to develop products and processes that excel in differentiation, cost-effectiveness, and eco-friendliness. We aim to further expand our capabilities through ongoing R&D initiatives, with a focus on enhancing the quality of our portfolio and increasing regulatory filings in the future.

Operational excellence

As part of our strategic approach, BHL consistently implemented various measures to enhance its manufacturing and operational capabilities. This aligns perfectly with our commitment to fostering a culture of continuous improvement, involving employees across all functions and levels.

Moreover, our leadership team regularly conducted on-site visits to interact with plant heads, actively learning about the challenges they faced and identifying measures to effectively address them. Thanks to these proactive initiatives, the Company has successfully increased its capacity, reduced costs, and improved overall yield, leading to substantial annualized financial benefits. Additionally, these endeavors played a significant role in developing our leadership teams abilities in problem-solving, communication, influencing, and strategic thinking.

Quality and Compliance

At BHL, we place the utmost importance on quality. Our unwavering commitment to delivering top-notch products has not only enabled us to meet stringent international standards but has also ensured the safety and happiness of our employees in a thriving workplace. This achievement stems from the diligent implementation of the finest quality systems, fostering the right quality culture, and providing continuous training to our dedicated workforce. Looking ahead, we envision our product quality becoming a primary differentiator, which is why we consistently invest in digitalization programs for our key quality systems.

Throughout the years, our pursuit of expanding our quality function has been marked by significant progress. Weve made strategic investments in cutting-edge laboratories, equipping ourselves with the latest analytical capabilities and technologies. These sustainable expansions of our quality control capabilities are a result of regular investments in our infrastructure, workforce, and advanced laboratory instrumentation.

Enterprise Risk Management

By implementing a comprehensive risk-management framework, we can proactively monitor risks that may arise from both our internal operations and the external environment. As a result of this strategic approach, we have consistently generated value for all our stakeholders, even in the face of challenging industry cycles and economic headwinds.

Our risk mitigation plan

The Board takes the following steps as a part of its risk management and mitigation plan: Defines the roles and responsibilities of the Risk Management Committee Participates in major decisions affecting the organizations risk profile Integrates risk-management reporting with the Boards overall reporting framework

The Company operates with a clearly outlined organizational structure, ensuring smooth information flow and minimizing any potential conflicts or communication gaps between departments. Moreover, to ensure uninterrupted operations, each department has designated second-level positions to cover for the absence of functional heads. The Company also adheres to comprehensive policies for managing inventories of raw materials, consumables, key spares, and tools, ensuring their availability for planned production programs. Furthermore, the Company proactively implements cost reduction measures in response to evolving market conditions, ensuring the competitiveness of its production processes.

Human Capital

Our people have played a pivotal role in shaping BHL into the successful company it is today, and they will continue to do so. Their immense talent and unwavering dedication serve as the foundation of our achievements. Amid an unprecedented year, their proactive ownership and exceptional teamwork enabled us to fulfill our commitments, reinforcing the trust our customers have placed in us and driving us towards our organizational goals in the face of challenging business conditions.

We deeply value the contributions of our employees and prioritize safeguarding their trust and well-being. Thanks to their relentless efforts, we have been able to provide life-saving drugs to people, even in the most difficult circumstances. Ensuring a safe, secure, and healthy work environment for our staff remains our top priority.

Continuously striving to surpass industry benchmarks in workforce productivity and performance, we ensure that the professional objectives of our employees and teams are directly aligned with the organizations philosophy and goals.

Our HR culture at the Company embraces innovation, challenging traditional norms to enhance competitiveness. We take proactive decisions that support the personal and professional aspirations of our employees, fostering an ideal work-life balance and enhancing their sense of pride in being part of our organization. As of March 31, 2023, BHLs employee count stands at more than 1,900, a testament of our dedication to building a strong and talented workforce.

Analysis of profit & loss statement

( Rs in lakhs)

Particulars	FY22	FY23
Revenue from Operations	67,988.98	67,329.20
EBIDTA	11,850.09	10,684.65
PBT	8,968.46	5,821.63
PAT	7,138.59	4,302.43
EPS (in C)	25.87	15.59

Key ratios

Particulars		FY22	FY23	Variance	Remarks
Debtors Turnover Ratio	Times	4.80	3.27	-31.87	Increase in Trade Receivables
Inventory Turnover Ratio	Times	3.87	2.33	-39.84	Increase in Inventory
Debt Service Coverage Ratio	%	5.11	2.09	-59.07	Reduction in Profits and increase in
					Debt repayment due
Debt Equity Ratio	%	0.78	1.13	-44.18	Increase in Borrowing
Return on Equity	%	21.75	11.79	-45.81	Decrease in profits
Return on Capital Employed	%	25.67	17.42	-32.13	Decrease in profits
Current Ratio	Times	1.24	1.17	-5.48	Not Applicable
Debt-equity Ratio	Times	0.78	1.13	-44.18	Increase in Borrowings
Net Profit Margin (%)	%	10.48	6.38	-39.15	Decrease in Profits
Return on Networth	%	21.73	11.70	-46.16	Decrease in Profits
Interest Coverage Ratio	%	9.44	2.91	-69.14	Decrease in Profits
Operating profit margin	%	17.43	15.87	-8.95	Not Applicable

Internal Control Systems and Adequacy

A robust internal control mechanism is a prerequisite to ensure that an organization functions ethically, complies with all legal and regulatory requirements, and observes the generally accepted principles of good corporate governance. It extends the overall corporate risk management framework, as well as is an integral part of the accounting and financial reporting process.

BHLs internal control systems are commensurate with the nature of its business and the size and complexity of its operations. The control mechanism provides for well-documented policies/ guidelines, authorisations and approval procedures to ensure the orderly and efficient conduct of its business. This includes adherence to Companys policies, safeguarding of its assets, the prevention and detection of frauds and errors, ensuring the accuracy and completeness of the accounting records and the timely preparation and presentation of reliable financial information. The Company believes that its experienced and qualified employees play a key role in fostering an environment in which controls, assurance, accountability and ethical behaviour are accorded high importance.

Cautionary Statements

The Management of BHL has prepared and is responsible for the financial statements that appear in this report. These statements conform to the accounting principles accepted in India and include amounts based on informed judgments and estimates. BHL projections, estimates, and expectations described in this report should be interpreted as ‘forward-looking statements that can be impacted by various internal and external risks. Risks associated with market, strategy, technology, operations and stakeholders can significantly affect the business and the actual results may differ substantially or materially from those expressed or implied.