OPERATIONS
You should read the following discussion in conjunction with our Restated Consolidated Financial Information included herein as of and for the Financial Years ended March 31, 2024, 2023 and 2022, including the related notes, schedules and annexures. Our Restated Consolidated Financial Information have been prepared in accordance with Ind AS, Section 26 of the Companies Act, the SEBI ICDR Regulations and the Guidance Note on "Reports in Company Prospectus (Revised 2019)" issued by the ICAI (the "Guidance Note"). Ind AS differs in certain material respects from IFRS and US GAAP. See "Risk Factors External Risk Factors Risks Related to India Significant differences exist between the Indian Accounting Standards used to prepare our financial information and other accounting principles, such as the United States Generally Accepted Accounting Principles and the International Financial Reporting Standards, which may affect investors assessments of our financial condition." on page 91.
Our Financial Year ends on March 31 of each year. Accordingly, all references to a particular Financial Year are to the 12-month period ended March 31 of that year. Unless otherwise stated, or the context otherwise requires, the financial information used in this section is derived from our "Financial Statements" on page 312. Our Companys Statutory Auditor has stated in its examination report dated June 18, 2024 that the financial statements of three, eight and eight of our non-material Subsidiaries were unaudited at the time of preparation of the audited consolidated financial statements of our Company for the Financial Years 2024, 2023 and 2022, respectively, out of which two, four and four of our Subsidiaries required an audit of their financial statements for the Financial Years 2024, 2023 and 2022, respectively, under regulations applicable in their respective jurisdictions. Such non-material Subsidiaries have been subsequently audited.
We have included various operational and financial performance indicators in this Red Herring Prospectus, many of which may not be derived from our Restated Consolidated Financial Information or otherwise be subject to an examination, audit or review by our auditors or any other expert. The manner in which such operational and financial performance indicators are calculated and presented, and the assumptions and estimates used in such calculations, may vary from that used by other companies in India and other jurisdictions. For the purposes of this section, for certain analyses we have used historical methodologies and internal categorizations to enable a consistent representation of our business. Such information may vary from similar information publicly disclosed by us in compliance with applicable regulations in India. Investors are accordingly cautioned against placing undue reliance on such information in making an investment decision, and should consult their own advisors and evaluate such information in the context of our Restated Consolidated Financial Information and other information relating to our business and operations included in this Red Herring Prospectus.
Unless otherwise indicated, the industry-related information contained in this Red Herring Prospectus is derived from the report titled "Assessment of the global and Indian pharmaceuticals industry" dated June 2024 (the
"CRISIL Report"), which has been commissioned and paid for by our Company for an agreed fee for the purposes of confirming our understanding of the industry exclusively in connection with the Offer. The CRISIL Report is available on the website of our Company at www.emcure.com/share-governance-and-investor-services/ and has also been included in "Material Contracts and Documents for Inspection Material Documents" on page 522. We officially engaged CRISIL Market Intelligence & Analytics, a division of CRISIL Limited ("CRISIL MI&A"), in connection with the preparation of the CRISIL Report on October 23, 2023. Unless otherwise indicated, all financial, operational, industry and other related information derived from the CRISIL Report and included herein with respect to any particular year refers to such information for the relevant Financial Year. The data included in this section includes excerpts from the CRISIL Report and may have been re-ordered by us for the purposes of presentation. There are no parts, data or information (which may be relevant for the Offer), that have been left out or changed in any manner.
This discussion contains forward-looking statements that involve risks and uncertainties and reflects our current view with respect to future events and financial performance. Actual results may differ from those anticipated in these forward-looking statements as a result of factors such as those set forth under "Forward-looking Statements" and "Risk Factors" on pages 40 and 42, respectively.
Overview
We are an Indian pharmaceutical company engaged in developing, manufacturing and globally marketing a broad range of pharmaceutical products across several major therapeutic areas. We are a research and development
("R&D") driven company with a differentiated product portfolio that includes orals, injectables and biotherapeutics, which has enabled us to reach a range of target markets across over 70 countries, with a strong presence in India, Europe and Canada. We were ranked as (i) the 13th largest pharmaceutical company in India in terms of Domestic Sales for MAT Financial Year 2024, (ii) the 4th largest pharmaceutical company by market share in our Covered Markets in terms of Domestic Sales for MAT Financial Year 2024, and (iii) the largest pharmaceutical company in the gynecology and human immunodeficiency virus ("HIV") antivirals therapeutic areas in India in terms of Domestic Sales for MAT Financial Year 2024 (Source: CRISIL Report). We are led by Promoters with significant experience in the pharmaceutical industry who are supported by a strong professional management team.
We have experienced rapid growth in sales in India in recent years. Our sales in India contributed to 48.28% of our total revenue from operations for the Financial Year 2024. Between MAT Financial Year 2020 and MAT Financial Year 2024, our Domestic Sales grew at a CAGR of 9.73%, outperforming the Indian pharmaceutical market ("IPM"), which grew at a CAGR of 8.19%, by 1.19 times (Source: CRISIL Report). We had a Covered Market presence of 52.66% of the IPM in terms of Domestic Sales for MAT Financial Year 2024 (Source: CRISIL Report). Our competitive advantage in the domestic market stems from our differentiated product portfolio, which has allowed us to establish our presence in most of the major therapeutic areas, including gynecology, cardiovascular, vitamins, minerals and nutrients, HIV antivirals, blood-related and oncology/anti-neoplastics. Across the gynecology, vitamins, minerals and nutrients, HIV antivirals, blood-related and oncology/anti-neoplastics therapeutic areas, we were ranked among the 10 largest pharmaceutical companies in India in terms of Domestic Sales for MAT Financial Year 2024 (Source: CRISIL Report). Sales of our iron, chiral, biotherapeutics, injectables and photo-chemistry products contributed to 52.97% of our revenue from sales in India for the Financial Year 2024, demonstrating our approach towards establishing a differentiated product portfolio.
We also sell our portfolio of differentiated products internationally in over 70 countries. We have established our international presence by either developing our own front-end distribution capabilities or focusing on alliances with local and multi-national companies that have an established presence in the therapeutic areas of our focus. Our sales outside India contributed to 51.72% of our total revenue from operations for the Financial Year 2024. Further, sales of our iron, chiral, biotherapeutics, injectables and photo-chemistry products, most of which are developed and manufactured in-house, contributed to 29.70% of our revenue from sales outside India for the Financial Year 2024. Our range of products and geographic presence provides us with a risk-minimizing business model that derives considerable resilience through different revenue streams, as well as leverages our manufacturing and R&D capabilities. Between the Financial Year 2020 and Financial Year 2024, our exports grew at a CAGR of 19.51%, outperforming the overall Indian pharmaceutical exports, which grew at a CAGR of 12.21% during the same period, by 1.60 times (Source: CRISIL Report). Our growth in these markets has been driven both organically, including through increasing penetration in these markets by launching new products and growing our existing brands, and inorganically, through the acquisition of companies and products and through in-licensing arrangements.
We are an R&D driven company and our core strength lies in our ability to research, develop and manufacture in-house specialty pharmaceutical products for high-growth therapeutic areas, for which there is limited competition and high barriers to entry. As of March 31, 2024, we had a team of 548 qualified scientists and fivededicated R&D facilities in India. As of March 31, 2024, we had filed over 1,800 dossiers globally including 209 in the European Union and 142 in Canada. In addition, as of March 31, 2024, we had been granted 220 patents and had 30 pending patent applications in several countries, and had submitted 102 drug master files ("DMFs") for APIs with the U.S. Food and Drug Administration ("USFDA"). We have a strong track record in developing portfolios of differentiated products across several platforms, including chiral molecules, complex APIs (such as iron and photo-chemistry), injectables (such as liposomals), high potency drugs, biotherapeutics and novel drug delivery systems. We had the highest market share in the IPM in several chiral molecules, such as S-Metoprolol, S-Amlodipine and Etodolac, and iron combination products, in terms of Domestic Sales for MAT Financial Year 2024 (Source: CRISIL Report).
We have 13 manufacturing facilities across India. Our facilities are capable of producing pharmaceutical and biopharmaceutical products across a wide range of dosage forms, including oral solids, oral liquids, injectables, including liposomal and lyophilized injectables, biotherapeutics and complex APIs, including chiral molecules, iron molecules and cytotoxic products. Further, our ability to manufacture our own APIs and formulations has allowed us to attain a significant degree of vertical integration, allowing us to source products in a cost-effective manner, ensure quality and security of availability of an essential raw material and protect our intellectual property. In particular, we have in-house manufacturing capabilities for most of our specialty products, including complex injectables, iron products, photo-chemistry products, chiral molecules and biotherapeutics.
Significant Factors Affecting our Results of Operations
Our results of operations and financial condition are affected by a number of important factors including:
Volume of Our Products Manufactured and Sold
The key driver in the growth of our revenue from operations has been the volume of products manufactured and sold by us. We offer two types of products, namely formulations and APIs, and for the Financial Years 2024, 2023 and 2022, a substantial portion of our revenue was attributable to sales of formulations. The following tables set forth a break-down of our revenue from the sale of our formulations and API products, in absolute terms and as a percentage of total revenue from sale of products, for the years indicated:
| For the Financial Year ended March 31, | ||||||
| 2024 | 2023 | 2022 | ||||
( in millions, except percentages) |
||||||
| Formulations: | ||||||
| Generic products | 26,228.11 | 40.13% | 20,114.16 | 34.24% | 17,652.41 | 31.20% |
| Branded generics | 34,541.93 | 52.84% | 33,217.63 | 56.54% | 34,015.82 | 60.11% |
| Branded patented products | 1,802.45 | 2.76% | 2,265.06 | 3.86% | 2,586.23 | 4.57% |
| APIs | 2,790.37 | 4.27% | 3,146.41 | 5.36% | 2,331.98 | 4.12% |
| Revenue from sale of products | 65,362.86 | 100.00% | 58,743.26 | 100.00% | 56,586.44 | 100.00% |
We sell our portfolio of products internationally in over 70 countries, with Europe and Canada currently being our primary international markets. The following tables set forth a break-down of our revenue from sales in India and sales outside India, in absolute terms and as a percentage of revenue from operations, for the years indicated:
| For the Financial Year ended March 31, | ||||||
| 2024 | 2023 | 2022 | ||||
( in millions, except percentages) |
||||||
| Sales in India | 32,148.98 | 48.28% | 31,818.18 | 53.16% | 32,046.66 | 54.73% |
| Sales outside India | 34,433.53 | 51.72% | 28,039.93 | 46.84% | 26,507.21 | 45.27% |
| Europe | 14,235.72 | 21.38% | 11,873.26 | 19.84% | 8,968.17 | 15.32% |
| North America | 9,279.09 | 13.94% | 7,294.21 | 12.19% | 6,794.50 | 11.60% |
| Other continents | 10,918.72 | 16.40% | 8,872.46 | 14.81% | 10,744.54 | 18.35% |
| Revenue from operations | 66,582.51 | 100.00% | 59,858.11 | 100.00% | 58,553.87 | 100.00% |
We have 13 manufacturing facilities across India. For further details on our manufacturing facilities, see "Our Business Manufacturing Facilities and Approvals" on page 236. Our facilities are capable of producing pharmaceutical and biopharmaceutical products of a wide range of dosage forms, including oral solids, oral liquid, injectables, including complex injectables such as liposomal and lyophilized injectables, biotherapeutics and complex APIs, including chiral molecules, iron molecules and cytotoxic products. Our manufacturing and development capabilities include APIs and formulations through process development, and scale-up and full-scale commercial manufacturing. In the last 24 months, we began commercial production at four manufacturing facilities for the production of injectables and solid orals, which have collectively increased our installed manufacturing capacities by 22.33 million vials and 1,055.72 million tablets. Historically, an increase in capacity has not been met with an immediate corresponding increase in utilization rates and it has typically taken approximately three to four years to reach an optimal capacity utilization rate. In addition, we need to obtain government permits and customer pre-qualifications before we can fully utilize our expanded capacity. As a result, we have seen a delay in ramping up production and a lag in utilization rates after periods of capacity expansion or due to changes in the type of products being manufactured at a particular facility.
We intend to continue to increase our manufacturing and capacities across our target areas including injectables, biotherapeutics and orals, see " Product Portfolio and Product Mix" on page 422. Further, to support the growing demand for our existing product portfolio, we intend to focus on improving vertical integration in order to achieve greater control over our product quality, supply chain and operating costs. Our ability to manufacture our own APIs and formulations has allowed us to attain a significant degree of vertical integration, allowing us to source products in a cost-effective manner, ensure quality and security of availability of an essential raw material and protect our intellectual property.
We also have strong marketing and distribution capabilities. As of March 31, 2024, our marketing and distribution network in India was supported by a field force of over 5,000 personnel who interact regularly with doctors and other healthcare providers to promote our pharmaceutical products. Given our strong position in India, a number of multinational companies have entered into co-marketing and in-licensing agreements with our Company for the sale and distribution in India of some of their products, see " Acquisitions and Partnerships" on page 425. We employ a calibrated and differentiated approach for entering and deepening our presence in each of our markets so as to address the unique characteristics of each market, such as, among other factors, its regulatory landscape, market size, competitive landscape and scope for our products. This allows us to strategically select local partners, acquire local companies or rights of pharmaceutical products, and establish subsidiaries with our own on-the-ground sales force in these markets. In India, we strategically use a division-based marketing approach to cater to specialist and super specialists by offering them a wide range of products from our several therapeutic areas. In addition, we utilize tailored strategies for our acute and chronic products, as they require different focus and marketing strengths. We have also established dedicated business units for marketing and sales purposes, each of which caters to specified therapeutic areas and the target specialist medical practitioners in such areas. Having dedicated teams that specialize in marketing and promotional strategies for specific product portfolios enables us to build stronger brands and prescriber relationships.
Our market-specific growth strategies have allowed us to deepen our presence in our existing international markets as well as, at the same time, expand into other international markets in a cost efficient and profitable manner. We also believe that the domestic market dynamics and landscape are very conducive for us to continue to leverage our existing and growing product portfolio and further develop and grow our business. The Indian domestic formulations market is expected to grow at a CAGR of approximately 8-9% over the next five years, to reach approximately 2.9 trillion to 3.0 trillion in the Financial Year 2029, aided by strong demand from the rising incidence of chronic diseases as well as increased awareness and access to quality healthcare (Source: CRISIL Report).
As actual volumes and specifications of customer orders are fixed only when customers place purchase orders with us, our actual production volumes may differ significantly from our estimates due to variations in customer demand for our products. When actual production volumes differ significantly from our estimates, we generally seek to make up any shortfalls through new orders, either with existing or with new customers. Further, since the number of purchase orders that our customers place with us may differ from quarter to quarter, our revenues, results of operations and cash flows have fluctuated in the past and we expect this trend to continue in the future. See "Risk Factors Our inability to accurately forecast demand for our products and manage our inventory may have an adverse effect on our business, financial condition, results of operations and cash flows." on page 51.
Product Portfolio and Product Mix
Over the last few years, we have expanded our operations and experienced considerable growth. We have historically derived a significant portion of our revenue from our formulations business and believe we will continue to see strong growth in our formulations business. We expect that we will derive higher revenues from our API business in the future. Our portfolio is focused towards pharmaceutical products used in chronic (including sub-chronic) therapeutic areas. Chronic therapeutic areas in the IPM are expected to register higher growth than acute therapeutic areas over the next five Financial Years (Source: CRISIL Report). Our Domestic Sales from chronic therapeutic areas contributed to 25,460.48 million or 46.22% of our total Domestic Sales for MAT Financial Year 2024 (Source: CRISIL Report). One of the key growth drivers for the Indian pharmaceutical industry is the increasing prevalence of non-communicable diseases such as cardiovascular disease, stroke, cancer, diabetes and chronic lung diseases (Source: CRISIL Report). The chronic segment is expected to grow at a CAGR of approximately 8.5% to 9.5% between the Financial Years 2024 and 2029 (Source: CRISIL Report). Further, we generate a significant proportion of our revenue from our sale of products in certain therapeutic areas in India, such as the gynecology and cardiovascular therapeutic areas. We had Domestic Sales for MAT Financial Year 2024 of 13,274.35 million and 8,652.83 million from the gynecology and cardiovascular therapeutic areas, respectively, representing 24.09% and 15.70%, respectively, of our total Domestic Sales for MAT Financial Year 2024 (Source: CRISIL Report).
We intend to continue to consolidate our position and increase our market share in our key and leading therapeutic areas, such as gynecology, cardiovascular, anti-infectives, HIV, blood-related, oncology/anti-neoplastics, hormones and vitamins, minerals and nutrients. We plan to do so by, among other things, (i) increasing the penetration of our key brands in these therapeutic areas, (ii) developing other strong and domestically recognized brands for these therapeutic areas, (iii) launching new differentiated products to address unmet patient needs for these therapeutic areas, and (iv) increasing our Covered Market share by launching new products and leveraging our leadership positions to penetrate these therapeutic areas. We also intend to continue to enhance our position by leveraging our leadership position in key therapeutic areas, to increase our market share in certain of our other therapeutic areas, such as neurology, anti-diabetics, respiratory and gastrointestinal. Further, we intend to continue to grow our sales in all our target international markets by registering more of our products and increasing our customer penetration, through either developing our own on-the-ground sales force or establishing partnerships, in these markets. We intend to continue to focus on technology-driven differentiated products, especially complex oral solids, injectables and biotherapeutics, in these markets.
We also plan to expand our capabilities to support new products that we expect to develop through our R&D efforts by making substantial investments directed towards (i) developing, and increasing our manufacturing capabilities for, novel drug delivery systems, and (ii) increasing our biotherapeutics manufacturing capabilities to facilitate the launch of new biotherapeutics in the global markets. See " Research and Development" on page 425.We intend to continue developing, and increasing our manufacturing capabilities for, novel drug delivery systems, including controlled release and high-potency injectables in lyophilized, nano-particles, liposomal form, in-situ suspension, depot formulation, micro-sponges and lipid formulation. We are also working on "ready-to-use" products that reduce multi-step dose preparation and enable ease of use by physicians. Further, we expect to benefit from significant growth opportunities, due to limited competition globally, in the development, production and commercialization of biopharmaceuticals to address life-threatening diseases across various indications. We plan to continue developing our pipeline of biotherapeutics projects, which we intend to first launch in India and, subsequently, in various international markets. For our biotherapeutics products that we have already launched in India, we intend to make the applicable regulatory filings and launch these products in Europe, Canada and other international markets, either through strategically selecting local partners or through our own on-the-ground sales in these markets.
Our broad portfolio of products not only helps increase revenue from operations but also reduces dependency on a single product. Due to our range of products and diversified geographic presence, no single geography outside of India, Europe and Canada accounted for more than 5.00%of our revenue from operations for the Financial Years 2024, 2023 and 2022. We also believe that our differentiated product portfolio has and will continue to protect us, to a large extent, from product price erosion resulting from price control measures. Further, we expect to derive higher profit margins as we scale our product portfolio and capabilities, and that certain new products may in the future account for significant portions of our revenue. However, such growth requires managing complexities across all aspects of our business, including those associated with increased headcount, integration of acquisitions, expansion of international operations, expansion of manufacturing and R&D facilities, execution on new product lines and implementations of appropriate systems and controls to grow the business. The success in the growth of our product portfolio and business will affect our results of operations and cash flows. See "Risk Factors Our inability to successfully implement our business plan, expansion and growth strategies could have an adverse effect on our business, financial condition, results of operations and cash flows." on page 71.
Availability and Cost of Raw Materials
We depend on third-party suppliers for certain of our raw materials as well as for the manufacturing of certain of our finished products. The key raw materials that we use for our manufacturing operations include APIs for our formulations, key starting materials and intermediaries for our internally manufactured APIs and other materials such as excipients, manufacturing consumables, lab chemicals and packaging materials. Our finished products manufactured by third parties include, among others, types of branded and generic formulations such as Meropenem, Gabapentin and Amlodipine. The availability of such raw materials and finished products at competitive prices is critical to our business, and price fluctuations or delays in procurement may affect our margins and, as a result, our results of operations.
We identify and approve multiple suppliers to source our key raw materials and we place purchase orders with them from time to time. We do not have any long term contracts with our suppliers and prices are typically negotiated for each purchase order. We currently source most of our key raw materials from suppliers in India, China, Spain and Germany. For the Financial Years 2024, 2023 and 2022, no single supplier contributed to more than 5.00% of our total expenses.However, our cost of materials consumed and our purchases of stock-in-trade have historically contributed significantly to our total expenses.The following tables set forth a break-down of our cost of materials consumed and purchases of stock-in-trade, in absolute terms and as a percentage of total expenses, for the years indicated:
| For the Financial Year ended March 31, | ||||||
| 2024 | 2023 | 2022 | ||||
( in millions, except percentages) |
||||||
| Cost of materials consumed | 13,331.26 | 22.30% | 11,465.92 | 21.72% | 12,961.01 | 26.20% |
| Purchase of stock-in-trade | 13,324.83 | 22.29% | 10,472.45 | 19.84% | 10,824.50 | 21.88% |
As we continue to grow our product portfolio and increase our production capacities, we believe we will benefit from increasing economics of scale. However, we would also need to procure higher volumes of raw materials, and we typically do not enter into long-term supply contracts with any of our supplies and instead place purchase orders with them from time to time. We are thus exposed to fluctuations in availability and prices of our raw materials, including on account of exchange rate fluctuations, and we may not be able to effectively pass on any increase in cost of raw materials to our customers, which may affect our margins, sales, results of operations and cash flows. Further, our dependence on third-party suppliers may sometimes impact our timely manufacture and delivery of products to our customers. Any inability on our part to procure sufficient quantities of raw materials and on commercially acceptable terms, could lead to a change in our manufacturing and sales volumes. See "Risk Factors Any disruptions to the supply, or increases in the pricing, of the raw materials and finished products that we outsource, may adversely affect the supply and pricing of our products and, in turn, adversely affect our business, cash flows, financial condition and results of operations." on page 46.
We seek to de-risk our operations by continuing to diversify our procurement base, reduce the amount of materials that we import and procure more materials from Indian suppliers. In addition, we have invested and will continue to invest in backward integration of key starting materials to become more self-reliant and less dependent on our vendors for raw materials. In particular, our ability to manufacture our own APIs and formulations have allowed us to attain a significant degree of vertical integration, allowing us to source products in a cost-effective manner, ensure quality and security of availability of an essential raw material and protect our intellectual property. Our ability to contain costs as our business grows will largely depend on the extent to which we achieve further integration of our operations and manage the costs of procuring raw materials and finished products.
Change in Regulatory Guidelines
We operate in a highly regulated industry and our operations, including our development, testing, manufacturing, marketing and sales activities, are subject to extensive laws and regulations in India and other countries. We are required to obtain and maintain a number of statutory and regulatory permits and approvals under central, state and local government rules in India, generally for carrying out our business and for each of our manufacturing facilities. Such requisite licenses, permits and authorizations including local land use permits, manufacturing permits, building and zoning permits, and environmental, health and safety permits. We are also subject to various laws and regulations in the international markets where we market and sell our products and have ongoing duties to regulatory authorities in these markets, such as the USFDA, the U.K. MHRA, Health Canada, ANVISA Brazil and the EDQM (Europe), among others, both before and after a products commercial release.
In order to serve our domestic and international markets, we have invested significant resources in the development of our manufacturing facilities, which have been built in accordance with the cGMP guidelines. Pharmaceutical companies, such as ours, have obligations to, and are required to comply with the regulations and quality standards stipulated by, regulators in India and other jurisdictions. Most of our manufacturing facilities have received several major regulatory approvals and accreditations which enable us to supply our products in regulated and other markets. We continuously invest in the improvement of our manufacturing facilities to ensure they remain in compliance with the relevant regulations and have functions dedicated to addressing improvement areas in our facilities. Our manufacturing facilities and products are subject to periodic inspection/audit by regulatory agencies, and if we are not in compliance with any of their requirements, our facilities and products may be the subject of a warning letter, which could result in the withholding of product approval for new products. See "Risk Factors Any manufacturing or quality control problems may damage our reputation, subject us to regulatory action, and expose us to litigation or other liabilities, which could adversely affect our reputation, business, financial condition and results of operations." on page 43.
Changes in these laws and regulations may increase our compliance costs and adversely affect our business, prospects, results of operations and financial condition. If there is any failure by us to comply with the applicable regulations or if the regulations governing our business are amended, we may incur increased costs, be subject to penalties, have our approvals and permits revoked or suffer a disruption in our operations, any of which could adversely affect our business, prospects, results of operations and financial condition. Moreover, in countries where we have limited experience, we are subject to additional risks related to complying with a wide variety of local laws, including restrictions on the import and export of certain intermediates, drugs, technologies and multiple and possibly overlapping tax structures. Further, regulatory requirements are still evolving in many markets and are subject to change and as a result may, at times, be unclear or inconsistent. Consequently, there is increased risk that we may inadvertently fail to comply with such regulations, which could lead to enforced shutdowns and other sanctions imposed by the relevant authorities, as well as the withholding or delay in receipt of regulatory approvals for our new products. See "Risk Factors We are subject to extensive government regulations in India and our international markets, and if we fail to obtain, maintain or renew our statutory and regulatory licenses, permits and approvals required to operate our business, our business, financial condition, results of operations and cash flows may be adversely affected." on page 45.
Research and Development
We are focused on undertaking dedicated R&D in areas which we believe have significant growth potential. We own and operate five dedicated R&D centers in India, four of which are DSIR-approved and one of which is pending DSIR approval. As of March 31, 2024, our R&D team consisted of 548 qualified scientists, of which 11 are post doctorates, 48 hold Ph.Ds, 391 are post graduates, and the remaining are graduates. Our R&D efforts are focused towards (i) complex molecules, including highly complex APIs that require multi-step transformation, (ii) differentiated pharmaceutical formulations, in multiple dosage forms and novel drug delivery systems, which are capable of greater efficacy and better patient compliance, (iii) continuous product and process improvements to achieve better quality and productivity, and (iv) niche biotherapeutics formulations.For further details, see
"Our Business Description of Our Business Research and Development" on page 240. The following table sets forth our R&D expenditure, in absolute terms and as a percentage of revenue from operations, for the years indicated:
| For the Financial Year ended March 31, | |||
| 2024 | 2023 | 2022 | |
| R&D expenditure ( in millions) | 3,099.89 | 3,022.05 | 3,404.49 |
| As a percentage of revenue from operations (%) | 4.66% | 5.05% | 5.81% |
We have a portfolio of nine chiral molecules, of which six were the first to be launched in India, namely S-Amlodipine, S-Atenolol, Dexketoprofen, Dexrabeprazole, S-Metoprolol Succinate and S-Pantoprazole Sodium Salt (Source: CRISIL Report). We have successfully commercialized multiple oncology products, such as Eribulin, which requires a 45 step synthesis process. We were also the first to launch Treosulfan under the brand name Emtreo, a chemotherapy drug used to treat ovarian cancer, in India (Source: CRISIL Report). Further, we have developed and optimized new manufacturing processes for anti-retroviral APIs, which have allowed us to reduce our production costs and supply such APIs at more competitive prices. We were the first in India to launch Instgra and Spegra in the Dolutegravir molecule, for the treatment of HIV, and we have also launched antiretrovirals such as Atazanavir, Ritonavir, Dolutegravir and Tenofovir (Source: CRISIL Report). Further, our ongoing R&D is also focused on novel drug delivery systems including controlled release and high-potency injectables, in lyophilized, nano-particles and liposomal form. In addition, we have developed our own microbial and mammalian based platforms, through which we developed our portfolio of six commercialized biologics products in the Indian domestic formulation market (Source: CRISIL Report). We were the first company to domestically launch the biosimilar for Tenecteplase, commonly used for treating acute myocardial infraction, and the biosimilar for Pegaspargase, commonly used for treating patients with leukemia (Source: CRISIL Report). We also hold the global patent for use of pharmaceutical compositions of Tenecteplase to treat Acute Ischemic Stroke as a second indication, for which we have conducted clinical trials and received marketing authorization in India.
We believe that our strong in-house R&D expertise, which has allowed us to develop a differentiated portfolio of pharmaceutical products, gives us a competitive advantage in the markets in which we operate. To develop our product pipeline, we commit substantial time, funds and other resources in R&D. In addition, we must adapt to rapid changes in our industry due to technological advances and scientific discoveries. We strive to keep our technology, facilities and machinery current with the latest international standards. The cost of implementing new technologies, upgrading our manufacturing facilities and retaining our research staff affects our results of operations and cash flows. See "Risk Factors Our success depends on our ability to develop and commercialize products in a timely manner. If our R&D efforts do not succeed or the products we commercialize do not perform as expected, this may hinder the introduction of new products, and could adversely affect our business, financial condition and results of operations." on page 65.
Acquisitions and Partnerships
We rely, in part, on inorganic growth to increase our revenue and expand our geographic presence. We have, in the past, evaluated and executed strategic acquisitions of companies, products and technologies or entered into partnerships to strengthen our product and technology infrastructure. For example, we have made strategic acquisitions of companies, such as of Marcan in Canada in 2015 and Tillomed Laboratories in the United Kingdom in 2014, which have allowed us to leverage our R&D and manufacturing capabilities in India and, at the same time, quickly and cost-efficiently establish distribution channels for our products in Canada and Europe, respectively. We have also acquired rights of pharmaceutical products, such as BiCNUR, which has which has allowed us to expand our presence in our existing markets as well as facilitate our entry into new markets.
We intend to continue to pursue strategic acquisitions of companies, products and facilities across key markets, in-license pharmaceutical products of other companies for our key and focus therapeutic areas, and strategically select local partners and/or establish subsidiaries with our own on-the-ground sales in our target markets. On March 13, 2024, we entered into agreements with Sanofi India Limited and Sanofi Healthcare India Private Limited to exclusively distribute and promote their products, which include brands such as Cardace, Clexane, Targocid, Lasix, Lasilactone, Cordarone, Plavix and Synvisc, in India. Further, in November 2023, Marcan acquired all of the outstanding equity shares of Mantra, a Canada-based company engaged in the sale and distribution of pharmaceutical finished formulation products, natural health products and medical devices, primarily in the Quebec region of Canada. The acquisition of Mantra provides us with front-end capabilities in the Quebec market and improves our overall reach in the Canadian market. Identifying suitable acquisition and partnership opportunities can be difficult, time consuming and costly. In addition, the anticipated benefit of many of our future acquisitions and partnerships may not materialize. If an acquisition or partnership turns out to be unsuccessful, we may face additional costs as well as divest the acquisition or terminate the partnership, which can be costly and time-consuming. The benefits and costs arising from our acquisitions and partnerships affect our results of operations and cash flows.
Further, pursuant to a Composite Scheme of Arrangement filed with the National Company Law Tribunal in Mumbai on November 30, 2020, we divested all of our holdings in our U.S. operations effective April 1, 2021 (the "De-merger"). As a result of the De-merger, we reorganized our operations such that our business in the United States was transferred to a separate Promoter-owned entity in which our Company has no shareholding. Our Company currently only acts as a contract development and manufacturing organization ("CDMO") in relation to such business in the United States. For further details on the De-merger, see "History and Certain Corporate Matters Details regarding material acquisitions or divestments of business/undertakings, mergers or amalgamation, and any revaluation of assets in the last 10 years" on page 268.
Tax Incentives
We benefit from certain tax regulations, incentives and export promotion schemes that accord favorable treatment to certain of our manufacturing and R&D facilities. For example, subject to the fulfillment of conditions under the Integrated Goods and Services Act, 2017, and the Central Goods and Services Act, 2017, our Companys manufacturing facility located in the state of Jammu and Kashmir, and the manufacturing facilities of our Subsidiary, Zuventus, located in the state of Sikkim, are eligible for (i) reimbursement of 29.00% of the integrated tax that is paid using debit in the cash ledger maintained by the unit in accordance with Section 20 of the Integrated Goods and Services Act, 2017, after utilizing the input credit of the central tax and integrated tax; and (ii) reimbursement of 58.00% of the central tax that is paid using debit in the cash ledger account maintained by the unit in accordance with Sub-Section (1) of Section 49 of the Central Goods and Services Act, 2017, after utilizing the input credit of the central tax and integrated tax. For further details on our favorable tax treatments, see
"Statement of Possible Special Tax Benefits available to the Company, its Shareholders and Zuventus" on page 172.
Further, under the Export Promotion Capital Goods ("EPCG") scheme of the Government of India, we are permitted to import capital goods in India required for export production without the payment of custom duty, provided we export goods from India worth a defined amount within a certain period of time. As we have imported certain machinery under the EPCG scheme, we had an export obligation of 266.92 million for the Financial Year 2024, for which we have given a bond of 158.20 million to the Commissioner of Customs. In the event that we fail to fulfil these export obligations in full and within the stipulated time period, we may have to pay the Government of India a sum equivalent to the duty enjoyed by us under the scheme that is proportionate to the unfulfilled obligations, along with interest.
These tax benefits incentives and export promotion schemes contribute to our results of operations and cash flows and a change in tax benefits and incentives available to us would likely affect our profitability. See "Risk Factors
We are currently entitled to certain tax incentives and export promotion schemes. Any decrease in or discontinuation in policies relating to tax, duties or other such levies applicable to us may affect our results of operations." on page 59.
Significant Accounting Policies
The notes to our Restated Consolidated Financial Information included in this Red Herring Prospectus contain a summary of our significant accounting policies. Set forth below is a summary of our most significant critical accounting policies under Ind AS.
Basis of Preparation
Our Restated Consolidated Financial Information have been prepared specifically in connection with the Offer. Our Restated Consolidated Financial Information have been prepared in accordance with Ind AS and other relevant provisions of the Companies Act. In preparing our Restated Consolidated Financial Information, our management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively.
Basis of Consolidation
We consolidate all entities which we control. Control is established when we have power over the entity, are exposed, or have rights to variable returns from our involvement with the entity and have the ability to affect the entitys returns by using our power over the entity. Subsidiaries are consolidated from the date control commences and until the date control ceases. Profit or loss and each component of other comprehensive income is attributed to our owners and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to our owners and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between our group members are eliminated in full on consolidation. Our Restated Consolidated Financial Information are prepared using uniform accounting policies for like transactions and other events in similar circumstances.
Revenue
Sale of goods
Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of variable consideration) allocated to that performance obligation. We recognize revenue pertaining to each performance obligation when we transfer control over a product to a customer, which is adjusted for expected refunds, which are estimated based on the historical data, adjusted as necessary. The transaction price is also adjusted for the effect of time value of money if the contract includes a significant financing component. The consideration can be fixed or variable. Where the consideration promised in a contract includes a variable amount, we estimate the amount of consideration to which we will be entitled in exchange for transferring the promised goods or services to a customer. Variable consideration is only recognized when it is highly probable that a significant reversal will not occur.
We recognize refund liability where we receive consideration from a customer and expect to refund some or all of that consideration to the customer. The refund liability is measured at the amount of consideration received (or receivable) for which the entity does not expect to be entitled (i.e. amounts not included in the transaction price).
Rendering of services Other than sale of know-how, rights, licenses
Revenue from rendering of services is recognized in the statement of profit and loss by reference to the percentage completion method. We are involved in rendering services related to our products to customers. If the services under a single arrangement are rendered in different reporting periods, then the consideration is allocated on a relative fair value basis between the different services.
Rendering of services Sale of know-how, rights, licenses
Income from sale of technology/know-how, rights, licenses is recognized in accordance with the terms of the contract with customers when the related performance obligation is completed, or when risks and rewards of ownership are transferred, as applicable.
Commission income
Revenue from commission income is recognized at the time of sale to customers based on the agreed commission percentage.
Sales returns and breakage expiry
When a customer has a right to return the product within a given period, we have recognized an allowance for returns. The allowance is measured equal to the value of the sales expected to return in the future period. Revenue is adjusted for the expected value of the returns and cost of sales are adjusted for the value of the corresponding goods to be returned.
We have an obligation to replace goods which will expire. We have recognized an allowance for returns due to expiry. The allowance is measured on the basis of the historical trend of expiry against the sales occurred in the current and earlier period. Our management considers the sales value for the periods which are equivalent to the average general shelf life of products. Revenue is adjusted for the expected value of the returns.
Professional allowance/Program fees
Professional allowance/program fees are recorded as a reduction of revenue at the time of revenue recognition to the extent they are estimated to occur based on historical experience and other relevant factors. Any additional allowance/fees incurred are recorded when incurred.
Foreign Currency Transaction, Translation and Foreign Operation
Transactions in foreign currencies are translated into the functional currency of the respective components at the exchange rates at the date of the transaction or an average rate, if the average rate approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Exchange differences are recognized in the statement of profit and loss, except for exchange differences arising from the translation of (i) long term foreign currency monetary items pertaining to periods prior to our transition to Ind AS and which are related to purchase of property, plant and equipment and intangible assets, and (ii) assets and liabilities of entities with a functional currency other than our presentation currency and which have been translated to the presentation currency using exchange rates prevailing on the balance sheet date, which are recognized in property, plant and equipment and intangible assets.
Financial Instruments
Trade receivables are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when we become a party to the contractual provisions of the instrument. Financial assets and liabilities are initially measured at fair value, except for trade receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss ("FVTPL")) are added to or deducted from the fair value measured on initial recognition of the financial asset or financial liability. Trade receivables that do not contain a significant financing component are measured at transaction price.
Financial assets
On initial recognition, a financial asset is classified as measured at amortized cost or FVTPL. Financial assets are not reclassified subsequent to their initial recognition, except if and in the period we change our business model for managing financial assets. A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: (i) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows, and (ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
We derecognize a financial asset when the contractual rights to the cash flows from the financial asset expire, or we transfer the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which we neither transfer nor retain substantially all of the risks and rewards of ownership and do not retain control of the financial asset. If we enter into transactions whereby we transfer assets recognized on the balance sheet, but retain either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognized.
Financial liabilities
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held for trading, or it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
We derecognize a financial liability when our contractual obligations are discharged or cancelled, or expire. We also derecognize a financial liability when its terms are modified and the cash flows under the modified terms are substantially different. In this case, a new financial liability based on the modified terms is recognized at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognized in profit or loss.
Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when, and only when, we currently have a legally enforceable right to set off the amounts and we intend either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Property, Plant and Equipment
Recognition and measurement
Items of property, plant and equipment are measured at cost, which includes capitalized borrowing costs, less accumulated depreciation and accumulated impairment losses, if any. Cost of an item of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any directly attributable cost of bringing the item to its working condition for its intended use and estimate costs of dismantling and removing the item and restoring the site on which it is located. If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separated items (major components) of property, plant and equipment. Any gain or loss on disposal of an item of property, plant and equipment is recognized in the statement of profit and loss.
Depreciation
Depreciation is calculated on cost of items of property, plant and equipment less their estimated residual values over their estimated useful lives using the straight line method, and is generally recognized in the statement of profit and loss. Freehold land is not depreciated.
Depreciation is provided on a pro-rata basis using the straight-line method over the estimated useful lives of the assets prescribed under Schedule II to the Companies Act except for vehicles and furniture and fixtures at leasehold premises. The estimated useful lives of items of property, plant and equipment for the current and comparative periods are as follows:
| Asset | Managements estimate of useful life | Useful life as per Schedule II |
| Leasehold improvements | As per lease term | NA |
| Building | 30 years | 30 years |
| Plant and machinery | 3 to 20 years | 10 to 20 years |
| Electrical installation | 10 years | 10 years |
| Air handling equipment | 15 years | 15 years |
| Computers | 3 to 6 years | 3 to 6 years |
| Office equipment | 5 years | 5 years |
| Furniture and fixtures | 10 years | 10 years |
| Vehicles | 5 years | 8 to 10 years |
Depreciation method, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. Based on technical evaluation and consequent advice, our management believes that its estimates of useful lives represent the period over which our management expects to use these assets. Depreciation on additions (disposals) during the year is provided on a pro-rata basis i.e. from (up to) the date on which the asset is ready for use (disposed of).
Intangible Assets
Intangible assets acquired separately are measured at cost of acquisition, Intangible assets acquired under business combination are measured at fair value as of the date of business combination. Following initial recognition, intangible assets are carried at cost less accumulated amortization and impairment losses, if any.
Intangible assets are amortized over their respective estimated useful life using straight-line method. The estimated useful life of amortizable intangibles is reviewed at the end of each reporting period and change in estimates if any are accounted for on a prospective basis.
The estimated useful lives of our intangible assets are as follows:
| Intangible asset | Managements estimate of useful life |
| Product development, ANDAs and marketing intangibles | 5 to 10 years |
| Customer relationships | 5 to 10 years |
| Product pipeline | 10 years |
| Brands acquired | 5 to 10 years |
| Software and license rights | 2 to 10 years |
Irrespective of whether there is any indication of impairment, we test an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. The recoverable amount is the higher of its value in use and its fair value less costs of disposal. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying amount of the intangible asset not yet available for use exceeds its estimated recoverable amount. Impairment losses are recognized in the statement of profit and loss.
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on weighted average formula, and includes expenditure incurred in acquiring the inventories, production or conversion cost and other cost incurred in bringing them to their present location and condition. In case of manufactured inventory and work-in-progress, cost includes an appropriate share of fixed production overheads based on normal operating capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expense. The net realizable value of work-in- progress is determined with reference to the selling price of related finished products. Raw materials, components and other supplies held for use in production of finished products are not written down below cost except in cases where material price have declined and it is estimated that the cost of finished products will exceed their net realizable value. The comparison of cost and net realizable value is made on an item-by-item basis. We consider various factors like shelf life, ageing of inventory, product discontinuation, price changes and any other factor which impact our business in determining the allowance for obsolete, non-saleable and slow moving inventories. We consider the aforementioned factors and adjust the inventory provision to reflect our actual experience on a periodic basis.
Impairment
We recognize loss allowances for expected credit losses on financial assets measured at amortized cost. At each reporting date, we assess whether financial assets carried at amortized cost are credit-impaired. A financial asset is "credit impaired" when one or more events that have a detrimental impact on estimated future cash flows of financial assets have occurred.
Evidence that a financial asset is credit impaired includes the following observed data: (i) significant financial difficulty of the borrower or issuer, (ii) a breach of contract such as a default or being overdue for a period of more than 12 months from the credit term offered to the customer, (iii) the restructuring of a loan or advance by us on terms that we would not consider otherwise, (iv) it is probable that borrower will enter bankruptcy or the financial reorganization, and (v) the disappearance of active market for a security because of financial difficulties.
In accordance with lnd AS 109, we apply the expected credit loss ("ECL") model for measurement and recognition of impairment loss. We follow the "simplified approach" for recognition of impairment loss allowance on trade receivables, The application of the simplified approach does not require us to track changes in credit risk.
Rather, we recognize impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. For recognition of impairment loss on other financial assets, we recognize 12-month expected credit losses for all originated or acquired financial assets if at the reporting date, the credit risk has not increased significantly since its original recognition. However, if credit risk has increased significantly, lifetime ECL is used.
Employee Benefits
Short term employee benefits
Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if we have a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the amount of obligation can be estimated reliably.
Share-based payment transactions
Share-based payment are provided to employees via our Employees Stock Option Plan ("Emcure ESOS 2013"). We account for the share based payment transactions as equity settled. The grant date fair value of equity settled share-based payment awards granted to our employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as expense is based on the estimate of the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market vesting conditions at the vesting date.
We also grant the options to the employees of our subsidiaries for which such subsidiaries do not have an obligation to settle the share based payment transaction. Total expense for such options issued to employees of subsidiaries is recognized as an expense and corresponding increase in share options outstanding account. If options granted are cancelled or settled during the vesting period/ after vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied), then we immediately recognize the remaining amount of goods and services that have not been recorded in the statement of profit and loss so far. Any payment made to the employee on the cancellation or settlement of the grant shall be accounted for as the repurchase of an equity interest, i.e. as a deduction from equity, except to the extent that the payment exceeds the fair value of the equity instruments granted, measured at the repurchase date. Any such excess shall be recognized as an expense.
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. We make specified monthly contributions towards Government-administered provident fund scheme. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in the statement of profit or loss in the periods during which the related services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.
Defined benefit plan
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Our net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for us, the recognized asset is limited to the present value of economic benefit available in the form of any future refunds from the plan or reductions in future contributions to the plan, i.e. the asset ceiling. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements.
Contingent Liabilities and Contingent Assets
A contingent liability exists when there is a possible but not probable obligation, or a present obligation that may, but probably will not, require an outflow of resources, or a present obligation whose amount cannot be estimated reliably. Contingent liabilities do not warrant provisions, but are disclosed unless the possibility of outflow of resources is remote.
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefit will arise, the asset and related income are recognized in the period in which the change occurs. A contingent asset is disclosed, where an inflow of economic benefits is probable.
Leases
We as a lessee
We evaluate if an arrangement qualifies to be a lease as per the requirements of Ind AS 116. We use significant judgement in assessing the lease term (including anticipated renewals) and the applicable discount rate. We determine the lease term as the non-cancellable period of a lease, together with both periods covered by an option to extend the lease if we are reasonably certain to exercise that option; and periods covered by an option to terminate the lease if we are reasonably certain not to exercise that option. In assessing whether we are reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, we consider all relevant facts and circumstances that create an economic incentive for us to exercise the option to extend the lease, or not to exercise the option to terminate the lease. We revise the lease term if there is a change in the non-cancellable period of a lease. The discount rate is generally based on the incremental borrowing rate specific to the lease being evaluated or for a portfolio of leases with similar characteristics. We measure the lease liability at the present value of the lease payments that are not paid at the commencement date of the lease.
Borrowing Costs
Borrowing costs are interest and other costs (including exchange differences relating to foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs) incurred in connection with the borrowing of funds. Borrowing costs directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time to get ready for their intended use are capitalized as part of the cost of that asset. Other borrowing costs are recognized as an expense in the period in which they are incurred.
Income tax
Income tax expense comprises of current and deferred tax. It is recognized in profit or loss except to the extent that it relates to an item recognized directly in equity or in other comprehensive income.
Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss of the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax reflects the best estimate of the tax amount expected to be paid or received after considering the uncertainty, if any, related to income taxes. It is measured using tax rates (and tax laws) enacted or substantively enacted by the reporting date. Significant judgments are involved in determining the provision for income taxes including judgment on whether tax positions are probable of being sustained in tax assessments. A tax assessment can involve complex issues, which can only be resolved over extended time periods.
Current tax assets and current tax liabilities are offset only if there is a legally enforceable right to set off the recognized amounts, and it is intended to realize the asset and settle the liability on a net basis or simultaneously.
Deferred tax
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes. Deferred tax is also recognized in respect of carried forward tax losses and tax credits.
Deferred tax is not recognized for: (i) temporary differences on the initial recognition of assets or liabilities in a transaction that (a) is not a business combination, and (b) at the time of the transaction, affects neither accounting nor taxable profit or loss and does not give rise to equal taxable and deductible temporary differences; (ii) temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that we are able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and (iii) taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which they can be used. The existence at unused tax losses is strong evidence that future taxable profit may not be available. Therefore, in case of a history of recent losses, we recognize a deferred tax asset only to the extent that it has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which such deferred tax asset can be realized.
Deferred tax assets, unrecognized or recognized, are reviewed at each reporting date and are recognized/reduced to the extent that it is probable/ no longer probable respectively that the related tax benefit will be realized. Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on the laws that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which we expect, at the reporting date, to recover or settle the carrying amount of our assets and liabilities.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
Deferred tax assets include minimum alternative tax paid in accordance with the tax laws in India, which gives rise to future economic benefits in the form of adjustment of future income tax liability. Accordingly, minimum alternative tax is recognized as deferred tax assets in the balance sheet when the assets can be measured reliably and it is probable that the future economic benefit associated with the asset will be realized.
Research and Development
Revenue expenditure on research and development activities is recognized as expense in the period in which it is incurred.
Key Components of our Statement of Profit and Loss
The following descriptions set forth information with respect to the key components of our profit and loss statements.
Revenue
Revenue consists of revenue from operations and other income.
Revenue from operations. Revenue from operations comprises revenue from sale of products, revenue from sale of services, commission income and other operating revenues. Revenue from sale of products comprises revenue from the sale of our formulations and APIs. Revenue from sale of services comprises revenue from the provision of contract research services and the sale of marketing authorizations. Commission income relates to commission earned from the marketing of products for other pharmaceutical companies. Other operating revenues comprises income from scrap sales and from government grants, including export incentives, GST refund received and other government grants.
Other income. Other income primarily comprises interest income under the effective interest method from banks and others, profit on sale of investments, profit on sale of property, plant and equipment, gains on foreign exchange fluctuations and miscellaneous income.
Expenses
Expenses consist of cost of materials consumed, purchases of stock-in-trade, changes in inventories of finished goods, work-in-progress and stock-in-trade, employee benefit expenses, depreciation and amortisation expense, finance cost and other expenses.
Costs of materials consumed. Cost of materials consumed comprises costs from consumption of raw materials we use to manufacture our formulations and APIs and from consumption of packing materials.
Purchases of stock-in-trade. Purchases of stock-in-trade relates to costs incurred for the manufacturing of our own pharmaceutical products that we outsource to other pharmaceutical companies from time to time, as well as purchases of in-licensed formulation products.
Changes in inventories of finished goods, work-in-progress and stock-in-trade. Changes in inventories of finished goods, work-in-progress and stock-in-trade comprises net increases or decreases in stock of finished goods, work-in-progress formulations and APIs, and stock-in-trade.
Employee benefit expenses. Employee benefit expenses comprise salaries, wages and bonus, contribution to provident and other funds, staff welfare expenses, gratuity and employee share-based payment expenses.
Depreciation and amortisation expense. Depreciation and amortisation expense relate to depreciation of property, plant and equipment, depreciation on right-of-use assets and amortisation of intangible assets. Intangible assets include our marketing authorizations, customer relationships, product pipeline, brands acquired, and software and license rights.
Finance cost. Finance cost primarily comprises interest on long-term borrowings and short-term borrowings measured at amortised cost, other borrowing costs, interest accrued on lease liability and exchange differences to the extent regarded as an adjustment to borrowing costs.
Other expenses. The largest components of other expenses include expenses relating to advertisement and promotional materials, legal and professional fees, travelling and conveyance, factory consumables, commission on sales (which relates to commissions paid to our distributors), freight and forwarding, power and fuel, processing charges (which relates to fees paid to third-party contract manufacturers pursuant to loan licensing arrangements), contractual services and miscellaneous expenses.
Tax Expense
Tax expense consists of current tax and deferred tax.
Our Results of Operations
The following tables sets forth select financial data from our restated consolidated statement of profit and loss for the Financial Years 2024, 2023 and 2022, the components of which are also expressed as a percentage of total income for such years:
| For the Financial Year ended March 31, | ||||||
| 2024 | 2023 | 2022 | ||||
( in millions, except percentages) |
||||||
| Revenue: | ||||||
| Revenue from operations | 66,582.51 | 99.15% | 59,858.11 | 99.24% | 58,553.87 | 98.93% |
| Other income | 569.90 | 0.85% | 459.05 | 0.76% | 634.73 | 1.07% |
| Total income | 67,152.41 | 100.00% | 60,317.16 | 100.00% | 59,188.60 | 100.00% |
| Expenses: | ||||||
| Cost of materials consumed | 13,331.26 | 19.85% | 11,465.92 | 19.01% | 12,961.01 | 21.90% |
| Purchases of stock-in-trade | 13,324.83 | 19.84% | 10,472.45 | 17.36% | 10,824.50 | 18.29% |
| Changes in inventories of finished goods, work-in- progress and stock-in-trade | (1,901.92) | (2.83)% | 666.90 | 1.11% | (1,453.95) | (2.46)% |
| Employee benefit expenses | 12,920.80 | 19.24% | 11,173.32 | 18.52% | 10,118.20 | 17.09% |
| Depreciation and amortisation expense | 3,124.07 | 4.65% | 2,601.18 | 4.31% | 2,448.55 | 4.14% |
| Finance cost | 2,371.47 | 3.53% | 2,136.08 | 3.54% | 1,759.78 | 2.97% |
| Other expenses | 16,610.31 | 24.74% | 14,267.70 | 23.65% | 12,805.03 | 21.63% |
| Total expenses | 59,780.82 | 89.02% | 52,783.55 | 87.51% | 49,463.12 | 83.57% |
| Profit before exceptional items and tax | 7,371.59 | 10.98% | 7,533.61 | 12.49% | 9,725.48 | 16.43% |
| Exceptional items | 99.31 | 0.15% | 61.46 | 0.10% | ||
| Profit before tax | 7,272.28 | 10.83% | 7,472.15 | 12.39% | 9,725.48 | 16.43% |
| Tax expenses: | ||||||
| Current tax | 2,096.39 | 3.12% | 1,732.96 | 2.87% | 2,860.53 | 4.83% |
| Deferred tax | (99.86) | 0.15% | 120.74 | 0.20% | (160.61) | (0.27)% |
| Total tax expenses | 1,996.53 | 2.97% | 1,853.70 | 3.07% | 2,699.92 | 4.56% |
| For the Financial Year ended March 31, | ||||||
| 2024 | 2023 | 2022 | ||||
( in millions, except percentages) |
||||||
| Profit for the year | 5,275.75 | 7.86% | 5,618.45 | 9.31% | 7,025.56 | 11.87% |
Financial Year 2024 Compared to Financial Year 2023
Total income. Total income increased by 11.33% to 67,152.41 million for the Financial Year 2024 from 60,317.16 million for the Financial Year 2023 due to increases in revenue from operations and other income.
Revenue from operations. Revenue from operations increased by 11.23% to 66,582.51 million for the Financial Year 2024 from 59,858.11 million for the Financial Year 2023 primarily due to an 11.27% increase in revenue from sale of products to 65,362.86 million for the Financial Year 2024 from 58,743.26 million for the Financial Year 2023; partially offset by a 34.96% decrease in revenue from sale of services to 369.11 million for the Financial Year 2024 from 567.50 million for the Financial Year 2023. The increase in revenue from sale of products was attributable to (i) a 22.80% increase in sales outside India to 34,433.53 million for the Financial Year 2024 from 28,039.93 million for the Financial Year 2023, primarily driven by higher volumes of existing products sold, new product launches and higher volumes of pharmaceutical finished formulation products and natural health products sold in Canada following our acquisition of Mantra during the Financial Year 2024, and (ii) a slight increase in sales in India to 32,148.98 million for the Financial Year 2024 from 31,818.18 million for the Financial Year 2023. The decrease in revenue from sale of services was attributable to lower revenue from the provision of contract research services and the sale of marketing authorizations. The increase in revenue from operations was also partially attributable to a 39.32% increase in other operating revenues to 762.59 million for the Financial Year 2024 from 547.35 million for the Financial Year 2023, which was primarily driven by an increase in income from government grants.
Other income. Other income increased by 24.15% to 569.90 million for the Financial Year 2024 from 459.05 million for the Financial Year 2023, primarily due to (i) an increase in interest income under the effective interest method from banks and others to 207.59 million for the Financial Year 2024 from 118.34 million for the Financial Year 2023, which was mainly attributable to higher interest rates, and (ii) profit on sale of property, plant and equipment of 71.92 million recorded for the Financial Year 2024, while no such income was recorded for the Financial Year 2023. The increase in other income was partially offset by a decrease in gains on foreign exchange fluctuation (net) to 131.85 million for the Financial Year 2024 from 190.15 million for the Financial Year 2023, which was mainly attributable to movements in cross-currency exchange rates.
Total expenses. Total expenses increased by 13.26% to 59,780.82 million for the Financial Year 2024 from 52,783.55 million for the Financial Year 2023, primarily due to increases in purchase of stock-in-trade, other expenses, cost of materials consumed, employee benefit expenses, depreciation and amortization expense and finance cost, partially offset by changes in inventories of finished goods, work-in-progress and stock-in-trade.
Cost of materials consumed. Cost of materials consumed increased by 16.27% to 13,331.26 million for the Financial Year 2024 from 11,465.92 million for the Financial Year 2023 primarily due to increases in (i) cost of raw materials consumed during the year to 11,145.00 million for the Financial Year 2024 from 9,571.59 million for the Financial Year 2023, and (ii) cost of packing materials consumed during the year to 2,186.26 million for the Financial Year 2024 from 1,894.33 million for the Financial Year 2023, both of which were mainly attributable to changes in our overall product mix and higher volumes of products manufactured.
Purchases of stock-in-trade. Purchases of stock-in-trade increased by 27.24% to 13,324.83 million for the Financial Year 2024 from 10,472.45 million for the Financial Year 2023 primarily due to changes in our overall product mix, higher volumes of products manufactured, as well as higher volumes of inventories on account of our acquisition of Mantra during the Financial Year 2024 .
Changes in inventories of finished goods, work-in-progress and stock-in-trade. Changes in inventories of finished goods, work-in-progress and stock-in-trade was (1,901.92) million for the Financial Year 2024 as compared to 666.90 million for the Financial Year 2023. For the Financial Year 2024, we had an opening inventory of 8,325.68 million and a closing inventory of 10,227.60 million. For the Financial Year 2023, we had an opening inventory of 8,992.58 million and a closing inventory of 8,325.68 million.
Employee benefit expenses. Employee benefit expenses increased by 15.64% to 12,920.80 million for the Financial Year 2024 from 11,173.32 million for the Financial Year 2023, which was mainly attributable to annual increments in employee salaries, wages and bonus, as well as an increase in our permanent employee headcount, which was partially due to our acquisition of Mantra during the Financial Year 2024. We had 11,146 permanent employees as of March 31, 2024, as compared to 10,687 permanent employees as of March 31, 2023.
Depreciation and amortisation expense. Depreciation and amortisation expense increased by 20.10% to 3,124.07 million for the Financial Year 2024 from 2,601.18 million for the Financial Year 2023 primarily due to increases in (i) depreciation on property, plant and equipment to 2,096.44 million for the Financial Year 2024 from 1,797.44 million, which was mainly attributable to additional plant and equipment purchased for our manufacturing facilities, (ii) depreciation on right-of-use assets to 399.85 million for the Financial Year 2024 from 280.50 million for the Financial Year 2023, which was mainly attributable to new leases that we entered into, and (iii) amortisation of intangible assets to 627.78 million for the Financial Year 2024 from 523.24 million for the Financial Year 2023, which was mainly attributable to the higher amortization of intangible assets arising from our acquisition of Mantra during the Financial Year 2024.
Finance cost. Finance cost increased by 11.02% to 2,371.47 million for the Financial Year 2024 from 2,136.08 million for the Financial Year 2023 primarily due to (i) an increase in interest on long-term borrowings measured at amortised cost to 976.23 million for the Financial Year 2024 from 789.61 million for the Financial Year 2023, which was mainly attributable to higher term loan utilization and higher interest rates, (ii) an increase in interest on short-term borrowings measured at amortised cost to 784.38 million for the Financial Year 2024 from 710.85 million for the Financial Year 2023, which was mainly attributable to higher interest rates, (iii) an increase in interest accrued on lease liability to 181.17 million for the Financial Year 2024 from 119.49 million for the Financial Year 2023, which was mainly attributable to new leases that we entered into, and (iv) unwinding of discount on contingent consideration of 58.32 million recorded for the Financial Year 2024, which related to our acquisition of Mantra during the Financial Year 2024, while no such costs were recorded for the Financial Year 2023. The increase in finance cost was partially offset by a decrease in exchange differences to the extent regarded as an adjustment to borrowing costs to 83.73 million for the Financial Year 2024 from 220.03 million for the Financial Year 2023, which was mainly attributable to the impact of cross-currency exchange rate movements.
Other expenses. Other expenses increased by 16.42% to 16,610.31 million for the Financial Year 2024 from 14,267.70 million for the Financial Year 2023 primarily due to increases in (i) advertisement and promotional materials to 2,787.99 million for the Financial Year 2024 from 1,828.19 million for the Financial Year 2023, which was mainly attributable to an increase in marketing and promotional activities, (ii) processing charges to 914.81 million for the Financial Year 2024 from 593.38 million for the Financial Year 2023, which was mainly attributable to an increase in fees paid to third-party contract manufacturers pursuant to loan licensing arrangements, in line with higher sales, (iii) commission on sales to 1,297.38 million for the Financial Year 2024 from 1,030.33 million for the Financial Year 2023, which was mainly attributable to an increase in sale of products for which commission was paid, (iv) travelling and conveyance to 1,756.84 million for the Financial Year 2024 from 1,574.46 million for the Financial Year 2023, which was mainly attributable to an increase in travel activities, (v) bad debts written off to 385.47 million for the Financial Year 2024 from 192.29 million for the Financial Year 2023, (vi) power and fuel to 1,200.43 million for the Financial Year 2024 from 1,085.82 million for the Financial Year 2023, which was mainly attributable to an increase in electricity and fuel costs as well as higher utilization at our manufacturing facilities, (vii) miscellaneous expenses to 1,301.25 million for the Financial Year 2024 from 1,182.25 million for the Financial Year 2023, which was mainly attributable to an increase in software licensing expenses, and (viii) legal and professional fees to 2,101.10 million for the Financial Year 2024 from 2,063.91 million for the Financial Year 2023, which was mainly attributable to an increase in legal consultancy fees paid in relation to the legal disputes relating to the U.K. Arbitration and the U.S. Lawsuit with HDT. The increase in other expenses was partially offset by a decrease in factory consumables to 1,341.60 million for the Financial Year 2024 from 1,475.66 million for the Financial Year 2023, which was mainly attributable to lower consumption of consumables in our facilities.
Exceptional items. We recorded exceptional items of 99.31 million for the Financial Year 2024, which comprised consultancy fees paid in relation to the acquisition of certain Canadian entities during the Financial Year 2024. We recorded exceptional items of 61.46 million for the Financial Year 2023, which comprised share issue expenses written off in relation to prior regulatory filings made by our Company for a proposed initial public offering.
Tax expenses. Total tax expenses increased by 7.71% to 1,996.53 million for the Financial Year 2024 from 1,853.70 million for the Financial Year 2023, primarily due to higher tax rates applicable to certain of our Subsidiaries. For the Financial Year 2024, we had a current tax expense of 2,096.39 million and a deferred tax credit of 99.86 million. For the Financial Year 2023, we had a current tax expense of 1,732.96 million and a deferred tax expense of 120.74 million. Our effective tax rate (which represents income tax expense expressed as a percentage of profit before tax for the relevant year) was 27.45% and 24.81%for the Financial Years 2024 and 2023, respectively.
Profit for the year. As a result of the foregoing, our profit for the year decreased by 6.10% to 5,275.75 million for the Financial Year 2024 from 5,618.45 million for the Financial Year 2023.
Financial Year 2023 Compared to Financial Year 2022
Total income. Total income increased by 1.91% to 60,317.16 million for the Financial Year 2023 from 59,188.60 million for the Financial Year 2022 due to an increase in revenue from operations, partially offset by a decrease in other income.
Revenue from operations. Revenue from operations increased by 2.23% to 59,858.11 million for the Financial Year 2023 from 58,553.87 million for the Financial Year 2022 primarily due to a 3.81% increase in revenue from sale of products to 58,743.26 million for the Financial Year 2023 from 56,586.44 million for the Financial Year 2022; partially offset by a 47.24% decrease in revenue from sale of services to 567.50 million for the Financial Year 2023 from 1,075.60 million for the Financial Year 2022. The increase in revenue from sale of products was attributable to a 5.78% increase in sales outside of India to 28,039.93 million for the Financial Year 2023 from 26,507.21 million for the Financial Year 2022, primarily driven by higher volumes of existing products sold as well as new product launches; partially offset by a slight decrease in sales in India to 31,818.18 million for the Financial Year 2023 from 32,046.66 million for the Financial Year 2022, primarily driven by lower demand for products used in the treatment of HIV and COVID-19 and related complications, and lower volumes of sales in our HIV antivirals, cardiovascular, anti-infectives, and vitamins, minerals and nutrients therapeutic areas. The decrease in revenue from sale of services was attributable to lower revenue from the provision of contract research services. The increase in revenue from operations was also partially offset by a 38.63% decrease in other operating revenues to 547.35 million for the Financial Year 2023 from 891.83 million for the Financial Year 2022, which was primarily driven by a decrease in income from government grants.
Other income. Other income decreased by 27.68% to 459.05 million for the Financial Year 2023 from 634.73 million for the Financial Year 2022, primarily due to a decrease in gains on foreign exchange fluctuation (net) to 190.15 million for the Financial Year 2023 from 367.78 million for the Financial Year 2022, which was mainly attributable to unfavorable movements in cross-currency exchange rates.
Total expenses. Total expenses increased by 6.71% to 52,783.55 million for the Financial Year 2023 from 49,463.12 million for the Financial Year 2022, primarily due to changes in inventories of finished goods, work-in-progress and stock-in-trade and increases in other expenses, employee benefit expenses, finance cost and depreciation and amortisation expense, partially offset by decreases in cost of materials consumed and purchases of stock-in-trade.
Cost of materials consumed. Cost of materials consumed decreased by 11.54% to 11,465.92 million for the Financial Year 2023 from 12,961.01 million for the Financial Year 2022 primarily due to decreases in (i) cost of raw materials consumed during the year to 9,571.59 million for the Financial Year 2023 from 10,901.44 million for the Financial Year 2022, and (ii) cost of packing materials consumed during the year to 1,894.33 million for the Financial Year 2023 from 2,059.57 million for the Financial Year 2022, both of which were mainly attributable to changes in our overall product mix and lower volumes of products manufactured, particularly products for the treatment of COVID-19. Purchases of stock-in-trade. Purchases of stock-in-trade decreased by 3.25% to 10,472.45 million for the Financial Year 2023 from 10,824.50 million for the Financial Year 2022 primarily due to changes in our overall product mix and lower volumes of products sold. Changes in inventories of finished goods, work-in-progress and stock-in-trade. Changes in inventories of finished goods, work-in-progress and stock-in-trade was 666.90 million for the Financial Year 2023 as compared to (1,453.95) million in the Financial Year 2022. For the Financial Year 2023, we had an opening inventory of 8,992.58 million and a closing inventory of 8,325.68 million. For the Financial Year 2022, we had an opening inventory of 10,091.57 million and a closing inventory of 8,992.58 million, and transferred 2,552.94 million in inventory pursuant to the De-merger of our U.S. operations.
Employee benefit expenses. Employee benefit expenses increased by 10.43% to 11,173.32 million for the Financial Year 2023 from 10,118.20 million for the Financial Year 2022, which was mainly attributable to annual increments in employee salaries, wages and bonus, as well as an increase in our permanent employee headcount.
We had 10,687 permanent employees as of March 31, 2023, as compared to 9,716 permanent employees as of March 31, 2022.Depreciation and amortisation expense. Depreciation and amortisation expense increased by 6.23% to 2,601.18 million for the Financial Year 2023 from 2,448.55 million for the Financial Year 2022 primarily due to an increase in depreciation on property, plant and equipment to 1,797.44 million for the Financial Year 2023 from 1,623.45 million for the Financial Year 2022, which was mainly attributable to additional plant and equipment purchased for our manufacturing facilities.
Finance cost. Finance cost increased by 21.38% to 2,136.08 million for the Financial Year 2023 from 1,759.78 million for the Financial Year 2022 primarily due to increases in (i) interest on short-term borrowings measured at amortised cost to 710.85 million for the Financial Year 2023 from 469.54 million for the Financial Year 2022, which was mainly attributable to higher utilization of working capital loans during the Financial Year 2023 as well as higher interest rates, (ii) interest on long-term borrowings measured at amortised cost to 789.61 million for the Financial Year 2023 from 696.84 million for the Financial Year 2022, which was mainly attributable to higher interest rates, and (iii) exchange differences to the extent regarded as an adjustment to borrowing costs to 220.03 million for the Financial Year 2023 from 145.24 million for the Financial Year 2022, which was mainly attributable to the impact of cross-currency exchange rate movements.
Other expenses. Other expenses increased by 11.42% to 14,267.70 million for the Financial Year 2023 from 12,805.03 million for the Financial Year 2022 primarily due to increases in (i) travelling and conveyance expenses to 1,574.46 million for the Financial Year 2023 from 1,054.29 million for the Financial Year 2022, which was mainly attributable to an increase in travel activities following the continued easing of COVID-19 related restrictions, (ii) legal and professional fees to 2,063.91 million for the Financial Year 2023 from 1,554.09 million for the Financial Year 2022, which was mainly attributable to higher legal fees incurred in connection with ongoing litigation proceedings, (iii) advertisement and promotional materials to 1,828.19 million for the Financial Year 2023 from 1,633.22 million for the Financial Year 2022, which was mainly attributable to an increase in marketing and promotional activities, (iv) bad debts written off to 192.29 million for the Financial Year 2023 from 19.57 million for the Financial Year 2022, (v) commission on sales to 1,030.33 million for the Financial Year 2023 from 904.53 million for the Financial Year 2022, which was mainly attributable to higher commissions paid to our distributors, (vi) power and fuel to 1,085.82 million for the Financial Year 2023 from 972.77 million for the Financial Year 2022, which was mainly attributable to an increase in electricity and fuel costs as well as higher utilization at our manufacturing facilities, and (vii) contractual services expenses to 547.74 million for the Financial Year 2023 from 456.93 million for the Financial Year 2022, which was mainly attributable to an increase in the headcount of our contractual employees as well as annual salary increments. The increase in other expenses was partially offset by decreases in (i) freight and forwarding expenses to 1,286.72 million for the Financial Year 2023 from 1,435.88 million for the Financial Year 2022, which was mainly attributable to a reduction in freight rates, and (ii) factory consumables to 1,475.66 million for the Financial Year 2023 from 1,609.26 million for the Financial Year 2022, which was mainly attributable to lower consumption of consumables in our facilities.
Exceptional items. We recorded exceptional items of 61.46 million for the Financial Year 2023, which comprised share issue expenses written off in relation to prior regulatory filings made by our Company for a proposed initial public offering. We did not record any exceptional items for the Financial Year 2022.
Tax expenses. Total tax expenses decreased by 31.34% to 1,853.70 million for the Financial Year 2023 from 2,699.92 million for the Financial Year 2022, primarily due to lower profit before tax earned during the Financial Year 2023 as compared to the Financial Year 2022. For the Financial Year 2023, we had a current tax expense of 1,732.96 million and a deferred tax expense of 120.74 million. For the Financial Year 2022, we had a current tax expense of 2,860.53 million and a deferred tax credit of 160.61 million. Our effective tax rate (which represents income tax expense expressed as a percentage of profit before tax for the relevant year) was 24.81% and 27.76%for the Financial Year 2023 and 2022, respectively.
Profit for the year. As a result of the foregoing, our profit for the year decreased by 20.03% to 5,618.45 million for the Financial Year 2023 from 7,025.56 million for the Financial Year 2022.
Certain Balance Sheet Items
Cash and cash equivalents decreased by 30.26% to 1,690.00 million as at March 31, 2024 from 2,423.42 million as at March 31, 2023, primarily on account of a decrease in bank balances in current accounts.
Bank balances (other than cash and cash equivalents) decreased by 70.63% to 634.08 million as at March 31, 2024 from 2,159.13 million as at March 31, 2023, primarily on account of a decrease in term deposits with banks having initial maturity of more than three months but remaining maturity of less than 12 months.
Liquidity and Capital Resources
Our primary sources of liquidity include cash generated from operations and from debt borrowings, both short-term and long-term, including term loan, cash credit and working capital facilities. As of March 31, 2024, we had cash and cash equivalents of 1,690.00 million and term deposits with banks (current and non-current portion) of 607.35 million. As of March 31, 2024, we had undrawn facilities of 7,680.51 million.
Our financing requirements are primarily for working capital and investments in our business such as capital expenditures to upgrade and increase the capacities of our manufacturing facilities. We expect that cash flow from operations will continue to be our principal sources of funds in the long-term. We evaluate our funding requirements periodically in light of our net cash flow from operating activities, the requirements of our business and operations, acquisition opportunities and market conditions.
Our average working capital cycle (which represents our working capital requirements divided by revenue from operations for the relevant year, multiplied by 365 days) was 128 days, 138 days and 114 days for the Financial Years 2024, 2023 and 2022, respectively. Our working capital requirements is calculated as our total current assets less our total current liabilities (excluding repayment of long-term borrowings due within one year).
Cash Flows
The following table summarizes our restated cash flows data for the years indicated:
| For the Financial Year ended March 31, | |||
| 2024 | 2023 | 2022 | |
( in millions) |
|||
| Net cash generated from operating activities | 10,972.40 | 7,468.53 | 7,682.07 |
| Net cash used in investing activities | (7,125.12) | (4,676.85) | (7,887.91) |
| Net cash used in financing activities | (1,642.06) | (1,453.97) | (1,518.51) |
| Net increase/(decrease) in cash and cash equivalents | 2,205.22 | 1,337.71 | (1,724.35) |
| Cash and cash equivalent at the beginning of the year* | (1,745.29) | (3,081.72) | (3,500.42) |
| Less: Transferred pursuant to composite scheme of arrangement | 2,141.19 | ||
| Effect of exchange rate fluctuations on cash and cash equivalent | (20.02) | (1.28) | 1.86 |
| Cash and cash equivalent at the end of the year* | 439.91 | (1,745.29) | (3,081.72) |
Net cash generated from operating activities
Net cash generated from operating activities was 10,972.40 million in the Financial Year 2024. We had profit before tax of 7,272.28 million for the Financial Year 2024, which was primarily adjusted for depreciation and amortization of 3,124.07 million, finance costs of 2,371.47 million, unrealized exchange loss of 216.76 million and interest income from banks and others of 207.59 million. This was further adjusted for working capital changes, which primarily consisted of increase in trade payables of 1,542.65 million, increase in trade receivables of 1,506.07 million, increase in other liabilities of 289.87 million and increase in other financial liabilities of 272.37 million. As a result, cash generated from operating activities in the Financial Year 2024 was 13,208.92 million before adjusting for income tax paid (net of refunds) of 2,236.52 million.
Net cash generated from operating activities was 7,468.53 million in the Financial Year 2023. We had profit before tax of 7,472.15 million for the Financial Year 2023, which was primarily adjusted for depreciation and amortisation of 2,601.18 million, finance costs of 2,136.08 million, unrealized exchange loss of 279.39 million and interest income from banks and others of 118.34 million. This was further adjusted for working capital changes, which primarily consisted of increase in trade receivables of 3,397.94 million, decrease in inventories of 663.85 million, decrease in trade payables of 391.80 million and increase in other financial liabilities of 197.85 million. As a result, cash generated from operating activities in the Financial Year 2023 was 9,473.29 million before adjusting for income tax paid (net of refunds) of 2,004.76 million.
Net cash generated from operating activities was 7,682.07 million in the Financial Year 2022. We had profit before tax of 9,725.48 million for the Financial Year 2022, which was primarily adjusted for depreciation and amortisation of 2,448.55 million, finance costs of 1,759.78 million, unrealized exchange gain of 155.15 million and interest income from banks and others of 101.97 million. This was further adjusted for working capital changes, which primarily consisted of increase in trade payables of 3,157.03 million, increase in inventories of 3,071.63 million, increase in trade receivables of 1,728.71 million and increase in other assets of 1,077.09 million. As a result, cash generated from operating activities in the Financial Year 2022 was 10,793.84 million before adjusting for income tax paid (net of refunds) of 3,111.77 million.
Net cash used in investing activities
Net cash used in investing activities was 7,125.12 million in the Financial Year 2024. This was primarily due to investment in mutual funds and non-convertible debentures of 8,990.00 million, purchase consideration paid on acquisition of subsidiary, net of cash acquired of 3,450.73 million, acquisition of property, plant and equipment, capital work-in-progress and leasehold land rights of 2,757.72 million and term deposit placed of 1,002.81 million; partially offset by proceeds from sale of mutual funds of 6,123.16 million and term deposit matured of 2,771.75 million.
Net cash used in investing activities was 4,676.85 million in the Financial Year 2023. This was primarily due to acquisition of property, plant and equipment, and capital work-in-progress of 3,905.97 million, term deposit placed of 1,842.46 million and purchase of mutual funds of 807.00 million; partially offset by term deposit matured of 1,132.89 million and sale of investment of 808.21 million.
Net cash used in investing activities was 7,887.91 million in the Financial Year 2022. This was primarily due to acquisition of property, plant and equipment, and capital work-in-progress of 3,782.04 million, purchase consideration paid on acquisition of subsidiary, net of cash acquired of 2,750.78 million and term deposit placed of 2,438.02 million; partially offset by term deposit matured of 1,380.10 million.
Net cash used in financing activities
Net cash used in financing activities was 1,642.06 million in the Financial Year 2024. This was primarily due to repayment of long-term borrowings of 4,822.90 million, interest paid of 2,081.81 million and repayment of lease liabilities of 486.86 million; partially offset by proceeds from long-term borrowings of 5,474.29 million and proceeds from short-term borrowings (net) of 1,025.44 million.
Net cash used in financing activities was 1,453.97 million in the Financial Year 2023. This was primarily due to repayment of long-term borrowings of 3,427.30 million, interest paid of 1,785.60 million and repayment of lease liabilities of 350.13 million; partially offset by proceeds from long-term borrowings of 3,575.88 million and proceeds from short-term borrowings (net) of 976.79 million.
Net cash used in financing activities was 1,518.51 million in the Financial Year 2022. This was primarily due to repayment of long-term borrowings of 4,467.02 million, interest paid of 1,553.23 million, interim dividend paid (and related dividend distribution tax) of 361.70 million and repayment of lease liabilities of 347.01 million; partially offset by proceeds from long-term borrowings of 3,714.18 million and proceeds from short-term borrowings (net) of 1,759.02 million.
Capital Expenditures
Our capital expenditures primarily relate to the purchase of property, plant and equipment and intangible assets (including computers, furniture and other fixtures, vehicles, office equipment, leasehold improvements and software) and consideration paid for acquisitions. The following table sets forth details on our capital expenditures in relation to property, plant and equipment, and intangible assets, for the years indicated:
| For the Financial Year ended March 31, | |||
| 2024 | 2023 | 2022 | |
( in millions) |
|||
| Acquisition of property, plant and equipment, and capital work-in-progress | 2,757.72 | 3,905.97 | 3,782.04 |
| Acquisition of other intangible assets and intangible assets under development | 313.60 | 127.67 | 187.87 |
Financial Indebtedness
As of March 31, 2024, we had Total Borrowings (which is calculated as the total of non-current borrowings and current borrowings, including transaction costs attributable to non-current and current borrowings and excluding interest accrued but not due on borrowings) amounting to 20,919.35 million, which primarily consisted of term loans and working capital facilities. For a reconciliation of Total Borrowings, see "Other Financial Information Other reconciliations and information" on page 412. For further details related to our indebtedness, see
" Financial Indebtedness" on page 414.
Our Company has also provided corporate guarantees to certain of our Subsidiaries, namely Marcan, Mantra, Gennova, Emcure Pharmaceuticals Mena FZ-LLC and Emcure Pharma Philippines Inc, and may from time to time provide additional corporate guarantees to our other subsidiaries. See "Risk Factors Our inability to meet our obligations, including financial and other covenants under our debt financing arrangements could adversely affect our business, financial condition, results of operations and cash flows" on page 50.
Recent Transactions with Related Parties
On November 2, 2023, our Subsidiary, Zuventus, subscribed to the NCDs issued by Avet Life for a total amount of 2,500.00 million. Under the terms of the NCDs, Avet Life is required to repay the NCDs by November 1, 2028. As of June 19, 2024, such NCDs have been fully repaid by Avet Life.
Capital and Other Commitments
As of March 31, 2024, our estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) was 933.08 million.
The following table sets forth a summary of the maturity profile of our contractual obligations with definitive payment terms as of March 31, 2024:
| Payment due by period | |||||
| Total | Within 1 year | 1 to 2 years | 2 to 5 years | More than 5 years | |
| Contractual maturities of financial liabilities | ( in millions) |
||||
| Trade payable | 13,093.67 | 13,093.67 | |||
| Borrowings | 20,873.11 | 13,207.16 | 3,289.41 | 4,376.54 | |
| Trade deposits | 240.42 | 240.42 | |||
| Lease liabilities | 3,740.09 | 517.62 | 280.62 | 1,224.60 | 1,717.25 |
| Other financial liabilities | 5,749.61 | 3,044.24 | 255.90 | 2,449.47 | |
| Total | 43,696.90 | 29,862.69 | 3,825.93 | 8,291.03 | 1,717.25 |
Contingent Liabilities
As of March 31, 2024, we had disclosed the following contingent liabilities (that had not been provided for) in our Restated Consolidated Financial Information as per Ind AS 37:
( in millions)
| Particulars | As at March 31, 2024 |
| Claims as at March 31, 2024 | |
| 1. Provident fund(1) | 53.61 |
| 2. Indirect tax matters(2) | 180.30 |
| 3. Income tax matters(3) | 2,613.39 |
| Sub-Total | 2,847.30 |
| Claims received/ (settled/closed) subsequent to year end | |
| 1. Indirect tax matters(2) | 7.75 |
| Sub-Total | 7.75 |
| Total | 2,855.05 |
(1) Pursuant to an inspection on Zuventus by the EPFO, the EPFO through its order dated June 16, 2010 ("EPFO Order") provided that provident fund should be deducted on fitment allowance for both employee and employers contribution. The same was upheld and confirmed by order of the Employees Provident Fund Appellate Tribunal, New Delhi dated August 24, 2011. Zuventus challenged the same by filing writ petition before Bombay High Court who, vide an order dated December 8, 2011, stayed the execution, operation and implementation of the orders on the precondition that Zuventus deposits 20 million with the EPFO. The proceedings are currently pending before the Bombay High Court and the next hearing date is awaited.
(2) Our Company and its Subsidiaries, Gennova and Zuventus, are in receipt of various demand notices from the India Goods and Services Tax authorities. Customs Duty, Excise Duty, Service Tax and Sales Tax demands for input tax credit disallowance and demand for additional Entry Tax arising from dispute on applicable rate are in appeals and pending decisions. We have responded to such demand notices and believe that the chances of any liability arising from such notices are less than probable. Accordingly, no provision has been made in our financial statements as of March 31, 2024.
(3) Zuventus is in receipt of various regular assessment orders from Income tax authorities. Income tax demands/matters are in relation to certain deductions/allowances in earlier years, which are pending in appeals. Zuventus has responded to such demand notices/appeals and our management believes that the operations will not have any significant impact on our financial position and performance for the year ended March 31, 2024. Further, a search and seizure operation was conducted by the Income Tax department during the month of December 2020 under Section 132 of the Income Tax Act, 1961. Our Company and its Subsidiaries, Zuventus and Gennova, have received orders under section 153A and have filed appeals with the CIT(A) against the said orders. Considering the disallowances, our management is of the view that the matters involved are normal tax matters, and accordingly the operation will not have any significant impact on our financial position and performance for the year ended March 31, 2024.
For further details on our contingent liabilities, see "Risk Factors We have contingent liabilities and capital commitments, and our financial condition could be adversely affected if any of these contingent liabilities or capital commitments materialize." and Notes 43 and 44 to our "Financial Statements" on pages 56 and 376, respectively.
Off-Balance Sheet Commitments and Arrangements
We do not have any off-balance sheet arrangements, derivative instruments, swap transactions or relationships with affiliates or other unconsolidated entities or financial partnerships that would have been established for the purpose of facilitating off-balance sheet arrangements.
Quantitative and Qualitative Analysis of Market Risks
We are exposed to various types of market risks during the normal course of business. The market risks we are exposed to include credit risk, liquidity risk, foreign currency risk, interest rate risk and commodity risk.
Credit Risk
Credit risk is the risk of financial loss to us if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Our credit risk exposure arises primarily from our receivables from customers and other financial assets, such as cash equivalents and deposits. We manage our credit risk through credit approval processes, establishing credit limits and continuously monitoring the creditworthiness of customers to which we grant credit terms in the normal course of business. We establish an allowance for doubtful debts and impairment that represents our estimate of expected losses in respect of trade and other receivables. We also seek to limit our exposure to credit risk from receivables by establishing a maximum payment period for customers, and we typically have credit terms of 7 to 45 days for our domestic customers and 30 to 180 days for our export customers. Our trade receivables are not interest bearing, in line with normal industry practice. For the Financial Years 2024, 2023 and 2022, our trade receivables were 18,588.05 million, 16,483.00 million and 13,085.06 million, respectively. See "Risk Factors We are exposed to counterparty credit risk and any delay in receiving payments or non-receipt of payments may adversely affect our business, results of operations and cash flows" on page 77.
Liquidity Risk
Liquidity risk management requires maintaining sufficient cash and availability of funds through an adequate amount of committed credit facilities to meet the commitments arising out of financial liabilities. Our liquidity management policy involves projecting cash flows and considering the level of liquid assets necessary to meet future requirements, monitoring balance sheet liquidity ratios against debt covenants, maintaining debt financing plans and ensuring compliance with regulatory requirements. We manage our liquidity needs by carefully monitoring scheduled debt payments and cash requirements for day-to-day business, as well as on the basis of a rolling 30-day cash flow projection. Long-term liquidity needs for a period of 180 to 360 days are identified and reviewed at regular intervals. We seek to maintain funding flexibility by maintaining cash and marketable securities to meet our liquidity requirements, as well as through securing an adequate amount of committed credit lines which can be drawn upon as and when required. See "Risk Factors We have significant working capital requirements. If we experience insufficient cash flows to fund our working capital requirements or if we are not able to provide collateral to obtain letters of credit and bank guarantees in sufficient quantities, there may be an adverse effect on our business, financial condition, results of operations and cash flows" on page 48.
Foreign Currency Risk
We operate in international markets and a major portion of our business is transacted in different currencies and, consequently, we are exposed to foreign currency risk arising from transactions relating to purchases, revenues and expenses to be settled in other currencies. Our exports and imports are mainly in U.S. Dollars, Euros and British Pounds. We mitigate the risk arising from foreign exchange fluctuations by closely monitoring our cash inflows based on review of expected future movements. Although our exposure to exchange rate fluctuations is partly hedged through the exports of products and the import of the necessary raw materials and production equipment, and we may from time to time enter into foreign exchange hedging arrangements, we are still affected by fluctuations in exchange rates for certain currencies, particularly the U.S. Dollar and the Euro. See "Risk Factors We are subject to risks arising from exchange rate fluctuations, which could adversely affect our business, financial condition and results of operations" on page 72.
Interest Rate Risk
We are exposed to market risk with respect to changes in interest rates related to our borrowings. Interest rate risk exists with respect to our indebtedness that bears interest at floating rates tied to certain benchmark rates as well as borrowings where the interest rate is reset based on changes in interest rates set by RBI. Interest rates are highly sensitive to many factors beyond our control, including the monetary policies of the RBI, domestic and international economic and political conditions, inflation and other factors. Upward fluctuations in interest rates increase the cost of servicing existing and new debts, which adversely affects our results of operations and cash flows. As a part of our interest rate risk management policy, our treasury department closely tracks the interest rate movements on a regular basis, and our management assesses the need to enter into interest rate swaps and hedging contracts. Our management also considers future movements in interest rates against factors such as overall micro- and macro-economic factors, liquidity in the system and expected spending cycle, as well as the possibility of entering into new facilities to reduce future finance costs. See "Risk Factors Fluctuations in interest rates could adversely affect our results of operations." on page 69.
Unusual or Infrequent Events or Transactions
Except as disclosed in this Red Herring Prospectus, to our knowledge, there have been no unusual or infrequent events or transactions that have in the past or may in the future affect our business operations or future financial performance.
Known Trends or Uncertainties
Our business has been subject, and we expect it to continue to be subject, to significant economic changes arising from the trends identified above in " Significant Factors Affecting Our Results of Operations" and the uncertainties described in "Risk Factors", on pages 420 and 42, respectively. Except as disclosed in this Red Herring Prospectus, there are no known trends or uncertainties that have or had or are expected to have a material adverse impact on our revenues or income.
Future Relationship between Cost and Revenue
Other than as described in "Risk Factors", "Our Business" and above in " Significant Factors Affecting our Results of Operations" on pages 42, 217 and 420, respectively, to our knowledge, there are no known factors that may adversely affect our business prospects, results of operations and financial condition.
New Products or Business Segments
Except as disclosed in this Red Herring Prospectus, including as described in "Our Business" on page 217, there are no new products or business segments that have or are expected to have a material impact on our business prospects, results of operations or financial condition.
Supplier or Customer Concentration
We do not have any material dependence on a single or few suppliers. We have a wide customer base and do not have any material dependence on any particular customer.
Competitive Conditions
We operate in a highly competitive industry and we expect competition in our industry from existing and potential competitors to intensify. For details, refer to the discussions of our competition in the sections "Risk Factors",
" Our Business" and "Industry Overview" on pages 42, 217 and 181, respectively.
Seasonality
Our business is not seasonal in nature.
Significant Developments Occurring After March 31, 2024
Except as disclosed in this Red Herring Prospectus and below, there are no circumstances that have arisen since March 31, 2024, the date of the last financial statements included in this Red Herring Prospectus, which materially and adversely affect or is likely to affect our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next twelve months.
On November 2, 2023, our Subsidiary, Zuventus, subscribed to the NCDs issued by Avet Life for a total amount of 2,500.00 million. Under the terms of the NCDs, Avet Life is required to repay the NCDs by November 1, 2028. As of June 19, 2024, such NCDs have been fully repaid by Avet Life.
Recent Accounting Pronouncements
As of the date of this Red Herring Prospectus, there are no recent accounting pronouncements, which would have a material effect on our financial condition or results of operations.
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