Lactose (India) Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Global Pharmaceutical Industry:

The pharmaceutical sector has grown quickly in recent years, and by 2023 it is anticipated to reach USD 1.5 trillion. With the use of cutting-edge digital platforms, big data analytics, cloud computing, and artificial intelligence (AI), the sector is undergoing a transition. Accordingly, the industry is increasingly relying on AI to support drug discovery. One of the most striking pharmaceutical industry statistics is that spending on AI will reach $3 billion by 2025 as companies invest in technology that may reduce the time and costs required to bring a new drug to market. AI-based drug discovery alliances are also increasing, from just 10 in 2015 to 105 in 2021.

With about 46% of the market share, North America was the largest market for pharmaceuticals in the global pharmaceuticals market in 2021. The Asia Pacific was the second largest region making up more than 26% of the global pharmaceuticals market. Although the need for medicines is much greater in Africa, it holds the smallest market share in the global pharmaceuticals market.

According to Global Pharmaceuticals Market Analysis in 2022, there is a growing need for better healthcare and as people get more and more concerned about their life, the Global Pharmaceutical Market stands to gain.

Market Forecast

• The global pharmaceutical market size was valued at $209.85 billion in 2021 and it poised to grow from $222.4 billion in 2022 to $352.89 billion by 2030, growing at a CAGR of 5.9% from 2023-2030.

• The global pharmaceutical excipients market in terms of revenue was estimated to be worth $8.6 billion in 2022 and is poised to reach $11.5 billion by 2027, growing at a CAGR of 5.9% from 2022 to 2027.

• The global active pharmaceutical ingredients (API) market was valued at USD 211.0 billion in 2022 and is anticipated to growing at a CAGR of 6.5% from 2022 to 2030. The global active pharmaceutical ingredients (API) market is expected to reach USD 349.2 billion by 2030.

• The global generic drugs market size was valued at USD 439.37 billion in 2022 and projected to hit around USD 670.82 billion by 2030, growing at a CAGR of 5.4% over the forecast period 2022 to 2030.

Indian Industry Structure and Development:

The pharmaceutical industry in India is currently valued at $50 billion. The Indian pharmaceutical industry ranks third globally in pharmaceutical production by volume and is known for its generic medicines and cost effective vaccines. India is a major exporter of Pharmaceuticals, with over 200+ countries served by Indian pharma exports. India supplies over 50% of Africas requirement for generics, 40% of generic demand in the US and 25% of all medicine in the UK. India also accounts for 60% of global vaccine demand, and is a leading supplier of DPT, BCG and Measles vaccines. 70% of WHOs vaccines (as per the essential Immunization schedule) are sourced from India.

There are 500 API manufacturers contributing about 8% in the global API Industry. India is the largest supplier of generic medicines. It manufactures about 60,000 different generic brands across 60 therapeutic categories and accounts for 20% of the global supply of generics. Access to affordable HIV treatment from India is one of the greatest success stories in medicine. Because of the low price and high quality, Indian medicines are preferred worldwide, making it "pharmacy of the world". The sector has been growing at a healthy rate.

Market Size

• The pharmaceutical industry in India is expected to reach $65 billion by 2024 and to $130 billion by 2030.

• The Binders segment held the largest share in the Pharmaceutical Excipients in 2021 and is expected to grow at a CAGR of 6 % between 2022 and 2027.

• India Active Pharmaceutical Ingredients (API) Market Analysis. The India Active Pharmaceutical Ingredients (API) Market size is expected to grow from USD 12.59 billion in 2023 to USD 18.76 billion by 2028, at a CAGR of 8.31% during the forecast period (2023-2028).

• The Indian generic drugs market stood at USD 24.53 billion in 2022 and is expected to grow at a steady compound annual growth rate (CAGR) of 6.97% during the forecast period (2023-2028).

Road Ahead

Indias public expenditure on healthcare touched 2.1 % of GDP in FY23 and 2.2% in FY22, against 1.6% in FY21, as per the Economic Survey 2022-23. The e-health market size is estimated to reach US$ 10.6 billion by 2025.

India plans to set up a nearly INR 1 lakh crore (US$ 1.3 billion) fund to provide a boost to companies to manufacture pharmaceutical ingredients domestically by 2023. Hence, in this way an increase in demand of medicines and drugs from pharmaceutical sectors across multiple countries will eventually lead to an increase in demand for pharmaceutical excipients such as Lactose, Gelatin, Polyethylene Glycol, Cellulose Esters and Sweetening Agents required for their production as well, thus, leading to market growth.

Opportunities and Threats:

Our Company is into manufacture of Excipients (Lactose), which falls under binders segment of excipients. The Binders segment held the largest share in the Pharmaceuticals Excipients in 2021. Binder excipients also play a major role during the formulation of drugs or medicines because they improve the bulkiness, disintegration, and dissolution rate of the drugs. Hence there has been an increasing demand of these excipients during the manufacturing of drugs and medicines.

There are very few manufacturers of API (Lactulose) developed by the company worldwide, which has high demand in the global and domestic market.

While the underlying demand drivers for global markets continue to remain broadly intact, the operating environment has become significantly tougher for sub-scale business models, as sector profitability comes under pressure.

Segment-wise or product-wise performance:

The Companys business activity falls within a single business segment i.e. Pharmaceutical Business.

Outlook:

The company now emphasizes on optimum utilization of its Excipients and API plant capacity for production and is focused on new product development. The outlook of the company remains positive during the financial year. The company enjoys cGMP approvals and all the facilities are built and operated according to the cGMP (current Good Manufacturing Practices).

Concerns:

• Set-up of Raw Material supply chain for Lactose Manufacturing, due to increased sales.

• Increase in Working Capital requirement, due to increased sales.

Internal Control System and their adequacy:

Being a pharma company and ISO Certified the process parameters are fully documented and are in place. The role and responsibilities of various people are fully defined in all the functional level. There is continuous flow of information at all level and effective internal audit and internal checks are done at regular interval to ensure their adequacy and efficiency.

Additionally, the following measures are taken to ensure proper control:

• Budgets are prepared for all the operational levels.

• Any material variance from budget has to be approved by the CFO.

• Any major policy change is approved by the managing director.

• Any deficiency in not achieving target is reviewed at management meetings.

Discussion on financial performance with respect to operational performance:

		(Rs. In Lakhs
Particulars	F.Y. 2022-23	F.Y. 2021-22
Revenue from Operation	6579.63	4593.90
Other Income	72.94	57.86
Profit/Loss Before Depreciation and Tax	614.97	772.51
Tax (Including Deferred Tax) Net	25.58	71.49
Profit/Loss After Depreciation and Tax	127.64	238.08

Human Resource development / Industrial relations:

The company continues to focus on training and motivation of manpower so as to develop team of qualified and skilled personnel to effectively discharge their responsibilities in a number of projects and activities. It is in this context, we have been working towards promoting the skills and professionalism of our employees to cope with and focus on the challenges and growth. The overall industrial relations atmosphere continues to be cordial. The company has revamped the existing HR policies to be more people friendly and offered them a better work life balance.

Details of significant changes:

Particulars	F.Y. 2022-23	F.Y. 2021-22
Debtors Turnover	5.52	5.17
Inventory Turnover	1.63	0.98
Interest Coverage Ratio	1.49	1.67
Current Ratio	1.41	1.53
Debt Equity Ratio	0.96	1.04
Operating Profit Margin(%)	19%	28%
Net Profit Margin(%)	1.94%	5.18%

Details of any change in Return on Net Worth:

The Return on Net Worth of the company was 3.15% (2022-23) and 6.06% (2021-22).