MANAGEMENT DISCUSSION AND ANALYSIS REPORT WORLD ECONOMY Global growth is forecast at 3.5 percent in 2015 and 3.8 percent in 2016, with uneven prospects across the main countries and regions. Growth in emerging market economies is softening, reflecting an adjustment to diminished medium-term growth expectations and lower revenues from commodity exports, as well as country-specific factors. The outlook for advanced economies is showing signs of improvement, owing to the boost to disposable incomes from lower oil prices, continued support from accommodative monetary policy stances, and more moderate fiscal adjustment. The distribution of risks to near-term global growth has become more balanced relative to October 2014 but is still tilted to the downside. The decline in oil prices could boost activity more than expected. Geopolitical tensions continue to pose threats, and risks of disruptive shifts in asset prices remain relevant. In some advanced economies, protracted low inflation or deflation also pose risks to activite.(Source:IMF) INDIAN ECONOMY The economic scenario reveals that there was perceptible improvement in some of the macro-aggregates of the economy in 2013-14, which got strengthened in 2014-15. Economic growth, measured by growth in gross domestic product (GDP) at constant market prices, estimated at 5.1% and 6.9% respectively during 2012-13 and 2013-14. Comparing the AE of growth for the full year 2014-15 and the estimates for the first three quarters, it is observed that an implied growth rate of 7.8%. In the light of the Government's commitment to reforms, along with the improvements in the price and external sector scenarios including the possibility of international oil prices remaining generally benign, the outlook for domestic macroeconomic parameters is generally optimistic, notwithstanding the uncertainties that could also arise from an increase in the interest rates in the United States and situation brvailing in Greece within Euro-zone. Given the above, and assuming normal monsoons better prospects in the world economy that could provide impetus to higher exports for Indian products and services, a growth of around 8.5% is in the realm of possibility in 2015-16. (<http://indiabudget.nic.in/es2014-15/echapvol2-01.pdf>) Pharmaceutical industry India is expected to be the third-largest global generic active pharmaceutical ingredient (API) merchant market by 2016, with a 7.2% market share. The country accounts for the second largest number of Abbreviated New Drug Applications (ANDAs) and is the world's leader in Drug Master Files (DMFs) applications with the US. The country's pharmaceutical industry expanded at a compound annual growth rate (CAGR) of 9.4% in 2013 to reach US$ 12 billion and is expected to expand at a CAGR of 23.9% to US$ 55 billion by 2020. With 72% of market share, generic drugs form the largest segment of the Indian pharmaceutical sector. In terms of value, exports of pharmaceutical products from India increased at a CAGR of 26.1% to US$ 10.1 billion during FY06-13. Generic drugs account for 20% of global exports in terms of volume, making the country the largest provider of generic medicines globally and expected to expand even further in coming years. The Government of India plans to set up a US$ 640 million venture capital fund to boost drug discovery and strengthen pharma infrastructure. Pharma Vision 2020 by the government's Department of Pharmaceuticals aims to make India a major hub for end-to-end drug discovery. With 70% of India's population residing in rural areas, pharma companies have immense opportunities to tap this market. Various companies are investing in the distribution network in rural areas. India also has the potential to attract huge investments to its clinical trial market. (<http://www.ibef.org/industry/indian-pharmaceuticals-industry-analysis->brsentation) Chemical industry The chemical industry, which includes basic chemicals and its products, petrochemicals, fertilizers, paints & varnishes, gases, soaps, perfumes & toiletries and pharmaceuticals is one of the most diversified of all industrial sectors covering thousands of commercial products. It plays an important role in the overall development of the Indian economy. Rapid growth is expected in India as well, with brdicted annual growth above 9% per year in the period 2012 to 2014, and above 8% per year in the period 2015 to 2021. With current initiatives of industry & government, the Indian chemical industry could grow at 11% p.a. to reach size of $224 billion by 2017. However, the industry could aspire to grow much more and its growth potential is limited only by its aspirations. In an optimistic scenario, high end-use demand based on increasing per capita consumption, improved export competitiveness and resultant growth impact for each sub-sector of the chemical industry could lead to an overall growth rate greater than 15% p.a. and a size of $ 290 billion by 2017. Government Initiatives The Government of India has aggressively adopted prudent strategies to boost the country's healthcare industry. From granting 100% Foreign Direct Investment (FDI) in the drugs and pharma sector to establishing various pharma SEZs across the country, a range of initiatives have further strengthened the Indian pharma industry. The Government of India has unveiled 'Pharma Vision 2020' aimed at making India a global leader in end-to-end drug manufacture. It has reduced approval time for new facilities to boost investments. Further, the government has also put in place mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to address the issue of affordability and availability of medicines. (<http://www.cci.in/pdfs/surveys-reports/Pharmaceutical-Industry-in->India.pdf) 2. opportunities and Threats opportunities 1. Major raw material for pharma division in house. 2. Large domestic market, with good potential for growth. 3. Technically and qualified trained manpower. 4. Backward & Forward Integration of Products. Threats: 1. Cost of power & cost of finance in India is very high as compared to brvailing in developed countries. 2. Infrastructure facilities are not of world class. Transport and Communications are complex resulting in delays and slow movement of goods. 3. our Business strategy Growth prospects for India as whole in general are positive as compared to brvious year growth and Pharmaceutical and Chemical Segment in particular. Moreover Government of India is also taking initiatives to achieve the high growth rate and stimulate exports. Our Strategic focus is continuing to maintain and establishing leading market position in key business segments with profitability and growth. As we have implemented the following core business strategies:- Global Leadership in chosen products and increasing market share by continuing to grow our product portfolio- Our success story is our ability and acumen to select attractive products in niche markets and increasing our production capacity with cost optimization. We are continuing our emphasis to increase share in pharma segment. More Penetration into Foreign Markets - Government of India is providing lot of incentives for pharma companies to stimulate exports. We are also exploring more foreign countries to penetrate. We have vision of putting global footprints in every continent. Capitalise on our strong customer base and customer relationship management for pursuing growth opportunities - We are brsently having customer base in 50 countries and we are increasing our customer base with referrals from existing customer and brand value that we have created in the last 12 years. We also market our new products through this network. Business segment Performance and Future Prospects Our operations are broadly comprises of product and services across Bulk drug and Specialty industrial organic chemicals. Our Bulk Drug segment includes operations of manufacturing of Bulk Drug which are as under:- 1. Anti Inflammatory 2. Anti Ulcer Drugs 3. Anti Diabetic 4. Anti Hypertension Our Specialty Industrial organic Chemicals segment includes operation of manufacturing of following chemicals;- 1. Iso Butyl Benzene (IBB) 2. Ethyl Acetate 3. Acetic Anhydride 4. Mono Chloro Acetic Acid (MCA) 5. Acetyl Chloride Bulk Drug Bulk Drug commonly known as Active Pharmaceutical Ingredients (API's), APIs are mixed with other components to produce tablets, capsules or liquids. We have a clear focus on production of APIs for Anti-inflammatory besides few Anti Diabetic, Anti hypertension and Anti-Ulcerants. We are increasing our APIs product portfolio by first entering into markets, improving our cost competitiveness through efficient manufacturing processes and systems, accelerating Drug Master File (DMF) flings, entering into and expanding relationships with major Indian and foreign generic companies for sale of our APIs, and continuing to build on our brvious track record. Our APIs are exported worldwide, into emerging as well as developed markets. Our key markets are Africa, Latin America, South America, Europe, Korea, Commonwealth of Independent States (CIS) countries, the Middle East and Australia. Our API customers are leading global generic companies. As of 31 March 2015, we have 7 APIs available through commercial scale plants, of which Ibuprofen, Metformin, Lansoprazole and Lamotrigine, are the most significant. We has also received the approval of USFDA in July 2015 to launch API business in US Market. India is among the most significant emerging markets for the global pharmaceuticals industry, given that it will feature among the world's top 10 sales markets by 2020. Currently, it is regarded as one of the fastest-growing pharmaceuticals industries globally, primarily driven by a large population, evolving patient demographics, increasing health care expenditure, growing urbanisation, rising life expectancy, and active private-sector participation. (Source: Sanofi and Kantar health brsentation at EphMrA) We are constantly working to ensure that all plant lines provide the desired turnover, with least downtime and optimal product mix. To tap the opportunity of increased demand, we are aggressively optimizing and de-bottlenecking our operations by using existing infrastructure to maximize our output. Our future development will be driven by our strategic objective of focusing and specializing in niche areas and backward integration to existing chemical segment, wherein lies our strength of APIs. specialty industrial organic Chemicals Specialty Industrial Organic Chemicals are having distinct uses in different industries like Pharmaceuticals, flexible packaging, Paints, Adhesives, Food Packing and photography etc to be brcise. Since Inception, we have been enhancing our capacities in general and chemical segment in particular. Moreover, Major of the chemicals produced by your company is used in its forward integrated plants, like Mono Chloro Acetic Acid (MCA) and Acetyl Chloride are the key raw material to manufacture Ibuprofen. All the products manufacture in our plants are having continuous demand from different industries in domestic as well as foreign market and demand is also increasing day to day. To tap the opportunity of increase in demand in market, we are increasing our capacity utilization by streamlining of production processes. India emerges as one of the focus destinations for chemical companies worldwide. With the current size of approximately $108 billion, the Indian chemical industry accounts for 3% of the global chemical industry and approximately 7% of Indian GDP. Two distinct scenarios for the future emerge, based on how effectively the industry leverages its strengths and manages challenges. In the base case scenario, with current initiatives of industry & government, the Indian chemical industry could grow at 11% p.a. to reach size of $224 billion by 2017. However, the industry could aspire to grow much more and its growth potential is limited only by its aspirations. In such an optimistic scenario, high end-use demand based on increasing per capita consumption, improved export competitiveness and resultant growth impact for each sub-sector of the chemical industry could lead to an overall growth rate of over 15% p.a. and a size of $290 billion by 2017 (~6% of global industry). This has a potential for further upside in the future considering India's increasing competitiveness in manufacturing. (Source: INDIAN CHEMICAL INDUSTRY Five Year Plan -2012-2017) We are continuously monitoring the operations of the plant for optimal utilization of resources and achieve the desired production levels with minimal breakdown. 5. internal Control and Risk Management It is a myth, an enterprise with immunity from risk. It is general principle that there is no growth without risk or opportunity cost. It does not mean an organization should take more risk to get high growth. However, risk should be calculated and managed, if risks are not properly managed, an organization will not be able to attain its targets. Internal control and Risk Management is backbone of any organization. It plays a key role in directing and guiding the company's various activities within the desired parameters. loLCP's visualization on Risk Management To establish and maintain enterprise wide risk management capabilities for rigorous monitoring and mitigation of Macro as well as Micro risks on continuous and sustainable basis. IOLCP'S RISK MANAGEMENT STRATEGY IOLCP is having a strong risk management framework, which actively monitors organization's activities to identify, assessing and mitigating potential internal or external risks at the brliminary stage. We also compare the standards vis a vis actual levels and reports the variance above threshold level to Board of Directors. As an organization, we promote strong ethical values with high level of integrity in all our activities, where by itself significantly mitigates the risk. IOLCP'S RISK MANAGEMENT SYSTEM Our Risk Management System is bifurcated into two levels, First Apex Level, comprises of Board of Directors and Company's Audit and Risk Management Committee and second is supporting level comprising of Business Heads, Functional Heads, and Unit's Heads, Divisional Heads of Accounts & Finance and Works Head. Supporting level team entrusted with responsibility of identification and monitoring of risks. Identified risks are then discussed with Board of Directors at various intervals and consensus is obtained on methods to mitigate the risk. Moreover, supporting team further supported by internal audit conducted by independent firm of chartered accountants and it also makes the assessment and advises us in further improvements. Company's Audit and Risk Management Committee reviews report submitted by Internal Auditors and monitors follow-up & corrective action taken by the Company. IOLCP'S RISK MITIGATION METHODOLOGY We are equipped with combrhensive system to identify the risk from internal and external factors at early stage and take appropriate actions for its mitigation. We have already established detailed structure and action plan in all level of organizations. In IOLCP, we believe to curtail the risk with pro active approach, so that risk can be mitigated at early stage. We have already identified entry level controls for the organization, covering integrity and ethical values. Thereby, we are strengthening the control system with continues training and standardized documentation. Competition risk Company is exposed to competition from indigenous as well as foreign players. Over the years Company has de- bottlenecked and enhanced its capacities in drug as well as chemical segments. In recent past the Company has also included value added products i.e acetyl chloride, mono chloro-acetic acid and Iso butyl benzene, towards backward and forward integration to strengthen its brand value. Further, Company has diversified into other value added pharmaceutical products such as anti ulcer, anti diabetic and anti hypertension drugs. We are continuously monitoring the domestic, foreign market, Government policies and rivals in the industry to formulate our marketing and production strategies. Geographic risk A significant dependence on a particular market could be a risk in the event of a selective downturn in that region. So the company has network of customers broadly in major of the states of country. Company has also expanded its customer base in about 50 countries to mitigate geographical risk. Technological risk Technological advancement could result in asset obsolescence warranting a high cost of replacement. Company is using the latest technology in the manufacturing, processing and quality control measures and keeps itself in touch with the latest advancement in technology and adopting the same to remain efficient in productivity and cost minimization. Environmental Health and safety Risk Today Governments of all the countries in world are cautious about the environment safety. Non compliance with environmental regulatory issue might affect operations. Company conducts periodic checks to compare effluents and stack emissions and comply with all applicable rules and regulations to protect the environment. Moreover, Company has also obtained ISO 14001:2004 Certification. Health and Safety of the Workforce is priority of the Company. The Company committed itself to manage it through occupational health and safety management tools, dedicated dispensary at factory, qualified Doctors and monthly health check-up at all levels of the organization. Moreover the Company has obtained BS OHSAS 18001:2007. Credit risk Credit risk is associated with losses that occur when debtors are unable to meet their repayment obligations on time. Company has established internal policies to determine credit worthiness and reliability of potential customers. Liquidity risk This refers to the possibility of default of a Company to meet its obligations because of unavailability of funds to meet both operational and capital requirements. In order to ensure adequacy of its funding, cash flow forecasts are brpared regularly and appropriate actions are taken on pro active basis. Foreign exchange risk Company is exposed to foreign exchange risk with respect to foreign currencies, denominated mainly in US dollars, on revenue and supplies. However, risk is naturally hedged as Company is engaged both in imports and exports and is used to take future cover as the situation so warrants. Human Capital Risk Acquisition and retention of right talent is critical to maintain desired operational standards. Insufficient focus on human resource processes (e.g. recruiting, talent management, labour management, development and training) may result in an organisation's inability to recruit and/ or hold the required personnel. In IOLCP, a dedicated team of professionals is established which looks after the recruitment, training, remuneration and human capital issues. On one hand the Company continues to hire new, highly-skilled professionals and technical personnel staff on another hand it also introduced rewards and recognition policies for effective employee engagement. INSURANCE In order to reduce and mitigate identifiable risks, the Company is prompt to take insurance cover on this. All the insurable immovable as well as movable assets of the Company including stocks are adequately insured and all insurance policies are in force as on the date of the report. 6. Financial Performance Revenue from operations Gross revenue from operations has decreased to Rs. 427.02 crore during the period of review as compared to Rs. 626.04 crore during the brvious year. Export sales of the Company has decreased from Rs. 155.82 crore to Rs. 92.17 crore. OTHER INCOME Other income for the year ended 31 March 2015 was Rs. 1.32 crore as against Rs. 1.31 crore in the brvious year. Interest received during the year was Rs. 1.25 crore as against Rs. 1.26 crore during the brvious year. Cost of Material Consumed During the year, the percentage of material consumption to net sales was 72.58% as against 65.64% for the brvious year, rebrsenting increase of 6.94%. Employee Benefit Expenses During the year, employee benefit expenses has been decreased from Rs. 27.08 crore to Rs. 24.72 crore. It is in consonance with decrease in operation of the Company. Financial Cost During the year, the percentage of financial expenses to net sales was 15.36% against 10.71% in the brvious year, showing increase of 4.65% due to lower sale volume during the year. Debrciation Debrciation charged to the profit and loss account decrease during the year to Rs. 28.91 crore as compared to Rs. 31.63 crore during the brvious year due to re-calculation of useful life of assets as per Company Act, 2013. OTHER EXPENSES During the year, the percentage of other expenses to net sales was 18.07% against 12.56% in the brvious year, showing Increase of 5.51% due to lower sale volume during the year. Profit before Debrciation, Interest and Tax PBDITA of the Company has decreased by 87 % during year from Rs. 97.06 crore to Rs. 12.58 crore as compared to brvious year. Profit/Loss before Tax During the year, Loss before tax of the Company was Rs. 75.44 crore against Profit before tax of Rs. 5.08 crore in the brvious year. This decrease is mainly due to mis-match in input and output prices in chemical business and company was not able to pass on the increase price of raw materials to its customers because of subdued sentiments in overall economy . Provision for tax There was net deferred tax assets Rs. 8.78 crore during the year in comparison to Rs. 1.78 crore of net deffered tax liability during the brvious year. However, the Company has contributed Rs. 40.98 crore to national exchequer by way of Excise duty as compared to Rs. 61.23 crore in brvious year. Profit/Loss after Tax During the year, loss after tax was Rs. 66.65 crore against profit after tax Rs. 3.30 crore during the brvious year. share Capital Authorized share capital of the Company is Rs. 80 crore divided into 5,80,00,000 equity shares of Rs. 10 each and 2,20,00,000 Preference shares of Rs. 10 each as on 31 March 2015. Reserves and surplus The Company in accordance with AS-21 has utilised Rs. 0.39 crore from the securities brmium reserve for providing for the brmium payable on redemption of Zero Coupon Foreign Currency Convertible Bonds. The said utilised amount has been shown in securities brmium reserve under the head reserve and surplus. Deferred Tax Liability Company had a deferred tax liability (net of deferred tax assets) of Rs. 0.38 crore as on 31 March 2015 as against Rs. 12.14 crore at the end of brvious year. Long Term Borrowing Long term secured borrowing at the end of financial year 2014-15 were Rs. 253.84 crore, against Rs. 163.91 crore at the end of brvious year. Unsecured long term borrowings at the end of financial year 2015 stood at Rs. 23.26 crore against Rs. 56.50 crore at the end of brvious year. OTHER LONG TERM LIABILITIES Other Long term Liabilities at the end of financial year 2014-15 were Rs. 8.09 crore, against Rs. 22.63 crore at the end of brvious year. Long Term Provisions Long term provisions decreased to Rs. 29.77 lac at 31 March 2015 as compared to Rs. 30.24 lac as at 31 March 2014 . SHORT TERM BORROWINGS Short term secured borrowing at the end of financial year 2015 were Rs. 120.44 crore, against Rs. 96.96 crore at the end of brvious year. Trade Payable Trade payables as at 31 March 2015 was Rs. 70.25 crore as compared to Rs. 120.36 crore as at 31 March 2014. OTHER CURRENT LIABILITIES Other current liabilities at the end of financial year 2015 were Rs. 17.81 crore, against Rs. 58.57 crore at the end of brvious year. SHORT TERM PROVISIONS Short term provisions decreased to Rs. 0.04 crore as at 31 March 2015 as compared to Rs. 0.49 crore as at 31 March 2014 due to nil tax provision during the year. Fixed Assets Gross block of tangible assets as on 31 March 2015 stood at Rs. 593.63 crore as against Rs. 568.90 crore as on 31 March 2014. Addition in intangible assets of Rs. 0.09 crore during the year and stood at Rs. 0.66 crore as on 31 March 2015 against Rs. 0.57 crore as at end of the brvious year. Non-Current investments Company had non-current investment of Rs. 3.99 lac as on 31 March 2015. Long-term Loans and advances Long term loan and advances as on 31 March 2015 were Rs. 10.76 crore as compared to Rs. 13.10 crore as on 31 March 2014. OTHER NON-CURRENT ASSETS Other non-current assets include the bank balance as on 31 March 2015 were Rs. 0.29 crore as compared to Rs. 3.61 crore as on 31 March 2014. Current investments Company had current investment of Rs. 0.01 crore as on 31 March 2015. INVENTORIES Company had inventories of Rs. 213.42 crore as on 31 March 2015 against Rs. 192.23 crore as on 31 March 2014. Trade Receivable Trade Receivable amounted to Rs. 32.67 crore as on 31 March 2015 as compared with Rs. 49.26 crore as on 31 March 2014. Cash and Bank balance As on 31 March 2015, Company had cash and bank balances of Rs. 12.70 crore as compared to Rs. 11.45 crore as on 31 March 2014. short term loans and advances Short term loans and advances as on 31 March 2015 were Rs. 24.68 crore as compared to Rs. 27.79 crore as on 31 March 2014. Cash flows Company's net cash flow used in operating activities for the year ended 31 March 2015 amounted to Rs. 46.96 crore against net cash flow from operating activities Rs. 78.40 crore during the brvious year. Company's net cash used in investing activities amounted to Rs. 4.79 crore during the year ended 31 March 2015 against Rs. 12.12 crore during the brvious year. During the year, net cash from financing activities amounted to Rs. 49.69 crore as against net cash flow used in financing activities Rs. 65.68 crore during the brvious year. 7. Contribution to National Exchequer Company has contributed a sum of Rs. 40.98 crore as compared to Rs. 61.23 crore during the brvious year to National Exchequer by way of central excise duty in addition to contribution through other direct and indirect taxes. 8. Human Assets Company has a team of about 896 strong members as on 31 March 2015, consisting of 10.5 % Professionals /Engineers, 9.6 % Post Graduates/ Graduates, 23 % Diploma/ITI and 56.9 % others Company stresses on all around development of the human resources. Company's HR policies entail injecting Company with a high degree of expertise, professional depth, dynamism and power of the youth. Company belief in respect of human resources and dignity of labour and consider human resources very valuable and vital assets for the development of the organization. To continuously enhance competencies of the employees, Company organizes a series of in-house as well as external training programs. 9. Cautionary statement Statement in Management Discussion and Analysis describing Company's objectives, projections, estimates and expectations may be "Forward Looking Statements" with in the meaning of applicable laws & regulations. Actual results may differ materially from those exbrssed or implied. Important factors that could make a difference to Company's operations include but are not restricted to the economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which Company operates, changes in the Government regulations, tax laws, and other statues, as also other incidental factors For and on behalf of the Board Sd/- Varinder Gupta Managing Director DIN: 00044068 Sd/- Dr M A Zahir Chairman DIN: 00002973 Place : Ludhiana Dated:13 August 2015 |