MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY DEVELOPMENTS

The domestic formulations industry at sales of over Rs. 87,000 crores for 12 months period ended March 2016, grew at around 14% (IMS). The market continues to show intense competition with increased number of brands being launched in the market. In March 2016, Government of India issued notifications under Drugs and Cosmetics Act, 1940 prohibiting manufacture for sale, sale and distribution of about 344 fixed dose combinations. However, many of the affected companies have challenged this exercise of power by the Central Government before Hon'ble Delhi High Court, which is yet to dispose of the writ petitions. Four formulations of the Company have been affected by the said notifications; however, the sales of these formulations are not regarded as material.

OPPORTUNITIES & THREATS

Domestic Business:

The domestic formulations industry has been growing well for last several years and the growth prospects going forward seem robust. The future outlook for the industry and growth expectations remains positive in view of increased government and private spending on healthcare. The per capita consumption of drugs is on increase due to spurt in chronic diseases coupled with increase in literacy rate, increase in per capita income, improved health care access, increasing market penetration and increasing health awareness. All these are expected to provide growth opportunity in coming years. The brand building, new products introductions, product awareness programmes, price revisions and penetration in rural markets will remain growth enablers. For the Company, the domestic formulations business is a thurst area and has consistently shown growth in last several years. In view of good long term growth prospects offered by the domestic industry and the Company's strengths in this business, the Company has good growth potential and is well poised to take advantage of the growing market.

During the year 2015-16, domestic formulations business of the Company registered 13.06% growth. The Company's growth strategy includes focusing on growing therapeutic segments like anti-peptic ulcerant, cardiovascular, pain management, anti-infective and gastrointestinal, new product introductions, deeper penetration in rural market and deeper penetration in hospital business. Despite the challenges, the Company is quite hopeful of growing the business in this segment.

The Company has already created good brands like Rantac (anti-peptic ulcerant), Cilacar (calcium channel blocker) and Metrogyl (amoebicides), which feature in top 300 brands (IMS) and otherwise enjoy strong brand equity in medical fraternity and trade. The sustained brand building efforts in cardiac, gastro and topical anti-infective segments have met with good success. Your Company's contrast media division also performed well during the year and achieved growth of 14.76%.

The rising costs on one hand and price control on formulations on the other remain a concern.

International business:

The wide geographical brsence in international market, State-of-the-art manufacturing facilities with approval from health authorities such as US FDA, UK MHRA, TGA Australia, MCC South Africa, MoH-Ukraine, MoH-Japan, etc. and wide range of products across injectable, solid and semi-solid along with strong regulatory and R&D backup brsent a good business opportunity and has good growth outlook.

The Company's exports of formulations at Rs. 531.65 crores registered growth of 5.96%. The Company' focus on US and South Africa business has yielded good results during 2015-16 as the business in these markets achieved good growth of 41% and 23% respectively. The Company has identified several potential products for US market and is working towards filing ANDAs. From activity perspective, the Company's focus is on growth of contract manufacturing, branded generics products, lozenges and contrast media products.

Further, Russia-CIS markets, where your Company has strong foothold, also offer good potential. Though the Company will take some more time to grow business in this region, the Company is hopeful of growth in this region in coming years.

The Company perceives volatility of currencies against US Dollar as a major concern in the international business.

SEGMENT WISE PERFORMANCE

The Company is engaged in one segment viz. pharmaceuticals. The domestic formulations business with net sales of Rs. 423.33 crores registered growth of 13.06% against industry growth of about 14% during the year. The contrast media division with net sales of Rs. 40.32 crores achieved growth of 14.76%. Harnessing potential of existing products, penetration into new markets, selective new product launches and focus on increase in productivity is expected to help achieve good growth in the current year.

The exports to Rest of the World countries at Rs. 390.72 crores grew by 11.60% in Rupee terms. However, exports for Russia-CIS market did not grow. Formulations exports during the year were particularly affected due to sharp debrciation of major currencies against US Dollar due to volatility in oil prices. The sales of bulk drugs at Rs. 100.56 crores were marginally lower against the brvious year.

OUTLOOK

In view of good business outlook both in domestic and international market as discussed above, the Company's manufacturing infrastructure of international standard, strong products portfolio with high growth brands, strong marketing capability and strong balance sheet brsent good outlook for the Company's business

RISKS AND CONCERNS

Your Company does not perceive any risks or concerns other than those that are common to the industry such as regulatory risks, exchange risk and other commercial and business related risks.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has an adequate system of internal controls, which ensures that its assets are protected from loss and unauthorized use as well as business affairs are carried out in accordance with established procedures. These systems of internal controls also ensure that transactions are carried out based on authority and are recorded and reported in line with generally accepted accounting principles. The Company also has a system of regular internal audit carried out by competent professionals retained by the Company. The internal audit programme is approved by the Audit Committee, and findings of the internal auditor are placed before the Audit Committee and the Board at regular interval. The internal control system is adequate keeping in view size and nature of the Company's business.

FINANCIAL PERFORMANCE WITH RESPECT TO

OPERATIONAL PERFORMANCE

The operating revenue at Rs. 1,148.17 crores registered growth of 8.17% over the brvious year, while the operating profit at Rs. 184.12 crores registered growth of 18.52% over the brvious year. The operating profit also registered margin improvement of 9.57% over the brvious year.

Due to higher other income, the profit before tax and profit after tax at Rs. 227.10 crores and Rs. 176.39 crores registered growth of 42.73% and 55.30% respectively. The earnings per share for the year is Rs. 20.80 per equity share of face value of Rs. 2 each.

HUMAN RESOURCE

There has been no material development on human resources and industrial relations front. The relationship with employees and workers continued to be cordial at all levels. As on March 2016, employee strength was 2,734.