MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Industry Status

The global pharmaceutical industry is estimated to have reached the size of US$1 trillion. North Amercia, Japan and Europe constitute about 70% of the global pharmaceutical market and are growing at slower rate as compared to developing and emerging markets of Asia, Africa, Australia and Latin America. Increased penetration of specialized drugs and continued rise of emerging markets are the key trends that will shape the global pharmaceutical markets in the coming years. Indian pharmaceutical industry has carved out a significant global share by leveraging inherent strengths and enhancing regulatory and technical maturity.

The Government of India has unveiled 'Pharma Vision 2020' aiming at making India a global leader in end-to-end drug manufacturing. The Indian pharmaceutical industry is poised for expansion and growth to US$55 billion by 2020. High economic growth, rapid urbanization resulting in lifestyle diseases, increased government spending on healthcare, improved healthcare facilities and health insurance plans are some of the growth drivers. The Indian pharmaceutical market also experiences a challenging business environment due to regulatory controls on products, requirement of continous improvement in manufacturing facilities and price control regime.

India has a larger number of US FDA - approved factories than any other country. Rural markets and aggressive market penetration driven by companies are also emerging as drivers of growth. The Indian population's disease profile is steadily shifting towards chronic ailments due to rapid urbanization and sedentary lifestyle. Prominent therapeautic areas that are expected to grow as a result of increase in lifestyle disorders are Cardiovascular, Neuropsychiatry, Oncology and Diabetes. The increased focus on reducing healthcare costs in developed markets, has also generated sales opportunities for Indian drug manufacturers with approved facilities and sound knowledge of patent and regulatory issues. Indian pharmaceutical industry is poised for an accelerated growth in the coming years.

Outlook on Opportunities

The business environment remains challenging due to intense competition, margin brssures and regulatory interventions. These features pose many challenges and opportunities to companies operating in this environment. Among emerging markets strong growth is forecasted for China, India, Brazil and Russia. India today is major producer and supplier of affordable drugs worldwide. Prices of medicines here are the lowest in the world even when compared to countries like Pakistan, Bangladesh, Indonesia and Philippines. A move to value based outcomes in drug research, increased penetration of specialty drugs, greater patient access to medicines, the reduced impact from patent expiries and continued rise of emerging markets will be primary drivers behind increase in global medicine spending in coming years. Importantly, the Insurance Bill was approved in the Parliament replacing the brvious ordinance that increased FDI in insurance sector to 49% from 26%. The potential investment flow and the increase in foreign holding in the insurance ventures can shape the health insurance sector in faster pace and strengthen demand for quality healthcare of pharmaceuticals. With the expansion of Jan Aushadhi schemes by the government to increase the generic brscription, there is a positive sentiment in the pharmaceutical industry. Our manufacturing facility is inspected and approved by pharmaceutical regulatory authorities ensuring that we manufacture and deliver quality products using sound processes. Our Company is also registered with the Pharmaceutical Export Promotion Council (PHARMEXCIL), Govt. of India and is engaged in participation in events and conferences in India and internationally. We have multi-product manufacturing capabilities with an established market brsence and a reasonable number of the Company's products are registered in overseas countries, enabling the Company to export the same to a wider geographical market.

Outlook on Risks, Concerns & Threats

The Indian pharmaceutical industry continues to remain under price control regime. The entire industry was affected by Drug Price Control Order (DPCO), 2013 which brought 348 medicines in the National List of Essential Medicines (NLEM). The shift from cost-based pricing to market-based pricing methodology under the new drug policy benefits the consumers.

Several large selling drugs going off patent over next few years and increasing use of pharmaceutical generics in developed markets to reduce healthcare cost will provide attractive growth opportunities to generics manufacturers. However, poor public healthcare funding and infrastructure, low per capita consumption of medicines, currency fluctuations, regulatory issues, inflation and resultant all round increase in input costs are few causes of concern. The government should initiate attractive market conditions by supporting capital investment, encouraging R&D and creating a favorable tax environment. Instead of regulating prices in highly competitive market where prices are already amongst the lowest in the world, the Government's focus should be to have no monopolies and free competition in life saving drugs.

Indian pharmaceutical industry is highly fragmented and consolidation has become an important feature of the industry. There is intense competition in India and in certain products there are many competing brands. Free competition is the only way to achieve availability and low pricing. The adoption of intellectual property rights has encouraged innovation. Indian companies are focusing on generic and API business, R&D activities and contact research and manufacturing alliances. Maintaining a profitable product pipeline, keeping in view the manufacturing complexities and competitive brssures, remains a challenge. Our proactive approach has been instrumental in overcoming the threats and maintain a steady growth despite the lethargic economic conditions.

Performance Review

During the financial year 2014-15, Export Sales declined to Rs. 2755.72 lakhs as compared to Rs. 3051.74 lakhs in the financial year 201314. The Company achieved Domestic Sales of Rs. 1711.65 lakhs as compared to Rs. 1202.11 lakhs in financial year 2013-14. The profit after tax in financial year 2014-15 improved to Rs. 256.97 lakhs as compared to Rs. 229.78 lakhs in financial year 2013-14.

Internal Control Systems & Adequacy

The Company has adequate internal control systems including suitable monitoring procedures commensurate with its size and nature of business. The internal control systems provide for well-defined policies, guidelines, authorizations and approval procedures and ensure optimum use and protection of resources and compliance with the policies and procedures. The in-house internal audit team regularly carries out audits and their reports are discussed with the Management and are reviewed by the Audit Committee of the Board, which also reviews the adequacy and effectiveness of our internal controls.

Human Resources

The human resource plays an important and vital role in the growth and success of an organization. The Company recruits, develops and employs suitably qualified, capable and experienced persons, as per requirement. The Company has Reward and Recognition Programme. The Company has maintained cordial and harmonious relations with all employees.