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HOME   >  CORPORATE INFO >  MANAGEMENT DISCUSSION
Management Discussion      
Zydus Lifesciences Ltd.
BSE Code 532321
ISIN Demat INE010B01027
Book Value 143.63
NSE Code ZYDUSLIFE
Dividend Yield % 0.60
Market Cap 1011516.72
P/E 40.03
EPS 25.11
Face Value 1  
Year End: March 2016
 

ECONOMY AND INDUSTRY OVERVIEW

Global Economy and Pharmaceutical Industry

The global economy continued to grow at a slower pace and as against 2.6% in 2014, it grew at 2.4% in 2015. This lacklustre growth was mainly due to a continued deceleration of economic activity in emerging and developing economies amid weakening commodity prices, global trade and capital flows. In developing countries, the growth registered during 2015 was 4.3%, down from 4.9% registered during 2014. Growth prospects for most of the developing countries remained gloomy during the year 2015 with the exception of South Asian and some commodity importing countries of East Asia. Continuing economic rebalancing in China and resultant slowing down of the growth, external and domestic challenges in Brazil and Russia and declining commodity prices affecting the commodity exporters were the main reasons for the slowdown of growth in the developing countries.

In a development unbrcedented since the 1980s, most of the largest emerging economies in each region have been slowing simultaneously for three consecutive years. Low income countries of the world, on the other hand, witnessed robust growth in 2015, albeit slowing to 5.1% from 6.1% in 2014. In contrast to developing countries, the recovery in major high-income countries gained traction during 2015 and has been increasingly driven by stronger domestic demand. However, high-income countries face the risk of a slowdown in the light of the effect on the United States of dollar apbrciation and the impact on Japan of slowing trade in Asia. Oil prices dropped below US$ 40 per barrel towards the end of 2015 due to high stocks in OECD economies, ample global supplies and expectations of slower global demand (Source: Global Economic Prospects, January 2016 by World Bank).

The global pharmaceutical market is estimated to have grown in mid-single digit in 2015, which is in line with the growth registered in last 5 years, and reached a size of over US$ 1 trillion. Emerging markets of Asia, Africa and Latin America are expected to have grown at a faster pace compared to the overall global pharmaceutical market. North America, the world's largest pharmaceutical market, is expected to have grown in line with the global market, while the growth of the pharmaceutical markets of Europe and Japan is expected to be lower than the overall global pharmaceutical market growth (Source: Industry Estimates).

Generics market is estimated to have grown faster than the overall pharmaceutical market and crossed the revenues of around US$ 200 bn. United States remained the world's largest generics market accounting for around 30% market share (Source: Industry Estimates).

Indian Economy and Pharmaceutical Industry

If the financial year 2014-15 was the year of revival for the Indian economy, then the financial year 2015-16 was the year of gaining growth momentum as the Indian economy is estimated to have grown by 7.6% during the financial year 2015-16 after growing at 7.2% during the brceding financial year. Drivers of the growth were the service sector and industrial sector which grew by 9.2% and 7.3% respectively during the year. Growth in the agriculture, forestry and fishing sectors though flattish at 1.1% marked an improvement over the brvious financial year when the sector declined by 0.2% (Source: Monthly Economic Report, March 2016, as published by the Ministry of Finance, Govt. of India).

WPI inflation, the measure of increase in the prices of commodities, remained negative throughout the financial year. The decline in inflation was the highest during the middle part of the financial year as the months of August 15 and September 15 registered WPI inflation of -5.1% and -4.6% respectively. WPI inflation averaged about -2.5% during the financial year 2015-16 as compared to 2% during the financial year 2014-15 (Source: Monthly Economic Report, March 2016, as published by the Ministry of Finance, Govt. of India).

In terms of currency movements, Indian Rupee which started the financial year at around 63 per US dollar debrciated gradually during the year and ended the year at around 67 per US dollar. In terms of performance of Indian Rupee vis-a-vis other currencies, it apbrciated against the Euro and Japanese Yen while it debrciated against the Pound Sterling during the year 2015-16 (Source: Monthly Economic Report, March 2016, as published by the Ministry of Finance, Govt. of India).

Indian Pharmaceutical Market began the financial year 2015-16 on a high note as it grew by 14.8% during the first quarter of the financial year and continued the momentum which was built during the brvious financial year. Though the growth slowed down a bit in the second quarter of the financial year 2015-16, third quarter saw the growth returning as the market registered the growth similar to the level registered during the first quarter of the financial year 2015-16. The fourth quarter of the financial year witnessed slowdown in the growth as the market faced the regulatory ban by the government from the month of March, 2016 of a large number of fixed dose combinations, on the ground that they are irrational, thus impacting the sales of these products. As a result, the market grew by just 6.4% during the month of March 2016. Overall, the Indian Pharmaceutical Market grew by 12.6% during the financial year. Out of the total market growth, around one fourth was led by new product introductions while the remaining growth was divided almost equally between the volume expansion and price increase (Source: AWACS Report MAT March 2016).

Anti-infectives was the largest therapeutic area, accounting for around 15% of the market while the anti-diabetic was the fastest growing therapeutic area during the year with a growth of around 21% (Source: AWACS Report MAT March 2016).

Year 2015-16 FOR THE Company

The year gone by was a year of mixed fortunes for the Company as there were positive performances on various fronts and some challenges in a few areas. While its India formulations business showed improvement in growth every quarter, its US business faced regulatory challenge in the form of warning letter issued by the USFDA on its formulations facility in Moraiya, impacting approvals of new products from that site, though it continued to receive new product approvals from other manufacturing sites. In spite of this challenge, the US business continued to grow on the back of strong performance of existing products. Currency debrciation impacted the performance of its business in key emerging markets, especially Brazil and South Africa, though it continued to grow on a constant currency basis in these markets.

Overall, the consolidated revenues of the Company grew by 14% and consolidated net profit grew by 32% during the year. Analysis of the performance of different business verticals, which collectively contributed to the consolidated performance, is given below.

FORMULATIONS BUSINESS - KEY MARKETS

US Formulations

US is the world's largest pharmaceutical market, both for branded and generics drugs, accounting for around one third of the global market (Source: Industry Estimate). The Company is brsent in the generic pharmaceuticals market through its wholly owned subsidiary, Zydus Pharmaceuticals (USA) Inc.

As per the IMS MAT March, 16 report, the Company is ranked amongst the top 10 generics companies in the US based on brscriptions.

During the year 2015-16, the Company's business in the US, the largest contributor to the consolidated revenues, crossed US$ 600 Mio. in sales for the first time. In Indian Rupee terms, the US business posted sales of Rs. 40,215 Mio. during the year, up by 19%. The Company is ranked amongst the top 3 players for around three fourth of the products being marketed by it in the US.

The Company launched 3 new products in the US market during the year. In terms of ANDA filings, 30 more ANDAs were filed with the USFDA during the year, taking the cumulative number of ANDA filings to 269. In terms of approvals, the Company received 10 more ANDAs approvals during the year, taking the cumulative number of ANDA approvals to 103. This includes the first ANDA approval from the formulations facility located in Ahmedabad SEZ and the first ANDA approval from its own filings made from the Nesher facility in the US.

Going forward, the Company's focus will continue to be on launching complex, difficult-to-make oral solids and formulations of other dosage forms like injectables, nasals, creams and ointments in order to enhance its share in the US generics market.

India Formulations

Company's formulations business in India, currently the second largest contributor to the consolidated revenues, showed gradual improvement in growth during the year despite the challenges in the form of lower growth of mature brands and the National Pharmaceutical Pricing Authority's notification to reduce the prices of a few more drugs.

The Company is among top 3 players in the market in the Cardiology, Gynecology and Pain Management therapy areas while in the Gastro Intestinal, Respiratory and Dermatological space, the Company is ranked among the top 5 players in the market. 15 of the Company's brands feature among the top 300 pharmaceutical brands in India (Source: AWACS Report, MAT March 2016). The Company continued its thrust on adding new products to its portfolio and launched more than 40 new products, including line extensions, during the year, of which, 10 were first-in-India launches. These included the launch of Vaxiflu S, an H1N1 vaccine and Tenglyn (Teneligliptin 20 mg tablets), the most affordable gliptin for diabetics in India. Tenglyn is priced at just Rs. 7 per tablet which is almost one sixth the price at which the gliptins were initially launched in India.

Overall, the Company's formulations business in India posted sales of Rs. 29,732 Mio. during the year, up by 11.1 % from Rs. 26,772 Mio. last year.

Latin America Formulations

Latin American pharmaceutical market is one of the fastest growing pharmaceutical markets in the world and has been growing in double digits over the last few years vis-a-vis the mid-single digit growth registered by the global pharmaceutical market (Source: Industry Estimates). Continued urbanization, increased access to education and the increase in the average household income are some of the factors which led to the growth of the Latin American pharmaceutical market which is currently valued at around US$ 80 bn. Growing proportion of the middle-class with a greater spending power, who are getting older and wealthier by the day, are driving the pharmaceutical sales in Latin America.

Brazil, the largest pharmaceutical market in Latin America, offers significant potential on account of its expanding middle class with greater spending power and the increased government spending on healthcare. Despite the slowdown in the overall economy, the Brazilian Pharma market grew by 14% (Source: IMS MAT March 2016 Report).

The Company's business in Brazil faced a few challenges during the year, mainly in the form of the debrciation of Brazilian Reals and lack of significant number of new product approvals from the regulatory authority. During the year, the Company launched 2 new products in the market. In terms of approvals, the Company received approval of 4 new products dossiers. 5 new product dossiers were also submitted with ANVISA during the year.

In Mexico, the second largest pharmaceutical market in Latin America, valued at around US$ 9 bn. (Source: Industry Estimates), the branded generics market is undergoing corrections due to the emergence of generic generics market. The Company is brsent in Mexico through its subsidiary Zydus Pharmaceuticals Mexico S.A. de C.V.

During the year, the Company launched 2 new products in the Mexican market, taking the cumulative number of launches to 16. The Company filed 1 new product dossier with the regulatory authority COFEPRIS, taking the cumulative number of filings to 43 and received approval for 12 dossiers, taking the cumulative number of approvals to 36.

Going forward, in Mexico, the Company intends to focus on the CNS therapeutic area in the branded space and consolidate generic generics and tender market as an opportunistic business. The Company will continue its thrust on launching new products in the Mexican pharmaceutical market.

Overall, the Company's business in Latin America posted sales of Rs. 2,177 Mio. during the year. In constant currency terms, the Latin American business grew by over 20%.

Emerging Markets Formulations

The Company operates in different markets of Asia Pacific, Africa and Middle East with leadership position in several of these markets. The Company continued to focus on brand building initiatives and strengthening the branded generics portfolio in these key markets to ensure sustainable growth both in revenues and profits. The Company launched 8 new products in different markets of Asia Pacific, Africa and the Middle East during the year. This included the launch of "Pegihep" (Pegylated Interferon alpha 2b) in Myanmar, the first biosimilar launch by the Company in the emerging markets.

Overall, the Company's business in the emerging markets of Asia Pacific, Africa and the Middle East posted sales of Rs. 4,760 Mio., an increase of 17% during the year.

OTHER BUSINESSES And ALLIANCES

Europe Formulations

The Company has a brsence in the generics markets in France and Spain. The year gone by turned out to be a challenging one for the Company in Europe as both the generics markets registered low to mid-single digit growth. The French generics market grew only marginally by 1% (Source: GERS Report MAT February 2016) due to the price reductions imposed by the government. The market is characterized by increased competition as companies compete for a share in the static market and tough pricing scenario as the government keeps on reducing prices to keep healthcare costs down. However, the French Government has identified a few actions to support generics penetration, which may provide some relief from pricing brssure through volume growth going forward. The Spanish generics market, which is highly competitive, grew by 5% (Source: IMS Report MAT Feb-16) during the year.

During the year, the Company rationalized its product portfolio both in France and Spain by expanding the business of in-house products' portfolio. This strategy impacted the growth in revenues but resulted in improved profitability. The Company launched 3 new products in France (2 from India) and 4 new products in Spain (all from India). Going forward, in both the markets, the focus will continue to be on increasing the proportion of products supplied from India, so as to remain competitive in these markets.

Overall, the Company's business in Europe posted sales of Rs. 2,956 Mio. during the year.

Consumer Wellness

Zydus Wellness Limited, a subsidiary of the Company, operates in the consumer wellness space having three established brands namely Sugar Free, a low calorie sugar substitute, EverYuth, a range of skincare products and Nutralite, a cholesterol free table sbrad.

The focus for the year was to revive growth rates on the back of volume led initiatives. As the year progressed, the Company saw an improvement in the growth rates of Sugar Free and a turnaround in the peel off face mask business.

In terms of performance of brands, Sugar Free maintained its leadership position in the artificial sweetener category with a market share of 93.7%, which is an increase of 120 basis points over the last year. EverYuth had a significant turnaround in its peel off mask category during the year on the back of new communication focused on special occasions. EverYuth peel off maintained its number one position with a market share of 92.1%, which is an increase of 80 basis points. In the scrub category, EverYuth maintained its leadership position with a market share of 30.7% (Source: A.C. Nielsen MAT March'16 report). To further build and strengthen the credentials of Nutralite brand in the health and food space, support across different communication mediums was provided throughout the year including the new television campaign to communicate functional benefits of the brand.

During the year, Zydus Wellness Ltd. registered sales of Rs. 4,570 Mio., up by 3.2% and net profit of Rs. 1,017 Mio. Net profit on a like-to-like basis after excluding the impact of excise duty refund received during the brvious financial year grew by 10%.

Animal Health

With a long brsence in the veterinary business, the Company ranks amongst the leading animal health companies of India. During the year, the Company acquired select brands and manufacturing operations in India from the Indian subsidiary of Zoetis Inc., a global animal healthcare company. The Company further strengthened its position in the Indian market by launching 8 new products during the year. The Company received the "Animal Pharm Award for the best company in India/Africa/Middle East 2015" from the world's leading pharma news publication, Animal Pharma, UK. Bremer Pharma GmbH, the German subsidiary of the Company runs the global animal health business. It has brsence in more than 50 markets across the world. The Company is in the process of penetrating into newer markets while strengthening its current product portfolio in the existing markets.

On a consolidated basis, the Company's animal health business posted sales of Rs. 3,199 Mio. with a growth of 3% during the year.

APIs

The Company's APIs and intermediates 'business is the foundation for the formulations business of the Company globally as it ensures the uninterrupted supply of key input materials to the formulations manufacturing plants in a timely and cost efficient manner so as to enable them to serve the customers in different markets efficiently. API business also fulfills the requirements of external customers by supplying them APIs and intermediates in a timely manner and at the most competitive prices. During the year, the Company filed 6 more DMFs with the USFDA, taking the cumulative number of filings to 122. The Company's API business posted sales of Rs. 3,647 Mio. during the year.

JVs and Alliances

A. Zydus Takeda Healthcare Pvt. Ltd.

Zydus Takeda is a 50:50 JV between the Company and Takeda Pharmaceuticals Co. Ltd., Japan. The JV manufactures a range of generic APIs covering various therapeutic categories and exports exclusively to the JV partner for its generic portfolio. During the year, the JV received the Best Energy Efficient Unit Award at the national level from the Confederation of Indian Industry. The JV was recognized as one of the Best Units for Excellence in Environment by Maharashtra Pollution Control Board.

B. Zydus Hospira Oncology Pvt. Ltd.

Zydus Hospira is a 50:50 contract manufacturing JV between the Company and Hospira Inc., USA, which manufactures oncology injectable products for marketing by both the JV partners in the respective markets assigned to them. The JV commenced the supply of one more product for the US market during the year, taking the cumulative number of products being supplied for the US market to 7. During the year, the JV successfully completed inspections by the regulatory authorities of Japan and Korea. The JV also successfully completed inspection from the ISO/OHSAS during the year.

C. Bayer Zydus Pharma Pvt. Ltd.

Bayer Zydus Pharma, a 50:50 JV between the Company and Bayer Schering Pharma AG, markets finished pharmaceutical formulations in India. The JV has successfully completed its fifth year of commercial operations. The JV has a strong portfolio in the area of women's healthcare, metabolic disorders, diagnostic imaging, cardiovascular diseases, anti-diabetic treatments and oncology, where it focuses on increasing its market share. The JV holds leadership positions in the rebrsented markets of women healthcare and diagnostic imaging therapeutic areas (Source: Industry Estimates).

D. Alliances with partners

The Company received approval from the USFDA for 2 ANDAs which were filed on behalf of partners. One NDA, which was filed on behalf of a partner was also approved by the USFDA during the year.Overall, the Company's JVs and Alliances posted sales of Rs. 5,342 Mio. during the year, which was up by13%.

NEW INITIATIVES

Biologics

The Company is developing a pipeline of 20 biologics, comprising 14 biosimilars and 6 novel biological products.

During the year, the Company initiated Phase III clinical trials for one more monoclonal antibody (mAb) and received regulatory approval to initiate Phase III clinical trials for one more product. The Company continued to file the dossiers of first generation biosimilars in the emerging markets. On the novel biologics front, the Company initiated the next phase of clinical trials for Rabimabs.

During the year, the Company received WHO-GMP certificate for the newly commissioned finished dosage manufacturing facility.

Vaccines

During the year, the Company received marketing authorization from DCGI for two vaccines out of which one has been launched in India. The Company successfully completed the last stage of clinical testing for four vaccines and submitted them to DCGI for marketing authorization in India. Apart from this, thirteen vaccines are in different stages of clinical trials.

NCE Research

The Company's state-of-the-art Zydus Research Centre (ZRC) spearheads the Company's New Chemical Entity (NCE) research activities. The Centre has the capability of taking a drug right from the concept stage to human trials. The priority focus areas of NCE research are cardio-metabolic disorder, inflammation, pain and oncology.

During the year, the Company received approval from the USFDA to initiate Phase II clinical trials for Saroglitazar in patients with severe hypertriglyceridemia. The Company completed Phase I clinical trials in United States for ZYDPLA 1, a novel, next generation, orally active small molecule DPP-4 inhibitor to treat Type 2 diabetes. The Company also completed Phase I clinical trials in Australia for ZYAN 1, a HIF-PH for treating anemia. An IND was filed with DCGI for ZYTP 1, a novel Poly (ADP-ribose) Polymerase (PARP) inhibitor during the year. This was the first IND filed by the Company in the oncology segment.

INTELLECTUAL PROPERTY RIGHTS

The Company's efforts in the development of new molecules, newer delivery systems, processes and technologies have continued. The Company's research and development centres have filed over 40 patents in the US, Europe and other countries during the year, taking the cumulative number of filings to 1190.

MANUFACTURING OPERATIONS

The manufacturing capabilities enable the Company to provide high quality products at the most competitive prices and in a timely manner to its customers across the globe, thus ensuring continuous growth and success of the Company.

During the year, four formulations facilities viz. oral solid dosage facility, oncological injectable facility (of Alidac Pharmaceuticals Ltd., a 100% subsidiary of the Company) and transdermal facility (of Zydus Technologies Ltd., a subsidiary of the Company) located in Ahmedabad SEZ and oral solid dosage facility located at Baddi received Establishment Inspection Report (EIR) from the USFDA. Moraiya formulations facility successfully completed the ANVISA inspection during the year. The Company successfully completed the site transfer of 5 products (from Moraiya to Baddi) for the US market during the year, taking the cumulative number of such site transferred products to 12.

During the year, Moraiya formulations facility received the India Pharma Award from UBM India for EHS Excellence. Sikkim formulations facility received "Silver Certificate of Merit" from Frost & Sullivan at India Manufacturing Excellence Awards 2015. The Company received the Award for Excellence in Cost Management from the Institute of Cost Accountants of India.

ENVIRONMENT, HEALTH AND SAFETY

The Company is fully committed to and continuously endeavors to achieve environment, health and safety excellence across all the units. The Company continued to invest substantial resources towards sustaining and continuously improving the standards of environment, occupational health and safety as the Company believes that its responsibility towards the society and the environment extends beyond that laid down by the regulatory authorities. At brsent, seventeen units of the Company are accredited with ISO 14001 and OHSAS 18001.

CONSOLIDATED FINANCIAL HIGHLIGHTS

Given below are the financial highlights of the year gone by.

Total operating revenues

The total income from operations grew by 14% to Rs. 98,376 Mio., in 2015-16 from Rs. 86,513 Mio., last year.

Profits and margins

The EBIDTA (Earnings before Interest, Debrciation, Taxation and Amortization) grew by 36% to Rs. 23,829 Mio., from Rs. 17,557 Mio., last year. The EBIDTA margin as % to total income from operations improved by 3.9% to 24.2% from 20.3% last year. Net profit was up by 32% to Rs. 15,226 Mio., from Rs. 11,506 Mio., last year. The net profit margin as % to total income from operations improved by 2.2% to 15.5% from 13.3% last year. Earnings per share also grew in line with the net profit and stood at Rs. 14.90 for the year.

The consolidated net worth increased to Rs. 53,519 Mio., at the end of March 2016, up by 26% from Rs. 42,516 Mio., at the end of  March 2015.

The reserves and surplus increased by Rs. 11,003 Mio., to Rs. 52,495 Mio., at the end of the year 2015-16 from Rs. 41,492 Mio., last year. Book value per share increased to Rs. 52.3 as on March 31, 2016 from Rs. 41.61 last year.

The return on adjusted net worth (RONW = Net profit excluding exceptional items net of tax/Average net worth adjusted for deferred expenses and exceptional items) improved during the year and stood at 31.7% compared to 30.1% registered in last year.

Debt

The consolidated net debt (adjusted for cash and bank balances) of the Company as on 31st March, 2016 stood at Rs. 17,467 Mio., against Rs. 19,814 Mio., last year. Net debt-equity ratio improved to 0.33:1 as on March 31, 2016 as against 0.47:1 as on March 31, 2015.

Fixed Assets and Capital Expenditure

The consolidated gross block (including capital work in progress) at the end of the year was Rs. 68.9 bn., up by about Rs. 9.5 bn., from Rs. 59.4 bn., last year. Net capital expenditure (excluding goodwill, but including capital work in progress) during the year was Rs. 9,477 Mio. The capex during the year was incurred mainly for creation of new facilities, up-gradation and capacity expansion of existing facilities and acquisition of assets from the Indian subsidiary of Zoetis Inc., a global animal healthcare company.

Capital employed and operating efficiency

The total Capital Employed (CE), adjusted for exceptional items and deferred expenses, at the end of the year was Rs. 78.6 bn., up from Rs. 69.6 bn., at the end of the brvious year. The increase in capital employed was mainly due to the increase in the net worth. Return on Capital Employed (ROCE = Adjusted earnings before interest net of tax/Average CE) improved during the year and stood at 21% compared to 18.3% registered in last year.

RISK IDENTIFICATION, RISK MITIGATION AND INTERNAL CONTROLS

The Company is a leading pharmaceutical company in India. Primary business activities of the Company include manufacturing of pharmaceutical products, both active pharmaceutical ingredients and finished dosage formulations, marketing of the same in developed and emerging markets across the globe and carrying out research and development of pharmaceutical products to build the pipeline for the future. On the R&D front, the Company invests its resources in basic new drug discovery research, several newer technology platforms such as transdermals and biosimilars and generic product development activities. The variety of business activities being performed and the geographies being served by the Company poses various risks and challenges, which are explained below.

Risk related to economic and political environment across the world

The Company operates in various developed and emerging markets across the world. Each such market has its own challenges like economic instability, political uncertainty etc. Any adverse development in any of these markets can affect the business of the Company in those markets. The Company periodically evaluates the various developments happening in those markets to identify the risk, if any, arising from such developments.

Risk of competition, price brssure and Government controls on prices

The Company is brsent in the generics segment of pharmaceutical markets in different countries. In the generics market, the individual player has hardly any pricing power due to the brsence of a large number of players who compete with each other to increase their respective market shares. This competition often puts brssure on the pricing of the products being sold by the Company. In some of the countries, the Company is mandated by law to reduce the prices of the products as the governments of these countries resort to periodic price reductions to keep the healthcare costs down.

Risk of regulatory actions due to non-compliance of quality standards

Stringent regulations and quality standards are brscribed by the regulatory authorities across the globe for the pharmaceutical products and their manufacturing and supply chain processes in order to protect the interests of the patients. Any deviation from the brscribed regulations or any variation in the quality from the brscribed standards may lead to punitive actions by the regulatory authorities.

The Company maintains a constant vigil on the quality standards of all its products, their manufacturing and supply chain processes and continuously strives to improve them, so as to ensure high level of quality standards and regulatory compliance, often superior to those required.

Risk of litigation related to quality of products, intellectual properties and other litigations

Litigation is one of the significant risks in the Pharmaceutical Industry. Litigation may arise if the quality of the products being supplied by the Company does not match the brscribed standards or if the Company infringes the intellectual property rights of other players. The Company may be sued if the products and processes of the Company infringes upon the products and processes of the patent holders.

The Company takes ' Product Liability Insurance' wherever necessary, as a safeguard against potential claims regarding quality of the products. The Company has also established a stringent review mechanism to critically evaluate various parameters related to possible infringement of intellectual property rights of the patent holders before developing and filing product dossiers for global markets.

Risk of delays in approval of new product registrations in various markets

In a generic pharmaceutical industry, continued business growth is contingent upon the timely approval of new product registrations filed with the regulatory authorities of respective markets. Any significant delay in such approvals beyond normal time taken by the regulatory authorities may impact the growth prospects of the Company in such generics markets.

The Company has established a stringent mechanism to review the new product dossiers submitted with the regulatory authorities to ensure quality of such dossiers. The Company has also established a system of providing speedy response to the queries raised by the regulatory authorities on the product dossiers so as to expedite the approvals.

Risk of international operations including foreign exchange risk

The Company operates in different developed and emerging markets across the globe. The Company does the business in these markets in the respective currencies of those markets which will be different from the reporting currency of the Company which is the Indian Rupee. This exposes the Company to the fluctuations in the rates that may occur in the currencies of these markets vis-a-vis the Indian Rupee. The Company has designed a judicious debt mix policy and also utilizes natural hedge available to it from its export earnings to mitigate foreign exchange risk on payments.

Risk Management and Internal Control Systems

Though it is not possible to completely eliminate various risks associated with the business of the Company, efforts are made to minimize the impact of such risks on the operations of the Company. For this, the Company has established a well-defined process of risk management which includes identification, analysis and assessment of various risks, measurement of probable impact of such risks, formulation of the risk mitigation strategies and implementation of the same so as to minimize the impact of such risks on the operations of the Company. An enterprise wide risk evaluation and validation process is carried out regularly and the review of the risk management policy is also carried out at regular intervals by the Risk Management Committee and the Board of Directors so as to ensure that the new risks which might have arisen or the impact of the existing risks which might have increased are identified and a proper strategy is put in place for mitigating such risks. The Company has put in place various internal controls for different activities so as to minimize the impact of various risks. Also, as mandated by the Companies Act, 2013, the Company has implemented the Internal Financial Control (IFC) framework to ensure proper internal controls over financial reporting. Apart from this, a well-defined system of internal audit is in place so as to independently review and strengthen these internal controls. The Audit Committee of the Company regularly reviews the reports of the internal auditors and recommends actions for further improvement of the internal controls.

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