1.

Evolution of the Industry:

1.1. Evolution of Indian pharmaceutical industry

Indias pharmaceutical industry is one of the fastest growing segments of the Indian economy with an average annual growth rate of 14 percent during 2008-2012. verall! the Indian mar"et for pharmaceuticals is pro#ected to grow at an average annual rate of 21 percent during 2012 - 201$1. %he surge in production has &een driven &y legislative reforms! the growth in contract manufacturing and outsourcing! value added foreign ac'uisitions and #oint ventures! Indias mastery of reverse engineering of patented drug molecules! and Indias efforts to comply with its (orld %rade rgani)ation *(% + %rade ,elated Intellectual -roperty .greement *%,I-s+ o&ligations. -rior to 200/! the Indian regulatory system recogni)ed only patents. %his helped to &uild a firm foundation for the strong and competitive domestic pharmaceutical industry. 0uring this phase! the prevalent price control mechanisms helped companies delivered medicines at afforda&le prices! to patients across India *1reene! 2002+. 1.1.1. -re-patent regime *&efore 200/+ .t the time of independence in 1342! Indias pharmaceutical mar"et was dominated &y (estern 456s that controlled &etween 80 and 30 percent of the mar"et primarily through importation. .ppro7imately 33 percent of all pharmaceutical products under patent in India at the time were held &y foreign companies and domestic Indian drug prices were among the highest in the world. %he Indian pharmaceutical mar"et remained import-dependent through the 13$0s until the government initiated policies stressing self-reliance through local production. .t that time! 8 of Indias top 10 pharmaceutical firms! &ased on sales! were su&sidiaries of 456s. %o facilitate an independent supply of pharmaceutical products in the domestic mar"et! the government of India founded / state-owned pharmaceutical companies. .lso process patents helped the Indian pharmaceutical sector flourish! amid a fast growing generics industry. 0uring this regime! multinational companies *456s+ were reluctant to directly introduce new products in India. 0omestic companies leveraged this situation! &y reengineering these products and mar"eting them in India. 1.1.2. -ost-patent regime In line with its commitments to the (% ! the Indian government passed an ordinance to introduce the product patent regime w.e.f. 8anuary 200/. %his aided the integration of India into the glo&al pharmaceutical mar"et and rendered duplicating of post-133/ patented drugs illegal. (hile this discouraged process re-engineering of products patented post 133/! the amendment aimed at gradually enhancing confidence of large glo&al players on Indian companies. In 200/! the Indian pharmaceutical industry witnessed a series of regulatory developments! ranging from the implementation of value added ta7 *9.%+! shift from e7cise duty levy to an 4,--&ased levy system and :chedule 4 implementation to recogni)e the product patent regime. (hile implementation of the 9.% and shift in the e7cise duty regime had short-term implications! the implementation of :chedule 4 *compliance with tenets of c14-+ and adherence to the product patent regime will have medium and long-term implications! respectively.
1

6omputed from 6.1, for world vs India in fig ;;;.

%oday! India is the worlds third largest producer of &ul" drugs. 1.1.<. ,egulatory environment= %o end the dominance of foreign drug companies! the Indian government enacted a series of policies designed to foster self-sufficiency in the production of &asic drugs. >ecause these measures lowered &arriers to entry! thousands of medium and small Indian pharmaceutical companies entered the mar"et challenging the 456s for control. %hese actions laid the foundation for todays highly competitive domestic industry that is capa&le of offering some of the lowest drug prices in the world. %hese policies ended Indias dependence on e7pensive foreign drugs! fostered the development of a competitive pharmaceutical industry! and guaranteed the Indian pu&lic access to ine7pensive drugs. 5onetheless! the Indian pharmaceutical industry also &ecame one of the countrys most heavily regulated. *1reene! 2002+ Enactment of ?product patent regime2 Patents (Amendment) Act, 2005. India entered the product patent regime on 8anuary 1! 200/. %his mar"ed the end of a protectionist era and &etter integrated India with the glo&al pharmaceutical mar"et. (hile the earlier process patent regime helped the Indian pharmaceutical industry develop into a world-class generics industry! the product patent regime aimed at encouraging new drug discoveries over the long-term. %raditionally! pharmaceutical 456s had maintained a low-"ey presence in the Indian mar"et! due to the a&sence of product-&ased patents and rigid price controls. @ence! the recognition of product patents will gradually &oost confidence levels! placed &y large glo&al players on India. Arom 8anuary 200/ till date! India has seen a handful of patented product launches. -fi)er has launched three of them! while ,oche and 1:B launched two and one! respectively. %he launch of patented products in India has &een slow as innovators are ta"ing their time! to see" clarity on data protection! patenting of derivatives and pre- and post-grant opposition. .ffi7ing of prices &y 5ational -harmaceutical -ricing .uthority *5--.+ Drug Pricing Control Order,1970 (DPCO). %he government fi7ed prices of nine commonly used drugs! in cases where it was noticed that companies have increased prices for no legitimate reason. .s a result! pharmaceutical companies will no longer &e a&le to increase medicine prices! at their discretion. 4a#or companies were as"ed to revise drug prices to level fi7ed &y the 5ational -harmaceutical -ricing .uthority *5--.+. %he regulator directed companies to ma"e relevant changes in their ma7imum retail prices *4,-s+. 0rugs! which have come under the scanner! cater to ma#or therapeutic areas! such as dia&etes! cardio-vascular! allergies and infections. %he 0-6 0rug law 0uring the year! the 0rug 6ontroller 1eneral of India *061I+ reviewed the rationality of fi7ed dose com&inations *A06s+ availa&le in the mar"et. >ased on the review! the regulator issued directives for withdrawal of certain A06s. %hese norms! coupled with few others! point towards a more stringent drug regulatory environment! which could increase compliance and facility up gradation costs! for the industry! over the medium term. currently controls pricing for around 2/-<0C of the pharma mar"et.

.mendment of %he -atent .ct! 1320. %his was a process &ased patent that allowed Indian companies to reverse engineering or copy foreign patented drugs without paying license fees. %his fostered the development of an indigenous Indian pharmaceutical industry for <$ years.

-roposed new drug pricing policy 2012 In :eptem&er 2012! the 1roup of 4inisters *1o4+ set up to determine IndiaDs drug pricing policy has proposed that retail prices of <48 essential drugs should &e fi7ed at the weighted average price of &rands! that have more than 1 per cent mar"et share. Even as additional details on this policy are awaited! our interactions with industry participants indicate that it will not have a significant impact on growth of the domestic pharmaceutical industry. 1.2. ,ising focus on e7ports

India gained a foothold on the glo&al arena! with innovatively-engineered generic drugs and active pharmaceutical ingredients *.-I+. %he country now see"s to &ecome a ma#or player in outsourced clinical research and the contract research and manufacturing services *6,.4:+ segments. India has the highest num&er of manufacturing facilities approved &y the E: Aood and 0rug .dministration *E: A0.+. Aurther! in 201<! forty percent of all .&&reviated 5ew 0rug .pplications *.50.+ approved &y the E: A0.! &elonged to Indian companies! which is highest amongst all. 6ountry E: India :wit)erland Israel 6anada 1ermany EB 6hina %otalF 2002 1$$ 1<4 13 22 18 20 1< 1 400 2008 181 121 12 2< 18 12 10 2 <32 2003 1$3 1<0 2$ 14 12 1/ 1$ 1 <31 2010 134 122 2< 12 $ 13 12 < 41< 2011 123 142 12 1$ 22 10 18 / 4<2 2012 18< 13$ 20 28 22 20 11 2 432 201< %otal 113 1191 1<8 993 12 134 1< 133 1< 116 $ 107 1/ 95 10 29 <<2 2867

%a&le 1= .50. grants to pharmaceutical industry since 2002 :ource= E: A0. data&ase.

Snapshot: Indias Pharmaceutical Industry in FY2012-13 Share of global sales Global ran ing !ul drug "roduction #ar et si$e %&"ort #ar et 'omestic consum"tion 'rug "harmaceutical and fine chemicals Im"ort Im"ort Gro(th )age of total national im"ort %&"ort %&"ort gro(th )age of total national e&"ort %m"loyment *a"ital in+estment Production cost Pharmaceutical sales "er ca"ita Pharmaceutical sales health e&"enditure "ercentage G I5, $04./F of G 21CF G I5, 1<2.40 &nI 3.1C G 0./2CI G I5, $<<.00 &nI 1<.4C G 4.82CI 0irect Indirect 9olume 10C ! 9alue 1.8C <rd in volume! 10th in 9alue 80 -30 C G I5, 12<<.00 &nH G /1.4C of mar"et si)e G 48.$C of mar"et si)e

%a&le 2 = :napshot= Indian pharmaceutical industry in 201< :ource= I 0irectorate 1eneral of 6ommercial Intelligence and :tatistics *016I:+! Bol"ata H ?Indian -harmaceutical IndustryJ4arch 201< J a research report &y 6.,E. F IA-4. *International federation of pharmaceutical manufacturing and association+.

2. Global Market
1rowth in regulated mar"ets remains tepid! amid patent e7piries! lac" of new drugs In 2012! glo&al pharmaceutical sales *including audited and unaudited mar"ets+ grew &y a modest <.0 percent y-o-y! to K3$/ &illion *"eeping the E: dollar constant+. ,egulated mar"ets such as the E:! Europe and 8apan continue to register slower growth! caused &y e7piry of additional drug patents and declining productivity of research and development activities! carried out &y ma#or pharmaceutical companies. Even as players witness a higher ,L0 cost! new drug approvals and filings have &een on a declining trend.

2.1.

-harmaceutical sales and growth in world=

1raph 1= -harmaceutical sales and growth in world J actual and e7pected :ource= I4: @ealth 4ar"et -rognosis! 8une 201< 2.2. ,egion-wise pharmaceutical sales *AM2012+ ,egion (ise In K &n 5orth .merica *E:.! 6anada+ <3/.$ Europe 2/2.$ 8apan 112.3 .frica! .sia *e7cd 8apan+! .ustralia 141.8 Natin .merica /$.3 %otal mar"et 3$4.8 :ource = I4: 4I0.:! 201<

Cage :hare 41.01C 2$.20C 11.20C 14.20C /.30C

5orth .merica *mainly the E:+! Europe and 8apan are dominant mar"ets in the glo&al pharmaceutical industry.

2.<.

%op five countries &y glo&al sales *AM2012+=

:ource= 6,I:IN! 2012 2.4. 1lo&al therapeutic classes &ased on sales= Cage 1rowth 2011 /./0C 2.<0C 11.40C <.20C 3.40C -0.20C -$.40C 14.10C -1./0C 3./0C

ncology remains largest glo&al therapy! despite patent e7piries. 1lo&al 4ar"et 2011 2011 sales ,an" E: K &n ncologies ,espiratory agents .nti dia&etics Nipid ,egulators antipsychotics .ngotensin II antagonists .nti-Elcerants autoimmune agents .ntidepressants @I9 .ntiviral 1 2 < 4 / $ 2 8 3 10 $2.2 <3.4 <3.2 <8.2 28.4 22.4 2$.3 24.4 20.4 12.4

%a&le= 1lo&al therapeutic classes &ased on sales :ource = I4: @ealth 4I0.:! 0ecem&er 2011 ncology retained the top spot under therapy classes! with a 2.< per cent share in overall glo&al pharmaceuticals sales. 1rowth in oncologic moderated to /./ per cent! as few drugs li"e .rimide7 and %a7otere went off-patent in 2010! and Aemara was e7posed to generic competition in 2011.4ar"ets for anti-dia&etics! auto- immune agents and @I9 antivirals each grew &y over 3 per cent. .uto-immune agents grew the fastest at a&out 1/ per cent! continuing with a nearly dou&le-digit growth for si7 years consecutively. %his category includes &loc"&uster drugs! such as ,emicade! En&rel and @umira! which treat a wide

variety of immunological diseases. .nti-dia&etics grew &y a&out 11 per cent! due to growing prevalence of the disease 2./. %op &rands &y glo&al :ales 1. .&ilify 2. 5e7ium <. @umira 4. 6restor /. .dvair 0is"us! :eretide 2.$. %op 6orporation &y glo&al sales 1. -fi)er - K 44.40 >n 2. 5ovartis - K 2/./ >n *-harma :ales+ <. :anofi-.ventis - K <8./ >n 4. 4erc" - K <8./ >n /. 1la7o:mithBline <8./ >n 2.2.
<0

$. En&rel 2. 6ym&alta 8. ,emicade 3. 6opa7one 10. 5eulasta $. ,oche - K 22.00 >n *-harma :ales+ 2. .stra Oeneca - K 28.2 >n 8. 8ohnson L 8ohnson - K 24.3 >n 3. .&&ott Na&oratories 10. Nilly

-atent e7piry &y value=

28 28 22

2/

22
20

20

20

20

1/

1/

& K n I

10

0 2008 2003 2010 2011 2012 201< E 2014 E 201/ E 201$ E 2012 E

1raph 4= -atents e7piry &y value J actual and e7pected :ource= 6ompiled from 0%%N 1lo&al Nife :ciences and @ealth 6are 1roup .nalysis L I6,. report! 2012

3. Indian Market

Indian pharmaceutical industry is mainly operated as well as controlled &y dominant foreign companies having su&sidiaries in India due to availa&ility of "nowledge rich la&our class in India at lowest cost. %he pharmaceutical industry encompasses aspects of healthcare such as medicine and diagnostic "its. %he industry also includes manufacturers of &oth &ul" drugs and formulations! and is highly fragmented. India gained its foothold on the glo&al scene with its innovatively engineered generic drugs and active pharmaceutical ingredients *.-I+! and it is now see"ing to &ecome a ma#or player in outsourced clinical research as well as contract manufacturing and research *6,.4:+. <.1 :i)e of Industry=

%he Indian -harmaceutical Industry *I-I+ is glo&ally the <rd largest in terms of volume and 10th largest in terms of value. %he total mar"et si)e of ,s. 1!2<< &n includes domestic consumption mar"et of ,s.$00 &n *contri&uting G48.$C+ and the e7ports mar"et &eing ,s. $<< &n *contri&uting G/1.4C+. %he industry grew at a 6.1, of G12./C during the past five years and is e7pected to growth at a ro&ust 6.1, of 1/.1C during AM2012-12 given huge e7port potential coupled with steady growth in the domestic formulation mar"et *6.,E! 201<+. In revenue terms! the I-I grew at a 6.1, of 14C during AM2008-12 and e7pected a 6.1, growth of 21C during AM2012-1$.

6hart = ,evenue of Indian pharmaceutical industry :ource= 6risil

<.2

0emand :upply :cenario

%he Indian -harmaceutical industry has &een witnessing phenomenal growth in recent years! driven &y rising consumption levels in the country and strong demand from e7port mar"ets. %he pharmaceutical industry in India is estimated to &e worth a&out E:K 8 &n! growing at an annual rate of 12-1/C. In world ran"ings! the domestic industry stands <rd in terms of volume and 12th in value growth terms. %he ran"ing in value terms may also &e a reflection of the low prices at which medicines are sold in the country.

%he industry has seen tremendous progress in terms of infrastructure development! technology &ase and the wide range of products manufactured. 0emand from the e7ports mar"et has &een growing rapidly due to the capa&ility of Indian players to produce costeffective drugs with world class manufacturing facilities. >ul" drugs of all ma#or therapeutic groups! re'uiring complicated manufacturing processes are now &eing produced in India. -harma companies have developed 1ood 4anufacturing -ractices compliant facilities for the production of different dosage forms. In addition! IndiaDs long-esta&lished position as a preferred manufacturing location for multinational drug manufacturers is 'uic"ly spreading into other areas of outsourcing activities. :oaring costs of ,L0 and administration are persuading drug manufacturers to move more and more of their discovery research and clinical trials activities to the su&continent or to esta&lish administrative centres there! capitali)ing on IndiaDs high levels of scientific e7pertise as well as low wages. <.< E7port J Import in Indian -harmaceutical Industry *I-I+ India is among the top 20 pharmaceutical e7porting countries glo&ally and has shown commenda&le e7port performance with continuous positive trade of &alance. E7port constitutes a ma#or part of I-I and at present it is a&out 82./2C of total E;I4. .s per 016I:! the e7port during 2012-1< has reached more than I5, $<<.00 &n. E7ports have grown very significantly at a 6.1, of around 12C during AM2003-1< where as import has also &een grown to around 11C for the same period.

6hart= E7port J Import in Indian pharmaceutical industry :ource= 0irector 1eneral of 6ommerce Intelligence and :tatistics *016I:+! Bol"ata

Indian drugs are e7ported to around 200 courtiers in the world with highly regulated mar"ets of E:.! EB etc. %he top five e7porting destination coutires are E:.! ,ussia! 1ermany! .ustralia! and EB with E:. alone accounting for almost 20C of total e7port. %he ma#or therapeutic categories of e7port are anti-infective! anti asthmatic and anti hypertensive. %he su&stance in e7port growth is mainly driven &y three factors =

i. ii. iii.

Increased dependence on generics production due to patent e7piry which has &een estimated at some E: K 24.00 &n during 201<-12 period<P :lowdown in discoveryQinvention of new molecules in developed countiresP and -ressure in developed country governments li"e E:! 1ermany! 8apan etc. to contain their health e7penditure.

<.4 :tructure and phase of industry= %he industry comprises of two &asic product segments! namely! &ul" drugs and formulations. >ul" drugs are raw materials used to ma"e formulations! which are ready to use forms of one or a com&ination of &ul" drugs and include capsules! ta&lets! syrups! in#ections. >ul" drugs are intended to have a direct effect on the diagnosis! cure! mitigation! treatment and prevention of a disease. >ul" drug e7ports! which account for 80-30 percent of the total &ul" drug production! are posed to grow at a ro&ust pace of 14-1$ percent over the ne7t five years.

6hart= -ictorial view of structure of I-I

Aormulations are ready to use products! are prepared with one or a com&ination of &ul" drugs. Aormulations are administered directly to end users. Aormulations are sold &oth in the domestic and e7port mar"ets. 0omestic formulation consumption constitutes around $0 percent of the total formulation sales in 2011-12. @owever its share has declined gradually from nearly 24 percent in 2002! as the generic opportunity in the regulated mar"ets has aided formulation e7ports to grow at a faster pace. (ith the rising incidence of lifestyle diseases in India! incremental growth in the domestic formulations mar"et is e7pected to &e primarily driven &y healthy volume growth in chronic medications. (ith a large value of dugs going off patent! and the increasing emphasis on generics &y governments of ma#or mar"ets! the glo&al generics mar"et is poised for health growth of around 2-3 percent.
<

:ource= 0%%N 1lo&al Nife :ciences and @ealth 6are Industry 1roup analysis of 1lo&al 1eneric! 6ygnus

4etro and %ier-I mar"ets each account for a&out <0 per cent of the Indian pharmaceuticals mar"et. 4ass therapies constitute a ma#ority of this mar"et. 0uring the last / years! metro and %ier-I mar"ets have grown at an estimated rate of 14 to 1/ per cent! in line with the overall mar"et. (e e7pect the current momentum to continue! and this segment to &ecome a E:0 << &illion mar"et &y 2020. 1rowth in metro and %ier-I mar"ets will &e driven &y three factors. Airst! rapid ur&anisation will lead to 2/0 million people moving from rural areas to ur&an centres during the ne7t two decades! with a ma#ority of them moving to the top 20 cities. :econd! medical infrastructure will e7pand in terms of scale and scope. 6orporate hospital chains will e7tend their hospital networ" in the top 20 citiesP innovative formats will plug gaps in healthcare delivery in %ier-I mar"etsP and hu& and spo"e delivery models providing access to higher secondary care procedures will rise within the top 200 to 2/0 towns. %hird! compliance has the potential to rise sharply driven &y organised initiatives. <.4 0omestic formulation industry highly fragmented.

ver 100!000 drugs across various therapeutic categories are produced annually in India. %he domestic formulations industry is highly fragmented in terms of &oth num&ers of manufacturers as well as the variety of products. %here are <00-400 organi)ed players and a&out 1/!000 unorgani)ed players *small scale sector+ in this industry. @owever! in terms of sales! the formulations mar"et is dominated &y organi)ed players. In 2012- 1<! the top 10 formulations companies accounted for 41.< per cent of total formulation sales. 456 pharmaceutical companies have steadily gained a foothold in the Indian formulation mar"et. .s of 2012-1<! they en#oyed a mar"et share of a&out <0 per cent &ases concentrated in a few states

6hart = >rea"up of drug manufacturing industry :ource= .nnual ,eport 2011-12

Indian pharmaceutical companies operate lar ely from Maharashtra! Gu"arat! #est $en al and %ndhra &radesh. 'o(ever! in the last fe( years! many players have

shifted their manufacturin bases to e)cise*free +ones like $addi ,'imachal &radesh-! 'arid(ar ,.ttaranchal- and Sikkim! after the overnment imposed an

M/&*based e)cise duty system in 2001.&harmaceutical manufacturin units are lar ely concentrated in Maharashtra and Gu"arat. 2hese states account for about 314 of the total number of pharmaceutical manufacturin units in India.

6hart = >rea"up of state-wise concentration of pharmaceutical industry :ource= .nnual ,eport 2011-12

<./

1eographical diversity

.nother factor that enhances the companys ris" profile in the &ul" drugs &usiness is e7ports to the regulated mar"ets in the E: and European countries! characterised &y high entry &arriers and offering a su&stantial premium over realisations in other mar"ets. E7ports to many countries minimises event ris"s associated with adverse mar"et conditions in a specific country.

<.$

perating efficiency

4anufacturing of &ul" drugs is technology and capital intensive in nature! however! the manufacture of formulations involves mere physical processes such as mi7ing! adding &inders and pac"aging with relatively low capital re'uirements. In Indian pharmaceutical industry! on an average! raw material shares roughly 43C in operating e7penses pie. :ales and distri&ution channel of the industry stands to 20C of total operating e7penses.

6hart = I-I operating e7penses &rea"up of total e7penditure in 201<

perating profit margin after ta7 of the industry stands at 1<.10C and , 6E at 11.2/C as on 201< 4arch data. . product with high degree of comple7ity in manufacture! such as! that involving fermentation technology! is typically characterised &y high entry &arriers and there&y demands mar"et premium.

1raph= -.% margin and , 6E in I-I.

<.2

Ruality :tandards

(hile assessing operating efficiencies of a company the level of automation and certification of the companys facilities &y regulatory authorities in the E: and European countries should &e considered. %hough India has the highest num&er of E:A0. approved facilities outside E:! constant evaluation of production practices would play a ma#or role. 6ontroversies involving compromise of hygiene factors! adversely affect the industry. <.8 Impact of 1overnment 0irectivesQ,egulations %he government started to encourage the growth of drug manufacturing &y Indian companies in the early 13$0s! and with the -atents .ct in 1320. @owever! economic li&eralisation in 30s &y the former -rime 4inister -.9. 5arasimha ,ao and the then Ainance 4inister! 0r. 4anmohan :ingh ena&led the industry to &ecome what it is today. %his patent act removed composition patents from food and drugs! and though it "ept process patents! these were shortened to a period of five to seven years. %he lac" of patent protection made the Indian mar"et undesira&le to the multinational companies that had dominated the mar"et! and while they streamed out. Indian companies carved a niche in &oth the Indian and world mar"ets with their e7pertise in reverseengineering new processes for manufacturing drugs at low costs. .lthough some of the larger companies have ta"en &a&y steps towards drug innovation! the industry as a whole has &een following this &usiness model until the present. <.3 E7tent of competition -layers will need to strengthen their organisation &y focusing on three priorities. Airst! they would need to import talent and s"ills from outside the industry. %raditionally! the industry has focused on developing talent from within. @owever! not only will the demand for talent multiply manifold in terms of sheer num&ers! new s"ills and non-traditional thin"ing would &e needed as well. Aor instance! &rand managers in A461 companies are e7perienced in &uilding &ig &rands and managing these in high growth environments. >rand managers with such A461 e7perience will no dou&t have greater comfort in environments that demand greater than 20 per cent growth. :econd! players need to encourage ris" ta"ing. .spiring mar"et leaders will do well to place multiple &ets and create a portfolio of opportunities. -layers will need to go &eyond the review of near-term financial metrics! and place e'ual emphasis on input measures and non financial outcomes. ver the past five years! several esta&lished players have lost ground due to their constrained and ris"-free approach. Aor instance! some early entrants in segments such as hospitals have not invested in product portfolio and differentiated commercial capa&ilities! and simply ceded the initiative and first-mover advantage. Met others have delayed the ,7-to- %6 switch for large &rands and! in the process! seen competing &rands surge ahead. %hird! the top teams attention should &e focused on longer term &usiness health. <.10 Industry fragmentation

6ompetition from unorgani)ed sector %he Indian pharmaceuticals mar"et has characteristics that ma"e it uni'ue. Airst! &randed generics dominate! ma"ing up for 20 to 80 per cent of the retail mar"et. :econd! local players have en#oyed a dominant position driven &y formulation development capa&ilities and early investments. %hird! price levels are low! driven &y intense competition. (hile India

ran"s tenth glo&ally in terms of value! it is ran"ed third in volumes. %hese characteristics present their own opportunities and challenges. . highly fragmented industry! the Indian pharmaceutical industry is estimated to have over <0!000 manufacturing and mar"eting units. Indian pharmaceutical industry will &e the 4th largest industry of the country in 201< turnover wise. %he organi)ed sector accounts for #ust /C of the industry! while a huge 3/C is in the unorgani)ed sector. . large num&er of players in the unorgani)ed segment are small. <.11 -ricing power of players Indian pharmaceuticals mar"et will grow to E:0 // &illion &y 2020 driven &y a steady increase in afforda&ility and a step #ump in mar"et access. .t the pro#ected scale! this mar"et will &e compara&le to all developed mar"ets other than the E:! 8apan and 6hina. Even more impressive will &e its level of penetration. In terms of volumes! India will &e at the top! a close second only to the E: mar"et. %his com&ination of value and volume provides interesting opportunities for upgrading therapy and treatment levels. -ricing controls and an economic slowdown can wean away investments and significantly depress the mar"et! allowing it to reach only E:0 </ &illion &y 2020. n the other hand! the mar"et has the potential to reach E:0 20 &illion provided industry puts in super normal efforts &ehind the five emerging opportunities! and enhances access and accepta&ility in general. ,ising income levels and enhanced medical infrastructure have underpinned the step-up in growth tra#ectories. %his growth has &een &road-&ased across therapy and geography segments. :everal leading players are &eginning to focus on new and emerging opportunities. %he pace of innovation in &usiness models has &een unprecedented. %he launch of &randed generics &usinesses and significant e7pansion of mar"et coverage &y multinationals illustrates this point. .s a result! the e7pectations from the India &usinesses have risen and aspirations have &ecome &older.

4.
4.1

Risks
Highly competitive market competition even from small players

4any large players as well as small players in the mar"et those are giving tough competitions resulting in ever deteriorating margins and this may in turn affect the 'uality of the product. 4.2 Import duties on raw materials and intermediates are higher than finished goods

4ost of the raw materials are imported from 6hina &y the ma#or players in the Industry. %he import duties on these raw materials are high and this pushes the companies to increase the price of the products which adversely affect them in the competitive scenario. 4.3 Intellectual Property rights risk !ata "ecurity

4anufacturers of generic pharmaceutical products! whether &ased in developing countries! such as those in .sia! or elsewhere in the world! see" to challenge patents of a manufacturer or other types of mar"eting e7clusivity andQor assert that their products do not infringe the patents in order to gain access to the mar"et for their own generic products. 4.4 !rug counterfeiting

6ounterfeit medicines are a danger to patients all over the world! as they may contain harmful su&stances! the wrong dose of the active pharmaceutical ingredient *.-I+ or no .-I at all. %he International 4edical -roducts .nti-6ounterfeiting %as"force *I4-.6%+ of the (orld @ealth rgani)ation *(@ + estimates that appro7imately 10 to <0C of medicines in emerging economies are counterfeit! with parts of Natin .merica! .sia and .frica having a greater percentage than that range. >y contrast! in developed countries with effective regulatory systems! counterfeits represent less than 1C of the mar"et. 4.# !rug $uality "afety

1iven the widespread impact that prescription drugs may have on the health of large patient populations! pharmaceutical! &iopharmaceutical and medical device companies have! historically! &een su&#ect to large product lia&ility damages claims! settlements and awards for in#uries allegedly caused &y the use of their products. -roduct lia&ility claims! regardless of their merits or their outcome! are costly! divert management attention! and may adversely affect our reputation and demand for our products. .dverse pu&licity relating to the safety of a product or of other competing products may increase the ris" of product lia&ility claims. 4.% &hanging patent laws with change in central'state government

Each government has got different views a&out the industry and specific aims. @ence the government policies on patent conduct and servicing varies from one another. 4.( )thical &onduct of &linical *rials

Nac" of availa&ility of patients and testing su&#ects. .dverse reactions to the product candidate or indications of other safety concerns. ,egulatory approvals for clinical trials. Enfavora&le data from "ey studies! e7cessive cost are driving the ethical conduct of clinical trials into difficult situations. 4.+ ,elatively low per capita consumption of medicines amongst emerging markets

.sian 6ountries li"e India depend on other methods of medicine li"e @omeopathy! .yurvedic! 5aturopathy! etc. according to their ease of access and &elief. %his adversely affects the mar"et share of the allopathic drug companies. Especially in India the per capita consumption of allopathic drugs are lower compared to other peers! though which is in growing stage now. 4..alse /arketing

E7tensive and profit targeted mar"eting is pushing off the drugs even towards the unintended patients which are in turn causing a&normal conditions in patients causing a negative mar"eting to the company. 4.10 &orruption

6orruption at various levels causes the deterioration of the product 'uality and sometimes over pricing. 4.11 .ore1' &urrency ,isk

%he currency fluctuate su&stantially and should devalue without it &eing possi&le to offset the devaluations with price increases! products may &ecome less profita&le.

4.12

&hanges in government policy and regulations

%he pharmaceutical industry has &een highly regulated worldwide &y virtue of its direct &earing on pu&lic health. . main feature of governmental regulation affecting the industry has &een the e7plicit control on drug prices in the form of the drug price control order *0-6 +. (hile 0-6 fulfils the socialistic o&#ective of ensuring availa&ility of drugs at reasona&le prices! it restricts the pricing fle7i&ility of companies! there&y adversely affecting profita&ility. ,etail prices of <48 essential drugs *$14 drug variants+ shall &e fi7ed at the simple average price of &rands with mar"et share more than 1C as against e7isting cost pricing. ,evenue loss e7pected is a&out 20 &illion I5,. 4.13 2ow coverage of health insurance in India -er capita annual healthcare e7penditure in India as per (orld >an" data *2002-2011+ is very low at K40-/0 as compared to K<!/00-4!000 and K8!000-8!/00 in 8apan and the E:! respectively. %his can &e attri&uted to IndiaDs large population and lower share of health e7penditure in total government e7penditure. In India! a&out 80 percent of the medical spending is out-of-poc"et e7penditure! wherein the consumer directly pays for the medicines. Enli"e in E:! India lac"s a strong health insurance sector that can share healthcare costs with the patients. In the E:! government organi)ations and managed care organi)ations reim&urse a ma#ority of drug costs to patients. 4.14 3ther issues

.frican countries li"e Benya and %an)ania! which accounts for 1/C of total e7ports! have recently passed anti counterfeit legislations which could hamper e7ports of Indian generics. In addition to this! issues such as tariffs! ta7es and non tariff &arriers such as reduction in customs duty! e7cise duty e7emptions! and &an on the import of &ul" drugs also impacts the pharmaceutical industry.

5.

Porter's Five Forces Model Anal sis

-orterDs Aive Aorces 4odel helps one to analy)e the -harmaceutical industry to determine what can &e done to get an advantage over the firmDs e7isting competitors and also to determine how attractive a particular industry would &e for new entrants. -orterDs Aive Aorces are= 1+ %hreats of entry posed &y new or potential competitorsP 2+ 0egree of rivalry among e7isting firmsP <+ >argaining power of &uyersP 4+ >argaining power of suppliers and /+ 6loseness of su&stitute products. >elow is an anlysis of the -harmaceutical Industry using the a&ove named forces= 1. !"reats o# entr $osed % ne& or $otential co'$etitor ()*+,

@igh entry &arriers due to costs associated with research L development of new drugs *i.e. years of investment in ,L0 for a drug that mayQmay not wor"+ 1overnment regulation *i.e. A0.+ %he threat of entry posed &y new or potential competitor is a N ( competitive force due to the a&ove entry &arriers L regulatory constraints. @igh rivalry among main companies in the industry. Aor e7ample the current rivalry in the erectile dysfunction space where :un -harma L 0r ,eddy s Na& claim that Nevitra wor"s faster or Eli Nilly L I6 : claim that 6ialis wor"s longer than -fi)ers 9iagra %he degree of rivalry among e7isting firms is a @I1@ competitive force @ospitals L other health care organi)ations &uy in &ul" 'uantities and e7ert pressure on pharmaceutical companies to "eep prices in chec" ,egular patients have lost &argaining power due to price increases in generic drugs %he &argaining power of &uyers is a 4E0IE4 competitive force. :ales for the pharmaceutical industry concentrate in a handful of large players and that has decreased the &argaining power of suppliers. %he &argaining power of suppliers is a N ( competitive force

2. -e.ree o# rivalr a'on. e/istin. #ir's (0120,

3. 3ar.ainin. $o&er o# %4 ers (M5-16M,

4. 3ar.ainin. $o&er o# s4$$liers ()*+,

5. 7loseness o# s4%stit4te $rod4cts (0120,

0emand for generic versus &rand name drugs has increased &ecause of the costs 1eneric drug companies do not have the high costs associated with the research L development of new drugs and that allows them to sell at cheaper prices %he closeness of su&stitute products is a @I1@ competitive force

verall and &ased on the a&ove analysis of -orters Aive Aorces! we can conclude that the pharmaceutical industry is not attractive for new entrants.

6.

8+*! Anal sis o# 1ndian P"ar'ace4tical 1nd4str

:trength S S (ell-esta&lished industry with strong manufacturing &ase (ell developed networ" of Na&oratories and , L 0 infrastructure for new drug discovery and development

S S S S S

6ost competitiveness due to lower la&our cost and production cost .ccess to pool of highly trained and s"illed scientists! &oth in India and a&road (ell-&uilt mar"eting L distri&ution networ" in domestic and international mar"et India is second largest country in terms of population in world with rich &iodiversity E7pertise in reverse engineering and development of new 6hemical process made Indian pharmaceutical industry as one of the strongest generic industry

(ea"nesses S Nac" of resources to compete with 456s for 5ew 0rug 0iscovery ,esearch and to commerciali)e molecules on a worldwide &asis Nac" of strong lin"ages &etween industries and academia Nac" of culture of innovation in the industry Now investment in innovative ,esearch L 0evelopment Now per capita medical e7penditure and healthcare spend in country Inade'uate regulatory standards -roduction of spurious L low 'uality drugs tarnishes the image of industry

S S S S S S

pportunities S S S S S :ignificant e7port potential to the developing as well as developed countries Nicensing deals and colla&orations with 456s for 5ew 6hemical Entities and 5ew 0rug 0elivery :ystems -roviding mar"eting operations to sell 456 products in domestic mar"et India can &e niche player in glo&al pharmaceutical , L 0 &y developing world class infrastructure 6ontract manufacturing arrangements with 456s

S S S

-otential for developing India as a centre for International 6linical %rials Increasing aging world population Increasing incomes and &uying power of people especially in rural areas has opened the great opportunity for Indian pharma companies. .round 20C of the total population of India is residing in rural areas. 1rowing awareness for health and increasing spending on health

%hreats S -roduct patent regime poses serious challenges to domestic industries unless it invests in , L 0. , L 0 efforts of Indian pharmaceutical companies hampered &y lac" of regulatory re'uirement. Aor instance! restrictions on animal testing out-dated patent office. 0-6 puts unrealistic ceilings on product prices and profita&ility and prevents pharmaceutical companies from generating investi&le surplus. E7ports effort hampered &y procedural hurdles in India as well as non-tariff &arriers imposed a&road

7.

Re.4lator Fra'e&ork

,egulations are imposed &y regulator y &odies to ensure that drugs meet safety and 'uality standards. It is e7tremely vital in the industry that high standards are maintained! considering that many lives are at sta"e. ,egulatory &odies also that the pharmaceutical companies donDt charge unreasona&le prices from consumers. %he stringency of regulatory procedures varies across countries. n the &asis of esta&lished regulations and patent laws! the glo&al pharmaceutical industry can &e &roadly classified into regulated and semi-regulated mar"ets. ,egulated mar"ets include E:! EE and 8apan that have esta&lished systems of patent laws and sophisticated regulatory systems for controlling drug 'uality. 6ountries li"e 6hina! Indi a

and :outh .frica! which have less stringent systems of patent laws and less sophisticated regulatory systems for drug 'uality control! are regarded as :emi ,egulated 4ar"ets. 2.1 :emi-regulated mar"ets

%here is no single harmoni)ed protocol for drug approval across countries. 6ountries have their own regulatory authorities and drug approval mechanisms. 2.2 ,egulatory .uthorities in Bey 6ountries

6ountry E:. EB :outh .frica India >ra)il Europe

,egulatory .uthority E: Aood L 0rugs .dministration EB 4edicines and ,egulatory .gencies @ealthcare -roducts

.&&reviation E:A0. 4@,. 466 A0. .59I:. E4E.

4edicines 6ontrol 6ouncil of :outh .frica Aood L 0rug .dministration 5ational @ealth :urveillance .gency %he European 4edicines .gency

5.3

/e ulatory environment in India

/e ulatory bodies

Source: CRISIL 2he 6ru s and 7osmetics %ct! 1830 ,6ru s %ct- and 6ru s and 7osmetic /ules! 1831 ,6ru rules- re ulate the import! manufacture! distribution and sale of dru s in India. .nder the provisions of these %cts! the 7entre appoints the 6ru s 2echnical %dvisory $oard ,62%$- to advise the central overnment and the state overnments on technical matters. 2he responsibility to enforce the 6ru s %ct is entrusted (ith both the central overnment and the different state overnments. .nder the 6ru s and 7osmetics %ct! state authorities are responsible for re ulatin the manufacturin ! sale and distribution of dru s! (hereas the central authorities are responsible for approvin ne( dru s and clinical trial s! layin do(n the standards for dru s controllin the 9uality of imported dru s and coordinatin the activities of state dru control or ani+ations. 2he 6ru s 7ontroller General of India ,67GI- is the central body that co*ordinates the activities of state dru control or ani+ations! formulates policies and ensures uniform implementation of the 6ru s %ct throu hout India. It is also responsible for the approval of licenses of specified cate ories of dru s such as blood and blood products! I: ;luids! :accine and Sera. Indian pharmaceuticals industry is mainly re ulated on patents! price and 9uality 5.3 Investi ational <e( 6ru ,I<62he .S ;6%=s role in the development of a ne( dru be ins (hen the dru =s sponsor ,usually the manufacturer or potential marketer finishes screenin the ne( molecule for pharmacolo ical activity and acute to)icity potential in animals and plans to test its dia nostic or therapeutic potential in humans. %n I<6 is the means throu h (hich a company obtains approval for human trials. 5.1 <e( 6ru %pplication ,<6%-

6ata athered durin animal studies and human clinical trials of an I<6 are used to file for a <e( 6ru %pplication ,<6%-. 2he <6% application is the vehicle throu h (hich the dru

sponsors formally propose that the .S ;6% approve a ne( pharmaceutical for sale and marketin in the .S.2he oal of the <6% is to provide enou h information to permit the .S ;6% revie(er to reach the follo(in key decisions: > > > 2he dru is safe! effective in its proposed use,s- and its benefits out(ei h the risks 2he proposed labelin of the dru ,packa e insert- is appropriate. 2he methods used in manufacturin the dru and the controls used to maintain 9uality are ade9uate to preserve t he dru = s identity ! stren th! 9uality! and purity

8. 8.1

7o'$an Anal sis

A4ro%indo P"ar'ace4ticals
A6R*319-* P0ARMA756!17A)8 $2 .413 perating Income 1<22.48 <$2.02 42.1< 23.33 $.22 23$.12 /8.1$ 2<8.01 2$.<8C 12.<4C $3 .413 1412.$< 212./4 42.24 28./ 1.08 142.88 <.$ 144.28 1/.40C 10.21C $2 .4 14 1/81.$2 1/.24C 281.31 42.0< 13.$3 2.0/ 212.24 <2./4 123.2 12.82C 11.<$C $3 .414 1832.31 <4.00C /23.82 42.13 12.4/ <<.<4 /48./2 1<0.<$ 418.1$ <0.$<C 22.03C

1rowth C *M M+ ->0I% Ness= 0epreciation Ness= Interest charges ther Income ->% Ness= %a7 -.% *6oncern :hare+ ->0I%Q IC -.%Q IC

4ar"et 6apitalisation ,: *6r+ -riceQEarnings

14!234.18 1$.</ ;

8"are"oldin. $attern : -romoter AII 0II thers %otal /4.84 13.2$ 11./8 1<.82 100.00

Market Per#o'ance : <m .uro&indo 65; -@.,4. 65; 5IA%M $m 12m

/0.42 C 2/./3 C <.18C

33.<4 C 2.48C 10.<2 C

111.1/ C 4.//C 3.//C

.uro&indo -harma Nimited *.-N+ is a leading formulations and .-I player with presence across developed and emerging mar"ets. ver the last five years! it has transformed its &usiness model from &eing a pure .-I player to a company with diversified product mi7

*increasing share of formulations+ and geographic mi7 *higher proportion of sales from developed mar"ets+. In AM11! formulations accounted for /4C of companys turnover *up from <3C in AM08+! while the share of low-margin .-Is have declined to 40C *from $1C in AM08+. 0riven &y aggressive product filings across mar"ets! .-N has also &een a&le to generate a si)ea&le income throughout-licensing of dossiers. It has managed to rapidly grow its &usiness in the E: generics space through a confluence of aggressive product filings! large manufacturing capa&ilities and a supply contract with -fi)er. .-N is one of the leading .50. filers from India *203 as on AM11+ and among the largest suppliers for .,9s drugs to the (@ . %he revenue or .uro&indo -harmaceuticals limited has &een growing at a very good rate. %he 'uarter ending 0ecem&er 201< saw a growth of <4C M M comparison and the last 'uarter ending :eptem&er 201< saw a growth of 1/.24C. %he E: formulation grew &y 81C to ,s 3<1 crore during the 'uarter on the &ac" of certain new product launches and reintroduction of certain cephalosporinDs products *E:0 3 million+. ne the of the significant factor is that the companies margin this 'uarter has increased tremendously! this is &ecause of the growth in the industry and mainly the E: mar"et. %he 6ompany recently announced ac'uisition of .ctavisDs (estern European perations in 2 countries. %he ac'uisition e7pands .uro&indoDs front-end operations into five segments *generics! prescription products! over-the-counter products! hospital products and generics tenders+ with appro7imately 1200 products and an additional pipeline of over 200 products. %he financials of the company loo"s pretty strong! the companys stoc" has given a 111.1/C return in the 12 month period! and this return is much a&ove the return from the mar"et Inde7 and also the -harma Inde7. %he performance in the stoc" mar"et is &ecause of the growing sales and profit! which has &een growing at a very high pace. %he company has huge e7pansion plans and e7pects to continue the same momentum.

8.2

7A-1)A 0ealt"care

7A-1)A 05A)!07AR5 $2 .413 perating Income 1rowth C *M M+ ->0I% Ness= 0epreciation Ness= Interest charges ther Income ->% Ness= %a7 -.% *6oncern :hare+ ->0I%Q IC -.%Q IC 200.13 118.01 22.42 28.0< 2/.21 82.22 4.14 8<./8 1$.8/C 11.34C $3 .413 224.2$ 101.2< <2.08 2/./4 11.$/ //.2$ 2.11 48.$/ 14.0/C $.22C $2 .4 14 8<3.3$ 13.3$C 120.0$ <2.42 10.1 8.2 1<$.13 -1/./2 1/1.2$ 20.2/C 18.02C $3 .414 832.1< 2<.82C 18$.4 <2.<2 2.8 $0 20$.2< 11.< 134.3< 20.28C 21.2<C

4ar"et 6apitalisation ,: *6r+ -riceQEarnings

20!<$0.13 2<.4< ;

8"are"oldin. $attern : -romoter AII 0II thers %otal 24.23 /.2/ 8.0/ 11.41 100.00

Market Per#o'ance : <m 6adila 65; -@.,4. 65; 5IA%M $m 12m

<0./2 C 2/./3 C <.18C

4<.01 C 2.48C 10.<2 C

28.22 C 4.//C 3.//C

6adila @ealthcare *6adila+ is one of the top-five leading formulations company in India with strong focus on the fast-growing chronic therapy segments. .part from domestic formulations! 6adila @ealthcare has esta&lished itself as an emerging generics player in some of "ey mar"ets li"e the Enited :tates! the EE and Natin .merican countries. 6lutch of

well-thought ac'uisitions! steady product introductions and therapy e7pansion! and maintaining service levels have &een "ey factors that have helped the company &ecome strong player in the generic space. ver the years! the company has also entered into certain strategic 89s and alliances having clear focus on leveraging either its manufacturing capa&ilities or partnering to gain technical e7pertise in certain productQtherapy segments. (ith a contri&ution of <$C to revenues! domestic formulation is the largest segment for the company followed &y Enited :tates! Emerging mar"ets and Europe. In India! 6adila has appro7imately <.2-4.0C mar"et share with strong position in the 69:! 1astrointestinal! 1ynaecology and .nti-,espiratory segments. In addition to scale-up in &ase &usiness! the company has entered into a 89 with >ayer for co-mar"eting products in India and more recently ac'uired >iochem to strengthen its acute segment portfolio. In the E:! 6adilas initial foray and ramp-up was largely driven &y highly commoditi)ed oral solids which the company is now augmenting with limited competition segments such as transdermals! in#ecta&les etc. %he recent ac'uisition of 5esher -harma has helped the company gain presence in the controlled release su&stance portfolio. .mong other mar"ets! 6adila has created considera&le presence in the >ra)ilian mar"et and is also increasing its focus on the 8apanese generics segment. .dditionally! the company has also esta&lished certain 89sQalliances with leading players with a specific strategic intent either leveraging on the capa&ilities in certain therapy areas or mar"ets=

%he revenue of 6adila has &een growing steadily! the 'uarter ending 0ecem&er 201< saw a growth of 2<.82C and is e7pected to grow further &ecause of the launch of new products and plenty more filings with .50.. .nother significant factor is that their interest charges has reduced to a great e7tent and the growth in &usiness to a great e7tent has increased the operating and -.% margin. It has launched 12 new products including line e7tensions *two are for first time+ during 'uarter.It filed <1 .50.Ds with the E:A0. and received < in#ecti&le product approvals. 0uring the 'uarter! the company filed <1 additional .50.s *< in#ecta&les! 4 tropicalDs and 1 5.:.N+ with the E: A0. ta"ing the cumulative .50. filings to /4 *13 are the -ara I9+ as on date. In 4e7ico! the company launched 2 new products during the 'uarter! ta"ing the cumulative launches to $ and filed 8 dossiers with the 4e7ican regulatory authority! ta"ing the cumulative filings to <$. %he company filed 3 dossiers with the .59I:.! ta"ing the cumulative filings to 11<. 6adila is a very sta&le company &ased on the financials! the sales has &een growing at a good rate as well the price of the stoc". %he return from this stoc" has &een a&ove the mar"et Inde7 and -harma Inde7.

8.3

71P)A )!-

)atest Res4lts (Rs 7r, Period; 5nded :ales ther Income ->I0% ->0% ->I% ->% ,-.% E-.% .-.% 6-ec;13 2!2/<.2 0 /<.08 4/$.02 422.22 <2<.34 <4/.$4 2$0.22 0 2$0.22 <42.8/ <ar -ec;12 =:> 2!0<3./ 3 /<.48 /4$.<2 /<2.02 4$8.<2 4/3.02 <<8.28 0 <<8.28 41$.28 10.42 -0.2/ -1$./4 -20.<$ -20.1$ -24.21 -2<.0< 0 -2<.0< -12.24 8"are"oldin. Pattern *.: 5 0ec 201<+ :hares 222!222!/82.0 0 8/!14/!88<.00 0 41!2/3!<01.00 23/!48/!328.0 0 TCU 28.<2 10.$1 0 /.14 <$.8

Aoreign Institutions 1ovt @olding 5on -romoter 6orp. @old. -romoters

Market -ata (As on Frida ? Fe%r4ar 28? 2014 , -rice *,s+ Nat. E-:*,s+ 4"t. 6ap.*,s 6r+ Nat. >9*,s+ <84.</ /2 ( @QN*,s+ 12.18 Nat. -QE <08/3./ Nat.E'ty *,s 6r+ 110.<$ 0iv. Mield *C+ 4/0 Q </4.4 22.<2 1$0./8 0./2

:toc" 4ovement

,ating 0ate 02-12201< 02-12201< 24-03201< 23-04201< 23-04201< 12-0<201< 12-0<201< 28-02201< 28-02201< 08-02201< 08-02201<

:ecurity %ype Nong %erm 0e&ts :hort %erm 0e&t 5on-6onverti&le 0e&entures 6ommercial -aperQ:hort %erm 0e&t 6ommercial -aperQ:hort %erm 0e&t Nong %erm 0e&ts :hort %erm 0e&t :hort %erm 0e&t Nong %erm 0e&ts Nong %erm 0e&ts :hort %erm 0e&t

.mount *6r.+

,ating

22.<8 ... 122<./ .1V 2000 Ind ... 1000 .1V*ind+ 1000 .1V*ind+ 22.<8 ... 122<./ .1V 122<./ .1V 22.<8 ... $8.$ ... 122<./ .1V

Ainancial @ighlights R2 AM1< perating Income 1rowth C *M M+ ->0I% Ness= 0epreciation Ness= Interest charges ther Income E7ceptional 1ainQNoss 2!138.$0 $2/.$ 2<.3$ 4.01 $4.14 R< AM1< 2!023.<8 432.83 28 3.< /<.48 R2 AM 14 2!<42.44 $.22C //2.3< 81.$/ <<.$1 $4./2 R< AM14 2!281./8 3.22C 402.34 82.08 28.< /<.08 -

->% Ness= %a7 -.% *6oncern :hare+ ->0I%Q IC -.%Q IC 6ompany -rofile

$$1.22 1$1.2$ /00.01 <0.2<C 22.24C

4/3.02 120.23 <<8.28 21.$0C 14.8/C

/02.13 12$.1$ <2$.0< 2<.//C 1$.02C

<4/.$4 84.82 2$0.22 12.$$C 11.4<C

6ipla Nimited *6ipla+ is one of the leading pharmaceutical company in the domestic formulations segment with a mar"et share of G/C. In addition to its strong presence in the Indian mar"et! the company generates nearly //C of its turnover from e7ports to various emerging and regulated mar"ets. In the domestic formulations mar"et! 6ipla has particularly stronger presence in anti-infective and respiratory segment. (ithin respiratory! it commands over 2/C share of inhalers in India. ver the past three years *AM03-11+! the growth in 6iplas domestic formulations at 12.0C has &een &elow the industry average largely due to its higher presence in some of the mature products as well as pure generic segments and comparatively lower presence in fast-growing chronics li"e 69: and .nti-0ia&etic. In the e7ports mar"et! 6ipla operates through partnerships &ased &usiness model! wherein it develops and manufactures the products and receives licensing income and manufacturing revenues. %he companys e7ports turnover has grown at a 6.1, *C+ of 12C over the past five years. %he .frican region is ma#or mar"et for the company followed &y E: and Europe. %o strengthen its presence in the e7ports mar"et! 6ipla is targeting the inhalers segment in Europe with a &as"et of 11 products. 1iven the high entry &arriers *due to relatively longer approval time frames+! the inhalers segment faces relatively limited competition compared to pure vanilla generics and offer lucrative opportunity for 6ipla to ramp up its presence in the European mar"ets. (ith recently e7panded capacities *at Indore :EO+! growing approvals in the inhalers in Europe and other non-E: mar"ets! the company is li"ely to register strong growth in overseas mar"ets going forward. Per#or'ance *vervie& %he 6ompanys revenue from operations during the financial year 2012-1< amounted to ,s. 8!23/ crore against ,s. 2!02/ crore in the previous year recording a growth of more than 12 percent. %he domestic turnover increased &y more than 14 percent! from W<!21< crore in the previous financial year to ,s.<!$81 crore in the financial year under review. %otal e7ports increased &y a&out 20C during the year to ,s.4!42$ crore. 0uring the year under review! operating margin increased &y <4 percent. %his was primarily due to reduction in material cost on account of improved realisations! changes in the product mi7 and higher contri&ution of Escitalopram in the E:. .s a result! profit after ta7 increased &y more than <4 percent to W1!/02 crore from W1!124 crore in the previous financial year. In order to &uild a strong foundation for future growth! 6ipla launched 8aagruti! the transformation programme! during the year under review. %he programme is aimed at reducing &usiness comple7ity and strengthening operations. 6ipla rationali)ed its e7posure to several low value mar"ets and partners to reduce comple7ity. .dditionally! on-time-in-full delivery levels improved two to threefold through dedicated effort in the supply chain processes. %he impact of these initiatives has already &een recogni)ed &y several "ey partners worldwide. .nother critical focus of this programme is to improve cost effectiveness across products while upholding the highest standards of regulatory! 'uality and safety re'uirements. 8aagrutis efforts have reduced yield loss! shortened lead times and de&ottlenec"ed

constrained capacities across manufacturing facilities &y implementing several improvement ideas. %he 6ompany has recently also launched ?-rocurement Effectiveness Effort to &uild &est in class procurement practices and further reali)e cost savings.

8.4

2ran4les 1ndia )td

)atest Res4lts (Rs 7r, Period; 5nded :ales ther Income ->I0% ->0% ->I% ->% ,-.% E-.% .-.% 6-ec;13 2$2.12 0.<1 4/.<2 41.01 <8.$/ <4.</ 22.33 0 22.33 23.$/ -ec;12 <ar =:> 12<.3$ 0.<2 12.14 12.$8 12.2$ 2.8 /.4< 0 /.4< 10.<1 /0.$8 -1$.22 1$4.41 22<.42 21/.2/ <40.<8 <2<.<3 0 <2<.<3 182./8 8"are"oldin. Pattern *.: 5 0ec 201<+ :hares /!<3/!/8$.00 1/!$08.00 0 $<2!303.00 3!303!324.00 thers 4!<22!022.00 TCU 2$.$1 0.08 0 <.12 48.8$ 21.<< Aoreign Institutions 1ovt @olding 5on -romoter 6orp. @old. -romoters -u&lic L

Market -ata (As on Monda ? Marc" 10? 2014 , -rice *,s+ Nat. E-:*,s+ 4"t. 6r+ 6ap.*,s 2$8.8/ /2 ( @QN*,s+ <2./2 Nat. -QE Nat.E'ty /4/.2< 6r+ *,s 20.28 0.24 234 Q 30.1/ 8.2/

Nat. >9*,s+ :toc" 4ovement

1<<.4$ 0iv. Mield *C+

6redit ,ating ,ating 0ate 22-12-201< 22-12-201< :ecurity %ype 0e&t -rogamme 0e&t -rogamme .mount *6r.+ ,ating / .2 $.$ >>>

22-12-201< 22-12-201< 22-12-201< 22-12-201< 13-11-201< 13-11-201< 13-11-201< 13-11-201< 08-11-201< 08-11-201< 08-11-201< 08-11-201< 08-11-201< 08-11-201< 11-03-201< 11-03-201< 11-03-201< 11-03-201< 11-03-201< 11-03-201< 0/-03-201< 0/-03-201<

0e&t -rogamme 0e&t -rogamme 0e&t -rogamme Nong %erm 0e&ts Nong %erm 0e&ts Nong %erm 0e&ts :hort %erm 0e&t :hort %erm 0e&t 0e&t -rogamme Nong %erm 0e&ts 0e&t -rogamme 0e&t -rogamme 0e&t -rogamme 0e&t -rogamme Nong %erm 0e&ts Nong %erm 0e&ts Nong %erm 0e&ts :hort %erm 0e&t :hort %erm 0e&t Nong %erm 0e&ts Nong %erm 0e&ts :hort %erm 0e&t

12.$4 >>> 12/.<4 .2 2/2.<2 .2 1.<8 >>> 1.82 >>>V $.$ >>>V 1<2.38 .2 2/0.22 .2 / .2 1.<8 >>> 2/2.<2 .2 12/.<4 .2 12.$4 >>> $.$ >>> 1.<8 >>> / >>> $.$ >>> 2/2.<2 .2 12/.<4 .2 12.$4 >>> 2/3.13 >>>V 1<2.38 .2

Financial 0i."li."ts R2 AM1< perating Income 1rowth C *M M+ ->0I% Ness= 0epreciation Ness= Interest charges ther Income E7ceptional 1ainQNoss ->% Ness= %a7 -.% *6oncern :hare+ 11.08 <.14 2.34 20.0$ /.0$ 4.02 0.1/ 8.12 2.<2 /.8 1$2.84 12.14 4.88 4.4$ 0.<2 2$.43 8.8< 12.$$ R< AM1< 12<.3$ R2 AM 14 2<3 42.40C </.$2 /.4 4.14 0.41 <4.$2 11.<$ 2<.<1 R< AM14 2$2.1< /0.$8C 4/.<2 $.$$ 4.< 0.<1

->0I%Q IC -.%Q IC 7o'$an Pro#ile

11.3/C 4.2<C

$./4C 2.21C

14.30C 2.<3C

12.23C 8.83C

Incorporated as a private limited company in 1331! 1ranules India *1IN+ was converted into a pu&lic limited company in Ae&.D3<. It commenced its operations in .pr.D31 as a merchant e7porter of &ul" drugs li"e paracetamol! guaifenesin and chloro pheniramine maleate. %he company e7ports to the E:! Europe! 4e7ico and @ong"ong. :ince 1332! 1IN concentrated on e7port of paracetamol powder. In .ug.D34! 1IN too" over %riton Na&oratories *%N+! a group company from which 1IN was procuring the drugs for e7ports. 1IN also ac'uired a sic" unit which was manufacturing &ul" drugs! from the .ndhra -radesh :tate Ainancial 6orporation *.-:A6+ in 4ar.D34. 1IN implemented the ongoing pro#ect ta"en over from %N to manufacture &ul" drugs li"e folic acid! sal&utamol sulphate! &rom pheniramine maleate and direct compression *06+ &lends of paracetamol! through the process of granulation. %he unit! an E E! is located at @ydera&ad! .ndhra -radesh. 6ommercial production of folic acid commenced in .ug.D3/. It came out with a pu&lic issue in :ep.D3/ to part-finance this pro#ect. 6ompany has completed e7pansion of 1uaifenesin capacity from 100 4ts to 240 4ts per annum. 6ompany had developing new products li"e >rom -heniramine 4aleate L 6hloro -heniramine 4aleate! L is in process of developing new &ul" drug for the e7port mar"et. 6ompany is very much hopeful a&out companyDs performance due to e7pansion of pro#ect will &e completed in the current year. %he 6ompany set up a 100C mar"eting su&sidiary in E: to enhance its e7posure in the large pharmaceutical mar"et in the world. %he 1agillapur plant commences its commercial production of Nine II*installed capacity <200 4%+ which was commenced its 8uly!200< and the remaining 4000 4%-. is e7pected to go on stream in the first half of 200<-04. %he total pro#ect cost is ,s.<0 crore. Per#or'ance *vervie& %he 6ompany had dou&le-digit growth in all three product segments! .-Is! -AIs and Ainished 0osages. (hile all the segments grew! the .-I segment constituted the largest portion of the revenue mi7 in AM1<. 0ue to the delay in the Aormulation E7pansion! more .-Is were sold instead of &eing used for captive consumption. %he 6ompany sold a large portion of its .-I in the domestic mar"et in AM1< which led to an increase in overall domestic sales. %he 6ompany has strong &ac"orders for its Aormulation 0ivision and e7pects an increase in sales in AM14 once the new capacity is on-line. *$eratin. costs perating costs increased 12.$C over the previous year which is in-line with revenue growth. %he increase in operating costs was primarily due to the rising energy costs! cost of "ey inputs! employee costs and mar"eting e7penses. In order to mitigate energy costs! the 6ompany focused on implementing pen .ccess -ower at all of its Indian Aacilities. .t the end of AM1<! the 6ompany was still in the process of implementing the system &ut finished implementation in R1AM14. 531-!A E>I0%. increased 2.3$C from ,s. 80.$$ 6r in AM12 to ,s. 82.08 6r. in AM1< although the a&solute margin fell 3/ &ps to 11.</C in AM1<. %his was primarily due two reasons.

Airst! instead of using its additional .-Is for captive consumption! the 6ompany sold more .-Is in AM1< which has a lower profit margin than Aormulations. :econd! the 6ompanys Aormulation E7pansion was delayed in AM1< and faced scale-up issues after its completion. %he 6ompany had additional e7penses including increased manpower at the facility without a concurrent increase in production. 1nterest Interest lia&ility increased 4.0C from W12.0 6r. in AM12 to W12.2 6r. in AM1< conse'uent to an increase in the 6ompanys de&t portfolio. (hile there was an increase! the interest cover got strengthened from 4.87 to 4.37 over the same period! reflecting the 6ompanys a&ility to repay its interest lia&ilities. 9et $ro#it %he 6ompany earned a net profit of ,s. <2.$ 6r. in AM1< vs. ,s. <0.0 6r. in AM12! an increase of 8.2C. In line with the net profit! the &asic earnings per share increased from ,s. 14.3< to ,s. s1$.21 over the same period.

-e%t Reconciliation (Rs. 7r,

9.

7"an.in. 1nd4str !rends

Indian pharma players sharpen focus on regulated mar"ets %o understand the strategies! dynamics and performance of domestic pharmaceutical companies *formulations and &ul" drugs players+ listed on stoc" e7changes! they have &een segregated into large! medium and small! on the &asis of their turnover *as of 20010-11+. .s per this measure! companies with a turnover of more than ,s 2/ &illion can &e termed largesi)ed players! those with a turnover &etween ,s < &illion and ,s 2/ &illion would &e mediumsi)ed players! while small-si)ed players would &e those with a turnover of less than ,s < &illion. :imilarly! in case of &ul" drugs players! those with a turnover a&ove ,s / &illion have &een termed large-si)ed players. Aocus on regulated mar"ets helps players reap huge &enefits ver the past few years! Indian pharmaceutical player s have &een increasingly tapping opportunities in glo&al generics mar"ets! especially the E: and Europe. 4ediumsi)ed and small players! meanwhile! have targeted the semi- regulated mar"ets of .frica! .sia and Natin .merica to enhance their distri&ution networ" &efore e7porting to the regulated mar"ets. >uoyed &y the a&ove trends! Indian formulation e7ports recorded a 21.< per cent 6.1, &etween 200/-0$ and 2010-11. n a y-o-y &asis! e7ports grew &y 2$ per cent in 2010-11! after a 2.2 per cent growth the previous year. ,ecovery was led &y e7ports to regulated mar"ets! which grew &y <1 per cent! and also aided &y e7ports to semi-regulated mar"ets which was grew &y 22 per cent *y-o-y+. Aor &ul" drugs manufacturer s! a &urgeoning generic mar"et and cost-reduction measures &y glo&al pharmaceutical companies present a huge opportunity in regulated mar"ets. India! which has lower manufacturing costs! well- developed process chemistry s"ills and the largest num&er of drug master filings glo&ally! is well-placed to tap e7port opportunities in regulated mar"ets. .ccordingly! &ul" drugs e7ports have grown posted a ro&ust 6.1, of 2$./ per cent &etween 200/-0$ and 2010-11! with e7ports to regulated mar"ets *having an estimated /2 per cent share+ registering a 6.1, of a&out </ per cent in the said period. E7ports drive strong re&ound in revenues for &oth formulation and &ul" drugs players .fter growing &y / per cent y-o-y in 2003-10! revenues of large formulation players e7panded &y a healthy 18 per cent in 2012-1<! supported &y the strong performance of :un -harma and 6adila @ealthcare during the year. :ales of medium-si)ed formulation players grew &y 2<./ per cent *y-o-y+! led &y strong num&ers reported &y top players in this category such as %orrent -harma and Ipca Na&s. :maller players recorded a relatively modest growth of 8.$ per cent *y-o-y+. 1rowth for large and mid-si)ed players was largely supported &y e7ports which grew &y 1$ per cent and <2 per cent *y-o-y+ respectively. >ul" drugs manufacturers too &enefited from a rise in e7ports. %urnover of large players in the &ul" drugs segment grew &y 20.4 per cent * y-o- y+! almost dou&le the 11 per cent growth

in the previous year . ,evenue growth of medium and small &ul" drugs players improved to 14.4 per cent from 3.4 per cent in 2003-10. E7ports for &oth sets of players surged &y 28 per cent and 20 per cent *y-o-y+! respectively. Narge players en#oy &etter profita&ility! invest more %ypically large players *in &oth formulations and &ul" drugs segments+ are more profita&le due to their wide &ase in regulated mar"ets! which fetch higher reali)ations. %he presence of strong &rands in the domestic mar"et helps large formulation players further. @owever! a significant e7posure to international mar"ets are also ma"es large players vulnera&le to ris"s such as currency volatility! overall mar"et performance and outsourcing plans of "ey players in the target destinations! etc. In terms of capital e7penditure too! large players score over smaller formulation and &ul" drugs firms! as the latter have a fewer num&er of E: A0.-approved plants! which significantly reduces their cape7 re'uirements.

9.

34d.et 1'$act

&layers to pass E)cise 6uty 'ikes

2he impact of increase of E)cise 6uty from 1 4 to ?4 @n formulation and from 104 to 12 4 on $ulk 6ru (illl be <eutral. &harmaceuticals companies are likely to pass on these hikes to consumers . 2he five year e)tension of the 200 4 (ei hted deduction for in*house /A6 e)penditure (ill only mar inally benefit Indian &harmaceutical &layers! as /A6 e)penditure! as on avera e ! forms less than 1 per cent of their net sales . Impact on various &layers *om"any 6ipla Ntd. .uro&indo 1ranules India Nimited 6adila Im"act 5eutral 5eutral Narge 5eutral

Industry on stron footin B e)ports to drive ro(th 2he Indian pharmaceutical industry is estimated to ro( by 18*21 per cent y*o*y to C31*32 billion in 2011*12. E)ports ,of both bulk dru s and formulations- are likely to ro( by 22*23 per cent y*o*y durin the year! driven by bulk dru s e)ports to re ulated markets. 6omestic formulations sales are estimated to ro( by 11*1? per cent y*o*y in 2011*12! (ith dru s caterin to chronic and lifestyle*related ailments such as anti*diabetic! cardiovascular and neuroDcentral nervous system! postin a double*di it ro(th in sales. In 2012*13! 7/ISIE /esearch e)pects the industry to continue to ro( by 1?*1F per cent y* o*y to C3?*35 billion. Gro(th (ill be driven by e)ports.%s Indian pharmaceutical players increasin ly tap the enerics space in re ulated markets and contract manufacturin opportunities for bulk dru s rise rapidly! e)ports of formulations and bulk dru s (ill ro( by

21*23 per cent and 13*11 per cent! respectively. 6omestic formulations sales are e)pected to ro( by 13*11 per cent y*o*y! touchin C13 billion in 2012*13. Gro(th (ill be driven by sales of dru s caterin to chronic and lifestyle ailments. %. 2he concessional 1 per cent basic customs duty has been e)tended to si) life*savin dru sDvaccines and to bulk dru s used to manufacture the said dru s. 'o(ever! the impact of this on the industry (ill be neutral since these dru s account for a small proportion in the Indian pharmaceutical market. $. E)cise duty on formulations has been increased to ? per cent from 1 per cent! (hile the e)cise duty on bulk dru s has been hiked to 12 per cent from 10 per cent. 2hese increases are not e)pected to si nificantly impact Indian pharmaceutical players as they (ill pass on the duty increases to consumers. ;ormulations manufacturers (ill not be impacted by hi her e)cise duty of bulk dru s.

7. 2he five*year e)tension of the 200 per cent (ei hted deduction for in*house /A6 e)penditure (ill only mar inally benefit Indian pharmaceutical players as /A6 e)penditure on an avera e forms less than 1 per cent of their net sales.

10. *4tlook o# 1ndian P"ar'ace4tical 1nd4str

@verall ro(th outlook for the Indian dru s and pharmaceutical industry appears positive. &harma manufacturers are likely to benefit from rise in demand for eneric products. Some of the factors that (ould drive ro(th in the domestic pharma industry are: 1- lo( cost operations 2- research*based processes 3- improvements in %&I 3- availability of skilled manpo(er. 2he domestic formulations and bulk dru s markets are currently facin price pressure as benefits of cheaper dru s have been shifted to end*users and trade channels. 'ence! consolidation! partnership and alliances are e)pected to ather momentum in the near future. @ff patentin of branded dru s (ould increase demand for eneric dru s. 2his provides immense opportunities to the Indian pharmaceutical companies especially iven their prior e)perience in eneric dru development. Some other factors such as hi h penetration in the lobal markets and increase of share in %bbreviated <e( 6ru %pplication ,%<6%- filin s are likely to po(er ro(th of the formulations market. Ma"or ro(th drivers for the Indian bulk dru industry include rise in demand for contract manufacturin ! increase of share in 6ru Master ;iles ,6M;- filin s and process innovation. ;urthermore! initiatives of the Government (ill act as a backbone for ro(th. Some such initiatives include: 1- %llo(in 1004 ;6I under the automatic route in dru s and pharmaceuticals includin those involvin use of recombinant technolo y.

2- Increasin (ei hted ta) deduction on e)penditure in in*house /A6 activities to 2004 3- Settin up a venture capital fund to support dru pharmaceutical infrastructure. discovery and stren then

Bibliography
6.,E. *201<+. Indian Pharmaceutical Industry/arch 2013. 6,E0I% .5.NM:I: L ,E:E.,6@ N%0. 6risil. *2012+. Indian -harmaceutical Industry. Industry ,eport. 1reene! (. *2002+. *he )meregence of India5s Pharmaceutical Industry. India! 6. 6. *4arch! 201<+. 6reif ,eport on Pharmaceutical industry in India. -harmaceutical! 0. o. *n.d.+. 7nnual ,eport 2011812. www.investindia.gov.inQX'Ypharmaceuticals-sector www.dn&.co.inQ www.datamonitorhealthcare.comQ www.pharmaceutical-drug-manufacturers.com www.reportlin"er.com www.thepharmaletter.com www.pharmamanufacturing.com