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Elder Pharmaceuticals Ltd.

BSE: 532322 Sector: Health care
NSE: ELDERPHARM ISIN Code: INE975A01015
BSE 00:00 | 04 Mar Elder Pharmaceuticals Ltd
NSE 05:30 | 01 Jan Elder Pharmaceuticals Ltd
OPEN 115.70
PREVIOUS CLOSE 112.70
VOLUME 8920
52-Week high 115.70
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 231
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 115.70
CLOSE 112.70
VOLUME 8920
52-Week high 115.70
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 231
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Elder Pharmaceuticals Ltd. (ELDERPHARM) - Director Report

Company director report

ELDER PHARMACEUTICALS LIMITED ANNUAL REPORT 2011-2012 DIRECTOR'S REPORT The Directors are pleased to present the Twenty Ninth Annual Report of the Company together with the audited Accounts for the year ended 31st March 2012. The working results of the Company for the year ended 31st March 2012 vis-a-vis those of the previous year are summarized below: Year ended Year ended 31.03.2012 31.03.2011 (Rs. In Lacs) (Rs. In Lacs) 1. Operating Income 98,468.73 83,858.56 2. Other Income 2,430.75 804.27 3. Profit before Tax 10,351.12 8,906.95 4. Less: Provision for Tax: Current Year 2,100.00 1,800.00 Deferred Tax (164.83) (33.17) 5. Profit after Tax 8,415.95 7,140.12 6. Less: Prior year Tax adjustments (8.62) (61.00) 7. Add: Profit as per the last Balance Sheet 18596.86 19,233.78 8. Profi t available for appropriation 27,004.19 26,312.90 Out of which Directors recommend Appropriation as under: a) Proposed Dividend 616.11 616.09 b) Tax on Dividend 99.95 99.95 c) Transfer to General Reserve 3,000.00 3,000.00 d) Transfer to Debenture Redemption Reserve 4,000.00 4,000.00 e) Surplus carried forward to Balance Sheet 19,288.13 18,596.86 OPERATIONS AND PERFORMANCE: The economy throughout the world witnessed economic and political turmoil during the year under review with natural and man made calamities which have impacted businesses across all sectors. The Indian GDP growth was below expectation and with high interest rates and monsoon playing truant this season, the already high inflation is likely to have spiraling effect. Added to this is the depreciating Rupee against US Dollar making the imported inputs costlier. All these factors have brought a lot of pressure on both operating costs and margins of the Company. Your Company's Operating Income during the year under review was Rs. 98,468.73 lacs as against Rs. 83,858.56 lacs in the previous year. This represents an increase of Rs. 14,610.17 lacs which is equivalent to 17.42% increase over the previous year. Ever rising oil prices and resultant increase in the all round input costs, increased finance costs, etc. have brought the pre and post tax profits under pressure. However, there has been slight improvement in the pre tax and post-tax profit, although in percentage terms it is less than the top line growth, with profit before tax for the year under review being Rs. 10,351.12 lacs as against profit before tax of Rs. 8,906.95 lacs in the previous year and profit after tax for the year under review being Rs. 8,415.95 lacs as against profit after tax of Rs. 7,140.12 lacs in the previous year. During the year under review the Company introduced a number of new products. These products were BFX, MENY, MENY Plus, Elpod O and FORMIC OF in the Anti-infective category, New Zephrol Cold Syrup, New Zephrol Cold Tablets and New Zephrol DC Syrup in the Cough & Cold category, Aptirez Syrup in Appetite Stimulant category, Vagisil Range in the Women's Health Care category, Chymoral AP in Wound Care & Pain Management category and Gastrochill & Gastrochill D in the G. I. category. All the products of the Company including new introductions have been well accepted by the medical fraternity in India. The main therapeutic area of interest to the Company continues to be Women's healthcare, Wound care and Pain Management, Neutraceuticals / Vitamin Supplements, Life Style & Diabetes, and Antibiotics. MERGER OF ELDER HEALTH CARE LIMITED WITH ELDER PHARMACEUTICALS LIMITED The Company has explored and evaluated the various opportunities for growth and expansion available for the Company. Looking at the synergies of operations and the benefits that would accrue to the Company it was decided by the Board of Directors to merge Elder Health Care Limited into the Company and at its meeting held on 2nd August 2012 has approved the draft Scheme of Arrangement in respect thereof u/s 391 to 394 of the Companies Act, 1956. The Directors are of the opinion that the draft Scheme of Arrangement is advantageous and beneficial to the Shareholders of the Company and the terms thereof are fair and reasonable. Subject to the approval of the Stock Exchanges, the Shareholders of both the transferor and transferee companies, the Registrar of Companies, the Hon'ble High Court of Judicature at Mumbai and other authorities, if any, the Scheme of Arrangement will come into effect from 1st April 2012, being the Appointed Date. It is proposed to allot 100 (One Hundred) equity shares of Rs. 10/- each fully paid up in the capital of the Company for every 358 (Three Hundred Fifty Eight) equity shares of Rs. 10/- each fully paid up held by the shareholders of the transferor company i.e. Elder Health Care Limited, once the Scheme of Arrangement is approved by all the appropriate authorities. GLOBAL DEPOSITORY RECEIPTS: The Company had made an issue of Global Depository Receipts (GDR) during the year 2004-05. All the issued GDRs have been converted into equity shares and no GDRs are outstanding as on 31st March 2012. The Company's listing for the GDRs, however, continues on the Luxembourg Stock Exchange and as on 31st March 2012 the same were quoted at $13.31. DIVIDEND: The Directors have pleasure in recommending a dividend of 30 % i.e. Rs. 3/- per equity share of Rs. 10/- each for the year ended 31st March 2012 and the same, once approved by the shareholders, will be paid on or before 23rd October 2012 to those shareholders whose names appear in the Register of Members as on the close of business on 19th September 2012. DIRECTORS: Dr. R. Srinivasan, Director, is due to retire by rotation at the ensuing Annual General Meeting of the Company. He however, being eligible, has offered himself for re-appointment. Dr. S. Jayaram, Director, is due to retire by rotation at the ensuing Annual General Meeting of the Company. He, however, being eligible, has offered himself for re-appointment. Mr. Michael Bastian, Director, is due to retire by rotation at the ensuing Annual General Meeting of the Company. He, however, being eligible, has offered himself for re-appointment. As required under Clause 49 of the Listing Agreement, the details of Dr. R. Srinivasan, Dr. S. Jayaram and Mr. Michael Bastian, Directors who are due to retire by rotation at the ensuing Annual General Meeting but having offered for their re-appointment are given in the Report on Corporate Governance, forming part of this Annual Report. The Board of Directors at its meeting held on 9th August 2012, has subject to provisions of sections 198, 269, 309, 310, 311 and other applicable provisions, if any, of the Companies Act, 1956 and further subject to the consent and approval of Shareholders and /or any other statutory authorities, if any, that may be required, re-appointed Mr. Yusuf Karim Khan as Executive Director for a period of Five years effective from 28th August, 2012. The particulars of Mr. Yusuf Karim Khan are given in the Notice of the 29th Annual General Meeting as well as in the Report on Corporate Governance. AUDITORS & AUDITORS' REPORT: M/s. S. S. Khandelwal & Co., Chartered Accountants, Mumbai retire as the Auditors of the Company at the conclusion of the ensuing Annual General Meeting. They have signified their willingness to get re-appointed and have given a declaration that if re-appointed their appointment will be within the limits specified under Section 224(1)(B) of the Companies Act, 1956. On the recommendation of the Audit Committee, the Board proposes for consideration of the Shareholders, the re-appointment of M/s. S. S. Khandelwal & Co. as Auditors of the Company for the financial year 2012-13. You are requested to appoint Auditors and fix their remuneration. The Auditors' Report to the Shareholders is self explanatory and does not contain any reservations, qualifications or adverse remark. Notes on Accounts as referred to in the Auditors' Report are self explanatory and do not call for further comments or explanation. COST AUDITORS AND COST AUDIT REPORT: The Directors have appointed M/s. Sevekari, Khare and Associates, Cost Accountants, Mumbai, having registration No. 00084, as Cost Auditors of the Company for the formulations and bulk drugs activities of the Company for the financial year 2012-13 and their appointment has been approved and taken on record by the Central Government. The Cost Audit Reports would be submitted to the Central Government within the prescribed time limit. The Cost Audit Reports for bulk drugs and formulations for the year ended 31st March 2011 were filed with the Central Government on 11th October 2011. NON-CONVERTIBLE DEBENTURES: Your Company made two issues of Rated Secured Redeemable Non-Convertible Debentures on a private placement basis during the previous financial year. The first issue was of 1,188 units of Rs. 10.00 lacs each aggregating Rs. 118.80 crores carrying interest @ 10.75% p.a. payable half yearly and redeemable in twelve equal quarterly installments starting from the end of the 9th quarter from the date of allotment i.e. 23rd December 2010 & ending at the end of the 20th quarter from the date of allotment. The installments will commence after two years of moratorium from the date of allotment. The second issue aggregated Rs. 73.00 crores comprising of 730 units of Rs. 10.00 lacs each having seven year maturity. This issue carries interest @ 11.25% p.a. which is payable half yearly from the date of allotment i.e. 30th March 2011 and is redeemable in ten equal semi annual installments starting from six months after the end of the second year from the date of allotment & ending at the end of seventh year from the date of allotment. Both the issues were rated by Credit Analysis and Research Limited (CARE) who had assigned 'A+' rating to the said NCD issues of the Company. NCD units issued under both the issues have been listed with the WDM Segment of National Stock Exchange of India Limited (NSE). The purpose of the NCD issue was retirement of high cost debt and to augment the medium to long term resources of the Company, including regular capital expenditure (not constituting a project). Attached hereto at Appendix 1 are the details of funds raised through Non- Convertible Debentures as above and their utilization. Since the close of the accounting year under review, the Company has made another issue of NCDs on private placement basis, called NCD 3rd Tranche issue amounting to Rs. 100.00 crores for augmenting medium to long term resources of the Company including regular capital expenditure (not constituting a project). The directors take this opportunity to express their sincere thanks to the investors in NCDs for the confidence reposed by them in the Company. JOINT VENTURES / SUBSIDIARIES / INVESTMENTS: 'ELDER INTERNATIONAL FZCO' the wholly owned subsidiary of the Company in Jebel Ali, Dubai, United Arab Emirates ((Dubai WOS), continues to hold 100% stake in the U. K. based NeutraHealth Limited. Upon acquisition of 100% stake in the said company it was delisted from AIMS Exchange. Mr. Jagdish Saxena, Chairman and Managing Director of your Company continues to be a Director on the Board of NeutraHealth Limited. The Dubai WOS had been holding 92.2% interest in Elder Biomeda AD, Bulgaria, a step down subsidiary of the Company. During the year under review the stake in Bulgarian Company was increased to 100%. Thus it has become a wholly owned subsidiary of Dubai WOS and as a single shareholder company, it is now known as Elder Biomeda EAD. It continues to hold 100% interest in Elder Bulgaria EOOD, a pharmaceuticals & neutraceuticals manufacturing company and Biomeda 2000 EOOD, a distribution company. Bulgaria, being a part of the European Union, offers an excellent opportunity for the Company to enter the Eastern European as well as CIS countries. The manufacturing unit in Bulgaria is being upgraded and once upgradation is completed it is expected that there will be a lot of opportunities for manufacturing products for the Eastern European, CIS and other markets. The distribution business in Bulgaria has started picking up. The distribution company which used to be operating only in the Bulgarian market has now started exporting some of its products to nearby countries. The Company is trying to promote some of the products manufactured by Elder Bulgaria EOOD in the export markets in which it has been operating. The Dubai WOS had entered into a 50 : 50 joint venture in Syncro Health Limited, Guernsey (Syncro), which was engaged in web marketing of certain neutraceutical products. Guernsey offered certain tax concessions and this would have made the products offered by Syncro Health Limited competitive as compared to buying them in stores. Since the business of Syncro did not pick up as expected it was voluntarily decided to liquidate Syncro. The Company continues to hold it's investment in the Nepal Joint Venture. During recent period there have been certain issues on decisions taken by the Nepalese partner whereby the Company's stake in terms of percentage to total capital was reduced from earlier 40% to 30.6%. The Company has notified its dissent to the action taken by the Nepalese partner and has written to the Ministry of Industry, Government of Nepal seeking an amicable solution in the matter. The discussions are going on with the Nepalese partner as directed by the Director of Industry, Government of Nepal for arriving at an acceptable solution. Pursuant to and in compliance with the General Circular No. 2 / 2011 being No. 51/12/2007-CL-III dated 8th February 2011 issued by Government of India, Ministry of Corporate Affairs the Company has given the required particulars of its subsidiary and subsidiaries of the subsidiary in a statement forming part of this Annual Report. The Annual Audited Accounts and related detailed information of the subsidiary and subsidiaries of subsidiary has been kept for the inspection at the registered / head office of your Company as well as the head office of subsidiary companies concerned and the shareholders of the Company and subsidiaries seeking such information shall be provided the same at any point of time. The Company shall also furnish a hard copy of detailed accounts of subsidiaries to any shareholder on demand. BANKERS AND FINANCIAL INSTITUTIONS: The Directors wish to put on record their sincere gratitude to the consortium of Banks for working capital comprising State Bank of India, Canara Bank, Bank of India, Axis Bank Ltd., Development Credit Bank Ltd., , DBS Bank Ltd. and Bank of Baroda for their continued and timely support to the Company. The Directors also wish to put on record their sincere gratitude to the various term lenders for their continued and timely support to the Company. EXPORT HOUSE STATUS: The Company continues to enjoy 'Export House' status. The Company's products are exported to certain African and South East Asian markets. The registration procedures are presently going on in a number of countries and once their formalities are completed, the Company's exports are expected to increase. ISO / WHO GMP ACCREDITATION: The Company continues to be certified as conforming to ISO 9001 : 2000 in the areas of development, manufacturing and marketing of pharmaceutical products. The Company's bulk drug manufacturing plant at Patalganga complies with ICH Q7A guidelines for manufacturing products for international markets including the US and UK markets. The Company's Sela Qui and Paonta Sahib formulation units are accredited for WHO GMP apart from these units being certified as conforming to ISO 9001 : 2000. The facility at Paonta Sahib in Himachal Pradesh, which has been set up as per the highest industry standards, has been approved by WHO for manufacturing and packing of pharmaceutical products. The formulations plant at Langha Road in Uttarakhand is designed as per US FDA requirements for drug products and steriles. The formulation plant at Nerul, Navi Mumbai is in the process of renewing its WHO GMP accreditation.. DIRECTORS' RESPONSIBILITY STATEMENT: Pursuant to Section 217(2AA) of the Companies Act, 1956 the Directors, on the basis of compliance certificate received from Managing Director, CFO and other executives of the Company and subject to disclosures in annual accounts as on 31st March 2012 and on the basis of discussions with the Statutory Auditors of the Company from time to time, declare and confirm: a) that in preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures if any; b) that the Directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year ended on 31st March 2012 and the profit of the Company for that year; c) That the Directors had taken proper and sufficient care for maintenance of adequate accounting records for the year ended 31st March 2012 in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for prevention and detection of fraud and other irregularities; and d) That the Directors had prepared the accounts for the financial year ended 31st march 2012 on a 'going concern basis. CORPORATE GOVERNANCE: In pursuance of the system of Corporate Governance instituted by SEBI and forming part of the Listing Agreement with the Stock Exchanges, a report thereon is separately attached as a part of to this report. RESEARCH AND DEVELOPMENT ACTIVITY: The Research and Development activities of the Company continue to be recognized by the Department of Science and Technology, Government of India. The Research and Development laboratory of the Company has successfully developed certain import substitute molecules / intermediates and has been working on development of a number of other molecules. It has also been continuously working on process developments of the molecules already developed by it. It has been engaged in development of new products and their improvement in terms of delivery, absorption and efficacy. The Company has applied for eighteen Indian patents with seven PCT applications. Out of these one PCT application has been entered in the USA, Europe and Japan. The Company enjoys 'approved' status for its Research & Development Facility from the Secretary, DSIR u/s 35 (2AB) of the Income Tax Act, 1961 for claiming rebate on the expenses incurred by the Company on Research and Development. INSURANCE OF ASSETS: All the fixed assets, finished goods, semi-finished goods, raw materials, packing materials and other goods and assets of the Company lying at different locations and in-transit have been insured against fire, burglary, transit, riots, strike, malicious damage and allied risks. CAPITALISATION: During the year under review the Company has added fixed assets worth Rs. 59.84 crores whereas disposal and adjustment of fixed assets amounted to Rs. 0.72 crores. The Company had capital work in progress amounting to Rs. 191.01 crores as at 31st March 2012 at various project sites. DEPOSITS: The Company's public deposit scheme has been receiving good response from depositors. The Company is regular in repayment and payment of interest and has not defaulted therein. The Company has been complying with the provisions of Section 58A and other applicable provisions, if any, of the Companies Act, 1956 and the rules made thereunder. As at 31st March 2012 the fixed deposits outstanding under the public deposit schemes were Rs. 128.55 crores. Bajaj Capitals Limited continue to be the Managers to the Fixed Deposit Schemes of the Company. PARTICULARS OF EMPLOYEES: Information as per Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975 as amended is available at the registered office of the Company. As per the provisions of Section 219(i)(b)(iv) of the Companies Act, 1956 this Report and Accounts are being sent to all Shareholders of the Company and others entitled to it excluding the aforesaid information. Any Shareholder interested in obtaining a copy of the statement under Section 217(2A) of the Companies Act, 1956 may write to the Company Secretary at the address of the registered office of the Company. EMPLOYER / EMPLOYEE RELATIONS: The relationship with the workers of the Company's manufacturing units and other staff continues to be cordial. The Directors wish to place on record their sincere appreciation and gratitude for the services rendered by the workers and staff at all levels. EMPLOYEE STOCK OPTION PLAN: The Shareholders at the 21st Annual General Meeting of the Company passed a resolution approving the Employee Stock Option Plan called 'Elder ESOP 2004. A total of 1,439,274 equity shares of the Company are available under Elder ESOP 2004 for grant of Options at an exercise price of 15% discount to the market rate. The Company had granted Options in respect of 399,250 shares which were to be exercised in four equal parts ending on 27th March 2008 at an exercise price of Rs. 209/- per share inclusive of a premium of Rs. 199/- per share. Out of the Options granted 285,748 Options were exercised. Options that were not exercised within the stipulated period have lapsed. There are 1,153,526 shares for which Options can still be granted to Employees under Elder ESOP 2004. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO: In accordance with Rule 2 of the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 as applicable, the particulars relating to conservation of energy and technology absorption are given in Annexure 1 to this Report. The foreign exchange outgo during the year under review was Rs. 30.64 crores for imports of raw materials / trading and other items, and Rs 39.84 lacs for foreign travel. The Company also paid Rs. 1.38 crores in foreign exchange as interest on the External Commercial Borrowing of Japanese Yen equivalent of USD 15 million. The foreign exchange earnings during the year were Rs. 28 crores on account of exports on FOB basis. For and on behalf of the Board Jagdish Saxena Mumbai, 9th August, 2012 Chairman Annexure - I A. POWER & FUEL CONSUMPTION 2010-11 2011-12 1. ELECTRICY PURCHASED: Units 7984275 7061768 Total Amount Rs. 43,222,933 Rs. 36,321,049 Rate/Unit Rs. 5.41 Rs. 5.14 2. COAL Not Applicable Not Applicable 3. FURNACE OIL (L.D.O): Quantity (Ltrs) 143,730 Total Amount Rs. 6,488,635 Rs. 6,996,832 Average Rate Rs. 54.55 Rs. 48.68 4. FURNACE OIL: Quantity (Ltrs) 172,938 191843 Total Amount Rs. 6,496,982 Rs. 6,138,976 Average Rate Rs. 37.57 Rs. 32.00 5. FURNACE OIL (DIESEL) Quantity (Ltrs) 11,495 11,405 Total Amount Rs. 493,825 405,615 Average Rate Rs. 42.96 35.56 6. Liquified Petroleum Gas (LPG): Quantity (Kgs) 277,042 228560 Total Amount Rs. 20,184,842 Rs. 14,595,100 Average Rate Rs. 72.86 Rs. 63.86 5. OTHER/INTERNAL GENERATION Units 770137 501675 Quantity H.S.D. (Ltrs) 158,885 158,885 Total Amount Rs. 5,629,815 Rs. 5,629,815 Rate/Unit Rs. 11.22 Rs. 11.22 CONSUMPTION PER UNIT OF PRODUCTION: For finished Packed Production per lac packs of formulations/per Kg. of Bulk Drug 2011-12 2010-11 1. Electricity: For Formulations Rs. 33,278.81 Rs. 29,404.34 For Bulk Drugs Rs. 100.78 Rs. 60.53 2. L.D.O. For Formulations Rs. 9,847.93 Rs. 10,308.80 For Bulk Drugs Rs. 19.00 Rs. 8.21 3. Furnace Oil For Bulk Drugs Rs. 125.55 Rs. 106.63 4. Furnace Oil (Diesel) For Formulations Rs. 27,311.46 Rs. 15,939.84 5. Liquified Petroleum Gas: For Formulations Rs. 31,326.62 Rs. 20,724.96 6. Coal: Not Applicable Not Applicable 7. a) LSHS Not Applicable Not Applicable b) HSD Not Applicable Not Applicable Form 'B' The Company has established in-house Research and Development Centre (R & D Centre) for development of various Active Pharmaceutical Ingredients (APIs) & Dosage forms. The said R & D Centre has earned recognition from the Department of Scientific & Industrial Research, Ministry of Science & Technology, New Delhi. The strength of the development activities includes creative chemistry driven work on a systematic basis to develop new technologies leading to generation of cost effective and non-infringing routes. The Company has filed a total of eighteen Indian patents with seven PCT applications, two out of which have already entered the U.S.A., Europe and Japan. The objectives of the Company's Research & Development (R & D) initiatives are as under: - Process Development for cost & quality effectiveness - Improvements in existing processes - Development of analytical method / Impurity profiling - Customer support. The R & D activities are focusing on certain core segments such as anti malerial, urinary tract infections, non steroidal & anti inflammatory molecules with specific focus on areas such as wound healing, woman health care & urinary tract infection. The Development is continuous & some of major APIs that are developed and commercialized are Amiloride Hydrochloride, Flavoxate Hydrochloride, Carbocistein, Diosmin & Diacerein. Some of the formulations developed and commercialized include Repral, Elfi- XL, Hibor, Amifru S, Artrodar, Bonviva, Anamol, Elnutrin C, Enzar, CMPH, Flavospas, Somazina, Shelcal, Thrive, etc. R&D has also created new portfolio of custom made advanced API intermediates and have successfully developed some innovative compounds for international customers. New Pharmaceutical preparations including mouth dissolving tablets, taste mask tablets, sustained release / controlled release formulations in different dosage forms utilizing the latest technology have also been developed and launched successfully. BENEFITS DERIVED: a) The proactive backward integration of the Company into the manufacture of own APIs with the objective to control quality at all stages, has helped the Company to extend its value chain in its formulations driven business model and emerge increasingly competitive in market which will support the Nation to build strong technological base. b) The APIs thus manufactured will render an uninterrupted flow of these APIs into the Indian market thus controlling cost and quality of formulations of the Company's dosage forms. EXPENDITURE ON R&D: 2011-12 2010-11 a. Capital Expenditure 6.60 54.30 b. Recurring Expenditure 507.81 435.81 Appendix - 1 During the year ended 31st March 2011 the Company had raised funds through issuance of the rated redeemable Non-Convertible Debentures aggregating Rs.1,918,000. Their utilization is given hereinbelow: The said funds were utilized as under: Amount raised Rs. 1,918,000,000 a) Retirement of high cost debt Rs. 1,324,485,374 b) Capital expenditure Rs. 141,545,235 c) Augmenting medium to long term resources Rs. 386,009,666 d) Issue Expenses Rs. 65,959,725 TOTAL Rs. 1,918,000,000 MANAGEMENT DISCUSSION AND ANALYSIS Economic developments of the past year have been volatile, punctuated by natural disasters, large swings in investor sentiment and periods of relative calm and improving prospects. Output in the second half of 2011, was particularly weak, buffeted by flooding in Thailand, earthquake and tsunami in Japan, unrest in oil-producing countries, the debt crisis in Europe, and a stagnating recovery in the US. According to the International Monetary Fund, the global economy will continue to be sluggish in coming quarters as the recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Global output is projected to expand by 3.5% in 2012. Moving on to India, the GDP growth for 2011-12 stands at 6.9%, only marginally higher than the 6.7% growth seen in 2008-09, the year of the global economic crisis. Growth impulses and business sentiments have weakened in India in the recent months on account of a host of factors which include an increase in interest rates. The year was marked by economic slowdown across the globe, with the Euro crisis being the highlight. The Indian economy, despite its resilience, was not immune. The falling rupee, widening fiscal deficit, double-digit inflation, 13 interest rate hikes in a year, crucial policies like FDI in retail with strong backward linkages going on the back burner, the dismal feeling of policy paralysis in the country, all these marked critical developments in the course of 2011. Sustaining high growth is likely to be the overarching concern in 2012, although the risk of inflation will remain, largely because of a weakening rupee. Investment growth is likely to remain sluggish in 2012-13 as well, unless policy issues are addressed and there is a substantial pick-up in the pace of implementation of big ticket economic reforms. Global Pharmaceutical Industry The economic crisis is adding another layer of complexity to an already challenging market environment. The forecast by IMS Health announces a world pharmaceutical market growth level of between 2.5% and 3.5% on a constant dollar basis. The pharmaceutical industry will feel the impact of the economic climate, but to a lesser extent than many other industries. The current forecast for the 2012 global pharma market is just over $ 750 billion when currency exchange fluctuations are also taken into consideration. In the US, the biggest market for prescription drugs, the market is expected to contract for the first time in more than 50 years by 1% to 2% to between $ 280 billion and $ 290 billion in 2012. Taking the five largest European markets (Germany, France, Italy, the U.K. and Spain) together with Japan and Canada, the average yearly growth rate will range between 1% and 4% over the next five years. Higher growth is expected in emerging markets (Brazil, Russia, India, China, Turkey, Mexico and Korea), with average annual growth of 13% to 16%. The seven emerging markets will contribute more than half of global market growth in 2012 and sustain an average 40% contribution through 2013. Despite the pressures, there is still room for new drug launches and potential blockbusters. IMS predicts that between 50 and 60 new medicinal products will reach the market in the coming two years. While the pharmaceutical market is expected to rebound as the global economy recovers, an unprecedented level of potential patent expirations in 2012 and 2013 will curb sales growth. The global compound annual growth rate (CAGR) for pharmaceutical market growth is forecast to be 3% to 6% through 2013. Indian Pharmaceutical Industry The domestic pharmaceutical sector has seen 15% revenue CAGR in the past five years and the momentum is expected to continue at 14-15% CAGR, to reach an industry size of $ 17.5 billon by 2014. The overall growth will be primarily driven by 18-20% CAGR in the chronic diseases sub-segment, which makes up ~25% of the market, and ~12% growth in acute therapies. Increasing healthcare penetration in rural areas would add to the growth. Segment-wise growth is driven primarily by strong growth in the anti-diabetic, cardiac, gynaecology and anti-infective segments. Double-digit growth is expected to continue in the next 4-5 years, led by deeper penetration in rural markets, rising healthcare spend and a higher incidence of chronic diseases. Contributing 19% of revenue, anti-infectives remain the largest segment of the domestic pharma market. Chronic diseases such as cardiac, diabetes and CNS cumulatively brought in 27% of revenues, growing at 18-20% for more than five years, faster than the industry growth rate of 1415%. The respiratory and pain segments individually accounted for 9% of revenues, while vitamins and minerals contributed 10%. The prevalence of chronic diseases in India is growing alarmingly, due to increasing sedentary lifestyles and unhealthy eating habits. Lifestyle diseases offer sustainable sales and better operating margins than acute segments. About 65% of the population in India does not have access to essential affordable medicine, against only 15% in China and 47% in Africa. This is despite the fact that a stringent price-control mechanism is in force in the country and the Government has been able to provide medicine in India at a price that is lower than even in smaller economies such as Sri Lanka, Pakistan and Bangladesh. However, rising income levels of the Indian population and increasing healthcare awareness are likely to increase affordability. Moving further, the Indian pharmaceutical sector is largely a brand conscious market, where brand recall is the most important driver of its future. It is also a doctor-driven market, as the Indian population prefers to consume branded medicine prescribed by its doctors. These prescriptions form the key to revenue generation for a pharma company. Therefore, for a pharmaceutical company to succeed in the Indian formulations market, strong brands need to be well-established in order to ensure sustainable revenue momentum and good margins. India's economic parameters strengthen the strong growth story for the domestic pharmaceutical market. India is still far behind other developed and emerging countries in terms of per-capita healthcare expenditure, proportion of population lacking access to essential medicines, and public healthcare expenditure as percentage of GDP. Company Overview Elder Pharmaceuticals is one of the fastest growing pharma companies in the country. Set up in 1988 with a manufacturing plant in Navi Mumbai, the Company today has acquired a major presence in women's healthcare, lifestyle diseases and pain management. Shelcal, a calcium supplement is a leading brand in the Indian pharma industry. A domestic centric Company, it derives more than 90% of its revenue from the domestic market and is ranked 27th by IMS ORG, April 2012. The Company has its presence highlighted across the domestic pharmaceutical chain from in-house manufacturing, In- licensing agreements, Active Pharmaceutical Ingredients and Dosage Formulations backed by an intensive Research & Development division at Nerul (Mumbai). Elder Pharmaceuticals has geographically diversified manufacturing facilities in six locations: Paonta Sahib (Himachal Pradesh), Selaqui (Uttaranchal), Langha Road (Uttaranchal), Nerul (Maharashtra) Patalganga (Maharashtra) and Pawane (Maharashtra). Together, these help Elder cater to customers on a pan-India platform. Financial Performance Standalone revenues for the financial year ended March 2012 stood at Rs. 98,468.73 lacs as compared to Rs. 83,858.56 lacs in the corresponding period last year thereby registering an increase by 17.42%. Standalone Profit for the year for the financial year under review stood at Rs.8,407.33 lacs as compared to Rs. 7,079.12 lacs, an increase by 18.76%. Business Performance The financial year under review reflects that the Company's business verticals have delivered consistent financial and operational performances. Women's healthcare continues to remain the strongest pillar at Elder Pharma contributing 23% of total revenues. Nutraceuticals and pain management divisions witnessed encouraging growth with contributions of 7% and 9% of total revenues respectively. The anti-infectives division has also shown promise. Segment-wise Overview A detailed summary of each of the therapeutic segments is as follows: 1. Women's healthcare * Shelcal remains the lead value creator for the Company. Shelcal and its extensions take the complete needs of calcium as a supplement, as a preventive and as a treatment for calcium deficiencies which gives rise to Osteoporosis * Extensions of Shelcal named Shelcal CT and Shelcal OS have witnessed consistent growth * Shelcal K and Shelcal HD are further assisting in boosting brand Shelcal * The newly launched niche range for vaginal hygiene, Vagisil and Zalain will contribute to growth of this division going ahead 2. Nutraceuticals * For the financial year under review, this division grew by 14% * The Company's own brand 'Eldervit' continues to be the key contributor to this division's performance * Phytomega, an in-licensed brand is garnering support in cardio protection segment * Chewable form of co-enzyme Q10 'Ecozyme', I-Vit Plus as well as Pepamino are expected to boost revenues from this division going further * Newly launched D-360 is also expected to boost earnings moving ahead. 3. Wound care and pain management * The Company's own brand 'Chymoral' continues to remain the key revenue driver with a robust 84% domestic market share in its category. Chymoral Plus, an extension of predecessor Chymoral, has been well received * Recently launched Eltrodar GM is expected to bolster performance of this division 4. Anti-infectives * In the financial year under review, this division registered an increase of 12% * The Company's Cefixime brands have displayed consistent performance over the financial year under review * Formic and its line-extension Formic-O are the key revenue contributors to this division * Newly launched Balofloxacin, MENY (Meropenem) and Formic OF are expected to boost revenues in this division going ahead 5. Lifestyle Disease Care Portfolio * This segment is driven heavily by promotional inputs and the gestation period for product acceptability is fairly long * On keen observation, it is noted that Lifestyle diseases are on the rise especially in the Tier I and Tier II cities owing to unhealthy lifestyles and increasing stress levels * This is leading to issues pertaining to Hypertension, Diabetes and Cholesterol steadily gaining status * Carnisure, a cardiovascular product is a major and established brand in its category * Somazina Group has maintained high growth over past 5 years Geographical Break-up (Rs. lacs) Particulars FY 12 FY 11 Shift (%) Domestic 96,434.51 82,345.73 17 Exports 2,814.87 2,349.60 20 * Focus continues on the domestic markets with an intention to concentrate on nurturing possible opportunities on the domestic front * In FY 12, domestic revenues were at t 96,434.51 lacs, an increase by 17% over the corresponding period last year * Apart from the urban markets, the Company is also tapping growth opportunities in the rural and semi-urban markets through its rural marketing team Elvista * The Company is exporting to the non-regulated and semi-regulated markets that offer immense opportunities * Revenue from exports in the financial year under review stood at t 2,814.87 lacs, registering a growth of 20% * Elder Pharma has acquired 100% stake in NeutraHealth, UK and in Biomeda, Bulgaria. Commencement of commercial operations in Bulgaria and UK and improved exports has witnessed the Company garner better revenues from International business Outlook The year under review, has been good as Elder Pharma delivered robust financial and operational performances across all segments. The Company has always aimed to be a leading innovator of pharmaceutical products while maintaining a high standard of quality controls and overall integrity of the brand. Further, the Company is positive of the potential of the recently launched which would augment growth in the time to come. Adding to our revenues would be the contribution of the Company's mass marketing division Elvista. The division has been performing consistently well enabling Elder Pharma to strengthen presence in the rural and semi urban markets. Enhancing performance would be the Company's initiative of consistently investing in augmenting market reach through improved distribution of products. Going forward, the Company continues to explore opportunities, introduce new products and believe there is significant opportunity in the year ahead to accelerate growth and create value. The management is optimistic of continuing to deliver consistent performance enhancing shareholder value. Human Resources Human Resources form an integral part of the Company's strategy for growth. Elder Pharma employs almost 3,537 employees. The growth attained by the Company is largely a function of the competence and quality of its human resources. The work environment is very challenging and performance- oriented, recognising employee potentials coupled with providing them with opportunities. The Company is also at the forefront in attracting and retaining the best talent. Human resource continues to be core strength and always endeavours to work towards having sound, proactive & progressive HR strategies and practices in place so as to align Company's objectives and employee aspirations. Internal Control and Systems The Company has an adequate internal control system to safeguard all assets and to ensure efficient productivity. Timely reviews ensure that all transactions are correctly authorised and reported. Wherever deemed necessary, internal control systems are also reassessed and corrective actions are taken. Cautionary Statement Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be 'forward looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Company's performance include economic developments within the country, demand and supply conditions in the industry, changes in input prices, changes in Government regulations, tax laws and other factors such as litigation and industrial relations.