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Hikal Ltd.

BSE: 524735 Sector: Health care
NSE: HIKAL ISIN Code: INE475B01022
BSE 14:17 | 18 Oct 535.05 12.45
(2.38%)
OPEN

525.00

HIGH

538.00

LOW

515.05

NSE 14:09 | 18 Oct 535.15 12.40
(2.37%)
OPEN

528.00

HIGH

539.00

LOW

515.00

OPEN 525.00
PREVIOUS CLOSE 522.60
VOLUME 36105
52-Week high 742.00
52-Week low 142.85
P/E 39.11
Mkt Cap.(Rs cr) 6,597
Buy Price 534.80
Buy Qty 19.00
Sell Price 535.55
Sell Qty 2.00
OPEN 525.00
CLOSE 522.60
VOLUME 36105
52-Week high 742.00
52-Week low 142.85
P/E 39.11
Mkt Cap.(Rs cr) 6,597
Buy Price 534.80
Buy Qty 19.00
Sell Price 535.55
Sell Qty 2.00

Hikal Ltd. (HIKAL) - Chairman Speech

Company chairman speech

Dear Shareholders

While 2020-21 will go down in history as one of the most challenging years it alsobrought out the perseverance of our colleagues and resilience of our business model. Thehealth social and economic consequences of the global pandemic affected everyone.

We reacted quickly and decisively to minimise the effects of the crisis by safeguardingthe health of our employees and ensuring that we could adapt to the needs of ourcustomers.

Financial Performance

Despite the adversities faced during the year the Hikal team worked tirelessly toensure that we met the needs of our customers in a safe and efficient manner. For the fullyear 2020-21 we achieved total revenues of ^ 17204 million for 2020-21 as compared to ^15073 million recorded in 2019-20 registering a 14.1% increase The growth in revenuescan be attributed to the increased volume growth in established products strongperformance from the CDMO products and successful penetration into

several new markets. These coupled with the business excellence initiatives thatenabled us to increase productivity from the existing production facilities contributed tothe improvement in performance. These strong results reflect the continued positivemomentum of the Pharmaceuticals and the Crop Protection businesses.

We recorded an EBITDA of ^ 3229 million for FY 2020-21 which was 18.2% more than thatin the previous year. The EBITDA margins for the current year was at 18.8% an increase of70 bps over the previous year. The net profit for the year 2020-21 stood at ^ 1332million as compared to ^ 844 million in 2019-20 recording a significant growth of 57.7%.

Based on the strong financial performance for the year the Board of Directors haverecommended a final dividend of ^ 1 per share equivalent to 50% of face value along withan interim dividend of ^ 1 per share which was declared in February 2021. This makes thetotal dividend of ^ 2 per share equivalent to 100% of face value.

The strong financial performance also translated into a significant improvement in ourreturns ratios with Return on Capital Employed (RoCE) at 16.1% (360 bps improvement) andReturn on Equity (RoE) at 15.2% (450 bps improvement) respectively for the year.

We have been able to consistently generate strong cash flow from our operations andhave brought down our borrowing costs. We have generated a net cash flow from operationsof close to ^ 1800 million during the year a majority of which has been used towardscapex and debt repayment. Our Net Debt/Equity Ratio is at 0.6x as of March 31st2021 as compared to 0.7x a year ago.

Pharmaceutical Division Performance

The Pharmaceutical division recorded a growth of 19.5% in revenues from ^ 8869 millionin

2019- 20 to ^ 10596 million in 2020-21 on the back of increased volumes of keyproducts including existing API Generics and CDMO products. Our cost optimisation andcapacity improvement programmes have also enabled us to meet the increased demand from themarket while maintaining and in some cases increasing margins. Through our new productfilings we are also generating strong customer interest in various regulated markets. Inaddition the healthy pipeline of new products supported by the new capacities willenable us to continue supporting both the domestic as well as the global markets in thenear future.

Crop Protection Division Performance

We had a challenging start to the first half of

2020- 21 in our Crop Protection business due to the lockdown and deferment of orders byseveral of our customers. Despite the slower start to the year the Crop Protectionbusiness recorded a revenue growth of 6.5% reaching

^ 6608 million. Healthy volume growth of our existing products and commercialisationof a new product from our newly built facility in Panoli propelled the division'sperformance in the second half of the year. We have a healthy pipeline of new productsfrom existing and new

customers. We are confident of continuing the growth trajectory of the Crop Protectiondivision where we see significant opportunities ahead.

Animal Health

I am very pleased to announce a significant milestone we achieved in our Animal Healthbusiness where we signed a 10-year contract for the development and supply of a portfolioof niche APIs with a leading global multinational customer. This was an incredibleachievement as we concluded the agreement during the pandemic where everything was donevirtually including the negotiations audits and signing of the contract. This is a truetestament to the level of trust and confidence we have achieved with our customers. Wewill be setting up a new flexible animal health manufacturing facility at our Panoli sitewhich will cater to these products as well as to the future portfolio of products that iscurrently under development. Our strategic plans are on track to eventually make theAnimal Health business into a new vertical and we are confident on the prospects of thisbusiness.

Research & Technology

We invested 3.3% of our sales in Research & Technology. We believe continuoustechnological innovation and constant optimisation of our development as well asproduction processes are critical for our business to succeed. We will continue to makesubstantial investments in research and technology with the goal of remaining at the frontof innovation. We are focusing on backward integration of raw materials and improvement inprocesses. Backward integration of the key raw materials is a strategic decision to reducesupplier concentration as well as geographical dependence. This year we built newdevelopment laboratories added new technologies such as process simulations which help todevelop simplified processes reducing time to market and ensuring competitive supply toour customers. We are working closely with our customers on second and third generationprocesses to ensure their products are more competitive in the long term.

Based on the new additions in technology and people we feel a new beginning for Hikalhas started that will open up new and attractive perspectives for our global customers.

Capex & Operations

We are in the midst of a large capital expenditure program to cater to the significantgrowth opportunities in both our businesses. Last year we undertook a combined capexprogramme of ^3000 million across the divisions some of which was unfortunately delayeddue to the pandemic with only ^ 1576 million being spent in the current fiscal.

We additionally plan to invest around ^ 2500 million this year towards capacityaddition and infrastructure upgradation to have multi-product plants that provide us theflexibility to manufacture several products simultaneously. We are also making significantinvestments towards upgrading our technology with the implementation of the Industry 4.0automation of processes digitalising components and using analytics to bring in cloudconnectivity for real time data. Going forward as we see additional opportunities wewill increase our Capex.

On the capacity front we recently concluded the construction of a production block atthe development and a launch plant (Unit 2) in Bengaluru. It will cater to the productionof Key Starting Materials (KSM) intermediates and APIs which will help meet the growingdemands from our innovator manufacturing customers. A simulation plant at Pune wassuccessfully commissioned in the current fiscal. This will enable us to provide a morerobust demonstration to minimise any kind of failure when scaling up happens at the actualfacility by arresting all the issues within this demonstration facility itself.

Our Hikal Business Excellence "HIBEX" programme is a stepping stone in ourtransformation journey. It is a structured programme which will enable us to take ourbusinesses to the next level - ensuring that all business processes are more robustefficient and transparent. This is a programme that does not limit itself to improvingefficiencies but also helps attaining the goals set and strategies developed through asystematic approach.

Supply Chain

With the supply chains having been crippled world over owing to the pandemic and theenvironmental challenges emanating in China there is a demand for a ‘China-Plus-OneStrategy' to create an alternative to China.

We believe that India is likely to be a big beneficiary of this shift. Thepolicy-support from the Indian Government through schemes like Performance LinkedIncentive (PLI)

Scheme under Aatmanirbhar Bharat it is likely to provide opportunities for us in thenear term. Besides we are also backward integrating several key raw materials bybuilding capacities and capabilities internally to bring in cost optimisation and toensure lesser dependence from a particular geographic region.

Business Transformation "Pinnacle"

In line with our vision we have set a bold aspiration of driving profitable growth andtransforming our business to go from ‘Good to Great'. We have branded this program as"Pinnacle" which highlights our bold aspirations of reaching the top of ourindustry. The current market dynamics provide a great opportunity for Hikal to double downon existing capabilities and invest in select future opportunities with long-term growthprospects. As part of our transformation journey we have already engaged a leading globalconsultant firm to work along with us which will enable us to pivot our growth in asustainable manner.

The journey forward will entail accelerating growth in our existing pharma and cropprotection business as well as investing in our emerging business verticals such asanimal health and biocides.

ESG

We are committed to doing business in a responsible safe and efficient manner andbecoming a sustainable company for long-term success. We have taken several initiatives toensure clean energy reduction of carbon footprint reduction of waste generation acrossall our sites. We have started the journey to integrate our business with our ESG strategyto better understand the needs of all our stakeholders colleagues partners and

communities in which we operate. We are creating an ESG strategic framework withdedicated people which will institutionalise the ESG efforts across the company.

People

Human Capital is the cornerstone of our organisation. At Hikal our people galvanisedand supported the operations through a period of unprecedented external uncertainty andpersonal challenges. We transformed digitally and revived our operations swiftly byputting employee safety holistic wellness and critical business processes at the centreof people management. We undertook several initiatives to help our people cope with the‘New normal' to ensure their physical and mental well-being. As a testimony of havingcreated an organisation driven by people for the people we were certified as a 'GreatPlace to Work' for the second consecutive year in a row.

CSR during the Pandemic

While this year we experienced unprecedented levels of uncertainty we have togethershown the resolve and resilience to meet unforeseen challenges. Our manufacturingfacilities kept operating throughout the pandemic in 2020 as they were categorised as"essential".

We developed and manufactured in a record time Favipiravir API and its intermediatesprescribed to fight COVID-19. We made numerous contributions through our CSR programme andpartnered with NGOs as well as Government agencies to ensure health and well-being ofgeneral public along with our stakeholders. Owing to our efforts during the pandemic wewere bestowed with the "Best COVID-19 Response" award under the CSR LeadershipAwards at the 10th edition of the World CSR Day Congress in February thisyear.

Future Outlook

Going forward we aspire to be a company driven by technology execution focused whileremaining customer-oriented delivering best-in-class services across all verticals. Weare already undertaking initiatives to create Hikal as a technology powerhouse having thebest-in-class platforms for our customers.

Our corporate strategy aims to create long-term value and we will deliver sustainablegrowth over the next few years. We have significant tailwinds and opportunities in bothour businesses. We are gaining more traction on the ground increasing our share of walletwith existing and new customers.

While managing the unprecedented uncertainties in our operating environment we areworking to redefine as well as harmonise our business and structure through ourtransformative "Pinnacle" program. We have the confidence to manage newchallenges that the future has in store for us.

On a concluding note I would like to extend my appreciation to all our stakeholdersfor supporting us and standing by our side this year. I would like to express specialappreciation to our employees who in a difficult personal and professional environmenthave supported one another and the Company by showing extraordinary commitment andsolidarity. Their resolve determination and fortitude has allowed us to grow during ayear of unprecedented disruption and doubt.

Warm regards

Jai Hiremath

.