Financial Year 2018 has been one of the most challenging years in recent times for theglobal pharmaceutical sectors. In the face of severe pricing pressure in the generic drugsmarket industry wide margins have been impacted. This has been compounded by supplyconstraints such as mounting oil prices and an unanticipated global capacity constraintowing to increased environmental regulatory requirements in China. The vigilance levels byregulatory authorities across markets only see an increase with each passing year addingto the existing pressures on manufacturers.
This has been a challenging year for us at Neuland with performance being impacted byexternal and internal situations some of which were beyond our control. Some of thefactors which led to a muted performance were lower than expected sales in Cipro_oxacinSalmeterol and a product in the CMS segment. There were capacity constraints in our Unit 1that prevented us from delivering more orders during the first half of the financial yearon account of mismatch in capacities whereby the order mix led to a constraint for certainproducts while there was free capacity elsewhere. While we as a Company prepared specificexecution plans for our capacities the order inflow did not match this plan. We hadstronger than usual orders for products like Donepezil Olanzapine Sotalol andLevo_oxacin but these are where we had some capacity constraints. Some products in ourniche category such as Entacapone Dorzolamide and Brinzolamide showed a decline in orderinflow. This had a direct bearing on our operational e_ciencies and hence the toplinenumbers took a severe beating. This was also compounded by delay in the regulatoryapprovals for Salmaterol which further impacted our overall performance.
For the financial year 2018 the total revenue was Rs 5336.9 mn as compared to Rs5888.9 mn in FY17 a decline of 9.4%. The EBITDA stood at Rs 545.7 mn as compared to Rs106.9 mn during the previous financial year and EBITDA margins dropped to 10.2% from 18.1%in FY17. Net profit stood at Rs 118.1mn for FY18 as compared to Rs 463.8 mn in FY17 andbasic EPS stood at Rs 10.59 as against RsRs 41.58 in FY17. Keeping in view the futurestrategic initiatives of the Company the Board has not recommended any dividend for theyear ended March 31 2018.
In the last year we have added capacity with the addition of Unit 3consolidated our businesses with the merger approval coming through and are geared to facethe headwinds. Our robust compliance framework built over 30+ years is embedded into theculture of Neuland and is reffected in the way we function.
A key development during the year was that the National Company Law Tribunal (NCLT)Hyderabad Bench vide its order dated March 28 2018 approving the Scheme of Amalgamationand Arrangement between Neuland Laboratories Limited (NLL) Neuland Pharma ResearchPrivate Ltd and Neuland Health Sciences Private Limited into a single company - NLL. Theamalgamation will build stronger and sustainable business and enhance the potential forfuture growth with the consolidation of intellectual property R&D capabilities andphysical infrastructure into one combined entity. There would be greater operationalefficiencies with strong financials will have greater access to sources of funds improvedcash flows and increased net worth.
We acquired a multiproduct manufacturing facility Unit 3 spread across 12 acres witha capacity of about 197 kiloliters in December 2017. It was inspected by the UnitedStates Food and Drug Administration (USFDA) in 2015. It approximately represents a 40%increase in terms of total manufacturing capacity for Neuland. It has 5 production blocksfor API manufacturing as well as advanced intermediate manufacturing. It also hascapability for onsite development analytical method development quality controllaboratory and a pilot plant. To start with Unit 3 serves as a backward integrationfacility for a number of products that we currently manufacture apart from de-risking rawmaterial supplies for existing products. It also gives the Company flexibility to add newhigh-volume products while creating additional capacity for new CMS products as well asdoubling up as an alternate site for existing products.
The backward integration of some of our products in newly acquired facility Unit 3 istherefore a crucial step in that direction to partially mitigate costs and shore upmargins in addition to the quali_cation of alternate site for key products. Theintegration of the Unit 3 facility is ongoing and we have already started manufacturingtrials for some of the intermediates from this facility as a backward integration processfor some of our products. Selection of new products and qualifying them for the facilityis currently underway and we believe that this acquisition will add value to the Companyin the forthcoming quarters.
During the year the US FDA has successfully completed its audit in one of ourfacilities. This was followed by an EDQM inspection and a Chinese FDA inspection. For theUS FDA inspection we have already received the Establishment Inspection Report (EIR) andfor the EDQM inspection there were no critical or major observations.
As we step into the new _scal we are happy with the visibility for GDS and orderpipeline from the CMS business which we see as one of the key growth drivers for theCompany. The CMS business continues to see an increasing momentum as we scale our productsin the plant and add new projects. This year we _led 4 USDMFs ApixabanPaliperidone Palmitate (Sterile) Rotigotine and Aripiprazole Lauroxil and scaled up oneCMS product and Aripiprazole Lauroxil for the GDS business.
There is high customer interest in Peptides and we have completed signi_cant milestonesin some of the peptide projects. Our process engineering lab which was commissionedrecently is enabling us to work on Quality by Design (QBD) for NCE projects and this hasalready helped us with projects across the GDS and CMS business.
The outlook for the pharmaceutical industry is expected to slowly turn positive. Thereis an abatement in pricing pressure from regulatory markets. At the Company level we haveresolved our supply mismatch issues by initiating the process of making our unitsfungible and adding acquiring capacity the outlook for our businesses Prime APIsNiche and CMS is positive for the current financial year and barring any unforeseenregulatory changes we are poised to return to our growth trajectory after a muted year.
Human capital remains the core of our success and we have a focused team committed tomaking Neuland stronger and better and it is an honour to work with them. Their hard workis not only gratifying but critical for us to accomplish what we and our shareholders aimto achieve. I am grateful to our wonderful team customers and shareholders businesspartners lenders and all stakeholders for their unstinting support and trust that theyplace in Neuland.
|With Best Regards |
|Dr. Davuluri Rama Mohan Rao |
|Chairman & Managing Director |