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The world economy is once again on the growth path. With financial conditions stabilising, there is greater hope of a sustained uptrend. The largest economy in the world, the US delivered stronger than expected growth. The emerging economies continue to support broader economic expansion and have attracted robust capital inflows. The Economic Survey 2012–13 estimates GDP growth rates to be in the range of 6.1% to 6.7% in FY 2013–14. The Government is making concerted efforts to boost economic growth by containing fiscal deficit, keeping current account deficit and inflation under check and by channelising savings and increasing investments.
Your Company has created an integrated business across the entire pharmaceuticals value chain for catering to global requirements, strongly supported by its inherent strength of low cost of production and low R&D costs with large installed capacities out of India. We are one of the most cost competitive players in our chosen areas and being vertically–integrated across multiple businesses helps immensely. We have set up large global scale capacities in Life Science Ingredient products and continue to enjoy global leadership positions.
Our overarching presence in the high–growth and high–margin defensive pharmaceuticals business is by way of a well–thought out strategy that offers the best potential for growth in the years to come. The underlying objective in each business is to create a position of global leadership built through innovation, harnessing strength of integration benefits and creating global scale. We have a strong R&D team of 1,074 employees and we continue to make significant investments on R&D. In FY 2013, our spending on R&D stood at 2.9% as percentage of total revenues.
New products have contributed to over 10% of our revenues during last 5 years. We expect a robust growth momentum going forward on account of new product launches and also expanding the existing product portfolio in new markets.
One of the thrust areas of the Company is sustainability with focus on doing things the green way. We have for long followed the triple bottom line approach of Economic, Environment and Social Performance. There are programs that constantly seek to reduce the energy footprint of the organisation and bring down the emission of greenhouse gases while delivering higher revenues from green products. Revenues from green products came in at Rs. 18,940 million for FY 2013, contributing 37% to our total revenues.
By virtue of our vertically integrated operations, we enjoy competitive advantages in the form of cost efficiencies by producing across the value chain, thereby reducing our dependence on third parties for supply of feedstock down the value chain and are insulated from significant price volatility in raw materials. In our Life Science Ingredients segment, our Life Science Chemicals products such as Alcohol and Acetaldehyde are used as feedstock for our Proprietary Products and Exclusive Synthesis (PPES) business. Our PPES end products such as Pyridines and its derivatives and Beta Picoline are used as feedstock for our value–added products in other business segments, including Nutrition Ingredients and for Active Pharmaceutical Ingredients (APIs) under our Pharmaceuticals segment. In our Pharmaceuticals segment, the APIs from our manufacturing facilities are used for Solid Dosage Formulations under our Generics business. The effect of vertical integration on our performance is demonstrated by our Inter–Divisional Sales growing to 12% in FY 2013 and expected upward trend going forward.
The focus has now been on generating free cash flows from operations to reduce the overall debt of the consolidated entity to further strengthen the Balance Sheet. The board has formed a committee to explore various options of raising foreign currency bonds up to US$ 250 million for the purpose of prepayment of the existing debt and other general corporate purposes without increasing the overall net debt levels of the company in the best interests of the company and all its stakeholders.
The Board also appointed Committee to consolidate the Company's global pharmaceuticals segment, comprising of (a) Active Pharmaceutical Ingredients (APIs), Solid Dosage Formulations, Radiopharmaceuticals, Allergy Therapy Products, Sterile Injectable and Ointment, Cream and Liquid businesses (Pharmaceuticals Business) and (b) the Drug Discovery and Deveplopment Solutions business under two separate subsidiaries and to evaluate the options and opportunities for raising money by listing the Pharmaceuticals business as deemed appropriate by it, subject to receipt of all necessary approvals, in the best interests of the Company and all its stakeholders. This would result in focused growth in pharmaceuticals business and reduction of overall consolidated debt of the Company.
The year FY 2013 saw Income from Operations of Rs. 51,610 million, growing 21%. Earnings before Interest, Taxes and Depreciation & Amortisation (EBITDA) stood at Rs. 10,548 million with EBITDA margins of 20.4%. Profits Before Exceptional Items, Tax and Minority Interest were at Rs. 5,708 million, up 22%. The Profit After Tax (PAT) was reported at Rs. 1,527 million whereas the Normalised PAT after adjusting for exceptional items stood at Rs. 3,824 million.
We continue to focus on our international business. Our products and services now reach out to clients in 98 countries of the world. International revenues account for over 74% of the revenue mix at Rs. 38,276 million with revenues from North America, Europe and Japan at an all–time high of Rs. 31,909 million.
In FY 2013, the Pharmaceuticals segment witnessed a revenue increase of 22% at X 26,580 million, contributing 52% to the overall Income from Operations and 66% to EBITDA. This robust growth is driven by volumes and new product introductions and a wider geographical footprint. During the year, we witnessed multiple launches across geographies in Generics business, focussing mainly in Cardiovascular System (CVS), Central Nervous System (CNS) and Anti–infectives. We received 78 approvals for Solid Dosage Formulations products including 5 Abbreviated New Drug Application (ANDAs) in the US, 4 in Europe and 7 in Canada. Our product pipeline is getting stronger with 58 cumulative ANDA filings in US, 41 Dossiers in Europe, 20 in Canada and 501 in the Rest of World (ROW) along with 65 cumulative Drug Master Files (DMFs) in US, 29 Certificates of suitability to European Pharmacopoeia (CEPs), 33 filings in Canada, 6 filings in Japan and 102 filings in ROW as of March 31, 2013. Sterile Injectables & OCL business won contracts worth US$ 217 million from global pharmaceutical companies to be delivered over multiple years. Our contract manufacturing facility at Canada had been issued a warning letter by United States Food and Drug Administration (USFDA) identifying violations of certain cGMP Regulations. We have already carried out certain improvements suggested by the regulators and we are continuously engaged to provide all the necessary clarifications sought by the agency. However, our normal operations are going on as usual though this warning letter may have an impact on approval of any new applications.
In FY 2013, Life Science Ingredients segment delivered revenue growth of 19% to Rs. 25,030 million thus contributing over 48% to the overall Income from Operations. Volume growth has been robust, in line with the capacity enhancements that were carried out over the last few years. We have introduced a series of value–added products which will offer sustained upsides in performance from here on. Also the new Symtet plant was commissioned in the last quarter of the year after initial scale up issues.
As of March 31, 2013, our Net Debt stood at Rs. 34,322 million (excluding Financial Leases). It comprises of Rs. 25,134 million (excluding Financial Leases) in net long–term debt and Rs. 9,188 million in working capital debt. Post adjustment for constant exchange rates, when compared with March 31, 2012, Net Debt was down by Rs. 2,612 million at Rs. 32,865 million. The corresponding improvement is reflected in terms of our Net Debt to Equity Ratio at 1.4 at FY 2013 end, down from 1.6 last year and Net Debt to EBITDA at 3.3 from 4 in the corresponding period. To further accelerate process of reduction of debt, Board has also appointed a committee which will come up with options to meet this objective.
Following sustained performance on a consolidated basis, the Board has proposed a dividend of 300% per equity share of Rs. 1 face value for the year. If approved this will result in a cash outgo of Rs. 559 million including tax.
Outlook For FY 2014
The growth momentum of the Company revenue and EBITDA is expected to continue to do well, with robust outlook. In the Pharmaceuticals segment, strategy of new product launches and geographic expansion will continue to drive growth while the key driver in the Life Science Ingredients segment will be higher capacity utilisation in the Nutrition Ingredients and Crop Science intermediates supported by backward integration of Pyridine.
We would like to utilise this opportunity to convey our deepest gratitude to every stakeholder including customers for reposing faith in our products and services, suppliers and vendors for consistently providing quality inputs within desired timelines, our bankers and shareholders for believing in us and showing confidence by being with us and to our Independent Directors for the guidance drawn from their vast experience and knowledge. We take this opportunity to thank Mr. Surendra Singh, Mr. H. K. Khan and Dr. Naresh Trehan who resigned having completed 9 years' tenure, as fixed by the Board for Independent Directors. We would also like to welcome Mr. S. Sridhar as an Independent Director on the Board. Lastly, we would like to express a note of thanks to our employees worldwide for helping us deliver our broader agenda of profitable growth. Without their untiring efforts, we could not have delivered this kind of sustained performance.
Look forward to exciting times ahead!
Shyam S Bhartia
Chairman & Managing Director
Hari S Bhartia
Co–Chairman & Managing Director
June 15, 2013