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Managing Director''s Review Dear Shareholder''s
At the outset, I would thank you for being with us and reposing your confidence in its management. 2015-16 has also been very turbulent year for your company and your company witnessed increased financial stress due to unruly economic variables that continued to affect the business normalcy and all performance parameters badly shaken. During the financial year 2015-16, the company registered a top line of INR 831 Million while incurring loss of INR 4852 Million.
As reported in the previous Annual Report, your company had also undertaken a financial restructuring with its lenders through CDR mechanism and the restructuring scheme was approved by CDR-EG in March 2013 and stands implemented. The performance of the Company was also going as per CDR projections and the Company had achieved turnover of Rs. 447 crores against CDR projection of Rs. 516 crores in financial year ended on 31-3-2014 with a little pressure on EBIDTA figures of 15 crores against projected 32 crores because of delay of six months in disbursement of funds by the lenders. However, In the month of April 2014 Statutory Auditors of State Bank of India (lead bank) reviewed the calculation of the Drawing Power and revised lower the valuation and the drawing powers with retrospective effect (w.e.f Sept, 2012). Drawing power of the company was reduced by Rs 50 Crores which resulted in the company becoming NPA technically from back date of revising. It continues to adversely affect the operations of the company because of long drawn out break in the working capital cycle for smooth operations in the company. The availability of funds for maintaining the working capital cycle of the company further deteriorated due to a fast depletion of funds due to heavy losses.
The request of the company for second debt restructuring was rejected by the bankers which ultimately led to failure of the debt restructuring under CDR Forum and consequent exit from the CDR Forum. The account has been declared as NPA by all the lenders. The efforts on the part of the management to bring in a strategic investor have also not been successful due to a hard-line stance adopted by the lenders in addition to complexities involved in dealing with so many lenders. The above NPA has affected the credit records of the company very badly due to which Credit was not available in the market and the company had to procure its raw material on advance payment terms. The company couldn''t import the raw material and its shortage continue to prevail and resulted in significant underutilization of its manufacturing facilities and thus resulted in heavy cost and erosion of its earning at gross and net levels.
However, JM Financial Asset Reconstruction Company Private Limited has been assigned the debt by four lenders, namely State Bank of Patiala, State Bank of Hyderabad, ICICI Bank Limited and Uco Bank in the last FY 2016 and current year.
Presently, Indian Active Pharmaceutical Industry (API) has been facing very severe competition from China. The India Pharma Industry is importing over 85-90% of its API''s requirement from China. Since critical raw material is being sourced from China at highly competitive costs, standalone API manufacturing Industry in India is in deep trouble. The margins of Indian API manufacturers having main dependence on un-regulated market in India and abroad are very low, due to high infrastructure cost, high cost of power, less export incentives, high finance cost and price competition from China. Recognizing the above reasons National Security Adviser (NSA) has also confirmed the view that Indian Pharma Industry must take immediate concrete steps to revive the API Industry so that India can become self-sufficient in health care industry. The government has already set-up a commission to examine and revive the domestic API manufacturing industry.
Standalone API industry in India is going through a tremendous amount of stress due to competition from China. To avoid the Chinese competition, PDL diversified into regulated markets like US, Europe and Japan as these markets offer high value addition and some of the negative impact of high cost of infrastructure in India is negated. However, till FY 2014, only 15% of the company''s top line came from the regulated / semi regulated markets with a 2x-3x pricing advantage over unregulated markets like India and China. ''PDL'' has been in the process of making a sound foothold in the regulated markets with an already established world class manufacturing infrastructure, development of non-infringing processes, DMF filings. It has got certifications from European, Japanese, Korean, Mexican and Chinese authorities and USFDA is in the pipeline. The company had signed long term contracts with Ranbaxy, Sun Pharma, Sandoz, Lupin, Midas (Germany), Pfizer (USA), Meiji(Japan), Summit Pharma (Japan), Alkem, Shinogi and Merck but due to deadlock situation in terms of funds availability as well NPA asset status with the lenders, it could not make much headway in this direction since the efforts of the company towards approval of second restructuring and availability of working capital funds did not result in a positive outcome. There are very few plants in India with this infrastructure as it takes huge investment and time to build. The company is quite confident that the existing assets and infrastructure plus the regulatory approvals that the company had built over years continue to have a huge potential. In addition to this, the sustained relationship with the suppliers and customers, the company is sure of leveraging the strengths once a debt resolution is in place.
The Promoters had started an initiative to get a strategic investor to solve the immediate requirement of necessary liquidity for the working capital cycle. For this the Company had also signed mandates with some leading investment bankers to bring in a strategic investor in the Company. However due to various complexities involved in dealing with multiple lenders, none of the strategic investors could come forward despite showing a great interest in the well-developed infrastructure and huge potential the company has.
The promoters of the company are willing and putting in their sincere efforts to work with the lenders and ARCs for arriving at a debt resolution so that the operations are scaled up to ensure that the value of the assets and the interest of lenders and public shareholders are protected.
With your support, I look forward that with the debt resolution, the company shall be able to revive and shall be able to re-energized beginning, towards the success of its business.
Regards Pranav Gupta