AURO LABORATORIES LTD – ANNUAL REPORT FY22 – DISCUSSION
“The company’s financial position was impacted on account of rising COVID-19 cases and uncertainties and adverse market conditions, substantial rise in the pricing of raw materials and shipping cost almost throughout the year. In addition to this, during the financial year 2021-2022, the Government of India withdrew Exports incentives like MEIS and RoDTEP for Pharmaceuticals Sector which caused further strain on the margin. Global supply chain and logistics disruption, container capacity constraints and geo-political tensions increased the freight costs and delivery times and higher commodity prices. Despite such a situation, the Company’s operations continued smoothly.”
This shows that Auro labs neither has the purchasing side bargaining power nor selling side pricing power, they are price takers. The GOI’s withdrawal of export incentives along with the high shipping costs further exacerbated the woes of Auro Labs
Interestingly the company’s freight and forwarding expenses for the year went down by 36 lakhs whereas Export expenses went up by 42 lakhs. The company conveniently did not bother to mention the fact that its operating efficiency also went down. Raw materials consumed decreased, probably because of managerial decision to produce less because of depressed unit economics.
On the other hand, power consumption, in ₹ per kg, went up by 40% even though the price per unit of electricity went down by 1.88% and similarly ancillary product consumption went up substantially due to an increase in per-unit price and consumption. Most likely the production efficiency went down due to lower production volume and bad management.
Consumption per kg of production
Products – Dropped from 1,624,000 Kgs to 1,242,051 Kgs
**Electricity – Increased from ₹8.98 to ₹12.41 per kg (Decrease in Price per unit is 1.88% but increase in units consumed is 40.84%) **
Diesel/ Furnace Oil/ Briquettes – Increased from ₹9.38 to ₹15.92 per kg (Increase in price is 21.53% but increase in units consumed is 39.66%)
During the year, the company also added tangible assets worth Rs.106.86 Lakhs owing to the ongoing expansion project.
The remuneration of Siddhartha and Sharat Deorah was 1.2 Crores each for the year and that amounts to 85% of Net profits or 46% of Profits before remuneration. This is an exorbitant amount and a big red flag. 100% of this remuneration is fixed which is another red flag.
INDUSTRY FORECAST
The global Metformin Hydrochloride market is valued at 254.5 million USD in 2020 and is expected to reach 371.8 million USD by the end of 2026, growing at a CAGR of 5.5% during 2022-2026.
Source: https://twitter.com/fin_odyssey/status/1547870423156592644
AURO LABORATORIES LTD – ANNUAL REPORT FY22 – DISCUSSION – Financial Odyssey
