Aarti Pharmalabs Ltd Management Discussions

ECONOMIC REVIEW Global

The global economy maintained resilience during the year, even as geopolitical tensions, trade frictions, and elevated policy uncertainty weighed on the outlook. The IMFs April 2026 World Economic Outlook projects global growth at 3.10% in 2026 and 3.20% in 2027, against an estimated 3.40% in 2025. Global headline inflation is expected to rise from 4.10% in 2025 to 4.40% in 2026, before easing to 3.70% in 2027. Downside risks include geopolitical instability, trade-related tensions, and potential volatility in financial markets. Divergent monetary policies, with the US easing rates gradually, the Euro area raising rates, and Japan continuing gradual increases, add further complexity to the near-term outlook, with central banks remaining focused on preserving price stability and keeping inflation expectations well anchored 1 .

India

India remained one of the fastest-growing major economies during the year. The National Statistical Offices second advance estimate placed real GDP growth at 7.60% in FY 2025-26, backed by strong private consumption and fixed investment. Manufacturing and services remained resilient, while inflation stayed relatively contained: headline CPI stood at 3.40% in March 2026 and 3.50% in April 2026, with core inflation holding steady at 3.70%. In response, the Monetary Policy Committee maintained the repo rate at 5.25% with a neutral stance, reflecting a data-dependent approach amid elevated uncertainty 2 .

The FY 2026-27 Union Budget reinforced the Governments commitment to public investment and fiscal consolidation. Total expenditure in Budget Estimates 2026-27 is estimated at 53,47,315 Crores, with capital expenditure of 12,21,821 Crores and effective capital expenditure of 17,14,523 Crores. The Central Governments fiscal deficit for 2025-26 stood at 4.4% of GDP below revised estimates, supporting the broader consolidation narrative 3 .

GLOBAL PHARMACEUTICAL INDUSTRY

The global pharmaceutical industry sustained robust growth during the year, underpinned by the rising prevalence of chronic and infectious diseases, higher healthcare expenditure, an ageing global population, and continued pharmaceutical innovation. The market stood at US$ 1,738.0 billion in 2025 and is projected to reach

US$ 2,776.7 billion by 2033, at a CAGR of 6.1%. North America remained the largest regional market, accounting for 41.8% of global revenue, while Asia-Pacific is expected to be the fastest-growing region, driven by expanding healthcare access, higher expenditure, and strengthening R&D and manufacturing capabilities.

Demand for long-term therapeutic management continues to grow as chronic disease burden deepens. According to the International Diabetes Federation, approximately 589 million adults were living with diabetes in 2024, a figure projected to reach 853 million by 2050. Oncology remained the largest therapeutic segment, accounting for 18.6% of the global market. Technology is reshaping the landscape: AI is accelerating drug discovery and compressing development timelines, while biologics, monoclonal antibodies, precision medicine, and cell-based therapies are broadening available treatment options across therapeutic areas.

Despite the rapid growth of biologics, conventional small- molecule drugs remained the largest molecule segment, accounting for 54.2% of the market in 2025. Oral formulations led drug administration at 57.4%, owing to their convenience, patient compliance, and cost-effective manufacturing. Branded pharmaceuticals held 66.5% of global market revenue, with prescription medicines accounting for 86.5%. Long-term industry fundamentals remain favourable, even as high drug development costs, stringent regulatory requirements, and complex approval processes continue to pose meaningful challenges 4 .

INDIAN PHARMACEUTICAL INDUSTRY

India stands among the worlds foremost pharmaceutical manufacturing hubs, recognised as the Pharmacy of the World. The third-largest pharmaceutical producer by volume and 14 th by value, India supplies one in every five generic medicines globally and exports to over 200 countries. Mordor Intelligence valued the Indian pharmaceutical market at US$ 57.6 billion in 2025, projected to reach US$ 79.7 billion by 2031 at a CAGR of 5.74%. Domestic pharmaceutical sales touched US$ 28.0 billion in FY 2025-26, recording year-on- year growth of 8.8%, while exports have compounded at approximately 7% per annum over the past decade. India hosts more USFDA-compliant plants than any country outside the US, holds a US$ 19 billion pharmaceutical trade surplus, and contributes approximately 4% of Indias cumulative FDI inflows.

The sector is advancing into high-value segments including APIs, biologics, biosimilars, and CDMO services. Indias CRDMO industry is projected to double to approximately US$ 14 billion by 2028, driven by increasing global outsourcing and continued patent expirations. Government support through the PLI scheme for pharmaceuticals and bulk drugs, the Pradhan Mantri Bhartiya Janaushadhi Pariyojana, and targeted Budget allocations continue to strengthen domestic API manufacturing, improve supply chain resilience, and advance Indias positioning as a globally competitive pharmaceutical and biotechnology hub 5 .

GROWTH DRIVERS

Active Pharmaceutical Ingredients

India continues to gain ground as a strategic manufacturing hub for active pharmaceutical ingredients (APIs), supported by its cost-competitive manufacturing base, regulatory-compliant facilities, and expanding export capabilities. The India API market, worth US$ 14.18 billion in 2025, is set to reach US$ 15.28 billion in 2026. By 2031, it is projected to touch US$ 22.18 billion, at a CAGR of 7.74% during 2026-2031. Policy support, rising export demand, and steady investments in manufacturing capacity are together driving this growth.

Government initiatives, including the PLI scheme and the development of Bulk Drug Parks, are accelerating domestic output, reducing import dependence, and boosting supply chain resilience. Operational PLI projects and shared infrastructure including solvent recovery, effluent treatment and shared utilities are strengthening Indias self-reliance in the production of critical bulk drugs. They are also helping improve manufacturing efficiency and cost competitiveness.

The ongoing diversification of global pharmaceutical supply chains is also benefitting India. Post the implementation of the US BIOSECURE Act, drugmakers in the US and Europe are diversifying sourcing beyond China, lifting demand for Indian APIs. Indias proven regulatory capabilities, broad USFDA-approved manufacturing base, and competitive production costs continue to reinforce its position as a preferred sourcing destination for regulated markets.

Investments in high-value and technology-intensive segments are increasing. Capacity additions in high-potency APIs (HPAPIs), particularly for oncology applications, and investments in biotechnology, fermentation, and continuous manufacturing, are expanding Indias capabilities in complex APIs. AI-enabled process optimisation is further improving efficiency, trimming production cycle times, and energy use while supporting quality and operational performance.

The rapid rise of contract research, development, and manufacturing (CRDMO) services is another tailwind, as

global firms increasingly outsource research, process development, and commercial manufacturing. This is supporting investments in integrated development and manufacturing capabilities and creating durable opportunities for Indian API manufacturers across regulated markets.

Despite the favourable outlook, challenges persist, including volatility in China-sourced key starting material (KSM) prices and evolving compliance requirements, particularly for smaller manufacturers. In response, firms are focusing on backward integration and investing in quality systems and modern plants. Each such move strengthens the long-term competitiveness of the Indian API industry 6 .

Contract Development and Manufacturing Organisations

Indias contract manufacturing sector continues to strengthen its role as a strategic partner in the global pharmaceutical value chain. Cost-efficient manufacturing, skilled scientific workforce, and growing capabilities in both small- and large-molecule manufacturing underpin its position. The India contract manufacturing organisation (CMO) market, valued at US$ 25.81 billion in 2025, is projected at US$ 29.53 billion in 2026. By 2031, it is expected to reach US$ 57.94 billion, at a 14.43% CAGR during 2026-2031. Increasing global outsourcing, capacity expansion, policy support, and continued investments in advanced manufacturing technologies are all supporting this expansion.

India continues to benefit from global supply chain diversification as pharmaceutical innovators increasingly outsource manufacturing to improve supply chain resilience and optimise costs. Growing demand for biologics, complex injectables, and specialised manufacturing services is accelerating investments in new facilities, particularly across established hubs such as Hyderabad, Gujarat, and Andhra Pradesh. Meanwhile, PLI schemes for pharmaceuticals and APIs continue to support capacity expansion, manufacturing modernisation, and long-term competitiveness.

The industry is witnessing a gradual shift towards higher- value manufacturing. Small molecules accounted for 67.65% of the market in 2025, but biologics are expected to register faster growth over the forecast period. This is driven by increasing outsourcing of monoclonal antibodies and other complex biologics. Similarly, finished-dose manufacturing is expected to outpace API manufacturing with global firms preferring integrated manufacturing partners that can support development from APIs through to commercial dosage forms.

Technology is further enhancing the competitiveness of Indian contract manufacturers. AI, digital process optimisation, and advanced manufacturing technologies are improving development timelines, efficiency, and quality,

while strengthening regulatory compliance and operational consistency. Continued investments in automation, process analytics, and digital manufacturing are equipping Indian manufacturers to undertake increasingly complex development and commercial manufacturing programmes.

Despite strong growth prospects, volatile raw-material prices, challenges such as evolving global regulation and rising compliance costs persist. Heightened regulatory oversight by the CDSCO and the US FDA is prompting investments in quality systems and manufacturing excellence, bolstering the credibility of Indian manufacturers in regulated markets. With expanding biologics capabilities, steady outsourcing demand, and sustained infrastructure investments, the Indian CDMO industry is well-placed to grow as a preferred global outsourcing destination 7 .

COMPANY OVERVIEW

Aarti Pharmalabs Limited (hereafter referred to as APL, or the Company) is a trusted global pharmaceutical manufacturing partner. We deliver high-quality APIs, Xanthine derivatives, and integrated CDMO/CMO solutions to customers across regulated and emerging markets. As part of the Aarti Group, with over 25 years of manufacturing excellence, we combine scientific expertise, advanced manufacturing, and an uncompromising focus on quality.

The Companys capabilities span from regulatory starting materials and intermediates to drug substances for both generic and innovator-led programmes. Deep process chemistry expertise, integrated manufacturing infrastructure, and strong R&D capabilities enable us

to partner with customers from development through commercialisation. We hold ourselves to the highest standards of quality, regulatory compliance, and operational excellence throughout the value chain.

Today, we serve customers in over 50 countries and are market leaders in Xanthine derivatives. We also continue to strengthen our presence in the small-molecule CDMO/ CMO segment. Driven by innovation and a customer-centric approach, we remain committed to delivering sustainable growth and creating lasting value for our customers and stakeholders.

Products and Services APIs and Intermediates

We offer a diversified portfolio of high-quality APIs and advanced pharmaceutical intermediates for regulated and emerging markets. Leveraging strong process chemistry capabilities, we develop robust, cost-effective, and scalable manufacturing processes to efficiently commercialise complex small molecules. Our expertise spans process development, technology transfer, and commercial-scale manufacturing, helping us serve innovator and generics pharmaceutical companies worldwide.

This business segment is backed by state-of-the- art manufacturing facilities approved by major global regulators, including the USFDA, EU GMP EDQM, KFDA, and COFEPRIS. With three dedicated R&D centres and a firm focus on innovation, we continue to broaden our portfolio through new product development, process optimisation, and regulatory filings. Each of these reinforces our standing as a reliable global pharmaceutical manufacturing partner.

CDMO/CMO services

Aarti Pharmalabs ranks among Indias leading small- molecule CDMO/CMO players. We offer end-to-end process development and manufacturing services for KSMs, RSMs, intermediates, and GMP APIs for small-molecule NCEs, from clinical development to commercialisation. The Companys expertise extends to complex chemistries, including cyanation, flow chemistry, and nucleotides.

Supported by three dedicated R&D centres and pilot facilities, we are currently working with 21 customers across 54 active projects. This includes 35 commercial projects and 19 projects under development.

The Companys capabilities span robust process development (DoE and QbD studies), process validation, analytical method development and validation. This is underpinned by strong CMC documentation, enabling efficient technology transfer, regulatory approvals, and commercial manufacturing.

Xanthine Derivatives and Allied

We are a fully backward-integrated manufacturer of Xanthine derivatives, including caffeine, theophylline, aminophylline, and etophylline, serving pharmaceutical, nutraceutical and food & beverage applications. Our integrated manufacturing capabilities ensure consistent product quality, reliable supply, and efficient operations.

We currently operate an installed manufacturing capacity of 5,000 MTPA, which is being expanded to 9,000 MTPA in a phased manner. The plant has been commissioned in Q1 FY 2026-27. The expanded capacity will enhance our ability to meet growing customer demand across global markets.

Our portfolio also includes sulphur and sulphonation-based products that serve as key raw materials for Xanthine derivatives and other specialty chemical applications, further strengthening our integrated manufacturing platform.

FINANCIAL PERFORMANCE

In Crores	FY 2025-26	FY 2024-25*	FY 2023-24*
Total income	1,819.4	2,115.1	1,852.6
Total expenses	1,417.0	1,650.7	1,466.6
EBITDA	402.4	464.4	386
EBITDA margin	22.12%	21.96%	20.84%
Depreciation	104.3	86.9	73.2
Finance costs, Forex Loss less (other Income)	70.4	16.8	12.3
PBT	227.7	360.7	300.5
Tax expenses, Exceptional Items gain/(Loss), Share of profit of JV	53	88.3	83.6
PAT	174.7	272.4	216.9
PAT margin	9.60%	12.88%	11.71%

*The consolidated financial statements for FY 2025-26 are not directly comparable with the previous year, following the accounting of Ganesh Polychem Limited as a joint venture under the equity method with effect from April 01, 2025

During FY 2025-26, the Company reported consolidated operational revenue of 18,194 million. EBITDA was 4,024 million, at a margin of 22.12%. Profit after tax (PAT) stood at 1,747 million, translating into a PAT margin of 9.60%.

The FY 2025-26 consolidated financial statements are not directly comparable with the previous year. This is post the accounting of Ganesh Polychem Limited as a joint venture under the equity method with effect from April 01,2025.

The net debt-to-equity ratio stood at 0.32x as of March 31, 2026, compared with 0.19x as on March 31,2025.

BUSINESS OUTLOOK

The Company remains focused on strengthening its core businesses through capacity expansion, product portfolio enhancement, and operational excellence. Integrated manufacturing, a diversified product portfolio, and strong customer relationships drive sustainable growth across its API and Intermediates, CDMO/CMO, and Xanthine Derivatives businesses.

The Company will continue to focus on expanding its presence in regulated markets, deepening its product pipeline, and growing its CDMO business through customer additions and project progression. Alongside this, it intends to continually improve operational efficiency across manufacturing. Backed by ongoing investments in R&D, manufacturing capabilities, and quality systems, it is well positioned to capitalise on opportunities in domestic and global pharmaceutical markets.

KNOWLEDGE MANAGEMENT

The Company maintains a robust Intellectual Property (IP) framework aligned with ISO 27001:2013 standards. This ensures secure access controls, structured information

sharing, and authorised disclosure to protect confidential information.

An experienced Knowledge Management team supports Freedom-to-Operate (FTO) assessments and non-infringing process development through comprehensive chemical database searches. The team also ensures compliance with accreditation requirements covering information integrity, confidentiality, and availability.

RESEARCH & DEVELOPMENT

R&D remains a key pillar of the Companys growth strategy. Its strong R&D capabilities have made it a preferred partner for customers across global markets.

The Company operates three sophisticated R&D centres at Nerul and Dombivli in Maharashtra, and Vapi in Gujarat. These facilities support route scouting and design, product and process development, process optimisation, scale-up and technology lifecycle management. Together, they enable the efficient development and commercialisation of new products.

A structured programme management system keeps execution seamless across the product lifecycle from customer enquiry and process development to commercialisation. This facilitates timely delivery and effective project management.

RISK AND MITIGATION

The Company has a Risk Management framework to identify, assess, monitor, and mitigate internal and external risks across its operations. The Boards Risk Management Committee oversees these processes, reviews mitigation strategies, and monitors environmental changes to identify emerging risks and ensure a timely response.

Risk	Mitigation Measure
Regulatory Risk: The pharmaceutical industry operates under stringent regulatory requirements across multiple geographies. Delays, non-compliance, or misinterpretation of regulatory requirements can impact business operations and restrict market access.	A comprehensive internal control framework, backed by well- defined policies and periodic reviews, helps ensure compliance with applicable requirements across all operating markets.
R&D Risk: Sustained R&D investment is essential to stay competitive as technologies, customer requirements and market dynamics evolve.	Cutting-edge R&D centres and an experienced team of scientists drive continuous innovation and advancement. The Company continues investing in R&D to strengthen its product pipeline and process development capabilities.
Competition Risk: Increasing competition from domestic and global players may impact market share, pricing, and profitability.	The Company differentiates itself through a diversified portfolio, strong R&D, high quality and compliance standards, enduring customer relationships, and continued backward integration to sharpen operational efficiency and competitiveness.
Raw Material Risk: Supply constraints or price volatility of key raw materials may pressure pricing, production continuity, and profitability.	The Company maintains long-term relationships with suppliers to ensure uninterrupted availability of raw materials at competitive prices. An RM-plus pricing mechanism also mitigates the impact of raw material price volatility.
Quality Risk: Failure to meet GxP standards, including Good Manufacturing Practices (GMP) and Good Laboratory Practices (GLP) can result in regulatory actions, reputational damage, and business disruption.	Dedicated quality teams across all manufacturing sites uphold stringent quality standards through a Right First Time\u2019 approach. Regular audits, ongoing training, robust quality systems, timely investigations, and corrective and preventive action programmes fortify quality assurance and prevent recurrence of nonconformities.
Health, Safety & Environment Risk: Health, safety, or environmental incidents may adversely impact employee wellbeing, regulatory compliance, business continuity and the Company\u2019s reputation.	A robust HSE management system and dedicated teams enable continuous monitoring of operational risks and compliance with regulations and industry standards. Periodic internal and external audits, monthly HSE awareness programmes, and structured risk assessment tools - Hazard Identification and Risk Assessment, HAZOP studies, and Hazard Study Checklists - support effective risk identification and mitigation.

INFORMATION TECHNOLOGY

Information Technology remains a key enabler of operational excellence, digital transformation, and business resilience. We are committed to maintaining the highest standards of information security, cybersecurity, and data privacy, safeguarding the confidentiality, integrity, and availability of business-critical information.

Robust cybersecurity measures, periodic system upgrades, and well-defined information security protocols protect our infrastructure against cyber threats and unauthorised access. Comprehensive governance frameworks, with clear roles and responsibilities for employees, contractors, customers, vendors, and other stakeholders, ensure adherence to the Information Security Management System.

We continue to strengthen our digital capabilities to enable secure data management, sharper decision-making, and greater efficiency. Our Business Continuity and Disaster Recovery (BCDR) framework also enables the timely recovery of critical systems and minimises business disruption if unforeseen incidents occur.

QUALITY ASSURANCE

Aim	Approach	Outcome
\u2022 Deliver high-quality products and	\u2022 Maintain robust quality management	\u2022 Develop a highly skilled, quality-
services that consistently meet	systems across operations	focused workforce
customer requirements	\u2022 Ensure strict compliance with	\u2022 Deliver consistent, high-quality
\u2022 Enhance stakeholder value by	applicable national and international	products and services with
exceeding customer expectations	quality standards	Right First Time\u2019 execution
\u2022 Strengthen quality leadership	\u2022 Uphold global standards of safety,	\u2022 Build enduring customer
through best-in-class	quality, and efficacy across all facilities	confidence through reliable
manufacturing technologies and	\u2022 Follow a lifecycle approach centred on	quality and compliance
robust quality systems	the Right First Time\u2019 philosophy across	\u2022 Strengthen competitiveness
\u2022 Promote sustainable,	products, processes, and services	through a deep understanding
environmentally responsible manufacturing	\u2022 Drive continuous improvement through customer feedback and process optimisation	of customer and market needs

INTERNAL CONTROL SYSTEMS AND THIER ADEQUACY

Our internal control framework is commensurate with the size, scale, and complexity of our operations. It safeguards assets, ensures authorised and accurate recording of transactions, promotes operational efficiency, and supports compliance with applicable laws and regulations.

We have implemented a robust Compliance Management System (CMS) to strengthen governance and risk management across the business. It maintains a comprehensive repository of applicable laws and regulations and provides timely alerts, customised reporting, and regulatory updates. Together, these enable effective compliance monitoring and timely corrective actions.

CAUTIONARY STATEMENT

Aarti Pharmalabs may, from time to time, make additional written and oral forward-looking statements, including statements contained in our filings with the Bombay Stock Exchange and the National Stock Exchange, and the reports to our shareholders. Aarti Pharmalabs does not undertake to update any forward-looking statements that may be made from time to time by it or on its behalf. All information contained in this report has been prepared solely by us. Aarti Pharmalabs does not accept any liability whatsoever for any loss, however arising from any use or reliance on this Annual Report, its contents, or anything in connection therewith.