Torrent Pharmaceuticals Ltd Management Discussions

Caveat

Shareholders are cautioned that certain data and information external to the Company is included in this section. Though these data and information are based on sources believed to be reliable, no representation is made on their accuracy or comprehensiveness. Further, though utmost care has been taken to ensure that the opinions expressed by the management herein contain their perceptions on most of the important trends having a material impact on the Companys operations, no representation is made that the following presents an exhaustive coverage on and of all issues related to the same. The opinions expressed by the management may contain certain forward-looking statements in the current scenario, which is extremely dynamic and increasingly fraught with risks and uncertainties. Actual results, performances, achievements or sequence of events may be materially different from the views expressed herein. Shareholders are hence cautioned not to place undue reliance on these statements and are advised to conduct their own investigation and analysis of the information contained or referred to in this section before taking any action with regard to their own specific objectives. Further, the discussion following herein reflects the perceptions on major issues as on date and the opinions expressed here are subject to change without notice. The Company undertakes no obligation to publicly update or revise any of the opinions or forward-looking statements expressed in this section, consequent to new information, future events, or otherwise.

Note

Except stated otherwise, all figures, percentages, analysis, views and opinions are on consolidated financial statements of Torrent Pharmaceuticals Limited and its wholly owned subsidiaries (jointly referred as Torrent or Company, hereinafter). Financial information presented in various sections of the Management Discussion and Analysis is classified under suitable heads, which may be different from the classification reported under the Consolidated Financial Statements. Some additional financial information is also included in this section, which may not be readily available from the Consolidated Financial Statements. Previous years figures have been regrouped, wherever necessary, to make it comparable with the current year.

Global Economy:

Global growth is projected at 3.1% in 2024 and 3.2% in 2025, as per World Economic Outlook (WEO) on account of greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China. The forecast for 2024 and 2025 is, however, below the historical average of 3.8%, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth. Advanced economies are expected to see growth decline slightly in 2024 before rising in 2025, with a recovery in the euro area from low growth in 2023 and a moderation of growth in the United States. Emerging market and developing economies are expected to experience stable growth through 2024 and 2025, with regional differences.

Inflation is falling faster than expected in most regions, amid unwinding supply-side issues and restrictive monetary policy. Global headline inflation is expected to fall to 5.8% in 2024 and to 4.4% in 2025.

With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced. On the upside, faster disinflation could lead to further easing of financial conditions. Looser fiscal policy than necessary and versus what is assumed in the projections could imply temporarily higher growth, but at the risk of a more costly adjustment later. Stronger structural reform momentum could bolster productivity with positive cross-border spill overs. On the downside, new commodity price spikes from geopolitical shocks including continued attacks in the Red Sea and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions. Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments.

Policymakers face the challenge of managing inflation, calibrating monetary policy, and adjusting to a less restrictive stance. Fiscal consolidation is needed to rebuild budget capacity, raise revenue, and curb public debt. Structural reforms should reinforce productivity growth and debt sustainability, while efficient multilateral coordination is needed for debt resolution and climate change mitigation.

Indian Economy:

Overall, the outlook for the Indian economy appears bright. RBI has forecasted Indias real GDP to grow at 7 per cent in 2024-25, with risks evenly balanced.

Prospects of healthy Rabi harvesting, sustained manufacturing profitability and underlying service resilience are expected to support economic activity in 2024-25. The increased government spending on capex has not significantly increased total expenditure, but rather reprioritised capital outlay to revenue expenditure ratio. The governments inclusive approach to economic growth, including initiatives for the poor, women, youth, and farmers, has not compromised its commitment to fiscal consolidation, lowering its Fiscal Deficit estimate to 5.1% of Nominal GDP. The global slowdown, particularly in Indias major trading partners, has reduced demand for its merchandise exports and lowered import value due to falling international commodity prices. This has narrowed Indias merchandise trade deficit, improving its current account deficit.

On the demand side, household consumption is expected to improve, while prospects of fixed investment remain bright owing to an upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates, and the governments continued thrust on capital expenditure. Improvement in the outlook for global trade and rising integration in the global supply chain will support net external demand.

As far as inflation trend is concerned, it is expected that food inflation will moderate further in the upcoming months. RBI has revised the inflation projection for Q4 of 2023-24 downward to 5 per cent in the Monetary Policy Statement of February 2024, from 5.2 per cent in the previous MPC meeting. RBI has also kept the policy rate unchanged at 6.5 per cent to facilitate full monetary transmission. With the stable downward movement in core inflation and moderation in food prices, the outlook for a reasonably low headline inflation rate is good.

However, headwinds from geopolitical tensions including continued attacks in the Red Sea and supply disruptions, more persistent underlying inflation in the developed world, volatility in international financial markets, and geo-economic fragmentation need watching.

Global Pharma Market:

Global health systems have demonstrated remarkable resilience in the face of the pandemic, global inflation, and regional conflicts, and have moved forward to adopt novel therapies and increased usage overall. Overall, global use and spending on medicines is exceeding pre-pandemic growth rates and is expected to continue significantly above those trends through 2028.

The global medicine market using list price levels is expected to grow at 5–8% CAGR through 2028, reaching about $2.3Tn in total market size. Spending and volume growth following diverging trends by region with larger established markets growing more rapidly, driven by new and existing branded products, while Pharmerging markets will grow more slowly and be driven more by volume than the mix of more expensive therapies.

Global medicine spending growth is expected to accelerate over the next five years, driven mostly by increased growth contribution from existing branded products even as most growth segments are expected to increase compared to the last five years. New brands in the 10 leading developed markets are expected to contribute $193Bn in growth, up $40Bn over the past five years. The impact from brands losing exclusivity (LOE) is expected to more than double to $192Bn although a large part of that increase is from biologics facing biosimilar where the impacts have had more uncertainty. The largest driver of growth, which is also expected to double, is that from existing protected brands. The next five years of expiry events will provide critical revenue opportunities for generic and biosimilar makers to sustain their businesses, especially considering the more modest period of expiry events in the past five years, which were historically at low levels.

US: The U.S. market, on a net price basis, is forecasted to grow 2-5% CAGR over the next five years, down from 5.3% CAGR for the past five years, including projected effects of the Inflation Reduction Act.

Europe: Spending in Europe is expected to increase by $70Bn through 2028, driven by new brands and offset by generics and biosimilars.

Japan: Spending in Japan is projected at -2% to 1% through 2028 as robust brand growth is offset by a shift annual price cuts and ongoing shifts to generics.

China: Spending growth in China is expected to slow, with positives driven by greater uptake and use of new original medicines and offset by pressures on off-patent and generic pricing.

Latin America: Spending growth has been especially high in the first two years of the pandemic, including patients use of established and generic medicines as symptom management for COVID-19. After a slow 2024, growth will average 7–10% CAGR led by Brazil, Mexico, Argentina, and Colombia.

Key drivers of growth through the forecast period include the contribution of new products and the impact of patent expiries, including the growing impact of biosimilars.

Medicine spending and growth varies by region and product type with more than half of spending from brands in developed markets.

The outlook for global medicine spending has shifted considerably during the COVID-19 pandemic, and following the pandemic, the outlook for non-COVID-19 medicines has been revised substantially based on higher-than-expected spending in 2022 and 2023, robust pipeline of innovative therapies, and a widespread shift in the mix of spending to adopt more expensive novel therapies.

In total, the global outlook is expected to be $400Bn higher than the prior outlook despite the reduction in COVID-19 projections as a result of significantly higher growth outlook on a list/invoice price basis.

Global Pharmaceutical Industry Growth: 2018-2028 Defined daily doses.

The global use of medicines based on modelling medicine volumes shipped according to defined daily dose assumptions — increased by 414 Bn defined daily doses over the past five years, and is expected to grow another 400 Bn by 2028.

• The highest volume growth over the next five years is expected in China, India and Asia-Pacific, all exceeding 3% compound annual growth

• Lower volume growth in higher income regions such as North America, Western Europe and Japan are linked to more established health systems and existing access to medicine

• Latin America volume growth has slowed considerably from a 6.1% five-year average through 2023 to a 1.9% average projected through 2028, largely through slower expected economic growth

• Eastern European growth is essentially unchanged, with the outlook for 1.6% CAGR down 0.1% from the past five years despite any regional or localised impacts of the Ukraine conflict

Key Areas of Global Medicine Spending:

• Biotech will represent 39% of spending globally and will include both breakthrough cell and gene therapies as well as a maturing biosimilar segment. Major advances are expected to continue, especially in oncology, immunology, diabetes, and obesity. Notable small molecule innovations are also expected in these areas as well as neurology

• Specialty medicines will be 43% of global spending by 2028, with more than half of spending on these products in major developed markets

• The therapy areas with the highest forecast spending in 2028 are oncology, immunology, diabetes, cardiovascular, and neurology. Oncology is expected to grow 14–17% CAGR through to 2028 as novel treatments continue to be launched for the treatment of cancer. Immunology is expected to grow at 2-5% due to launch of biosimilars

• With nearly $184Bn by 2028, diabetes is expected to be the third largest therapy area globally, with growth estimated to be 3-6% over the next five years

• Global obesity spending reached nearly $24Bn in 2023, up from just $3.2Bn in 2020 and largely driven by the uptake of novel treatments. The newest obesity treatments are glucagon-like peptide 1 agonists or GLP-1 agonists, the mechanism initially developed in diabetes, which often generates weight loss for patients, and which has been developed by several companies as novel weight loss treatments with efficacy and safety rivalling traditional bariatric surgery

• In the last five years, a new wave of rare disease neurological treatments, including dozens with orphan designations, have been approved. Other diseases with larger populations such as migraine, depression and anxiety have also seen a range of new treatments approved and launched

Emerging trends: Following are some key emerging industry trends:

• Brand loss of exclusivity: The ongoing flow of innovation and the lagged savings as those medicines face competition and become cheaper has continued to reward innovators and challengers alike. The impact of exclusivity losses will reach $192Bn over the next 5 years. Of this $59Bn will be from Biosimilars. The next 5 years of expiry events will provide critical revenue opportunities for generic and biosimilar makers to sustain their business especially considering the more modest period of expiry events in the past five years, which were historically at low levels.

• Pricing pressure: With rising demand for healthcare and falling budgets, governments and payers are exerting pressure to drive down prices. Governments, insurers and patients are requiring greater transparency around drug pricing. In US, lower price erosion in the recent times has been mainly led by supply disruptions. However, the market structure on the supplier and buyer side has not changed which indicates that this situation could be temporary.

• Specialty Pharma: Specialty medicines have been increasing as a share of spending in higher income countries. Specialty medicines will represent 43% of the global spending in 2028. Pharmerging have lagged largely due to cost and will continue to represent 13% share of spending in 2028.

• Oncology trends: Oncology is the leading therapy area for innovation in terms of the level of clinical trial activity, number of companies investing in therapeutics, size of the pipeline of therapies in clinical development, novel active substances being launched, and the level of expenditure on these drugs. Global oncology is witnessing a remarkable surge in R&D and innovation, potentially leading to new therapies for unresolved cancers and including some of the most advanced breakthrough science in the life sciences. These therapies represent the largest area of collective research and the largest overall area by drug spending in the world.

• Growing incidence of Chronic & Sub-chronic therapies: With changing lifestyle, aging population and improved diagnosis, incidence of chronic diseases or life style therapies are significantly increasing. This includes therapies such as Cardio-vascular,

Anti-diabetic and Central Nervous System. This trend is even more prevalent in emerging markets such as India and Brazil.

• Pharma 4.0: Pharma 4.0, originally Industry 4.0, applied to pharmaceutical manufacturing, which is the addition of cyber-physical systems to computerise manufacturing while focusing on the human element. Four pillars of Pharma 4.0 – Resources, Information Systems, Organisation & Processes, and Culture. One of the main facets of the Resources pillar is digital transformation which centers on real-time data and information to increase productivity, enable machine operators to do their jobs more efficiently, and further allow the use of predictive technologies, augmented reality (AR) and virtual reality (VR), Big Data, artificial intelligence (AI), and machine learning (ML).

It allows for connectivity through integrated systems, equipment, people, and other software systems; real-time visibility into operations; transparency for quicker reaction time; and, at its highest levels, predictability and self-optimisation in that the system can predict the outcome of a batch or machines performance and self-correct. In this kind of environment, apps, smart sensors, or the Industrial Internet of Things (IIoT) are used as a means of first capturing the data from the floor, which is then transferred to the cloud, available for use.

• Digital healthcare: Digital is the future in all sectors of the economy and society and healthcare is no exception. Digital delivery will become integral to healthcare provision, and something that people have embraced after being driven indoors by the pandemic. For India, this is a solution to the vexed problem of providing healthcare to a massive population confronted by inadequate hospital beds, doctor and nurse coverage ratios. Change is anyway on the horizon. Reorganisation of supply chains through digital adoption, innovation and value-based procurement, and promising applications of big data technologies are emerging. Ayushman Bharat Digital Mission (ABDM) aims to create a national digital health ecosystem that supports universal health coverage in an efficient, accessible, inclusive, affordable, timely, and safe manner.

Growth Drivers:

1 Affordability:

With increasing healthcare cost, there will be growing demand for quality generic medicines as it offers affordable option for patients and healthcare providers.

2 Loss of Exclusivity:

The impact from brands losing exclusivity (LOE) is expected to more than double to $192Bn. This provides opportunities for generic manufacturers to introduce bioequivalent cheaper alternatives.

3 Health Insurance & Infrastructure:

Penetration of health insurance (both public and private) is expected to surge with the government sponsored initiatives and programs, making healthcare more affordable and lead to market expansion more particularly in emerging markets.

4 Digital and Advanced Analytics:

Major technological shifts have encouraged a rapid increase in the use of Advanced Analytics (AA), driving growth and productivity across the pharma value chain.

5 Longer Life Expectancy:

With declining fertility and increased longevity, the relative size of older age groups is increasing.

6 Changing Lifestyle:

In todays world, sedentary lifestyle, changing dietary habits, hectic and stressful life, less sleep and certain environmental factors causes higher incidence of chronic diseases.

7 Improving Purchasing Power:

The middle-class population & per capital income continues to expand, driving demand for healthcare solutions, more particularly in emerging markets.

8 Regulatory Developments:

The Pharma industry operates in one of the worlds most regulated environments to meet the public expectation of safe, effective, and high-quality medicines. Global harmonisation of regulatory standards will help in driving confidence and market expansion.

Indian Pharma:

The Indian Pharmaceutical industry is currently ranked third in pharmaceutical production by volume, eleventh in terms of medicine spending and fourteen its terms of value. Market size of India pharmaceuticals industry is expected to reach US$ 65 billion by 2024, and ~US$ 130 billion by 2030 owing to multiple growth drivers such as rising affordability, increasing access, low-cost production etc along with government initiatives. Medicine spending in India is projected to grow between 7-10% through 2028.

To promote the pharma industry, the Indian government unveiled a number of policy initiatives, including the promotion of research and innovation in pharma, an approach paper on National Pharma Policy with thrust on "one Health" during the G20 Summit, Scheme for development of pharma industry umbrella scheme. These initiatives are a continuation of the Production Linked Incentive (PLI) 1.0, bulk drug park, and PLI 2.0 schemes, and are targeted at self-sufficiency and the development of global champions from India. A further significant possibility stems from the changing global landscape, namely China plus one, approach that establishes India as a major participant in the Contract Development and Manufacturing Organisations. The industry is posed for increased integration of digital technologies in manufacturing and supply chain processes, aiming to boost efficiency and uphold product quality. With growing healthcare awareness and a rising disease burden, the pharma sector is positioned to address the escalating demand of high-quality products. Regulatory frameworks are likely to adapt to the evolving pharma landscape, emphasising patient safety and nurturing industry expansion.

Mergers & Acquisitions

Pharmaceuticals & life sciences and healthcare services M&A remained resilient in 2023, with innovative companies that can drive value attracting substantial investor interest. Dealmaking is expected to accelerate off this baseline in 2024, as has already been observed with a pickup in M&A activity toward the end of 2023. Although headwinds such as elevated interest rates and regulatory scrutiny remain, investors and lenders are becoming more comfortable navigating this environment. In the more attractive parts of health industries, dealmakers, while remaining selective, appear eager to pursue high-quality assets which may in turn unleash some pent-up M&A demand. M&A activities will be focused towards following areas:

1. Opportunities in growing GLP-1 drug market:

Companies across the value chain are expected to compete to position themselves in this fast-growing market, with a premium to be paid for innovation.

2. Biotech acquisitions to fend off patent cliffs:

Large-cap pharma companies will continue to face patent cliffs and gaps in their pipelines in the latter half of this decade and will look for M&A opportunities to achieve their growth plans.

3. CROs, CDMOs companies with strong cash flows:

Contract research organisations (CROs), contract development and manufacturing organisations (CDMOs) that can continue to demonstrate strong cash flows will be attractive sectors for investment in 2024.

4. Divesting non-core assets:

Motivation remains high among large pharmaceutical conglomerates to divest non-core assets and help generate cash to fund new investments which align more closely with their core competencies.

5. Artificial intelligence (AI):

While the technology and applications of AI are still nascent, the potential benefits of AI such as making drug discovery and development faster and cheaper or even identifying completely new drugs beyond the reach of traditional methods will likely result in pharma companies, biotechs, start-ups and others using M&A to gain access to the capabilities to make advances in this space.

M&A trends in Indian Pharma:

There has been strong deal activity across multiple segments within the healthcare sector in India; a lot of activity has been in the pharma sector, across multiple sub-segments including domestic formulations, API/CDMO and nutraceutical ingredients. In the domestic formulations segment, there has been a healthy level of activity from strategics as well as financial sponsors. Pharma B2B has witnessed consistent M&A activity, especially in the Active Pharmaceutical Ingredient (API) segment. The industry continues to be fragmented, providing the opportunity for consolidation. Several larger domestic companies are looking to focus on core portfolios and sharpen capital/resource allocation decisions. This in turn has also resulted in companies divesting select non-core brands, a trend that is likely to continue.

Performance Snapshot:

As a frontrunner in the industry, the Company has established itself as one of the leading players in the Indian pharmaceutical industry with a formidable presence in India as well as international markets. With a legacy of strong foundation, the Company remains posed for continued growth and success in the evolving landscape of global business. Internationally, the Companys presence extends across diverse geographies through its subsidiaries, encompassing a broad spectrum of growth markets. Additionally, it maintains a global footprint in many other countries through other business models. The multifaceted approach ensures a robust and expansive reach, allowing the Company to effectively cater to the needs of the diverse markets and capitalise on the emerging opportunities worldwide.

During the year 2023-24, the Company reported revenues of H 10,728 crores, growth of 12% compared with H 9,620 crores in the previous financial year.

The breakup of revenues under key territories is as under:

Revenue	2023-24		2022-23		Growth
(in crores)	Amount	Share	Amount	Share	%
India	5,666	53%	4,984	52%	14%
USA	1,078	10%	1,162	12%	-7%
Germany	1,074	10%	928	10%	16%
Brazil	1,126	10%	935	10%	20%
Other countries	1,155	11%	1,060	11%	9%
Others	630	6%	551	5%	14%
Total	10,728	100%	9,620	100%	12%

Core competencies:

India, Brazil, Germany, US, are the top four markets for the Company. The Companys strategic priorities in India and Brazil and other branded markets continue to focus on strengthening specialties, field force productivity and brand building. These markets remain a key priority for the Company and offer higher visibility and sustainability to the business. The Branded business constitutes around 72% of the overall Company revenues.

In the US and Germany, the Company continues to focus on its new product pipeline by developing diversified and complex products.

India:

The Indian pharmaceutical market (IPM) which is valued over $24 billion, grew at 7%. The market is expected to grow high single digit over the near term contributed by factors such as increasing healthcare expenses, rising chronic diseases, expanding health insurance coverage, rising income levels and awareness, government initiatives to enhance healthcare infrastructure and expand access to essential medicines. Initiatives such as the Jan Aushadhi Scheme which aims to provide affordable generic medicines to masses, have played a crucial role in improving access to healthcare in rural and underserved areas. Stable pricing environment, patent expires in the recent past supporting new launch momentum have made up for the tepid base volume growth.

IPM growth trend (in value):

For the year ended 31^st March 2024, India continues to be the largest business unit contributing 53% to the overall revenues.

The Company is ranked 5^th in the IPM (PY 6^th) and continues to grow faster than the market (IPM 7% vs Torrent 11%). The Company stands 04^th position in the combined chronic / sub chronic therapy areas. 21 Brands feature amongst Top 500 brands of the IPM. 16 brands (MBs) have revenues of more than 100 crores.

5th	4th	6th
largest Company in IPM	ranked in combined chronic / sub chronic segment	ranked by prescription at specialists Ranked amongst
21 brands	16 brands (MBs)	Top 5
amongst Top 500 brands in IPM	above H 100 crores	across Cardiac, VMN, CNS & GI therapy areas

In IPM, Cardiac is the major contributor followed by Anti-Infective, Gastro-intestinal, Anti-diabetic and Vitamin Mineral Nutrients (VMN) segment. The Company has strong presence in Cardiac, Gastro Intestinal, CNS, Vitamin Minerals Nutrients, Anti diabetic & Dermatology and these therapies contribute ~86% to sales.

The Company continues to focus on chronic & sub chronic therapies as its main area of focus and anticipates to continue gaining market share in key sub-therapies. The Company has maintained rank in major therapy areas like cardiac, CNS, VNM and GI, with two rank improvement in Anti-Diabetic therapy and one rank improvement in each Gynae, Urology, indicating that the company is strengthening its position in the high growth therapy areas:

	Cardiac	CNS	VMN	GI	Pain	Anti diab*	Dermatology
Ranking
	2	3	4	4	7	7	7

*without Insulin

The acquired business of Curatio Health Care (I) Private Limited (Curatio) in October 2022, has been fully integrated. Curatio has a strong portfolio of over 52 brands with leading brands such as Tedibar, Atogla, Spoo, B4 Nappi, & Acnemoist which are ranked amongst top five brands in their covered market. Post integration of the portfolio, focus has been on expanding coverage among the key prescriber segments (paediatricians and dermatologist) and on cost synergy execution.

The company signed licensing and supply agreement with Zydus Lifesciences Ltd to co-market Saroglitazar for the treatment of Non-Alcoholic Steato Hepatitis (NASH) and Non-Alcoholic Fatty Liver Disease (NAFLD) in India. It is the only approved drug for NASH and NAFLD in the country. Torrent markets the drug under the brand name VORXAR^?.

The company had forayed into the consumer health segment last year with Shelcal-500 (a calcium supplement) and has expanded presence this year with addition of 3 more brands viz. Ahaglow (face wash gel), Unienzyme (digestive enzymes tablet) and Tedibar (baby bathing bar). Strong growth was seen in the flagship brand Shelcal-500 supported by National Media Campaign initiated this year. Consumer engagement campaigns were also launched for other brands in the portfolio viz. Unienzyme, Ahaglow and Tedibar. Overall, the consumer health segment progressed well aided by new channel activations, increase in distribution into newer towns and scale up of the ecommerce business.

New introductions in key therapies have been a focus area for the Company to drive higher than market growth.

The Company has strategically diversified and strengthened its presence in some of the key therapies linked to patent expiries like Sitagliptin and its Fixed Dose Combinations (FDC), Linagliptin and its FDC in the anti-diabetic segment, Ferric Carboxy Maltose in gynecology therapy and Lasmitidan in the CNS segment. The company has entered high potential market of Sodium Alginate, Imeglimin, Brivaracetam SR and Digestive Enzyme market to cater to unmet therapy needs and launched several brand extensions which will continue to remain in focus in future.

In the coming year, the Company will continue to focus on new launches driven by patent expiries and brand extensions which will help to address the unmet need of the patient and complete its therapy basket.

The new introductions of the company have been backed by expansion of the field force (FF) across key therapeutic areas of the company. This expansion will ensure that the company remains competitive in all focus markets without diluting focus on the existing portfolio. Expansion of field force has been done across key therapeutic areas in Cardiology, Diabetology & Multi specialty TAs. The current MR strength is around 5700.

Stable market, high chronic led growth, launch of differentiating portfolio clubbed with FF expansion will help to gain market share and further gain leadership position within the industry.

Brazil:

Brazil continues to be the largest pharmaceutical market in Latin America representing almost half of the LATAM market in units and value (USD). It is currently the 8^th largest in the world. The Brazilian pharma market is estimated to be around BRL 231 Bn (US$ 36 Bn) by 2027 through a CAGR growth of 8-11%.

Brazils economic scenario followed the trend in 2023 with a GDP growth of 3% (same level of 2022). Given the economic situation, the interest rate in 2023 (average) was 13.25% which is expected to be at 9.0% in 2024 & Projected GDP growth is likely to be 1.8%. Tax and administrative reforms are also part of the new governments agenda and are likely to be voted with transition rules to accommodate States and Municipalities existing tax benefits. Tax reform likely to be done in two phases: Federal Taxes and State Taxes.

Brazilian Pharmaceutical Market has been resilient, registering a growth of 10% (MAT Mar 2024) excluding Patented and OTC products. Additionally, the government plans to reinforce the health sector by restoring funds. This however, does not limit the opportunity for the pharmaceutical companies to gain from direct sales to consumers. On the regulatory front, the Brazilian government had changed the patent regulation to allow early entry of generic players thereby increasing access of innovator molecules at lower cost to patients in addition to alignments of regulatory processes in line with international agencies.

During the fiscal year 2023-24, Brazilian operations registered a total revenue of BRL 665 Mn or ~H 1126 crores, registering INR Growth of 20% (Growth in BRL 12%). The company is now ranked 22^nd in the total Brazil pharma market while being ranked 19^th in the overall branded and generic market where it operates. The Company intend to gain market share through specialty focus, enhancing existing field force productivity & reach and new product launches. The company has also launched additional sales force team for CNS to support growth of mature brands and new launches. The company is also preparing for entry into newer therapeutic segments in near term.

Among the Indian companies, in terms of value, the Company ranks No. 1 (IQVIA dataset). Currently, it has commercialised 23 branded generics and 20 generic products. In its branded generic portfolio, the Company has 17 filings awaiting approval and further 16 new filing planned in the next 12 months. In addition, the Company has been building its portfolio in the generic segment with parallel filings and launches of its branded generic products.

Germany:

Top major European countries Germany, France, Italy, Spain and UK medicine spending is expected to increase by US$ 70Bn over the next 5 years from US$ 226 Bn in 2023 to US$ 296 Bn in 2028. CAGR from 2023 to 2028 is expected to be 4% to 7%.

Germany where the Company has significant presence is valued over $60 Bn and is expected to grow at a CAGR of 4% to 7% through 2028. The German healthcare market is highly regulated, and the legislative pressure on pharmaceutical businesses to lower their sales prices of drugs for end-consumers is not overly high. Generics, including biosimilars, are expected to add $15 Bn in growth over the next five years, about the same as in the past five years despite a larger impact of losses of exclusivity as volume gains will be offset by price deflation.

The Company has direct presence in Germany and UK.

Revenues from Germany operations during 2023-24 were H 1074 Cr (Euro 120 Mn) registering growth of 16% in INR terms (Euro Growth 8%). Consistent tender win performance and new product launches are expected to support the growth momentum.

Among the generic players, the Company holds 5^th position and is ranked No. 1 among Indian players in the German market.

USA:

USA continues to remain the largest pharmaceutical markets globally. The USA market, on net price basis, is forecasted to grow at 2% to 5% CAGR over the next 5 years, down from 5.3% CAGR for the past 5 years, including projected effects of the Inflation Reduction Act. The impact of exclusivity losses will increase to US $ 146 Bn over 5 years including significant biosimilars. The surge in generic drug approvals is supported by the FDAs Drug Competition Action Plan. In fact, generic drugs accounted for a substantial around 91% of prescriptions in the US, signalling their pivotal role in mitigating the impact of soaring brand drug prices. This focus on affordability and accessibility has contributed significantly to the flourishing generic drugs market. In 2023, 956 ANDA were approved, 101 Pre-ANDA meeting requests about product development and/or pre-submission issues addressed.

The pricing pressure seems to have eased in the recent past on the base business for most of the Companies mainly triggered by strong supply shortages faced by the market.

The Company is ranked No.11 amongst the US generic Indian companies. Sales from the US business were H 1078 crores (US$ 128 Mn) during the financial year 2023-24 as compared to US$ 138 Mn in the previous year, registering degrowth of 7%. The degrowth is mainly on account of lack of new products approval due to pending USFDA inspection of the Company USFDA approved facilities.

During the year, the Company successfully cleared FDA inspection for Dahej and Bileswarpura manufacturing facilities and started receiving ANDA approvals manufactured from these manufacturing facilities. We expect new launches to start flowing from April 2024.

The Company has filed 2 ANDA during 2023-24. The Company has 103 ANDA approvals (including 4 tentative approvals) and its pipeline consists of 34 pending approvals and 28 products under development to be filed over the next 3 years.

Manufacturing

The Companys state of art manufacturing facilities for formulation and API have significantly contributed to the demand of high-quality products and in sustaining its growth and success. During the year, the Company received USFDA Establishment Inspection Report (EIR) for its Dahej and Oral oncology facility, both located in the state of Gujarat. With approval of these facilities, the Company has started receiving new product approvals for USA. USFDA approved manufacturing facility at Pithampur (Madhya Pradesh) received approval for launching dermatology range of products in Brazil market.

Research and Development

To provide new impetus to the Companys interest in specialty complex generics, one oncology product will be filed in US as well as in EU. Further the pipeline includes complex generics, injectable as well as 505 (b) 2 products with the rationale of targeting unmet medical needs. One CGT status product was launched during the year with 180 days exclusivity in the US market.

The in-house state of the art Bio-Evaluation Centre supports product development by means of conducting bioequivalence studies. It has been certified and audited by various regulatory agencies and as a part of that recently ANVISA (Brazil) recertified our facility till May 2025.

NDDS has emerged from application of new technology platforms to design products with an aim to reposition existing drugs with a different dosage form, different strength, and alternate route of administration addressing unmet need(s). The aim is to improve their performance with respect to efficacy, safety and patient compliance through enhanced bio-availability, targeted drug delivery, reducing the dose & frequency, quicker onset and longer duration of action. The Company has NDDS products in its pipeline.

The R&D expenses for the year amounted to H 527 crores representing around 5% of the Company revenues.

Threats, Risks and Concerns

Strategic risk

The Company is exposed to strategic risk primarily related to development and launch of new products, capital investments on new projects and inorganic growth opportunities.

The pharmaceutical product development lifecycle integrally carries high risk in terms of uncertainty in clinical outcomes, technical challenges related to development of complex products and significant amount of expenditure involved. Timely launch of the product is of utmost important to recover the expenses already incurred during research and development phase. Launch could be delayed or abandoned on account of delay in securing regulatory approvals or high probability of patent litigation. Moreover, simultaneous entry of competitors at the time of launch of product creates pricing pressure adversely impacting margins of the Company. The Company manages such risks through careful market research for selection of new products, detailed project planning and continuous monitoring. Its R&D activities are complemented with insurance programs suited to nature and propensity of risk.

The Company may launch generic product based on legal and commercial factors, even though patent litigation is pending. The outcome of such patent litigation could affect the Companys business adversely in case it is established by the court of law that there has been a patent infringement. In addition to the substantial liabilities for patent infringement, the Company may also incur high costs of litigation for defending against the infringement. This risk is sought to be managed by a careful patent analysis prior to development & launch of the generic products and strategy of early settlement with the patent holders on case-to-case basis, particularly in the US market.

The Company deploys capital to add manufacturing capacity to meet increasing demand of pharmaceutical products from various markets. The Company faces risks arising out of delay in implementation of project and results in cost overrun. There is also a possibility of slump in demand by the time the project is completed and carries risk of under-utilisation of capacities resulting in high manufacturing cost. The risks are sought to be mitigated by forming appropriate project management team and corporate management oversight.

The Company has history of successful acquisitions and its integration with existing business operations. It continuously looks for new in-organic growth opportunities. Any such acquisitions involve significant challenges in terms of integration of people, system and processes with existing operations, which requires considerable amount of time, resources and effort. This may lead to temporary disruption of ongoing business, affect relations with the employees and customers with whom the Company has been dealing.

Competition Risk and Pricing Pressure

The Company markets pharmaceutical products across different countries and has global operations. Generally, pricing of the pharmaceutical products is eroded over a period either due to intensified competition in the market or on account of pricing controls notified by the local governments. Intensification of competition and threats of new entrants in existing key markets and therapies impede Companys ability to drive improvements in market share.

In Generics market, the Company is mainly exposed to pricing pressure in US and Germany. In US, consolidation of certain customer groups, emergence of large buying groups representing independent retail pharmacies, prevalence and influence of managed care organisations and similar institutions enable such groups to attempt to extract price discounts on the Companys products and could adversely affect price realisations of the Company on an overall basis. In Germany, insurance companies have been empowered to enter into rebate contracts and float tenders. Aggressive bidding by competitors in such tenders leads to continuous price erosion in the market.

In Branded Generics market, the Company is mainly exposed to pricing pressure in India and Brazil. In India, the Company is exposed to pricing pressure due to drug price control through National List of Essential Medicines (NLEM) as well as use of generic medicines promoted by Government of India through various initiatives. In Brazil, the Company sells branded generics, the pure generic competition could adversely affect development of branded business.

A significant portion of the revenue in various markets would be derived from sales to limited number of customers. In case of experiencing loss of business from one such customer or difficulties experienced by the customer in paying us on timely basis, it may impact the business performance.

The risks are sought to be mitigated through careful market analysis, upgrading skills, marketing alliances and management oversight. For Branded Generic Markets, mitigation strategies include Specialty-driven approach and building brands, resulting in high prescription stickiness. Evolving patients need are met through delivering innovative products in diverse dosage forms and fixed dosage combinations. Scientific detailing, delivery of quality products, competitive pricing, therapy focused sales structure together with low attrition etc will help in withering out competition risks. For Generic Generics markets, mitigation strategies include ensuring continuous supply through a robust and agile supply chain and compliance at our manufacturing facilities, portfolio optimisation by incremental investment in R&D on complex drugs, diversified dosage forms and value-added generics, continually optimising cost structures and manufacturing productivity to remain competitive and sustain margins.

Product Quality and Regulatory Risk

The Company is operating in the highly regulated pharmaceutical sector to assure that product complies with highest quality standard. Pharmaceutical products manufactured and marketed by the Company are consumed by humans and carries potential risks of product efficacy, adverse drug reactions, unexpected side effects, drug interactions, medication errors etc. which ultimately pose risk to safety of patient.

Additionally, failure to comply with the regulatory and cGMP requirements results in regulatory warnings, withdrawal of certification of manufacturing facility, delay in new product approvals, product recalls and product liability claims. Compliance of quality requirement throughout supply chain also carries risk of batch rejection or deviation on account of complexity in manufacturing processes. Overall, non-compliance to such requirements adversely impacts brand and reputation of the Company.

The Company assures product quality and regulatory compliance through pharmacovigilance function and stringent quality management processes. The Company has established a global pharmacovigilance group comprising a team of experienced doctors and pharmacists in the field of pharmacovigilance. The global pharmacovigilance system supervises and integrates all affiliates pharmacovigilance system. This ensures that any safety information or adverse events from any country are captured, evaluated and reported duly as per regional and global pharmacovigilance regulations. These risks are sought to be managed by appropriate laboratory and clinical studies for each new product, compliance with Good Manufacturing Practices and independent quality assurance system. The Company also has an adequate insurance cover for product liability. The Company is facing litigation on two of its products viz. Losartan and Valsartan in the US.

Supply Chain Risk

Although a major portion of the Companys finished formulations are being manufactured at in-house facilities, the Company also depend on third party suppliers for sourcing for some of the markets. Any significant disruption at in-house facilities or any third-party manufacturing locations due to economic, regulatory political & social factors or any other event may impair the Companys ability to produce, procure and/or ship products to the markets on a timely basis and could expose the Company to penalties and claims from customers.

The Company purchases Active Pharmaceutical Ingredient (API) and other materials that it uses in its manufacturing operations from foreign and domestic suppliers. Although the Company has a policy to actively develop alternate supply sources for key products subject to economic justification, there would be certain cases where the Company has listed only one supplier in its application with regulatory agencies. An interruption in the supply from single sourced material can impact the financial performance of the Company. In addition, the Companys manufacturing capabilities could be impacted by quality deficiencies in the products, which its suppliers provide, leading to impact on its financial performance.

Financial Risks

The Company operates across the globe and it poses primary risk associated with fluctuations in the foreign currencies, interest rates and tax landscape of the respective foreign countries.

Foreign currency risks mainly arise out of Companys overseas operations and borrowings. The Company has revenue from exports and imports of raw materials, plant and machinery as well as availing services from across different countries. All such transactions are in currency other than Indian Rupees and exposed to foreign currency risk. With respect to the borrowings, the Company carries currency risk to the extent of foreign currency borrowings and exposed to interest rate risk on borrowings linked to variable rate of interest.

The Company has potential tax exposure resulting from application of varying laws and interpretations in relation to various business transactions. Although the Company believes its cross-border transactions between affiliates are based on internationally accepted practices, tax authorities in various jurisdictions may have different views or interpretations and subsequently challenge the amount of profits taxed in their jurisdiction resulting into increase in tax liability including interest and penalties causing the tax expenses to increase.

The Company has a defined risk management framework to manage currency and interest rate risks. The Company has also taken adequate measures to ensure compliances of laws of respective countries.

Cyber Security and Data Privacy Risk

Companys networks and information technology infrastructure carries high risk of cyber-attacks that results in loss of critical assets and sensitive information or reputational harm. Moreover, failure to protect personal data and comply with data privacy regulations of each country in which Company operates may attract financial penalties, intervention by regulators and reputational loss. The company has Information security policy, secured IT system, robust access control and restricted administrator privilege to restrict unauthorised access. Adequate e-mails protection and laptop encryptions are also implemented. Vulnerability assessment and penetration testing (VAPT) is performed yearly to identify improvement areas. The Company continuously invests on the information technology to reduce the risks in addition to have taken insurance cover.

Business Continuity Risks

Potential disruption or failure of a companys operations due to unexpected events arise from various sources including natural disasters, supply chain disruptions, security breaches or cyberattacks, financial crisis, regulatory changes or pandemics among others. Business continuity risks can have significant impacts on a companys financial performance, reputation and ability to continue operations. The Company has instituted various ‘business continuity measures including alternate sourcing strategies, carrying adequate inventories, vertical manufacturing integration, digital interventions, periodic review BCP and DRP plans, training on Emergency Response Plan etc.

Compliance Risks

As the company operates in multiple geographies globally, each having dynamic and complex regulatory landscape that continuously evolves, changes and undergoes increased scrutiny from the regulators. Failure to identify and/or comply with applicable statues and regulations globally may possess a threat to our business operations thereby affecting our financial and/or reputational standing. Regulatory risks are managed through a strong governance mechanism based on the philosophy of ‘zero tolerance to non-compliance. This is implemented through regular assessment of regulatory and compliance requirements, robust internal controls, continuous monitoring through compliance management systems and periodic reporting to senior management and the Board. Further, independent assessments and audit mechanisms are put in place.

ESG Risks

Organisation must sustain growth in a continuously evolving global eco-system with unpredicted externalities. Sustainable value creation can no longer be agnostic of ESG risks, which has now evolved as new yardstick in addition to profitability and capital efficiency returns. The Company has developed ESG roadmap for 2022-25. This includes adopting a structured ESG framework and strategy, based on international standards and structures such as GRI, SASB, and many others. The Company has designed a multi-fold strategy, with four core ESG pillars, i.e., Responsible Consumption, Responsible Practices, Responsible Communication and Responsible Supply Chain, that will enable it to navigate its growth in a manner that maximises stakeholders value, consistently and sustainably.

Counterfeit Drugs Risks

Counterfeit medicines are fake or falsified medicines that are passed off as authentic, which may contain the wrong ingredients, contain too much, too little or no active ingredient at all or contain other harmful ingredients. The Company tries to prevent by taking steps such as packaging controls via hologram, barcode, along with strong distribution system etc.

Geopolitical Risks

Since the Company operates across the globe, changes in geopolitical situations of countries may adversely impact operations of the Company. There could be possibilities of war, terror attacks, political unrest and government default in some of the geographies in which the Company has operations. Recently, the Company witnessed situations like Russia-Ukraine war, political uncertainty in Sri Lanka and red sea issue having adverse impact on the operations of the Company. The company manages risk through monitoring of risk developments in such geographies, securing receivables through LCs / Bank Guarantee and hedging foreign currencies. On overall basis, the Company keeps the exposure to such geographies to minimal level.

Human Capital Risk

Pharmaceutical industry is knowledge driven and requires highly skilled human resources in major operations of the Company. The Company is exposed to the risk related to its inability to attract and retain such skilled employees which can adversely affect the complex operations of the company. The Company manages to attract and retain talented employees by providing internal transfer opportunities, performing engagement and team building initiatives.

Human Resources

The total employee strength of the Company at the end of financial year 2023-24 was 16,056 against 15,407 at the end of financial year 2022-23, an increase of 649 employees.

Internal Control System

The Company has a robust system of internal controls comprising authority levels and powers, supervision, checks and balances, policies and procedures. The system is reviewed and updated on an on-going basis. The Company continuously upgrades its internal control systems by taking measures such as strengthening of IT infrastructure and use of external management assurance services. The Company has in place a well-defined internal audit system whereby the internal audit is performed across locations of the Company and the results of the audit findings are reviewed by the audit committee.

Results of Operations for FY 24 compared with FY 23

Summary Financial Information:

Particulars	2023-24		2022-23
	K Crores	% to Revenues	K Crores	% to Revenues
Sales and Operating Income (Revenues)	10,728	100%	9,620	100%
Gross Profit	8,041	75%	6,885	72%
Selling, General and admin expenses (SG&A)	4,146	39%	3,527	37%
Research and Development Spend	527	5%	516	5%
Forex (Gain) /Loss	4	0%	18	0%
Other (Income)	(50)	(0%)	(48)	(0%)
EBIDTA	3,414	32%	2,872	30%
Depreciation / amortisation	808	8%	706	7%
Net Interest expense / (Income)	342	3%	319	4%
Profit before tax and exceptional items	2,264	21%	1,847	19%
Exceptional Items	(88)	(1%)	-	-
Profit before tax and after exceptional items	2,352	22%	1,847	19%
Income Tax	696	6%	602	6%
Profit after Tax	1,656	16%	1,245	13%

Financial Performance

• Revenues grew by 12% to H10,728 crores from H 9,620 crores in the previous year

• EBDITA grew by 19% to H 3,414 crores from H 2,872 crores in the previous year

• Borrowings reduced by H 1360 crores. Net Leverage stands at 0.87x

• Exceptional gain of H 88 crores pertains to gain on sale of manufacturing facility at US which was previously impaired.

Working Capital and Liquidity

The trade working capital i.e., net working capital investment excluding current investments, cash and cash equivalents, bank balances other than cash and cash equivalents, short term borrowings, current maturity of long-term debt and accruals on tender contracts (Germany) reduced by H 160 crores at the end of financial year 2023-24. The number of days of net trade working capital decreased to 90 days in 2023-24 compared to 110 days in 2022-23.

Cash and cash equivalents including current investments and bank balances including fixed deposits was at H1,005 crores during the financial year 2023-24 compared to H 751 crores at the end of financial year 2022-23.

Key Financial Ratios for FY 24 compared with FY 23

Particulars	2023-24	2022-23
Profitability ratios
(a) Operating profit margin	32%	30%
(b) Net profit margin (Refer Note 1)	15%	13%
(c) Return on net worth	24%	20%
Working capital ratios
(d) Debtors turnover (days)	64	75
(e) Inventory turnover (days)	79	86
Gearing ratios
(f) Interest coverage	8.40	7.56
(g) Debt / equity	0.34	0.57
Liquidity ratios
(h) Current ratio	1.20	1.20

Note:

1. Net profit margin is adjusted for exceptions items.

The ratios have been computed as follows:

• Operating profit margin : Revenues (Cost of goods sold + employee benefits + other expenses)+ (Other income-Interest income) / Revenues

• Net profit margin : Profit after taxes / Revenues

• Return on net worth : Profit after taxes / Net worth (Net worth = Share capital + Reserves and Surplus)

• Debtors days : (Trade receivables / Net Sales) * 365

• Inventory Days : (Inventory / Net Sales) * 365

• Interest coverage : (Profit after tax + Deferred tax + Depreciation and amortisation + Interest expense) / Interest expense

• Debt to equity : Debt / Net worth

• Debt : Long term borrowings (current and non-current portion)

• Net worth : Share capital + Reserves and surplus

• Current ratio: Current assets / [Current liabilities less Current Maturities of Long-term debt]

	For and on behalf of the Board of Directors
	Samir Mehta
Mumbai	Executive Chairman
24th May 2024	DIN : 00061903