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:

On the surface, the global economy appears poised for a gradual recovery from the powerful blows of the pandemic and Russias unprovoked war on Ukraine. Supply-chain disruptions are unwinding, while the dislocations to energy and food markets caused by the war are receding. Simultaneously, the massive and synchronous tightening of monetary policy by most central banks should start to bear fruit as inflation starts tapering off.

The baseline forecast is for growth to fall from 3.4% in 2022 to 2.8% in 2023, before settling at 3.0% in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7% in 2022 to 1.3% in 2023. Global headline inflation in the baseline is set to fall from 8.7% in 2022 to 7.0% in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly.

The rate hike by the US Fed drove capital into the US markets causing the US Dollar to appreciate against most currencies. This led to the widening of the Current Account Deficits (CAD) and increased inflationary pressures in net importing economies. The rate hike and persistent inflation also led to a lowering of the global growth forecasts for 2022 and 2023. The weakness of the Chinese economy further contributed to weakening the growth forecasts. With inflation persisting in the advanced economies and the central banks hinting at further rate hikes, downside risks to the global economic outlook appear elevated.

Indian Economy:

Indian economy, however, appears to have moved on after its encounter with the pandemic, staging a full recovery in 2021-22 ahead of many nations and positioning itself to ascend to the pre-pandemic growth path in 2022-23. Yet in the bygone fiscal year, India has also faced the challenge of reining in inflation that the European strife accentuated. Measures taken by the government and RBI, along with the easing of global commodity prices, have finally managed to bring some relief on retail inflation. However, the challenge of the depreciating rupee, although better performing than most other currencies, persists with the likelihood of further increases in policy rates by the US Fed. The widening of the CAD may also continue as global commodity prices remain elevated and the growth momentum of the Indian economy remains strong. The loss of export stimulus is further possible as the slowing world growth and trade shrinks the global market size.

Despite these, agencies worldwide continue to project India as the fastest-growing major economy at 6.5-7.0% in 2022-23. These optimistic growth forecasts stem in part from the resilience of the Indian economy seen in the rebound of private consumption seamlessly replacing the export stimuli as the leading driver of growth. The uptick in private consumption has also given a boost to production activity resulting in an increase in capacity utilisation across sectors. The rebound in consumption was engineered by the near-universal vaccination coverage overseen by the government. The Capital Expenditure (Capex) of the central government, which increased by 63.4% in the first eight months of 2022-23 , was another growth driver of the Indian economy.

Global growth has been projected to decline in 2023 and is expected to remain generally subdued in the following years as well. The slowing demand will likely push down global commodity prices and improve Indias CAD. Indias economic growth in 2022-23 has been principally led by private consumption and capital formation. However, CAD needs to be closely monitored as the growth momentum of the current year spills over into the next. Growth is expected to be brisk in 2023-24 as a vigorous credit disbursal, and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sectors.

Global Pharma Market:

In developed countries, the adoption of new treatments, offset by patent lifecycles and competition from generics and biosimilars are expected to continue as the main factors influencing medicine spending and growth. In pharmerging countries, dramatic increases in healthcare access remains the largest driver of changes in the use of medicines historically but the trend is gradually slowing. The global medicine market using invoice price levels, is expected to grow at 3 6% CAGR through 2027, reaching about $1.9 trillion in total market size. Growth in Global Medicine pending will be lifted by stronger pharmerging market growth through 2025 and offset by developed markets where slower growth will result as losses of exclusivity for original brands outweigh growth from new products.

• The U.S. market, on a net price basis, is forecast to grow 0–3% CAGR over the next 5 years, down from 3% CAGR for the past 5 years.

• Japan, the third largest global market will have flat to declining medicine spending as a result of the continued biennial price cut policy, but see rising patent-protected original brand spending coinciding with policies to encourage a shift to generics for older medicines.

• Spending in Europe is expected to increase by a total of $35 billion in five years to 2025 with a focus on generics and biosimilars.

• In pharmerging markets, growth will be led by China, which is expected to accelerate post-COVID driven by greater uptake and use of new original medicines.

The impact of exclusivity losses will increase to $166 billion over the next 5 years mostly due to the availability of biosimilars, and the cumulative savings from biosimilars will reach an estimated $285 billion. Five years from now, medicine spending will be nearly 60% from specialty medicines in developed markets and 50% globally, with the remainder predominately older and traditional therapies, becoming progressively lower cost over time. The two leading global therapy areas — oncology and immunology — are forecast to grow

9 12% CAGR through 2025, lifted by significant increases in new treatments and medicine use. Oncology is projected to add 100 new treatments over five years, contributing to an increase in spending of more than $100 billion to a total of more than $260 billion in 2025.

As the COVID-19 pandemic enters its fourth year, it has been the most impactful global public health crisis in decades, and yet it has illustrated the resilience of global health systems as they have readily adapted to peaks in demand and developed novel vaccines and therapeutics with significant efficacy, safety, and unusual speed. The global vaccination program that countries and industry have implemented is unprecedented in its speed and reach to lower-income countries previously thought to be inaccessible. While challenges remain in managing the pandemic into an endemic phase, other health concerns are also coming back into focus.

Overall, global use and spending on medicines is expected to return to pre-pandemic growth rates by 2024, though the next two years are not without important uncertainties related to viral variants, vaccination rollout for COVID-19, and under-usage of booster shots, as well as economic uncertainties related to global inflation, geopolitical conflicts, and climate change.

Outlook for the use of medicines: Overall volume is projected to grow 1.6% CAGR in days of therapy through 2027, driven by Asia-Pacific, India, Latin America, Africa and the Middle East, and China, all of which are expected to exceed global volume growth. Per capita use of medicines varies by GDP, with use in higher-income countries typically higher than in lower income countries.

Spending and Growth by regions and key countries:

The global medicine market using invoice price levels is expected to grow at 3 6% CAGR through 2027, reaching about $1.9Tn in total market size. Spending and volume growth will follow diverging trends by region with larger established markets growing more slowly, and growth markets in Eastern Europe, Asia and Latin America growing in both volume and spending.

US: The U.S. market, on a net price basis, is forecast to grow -1 to 2% CAGR over the next five years, down from 4% CAGR for the past five years.

Europe: Spending in Europe is expected to increase by $59 billion through 2027, with a focus on generics and biosimilars, and escalating pressures on the value and negotiated prices of novel medicines.

Asia-Pacific: The pandemics impact on Asia-Pacific countries varies considerably, but a return to steady growth is projected after 2021.

Japan: Japan medicine spending growth is projected at -1 to 2% through 2027 as robust brand growth is offset by a shift in annual price cuts and ongoing moves 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.

Growth in developed economies continues at relatively steady rates, with new products offset by patent expiries. Latin America, Eastern Europe and parts of Asia are expected to grow strongly from volume and adoption of novel medicines.

Key Areas:

• The key growth area for medicines in the next five years is biotech, which will represent 35% of global spending and will include many of the areas of greatest activity for novel medicines.

• Specialty medicines will represent 43% of global spending in 2027 and more than 55% of total spending in developed markets, continuing the shift from more traditional medicines underway for over a decade.

• The two leading global therapy areas — oncology and immunology — are forecast to grow 13–16% and 3–6% CAGR, respectively, through 2027, reflecting diverging trends with one still driven by novel medicines and the other facing biosimilar competition.

Oncology is projected to add 100 new treatments over five years.

• Diabetes spending growth is slowing to low single digits in most developed markets and declining in some, especially net of rebates.

• The outlook for global medicine spending has shifted considerably during the COVID-19 pandemic but is expected to be largely similar to the pre-COVID outlook, excluding the spending for COVID-19 vaccines and therapeutics.

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. In the next five years the impact of LOE is expected to be $141 billion, and while it will be offset by the spending on associated generics and biosimilars, the savings to healthcare systems and patients in the next five years will be significant.

• 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. Channel consolidation in the US continues to exert pressure on generic pricing. One of the challenges facing drug manufacturers is to build closer relationships with patients. This has many benefits including better understanding of patient experience and improved adherence.

However, the industry has some way to go to become a trusted part of the healthcare ecosystem.

• Specialty Pharma: Specialty medicines are those which treat chronic, complex and rare diseases, and while they have a range of characteristics — including the complexity of disease management or distribution — the most commonly noted attribute is that they are more expensive than other more traditional medicines. Specialty medicines have been increasing as a share of spending in higher-income countries and upper middle income countries. Globally specialty medicines will be 45% of global spending by 2025, with more than half of spending on these product in major developed markets.

• Complex generics: A complex generic is a generic that could have a complex active ingredient, complex formulation, complex route of delivery, or complex drug device combinations. Complex generic drugs are cheaper than branded drugs and offer the opportunity to capture additional value to patients by addressing additional unmet needs and enabling complex drug manufacturer to achieve market differentiation and earn higher margins. Opportunities for generics remain strong and positive across the globe, with an increasing demand for affordable healthcare and government focus on cost control and expansion of medical infrastructure. The availability of cost-effective, safe generic alternatives offers a tool, that can be used to balance access to and affordability of many major therapies required to maintain a healthy population of patients across multiple disease areas.

• Biosimilars: Biosimilar products are an identical copy of an original product already authorized for use and offer new therapeutic options with the potential for cost savings to the healthcare system. The introduction of regulatory frameworks for biosimilars over the past 15 years has finally begun to contribute to systemic savings in a tangible way, and 2020, in particular, contributed a significant boost in biosimilar impact from the U.S. for the first time. In the next five years, biologics will see $52 billion in lower brand spending, compared to $15.8 billion in the past five.

• 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. In 2021, during a global pandemic, cancer care continued to be delivered.

In a record-setting year, more novel cancer medicines became available for the first time than in any year in history, and many of them employ immunology or precision biomarkers to transform the way patients are treated. Adoption of breakthrough medicines and diagnostics is improving outcomes for millions around the world, though broad and equitable access remains a significant challenge to healthcare stakeholders — including patients. 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. A record 30 oncology novel active substances (NASs) were initially launched globally in 2021, 104 in the past five years and a total of 159 since 2012. While not all of these drugs have become available in every country, most have access to some key breakthroughs in immuno-oncology and the use of precision biomarkers have become the standard of care in dozens of tumors.

• 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 computerize manufacturing while focusing on the human element. Four pillars of Pharma 4.0 Resources, Information

Systems, Organization & 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-optimization 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. Reorganization 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.

1 Longer Life Expectancy:

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

2 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.

3 Improving Purchasing Power:

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

4 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.

5 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.

Indian Pharma

The Indian Pharmaceuticals industry plays a prominent role in the global pharmaceuticals industry. India Pharma market continues to grow with spending increasing by 7.5 10.5% through 2027, reaching $35 39 billion. India is ranked 3^rd worldwide in the production of pharma products by volume and 14^th by value. The nation is the largest provider of generic medicines globally, occupying a 20% share in global supply by volume, and is the leading vaccine manufacturer globally with a market share of 60%.

The performance of pharma exports in 2021-22 has been robust, sustaining growth despite the global trade disruptions and drop in demand for Covid-19-related treatments. Cumulative FDI in the pharma sector crossed the $ 20 billion mark in September 2022. Further, FDI inflows have increased four-fold over five years until September 2022, to $ 699 million, supported by investor-friendly policies and a positive outlook for the industry.

3 PLI Schemes to boost Manufacturing Capacity in the Healthcare Sector

Critical KSMs/DIs/APIs	Medical Devices	Pharmaceuticals
• Tenure: FY21 to FY30	• Tenure: FY21 to FY28	• Tenure: FY21 to FY28
• Outlay: I 6,940 crores	• Outlay: I 3,420 crores	• Outlay: I 15,000 crores
• Progress: Until Dec-22, 51 applicants approved with committed investment of I 4,138.4 crores.	• Progress: Until Dec-22, 21 applicants approved with committed investment of I 1,058.97 crores.	• Progress: Until Jun-22, 55 applicants approved with actual investment of I 18,669 crores.
• Employment: Estimated employment generation from 51 projects is 10,598 persons.	• Employment: Estimated employment generation from 21 projects of around 6,411 persons.	• Employment: Estimated employment generation from 55 projects: 20,000 direct and 80,000 indirect jobs.
• Financial incentive: NA financial	• Financialincentive:The incentive at the rate of 5% on incremental sales of medical devices for 5 years.	• Financial Incentive: On incremental sales under various categories at varying rate over the years ranging from 10% to 3%.

Mergers & Acquisitions

Healthcare M&A landscape: The market for mergers and acquisitions (M&A) in the healthcare industry went through consistent change in the last couple of years. Relatively healthy balance sheet and objective of consolidating in certain areas or specialties, were two major factors driving companies M&A actions. The recent momentum points out that these M&A activities will continue at a steady pace in near to medium term. M&A objectives are likely to be focused on complex generics / value added / specialized manufacturing plays such as biosimilars. Several platforms have been constructed by buyouts funds in export API / Formulations space which should also drive acquisition demand to gain scale.

M&A trends in Indian Pharma: Several leading Indian pharmaceutical companies acquired brands to consolidate their growth in 2022.

M&A in the Indian Pharma space was essentially two-pronged: Active Pharmaceutical Ingredient / CDMO (Contract Development and Manufacturing Organization) space and branded formulations space with focused therapy areas. As Indias economy expands and matures, there was trends towards consolidation in all healthcare and pharma verticals. Companies were looking to create a strong entry barriers and establish themselves as an end-to-end service provider. Technology is playing an essential role in driving differentiation. In 2022-23, despite external pressures such as Russia-Ukraine crises and COVID-19 fears, major deals in the healthcare and pharma sector still came to pass and experts claim the trend will continue in 2023. M&A in healthcare is now dominated by domestic deals and continues to show good growth. This reflects the maturing of our M&A market and the conviction of the existing players in the underlying dynamics of the industry.

M&A Outlook: "Scale" of the business is going to be one of the major competitive strengths any company can have from a multiple stake-holders perspective be it bagging large customers, hiring and retaining best-in-class talent and providing the returns to the investors. Capital from Private Equity players or Capital markets is one of the biggest factors driving M&A in the industry.

Performance Snapshot

The Company is one of the front-runners in the Indian pharmaceuticals industry having presence in domestic as well as International markets. The Company has subsidiaries across the globe as under. The Company also has major commercial presence in countries mainly covering Southeast Asia, Africa and the Middle East.

During the year 2022-23, the Company reported revenues of I 9,620 crores, growth of 13% compared with I 8,508 crores in the previous financial year.

The breakup of revenues under key territories is as under:

Revenue (K in crores)	2022-23		2021-22		Growth
	Amount	Share	Amount	Share	%
India	4,984	52%	4,286	50%	16%
USA	1,162	12%	1,067	13%	9%
Germany	928	10%	966	11%	-4%
Brazil	935	10%	742	9%	26%
Other countries	1,060	11%	881	10%	20%
Others	551	5%	567	7%	-3%
Total	9,620	100%	8,508	100%	13%

Core Competencies

The Company has four major pharma markets - India, US, Germany and Brazil. The Companys strategic priorities in India and Brazil 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. In the US and Germany, the Company continues to focus on its new product pipeline by developing diversified and moving towards complex products.

India:

The Indian pharmaceutical market (IPM) which is valued at more than $23 billion ($ to I conversion @ I 80) has demonstrated its resilience in 2022-23. Over the past several years, the IPM has exhibited a strong growth trajectory and is fundamentally poised to remain a double digit growth market owing to several demand levers over the coming years. With rising prevalence of chronic diseases a significant push towards increasing healthcare coverage towards a large set of the population coupled with government support and insurance coverage, volume growth in the IPM across all therapies is more than likely to sustain this momentum in the near term, and even increase over the medium term. Even though the industry had seen high double digit growth in the last year (2021-22) lead by acute therapy and base effect of previous years post pandemic growth; current year has registered robust 9% growth driven by Chronic & Sub chronic segment. In 2023-24, IPM is anticipated to come back to double digit growth and should continue to grow at a higher rate (similar to pre-covid time) over the next couple of years. Field activity and marketing activities have reached the pre-covid time indicating consistency going forward.

For the year ended 31^st March, 2023, India continues to be the largest business unit contributing 52% to the overall revenues.

The Company is ranked 6^th in the IPM (PY 8th) and continues to grow faster than the market (IPM 9% vs Torrent 16%). The Company stands 4th position among combined chronic / sub chronic therapy areas. 18 brands feature amongst Top 500 brands of the IPM. 13 brands (MBs) have revenues of more than 100 crores.

6th	4th	6th
largest Company in IPM	ranked among combined chronic / sub	ranked by prescription at specialists
	chronic segment
		Ranked amongst
18 Brands	13 Brands (MBs)
Amongst Top 500 brands in IPM	above 100 crores	Top 5
		across CVD, VMN, CNS &
		GI therapy areas

In IPM, Cardiac is the major contributor followed by Anti-Infective(AI), Gastro-intestinal(GI), Anti-diabetic(AD) 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 ~80% 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 seen one rank improvement in each CNS, Gastro Intestinal and two rank improvement Pain and AI therapies compared to last year:

Ranking

	Cardiac	CNS	VMN	GI	Pain	Anti diab*	Dematology
Ranking
	2nd	3rd	4th	4th	8th	9th	7th

*without Insulin

In October 2022, the Company acquired 100% stake in Curatio Health Care Private Limited (Curatio) and has strengthened its presence in the fast-growing dermatology segment. With this, the Company has entered the league of top ten players in the dermatology segment

(ranked 7^th) and will be the leader in the cosmetic dermatology space. Curatio has a strong portfolio of over 50 brands, marketed in

India. Curatios portfolio consists of leading brands such as Tedibar, Atogla, Spoo, B4 Nappi, and Permite, which are ranked amongst top five brands in their covered market. The Scheme for Amalgamation of Curatio was approved by Honble National Company Law Tribunal (‘NCLT), Ahmedabad Bench on 17^th May, 2023. Consequent to the approval, Curatio has been amalgamated with effect from appointed date of 14^th October, 2022.

The Company entered into a strategic alliance with Boehringer Ingelheim India Private Limited (BI India) to co-market Cospiaq

(Empagliflozin), Cospiaq MetTM (Empagliflozin+ Metformin) and Xilingio (Empagliflozin+ Linagliptin) in India.

Empagliflozin is a novel sodium glucose co-transporter-2 (SGLT-2) inhibitor that is useful for improving glycemic control in adults with type-2 diabetes mellitus. Empagliflozin is also indicated to reduce the risk of cardiovascular death in adults with type 2 diabetes mellitus and established cardiovascular disease.

The Company has forayed into the over-the-counter segment in the country with Shelcal 500, a calcium supplement brand (composition of 500mg Calcium and 250 IU of Vitamin D3) which helps optimise calcium absorption, increases bone density, improves muscle strength and helps boost immunity. The calcium is sourced from natural ingredients like oyster shell, having good absorption / bioavailability in the body.

New introductions in key therapies have been a focus area for the Company to drive higher than market growth and it has launched a significant number of new products in 2022-23.

The Company has entered into various segments linked to patent expiration launches, like Sitagliptin with its combinations; Vortioxetin,

Apixaban where it is ranked 1^st amongst the generic player. It has also entered high potential market of Sacubatril Valsartan and further in its pursuit to meet unmet therapy need it has launched several brand extensions which will continue to remain a focus for the coming years as well. Some important new introductions have been Vildagliptin+Dapagliflozin, Hair Serum, Bampedoic Acid with combination, Onco triple drug FDC.

In the coming year, the Company will continue to focus on Patex linked launches, brand extensions which will help to address the unmet need of the patient and complete its therapy basket.

Over the last year, the Company has entered into high potential markets and multiple new product launches, which has been backed by expansion of the field force across key therapeutic areas where we are present. This expansion will ensure to remain competitive in all focus markets without diluting focus on the existing portfolio. Expansion of field force has been done across its key therapeutic areas in Cardiology, Diabetology, Gastro & Multi specialty TAs. The Current MR strength is ~5,500.

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 is the largest pharmaceutical market in the Latin America and the 8th largest in the world. The Brazilian pharma market is estimated to be around BRL 231 billion (US$ 36 billion) by 2027 through a CAGR growth of 9-12%.

Brazils economic scenario has shown some improvements in 2022 with a GDP growth of 2.9%, although lower than 2021 of 5.0%. Given the economic situation, the interest rate likely to continue at high level (2023 expected at 12.5%) & Projected GDP growth is likely to be 1%. 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 12% for 2022-23 excluding patented products. Government subsidies under health care schemes has reduced while opportunity for the pharmaceutical companies to gain from direct sales to consumers is increasing. On the regulatory front, the Brazilian government has changed the patent regulation to allow early entry of generic players thereby increasing access of innovator molecules at lower cost to patients.

During the year, Brazilian operations has registered revenue of BRL 598 Million or ~K 935 crores, registering INR Growth of 26% (Growth in BRL 13%). The company is now among top 25 companies in total Brazil pharma market and ranked 20th in the Branded generic market. 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 by 2024.

Among the Indian companies, in terms of value the Company ranks No. 1 (IQVIA dataset). Currently, it has commercialized 23 branded generics and 16 generic products. In its branded generic portfolio, the Company has 14 filings awaiting approval and further 11 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 5 European markets are Germany, France, Italy, UK and Spain. Medicine spending in top 5 European countries will increase from

US$ 204 billion in 2022 to US$ 263 billion in 2027. CAGR from 2022 to 2026 is expected to be 4% to 6%.

In 2022, Germany accounted for a significant market share of 20.21% followed by the UK with 16.05% and then France with 14.93% in Europe Pharmaceuticals packaging market which is owing to increasing demand for prescription drugs, presence of leading pharmaceutical players, well-developed infrastructure, and high investments in drug development. Germany is valued around $62.3 billion and is expected to grow at a CAGR of 4% to 7% through 2026 and is expected to become the third largest market globally by 2026 surpassing Japan. 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 $12 billion 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 Companys European business is mainly in Germany and UK, where the Company has its direct presence.

Revenues from Germany operations during 2022-23 were I 928 crores ( 111 Million) registering de growth of 4% in INR terms (Euro De-growth 1%). During the year, the Company has won incremental tenders and sales of which have started from H2 of 2022-23.

Given these incremental tenders and new launches in the coming year positive momentum in growth is expected.

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 be the largest pharmaceutical market, accounting for approximately 45% of global pharmaceutical market and 22% of global production. The U.S. market, on a net price basis, is forecast to grow in low single digit over the next 5 years [IQVIA report on Global Use of Medicine 2023]. This growth is fuelled by the increased aging population in U.S. More than 15% of the U.S. population is above 65 years of age and this number is expected to continue to rise by 2023.

Market growth will likely be principally driven by the development and launch of innovative specialty drugs but will be partially tempered by existing drug patent expiries and cost reduction initiatives by payers.

Generic drugs play a vital role in facilitating access to lifesaving medicines and remain a public health priority for the U.S. Food and

Drug administration (USFDA). The USFDAs generic drug program was created to enhance the availability of affordable, high-quality generic drugs in the United States. It is estimated that 91% of all prescription in the United States are filled as generic drugs, with more than 32,000 generic drugs approved by FDA to date. Generic drug competition generates billions of dollars in savings each year for consumer and our health system over higher priced brand-name drugs. For example, a recent FDA study showed the savings accrued during the first year after approval for new generic drugs approved in 2018, 2019 and 2020 to be approximately $53.3 billion.

Amid the challenges of a worldwide pandemic and rapidly advancing science, the USFDAs generic drug program continued steadfast efforts to help increase the availability of safe, effective, high-quality, more affordable drugs in the U.S.

In 2022, the USFDA approved or tentatively approved 914 generic drug applications (ANDAs), including 106 first generics. In one first generic example, FDA approved the first generic cyclosporine ophthalmic, emulsion, 0.5% a drug which helps millions of patients in the United States who suffer from dry eyes.

In 2022, FDAs generic drug program was extremely busy with efforts to steadily improve generic drug access. FDA is committed to addressing the high cost of medicines by encouraging robust and timely market competition for generic drugs through various initiatives, one of which is Drug Competition Action Plan (DCAP). Through this plan, FDA continues to improve the efficiency of the generic drug development, assessment, and approval process, maximize scientific and regulatory clarity with respect to complex generic drugs, and close loopholes that allow brand-name drug companies to "game" FDA rules in ways that delay the generic competition Congress intended. Bringing greater transparency to the generic drug assessment and approval process and removing barriers to generic drug development and market entry supports patients access to the medicines they need at more affordable prices.

The Company is ranked No.12 amongst the US generic Indian companies and has a market share of around 10.5% in its covered market. Revenues from the US business were Rs. 1162 crores (Sales US$ 145 Million) during the financial year 2022-23 as compared to K 1067 crores (Sales US$ 143 Million) in the previous year, registering INR growth of 9% (Growth in US$ 1%).

New approvals from facilities at Dahej and Indrad remained on hold awaiting inspection by USFDA. The Company has completed all the remediation actions and awaits guidance. The base portfolio continues to face increased pricing pressures on the back of significant consolidation and alliances formed by the customers, four of them now accounting for 85% of the generic purchase. It is expected the trend of pricing pressure and price erosion will continue for some more time.

The Company has filled 5 ANDAs during 2022-23. The Company has 102 ANDA approvals (including 3 tentative approvals) and its pipeline consists of 46 pending approvals (not including tentative or partnered filings) 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. State-of-the-art Oral Oncology manufacturing facility [Gujarat], which will cater to both regulated and non-regulated markets, was inspected by USFDA and the Company has received its first product approval from the facility.

Research and Development

Companys pipeline includes several NDDS programs adapted for existing medications which will help the Company in creating differentiated product portfolio. Company is currently focusing its R&D efforts on several innovative projects in the area of complex generics with respect to oral solids, foams, ointments / creams and nasal delivery.

Novel Drug Delivery Systems (NDDS) have emerged from application of new technology platforms to design products with an aim to reposition existing drugs, if required through an alternate route of administration. 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.

To provide new impetus to the Companys interest in specialty complex generics viz. Oncology products, during 2022-23, three oncology products have been filed in US. The company has plans to file complex generics, as well as 505(b)2 products with the rationale of targeting unmet medical needs.

Threats, Risk and Concerns

Drug Price Control

The Ministry of Chemical and Fertilizers has revised the National List of Essential Medicines (NLEM) in September 2022, to include

384 drugs and 1029 formulation in the new NLEM list 2022. While a total of 34 medicines have been added, 26 medicines have been deleted to finalize the new list. During period December 2022 to March 2023 government has revised the ceiling price of the formulations under price control in accordance with para 18(i) of DPCO 2013 and has changed the mechanism of calculating the ceiling price of the newly added Drugs which are under the ambit of the revised policy, this in turn will affect the net margins of the Company.

Generics

The Government of India is encouraging use of generic products through various initiatives. This may have impact on future business strategies of the Company.

New Product Risk

New product development and launch involves substantial expenditure, which may not be recovered due to several factors including development uncertainties, increased competition, regulatory delays lower than anticipated price realizations, delay in market launch and marketing failure.

In highly regulated business, the requirement to obtain regulatory approval based on a products safety, efficacy and quality before it can be marketed for an indication in a particular country, as well as to maintain and comply with licenses and other regulations relating to its manufacture and marketing, are particularly important. The submission of an application to regulatory authorities (which vary, with different requirements, in each region or country) may or may not lead to the grant of marketing approval. Regulators can refuse to grant approval or may require additional data before approval is given, even though the medicine may already be launched in other countries. In some instances, regulatory authorities require the Company to develop plans to ensure safe use of a marketed product before a product is approved, or after approval, if a new and significant safety issue is established. The Industry is also subject to strict controls on the commercialization processes for products including their development, manufacture, distribution and marketing.

The Company manages the above risks related to the launch of new products and their regulatory approvals through careful market research for selection of new products, detailed project planning and continuous monitoring.

Product Liability Risk

The business is exposed to potential claims for product liability. 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.

Litigation Risk

The Company may launch a 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.

Future Acquisition Proposals

The Company continuously looks for opportunities in order to expand its product line either through complimentary or strategic acquisitions of other companies, asset acquisition, licensing agreements or any other arrangement. Any such acquisitions, may involve significant challenges in terms of integration with existing operations, which may lead to requiring 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.

Manufacturing & Supplying 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 use 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.

New Capital Investments

The Company continuously adds capacity to meet the increasing demand of pharma products from various markets. The Company faces risks arising out of delay in implementation, cost overrun and inappropriate implementation. The capacities are built in anticipation of demand and the Company runs the risk of under-utilization of capacities resulting in high manufacturing cost. The risks are sought to be mitigated by forming appropriate project management team and corporate management oversight.

Overseas Markets

The development of the business in overseas markets is a critical factor in determining future ability to sustain or increase global product revenues. This poses various challenges including volatile economic conditions, IP issues, developed market compliance standards, inadvertent breaches of local / international law and interventions by national governments or regulators restricting access to market and / or introducing adverse price controls. However, the Company carefully monitors the business scenarios of these markets, prepares the business plan and undertakes various researches to reduce the risk at the minimal level.

In US, consolidation of certain customer groups such as wholesale drug distribution and retail pharmacies as well as emergence of large buying groups continue to put pricing pressure. The consolidation results into these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures. Additionally, the emergence of large buying groups representing independent retail pharmacies, prevalence and influence of managed care organizations and similar institutions potentially enable those groups to attempt to extract price discounts on the Companys products. The result of such developments could affect the sales volumes and price realizations of the Companys products on an overall basis.

In Brazil, where the Company sells branded generics, the pure generic competition could adversely affect development of branded business. Price erosion continues in the German generic market leading to pressure on operating margins. The insurance companies have been empowered to enter into rebate contracts and float tenders. Aggressive bidding by competitors could lead to unsuccessful bids in tenders exposing the Company to loss of existing sales. Likewise in other European markets, regulatory changes could affect price realizations. The risks are sought to be mitigated through careful market analysis, upgrading skills, marketing alliances and corporate management oversight.

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.

Currency Fluctuation Risk

Currency risks mainly arise out of overseas operations and financing activities. Exchange rate fluctuations could significantly impact earnings and net equity because of invoicing in foreign currencies, expenditure in foreign currencies, foreign currency borrowings and translation of financial statements of overseas subsidiaries into Indian rupees. The Company has a defined foreign exchange risk management framework to manage these risks excluding translation risks.

International Taxation

The Company has potential tax exposure resulting from application of varying laws and interpretations, which include intercompany transactions with subsidiaries in relation to various aspects of business. 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.

Base erosion Profit Shifting (BePS) action plan and reporting formulated by the OECD (Organization of economic Co-operation and development) has been implemented in India which provides for revised standards for transfer pricing documentation and country-by-country reporting of income, earnings, taxes paid and certain measure of economic activities. Accordingly, the Company has done the filings as per prescribed guidelines. There may be issues with respect to the resolution of disputes arising due to interpretation by different tax jurisdictions in different countries. The Company has taken adequate measures to ensure compliances of these guidelines.

Dependence on Information Technology

The Company is highly dependent on information technology systems and related infrastructure. Any breakdown, destruction or interruptions of this system could impact the day to day operations. There is also a risk of theft of information, reputational damage resulting from infiltration of a data center and data leakage of confidential information either internally or otherwise. The Company keeps on investing appropriately on the protection of data and information technology to reduce these risks in addition to have taken insurance cover.

Business Continuity Risk

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 crises, 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 Risk

As the company operate 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 mechanism is put in place.

Pharmacovigilance Risk

Potential risks associated with the use of pharmaceutical products. These risks may include adverse drug reactions, unexpected side effects, drug interactions and medication errors. Pharmacovigilance is the practice of monitoring and evaluating the safety and effectiveness of pharmaceutical products throughout their life cycle. It is critical for ensuring patient safety and reducing the potential harm caused by company products. Any adverse and / or unexpected drug reaction possess significant threat to the Companys regular operations & reputation thereby impacting market & brand value, thus it is important to monitor the safety and effectiveness of these products to identify and mitigate any potential risks. 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.

R&D Risk

Challenges and uncertainties are inherent in innovation and development of new and improved products and technologies on which its continued growth and success depend. These include uncertainty of clinical outcomes, additional analysis of existing clinical data, obtaining regulatory approvals, health plan coverage and customer access and initial and continued commercial success. The Company manages the risks related to the launch of new products and their regulatory approvals 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

Competition Risk

Intensification of competition and threats of new entrants in existing key markets and therapies impede Companys ability to drive improvements in market share. Increased competition also lead to cost and margin pressure. For Branded Generic Markets, our 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, therapeutic focus sales structure together with low attrition etc will help in withering the competition risks. For Generic Generics markets, mitigation strategies include - ensuring supply continuity 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.

Cyber Security and Data Privacy Risk

Cybersecurity risk is the probability of exposure, loss of critical assets and sensitive information or reputational harm as a result of cyber-attack or breach within an organizations network. During recent past cyber-attacks such as ransomware, phishing and other forms of cyber-attacks continues to be a high risk for companies across the globe. Failure to protect personal data and comply with data privacy regulations cause potential risk for the companies in terms of financial penalties, intervention by regulators and reputational loss. In many geographical jurisdictions in which company operate, data protection laws exist to safeguard that right. Further GOI has also proposed to introduce data protection law in near future. The company have IT framework on Information security policy, secured

IT system, robust access control and restricted Administrator privilege to restrict unauthorized access. Adequate e-mails protection and laptop encryptions are in place. Vulnerability assessment and penetration testing (VAPT) is performed yearly.

ESG Risk

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.

Human Resources

The total employee strength of the Company at the end of financial year 2022-23 was 15,407 against 13,923 at the end of financial year 2021-22, an increase of 1,484 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 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 2022-23 compared with 2021-22

Summary Financial Information:

Particulars	2022-23		2021-22
	K crores	% to Revenues	K crores	% to Revenues
Sales and Operating Income (Revenues)	9,620	100%	8,508	100%
Gross Profit	6,885	72%	6,066	71%
Selling, General and admin expenses (SG&A)	3,527	37%	3,119	37%
Research and Development Spend	516	5%	516	6%
Forex (Gain) / Loss	18	0%	(170)	2%
Other (Income)	(48)	(0%)	(20)	0%
EBIDTA	2,872	30%	2,621	31%
Depreciation / amortization	706	7%	662	8%
Net Interest expense / (Income)	319	4%	248	3%
Profit before tax and exceptional items	1,847	19%	1,711	20%
Exceptional Items			485	6%
Profit before tax and after exceptional items	1,847	19%	1,226	14%
Income Tax	602	6%	449	5%
Profit after Tax	1,245	13%	777	9%

Financial Performance

• Revenues grew by 13% to I 9,620 crores from I 8,508 crores in the previous year

• EBDITA grew by 10% to I 2,872 crores from I 2,621 crores in the previous year

• Depreciation and Amortization includes amount related to right of use of assets

• Borrowings increased by I 1,279 crores

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, loan given to employees, short term borrowings, current maturity of long term debt, derivative financial instruments and accruals for health insurance contracts (in Germany) reduced byI 6 crores from I 2864 crores at the end of financial year 2022-23 to I 2,857 crores at the end of financial year 2022-23. The number of days of net trade working capital has reduced from 124 days in 2021-22 to 110 days in 2022-23.

Cash and cash equivalents including current investments was at I 756 crores during the financial year 2022-23 compared to

I 613 crores at the end of financial year 2021-22.

Key Financial Ratios for 2022-23 compared with 2021-22

# Particulars	2022-23	2021-22
Profitability ratios
a) Operating profit margin	30%	31%
b) Net profit margin*	13%	14%
c) Return on net worth*	20%	18%
Working capital ratios
d) Debtors turnover (days)	75	71
e) Inventory turnover (days)	86	107
Gearing ratios
f) Interest coverage	7.56	9.03
g) Debt / equity	0.57	0.52
Liquidity ratios
h) Current ratio	1.20	1.50

*Adjusted for exceptional items in PY

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 : (Net sales / Trade receivables) * 365

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

• Interest coverage : (Profit after tax + Deferred tax + Depreciation and amortization + 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 surplusz

• 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
30th May, 2023	DIN: 00061903

References

1. World Economic Outlook, International Monetary Fund, 2023

2. Economic Survey of India, 2022-23

3. The Global Use of Medicines 2023: Outlook to 2027, IQVIA Institute for Human Data Science

4. AIOCD MAT March 2023 data set.