Aarti Drugs Ltd Management Discussions

Global Economy

The global economy in CY 2024 and CY 2025 is navigating a phase of moderate yet uneven growth amid persistent challenges. Global GDP is projected to slow from 3.3% in CY 2024 to approximately 3% in CY 2025. Geopolitical tensions, including the Russia-Ukraine conflict and unrest in the Middle East, alongside trade policy uncertainties, lingering inflation, supply chain disruptions, and tighter financial conditions have dampened investment sentiment and increased volatility, particularly across major economies such as the US, China, and parts of Europe. This situation was exemplified by the new tariffs imposed by the US, including a 10% baseline US duty on all imports announced in early April 2025. However, later that month, the administration declared a 90-day suspension of these higher tariffs, maintaining only the 10%

base rate for most countries during this negotiation period. The 90-day pause was originally set to expire in July 2025 but has been extended to August 1, 2025, warning that countries failing to reach agreements would then face the higher tariff rates outlined in earlier announcements. With the pause now lifted, recent developments have sparked unrest as the United States imposes higher tariff rates on a wide range of goods from multiple countries.

(Source: https://www.oecd.org/en/about/news/ press-releases/2024/12/economic-outlook- global-growth-to-remain-resilient-in-2025-and- 2026-despite-significant-risks.html)

These trade policy developments have added to global economic uncertainty, weighing on business sentiment and investment decisions. Despite these headwinds, the global economy has shown resilience. Policymakers remain focused on managing inflation while supporting sustainable growth.

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Much of the momentum stems from robust domestic demand in regions such as South Asia and Latin America. Flexible monetary policies and strong performance in the services sector have further aided economic stability.

Looking ahead, growth is expected to diverge across regions. Emerging economies are likely to outpace advanced ones over CY 2025 and CY 2026, driven by rising productivity, strong consumer demand, and investments in sectors like manufacturing, consumer goods, agriculture, infrastructure, and real estate. Developing economies are projected to maintain steady growth of around 4%, while advanced economies face slower expansion amid structural shifts and evolving policy landscapes.

(Source: https://www.imf.org/en/Publications/

WEO/Issues/2025/07/29/world-economic-

outlook-update-july-2025)

Indian Economy

Amid a challenging global landscape, India remained one of the worlds fastest-growing major economies, charting a stable growth trajectory. The Indian economy is projected to expand by 6.5% in FY 2024-25, a moderation from the 9.2% growth recorded in the previous financial year, yet reflective of its underlying strength. This resilience is powered by buoyant domestic demand, strong public and private investment, a favourable demographic profile, and increasing consumption. This is particularly evident in rural areas, where a strong monsoon has boosted agricultural output and incomes.

(Source: https://mospi.gov.in/dataviz-annual- estimates-gdp)

Inflationary pressures eased significantly, with headline inflation averaging at around 4.6% in FY 2024-25, remaining comfortably within the Reserve Bank of Indias (RBI) target band. In response, the RBI adopted an accommodative monetary policy stance, cutting rates for the first time in nearly five years. The repo rate was lowered gradually, reaching 5.5% in June 2025, from 6.25% in February 2025. Following this move, the RBI shifted its monetary policy stance from accommodative to neutral.

(Sources: https://www.goldmansachs.com/

insights/articles/indias-economy-is-likely-to-

stand-firm-in-an-uncertain-world)

https://www.pib.gov.in/PressReleasePage.

aspx?PRID=2122148)

Consumer spending continued to anchor economic growth, with Private Final Consumption Expenditure (PFCE) surging to 7.3% in FY 2024-25, up from 4% in the preceding financial year. Government expenditure further supported this momentum, with Government Final Consumption Expenditure (GFCE) estimated at

33,03,119 Crores in FY 2024-25, driving demand and sustaining economic activity across key sectors.

(Source: https://www.pib.gov.in/PressReleasePage. aspx?PRID=2090875&utm)

Sector-wise, India continues to deliver a broad-based performance. The services sector is on track to grow at 7.2%, propelled by strong momentum in IT and financial services. The nationwide rollout of 5G and accelerated digital transformation are unlocking new growth avenues for technology-led industries. Meanwhile, the agriculture sector remains a vital pillar of the

economy, with record Kharif crop yields contributing to higher rural incomes and expanded market reach.

(Source: https://www.pib.gov.in/ PressReleasePage.aspx?PRID=2097921)

Indias forward-looking investments in renewable energy and digital infrastructure are further strengthening its economic foundation. These strategic priorities are not only supporting near-term growth but also laying the groundwork for long-term competitiveness and sustainable development.

Global Pharmaceutical Industry

The global pharmaceutical industry continues to exhibit strong momentum, fuelled by expanding healthcare coverage, increased public health spending, and ongoing investments in research and development. In CY 2024, the global market was valued at approximately USD 1,653.7 billion and is projected to reach USD 1,746.4 billion in CY 2025. Looking ahead, the market is expected to clock in a CAGR of 6.1% from CY 2025 to CY 2030.

(Source: https://www.grandviewresearch.com/ industry-analysis/pharmaceutical-market-report)

Several structural and technological trends are shaping this growth. One of the most significant drivers is the increasing prevalence of chronic, noncommunicable diseases (NCDs), which now account for nearly 74% of global deaths. An ageing global population is further contributing to the rising demand for long-term treatment and care. Additionally, greater awareness and government-driven vaccination programmes have enhanced preventive care access, particularly in emerging economies.

(Source: https://ncdalliance.org/why-ncds/NCDs)

Innovations in biotechnology such as cell and gene therapies and allogeneic cell therapies, the rise of personalised medicine, expansion of telemedicine, e-pharmacies, and

digital health platforms and growth in biopharmaceuticals and biosimilars are revolutionising treatment pathways. The integration of artificial intelligence (AI) in drug discovery and clinical trials has also accelerated the development timeline, optimising both efficacy and cost. Other emerging technologies such as 3D printing in drug manufacturing, the increasing adoption of combination therapies, and advancements in mRNA-based vaccines continue to transform the pharmaceutical landscape.

Indian

Pharmaceutical

Industry

India has cemented its position as a significant contributor to the global pharmaceutical value chain. The domestic pharmaceutical market is currently valued at USD 58 billion, a revision of an earlier forecasted figure. The industry is projected to grow substantially, reaching USD 120-130 billion by 2030, with Indias share in the global pharmaceutical market expected to touch 5%. Looking further ahead, the sector is on track to reach USD 400-450 billion by 2047, reflecting sustained momentum in the sector.

(Source: https://www.india-briefing.com/news/ why-indias-pharmaceutical-industry-remains- poised-for-growth-in-2025-35988.html/)

A notable transformation is underway as the industry shifts from a manufacturing-led Make in India strategy to a more innovation- focused Develop in India model.

Indian companies are ramping up investments in novel drug development, biotechnology, and advanced research, reflecting a long-term commitment to global competitiveness. The industrys global footprint now spans over 200 countries, with growing international regulatory recognition and increasing investments in formulation research and biosimilars.

(Source: https://www.investindia.gov.in/sector/ pharmaceuticals)

The Indian Government has launched several targeted initiatives to foster innovation, self-reliance, and global competitiveness in the pharmaceutical and MedTech sectors. The Production Linked Incentive (PLI) Scheme for Medical Devices and the Scheme for Strengthening of Pharmaceuticals Industry (SPI) aim to boost domestic manufacturing capabilities and reduce import dependence for critical inputs.

The Scheme for Promotion of Research and Innovation in Pharma MedTech Sector (PRIP) encourages deeper

investments in R&D, formulation development, and biotechnology. Additionally, the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) is widening access to affordable generic medicines across the country through an expanding network of retail outlets.

India remains a global hub for high- quality, affordable generics, supplying 20% of the worlds generic drug demand. Both rural and urban markets are gaining strategic attention, with efforts to bridge gaps in healthcare access through telemedicine, mobile health units, and affordable treatment initiatives.

Domestic Pharmaceutical Market

Indias domestic pharmaceutical market stands as one of the worlds largest and fastest-growing, driven by robust demand for affordable medicines, a strong manufacturing base, and a rapidly expanding healthcare sector. Increasing healthcare awareness, rising incomes, and government initiatives to enhance access and affordability, continue to play a pivotal role in meeting the countrys diverse medical needs while emerging as a global hub for generic drugs and vaccines.

The Indian domestic pharmaceutical market posted an 8.4% year-on-year growth in FY 2024-25, primarily driven by therapies targeting chronic conditions. Chronic therapies grew by 9.9%, driven primarily by a 10.7% rise in cardiac treatments, followed by a 7.9% increase in anti-diabetic drugs.

(Source: https://www.business-standard.com/

industry/news/robust-chronic-performance-

drives-8-4-growth-for-indian-pharma-mkt-in-

fy25-125040801060_1.html

https://www.indiapharmaoutlook.com/news/

indian-pharma-sees-84-growth-in-jan-2025-

boosted-by-chronic-care-nwid-3130.html#google_

vignette)

Meanwhile, acute therapy segments such as anti-infectives and respiratory drugs witnessed moderate growth at 6.3%, due to post-pandemic normalisation and stricter prescription

regulations. The domestic market continued to benefit from strategic advancements in R&D, the Strengthening of Pharmaceuticals Industry (SPI) scheme for funding research and upgrading laboratories to enhance global competitiveness, improved healthcare infrastructure such as the launch of Bulk Drug Parks, and various government reforms. Noteworthy policies, such as the push for universal health coverage and the encouragement of generic drug usage, have created a more conducive environment for industry growth.

(Source: https://www.indiapharmaoutlook.com/ news/indian-pharma-sees-84-growth-in-jan- 2025-boosted-by-chronic-care-nwid-3130. html#google_vignette)

Export Pharmaceutical Market

India remains the worlds largest supplier of generic medicines and has cemented its position as a reliable partner in global healthcare. Pharmaceutical exports touched USD 30.47 billion in FY 2024-25, marking a 9.4% increase from the previous fiscal year. Monthly exports consistently range between USD 2-3 billion, indicating sectoral stability and sustained international demand.

(Source: https://pharmexcil.com/uploadfile/ Hand_Book_14_06_2025_final.pdf https://www.pib.gov.in/PressReleasePage. aspx?PRID=2122016)

The United States continues to be the leading export destination, accounting for more than one-third of Indias total pharmaceutical exports, followed by key markets such as the UK, Brazil, France, and South Africa.

Indias export performance has been further boosted by diversification into new geographies, an expanded product portfolio including drug formulations and biologics (which make up 75% of export value), and strong participation in global public health initiatives.

(Source: https://pharmexcil.com/uploadfile/Hand_ Book_14_06_2025_final.pdf

https://www.newsonair.gov.in/indias-

pharmaceutical-exports-reach-over-30-billion-

dollar-in-financial-year-2024-25/)

India plays a vital role in global vaccine supply chains, supplying 20% of global generic drug demand and fulfilling a significant portion of UNICEFs and WHOs vaccine requirements. These achievements reflect the industrys ability to deliver quality products at scale, reinforcing Indias image as the pharmacy of the world.

(Source: https://pharmexcil.com/uploadfile/Hand_ Book_14_06_2025_final.pdf)

Company Overview

Aarti Drugs Limited (Aarti Drugs or The Company), established in 1984, is a well-established name in the pharmaceutical industry, specialising in the production of Active Pharmaceutical Ingredients (APIs), pharmaceutical intermediates, and speciality chemicals. A part of the Aarti Group, an industrial conglomerate, Aarti Drugs offers a diverse product range of more than 50 compounds, serving therapeutic areas including antibiotics, antiprotozoals, anti-inflammatories, antidiabetics, and antifungals. With a stronghold in the API segment, the Company also operates Pinnacle Life Science Private Limited, its wholly owned subsidiary focused on formulation development.

The Company follows an adaptable manufacturing model that combines internal capabilities with strategic outsourcing to maintain flexibility and scale. Its multi-purpose manufacturing units are designed to handle varying batch sizes, from small-scale to multi-tonne production, allowing it to meet a wide spectrum of market demands. The Companys R&D strength is anchored by its centres in Turbhe, Navi Mumbai, dedicated to complex generic formulations, and in Tarapur, Maharashtra, which focuses on API process innovation. These facilities, strategically located near major industrial corridors, enable efficient operations and ensure reliable delivery of high-quality pharmaceutical products.

Highlights for the Year

Operational Scale-up at Tarapur Greenfield Project

The Salicylic Acid plant at Tarapur has commenced operations and is gradually scaling up production and is targeting a cumulative capacity of ~1,600 tonnes per month by the end of FY 2025-26. This is expected to contribute meaningfully to longterm profitability.

Investment in Green Energy through Solar SPV

The Company has entered into an agreement with Prozeal Green Power Private Limited and acquired a stake of 26.25% each in Prozeal Green Power Nine Private Limited and Prozeal Green Power Six Private Limited, a Special Purpose Vehicle (SPV) for setting up captive solar power plants in Gujarat and Maharashtra. Aarti Drugs will invest 9.70 Crores

in a phased manner under this arrangement. The initiative, aligned with the Companys sustainability goals, is expected to generate 50.83 million renewable energy units annually, resulting in estimated annual savings of 15.25 Crores and a reduction of 36394 tonnes of CO₂ emissions.

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Research and Development

Aarti Drugs R&D capabilities are anchored by a highly qualified team comprising doctorates, postgraduates, science graduates, and engineering technicians. Their core focus lies in driving process innovation, enhancing product quality, and developing new molecules to support future growth. The Companys R&D centres are recognised by the Department of Scientific and Industrial Research (DSIR), underscoring its technical strength and compliance with national benchmarks.

The Tarapur-based R&D facility houses a pilot plant designed for kilo-scale pharmaceutical production. This DSIR-accredited facility supports process optimisation, scale-up studies, and seamless technology transfer from lab-scale to commercial manufacturing. Backed by dedicated project managers and collaborations with academic experts from institutions like the Institute of Chemical Technology (ICT) and CSIR, Aarti Drugs ensures timely and efficient commercialisation of its innovations.

Subsidiaries

Aarti Drugs Limited operates through three strategic subsidiaries and one step-down subsidiary, each expanding the Companys reach and capabilities:

Pinnacle Life Science Private Limited

Based in Baddi, Himachal Pradesh, Pinnacle Life Science Private Limited, a material subsidiary of Aarti Drugs, is a wholly owned entity focused on pharmaceutical formulations.

It has played a key role in expanding our footprint in Latin America, select African nations, and parts of Asia, contributing a significant share of revenue through export registrations and government tender participation.

Aarti Speciality Chemicals Limited

Located in Mumbai, this subsidiary engages in manufacturing, trading, and processing of speciality chemicals and pharmaceutical products, enhancing Aarti Drugs backend integration and product depth.

Distribution Network

Aarti Drugs has built a robust global distribution network that supports its presence in over 100 countries. The Company primarily ships products directly by air or sea, ensuring cost- efficient logistics for bulk volumes. For smaller shipments, it leverages trusted distributor partnerships. To mitigate financial risk, Aarti Drugs conducts stringent credit evaluations of clients and, in higher-risk cases, collaborates with European trading partners.

The Company also safeguards its receivables through trade credit insurance, making its distribution system not only expansive but also resilient and financially sound.

Financial Highlights

Revenue for FY 2024-25 stood at 2,403.4 Crores as against 2,532.6 Crores for FY 2023-24, reflecting a 5% YoY decline. EBITDA for FY 2024-25 was 303.4 Crores compared to 320.5 Crores in FY 2023-24, down 5% YoY, with an EBITDA margin of 12.6% for FY 2024-25. PAT stood at 168.1 Crores in FY 2024-25, as against 171.6 Crores in FY 2023-24, registering a 2% YoY decline, with a PAT margin of 7.0%.

Outlook

Aarti Drugs is poised for a promising future bolstered by strategic initiatives aimed at expanding capabilities and enhancing offerings, with the commitment to investing in new technologies, which positions the Company uniquely to capitalize on the growth opportunities within the pharmaceutical and specialty chemicals sectors.

During FY 2024-25, the Company incurred a capex of Rs. 177 Crores. Significant progress has been achieved on the greenfield project at Saykha, Gujarat, dedicated to backward integration of the antidiabetic product along with a few other intermediates. Trial production

Human Resources

At Aarti Drugs, people are valued not just as resources, but as individuals with unique skills, aspirations, and potential. The Company is committed to creating a workplace culture that nurtures personal growth alongside professional development. Through its Human Resources Division,

Aarti Drugs ensures equitable

has already commenced and is expected to stabilise soon.

This development is expected to contribute significantly to the Companys long-term profitability.

This initiative is designed to reduce the reliance on external raw materials, thereby enhancing the Companys supply chain reliability. By focusing on the internal sourcing of key inputs, Aarti Drugs expect to drive incremental margin expansion, positioning it for sustained success in the future.

Tarapur Greenfield project, which initially faced some teething issues, has largely overcome them, with the Company now focussing on a phased scale-up in production.

opportunities for learning, career advancement, and cross-functional exposure. As of March 31, 2025, the Company had 1,284 permanent employees at its manufacturing plants and administrative office which includes 1,152 males and 132 females.

Regular training programmes, seminars, and leadership development

These initiatives are not just about immediate gains; they are designed to collectively strengthen the Companys operational resilience.

By implementing these strategies, Aarti Drugs is positioning itself for sustainable long-term growth, ensuring that the Company remains competitive and robust in the face of external pressures.

As Aarti Drugs navigates the current geopolitical challenges in the broader operating environment, it remains imperative that the Company focusses on enhancing its profitability through disciplined cost control and efficient supply chain management.

initiatives are conducted to enhance skills and encourage continuous learning. The Companys focus on inclusivity, empowerment, and capability-building fosters a collaborative environment that drives performance and long-term organisational success.

Environment, Health and Safety

Aarti Drugs continues to advance its sustainability agenda by strengthening waste management, promoting efficient water usage, and reducing its carbon footprint.

The implementation of Zero Liquid Discharge (ZLD) systems across multiple facilities ensures complete recycling of treated wastewater. Use of dual-fired boilers in greenfield plants optimises fuel use and lowers emissions, while waste-to-energy practices and waste heat recovery systems further enhance energy efficiency.

Aarti Drugs leverages advanced technologies like ATFD, ATFE, FBC boilers, MEE, and MVR systems to ensure optimal resource utilisation. On the health and safety front, the Company promotes a culture of safety through regular training on PPE usage, firefighting, first aid, and emergency response, supported by Civil Defence and the Bombay Productivity Council. All EHS systems are aligned with ISO standards (ISO 9001:2008, ISO 14001, ISO 45001, and ISO 9002), reflecting a strong commitment to global safety and environmental benchmarks.

To reduce plastic usage, the Company has shifted to environmentally friendly packaging such as paper bags, fibre drums, and jumbo bags. Tree plantation drives and green cover maintenance are regularly undertaken to support biodiversity and carbon sequestration.

The Companys strong commitment to sustainability is also reflected in its EcoVadis score, which places it in the 89^th percentile globally.

Internal Controls

Aarti Drugs places strong emphasis on maintaining a robust internal control framework that underpins its operational integrity and corporate governance. The Company has established a structured system of internal controls designed to safeguard assets, ensure accurate financial reporting, and prevent any form of misconduct. These controls are regularly reviewed and refined by the Audit Committee to remain aligned with evolving business needs.

To further strengthen its governance practices, periodic internal audits are conducted by an independent Chartered Accountancy firm.

The findings are closely reviewed by the Audit Committee, which addresses any identified gaps and drives continual improvements across processes and compliance mechanisms.

The Company is committed to safeguarding assets, preventing and detecting fraud or errors, providing accurate and complete accounting

records and preparing timely and reliable financial reports. Any deviations are promptly reported to management, allowing for swift corrective action to ensure business continuity and maintain risk at manageable levels. This internal control framework is crucial for maintaining smooth and uninterrupted business operations.

Cautionary

Statement

This Management Discussion and Analysis contains forward-looking statements that are subject to risks and uncertainties. Actual outcomes may differ materially from those projected due to changes in economi conditions, government policies, regulatory environments, taxation laws, and other external factors beyond the Companys control.