alembic pharmaceuticals ltd share price Management discussions

1) The economic environment

Global economy: The world continued to tread the recovery path, but the momentum of recovery remained constrained owing to the pandemic and uncertainties surrounding this global health scare.

Fuelled by the highly transmissible and increasingly lethal Delta variant, the death toll across the globe touched the 5-mn mark owing to the pandemic. Moreover, the accompanying fear, lockdowns and supply chain disruptions held back a full return to normalcy. Overall, risks to economic prospects increased, and policy trade-offs became more complex. As a result, the global growth projection for 2021 is pegged at 5.9%; estimates for 2022 are set at 4.9%.

There appears to be considerable economic divergences between advanced and developing economies. Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it in 2024. In contrast, aggregate output for the emerging market and developing economy group (excluding China) is expected to remain below the pre-pandemic forecast till 2024, resulting in a larger setback to improvements in their living standards.

But these estimates could change significantly owing to the geopolitical tensions prevailing in the world and the crippling sanctions which will have a considerable impact on commodity prices; the fragilities of the global supply chain will get even more exposed.

Indian economy: A resilient India bounced back with considerable vigour. Coming out from severe second wave which was extremely intense, the Indian economy demonstrated remarkable progress.

The first advance estimate of gross domestic product (GDP) for the financial year 2021-22 (FY22) came at 8.9% as compared to the contraction of 6.6% in 2020-21.

As per the initial estimates Indias GDP in actual terms in 2021-22 will surpass the pre-Covid level of C145.69 lakh crore in 2019-20.

Several high frequency indicators have reached pre-Covid levels.

Even the contact intensive and mobility dependent sectors like hospitality, aviation and tourism bounced back sharply from the second wave

India better than the best

Consumer price inflation in the US is at 8.5%, a 40-year high. In the Euro area, it is 7.5%. These are economies that are used to inflation averaging less than 2%. Indias consumer price inflation is moderate at fractionally under 7%.

The rupee has been one of the more stable currencies, dropping against the dollar by just 1.4% in the last 12 months. Other than the yuan, the only currencies to have gained against the dollar belong to oil exporters: Brazil, Indonesia, and Mexico.

2) Mega trends in the pharmaceutical space

Global pharmaceutical space

The global medicine market — using invoice price levels — is expected to grow at 3-6% CAGR through 2026, reaching about US$1.8 trillion in total market size.

The largest driver of medicine spending through the next five years is expected to be global COVID-19 vaccinations. Growth in global medicine spending will be slowed by losses of exclusivity, resulting in brand losses of $188 billion, mostly offset by spending on newly launched products.

In developed markets, the use of medicines has remained consistent over the past decade, with most of the medicine use continuing to be in older and traditional therapies. Newer specialty therapies in oncology are driving a growth of 13.8% CAGR in onco-supportive drugs and 4.6% CAGR in oncology in recent years.

Medicine use in pharmerging markets has grown in all major therapy areas over the past decade. Older therapies in cardiovascular disease and dermatology account for 20% of current medicine use, with share of usage in dermatology growing 34% over the last 10 years.

The US market, on a net price basis, is forecast to grow 0-3% CAGR over the next five years, down from 3.5% CAGR for the past five years. Spending in Europe is expected to increase by $51 billion through 2026, with a focus on generics and biosimilars.

Indian pharmaceutical space

The pharma industry has seen a sharp rise in the past three years with rapid digitisation. Moreover, advanced research in the field has created newer avenues of treatment for mankind. The pharmaceutical industry is expected to grow to US$ 1.5 trillion by 2023. The technological trends expected to play out are:

Rise in E-pharmacies: The

Covid-19 pandemic has forced people to buying medicines online from the earlier brick-and- mortar pharmacies. With the rise in popularity, it is expected that the growth of e-pharmacies will continue strongly, and the overall number of households served is set to cross the 70 million mark by 2025.

Clinical trials: Digitisation is expected to change the future of clinical trials in the years to come. From matching trials to patients by analysing their health records to improving medication adherence, trials will become more global and remotely-led. In the near future, new technologies like digital pills will increase the accuracy of monitoring and reporting.

Artificial Intelligence: AI can present a myriad of opportunities for the pharmaceutical industry bringing about a radical shift in the innovation paradigm of the pharma sector. Pharmaceutical companies are leveraging advanced ML algorithms and AI-powered tools to streamline the drug discovery process, create more affordable drugs and therapies, and reduce operational costs. Pharma companies can also implement AI in the manufacturing process for higher productivity, improved efficiency.

Precision medicine: The production of precision medication requires facilities that are specialised and smaller than most factories. Even though it has posed problems for pharmaceutical manufacturers, this is a trend thats anticipated to continue as methods used are refined.

3) Business Performance

International Formulations

This division represents Alembics global footprint which comprises all key regulated markets and a host of pharmerging markets, both of which are essential for the Companys sustained success in the pharmaceuticals space.

To maximise business growth from the international business, the Company has created two teams

• The US front end team which focuses on strengthening the brand recall of the Company as a committed and reliable pharmaceutical player with an unblemished USFDA track record.

• The Rest of the World (RoW), which concentrates its energies on widening the Alembic footprint in other regulated and pharmerging markets.

a) The US piece

A journey that commenced in 2015, is currently an important business driver for Alembic and contributed about 51% to its topline in FY22. The Companys front-end office in New Jersey, US forges and nurtures relationships with leading distribution and marketing companies.

This business posted decent numbers considering that it came from high base of previous year (on account of high price realisations on Sartans Business). This was possible on account of new product launches and consolidating market share in existing products.

The Companys ranking in the US market improved considerably - in FY 21 the Company featured among the Top 5 players for 47 products; in FY 22, the Alembic brand upped into the Top 5 for 62 products. The R&D team sustained its efforts in filling the product pipeline which will expand the Companys product portfolio over the coming years.

FY22: Key highlights

• Launched 15 new products in the US

• Filed 25 ANDAs in the US

• Received approval for 25 ANDAs (Including Tentative Approvals)

b) Rest of the World (RoW)

From being a fledgeling a few years ago, Alembic has put in considerable effort in graduating this vertical as an important flanking business that ably supports overall business growth. Over the years, the Company has achieved an active presence in 6+ geographies, which includes regulated and pharmerging destinations.

Despite the supply-chain challenges across the globe owing to the pandemic, the team successfully matched its FY21 performance. This was a very heartening achievement considering the extraordinary jump in topline registered by the team in FY21.

The highlight of the fiscal was the registrations it received in South Africa and in some Latin American countries. The team also made good headway in the South-East Asian countries - it made quite some filings, which should transform into commercial volumes in the next 18-24 months.

The team continued to consolidate its presence in existing markets with considerable success as it forged new alliances for its existing products.

Domestic Branded Generics

This is an important business vertical as this single geography contributes significant share to the Companys topline and bottomline. Alembic manufactures specialty formulations which cater to diverse chronic and acute therapies.

The 5,500+ Field Force caters to around 2,25,000 doctors in India. The Company enjoys a 1.51% market share in India. (Source: IQVIA MAT MAR 22)

The Company gained significant traction during the multiple waves of the pandemic owing to its product AzithraL, which featured in every Covid-19 remedying prescription. Also, its Amphotericin product against Black Fungus (a probable aftereffect of Covid-19 medication) generated heaLthy business voLumes.

The team continued to move forward with its business-tweaking initiatives initiated about 3-4 years ago. It continued to infuse energy in its field force and altered its trade practices. These efforts yielded healthy returns: 1) An industry beating performance and 2) Optimised product inventory.

The team also continued to widen its product basket, which were weLL accepted in the domestic market. As a resuLt, the Company now possesses 7 brands, each of which generate more than C50 crore revenue.

In keeping with the recent trend of patients preferring to visit hospital OPDs as opposed to individual cLinics, the team strengthened its connect with the OPD division of Leading corporate hospitaLs in metros and tier 1 & 2 cities. This helped in growing prescription voLumes.

FY22: Key highlights

• Grew business by 29% against a 18% industry growth

• Introduced 5 new products in the domestic market

• Added 500 members to the fieLd forces, majority of them were fresh graduates

APIs

The division manufactures approximately 100 APIs at its FDA approved facilities which are also marketed to key formulators across 60 nations globally including non-regulated markets.

It is an important division for the Company as it develops niche APIs for select formulations.

While the numbers represent a flattish performance, the reality is that FY21 was unusual owing to a sudden spike in volumes of Azithromycin owing to Covid requirements . Excluding this exception, FY22 showcased healthy growth in volumes and value.

FY22: Key highlights

During the year under review, considerable development work happened; the products moved in scale from the mg-scale to the gram-scale and even higher This forward movement in the development cycle generated good revenue. This was heartening as it was a sweet success for the patience and perseverance in developing these products -the development work for some products started in 2016-17 or even earlier

4) Value creation

Business Model

Our value-creation engine

Alembics business model is the foundation upon which it seeks to effectively implement and drive a sustainable business strategy. The business model is built on the foundation of patience and perseverance of the team to create growth levers for the future. It encourages and inspires employees and partners to strive for excellence in what they do, keeping ethics, transparency and good governance practices in mind.

INPUTS >

Manufactured Capital Infrastructure created and equipment used for manufacturing products. Our state-of-the-art pan-India infrastructure provides a superior mind-to-market cycle.	Manufacturing units	9
	Gross Block	C2,601.83 crore
Financial Capital Funds available to create value through production processes, or funds generated by operations. We have a strong, net debt-free balance sheet and focus on efficient capital allocation.	Net Debt	C569 crore
	Capital Employed (April 1, 2022)	C5,237 crore
Intellectual Capital Knowledge and experience that helps graduate our business model to stand out of the clutter. Our thirst for knowledge and our confidence to walk the road less travelled helps in developing innovative products and processes developed.	No of Scientists	1,200+
	R&D investment	C838 crore
	DMF Filed	8
Human Capital The skills, knowhow, capabilities, experience, diversity and level of motivation of direct and contractual employees. We promote innovative thinking and equip them with the right development tools and trainings.	Employees on roll	12,216
	People benefits	C1,133 crore
Social & Relationship Capital Trust-based, mutually beneficial relationships with key stakeholders such as investors, customers, vendors, society and government, among others, which play a vital role in our success.	CSR spend	C22 crore
	Shareholders	108,622
Natural capital Natural resources such as air, water, energy, land and biodiversity, which are either utilised by us or impacted by our operations. We continuously endeavour to reduce the load of our operations on the Earth.	Energy consumption (Direct & Indirect)	216 GJ/tonne pf product
OUTCOME >
Manufactured Capital	Products launched	13 for US market & 5 for the Domestic Branded Generics business
	Return on Assets	9%
Financial Capital	Revenue	C5,306 crore
	EBITDA	C930 crore
	EBITDA margin	18%
	Net Profit	C521 crore
	Capital Employed (March 31, 2022)	C5,237 crore
	ANDA under development	131
Intellectual Capital	ANDA filings	23
	DMF Filings	8
Human Capital	Accident trend reduced by	43%
	Avg. Revenue per employee	C44 lakh
Social & Relationship Capital	Dividend declared	500% i.e C10 per share
	CSR spend	C22 crore
Natural Capital	Rainwater harvested	179,160 KL
	Total waste reduction	29%
	Reduction in energy consumption	12%

Inputs

Manufactured Capital

Alembics state-of-the art manufacturing facilities make quality products that improve healthcare in India and across the world.

Manufacturing facilities

The Company has 9 manufacturing facilities of which 3 facilities are awaiting regulatory clearance to commence operations. The manufacturing units which cater to the international business are in Gujarat, India, while the unit that develops and delivers formulations for the domestic market is in Sikkim. APIs are manufactured at the Panelav and Karkhadi units in Gujarat

Panelav, Gujarat

This is the flagship manufacturing facility for Alembic, where the Company manufactures oral solids and APIs. This FDA approved facility delivers products to all regulated and pharmerging markets across the globe. Alembic has invested in separate blocks for developing Oncology injectables and Oncology Oral Solid Dosages (F2). These blocks have been set up and are awaiting regulatory clearance.

Karkhadi, Gujarat

At this location, the Company manufactures dermatology products and certain APIs. The Company has set up blocks for developing general injectables and Ophthalmic products (F3), which are awaiting regulatory clearance.

Jarod, Gujarat

The Company has created a greenfield facility at this location for manufacturing oral solid dosages (F4). The unit is ready for commercial production but is awaiting regulatory clearance.

Sikkim

The Company manufactures formulations specifically for the domestic market.

FY22: in retrospect

Over the last two years, which marred normal operations, the operations team focused their efforts on enhancing capabilities. The team worked upon commissioning new technologies for its APIs (at the Panelav unit) which promises to improve yields among other benefits. The team, along with its R&D colleagues will initiate filings leveraging this technology. Once approved, these technologies would be put to commercial use.

The pandemic also brought to the fore an important realisation about the shopfloor workforce. A large proportion of the workforce came from other states, which made it difficult for them to come to work during lockdowns. As a mitigation strategy, the Company focused nurturing local talent. It cherry-picked skilled people at the junior levels from within local communities to fill in vacancies. This strategy, the Company believes, will enhance employee loyalty at the junior levels.

On the raw material front, it was O an extremely volatile ecosystem. While material availability was not a major challenge, the prices for raw materials skyrocketed. Also, logistics cost climbed significantly. The combination of these factors dented profitability margins.

FY23: the strategy

Alembics F3 unit (Karkhadi, injectables block) received certain observations from the audit team of the USFDA while undergoing audit in FY22. The team will focus all its energies for remediation of the block along with teams from other departments. These changes will also be implemented in all other facilities, which are awaiting inspection by regulatory authorities - it will facilitate faster approval of the facilities.

Inputs

Financial Capital

Alembic manages its financial capital in an astute, optimum and diligent manner. Maintaining a prudent balance between investing in long-term strategies and deleveraging the financial statements allows the Company to harness opportunities for long-term value creation.

FY22: in retrospect

FY22 was a fulfilling year for Alembic performed as good as most other Indian pharma players of its size. But when the performance of FY22 is placed alongside the financials of FY21, there appears to be a drop. This is primarily because FY21 was an exceptional year on many counts. Hence, rather than reflecting it as a drop in performance, the numbers achieved in FY22 reflect a return to normalisation.

The journey through FY22 was a mixed bag of ups and downs in performance. While, the domestic branded vertical registered healthy positive growth, the US piece and the RoW segment were lower than the previous year (FY21 was exceptional for the US vertical).

The US market has its peculiar headwinds and tailwinds. As a result, financial numbers from this market will undergo crests and troughs - a reality which shareholders need to consider while drawing their estimates.

The Company invested C482 crore in augmenting capacities and strengthening capabilities - it marks the end to our long capex journey it embarked upon in 201617. Having invested C2100+ crs in new projects over the last few years in a phased manner, Alembic has been able to maintain a low- debt equity (Gross) of 0.12 as on March 31, 2022. The Company has successfully serviced its enhanced debt (owing to our capex plans) by sweating its existing assets efficiently. Despite being a challenging year, the Net Cash Flow from Business Operations stood at C552 crore.

The Finance team deployed operating liquidity prudently between investing in (capex) and strengthening (deleveraging) our financial position - thereby creating a platform that promises to catapult Alembic into a higher orbit.

On the working capital side, the team has been very agile to ensure that receivables translate into cash at the earliest. Multiple teams persevered to maintain a stringent control inventory of finished goods, especially in the domestic market, which helped in maintaining a comfortable working capital position.

FY23: the strategy

Alembics primary focus would be to sweat its assets better, entrench itself deeper in the markets of its choice to maximise revenue from the available opportunities.

• In the domestic market, Alembic is confident of outperforming the industry average.

• The US market could experience a more mature growth owing to prevailing headwinds - the medium-term prospects appear particularly promising banking on at least 15+ new launches.

• The RoW piece should maintain the legacy growth driven by a widening geographic footprint and an expanding product basket.

These estimates are subject to unforeseen events owing to the prevailing geopolitical issues and the possibility of the fourth wave of the pandemic.

Inputs intellectual Capital

Alembic continues to strengthen its Intellectual Capital with a focus on innovation, developing a portfolio of high- quality and affordable medicines. Over the years, the Company has persevered patiently to building a differentiated product pipeline which delivers value to the customer and the Company.

Alembic is a research-led company that leverages its R&D expertise to develop niche products that allows the Company to establish an entrenched presence in geographies and markets of its choice. The strong focus on R&D is reflected in the fact that the Company has three R&D segments - formulations, API and peptides - that cumulatively employ 1,200+ R&D experts possessing skills in cutting-edge technologies and chemistry platforms. The R&D teams stay well-informed about newer product development tools and technologies to gain competitive market advantage.

The Company has also created a dedicated technology transfer team to facilitate seamless DMF/ ANDA filings. Alembics R&D activities are also supported by dedicated teams focused on analytics, documentation and IPR.

Formulation R&D

The Company has three R&D units for developing its formulation pipeline - at Vadodara, Hyderabad and the US.

The Vadodara unit is the mainstay innovation centre, which develops non-oncology molecules. The Hyderabad unit, a more recent addition to the Companys innovation infrastructure develops both oncology and non-oncology molecules. The US unit is focused on developing and filing oral solids and liquid products. It adds complimentary skill sets in soft gelatin based oral solids and oral liquids.

Sustainable Development goals impacted

In the recent past, the Company has invested significantly to augment our R&D capabilities across several high-growth and high-value therapies. These include cardiovascular, oncology, peptides, central nervous system, dermaceuticals and injectables (general and oncology). The robust product pipeline and higher number of filings facilitate the Company to accelerate future growth in represented markets, particularly, in the US (90% of our R&D spends are directed towards the high growth US market).

We have about 50+ products at an advanced stage of development for the US markets. In the product selection, we have adopted a prudent strategy of created a basket of low-risk products and high-risk Para IV filings. The team aims to file about 20+ new filings every year.

For the Rest of the World, the team is developing about 70+ products which are at an advance stage in the development cycle - most are them are tweaks of the US products which are in high demand in these markets - the tweaks will align them to the regulatory compliances in specific markets.

The team continues to monitors it R&D grid to realign its product portfolio against numerous filters to ensure that its efforts generate the desired returns. Products that dont fit the criteria are dropped from the grid. This stringent monitoring ensure that the R&D efforts remain streamlined and relevant.

In the last two years, we have been developing capabilities for incorporating process analytical tools in our molecule manufacturing process to make the process more stable - this ensures that consistent product quality and greater reliability on Alembic. While this is a long journey, we have made good progress since we started. In addition, we have also invested in predictive tool which help in understanding the accuracy of our development path, it provides a basis for course correction, if required. Moreover, it helps in providing a data-backed reply to regulatory queries during audits.

Also, over the last two years, the team has been consciously working on reducing the development cost by various initiatives and resource optimisation.

FY22 - our progress

• Filed 23 ANDAs of which 1 is FTF and 7 are Para IV in nature

• Received approval for 23 ANDAs from the US regulatory authorities

• Filed 15+ dossiers in other global markets

• Received approvals for 10+ dossiers from other markets

Injectable R&D

We set up a dedicated injectable R&D centre few years back. This unit epitomises patience and perseverance. The team has worked diligently for more than half a decade to create a robust pipeline of 40+ molecules, majority of which have been developed or are in the final stages of development. We should see commercialisation of this efforts in a few years.

The team has developed critical in-house technologies that are used in developing injectable products. This has helped in considerable saving of time and development costs. While working peptide-based injectables, peptide characterization is critical and mandatory. Here again the team has built 100% in-house capability in doing the characterisation.

Alembic is amongst the few companies in the Indian pharma space with these in-house capabilities.

FY22 - our progress

• Completed the scale up of quite a few complex injectables, which includes products that are a drug-device combination - exhibit batches for these products is planned in the current year.

• Received FDA clearance for auto injector medication, a complex and difficult to develop formulation.

API R&D

Alembic has a dedicated API development team focused on developing and filing our DMFs with the USFDA. The API team develops novel polymorphs having advantages in terms of product intellectual property and cost, thereby providing the Company an edge over peers.

FY22 - our progress

Operationalised the kilo lab facility at Panchdevla and received approval from CDSO for the same - this will allow us to transfer technology from the R&D to the plant.

Received CDSO approval for the Tinib facility in R&D; niche oncology APIs can be manufactured here.

Completed 8 USFDA filings and 2 dossier in the other geographies - of these five APIs will cater to FTF formulations being developed at our facilities.

Peptide APIs - R&D

Alembic has created this unit a few years ago to develop peptide APIs to be used in developing complex injectables for high-value, high-growth therapies. Over the years, discipline, determination and immense perseverance enabled the team in building expertise in understanding with process, establish alignment with plant operations and with the injectables formulation team. This has helped the team build a robust pipeline of molecules to be used to developing formulations. Alembic in future will be one of the very few companies to be a vertically integrated peptide players.

FY22 - our progress

• Filed with the regulatory authorities for 1 product and elevated 2 more products are in plant validation stage.

• Filed a patent (non-infringing process) which will give us a good yield for the key product. We worked on establishing and stabilising this process for the last 3 years.

• Onboarded team members from an international destination and from recognised institutes in India - this intellectual capital brings in rich expertise and a powerhouse of understanding in our space of operations.

• Invested in analytical ultracentrifugation which is a critical process before filing any product.

• Created a robust pipeline of about 9-10 products which enables us to achieve two filings every year for the medium term.

Inputs

Human Capital

Alembics diverse team of skilled, accountable and engaged employees play a critical role for the sustainable growth of our organisation. The Company has pivoted ^its human resource focus to provide an enabling, supportive and safe environment for its employees in this period of significant change, uncertainty and stress. Also, the Company prioritised keeping its people - engaged, connected -1

FY22: in retrospect

Just when things were getting back on track towards the close of the previous financial year, the year started with the Delta variant of the pandemic which put considerable roadblocks to logistics and instilled fear in the minds of people which thwarted business operations.

The Company set in place similar motley of measures that were instituted during the initial wave of pandemic but were made more stringent. Additionally, transport facilities were made available to people to come to the plant site and back.

The key difference in this hour of anxiety was that the HR team along with other volunteers set multiple vaccinations camps to ensure that the entire team was provided this protection shield. These efforts helped sustain plant operations.

The HR also facilitated the flexibility to people to Work from Home in cases where travel became a concern.

The HR team continued to maintain a connect with every Alembic employee who tested positive with this health scare to keep track of their progress and to render all help to the person and the family.

The Management created a welfare fund which provided the financial succor to families of employees deceased owing to Covid-19.

As the impact of the pandemic waned, plant operations resumed with speed.

Key initiatives during the year

• Right-sized the organisation in keeping with current and future people requirement.

• Initiated the Gallup Survey at its flagship operating unit (F1); the survey numbers showcase that the team is very engaged; this was particularly heartening.

FY23: the strategy

The single most important agenda is to continue to supply talent to facilities that are about to commence commercial operations. Other priorities include 1) The team wants to formalise employee welfare measures through a trust or fund, and 2) Continue to impart training to its team members as and when required.

Inputs Social Capital

Community well-being is deeply ingrained in Alembics culture which integrates it with the wider world. The Company has institutionalised the stakeholder engagement model to understand the core requirements and concerns of communities around its operating facilities and undertake concrete steps for their overall development.

Sustainable Development goals impacted

For uplifting the underprivileged, consistency is far more critical than intensity. What is needed is continuous effort, not explosive effort. This is because, explosive efforts are more about leaving a good story; persistent efforts keep you progressing. At Alembic, patience and perseverance drive us to better what we have done in the past.

Our interventions

1) Health

Swasthya Setu: A 360⁰ health programme, wherein a mobile t health van with medical practitioners visits 25 villages and attends 45,000 villagers in a month. For further treatment or * surgeries patients are referred to

a super-specialty hospital and are provided with free diagnostics, consultation, medicines, stay, meals and pick-up drop facilities.

Suposhan: The project is aligned with Poshan Abhiyan under the governments Integrated Child Development Scheme to eliminate malnutrition through Behaviour Change Communication activities covering 1700 children, adolescent girls, pregnant and lactating mothers in 15 villages of Panelav region.

Blood Transfusion Centre: The growing occurrence of thalassemia in nearby towns and districts made it necessary to have this facility at Bhailal Amin General Hospital which provides free blood transfusion, blood tests and consultation. This has benefitted 55 needy patients suffering from this ailment.

2. Education

Alembic is dedicated towards the education of our community children as we believe that laying a strong foundation directs them towards a brighter future.

Vikas: Set up in 2002, is a school providing quality education to rural children from villages surrounding our Panelav operating facility. With a curriculum for Classes 9-12, the school imparts education to about 360 students annually. It also has an adjoining hostel which provides accommodation to about 200 students.

Shiksha Setu: The CSR team reached out to neighbouring primary schools (Classes 5 to 8) to build the foundation of students. The team partnered with K.R. Shroff foundation to impart education to about 700 students which has significantly improved their academic performance.

Special Adoption Agency: The CSR team has partnered with the Gujarat government for facilitating the adoption of abandoned children who are provided with overall health and education support till they are adopted.

The CSR team has facilitated the adoption of about 20 children.

Foster Care: The Alembic Group has set up a foster care home in Vadodara, where eight children are provided with comprehensive support - the key focus areas being mental and physical health, education, sports facilitation and personality development.

Child Care institutions: The CSR team also supports two other child care institutions for girls and boys and provides tutorial support, sports facilitation, dance and music, personality development and healthcare support.

3. Livelihood

Sneh Sakhi Stitching Unit: A micro-enterprise on industrial stitching was set up and hundred women from within the community were identified and trained. Parallelly, a production center has been set up where thirty women are regularly stitching and earning livelihood.

Farmer Empowerment Programme:

Under the project capacity building of 200+ farmers was undertaken to ensure sustainable agriculture through soil health improvement, crop diversification, climate resilient farming, market linkages, quality seeds, labour saving tools, water and pest management.

4. Water and Sanitation

Water ATMs: Alembic has set up 7 Water ATMs in surrounding villages benefitting 10,000+ community people. The proceeds collected at the ATM are used for its maintenance and upkeep.

Infrastructure: The team has constructed a check dam near Panelav with a storage capacity of four crore liters of water which will be used for irrigation, ground water recharge and meet household requirements.

Groundwater Recharge Wells:

Two such wells were constructed around Jarod for capturing rainwater during the monsoon which will be effective in raising the ground water levels in the area.

Toilets: Around 70 toilets were constructed in Jarod region as part of the sanitation drive under which 2,300+ toilets have been constructed in the last five years around our manufacturing facilities.

5. Community Infrastructure

Alembic constructed five anganwadis - two in Panelav, one in Jarod and two in Karakhadi which provides nutrition and preschool education to community children of these villages.

Assistance in managing the pandemic

Meaningful and timely initiatives were undertaken to help overcome the lethal wave of Covid. They included

• 280 Community women earned livelihood by making 1,00,000+ PPE kits, 36,000+ face masks, 2,000 blood pressure cuffs, 2,000 stethoscope covers and 1,000 face shields which were given to the Corona warriors.

• Distributed 28 oxygen concentrators to strengthen the health system.

• Operated a Vaccination Centre for public with pick-up and drop facility for senior citizens.

• Created a Covid ward to accommodate 50+ patients during the spike in the number of cases.

• More than 250 plasma donations were facilitated.

• Psychosocial counselling of Covid patients in isolation at the hospital

• 43,000+ meals provided to stranded labourers at Govt. night shelters

• Donation of C1.25 crore to state government of Gujarat and Sikkim

• 740 household provided with ration kits

Inputs Natural Capital

Alembic firmly believes that environmental impacts are synonymous to climate change and have long-term implications on the business. The Company endeavours to play its part in tackling climate change and minimising the depletion of natural resources by reducing its operational load on the Earth.

Making an effort to leave the Earth, at least in the way, we inherited it.

Solvent recovery: The Company intensified its efforts to maximise solvent recovery, which reduced the consumption of fresh solvent in the manufacturing process. Also, the residue generated in the solvent recovery process, which used to be incinerated earlier, is now sent to the cement factories in the vicinity for use in their manufacturing operations.

Sustainable Development goals impacted

Energy conservation: At Alembic, energy management and optimisation are a continuous journey. This journey starts with disciplined monitoring of energy consumption at the Companys sites. This forms the platform for undertaking measures for minimising wastages and optimising consumption. Every year, the operations team identifies areas for reducing energy and implements initiatives towards this end. In FY22, the team continued with this efforts and achieved considerable success in its endeavours.

Water management: Alembic uses groundwater at its operating units for it manufacturing processes.

The Company processes all liquid waste and recycles treated water for use in gardening and in toilets. Moreover, the Company has made sizeable investments towards recharging the ground water table. Currently, the Company recharges more water into the underground water table than what it consumes - positioning it as one of the very few companies in the pharma space to become a groundwater positive company.

Plastic waste management:

Aiembic realises that it is putting plastic in the marketplace through its products (packaging). As an Earth-respecting organisation, the Company has appointed an agency to collect an equivalent amount of plastic from the marketplace and dispose it responsibly It needs to certify the same.

In addition, the Company undertook a 100 Day Campaign against plastic. It appointed an agency to collect plastic from the dumps in nearby villages for 100 days and dispose it responsibly with the objective of making the villages plastic free.

Risk management

Patience & Perseverance have built a robust platform that has been able to withstand multiple headwinds.

In a rapidly changing business environment with dynamic customer requirements, business risks are constantly evolving. As a result, there is significant variation in the emerging risks landscape across businesses. We, at Alembic, continuously monitor the internal and external environment to identify potential, emerging risks and their impact on our business.

Pipeline risk

Lack of a robust pipeline of relevant products could impact the Companys growth momentum going forward.

Mitigation measure

Alembics R&D team continues to work on the development of 125+ products. These are periodically analysed for their relevance in terms of the evolving ecosystem and the growing competitive intensity. This ensures that the development of relevant products sustains a healthy pace.

Asset risk

A significant part of the asset base remains under-utilized. This could impact profitability.

Mitigation measure

The new facilities/blocks are awaiting approvals from global regulatory authorities. This could happen in the next 9-12 months. Till then, the Company is prudently utilising these assets for developing exhibit batches for initiating filings in global markets.

Quality risk

Quality issues in the product or packaging could impact product supplies to its customers.

Mitigation measure

Alembics has sustained its investments in quality enhancements across plants to comply with international standards. This is reflected in the Companys ability to capitalise on the Sartans opportunity in the US market (owing to superior product quality). The Company sustains its quality commitment through continuous training of its people on emerging technologies and improved processes.

Compliance risk

Operating facilities will manufacture products only if they continue to remain compliant with regulatory standards.

Mitigation measure

Alembic has established a strong team of experts with domain expertise in all related areas. This expertise is nurtured through periodic and effective training that continues to be tested with frequent mock audits. This has resulted in 24x7 audit preparedness of the team. Moreover, the Company has institutionalised a robust quality control system across the organisation to ensure complete compliance. This system is checked periodically for ensuring that it remains relevant to the evolving regulatory ecosystem.

Data security risk

Loss of data owing to security breach could impact business operations and the Companys reputation.

Mitigation measure

Alembic has made and continues to commit considerable investment to maintain a robust and relevant IT framework and solutions. It has a strong IT team that proactively monitors and analyses risks and threats to its IT systems and protects it against any possible breach.

People risk

Expanding operations need skilled people to manage the operations seamlessly.

Mitigation measure

The Alembic Talent Pool comprising freshers, who are trained in the Companys systems and processes, are ready to fill in vacancies as and when they appear. Also, the Company prefers internal promotions to fill in middle and senior levels gaps in the system - it creates a sense of motivation for other team members to up their performance.

Competitive intensity

Growing competition in the global and domestic pharma space would impede progress.

Mitigation measure

Alembic has, over the years, persevered to establish a strong presence in key markets of its preference. In addition to enjoying a strong presence in India and the US, the Company continues to expand its global presence by entering new geographies - adding new levers to its growth engine.

Currency risk

The Companys revenue accrues in multiple global currencies. Negative fluctuations could impact profitability adversely.

Mitigation measure

We have established robust currency hedging strategy and execution capabilities to safeguard ourselves. We ideally like to hedge 35-40% of our net exposure and will continue to sell more dollar at every fall.

Environment, Health , Safety & Sustainability

Taking care of people and the environment in essence is taking care of the business - for the longterm.

Mitigation measure

Alembic continues to remain agile and alive to sustain good health of its people and the environment.

From an environment perspective, Alembic endeavours to reduce the load of its operations on the Earth through multiple small yet meaningful initiatives. In FY22, the Company reduced its overall energy consumption by 12%, its CO2 emission by about 5%, water consumption by about 21% and achieved waste reduction of about 29%.

From a people standpoint, Alembic continues to train its people on safety periodically every year. This training comprises classroom sessions and mock drills. It also uses earlier incidents/accidents as a tool to train people to avoid their recurrence. This has helped in reducing the accidents and incident trends over the earlier years.

Intellectual property

Infringing patents, product or process, could have serious implications on the Companys business and reputation.

Mitigation measure

The Company has created a vigilance mechanism via an IPR department to check for possible infringement of intellectual property rights of patent holders/ innovators for every product being developed by the R&D team. Their continued monitoring of every product development project from an infringement prism ensures that the Company does not face any legal tussle owing to regulatory issues.

Internal control systems and their adequacy

At Alembic, we maintain a system of well-established policies and procedures for internal control of operations and activities. We constantly strive to integrate the entire organisation, strategic support functions, such as finance, human resources, and regulatory affairs into core operations, such as research, manufacturing, and the supply chain. The internal audit function is further strengthened in conjunction with the statutory auditors to monitor statutory and operational matters. Adherence to statutory compliance is a key focus area for the entire leadership team of the Company.

We appointed Sharp & Tannan Associates, as internal auditors to audit the adequacy and effectiveness of all internal control systems and propose improvements. Significant issues are brought to the attention of the Audit Committee for periodic review. The enterprise-wide risk evaluation and validation process are carried out by the Risk Management Committee and the Board of Directors.

To set the pace for effective and efficient internal control and documentation, we have institutionalised a document management system for core and strategic operations. Additionally, we obtained ISO 9001 and ISO 14001 certifications and adhere to the standard operating procedures applicable to our manufacturing and operating activities.