Bal Pharma Ltd Management Discussions

MANAGEMENT DISCUSSION AND BUSINESS ANALYSIS REPORT

Industry Overview

The global pharmaceutical industry continues to demonstrate resilient long-term growth, supported by increasing healthcare expenditure, ageing populations, rising chronic diseases, and greater access to affordable medicines. While pricing pressure continues in generic APIs due to excess manufacturing capacity, particularly from China, the long-term outlook remains favourable for companies with strong regulatory compliance, diversified product portfolios, and established customer relationships.

India continues to strengthen its position as a preferred global pharmaceutical manufacturing hub, supported by cost competitiveness, technical expertise, regulatory capabilities, and increasing export opportunities. Revised Schedule M requirements are expected to improve industry quality standards and create long-term opportunities for compliant manufacturers.

The Indian pharmaceutical industry continues to remain a key pillar of the healthcare ecosystem and is witnessing steady growth, supported by increasing healthcare awareness, rising demand for quality and affordable medicines, technological advancements and expanding global opportunities.

The industry continues to benefit from Indias strong capabilities in generic medicines, active pharmaceutical ingredients (APIs), formulations and pharmaceutical manufacturing. Indian pharmaceutical companies are increasingly diversifying into complex generics, specialty medicines, biosimilars, biologics and other high-value segments, thereby strengthening the countrys position in the global pharmaceutical market.

Digital transformation, artificial intelligence and data analytics are emerging as important enablers across pharmaceutical research, drug development, manufacturing, quality management and supply-chain operations. These technologies are expected to improve productivity, accelerate innovation and enhance operational efficiency across the industry.

Domestic pharmaceutical demand continues to be supported by increasing healthcare access, changing disease patterns, greater awareness of preventive healthcare and rising demand for chronic therapies. Growth opportunities remain across branded generics, specialty therapies and other value-added healthcare segments.

Government initiatives aimed at strengthening domestic pharmaceutical manufacturing, promoting self-reliance in APIs and key starting materials, encouraging research and development, and improving manufacturing capabilities are expected to further support the industrys long-term growth.

Overall, the Indian pharmaceutical sector remains well positioned to benefit from growing domestic healthcare requirements and increasing global demand.The industry is expected to continue its focus on innovation, quality, regulatory compliance, technology adoption and sustainable growth

Business Snapshot

The Company maintains a diversified business model across markets and product segments, reducing concentration risk and providing multiple growth opportunities.

Revenue Mix	Contribution (Approx)
Export Markets	63%
Domestic Markets	37%

 

Revenue Mix	Contribution (Approx)
API Business	50%
Formulations Business	50%

The balanced revenue mix enabled business stability despite temporary operational disruptions and market pricing pressures.

FY 2025-26 Business Performance

FY 2025-26 was a year of strategic investment focused on strengthening manufacturing capabilities and regulatory compliance.

Major Schedule M compliance projects and infrastructure upgrades were undertaken across manufacturing facilities. While these investments significantly enhance long-term competitiveness, they resulted in temporary production interruptions, lower capacity utilisation, and delayed dispatches due to geopolitical and logistical disruptions, particularly during the fourth quarter.

Key Strategic Achievements

During the year, the Company successfully achieved several important milestones:

• Substantial completion of Schedule M compliance and facility upgradation.

• Renewal of European regulatory approvals for Unit II and Unit IV, strengthening export capabilities.

• Continued investment in manufacturing infrastructure and quality systems.

• Maintenance of a diversified revenue profile across geographies and product categories.

• Strong customer retention and healthy order pipeline despite pricing pressures.

• Progress in restructuring OTC healthcare subsidiaries towards digital and e-commerce focused business models.

Internal Controls

An external agency is auditing the Companys internal controls. This results in an unbiased and independent examination of the adequacy and effectiveness of the internal financial control systems in achieving the Companys goal of optimal operation. The activities are safeguarding and protecting the Companys assets from unauthorized use or disposition, keeping proper accounting records, and verifying the authenticity of all transactions.

Bal Pharma has an effective compliance management system that issues preventative warnings in the event of any violations. The independent Audit Committee and the Board of Directors regularly review the Companys performance to ensure that it is by overall corporate policy and in line with predetermined objectives. Companys internal auditors, guiding the smooth operation of risk management policies, raising organizational awareness of risks across businesses and corporate functions, developing formal reporting and monitoring processes, and developing risk management maintenance plans to keep the information updated and refreshed, deploying an Enterprise Risk Management Framework in key business areas and corporate functions, and aligning risk management with the business plan.

Revenue and Net Profits

During the year under review, the Company continued to operate in a challenging and competitive business environment, influenced by volatility in domestic and international markets, pricing pressures and subdued demand in certain export markets. Despite these challenges, the Company maintained its focus on operational efficiency, product diversification and strengthening its market presence.

The Formulations exporting and API business continued to be a key growth driver during the year, supported by steady demand in both domestic and international markets. The Company continued to strengthen its presence across key therapeutic segments, with Anti-Diabetic and Anti-Histamine products remaining significant contributors to its business.

Operational Highlights

The Company maintained a stable financial and operational position during the year, supported by prudent working capital management and continued focus on operational efficiency.

The Company remains committed to optimising inventory levels, improving receivables management and maintaining effective management of its working capital cycle.

The Company continued to focus on efficient utilisation of its capital and resources while maintaining a balanced approach towards debt management and financial discipline. The management remains focused on improving operational performance, strengthening profitability and enhancing returns to stakeholders.

For detailed information on the financial and operational ratios of the Company, reference may be made to the relevant notes forming part of the Financial Statements.

Shareholders Interest

The Company continues to maintain a strong shareholders funds position, reflecting its sound financial foundation and prudent financial management. The Company remains focused on strengthening shareholder value through sustainable business growth, efficient capital management and consistent financial performance.

The Company has also continued its commitment towards rewarding shareholders through dividend distribution. The proposed dividend reflects the Boards confidence in the Companys financial position and its commitment to enhancing long-term shareholder value

Risk and Concerns

Bal Pharma Limited faces risks and uncertainties typical to that faced by domestic and global pharmaceuticals industry players, which could have a material impact on earnings and the ability to operate in the future. These are determined via robust assessment considering our risk context by the Board of Directors with inputs from the executive management. The Board is satisfied that these risks are being managed appropriately and consistently.

Research and Development

Market research is a critical business catalyst, allowing the Company to develop and market differentiated generics and specialty products globally. Best- in-class technologies support the Companys R&D capabilities, allowing it to deliver affordable products globally. The Company is making proactive investments to build a global pipeline of generics, over-the-counter drugs, and specialty products. Long-term pipeline development investments are expected to continue and expand in scale and scope. The Company is also investing in research and development. It is developing specific products for emerging frontier markets.

The Company has incurred higher expenditure towards Research & Development activities during the current financial year, demonstrating its continued commitment to innovation and product development.

Information Technology

The Company is in the process of automating as many business processes as possible to increase efficiency and accuracy. A framework has been developed within the organization to capitalize on the opportunities presented by the proliferation of new-age digital technologies and transform into a digitally savvy company.

Technologies and platforms have been piloted as part of the plan to provide our customers with a better and more integrated experience.

Cautionary Statement.

The Management Discussion and Analysis statements describing Companies objectives, projections, estimates, and expectations may be "forwardlooking statements" within the scope of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand-supply and price conditions in the domestic and overseas markets. The Company operates under various government regulations, tax laws, and other statutes & other incidental factors which might affect the future performance of the Company.

Outlook for FY 2026-27

With completion of major regulatory and infrastructure initiatives, the Company enters FY 2026-27 with enhanced manufacturing capabilities and improved operational readiness.

Management expects:

• Improved production and capacity utilisation following completion of Schedule M projects.

• Better operational efficiencies and fixed cost absorption.

• Growth in regulated export markets supported by renewed European approvals.

• Strengthening of domestic formulations business through focused marketing initiatives.

• Improved working capital management and inventory optimisation.

• Expansion of value-added API products and enhanced export opportunities.

While pricing pressures in certain API segments may persist in the near term, the Management remains confident of the Companys growth prospects, supported by healthy market demand, strengthened regulatory capabilities, a diversified business portfolio and a robust order pipeline. These factors are expected to support sustained revenue growth, improved profitability and stronger cash generation during FY 2026-27.

Key Takeaways for the Members

• Export business contributes 63% of revenue, while domestic business contributes 37%.

• API and Formulations each contribute 50% of total revenue.

• FY 2025-26 performance was temporarily impacted by Schedule M implementation, logistics disruptions, and API pricing pressure.

• European approvals for Unit II and Unit IV have been successfully renewed.

• Major Schedule M compliance initiatives have been substantially completed, strengthening long-term competitiveness.

• Management expects improved capacity utilisation, profitability, working capital efficiency, and overall financial performance in the coming year.

Other Applicable Disclosures

The Management Discussion and Business Analysis Report should be read in conjunction with the Boards Report, Corporate Governance Report, Financial Statements and the Notes forming part thereof, and other relevant sections of this Annual Report. The disclosures contained therein provide further information on matters relating to the Companys business, operations, financial performance, financial position, risks and other statutory and regulatory requirements, as applicable to the Company under the Companies Act, 2013, the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and other applicable laws, rules and regulations.

Wherever the information required to be disclosed under the applicable statutory or regulatory provisions is already provided in the aforesaid sections of the Annual Report, the same may be read with reference to such disclosures and is not repeated herein.