Godavari Drugs Ltd Management Discussions

The Management of Godavari Drugs Limited ("the Company" or "GDL") is pleased to present the Management Discussion and Analysis ("MD&A") Report for the financial year ended 31 March 2026. The report provides an overview of the macroeconomic environment, industry developments, operational and financial performance, opportunities, risks and the outlook for the Company. This report should be read in conjunction with the Companys Audited Financial Statements, the Directors Report and Notes on Accounts.

The statements contained herein, describe the Companys objectives, expectations, estimates, projections and outlook may constitute forward-looking statements within the meaning of applicable laws and regulations. These statements are based on managements current assumptions and expectations regarding future events and are subject to inherent risks and uncertainties. Actual results may differ materially from those expressed or implied owing to various factors including changes in macroeconomic conditions, government policies, fluctuations in raw material and solvent prices, exchange rate volatility, interest rate movements, geopolitical developments, supply chain disruptions, technological changes, regulatory inspections and approvals, competitive intensity, customer demand, pricing pressures and other factors beyond the Companys control.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable laws.

Global Economy Overview

During FY 2025-26, the global economy demonstrated tenuous resilience, navigating a complex landscape shaped by shifting trade alignments, persistent geopolitical conflicts and an accelerating technology investment cycle. Global growth is projected to moderate in the near term, remaining below the pre-pandemic historical average. The period was characterised by a distinct divergence in economic momentum between advanced economies and emerging markets, with the latter continuing to anchor global output.

The global pharmaceutical industry continued to evolve at a rapid pace, driven by innovation, regulatory transitions and changing economic dynamics. The sector has consolidated its post-pandemic recovery and is transitioning into a phase dominated by digital transformation, data-driven research and development and personalised medicine. Global healthcare expenditure continued to rise, supported by ageing demographics, increasing prevalence of chronic diseases and expanding access to healthcare in emerging economies.

Indian Economic Overview

India continued to maintain its position as one of the fastest growing major economies in the world during FY 2025-26, supported by prudent fiscal management, resilient domestic consumption, robust public capital expenditure and sustained policy reforms.

Indias manufacturing sector demonstrated encouraging growth driven by increasing capacity utilisation, private capital expenditure, expansion in exports across select segments and growing investments in high-value manufacturing. The Indian pharmaceutical sector, which ranks among the largest globally by volume, continued to benefit from strong government support through Production Linked Incentive (PLI) schemes, the Atmanirbhar Bharat initiative and focused policy interventions aimed at strengthening domestic manufacturing of Active Pharmaceutical Ingredients (APIs) and Key Starting Materials (KSMs), thereby reducing import dependence.

While inflation remained within manageable levels for the most part of the year, businesses continued to face challenges arising from fluctuations in commodity and solvent prices, imported input costs, logistics expenses and exchange rate volatility and depreciation of Indian Rupee. Nevertheless, Indias strong domestic market, favourable demographics, policy continuity and infrastructure-led growth continue to provide a robust foundation for long-term industrial expansion.

Industry Outlook

The outlook for the Indian pharmaceutical and bulk drug industry remains positive, supported by sustained global demand for affordable generic medicines, increasing outsourcing of manufacturing to India, growing investments in API capacity and continued policy emphasis on domestic self-reliance.

Indias cost competitiveness, technical expertise, large pool of qualified scientific manpower and improving quality compliance standards continue to make it a preferred sourcing destination for regulated and semi-regulated markets. The growing focus on backward integration, process innovation, green chemistry and energy efficiency is accelerating the modernisation of manufacturing infrastructure across the industry. While the industry continues to face challenges arising from raw material price volatility, supply chain disruptions, intense pricing pressures in generic markets and heightened regulatory surveillance, the long-term growth fundamentals remain favourable.

Industry Structure and Developments

The Indian pharmaceutical industry remained resilient during FY 2025-26, supported by sustained demand for generic formulations and APIs, expansion of manufacturing capacity, increasing healthcare access and growing export opportunities. Government initiatives such as Make in India, Atmanirbhar Bharat, the PLI Schemes for bulk drugs and the establishment of bulk drug parks continued to support demand and capacity creation across the value chain.

Key industry trends during 2025-26:

- Strong Demand for Generics and APIs: India continues to be a preferred global hub for generic drug and API manufacturing, with increasing traction in regulated markets such as the United States, European Union and Japan.

- Adoption of Flow Chemistry and Continuous Manufacturing: These technologies continue to gain prominence for improving process safety, scalability, yield consistency and cost efficiency.

- Growth of CDMO Models: Pharmaceutical companies are increasingly partnering with Contract Development and Manufacturing Organisations to optimise capital deployment and accelerate time-to-market.

- Digital and Artificial Intelligence Tools: Increasingly deployed in drug discovery, pharmacovigilance, quality assurance and supply chain management.

- Increased Regulatory Surveillance: Regulatory authorities globally have intensified inspections and compliance requirements, raising the entry barrier for manufacturers seeking access to regulated markets.

- Geopolitical Headwinds: Supply chain disruptions arising from geopolitical tensions continue to pose challenges for raw material sourcing and export logistics.

The market continues to be dominated by small molecule drugs, which account for over 50% of global pharmaceutical sales, owing to ease of manufacturing and cost-effectiveness. Simultaneously, biologics, biosimilars and complex generics are gaining increasing traction, particularly in regulated markets.

The Company continued to focus on operational excellence, customer-centric solutions, process innovation and cost optimisation to strengthen its market position.

Business Performance

Godavari Drugs Limited, one of Indias established bulk drug manufacturers, has been engaged in the manufacture of Active Pharmaceutical Ingredients and pharmaceutical intermediates for over three decades. With a legacy of process chemistry expertise and a consistent focus on quality, the Company has developed capabilities across multiple therapeutic categories, catering to both domestic formulators and international customers.

The Companys product portfolio serves diverse therapeutic segments including antibiotic, antibacterial and anti-convulsant drugs, anti-HIV intermediates, veterinary drugs, nootropics, etc supplying to formulation manufacturers, traders and institutional customers across India and select overseas markets.

During the year under review, the Company remained focused on improving operational efficiencies, strengthening execution capabilities, enhancing customer engagement and optimising manufacturing processes. Revenue from operations for the year stood at Rs 10,580.81 Lakhs as against Rs 11,335.01 Lakhs in the previous year, reflecting the impact of pricing pressures and softer realisations in certain product categories. Notwithstanding the moderation in topline, the Company recorded a Profit After Tax of Rs 408.91 Lakhs for the year, as against Rs 438.00 Lakhs in the previous year, supported by disciplined cost management and improved operating efficiencies.

The management continued to emphasise prudent cost management, working capital discipline and operational excellence while maintaining focus on quality, safety, environmental compliance and customer satisfaction. The Company remains committed to strengthening its market position through technological advancement, product innovation, enhanced manufacturing capabilities and improved service offerings.

Opportunities and Business Strategy

Key Therapeutic Segments and Pipeline Development

The Company continues to leverage its technical strengths and manufacturing capabilities to focus on high-growth therapeutic categories:

- Anti-HIV Segment: Process innovation for cost-effective intermediates going into APIs that can meet global HIV treatment demand.

- Nootropic Products: Continued research on molecules enhancing cognitive performance ? an emerging and rapidly growing global therapeutic category.

- Xanthines: Exploring molecules with applications in anti-inflammatory and bronchodilator therapies.

- Anticonvulsants: Expanding the product portfolio beyond Carbamazepine to address a wider range of neurological disorders.

Research & Development and Technology Initiatives

- The state-of-the-art pilot plant is fully operational, supporting accelerated product development, process validation and scale-up activities.

- The Company has deepened its adoption of flow chemistry and continuous manufacturing techniques to improve yields, reduce batch variability and enhance process safety.

- Continued investment in intermediate manufacturing infrastructure, with emphasis on efficiency, regulatory compliance and cost leadership through backward integration.

Manufacturing and Market Expansion

- Ongoing capacity expansion to accommodate future product launches and increased order volumes.

- The new facility incorporates automation, advanced instrumentation for safety and precision, and regulatory-compliant plant design.

- The Company is taking significant and concerted steps towards penetrating new export markets, with a focus on increasing the share of revenues from regulated geographies.

The Companys focus on operational excellence, product quality, process engineering capabilities and customer-centric solutions, supported by its established manufacturing base and long-standing customer relationships, enables it to respond effectively to emerging market requirements. Opportunities arising from supply chain diversification away from single-source geographies, increasing exports of pharmaceutical products and the growing emphasis on sustainable and energy-efficient manufacturing technologies are expected to support the Companys long-term growth strategy.

Threats

The Companys future financial performance will be significantly shaped by the evolving global economy. The Company anticipates moderate global growth, the continuation of protectionist trade policies and ongoing geopolitical tensions, which present a risk of volatile input costs given the industrys reliance on imported key starting materials and solvents.

The Company faces competition from both established domestic manufacturers and international suppliers, particularly in standard product segments where pricing pressures remain significant. Intense competition, coupled with customers increasing emphasis on cost optimisation, quality and shorter delivery timelines, necessitates continuous improvements in operational efficiency, process innovation and customer service to sustain market competitiveness.

The Companys operations are dependent on the availability and cost of key raw materials, solvents and other chemical inputs. Volatility in commodity prices, coupled with fluctuations in foreign exchange rates, may impact input costs and profitability, particularly in contracts with longer execution cycles where the ability to pass on cost increases is limited. In addition, disruptions in the global supply chain, extended procurement lead times for specialised intermediates and logistics constraints may affect manufacturing schedules and timely execution of customer orders.

The Company continues to address these challenges through prudent procurement practices, continuous cost optimisation initiatives, diversification of its customer base and product portfolio, strengthening of its supply chain, enhancement of manufacturing efficiencies and a structured risk management framework. These measures are aimed at improving operational resilience and enabling the Company to respond effectively to changing market conditions while pursuing sustainable long-term growth.

Future Outlook

The Company is cautiously optimistic about growth prospects in FY 2026-27, driven by the commercialisation of new APIs and intermediates developed through ongoing research and development initiatives, better revenue realisation from export markets, benefits from backward integration and continuous cost optimisation, full utilisation of the expanded manufacturing infrastructure and a sustained focus on environmental compliance and sustainability projects.

The Company continues to navigate persistent competition, volatile raw material prices and the need for continuous technological upgradation. While committed to enhancing internal strengths, including operational efficiencies and prudent financial management, maintaining consistent profitability amidst these external pressures will remain crucial.

Risks and Risk Mitigation Measures

Despite strategic progress, the Company operates in an environment of certain inherent risks that may impact its operations and financial performance:

- Geopolitical tensions can disrupt raw material imports and affect export logistics.

- Fluctuations in foreign currency exchange rates can adversely impact revenue realisation and input costs.

- Global economic slowdowns may result in reduced healthcare spending, impacting demand.

- Increasing regulatory stringency in export markets may require additional compliance investments.

- Competitive pricing pressure in generic and bulk drug markets could impact margins.

Mitigation Measures

- Regulatory preparedness is ensured through robust internal Quality Assurance audits and continuous compliance monitoring.

- Supply chain risk is minimised through multi-vendor sourcing strategies and maintenance of strategic inventory buffers.

- Continued investment in research and development and process innovation to maintain cost competitiveness and product differentiation.

- Reduction of manufacturing costs and enhancement of operational efficiencies to enable competitive pricing.

Internal Control Systems and Their Adequacy

The Company has established a comprehensive internal control framework designed to align with the specific nature of its operations. This framework ensures the regular identification and assessment of risks that may affect the achievement of organisational objectives. The Company remains committed to maintaining the highest ethical standards and integrity across all levels of the organisation.

Well-defined policies and procedures have been implemented to ensure the effective execution of management directives. Relevant information is systematically identified, captured and communicated in a timely manner. Internal controls are subject to ongoing monitoring through consistent management oversight and supervisory reviews.

The Internal Auditors of the Company verify accounting records to safeguard Company assets against loss or misuse and to ensure the reliability of records used in preparing the financial statements. The Audit Committee of the Board of Directors periodically reviews the adequacy and effectiveness of the internal control systems and the internal audit findings, and the relevant functions are responsible for initiating resolution of audit observations and related follow-up actions. The Statutory Auditors also evaluate the internal financial controls with reference to financial statements as part of their audit procedures and report their findings to the Audit Committee.

The Company is pleased to report that no cases of fraud involving management or employees in critical positions within the internal control over financial reporting have been identified during the year under review. The Companys steadfast commitment to robust internal controls reflects its dedication to transparency, accountability and sound corporate governance.

Discussion on Financial Performance with respect to Operational Performance

(Rs in Lakhs)

PARTICULARS	2025-26	2024-25
Revenue from operations	10,580.81	11,335.01
Other income (Net)	80.51	97.72
Total Revenue	10,661.32	11,432.73
Total Expense	10,190.53	10,870.19
Profit before Exceptional items	470.79	562.54
Exceptional Items	35.51	—
Profit / (Loss) before tax	506.30	562.54
Tax Expense	97.39	124.54
Profit / (Loss) after tax	408.91	438.00
Total other comprehensive income	—	—
Total comprehensive income for the period	408.91	438.00

Note: The financial statements of the Company have been prepared in accordance with Indian Accounting Standards.

The Companys revenue from operations for the financial year 2025-26 stood at Rs 10,580.81 Lakhs as compared to Rs 11,335.01 Lakhs in the previous financial year. Other income for the year was Rs 80.51 Lakhs as against Rs 97.72 Lakhs in the previous year, taking total revenue to Rs 10,661.32 Lakhs (previous year Rs 11,432.73 Lakhs).

Total expenses for the year were contained at Rs 10,190.53 Lakhs as against Rs 10,870.19 Lakhs in the previous year. The Company recorded a profit before exceptional items of Rs 470.79 Lakhs (previous year Rs 562.54 Lakhs). After accounting for exceptional items of Rs 35.51 Lakhs, profit before tax stood at Rs 506.30 Lakhs as against Rs 562.54 Lakhs in the previous year. After providing for tax expense of Rs 97.39 Lakhs (previous year Rs 124.54 Lakhs), the Company posted a profit after tax of Rs 408.91 Lakhs for the year under review, as compared to Rs 438.00 Lakhs in the previous financial year. Total comprehensive income for the period accordingly stood at Rs 408.91 Lakhs (previous year Rs 438.00 Lakhs).

Material Developments in Human Resources / Industrial Relations Front, including Number of People Employed

The Company acknowledges that its people are its core strength. The Companys Human Resources framework is designed to attract and retain technically skilled and innovative professionals, provide continuous learning and development opportunities and promote a culture of innovation, accountability and collaboration.

Key human resource initiatives undertaken during 2025-26 included competency mapping and targeted training interventions, leadership grooming programmes for mid-level management, employee engagement activities and performance-linked reward mechanisms, and strengthening of health, safety and welfare initiatives across manufacturing and office locations.

Industrial relations at all locations of the Company remained cordial and harmonious throughout the year under review. As on 31 March 2026, the Company maintained a healthy employee retention rate, reflecting its sustained efforts in building a motivated, skilled and engaged workforce.

The number of permanent employees on the rolls of the Company as on 31 March 2026 was 112 Nos.

Key Financial Ratios

In accordance with Regulation 34(3) read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, details of significant changes in key financial ratios are given below:

Sl. No	Particulars	2025-26	2024-25
i.	Debtors Turnover	148 days	164 days
ii.	Inventory Turnover	150 days	93 days
iii.	Interest Coverage Ratio	1.68	2.73
iv.	Current Ratio	1.31	1.08
v.	Debt Equity Ratio	0.30	0.28
vi.	Operating Profit Margin (%)	13%	24%
vii.	Net Profit Margin (%)	4%	4%
viii.	Sector-specific equivalent ratios	NIL	NIL

Detailed explanation of the above ratios

a. Debtors Turnover: The above ratio is used to quantify a Companys effectiveness in collecting its receivables or money owed by customers. The ratio shows how well a Company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or paid. It is calculated by dividing average debtors by turnover.

b. Inventory Turnover: Inventory Turnover is the number of times a Company sells and replaces its inventory during a period. It is calculated by dividing average inventory by turnover.

c. Interest Coverage Ratio: The Interest Coverage Ratio measures how many times a Company can cover its current interest payment with its available earnings. It is calculated by dividing PBIT by finance cost.

d. Current Ratio: The Current Ratio is a liquidity ratio that measures a Companys ability to pay short-term obligations or those due within one year. It is calculated by dividing current assets by current liabilities.

e. Debt Equity Ratio: The ratio is used to evaluate a Companys financial leverage. It is a measure of the degree to which a Company is financing its operations through debt versus wholly owned funds. It is calculated by dividing a Companys total liabilities by its shareholders equity.

f. Operating Profit Margin: The operating profit margin is a profitability or performance ratio used to calculate the percentage of profit a Company produces from its operations. It is calculated by dividing EBIT by turnover.

g. Net Profit Margin: The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing the profit for the year by turnover.

Details of any change in Return on Net Worth as compared to the immediately previous financial year

The net worth of the Company for the financial year 2025-26 stood at Rs7,579.89 Lakhs as compared to Rs4,334.61 Lakhs in the previous financial year 2024-25. The Return on Net Worth for the financial year 2025-26 was 5.40% as against 10.10% in the previous financial year. The variation is primarily attributable to the moderation in profitability during the year under review and the increase in the net worth base consequent to the preferential issue of convertible warrants during the year.

Disclosure of Accounting Treatment

The financial statements of the Company have been prepared in accordance with Indian Accounting Standards (Ind AS), as prescribed under Section 133 of the Companies Act, 2013 read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015, and subsequent amendments thereto. There has been no change in accounting treatment adopted by the Company that differs from the prescribed accounting standards.

The detailed disclosure of accounting treatment is also provided in the notes to the financial statements, which form part of this Annual Report.

Cautionary Statement

Statements in this Management Discussion and Analysis Report describing the Companys objectives, projections, estimates and expectations may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand and supply, price conditions in the domestic and overseas markets in which the Company operates, changes in government regulations, tax laws and other statutes and incidental factors.

By the order of the Board of Directors

For Godavari Drugs Limited

Place: Secunderabad

Date: 27/05/2026

sd/-

Mukund Kakani

Managing Director

DIN: 00104646