Granules India Ltd Management Discussions

Macroeconomic and Policy Context

The global macroeconomic environment in FY 2024–25 remained challenging, marked by persistent inflation, geopolitical tensions, and growing trade protectionism. The evolving tariff dynamics, particularly between major economies, have introduced uncertainty in global supply chains—including pharmaceuticals. At the same time, the debate around medicine pricing and healthcare affordability has intensified, especially in the United States and Europe, where payers and regulators continue to demand greater value and transparency from manufacturers.

Within this volatile backdrop, the pharmaceutical industry remains a critical pillar of resilience and innovation. Demand for healthcare continues to grow, driven by aging populations, rising chronic disease burden, and an accelerated shift toward specialty therapies. However, the industry must increasingly navigate complex regulatory frameworks, supply chain disruptions, and rising expectations around environmental and social responsibility.

Granules has responded to this evolving global context by sharpening its focus on compliance, operational excellence, innovation-led growth, and sustainability—positioning itself to deliver long-term value while adapting to the demands of a changing world.

Global Pharmaceutical Market

The global pharmaceutical market is expected to reach $2.3 trillion by 2028, growing at a CAGR of 5–8%, driven by an aging population, increasing prevalence of chronic diseases, and sustained investment in innovative therapies. GLP-1s for diabetes and obesity, along with oncology and immunology drugs, are leading therapeutic growth.

A growing share of spending is now attributed to specialty medicines, which comprised over 50% of total global drug expenditure in 2024. Meanwhile, digital health, AI-driven drug discovery, and telemedicine continue to evolve, though affordability, access, and regulatory scrutiny remain central challenges.

The impact of exclusivity losses will reach $220Bn over 5 years, with a surge in small molecule expiries

Exhibit: 10 developed countries impact of brand losses of exclusivity 2020-2029, US$Bn

United States

The U.S. pharmaceutical market reached $487 billion in 2024, growing by 11.4% year-on-year. This surge was driven by the uptake of GLP-1 agonists, immunology therapies, and oncology treatments, supported by evolving standards of care and patient access. Specialty drugs now account for 54% of spending.

• Generics: Account for 90% of adjusted prescriptions, but face increasing pressure from slow uptake and high claim rejection rates post-launch.

• Market Dynamics: A shift toward chronic disease therapies and Medicare Part D reforms under the Inflation Reduction Act is expected to support affordability and adherence.

• Access Challenges: High abandonment rates for newly launched brands persist, largely due to payer controls and benefit designs.

Europe

The European pharmaceutical market is projected to grow from $226 billion in 2023 to $296 billion by 2028. Growth will be driven by biosimilars, generics, and new brand launches, even as economic uncertainty, inflation, and policy reforms affect market dynamics.

• Loss of Exclusivity (LOE): Expected to double, creating a $32 billion opportunity, over half of which is attributable to biologics.

• Generics & Biosimilars: Will add $18 billion in value over the next five years, although price erosion and volume caps will moderate growth.

Japan

Japans market is projected to remain flat through 2028, with innovative brands offset by mandatory annual price cuts. The governments strong push for generic substitution through incentives and penalties has driven increased penetration, with generic market share continuing to rise.

India and Pharmerging Markets

Pharmerging markets—including India, China, Brazil, and other Asian and Latin American countries—are expected to grow predominantly through volume expansion rather than high-cost innovations.

• China: Medicine spending is projected to grow from $163 billion in 2023 to $197 billion by 2028, driven by broader healthcare coverage and rising chronic disease burden.

• India: Continues to lead in generic production and supply chain resilience. Growth is supported by government incentives, cost competitiveness, and a rising share of global volume.

• Market Character: These regions rely on branded generics and local manufacturing, with less spending on originator biologics or novel therapies.

Company Overview

Granules India is a vertically integrated pharmaceutical company with a presence across the entire value chain—from Active Pharmaceutical Ingredients (APIs) and Pharmaceutical Formulation Intermediates (PFIs) to Finished Dosages (FDs). Our differentiated business model, combining scale, cost leadership, and regulatory compliance, allows us to serve over 300 customers across more than 80 countries. North America remains our largest market, contributing 77% of revenues, followed by Europe, Latin America, and AMEA. Our manufacturing footprint spans India and the United States, supported by global R&D centres and a growing innovation pipeline.

Business Strategy: Expanding Horizons – Building a Stronger Tomorrow

Granules is evolving into a more resilient, science-driven, and sustainable organization with a sharpened focus on compliance, innovation, and global impact. Our strategic roadmap reflects this transformation and is anchored in three interlinked pillars:

I. Reinforcing the Foundation: Compliance, Scale, and Execution

We are strengthening the core of our business by embedding a culture of compliance, deepening operational resilience, and scaling manufacturing for future-ready growth. Key priorities include:

• Robust remediation and governance processes to uphold global quality and regulatory standards.

• Expanding large-scale manufacturing for both prescription and monograph products, including the Genome Valley facility which adds 10 billion doses of capacity.

• Driving cost leadership through vertical integration, strategic sourcing, and process excellence.

• De-risking supply chains and building agility across geographies and product lines.

II. R&D and Innovation Focus

Innovation is at the heart of Granules transformation. We are building differentiated capabilities to address evolving medical needs and unlock new opportunities in complex generics and next-generation therapies.

• Over 400 scientists across India, the U.S., and Switzerland advancing a focused pipeline in CNS/ ADHD, oncology, and metabolic disorders.

• Early-to-market strategies (Day 1 and Day 181) guiding development across high-barrier products.

• Establishment of cutting-edge R&D infrastructure and platform technologies to support sustained innovation.

• Launch of Ascelis Peptides to lead our expansion into peptides, oligonucleotides, and peptide-drug conjugates—emerging as growth drivers for the future.

III. Sustainability as a Strategic Lever

Granules has embedded sustainability into everyday business decisions, turning ESG from a compliance mandate into a competitive advantage.

• SBTi-validated Net Zero targets (near-term and long-term), aligned with the 1.5?C climate pathway.

• Recognition through global benchmarks: CDP ‘B rating, CDP SEA A-List, and EcoVadis Gold.

• Supplier Sustainability Program and green chemistry initiatives through CZRO to enable value chain decarbonization and circularity.

• Governance-led ESG oversight integrated into risk management, innovation, and capital allocation.

The Peptide Revolution and Granules Strategic Entry

Granules Indias acquisition of Senn Chemicals AG, a Swiss-based CDMO with a legacy of over 60 years in custom peptide synthesis, marked a transformational milestone in the companys evolution. This strategic investment enables Granules to establish a significant presence in the high-growth peptide therapeutics segment, while also expanding into the global contract development and manufacturing (CDMO) space. Through this acquisition and the creation of a dedicated subsidiary, Ascelis Peptides, we are positioning ourselves at the intersection of cutting-edge science and scalable manufacturing.

Senn Chemicals has long been recognized as a specialist in Liquid-Phase Peptide Synthesis (LPPS) with emerging capabilities in Solid-Phase Peptide Synthesis (SPPS), catering to leading pharmaceutical, cosmetic, theragnostic, and amino acid derivative (AAD) customers worldwide. Its established reputation, robust quality systems, and customer base among global innovators offer Granules a valuable platform to expand its capabilities, deepen R&D sophistication, and access regulated markets through a trusted European brand. The acquisition also gives us the springboard to develop new product lines for Granules, particularly in the area of peptide-based generics, such as GLP-1 receptor agonists used in the treatment of diabetes and obesity.

Peptide-based therapeutics represent one of the most promising growth frontiers in global pharma, driven by their high specificity, favorable safety profiles, and increasing applications in chronic diseases and oncology. Sales of peptide-based GLP-1 therapies alone crossed $50 billion by end of 2024, with projections estimating the combined anti-diabetic and anti-obesity peptide market to reach $100–150 billion by 2030. This space is also seeing significant pipeline activity, with over 170 disclosed obesity-related peptide therapies in development globally. Granules foray into this space, anchored by Ascelis Peptides and powered by Senns legacy, offers a compelling second growth engine that complements our core generics business.

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Ascelis Peptides has been envisioned as an innovation-driven, end-to-end peptide platform spanning early-stage development to commercial manufacturing. With R&D assets in Switzerland, a new peptide lab under development in India, and greenfield manufacturing plans in India, Ascelis brings together the best of science, scale, and cost-efficiency. The integrated capabilities will allow Granules to address both its own generics portfolio needs and those of CDMO clients—offering differentiated value across APIs, amino acid derivatives, peptide fragments, and finished dosage forms. This initiative, supported by targeted investments and cross-functional governance, is aligned with our long-term strategy of building future-ready platforms that fuel sustained growth.

Business Overview and Operational Performance

FY 2024–25 was marked by stable performance in the face of regulatory headwinds. Consolidated revenues stood at _44,816 million, broadly flat year-on-year. While API and PFI sales were impacted due to softer demand and price erosion, the Finished Dosages segment grew by 18% and now accounts for 77% of total revenue—compared to 65% in the previous year. This reflects our strategic shift toward higher-margin, differentiated formulations. Our business continuity was maintained despite a voluntary production pause in September 24 at our Gagillapur facility, underscoring the strength of our diversified manufacturing network and supply chain resilience.

We continued to invest in infrastructure to enable near to mid term, scalable growth. Phase I of our new formulation facility at Genome Valley under Granules Life Sciences was commercialized during the year for monograph products. The facility is expected to become fully operational and commercially ready in FY26, ultimately adding 10 billion doses to our annual capacity, with dedicated streams for both prescription and monograph products. In addition, the near term growth will be driven by new launches in the CNS/ADHD segment from our U.S. site (GPI) and strategic large-volume products enabled by cost efficiency. Looking ahead, our oncology block at Vizag (Unit V) is set to play a key role in supporting the next phase of expansion in complex generics over the medium to long term.

Financial and Segment Performance

Granules India delivered a stable financial performance in FY 2024–25 despite regulatory and macroeconomic headwinds. Consolidated revenue stood at _44,816 million, broadly flat compared to the previous year. Strategic portfolio shifts towards higher-margin finished dosages, enhanced cost control, and operational efficiencies supported profitability. EBITDA grew by 10% to _9,452 million, with margins improving to 21.1%. Net profit after tax increased by 24% to _5,015 million, while operating cash flows compared to FY 24, doubled to _8,666 million.

Finished Dosages (FD)

The FD segment remained the primary revenue contributor, accounting for 77% of total revenues, up from 65% in FY24. The 18% year-on-year growth was driven by new launches in the US CNS/ADHD space, continued strength in OTC products, and increased monograph product dispatches from the newly commissioned Genome Valley facility. Improved product mix and scale efficiencies contributed to stronger margins. The segment continues to benefit from our integrated supply chain and robust manufacturing base across India and the US.

Active Pharmaceutical Ingredients (API)

The API segment faced pricing pressure during the year as well as industry-wide softness in demand for Paracetamol. However, this was partially offset by lower input costs for key raw materials. While revenue contribution from APIs declined, the segment remains integral to Granules vertical integration model and cost competitiveness in finished dosages. Ongoing investments in process optimization and cost efficiency are expected to sustain long-term relevance and profitability.

Pharmaceutical Formulation Intermediates (PFI)

The PFI segment also saw pressure from lower realizations, which was mitigated by a favorable raw material cost environment. Although overall demand remained subdued, the segment continues to offer competitive advantages through formulation-ready offerings and operational flexibility. Granules remains focused on strengthening its position in attractive PFI markets across select geographies, where customized solutions and cost efficiencies are valued.

R&D and Innovation

Granules continues to scale its innovation engine as a key pillar of long-term growth. In FY 2024–25, R&D investment increased by 20% to _2,377 million, representing over 5.3% of revenue—up from 4.4% in FY 24. Our budgeted allocation for the coming years exceeds 6% of revenue, underscoring our sustained commitment to science-led value creation.

Our global R&D network spans Hyderabad (Genome Valley, Pragathi Nagar), and Pune in India; Virginia in the United States; and Zurich in Switzerland. This network is powered by over 400 scientists working across API and Finished Dosage research, supported by a steadily expanding infrastructure base. Our Genome Valley R&D facility serves as a hub for integrated product development, while specialized teams continue to advance complex formulation design, controlled substances, and enzyme-based technologies including biocatalysis and fermentation.

In parallel, our portfolio is being augmented in the CNS/ADHD segment, where Granules has built differentiated capabilities and is developing new differentiated products to strengthen our position in the U.S. market, including early-to-market opportunities. In the oncology segment, we are advancing a focused pipeline designed to pursue early-to-market opportunities, including Day 1 and Day 181 strategies, backed by rigorous development and regulatory planning. These initiatives reflect our continued emphasis on complex generics with high entry barriers and long-term value creation.

A significant milestone this year was the strategic expansion into next-generation modalities—peptides, oligonucleotides, and peptide-drug conjugates—led by our global subsidiary Ascelis Peptides. Anchored in capabilities acquired through the Senn Chemicals AG acquisition, Ascelis offers end-to-end development and manufacturing solutions for these emerging segments. A dedicated peptide R&D lab is also being established in India to complement our global capabilities and accelerate our pipeline in high-potential therapeutic areas such as diabetes, obesity, and oncology.

Quality and Compliance

FY 2024–25 was a pivotal year in reinforcing Granules commitment to robust quality systems and regulatory compliance. Following a routine inspection by the US FDA at our Gagillapur Finished Dosage facility in August 2024, the site received a Warning Letter in February 2025. While commercial supply remains unaffected, the regulatory status has temporarily impacted review timelines for pending product filings from this site.

Granules initiated a comprehensive remediation program immediately after the inspection, in close partnership with globally recognized third-party consultants. The program has included a thorough risk assessment, enhanced contamination controls, extensive product and environmental testing, and significant strengthening of cleaning validation protocols. Over 140 corrective and preventive actions (CAPAs) have been initiated, with most already closed and independently verified for effectiveness.

In parallel, we are rolling out organization-wide quality improvement measures to institutionalize stronger compliance practices and embed a culture of quality across all functions. These include enhanced SOPs, governance frameworks, and capability-building initiatives at both site and corporate levels.

We remain fully engaged with regulatory authorities and committed to completing the remediation process in a timely and effective manner. Our long-term focus is to build resilient, best-in-class quality systems that meet global standards and support sustainable growth.

Sustainability and ESG

FY 2024–25 marked a significant step forward in Granules sustainability journey, with measurable progress across climate action, responsible sourcing, and ESG governance. Our commitment to embedding sustainability into core business strategy was recognized through multiple global benchmarks and industry accolades during the year.

Granules received a Gold rating from EcoVadis in our first-ever company-wide assessment, placing us among the top 5% of pharmaceutical companies globally. We improved our

CDP Climate Rating to a ‘B, reflecting enhanced disclosures, risk management, and decarbonization efforts. Importantly, we achieved validation from the Science Based Targets initiative (SBTi) for both our near-term emission reduction targets— as well as for long term Net Zero (2050 or sooner) demonstrating alignment with the 1.5?C pathway.

We also made strong strides in extending sustainability across our value chain. Granules was named to the CDP 2024 Supplier Engagement Assessment (SEA) leadership board and featuring in the A-List, a distinction awarded to companies demonstrating leadership in managing Scope 3 emissions and supplier collaboration. As part of this, we launched a structured Supplier Sustainability Program, aimed at enhancing transparency, supporting suppliers on renewable energy adoption, and aligning them with our climate targets.

Additionally, Granules was conferred the prestigious Golden Peacock Award for Sustainability by the Institute of Directors (IOD), recognizing our integrated, forward-looking approach to ESG. Looking ahead, we remain focused on further strengthening climate resilience, water stewardship, and circularity, while reinforcing our governance and disclosure standards in line with global best practices.

Risks and Mitigation

Granules operates in a complex global pharmaceutical environment that presents a variety of strategic, operational, and compliance-related risks. The Company has institutionalized a robust Enterprise Risk Management (ERM) framework to proactively identify, assess, and mitigate risks across business functions. This framework is regularly reviewed by the Board and the Audit Committee to ensure its effectiveness in supporting sustainable value creation.

Regulatory and Compliance Risk:

Operating in highly regulated markets, Granules faces ongoing scrutiny from global health authorities. The Company mitigates this risk through continuous investment in quality systems, internal audits, and strong regulatory affairs capabilities. The current remediation efforts at the Gagillapur facility reflect our commitment to regulatory compliance and long-term quality enhancement.

Market and Competition Risk:

Price erosion, technological disruption, and competitive intensity are ongoing challenges in the generics sector. Granules addresses this through portfolio diversification, vertical integration, and increased focus on high-value segments like CNS/ADHD, oncology, and peptides. The acquisition of Senn Chemicals enhances our position in differentiated, high-growth markets.

Supply Chain and Operational Risk:

Granules mitigates supply chain vulnerabilities through a diversified vendor base, adequate raw material buffers, and investment in automation and digitalization. The Genome Valley facility and enzyme manufacturing capabilities further improve operational resilience and supply reliability.

Cybersecurity Risk:

Post the May 2023 cyber incident, the Company has significantly upgraded its cybersecurity infrastructure, including firewalls, intrusion detection, training, and monitoring systems. A comprehensive response and recovery plan is in place to safeguard critical operations and data.

Financial Risk:

Granules actively manages foreign exchange, liquidity, and interest rate exposure through hedging strategies and prudent financial controls. The Companys improved cash flow profile and reduced net debt in FY 2024–25 strengthen its financial flexibility.

Human Capital Risk:

Recognizing the importance of talent, Granules continues to invest in capability building, leadership development, and retention strategies. Enhanced R&D staffing and leadership bench strength are helping future-proof the organization.

ESG and Sustainability Risk:

Increasing scrutiny from customers, regulators, and investors on ESG performance presents both risks and strategic imperatives. Inadequate responses to evolving expectations can impact reputation, stakeholder confidence, regulatory standing, and access to capital.

Granules mitigates these risks through a well-integrated sustainability strategy. Our climate goals are validated by the

Science Based Targets initiative (SBTi) for both near-term and Net Zero targets, aligned with the 1.5?C pathway. In FY 2024–25, we improved our CDP Climate Rating to B, were named to the CDP SEA A-List, and launched a structured

Supplier Sustainability Program to strengthen Scope 3 emissions management. We also received a Gold rating from EcoVadis, placing us in the top 5% of global pharmaceutical companies in our first enterprise-wide assessment.

Initiatives such as CZRO (Granules initiative for decarbonization of the supply chain) support our broader goals around Scope 3 reduction and green chemistry adoption. These efforts are backed by strong corporate governance, an independent Board, and transparent ESG disclosures aligned with global best practices.

Outlook

Granules enters FY 2025–26 with a clear strategic focus: strengthening our compliance foundation, accelerating growth across core and emerging businesses, and building long-term resilience through innovation and sustainability. Our growth trajectory remains robust and diversified, not solely dependent on approvals from the Gagillapur site.

In the near term, we expect momentum to be driven by new product launches from our U.S. facility (GPI), particularly in the CNS/ADHD segment, continued volume expansion in large-scale formulations, and commercialization of prescription and monograph products from our Genome Valley facility. Phase II of this facility, which will bring total capacity to 10 billion doses, is expected to be commissioned in FY 2025–26.

Our pipeline in oncology, CNS, and metabolic disorders is advancing with a strategic focus on early-to-market opportunities, supported by targeted R&D investment and regulatory planning. The launch of Ascelis Peptides and the ongoing build-out of peptide and subsequently oligonucleotide capabilities will further diversify our portfolio and strengthen our relevance in next-generation therapeutics.

On the sustainability front, we remain committed to achieving our milestones for validated Net Zero targets, deepening supplier engagement, and embedding ESG into everyday business decisions. Our integrated approach to science, scale, and purpose positions Granules for broad-based, sustainable growth—creating value for patients, partners, and shareholders in the years to come.

Financial Review

Consolidated Abridged Profit & Loss Statement

(H in million)

Particulars	FY 25	FY 24
Revenue	44,816.08	45,063.67
EBITDA	9,452.36	8,559.80
PAT	5,015.16	4,053.10
EPS	20.69	16.73

Revenue from Operations

The Company formulations sales recorded an 18% growth, even though production was voluntarily halted at the Gagillapur facility in September 2024 due to USFDA observations. Remediation efforts led to a production slowdown during Q3 and Q4. Additionally, pricing pressures and demand issues in the API /PFI segments affected overall sales growth.

EBITDA

EBITDA for FY25 was _9,452 million, as compared to _8,560 million in FY24, reflecting improved margins despite higher air freight and professional expenses incurred for the remediation of USFDA observations.

Consolidated Balance Sheet

(H in million)

Particulars	As on March 31, 2025	As on March 31, 2024
Assets
Tangible and Intangible Assets	28,666.59	23,673.16
Non-current Assets other than above	2,704.21	2,486.18
Current Assets	31,154.81	29,050.48
Total Assets	62,525.61	55,209.82
Equity and Liabilities
Share Capital	242.54	242.37
Other equity	36,913.24	32,013.07
Non-current liabilities	5,338.22	2,131.45
Current Liabilities	20,031.61	20,822.93
Total Equities and Liabilities	62,525.61	55,209.82

Total Assets increased to _62,525.61 million as of March 31, 2025, up from _55,209.82 million in the previous year. This growth was driven by investments in tangible assets, reflecting ongoing capacity expansions in Granules Life Sciences and technological advancements.

Equity and Liabilities

Total equity increased from H32,255.04 million as of March 31, 2024, to H37,155.78 million as of March 31, 2025, primarily due to the profit generated during FY25.

Debt Position

(H in million)

Particulars	As on March 31, 2025	As on March 31, 2024	Change
Long-Term Debt (Current portion)	517.14	1,000.15	(483.01)
Long-Term Debt (non-current portion)	3,115.11	689.71	2,425.40
Short-Term Borrowings	9,225.61	10,542.40	(1,316.79)
Total Debt	12,857.86	12,232.26	625.60

Total debt stood at H12,857.86 million, up from H12,232.26 million as of March 31, 2024, reflecting increased long-term borrowings to support capacity expansion.

Cash Flow

(H in million)

Particulars	For the year ended March 31, 2025	For the year ended March 31, 2024
Opening Cash and Cash equivalents	3,811.00	2,915.57
Cash Flow from Operating Activities	8,665.66	4,394.14
Cash Flow from Investing Activities	(6,912.86)	(3,601.6)
Cash Flow from Financing Activities	(925.06)	76.64
Effect of Exchange Rate Changes	22.40	26.25
Closing Cash and Cash Equivalents	4,661.14	3,811.00

Cash Flow from Operations

Cash flow from operations for FY25 was H8,666 million, up from H4,394 million in FY24. This increase was primarily due to improved operating performance, which contributed to stronger cash flow.

Capital expenditures (Capex)

Capex during FY25 was H5,700 million, primarily invested in Granules Life Sciences to support strategic growth initiatives and operational expansions.

Financial Ratios
Key Ratios	As on March 31, 2025	As on March 31, 2024	% Variance	Reason for Variance (if more than 25%)
Debtors Turnover	4.65	4.66	0%
Inventory Turnover	3.39	3.68	-8%
Interest Coverage Ratio	7.10	6.17	15%
Current Ratio	1.56	1.40	11%
Debt Equity Ratio	0.35	0.38	-9%
EBITDA Operating Profit Margin (%)	21.8%	19%	15%
Net Profit Margin (%)	11.2%	9%	24%
Return on Net Worth (%)	14.4%	13.7%	5%

Internal Control Systems and Adequacy

Considering its scale and operational activities, the Company has established and maintains appropriate internal control systems and procedures that encompass all financial and operational aspects. The Company believes that a robust internal control framework is a fundamental element of good corporate governance. It continuously works to improve the systems ability to prevent unauthorised use or losses. The Audit Committee plays a supervisory role over all internal operational matters and provides guidance on necessary corrective measures.

Cautionary Statements

Certain statements in the Management Discussion and Analysis describing the Companys objectives and predictions may constitute forward-looking statements within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward-looking statements in this document due to various risks and uncertainties, including the effects of economic and political conditions in India.