granules india ltd Management discussions


MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Global Pharma Outlook

The global pharmaceutical industry is projected to experience a compound annual growth rate (CAGR) of 3-6% between 2022 and 2027, resulting in a total market size of approximately $ 1.9 trillion. However, regional variations will be observed in terms of spending and volume growth. Established markets are expected to grow at a slower pace, while emerging markets in Eastern Europe, Asia, and Latin America will witness growth in both volume and spending. Among the leading therapy areas, Oncology is anticipated to grow at a CAGR of 13-16%, while Immunology is forecasted to grow at a CAGR of 3-6% by 2027. These trends highlight the dynamic nature of the medicine market and the varying growth opportunities across different regions and therapeutic areas.

The Global Generic market size was estimated to be $ 319 billion, grew at 4% based on 5 Year CAGR (2017-22)1. The largest driver of medicine spending through the next five years is still expected to be global COVID-19 vaccinations, but leaving aside the pandemic, global spending on medicines continues to be driven by innovation and offset by losses of exclusivity and the lower costs of generics and biosimilars.

US Market

Spending on the medicine in the US— at net manufacturer prices— reached $ 429 billion in 2022, growing 5.3% including the continued contribution of COVID-19 vaccines and therapeutics.

Total drug spending at estimated net manufacturer prices increased by $ 103 billion over the past five years, primarily driven by new products and brand volume. Volume growth has been driven by immunology, oncology, COVID-19 and diabetes.

Spending on medicines is forecast to be unchanged over the next five years with growth expected between -2 to 1%, remaining similarto current levels of spending at $ 429Bn. This outlook reflects structural market dynamics, complex usage patterns, and competition, as well as the effects of new policies and legislation.2

US Generics

The US Generic market size is estimated to be $ 82 billion in 2022, registering a degrowth of-2% based on 5-year CAGR (2017-22). The expiration of patents for long-standing products used by a large number of patients has led to a significant increase in the overall market share of generic medications, including branded generics, reaching 92% of adjusted prescriptions. Despite this large volume share, these generic products only account for approximately 14.6% of the total spending at the invoice levels.

Source:1 IQVIA Report titled Global Market Overview with Future Opportunity in US, July, 2022

Source: 2 IQVIA April 2023 report titled" The Use of medicines in the U.S. 2023 - usage and spending trends and outlook to 2027

Generics, including biosimilars, have had modest impact on growth as price deflation has largely offset growth from the related patent expiry events.

Losses of exclusivity in the U.S. are expected to be $ 141 billion through the period (2023-27), with significant impact on spending for both small molecules and biologies. Small molecule expiries are expected to reduce brand spending by $ 98 billion through 2027, more than double the impact of the last five years (2018-22)3.

US Generic Price Erosion

The US generic pharma industry has been grappling with pricing pressure, supply chain issues, and cost inflation, severely impacting the margins of the players. The price erosion is attributed to several factors such as customer consolidation, intensified competition, and the US governments measures to reduce drug prices for customers. We have observed price erosion in the range of high single digit for FY 22-23. We anticipate that the resultant pricing pressure will lead to the consolidation of the industry towards the stronger players who have better control over the supply chain and are capable of backward integration through innovative manufacturing technology.

Additionally, the COVID-19 pandemic posed significant Raw material pricing challenges for pharmaceutical companies, with key raw material shortages due to Chinas shutdown. The recent geopolitical instability caused by the Russia-Ukraine war has also led to energy and logistical cost increases, which have further hindered the ease of doing business. However, with the situation gradually improving, these challenges are expected to diminish, and the industry can potentially regain its footing.

European (EU) Region

Spending in Europe is expected to increase by $ 59 billion over the period 2023-2027, with a focus on generics and biosimilars, and escalating pressures on the value and negotiated prices of novel medicines.

EU Generics

Generics, including biosimilars, are expected to add $ 12 billion in growth over the next five years (2023-27), about the same as in the past five years despite a larger impact of losses of exclusivity as volume gains will be offset by price deflation.

The impact of losses of exclusivity (LOE) in the five largest European markets (Germany, France, Italy, Spain and the UK) are expected to be more than triple over the next five years, and more than half of the impact is expected to be biologies, with $ 17.5 billion of the $ 31 billion total impact. Small molecule LOE is expected to double in terms of impact on brands in the next five years even as they have been a smaller share of overall impact3.

Japan

Japans medicine spending growth is projected at -2 to 1% over the period (2023-27) as robust brand growth is offset by a shift in annual price cuts and ongoing moves to generics.

Generics share of spending in Japan is also expected to rise, supported by policies that have been largely effective over this entire 15-year period, encouraging doctors to substitute available generics with a combination of incentives and penalties3.

China

China as the worlds second largest country by pharmaceutical spending, will increase volume by 8% in aggregate over five years, while spending will increase 19%, driven by expanding access to novel drugs via the National Reimbursement Drug List (NRDL). Medicine spending in China has risen from $ 93 billion in 2013 to $ 166 billion in 2022. By 2027, China is projected to exceed $ 194 billion, an increase of almost $30 billion in the next five years (2023-27).

Over the past five years spending growth was driven by original branded products, most often from multinational companies, which grew at an average of 10.1% per year to reach 28% of spending in 2022, up from 22% five years earlier. Over the next five years, the government policies to update the National Reimbursement Drug List (NRDL) annually is contributing to a greater share of new original medicines being reimbursed, resulting in higher levels of spending, though these are generally subject to lower negotiated net prices. Over the next five years original brands will grow by more than 5% per year, while other types of products will grow at 4% or less, contributing to the overall growth rate slowing to 2-5%.

Over the Counter (OTC) Drugs Market

OTC or over-the-counter drugs are pharmaceutical products that are perceived to be safe to buy without prescription and are used to treat common symptoms for cold, body pain, allergy, flu, heartburn, acne, and other basic health problems.

The OTC drugs market size was valued at $ 162 billion in 2022 and is expected to grow at a CAGR of over 5% to reach $ 266 billion in 20324. Emergence of COVID-19 has affected millions of people across the globe, impacting several industrial sectors. The outbreak has considerably influenced the sales of OTC drugs with increased focus on personal health during the pandemic. This has significantly augmented the intake of cold and flu products besides vitamins.

However, in some regions, OTC drug sales were restricted to counteract stockpiling and maintain supply. Increasing availability and manufacturing of OTC drugs for a broad range of common disease conditions will significantly drive the over-the-counter drugs market revenue in the impending years. Repetitive occurrence of common flu and cold impels the demand for therapeutics.

Awareness on and demand for vitamin supplements and weight loss products will majorly contribute to the industry value during the forecast period i.e. from 2022 to 2032. Cost-benefits, positive results and broader accessibility are projected to highly fuel demand for over-the-counter drugs.

Indian Pharmaceutical industry

The Indian pharmaceutical industry is currently valued at around $ 50 billion, with projections showing that it could reach $ 130 billion by 2030, growing at a compound annual growth rate (CAGR) of 12.3%5.

This makes it the worlds third largest in terms of volume and eleventh largest in terms of spending.

The Indian Pharmaceutical industry holds a significant position in the global market, with Indian companies playing a crucial role in the production of active pharmaceutical ingredients (APIs) and formulations. India has emerged as a major player in the pharmaceutical sector, both in terms of manufacturing and export. Indian Pharmaceutical Industry is the largest provider of generic medicines globally, with a 20% share in the global supply by volume, and is also the leading vaccine manufacturer. The industry is a significant contributor to Indias economy, providing direct and indirect employment to over 2.7 million people in high-skill areas like R&D and manufacturing.

However, the Indian pharmaceutical industry is heavily reliant on imports from China, with nearly 68% of APIs being imported from China. This dependence on a single supplier for several critical intermediaries and APIs, including those listed in the National List of Essential Medicines, makes the Indian pharma industry vulnerable to disruption in Chinas bulk drugs market.

This was evident during the COVID-19 pandemic when factories in China were hit by lockdown, resulting in a raw material supply shortage for the Indian pharmaceutical sector. Prices of commonly used APIs rose significantly due to increased costs in China and other pandemic-related concerns.

The Indian government has already implemented initiatives such as the Production Linked Incentive (PLI) schemes, medical device and bulk drug parks to boost domestic production of APIs, biopharmaceuticals, complex generics, patented drugs, and various medical devices, making India a global manufacturing hub.

Supply chain issues

China is opening after three years as the government has abandoned its ‘zero-COVID policy. On the 8th of January 2023, China opened its borders to the world, allowing free entry, for people of China and the rest of world. It is also good news for global trade and the economy as domestic economic activities resume to pre-Covid levels. The freedom of trans border movement further promises to have positive ripple effects on international business. Trade shows, fairs and expos could finally be resumed, welcoming international buyers back into the country and letting domestic suppliers showcase their latest products.

Overall, the supply situation from China is improving. Manufacturers have started in full swing. We have a good supply situation as well as prices are under control.

The freight situation has eased off as well. Over the past few years, companies around the world have struggled with Covid-19 shutdowns, labor shortages and bottlenecks at ports, rail yards and warehouses delayed freight and drove up shipping costs. The situation seems to be easing up now as freight congestion has cleared, and ocean shipping costs have been falling towards pre-pandemic levels. However, we still have a way to go before supply-chain challenges are resolved.

The solvent prices have also been softening because of gas and crude prices coming down.

Granules Strategy

Our journey so far

Granules India Limited (GIL) is a leading pharmaceutical manufacturing company recognized for its commitment to producing high-quality products and driving innovation. With a strong global presence, we operate as a fully integrated pharma manufacturer. Our success is attributed to our unwavering focus on manufacturing excellence and cost leadership, centered around our core molecules. We have established ourselves as leaders in key molecules, attaining critical scale in the industry. While our growth was primarily driven by the US market, we are now expanding our footprint in Europe, making significant progress in this region as well. Throughout our journey, we have consistently maintained a solid track record in delivering superior quality, adhering to compliance standards, and prioritizing sustainability, Health, and Safety.

Strategy Roadmap

Granules is embarking on an exciting new phase, driven by our vision to take our business to new heights as a science and innovation-driven organization. Our strategic roadmap revolves around the continuous pursuit of manufacturing excellence, embracing innovation, and technology platforms in chemistry, with a strong focus on fostering sustainability. We are committed to revolutionizing manufacturing through the implementation of sustainable practices such as bio-catalysis, process innovation, eco conscious product development, increasing use of renewable energy and renewable energy based ingredients. By prioritizing sustainability as a central theme in our business approach, we aim to not only improve efficiency but also reduce our environmental footprint. This comprehensive strategy positions us to achieve significant advancements and create a positive impact in the industry.

In summary, our strategy going forward focuses on three strategic levers led by focus on R&D, innovation and Sustainability.

• The first one is strengthening the core by building on our efforts around efficiency, cost leadership, mitigating supply chain risks, growing market share, and moving up in the value chain across select markets.

• The second strategic lever is Innovation and R&D across our entire value chain from finished formulations, API, and going all the way back to chemical intermediates by reimagining chemistry through innovative technology platforms that we are building.

• The third part is to create a strategic lever through Sustainability play. One such example is our partnership with Greenko for Green Pharmaceutical Products. The initiative aims to achieve the twin goals of healthy people and a healthy planet by using green energy, green energy enabled industrial feedstocks and creating circular economy around our products.

R&D Initiatives

FY23 was the year of building R&D & Product Development capbilities at Granules. We now have an integrated product development R&D centre at Genome Valley, Hyderabad, Centre of Excellence (CoE) for Cll APIs and KSM development at Pragathi Nagar, Hyderabad and a Bio Lab at Pragathi Nagar, Hyderabad. We also have a Formulation R&D centre at our Granules Pharma Inc (GPI) facility focused on controlled substances and technology driven products.

Our New R&D facility located at Genome Valley (MN Park) for Integrated Product Development has been set up in a sprawling 20,000 Sq. ft and is functioning with more than 150 scientists across both the divisions. The new facility brings API R&D and Formulation R&D teams together under one umbrella. This enables seamless coordination between both the teams leading to agile product development processes and collaborative problem solving. The common analytical resources help us bring efficiency in the R&D processes. Our vision is to develop integrated R&D products helping Granules evolve into an R&D driven organization.

Pragathi Nagar R&D at Hyderabad, has been established as a Center of Excellence (CoE) for the development of Cll APIs. We have assembled a skilled team and enhanced the facility specifically for Cll API development at Pragathi Nagar, enabling smooth technology transfer to GPI after the development stage. In addition to Cll API products, we are also focusing on the development of KSMs and Intermediates for our select APIs. To further strengthen our presence in Controlled Substances, we will continue to leverage the research and development capabilities of Pragathi Nagar, in conjunction with the FD R&D of our subsidiary, Granules Pharma Inc (GPI).

The Bio Lab at Pragathinagar brings capabilities in the areas of fermentation and biotransformation along with Lab and Pilot Scale Manufacturing Platform for the Enzyme led projects.

Our R&D initiatives will help us broaden our capabilities, leading to increased focus on quality of our portfolio and higher number of regulatory filings going forward.

Green score in R&D development

Granules has taken a proactive approach to integrating sustainability into our product development process through the implementation of Green card and Eco scale initiatives. From the early stages of development, we prioritize sustainability by incorporating the Green chemistry matrix, which encompasses key principles such as Atom economy, Atom efficiency, and E-factor. Additionally, we utilize the Eco-Scale concept to assess process efficiency. The Eco-scale score is determined based on evaluations across 6 parameters and 38 sub-parameters at every stage of the reaction. To further drive our sustainability goals, we have established operational targets and set Green score thresholds for process development. This commitment ensures that sustainability is embedded within each of our products, creating a greener and more environmentally responsible approach.

Climate Change and Sustainability Context The urgency of climate change is undeniable, and it is a challenge that will affect every individual on the planet. Addressing this issue requires cooperation across the public, private, and financial sectors. As we enter a critical decade, the decisions we make will have long-lasting impacts. Businesses have a significant responsibility to lead the way in addressing climate change within their organizations and beyond. With their vast resources and influence, they have the power to drive sustainability initiatives and inspire innovation across industries and fields. In the transition towards a net-zero economy, businesses have a crucial role to play in developing and implementing solutions for a sustainable future.

According to a recent study by the World Economic Forum, six out of the ten biggest risks facing our future are related to the failure to mitigate or reduce climate change. These risks even surpass global confrontation.

As a result, a deep focus on supply chain decarbonization and green tech is of importance world over.

There has been a strong resolve towards policy interventions in US and EU towards decarbonization efforts. Recently, the European Union passed the European Green Deal, which set a 30-year deadline for climate neutrality on the continent. In the US, the Inflation Reduction Act (IRA) of 2022, makes the single largest investment in climate and energy in American history, aimed at enabling America to tackle the climate crisis, advancing environmental justice, securing Americas position as a world leader in domestic clean energy manufacturing, and putting the United States on a pathway to achieving the Biden Administrations climate goals, including a net-zero economy by 2050.

Major players in Asia, including China, Japan and South Korea, have followed suit. Now, more than 100 countries have set targets to achieve climate neutrality over the next several decades.

EU Carbon Border Tax

Carbon Border Tax (CBT) is a reality. The 27-member European Union (EU) has been ramping up its climate action efforts with the European Parliament, the blocs legislative body, adopting a rapid pace in climate negotiations. The EU has committed to decarbonizing its economy and industry as part of its ambition to turn climate-neutral by 2050. The EU in December 2022 reached political agreement on Carbon Border Adjustment Mechanism (CBAM). On 18 April 2023, the European Parliament approved the political agreement of December 2022 on CBAM. The new reform, will phase out the current system of free C02 permits to factories by 2034. Along with this phasing out of free carbon allowances, the EU will phase in another ambitious and first-of-its-kind policy— the Carbon Border Adjustment Mechanism (CBAM), aimed at levelling the playing field for EU and non-EU manufacturers and spurring trading partners to adopt carbon pricing regimes as a critical approach to the climate fight.

The European Unions Carbon Border Tax Mechanism will impose a levy on imported carbon-intensive goods from countries where climate rules are less strict. The CBAM is at the heart of the EUs efforts to reach its ambitious climate goals underthe European Green Deal. It sends an important signal to producers all over the world: that the EU is serious about cutting emissions and that it expects the same level of commitment from industrial firms exporting into the EU, wherever they may be located.

As per the EUs policy, Carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to countries where less stringent climate policies are in place than in the EU, or when EU products get replaced by more carbonintensive imports. By confirming that a price has been paid for the embedded carbon emissions generated in the production of certain goods imported into the EU, the CBAM attempts to ensure that the carbon price of imports is equivalent to the carbon price of domestic production, and that the EUs climate objectives are not undermined.

The CBAM will initially apply to imports of certain goods and selected precursors whose production is carbon intensive and at most significant risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. With this enlarged scope, CBAM will eventually - when fully phased in - capture more than 50% of the emissions in ETS covered sectors. Under the political agreement, the CBAM will enter into force in its transitional phase as of 1 October 2023.

Once the permanent system enters into force on 1 January 2026, importers will need to declare each year the quantity of goods imported into the EU in the preceding year and their embedded GHG. They will then surrender the corresponding number of CBAM certificates. The price of the certificates will be calculated depending on the weekly average auction price of EU ETS allowances expressed in €/tons of C02 emitted. The phasing-out of free allocation underthe EU ETS will take place in parallel with the phasing-in of CBAM in the period 2026- 2034.

Critics have condemned the CBAM as being protectionist ever since the proposal was put forth last year, and CBAMs compatibility with WTO rules remains a grey area. However, the writing on the wall is clear. The world is set to move towards a sustainable future and will gradually cover all industries with policy makers in key developed markets taking the lead. While the EUs initial list covers steel, aluminium, cement, fertilizer, hydrogen, and electricity, the list will gradually expand to cover all products by 2034. The UK, Canada, Japan, the US and others are also bracing up to levy CBT on imports. The UK proposes levying CBT on cement, chemicals, glass, iron and steel, non- ferrous metals, non-metallic minerals, paper and pulp, fertilizer, and power generation.

It is imperative for industries to embrace sustainability in their long-term vision. Shifting to cleaner production processes and using renewable energy to power their plants are among key steps that industry can take to align with these emerging trends.

Sustainability and Pharmaceutical industry

The Biotech and Pharma industry is a significant contributor to global climate change and therefore must be part of the global climate solution. While there has been progress in establishing targets and tracking progress to those targets, overall, the industrys targets are simply not ambitious enough to keep warming below the 1.5 degrees Celsius threshold that the UNs Intergovernmental Panel on Climate Change (IPCC) warns earth cannot cross.

While the largest companies by revenue have established goals and continue to reduce scope 1, 2 and 3 emissions, 91% of 75 public companies analyzed in the sector still do not have climate commitments aligned with a 1.5 degrees Celsius world.

The total carbon emissions of pharmaceutical companies increased by 15% to reach 260 million tC02e (tons of carbon dioxide equivalent)6. Scope 3 emissions, account for Majority of these emissions. According to a report by Reuters, the pharmaceutical industry was found to have a larger carbon footprint than the semiconductor or forestry and paper industry, which are traditionally considered to be among the most carbon-intensive sectors.

Various global pharma companies and stakeholders in the healthcare sector, including many of our customers, have taken target to reduce their carbon footprint and have announced their net zero commitments. This is a very positive step. However, these commitments apply more towards Scope 1 and Scope 2 emissions for many players, which form approximately 20% of all the emissions in pharmaceutical manufacturing. Scope 3 generates about 80% of the emissions and it is here that they must focus on supply chain and vendor management, neither of which are simple tasks, until each vendor is incentivized and motivated to work towards aggressive targets.

Sustainability Initiatives at Granules

So far, our ongoing sustainability initiatives have been focused on reducing energy consumption, reducing GHG emissions, water stewardship and waste management practices. We have achieved significant emission reduction in the past years. These efforts are being recognized and we have obtained first CDP rankings for Bonthapally and Jeedimetla API units, and various other ratings and certifications, such as ISO 14001 and ISO 45001 certifications across our facilities. Our data is validated with BSI assurance.

We have worked with reputed agencies including Honeywell, APISEEDKO, and NPC which have identified and recommended creative projects to reduce energy and water consumption, as well as ways and means to lower GHG emissions.

During the year under review, we have identified energy savings projectsand were implemented in various manufacturing units of the Company that would lead to potential energy savings of 29,10,106 KWH per annum. During the year under review, approximately 20% of the total energy consumed at the Formulation unit located at Gagillapur, Hyderabad was from Solar Energy. The energy initiatives across all manufacturing units resulted in real reductions of GHG emissions by 8,138 MT C02e.

While we have achieved improvements on ESG parameters, we are now working on our broad, long-term road map for sustainability and ESG commitments. This work is underway, and we have completed Stakeholder engagement, Baselining, and materiality assessment. We will soon be announcing our long term and medium term decarbonization commitment to the stakeholders.

Green Pharmaceutical Zone (GPZ) at Kakinada

While we continue to work on various ongoing ESG initiatives in the organization, we are redefining Sustainability through our green initiative at proposed Green Pharmaceutical Zone (GPZ) at Kakinada, Andhra Pradesh.

During our recent announcement, we shared that we are making significant strides towards achieving our sustainability goals in partnership with Greenko, one of the largest suppliers of carbon- free energy. Through this partnership, we will significantly decarbonize our value streams, reduce our carbon footprint and create new opportunities for growth and innovation in the pharmaceutical industry.

The new Greenfield plant at Kakinada will be built over an area of 100 acres in well-connected strategically located industrial cluster zone with easy access to major port, national highway and rail network. The GPZ will have the access to existing infrastructure such as water and power infrastructure. The water access is provided through the Samalkot canal, which originates from the Godavari River. This ensures the access to a reliable water source for its operations. Additionally, the power requirements are met through the 220 KV double circuit overhead transmission lines.

Greenko will supply 24X7 Carbon free energy and green energy enabled Green molecules. The facility will be powered by 24x7 carbon-free green energy, with only a very few input materials required from outside the two facilities being set up by Granules and Greenko. Granules will utilize Carbon Free Energy and Green molecules to produce value APIs, their KSMs and intermediates and Fermentation based value added products . Thus, we will be achieving near net zero carbon footprint from "Cradle to Gate" across Scope 1, 2 and 3. We are starting with the value chain for two of our key products - Paracetamol and Metformin, and will subsequently expand to value chain for other products in our portfolio and pipeline including Fermentation based products.

Company Overview

Granules India Limited, incorporated in 1991 is a vertically integrated fast growing Indian pharmaceutical company headquartered at Hyderabad. Granules is among the few pharmaceutical companies in the world to be present in the manufacturing of the entire value chain. With offices across India, US, and UK, Granules serves more than 300 customers in over 80 countries. The Company has 8 manufacturing facilities out of which 6 are in India and 2 in the USA and has regulatory approvals from leading health authorities across the world including US FDA, EDQM, EU GMP, COFEPRIS, WHO, TGA, K FDA, MCC, and HALAL.

Granules success is an outcome of its best-in-class facilities, unwavering commitmentto product quality, culture of operational excellence, and customer service. Granules produces Active Pharmaceutical Ingredients (API), Pharmaceutical Formulation Intermediates (PFI) and Finished doses (FD) and are marketed across key markets of North America, Europe, India, and Latin America. Powered by vertical integration, scale, manufacturing excellence, focused execution, and cost leadership through continuous innovation, Granules offer high quality, affordable medicines to people across the world.

Granules has built one of the largest PFI and single site FD facilities in the world and has the worlds largest Paracetamol API facility. Granules has two state-of-the-art research and development centers in Hyderabad and Virginia, alongside its existing R&D facilities in Pune and Pragathi Nagar (Hyderabad). The Company recently inaugurated a state-of-the-art Integrated Product Research and Development Centre at MN Park Genome Valley in Hyderabad, spanning an expansive 20,000 square feet. The center commenced its operations with a team of over 150 scientists focusing on integrated API and FD product development. Known for our process innovation and unparalleled efficiencies, today, we supply pharmaceutical products to 300+ customers in 80+ countries. We are also a preferred supplier of superior quality pharma products for some of the worlds leading branded pharma and generics companies. Our exports now contribute over 94% of the revenue. We progressively moved from being an API to a fully integrated playerwith dominant finished dosage sales, we have had a US driven growth trajectory built on scale, manufacturing excellence, focused execution, and cost leadership. We are also making good inroads within Europe and contribution from the region has been on an upward trend. We are focused on moving towards manufacturing of complex formulations through differentiated technology. During the year, we have inaugurated the new packing facility in Manassas, Virginia, US. The facility received US FDA approval. This facility will reduce the supply chain issues, cost reduction and improvement in the working capital cycle. Today, we have seven manufacturing units, of which six are India and one in the USA.

Business overview and key business segments

Key business segments

Active Pharmaceutical Ingredients (APIs)

Known as one of the most cost-effective and efficient manufacturers of APIs, we have emerged as a leading manufacturer and supplier of Paracetamol, Metformin, Guaifenesin, and Methocarbamol. We are continuously working to improve our API manufacturing capability to add new products to our portfolio. Today, most of the new PFI and FD products developed by us are supported by vertical integration of respective APIs. An emphasis on adopting advanced technology, backward integration to critical steps combined with the strength of a robust, resolute team, empowers us to consistently meet evolving customer demands with precision and excellence. Presently, the API business accounts for 30% of our revenue.

Revenue

( Rs. in Millions)
FY23 FY22 FY21
API 13,414 9,751 9,124

Pharmaceutical Formulation Intermediates (PFI)

We emerged as one of Indias largest PFI manufacturers with a batch processing capacity of six tons. Ensuring economies of scale and cost-efficiency, we brought breakthroughs in the PFI space. The PFIs produced by us can be directly taken to the hoppers from the drums and it has enabled us to become a preferred PFI supplier for some of the most renowned global pharma companies. Presently, the PFI business accounts for 20% of our revenue.

Currently, we are using the PFI facilities at Jeedimetla and Gagillapur to further process into Finished Dosages.

Revenue

( Rs. in Millions)
FY23 FY22 FY21
PFI 9,021 8,456 6,262

Finished Dosages (FD)

Over the years, we have sustainably grown our FD capabilities and it is currently contributing over 50% of our revenue. The existing portfolio of finished dosages comprises Caplets, Tablets as well as Press-fit Capsules in Bulk, Blister packs and Bottles. Our state-of-the-art manufacturing facility at Gagillapur is equipped with automated processes, robust infrastructure, and superior quality systems to efficiently produce finished dosages that are marketed in 80+ countries, including the highly regulated markets of the US and Europe. It also produces Bi- layered tablets, Rapid release tablets, and Extended release (ER) tablets. We developed our own ANDAs and dossiers to offer an added advantage to our customers.

Revenue

( Rs. in Millions)
FY23 FY22 FY21
FDs 22,684 19,442 16,989

FY22-23 Highlights

Existing Business: The existing core business remained our focal point, while we constantly expanded our product portfolio and global presence with focus on high volume products built on maximizing process efficiencies and vertical integration.

US Generics: Since setting up US sales and marketing operations in 2019, we launched 25 generic products under the GPI label. Focused product selection, development and manufacturing brought in significant growth of the US Generics business. Our portfolio has been constantly evolving from large volume immediate release (IR) products to complex extended/ delayed release (ER/DR) products.

Emerging business: The product selection process for our ‘Emerging business focuses on identifying and developing high entry barrier products, with diverse complexities at API and/or formulations development. We developed APIs that cover a broad spectrum of therapeutic categories and expanded capabilities into the segment of High Potent APIs (HPAPI) with our state-of-the-art facility at Vishakhapatnam. We also offer development and manufacturing services for customers across the world aligned with their High Potent Formulation requirements.

In finished dosage forms, we filed 70 ANDAs with the U.S. FDA, of which 55 ANDAs were approved and 15 are currently under review. We continued to leverage our ANDA filings into other markets outside US. We filed 8 dossiers in the European region and 7 dossiers in Canada.

We received 5 ANDA approvals from the USFDA. The on-time approvals exemplify the quality of our ANDA filings. In addition, the approval for the dossiers filed in other countries also gained momentum. Approvals were received for 6 dossiers in EU and for 3 dossiers in Canada.

We aim to continue the products of different complexity in each dosage form viz. Immediate release, Extended release, Delayed release, MUPS and Oral suspensions.

Risk Management

In an ecosystem of change and disruption, an organizations competitiveness is determined by the agility and resilience of its risk management system. The vast developments in technologies, supply chain uncertainties, closer regulatory scrutiny bring with them increasing complexities that organizations need to navigate to achieve their strategic imperatives.

In this backdrop, it is vital that our risk management evolve seamlessly to facilitate business-focused insights that balance management of risks with pursual of strategy, to deliver value to our stakeholders. Granules believes it is important to embed a robust risk management system that is integrated and supports delivery of strategy, develop an enterprise-wide view of risk aided by robust mitigation mechanisms.

The Company identifies risks that impact the enterprise, basis interviews with the key business stakeholders, leveraging internal repositories and industry benchmark data; and thereafter prioritizes, and monitors key business risks.

The Risk Management Committee (RMC), a sub-committee of the Board guides the implementation of the Risk Management Policy, reviews the effectiveness of the risk management system, and provides necessary guidance accordingly. The Board of Directors are updated on the enterprise risk profile and mitigations for identified risks.

The Internal Risk Committee evaluates, manages, and monitors key enterprise risks on an ongoing basis. The RMC thereafter reviews the key enterprise risks and the status of the projects that are undertaken or proposed, to mitigate the key risks identified on a half-yearly basis. Each project proposed as part of the mitigation plan, is tracked and reviewed basis the following parameters:

• Project Milestones and key deliverables with timelines

• Estimated resource requirements and budget commitments

• Status of implementation of proposed projects/ mitigation plans

The leadership team identifies and assesses long-term and strategic risks, informed by internal and external perspectives. The ownership of risks is defined at the management team level to review and monitor risks across business units and functions of the organization.

The objective of our Enterprise Risk Management (ERM) programme is to minimize and mitigate potential internal and external risks to achieve strategic objectives and explore opportunities in a risk informed manner to protect and enhance value.

Indicative Key Risk Themes in the Business:

The key risks shall be regularly reviewed and factored into strategic decision-making by our Internal Risk Committee, for effective response plans. The following list illustrates the key risks that were identified as having an impact on Granules strategic objectives, and accordingly appropriate mitigation strategies have been designed and implemented:

• Supply chain disruptions may lead to concerns of failure to supply and potential loss of business and reputation.

Our mitigation strategy is directed towards alternate vendor development and partnership with vendors, extended geographies for vendor selection.

• Ability to maintain and strengthen regulatory and compliance systems to ensure conformance with mandatory quality standards and efficacy

Our mitigation strategy is directed towards strengthening our capabilities by continuous learning and development initiatives on best practices and regular audits to stay in tune with ever evolving regulatory expectations. We are ensuring implementation of stringent review systems and suitable preventive actions are rolled out.

• Rising input costs and operational inefficiencies may adversely impact profitability, resulting in lowered business performance

Our mitigation strategy is directed towards establishing a seamless co-ordination between R&D, technology transfer and manufacturing teams with continuous emphasis on Innovation and operational excellence; and continuous engagement with the customers in a transparent manner with respect to the pricing that reflects added input cost.

• Price erosion and increase in competitive intensity may impact our strategic objectives

Our mitigation strategy is directed towards robust product selection and any course correction, if required. We are investing in science and technology to achieve cost leadership and we are monitoring the market intelligence data to be on top of the competitive landscape in the industry

• Failing to comply with the Environment, Health, and Safety (EHS) & Sustainability standards could lead to regulatory, reputational, and business continuity risks that may impact sustainability of our business.

Our Corporate EHS function provides EHS guidelines to all manufacturing sites and target for reduction in waste, GHG emission & water utilization. Various projects are underway to ensure that EHS parameters always remain as per expectable standards.

• Adequacy of business continuity measures to ensure timely recovery and resilience from crisis events including natural calamities

Disaster management plan is put in place to deal with natural calamities.

Granules endeavors to cultivate a risk-intelligent and risk-aware environment that extends beyond our Company and into all our relationships, both internally and externally. Our approach shall facilitate proactive risk management and we aim to continuously improve it to achieve higher levels of performance and integrate risk management into day-to-day operations of our business.