Gujarat Terce Laboratories Ltd Management Discussions

The Economic Overview

Global Economy

Global GDP growth was recorded at 3.4% in 2025 and is projected to slow to 3.1% in 2026, as per the IMFs World Economic Outlook, April 2026 update.

Global headline inflation is expected to increase to 4.4% in 2026. The global economy is expected to maintain moderate growth momentum, with advanced economies facing policy challenges while select emerging markets continue to outperform. The economic landscape has fundamentally transformed over the past three decades, with power shifting from traditional Western markets to Emerging Asia, reshaping the foundations of global trade and investment.

Global growth was held back by two compounding forces. A military conflict in the Middle East, erupting in late February 2026, pushed energy and food prices sharply higher, disrupted key trade routes, and tightened financial conditions at a time when economies were still adjusting to the previous years

US tariff surge. Firms paused investment and lenders pulled back on credit, creating a demand shortfall that dominated the near-term outlook. Easing trade tensions and sustained technology investment present opportunities, while volatile energy markets and geopolitical instability remain the key risks.

The Pharmaceutical Sector

Global Pharmaceutical Market

The global pharmaceutical sector demonstrated resilience in FY26, supported by sustained demand for both innovative and generic medicines. The global pharmaceutical industry was valued at approximately USD 1.62 trillion in 2025 and is projected to reach USD 1.72 trillion in 2026, growing at a year-on-year rate of 5.8%.

Key Strategic Trends Shaping FY26

? Pricing and access pressures continued to intensify, with generic and biosimilars competition influencing market dynamics across therapy segments.

? Regulatory and quality expectations became increasingly stringent, requiring companies to strengthen compliance, manufacturing standards, and product quality systems.

? Digitalisation across R&D, quality management, and commercial operations continued to improve efficiency and enhance decision-making across the pharmaceutical value chain.

? Geopolitical developments and supply chain shifts encouraged pharmaceutical companies to strengthen operational resilience and diversify sourcing strategies.

According to leading industry research, small molecules continue to provide a stable foundation for the pharmaceutical industry, supporting cash flows and generics expansion. At the same time, digital transformation across quality systems and operational processes is improving productivity and supporting greater efficiency across the value chain.

Indian Pharmaceutical Market

India: Acclaimed as the Pharmacy of the World - delivering Trust, global standards and pharmaceuticals that are affordable, accessible and accredited.

The Indian pharmaceutical industry ranks 3rd globally by volume and 11th by value, with more than 3,000 companies and 10,500 manufacturing units. The domestic pharmaceutical market, valued at USD 60 billion, is projected to reach USD 130 billion by 2030.

Growth Drivers

Growing Population

A larger and more diverse population naturally translates to a greater number of patients requiring medical attention for a wide range of acute and chronic conditions. This creates a consistently growing market for all pharmaceutical companies.

Demographic & Disease Trends

Rise in chronic lifestyle diseases (cardiac, anti-diabetic, oncology); ageing population; pollution-linked respiratory conditions and growing mental health awareness.

Patent Cliff & New Launches

The expiry of high-value blockbuster drugs has opened significant windows for affordable generics.

Improving Affordability

Rising per capita incomes are enhancing affordability, making healthcare and pharmaceuticals accessible to a larger section of the population.

The Silver Generation Factor

A critical subset of this growth is the rapidly ageing population. The silver generation (60-plus) currently contributes approximately 17% to Indias pharma market, a figure projected to balloon to 25-33% within three decades.

Indias Cost Advantage

Indian pharmaceutical companies benefit from a significant cost advantage, with production costs estimated to be 50% lower than in Western countries.

This allows drugs to be produced cost-effectively and in large volumes for sale at affordable prices, making

India a hub for generics.

Government Support and Incentives

Government policy support continues to strengthen Indias pharmaceutical manufacturing ecosystem. Initiatives such as the Production Linked Incentive (PLI) scheme, bulk drug parks, and quality-focused regulatory upgrades are aimed at improving domestic manufacturing depth, reducing import dependence, and enhancing Indias competitiveness in global pharmaceutical supply chains. For Gujarat Terce Laboratories Ltd, this policy direction reinforces the importance of quality systems, cost efficiency, compliance readiness, and supply-chain resilience.

Branded Generics

India remains one of the worlds largest markets for branded generics, supported by physician-led prescribing behaviour and strong brand recall. The market is expected to reach USD 53.4 billion by 2033, growing steadily over the coming years.

This market structure supports opportunities for companies with diversified portfolios, strong medical representative engagement, and consistent product quality. For branded formulation players, execution capability, customer relationships, and quality perception continue to be important differentiators.

Pricing and affordability dynamics

India is an extremely price-sensitive market, but unlike pure generics, branded generics allow companies to differentiate and command slightly higher prices.

Government interventions, especially through the National Pharmaceutical Pricing Authority, play a major role in capping prices for essential drugs, which directly affects margins, competition, and portfolio strategy.

Doctors Trust and Loyalty in Branded Generics

Despite government efforts to promote cost-effective unbranded generics, branded generics continue to dominate the Indian pharmaceutical landscape, commanding approximately 87% of the market by value. This overwhelming preference is rooted in a fundamental reality. Indian doctors prescribe what they trust, and what they trust are medicines with established quality assurance and predictable clinical outcomes. Under Drugs Rules 65(11A), retailers cannot substitute prescribed brands, reinforcing this practice. Doctors enduring trust in branded generics stems primarily from legitimate concerns over the quality and safety of unbranded alternatives, as only a tiny fraction of generic drugs undergo rigorous testing in India. This quality perception is reinforced by pharmaceutical marketing and long-standing brand familiarity, leading physicians to favour branded options for predictable patient outcomes.

Competitive Edge: Why Branded Generics Command Premium

Trust in Quality and Safety: While unbranded generics legally require the same active ingredient, historical data and studies have indicated quality inconsistencies within the government supply chain, with reports of substandard or spurious drugs. These documented failures directly fuel the trust deficit and make branded generics the safer, more reliable choice.

Superior Manufacturing & Supply: Branded generic manufacturers are typically WHO-GMP certified with robust pharmacovigilance systems, whereas smaller generic players may struggle to meet these stringent standards, risking shortages and compromised patient safety.

Patient Adherence & Confidence: Trust in a known brand leads to better patient adherence to prescribed treatments. Established companies also ensure product consistency, avoiding disruptions from sudden vendor changes that can occur with government-sourced generics.

The Doctor-Patient Trust Factor: Branded generics are supported by extensive marketing and medical representative engagement, which helps build physician confidence. This is crucial as studies show that over 80% of private practitioners still believe branded options are superior, directly influencing their prescribing decisions.

Outlook

The Indian pharmaceutical industry is expected to sustain a healthy growth trajectory through FY27 and beyond, driven by rising healthcare awareness, expanding access to medicines, increasing rural penetration, and growing domestic and export demand. Policy support, domestic manufacturing depth and rising healthcare access are expected to strengthen long-term sector prospects. While regulatory pressures and global uncertainties may persist, companies focused on quality, innovation, and operational efficiency are likely to remain well-positioned for sustained growth.

5. Working Capital & Collections Efficiency

Collections efficiency is a direct measure of the quality of stockist and channel relationships. The multi-year improvement in debtor days reflects disciplined credit management and the trust-based partnerships GTLL has built across its distribution network.

Metric	FY26	FY25	FY24
Debtor Days	36.9	37	43
Working Capital Days	26.62	-4.5	-7
Cash Flow from Operations	171.47L	305.91L	Positive 2 consecutive years

6. Manufacturing & Supply Chain

Gujarat Terce operates through a focused contract manufacturing model. The Company enters into long-term contracts with WHO-GMP certified, internationally accredited manufacturing partners. All product intellectual property and formulation specifications are owned and retained by Gujarat Terce.

Pillar	Detail
IP Ownership	All formulations, trade names and product specifications vest with Gujarat Terce. Partners manufacture; the brand belongs to GTLL.
Quality Assurance	In-house QA team conducts structured audits at partner plants. No batch dispatched without sign-off against GTLL specifications.
Partner Standards	All manufacturing partners hold WHO-GMP certification and international accreditation.
Location Strategy	Partner plants selected for proximity to Chhatral Mother Warehouse, Gandhinagar - minimising freight and inbound lead times.
Supply Reliability	Long-term contracts secure committed production and dispatch schedules, ensuring availability across 385 stockists and 22,000+ outlets.
Preferential Pricing	Long-term contracts provide preferential input costs - protecting margins and improving cost visibility.

Financial Performance at a Glance

Particulars	FY26 (D in lakh)	FY25 (D in lakh)	% Change	Remarks for Significant
Revenue	4,747.27	5,019.52	-5.42%	FY26 was a year of strengthening the
EBITDA	363.45	419.04	-13.25%	Companys fundamentals and improving the quality of earnings. Our strategic
PBT	303.23	339.04	-10.56%	focus remained on improving profitability,
Cash Profit	262.44	-59.41	541.74%	enhancing operational efficiency, and
Reported PAT	220.17	-97.87	324.96%	building a stronger financial foundation.

Significant changes, i.e., a change of 25% or more in the key financial ratios, along with explanations, are provided below:

Key Ratios

Particulars	Items Included in Numerator	Items Included in Denominator	Current Year Ratio	Previous Year Ratio	Change (%)	Explanation for deviation of more than 25%
Debtors	Net Credit	Average Trade	9.56	9.35	2.25%	-
Turnover Ratio Current Ratio	Sales Current Assets	Receivable Current Liabilities	1.32	0.95	38.95%	The current ratio improved primarily because current assets increased while current liabilities reduced during the year, strengthening the Companys short term liquidity position.
Debt-Equity Ratio	Long-Term Debt + Short- Term Debt	Shareholders Equity	0.13	0.15	13.33%	-
Interest Service Coverage Ratio	EBIT	Interest	17.89	9.16	95.34%	Interest expense has been reduced year on year.
Operating Profit Margin (%)	EBIT	Net Sales	7%	8%	15.43%	-
Net Profit Margin (%)	Net Profit	Net Sales	4.64%	-1.95%	337.95%	Companys net profit has been increased.
Return on Net Worth (%)	Earnings after Interest, Tax, Depreciation & Amortisation	Net Worth	23%	-15.11%	249.78%	Companys net profit has been increased.

Internal Control and Its Adequacy

The Company has appointed DV Shah & Associates as its Internal

Auditors to evaluate the adequacy and effectiveness of its internal control framework and recommend areas for improvement. The Company has established robust internal control systems and monitoring mechanisms to safeguard assets against unauthorised use, loss, or misappropriation and to ensure efficient conduct of operations.

Well-defined policies, procedures, and guidelines provide appropriate checks and balances to ensure that transactions are properly authorised, accurately recorded, and timely reported. The Audit Committee reviews and approves annual internal audit plans based on risk assessments, while audit activities are carried out on a continuous basis. Significant observations and deviations are periodically placed before the Audit Committee of the Board, along with recommendations for corrective actions to ensure timely resolution and mitigate potential risks.

The internal audit function is further strengthened through coordination with statutory auditors to address statutory and operational matters. Compliance with applicable laws and regulations continues to remain a key focus area for the management team.

The Company also continues to strengthen organisational integration across support functions such as finance, human resources and regulatory affairs, as well as core operational areas including research, manufacturing and supply chain management. This cross-functional coordination supports stronger process ownership, timely compliance monitoring, operational discipline and effective implementation of internal controls.

Human Resources

Gujarat Terce recognises its employees as a key pillar of its business success and remains committed to fostering a capable, engaged, and future-ready workforce. The Company continuously invests in employee development initiatives aimed at enhancing skills and aligning workforce capabilities with evolving business requirements. Through structured learning programmes, regular training initiatives, and a culture that encourages continuous learning and constructive feedback, employees are empowered to expand their knowledge, develop new competencies, and pursue professional growth opportunities.

By placing strong emphasis on employee development and capability enhancement, Gujarat Terce seeks to build a skilled, motivated and high-quality talent pool while fostering a dynamic and inclusive organisational culture. Open communication and strong interpersonal engagement across all levels of the organisation further strengthen collaboration between management and employees, contributing to improved operational effectiveness and employee engagement.

The Company continues to maintain cordial and harmonious industrial relations, which remain a key focus area. As of March 31, 2026, the Company had 235 employees on its rolls.

Risk Management

At Gujarat Terce, risk management is driven by a well-defined framework aligned with the Companys risk appetite, taking into consideration industry dynamics, internal capabilities, and financial objectives within acceptable risk parameters. The Board and management team proactively identify, assess, and manage risks across strategic, financial, operational, and environmental areas through a structured risk management approach.

For Gujarat Terce Laboratories Ltd, key risks include regulatory and quality compliance, product pricing controls, raw material and API price volatility, supply-chain disruption, product availability, working-capital pressure, intense competition in branded generics and dependence on sustained doctor engagement. The Company seeks to mitigate these risks through quality-focused manufacturing practices, disciplined portfolio management, cost control, prudent credit monitoring, regular review of market performance and continued engagement with healthcare professionals and channel partners.

The Companys risk management framework is designed to support business sustainability and resilience, ensuring alignment with its long-term business model and growth objectives. The Board continuously evaluates potential risks and develops appropriate mitigation strategies to minimise their impact and strengthen organisational preparedness.

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations, or predictions 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 global and Indian economic conditions, changes in government regulations, tax laws, litigation, competitor actions, technological changes, natural calamities, and other factors beyond the Companys control. The Company assumes no responsibility to publicly amend, modify, or revise any forward-looking statements on the basis of any subsequent developments, information, or events.