Haleos Labs Limited Management Discussions

[Pursuant to part B of Schedule V of SEBI (Listing Obligations and Disclosure Requirements) 2015]

Management Discussion and Analysis Report sets out the key developments in the business environment and the Companys performance since the previous reporting period. The analysis supplements the Directors Report and the audited financial statements, which together form an integral part of this Annual Report.

Post demerger in 2017, your Company has established itself as prominent manufacturer of Active Pharmaceutical Ingredients ("APIs"), bulk drugs and intermediates, with key products including Ranitidine HCL and Famotidine. The Company caters to both domestic and international markets and continues to focus on strengthening its manufacturing capabilities, product portfolio and market presence. Over the years, the Company has developed products, processes and systems aligned with industry benchmarks and remains committed to continuous improvement in quality, operational efficiency and regulatory compliance, enabling it to consistently deliver quality products to its customers.

a) INDUSTRY STRUCTURE & DEVELOPMENT:

The global pharmaceutical industry continues to be one of the fastest-growing sectors, supported by structural factors such as an ageing population, increasing prevalence of chronic diseases, rising healthcare awareness and expenditure, technological advancements and improved access to healthcare. The global pharmaceutical market is estimated to be valued at approximately US$ 1.75 trillion and is projected to cross US$ 2 trillion by 2030. Despite the favourable long-term growth outlook, pharmaceutical manufacturing companies continue to operate in dynamic and challenging environment. Cost and pricing pressures, the development of new medicines and therapies, evolving regulatory requirements, increasing digitalisation, supply chain disruptions and fluctuations in raw material and logistics costs continue to influence the operating environment. Manufacturers are therefore increasingly focused on product innovation, operational efficiency, regulatory compliance, quality systems and supply-chain resilience to remain competitive.

The global macroeconomic environment during FY 2025-26 remained volatile, with geopolitical tensions, disruptions in global supply chains and evolving trade policies affecting industrial activity. Continuing conflicts in certain regions, particularly in West Asia and Eastern Europe, resulted in disruptions to energy markets and key shipping routes, including the Red Sea corridor. These developments contributed to higher freight costs and volatility in raw material and other input costs. At the same time, the global trend towards supply- chain diversification and the "China+1" strategy continued to create opportunities for alternative and reliable manufacturing locations, including India.

India continued to demonstrate economic resilience during FY 2025-26, supported by robust domestic demand, sustained government capital expenditure and stable financial conditions. The Indian pharmaceutical industry remains an important contributor to the countrys economy and the global healthcare ecosystem. The Indian pharmaceutical market is estimated to be valued at approximately US$ 60 billion and is expected to grow to around US$ 120-130 billion by 2030, potentially emerging as one of the largest pharmaceutical markets globally.

India is currently the 3^rd largest pharmaceutical market globally by volume and ranks among the leading pharmaceutical markets by value. The industry has developed diversified manufacturing base covering bulk drugs, Active Pharmaceutical Ingredients ("APIs"), generic formulations, over-the-counter medicines, vaccines, biosimilars and biologics.

The Indian pharmaceutical industry is supported by large manufacturing ecosystem, skilled scientific talent and an increasing focus on quality and regulatory compliance. The country has more than 10,000 pharmaceutical manufacturing facilities, including significant number of facilities compliant with USFDA and other international regulatory standards. Indian pharmaceutical manufacturers continue to strengthen their global presence through product innovation, technological advancement, capacity expansion and increasing participation in regulated and semi-regulated markets.

The industry is also undergoing gradual transition from a volume-driven model towards greater emphasis on value creation. Increasing opportunities in complex generics, biosimilars, specialised APIs, contract development and manufacturing and other value-added pharmaceutical products are expected to support this transition. The rapid growth of the Contract Development and Manufacturing Organisation ("CDMO") segment, increasing demand for chronic therapies and growing investments in advanced pharmaceutical technologies are expected to create additional growth opportunities.

India remains an important participant in the global pharmaceutical supply chain, supported by its established manufacturing capabilities and growing reputation as a reliable supplier of cost-effective and quality pharmaceutical products. The increasing preference among global pharmaceutical companies for diversified sourcing and dependable manufacturing partners continues to create opportunities for Indian manufacturers of APIs, intermediates and pharmaceutical products. At the same time, the industry continues to face challenges arising from intense competition, pricing pressures, fluctuations in raw material costs, evolving regulatory expectations and disruptions in global logistics and supply chains. During the year, geopolitical developments, particularly tensions in the Middle East, continued to exert pressure on logistics availability and costs, which had a consequential impact on input costs and operating margins.

The Government of India has set an ambition to become US$ 30 trillion economy by 2047, coinciding with the centenary of Indias independence. With its strong domestic base and global footprint, the pharmaceutical industry is expected to remain an important contributor to this growth journey. Continued investments in research and development, manufacturing infrastructure, technology and value-added products are expected to further strengthen Indias position in the global pharmaceutical landscape.

Key Developments in the Company:

Against this backdrop, your Company continued to focus on strengthening its core API and intermediates business while pursuing opportunities for portfolio diversification, expansion into regulated markets and development of new revenue streams through strategic collaborations and contract manufacturing.

During the year, the Company continued its efforts towards expanding and diversifying its product portfolio. Validation of Dorzolamide HCL under the collaboration with C2 Pharma was successfully completed during Q4 FY 2025-26. The Company is also progressing with further product development and validation initiatives, including Brinzolamide. While these products are presently at various stages of validation and development and may not have a material impact on revenue in the immediate term, their successful commercialisation, subject to applicable regulatory and other requirements, is expected to support the Companys medium- to long-term growth strategy.

The Company also continued to explore opportunities in contract manufacturing and regulated markets. Its strategy remains focused on strengthening customer relationships, expanding its product portfolio, improving operational efficiencies and progressively enhancing its presence across domestic and international markets.

Overall, while near-term business conditions remain influenced by product-specific challenges, competitive pressures, fluctuations in input costs and logistics-related constraints, the Companys continued focus on product development, regulatory capabilities, strategic collaborations, manufacturing infrastructure and market diversification is expected to support its long-term growth and diversification objectives.

b) OPPORTUNITIES & THREATS:

Your Company is confident of strengthening its position in the coming years through a focused strategy of product portfolio expansion, capacity optimisation and development of new business opportunities.

We continues to focus on enhancing its manufacturing capabilities, improving capacity utilisation and exploring opportunities across the pharmaceutical value chain. Emphasis is being placed on expansion into regulated markets, development and commercialisation of new products, strengthening the contract manufacturing business and pursuing strategic collaborations and partnerships with global business associates. These initiatives are expected to broaden the Companys product portfolio, provide access to new customers and markets, diversify revenue streams and support sustainable long-term growth.

At the same time, the Company operates in a dynamic and competitive business environment and remains exposed to various external and internal risks. The Company continuously monitors these developments and undertakes appropriate measures to mitigate their potential impact on its operations and financial performance.

Opportunities

- Expansion into regulated and international markets

- New product development and portfolio diversification

- Commercialisation of validated and pipeline products

- Growth in contract manufacturing and strategic collaborations

- Capacity optimisation and improved operational leverage

- Increasing preference for diversified sourcing and the China+1 strategy

- Expansion of Mahi Drugs through new product commercialisation and improved capacity utilisation

- Strategic partnerships providing access to new customers and markets.

- Growing demand for specialised and value-added APIs

Threats

- Intense competition and pricing pressures

- Dependence on key products and product-specific market pressures

- Fluctuations in raw material prices and input costs

- Increase in logistics costs

- Geopolitical tensions and supply-chain disruptions

- Evolving regulatory and compliance requirements

- Delays in product development and commercialization

- Customer credit and receivables risks

- Shortage and retention of skilled technical manpower

Your Companys strategy is centred on leveraging these opportunities while proactively addressing the associated risks through product diversification, strengthening customer relationships, improving operational efficiencies, prudent credit management, regulatory compliance and continued investment in manufacturing and product development capabilities.

c) SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

Your Company is primarily engaged in the manufacturing of Active Pharmaceutical Ingredients ("APIs"), intermediates and related products and also undertakes contract manufacturing activities. The Company caters to both domestic and international markets, with its product portfolio comprising established products such as Ranitidine HCL and Famotidine, along with other APIs and intermediates. The Company operates its manufacturing facilities at Kazipally (Unit I) and Jeedimetla (Unit II) in Telangana, supported by its subsidiary, Mahi Drugs Private Limited, located at Anakapalli Dist., Andhra Pradesh. The manufacturing infrastructure, together with the Companys research and development capabilities, supports its strategy of product diversification, capacity optimisation and expansion into domestic and international markets.

During the year, your Companys business performance was influenced by product-specific market conditions, particularly pressure in the Ranitidine business, along with fluctuations in input costs and other operating expenses. The Company continued to focus on strengthening its product portfolio through new product development, validation and commercialisation initiatives. Strategic collaborations and contract manufacturing opportunities also form an integral part of the Companys efforts to diversify its revenue streams and reduce dependence on a limited number of products.

The Company continues to pursue opportunities in regulated markets, supported by its manufacturing and regulatory capabilities. During the year, efforts were also directed towards expanding the product portfolio through development and validation initiatives under strategic collaborations, while contract manufacturing continues to offer additional opportunities for customer and revenue diversification.

Subsidiary - Mahi Drugs Private Limited

Mahi Drugs Private Limited, the Companys subsidiary located at JN Pharma City, Anakapalli Dist., Andhra Pradesh, continues to be an important part of the Companys long-term growth and diversification strategy. The facility provides additional manufacturing capabilities and supports the Companys plans to expand its product portfolio and presence in regulated markets.

During the year, the performance of Mahi Drugs continued to be impacted by delays in the commercialisation and ramp-up of certain products. The Company, however, continued its efforts towards improving capacity utilisation, expanding product sales and progressing new product commercialisation. These initiatives are expected to support the improvement in operational performance as product volumes increase.

Research & Development

Your Companys in-house Research and Development ("R&D") capabilities continue to play significant role in product development, process optimisation, cost improvement and strengthening the product pipeline.

The R&D function focuses on the development of APIs and intermediates, novel route synthesis, process robustness, analytical method development and optimisation of manufacturing processes.

Your Companys continued focus on R&D and product development supports its strategy of portfolio diversification and the development of new growth opportunities. During the year, the Company continued its efforts towards product validation and commercialisation under strategic collaborations, additionally also pursuing the development of additional products for future commercialisation.

R&D Expenses:

Particulars	FY 2025-26	FY 2024-25
Capital	88.50d>	93.64
Recurring	582.55	538.98
Total	671.05	632.62
Total R&D Expenditure as a %age to revenue from operations	2.23%	1.90%

d) FURTURE OUTLOOK

Your Company remains focused on strengthening its business through product portfolio expansion, improved capacity utilisation, operational efficiencies and the development of new growth opportunities. The outlook for the Company is supported by its continued focus on new product development and commercialisation, expansion into regulated markets, strategic collaborations and growth in contract manufacturing activities.

Your Company is pursuing the commercialisation and scale-up of new products, including products developed through strategic collaborations, which are expected to contribute to revenue growth over the medium to long term, subject to successful validation, regulatory requirements and market conditions. The Company also continues to explore opportunities to expand its presence in regulated and international markets.

The contract manufacturing business presents another avenue for growth and diversification. The Company continues to pursue new projects and customer engagements, which are expected to progressively strengthen its revenue base and customer portfolio.

The outlook for Mahi Drugs is expected to improve with the ramp-up of product commercialisation, increasing capacity utilisation and better sales volumes. The Company continues to work towards improving the subsidiarys operational performance through the introduction and commercialisation of new products and optimisation of its manufacturing infrastructure.

While the business environment continues to be influenced by pricing pressures, raw material cost fluctuations, geopolitical developments and global supply-chain challenges, the Company remains focused on improving its product mix, strengthening operational efficiencies and pursuing sustainable growth opportunities.

Overall, the Companys medium to long-term strategy remains centred on portfolio diversification, new product development, commercialisation, expansion into regulated markets, contract manufacturing, strategic collaborations and improved capacity utilisation. These initiatives are expected to strengthen the Companys market position and create more diversified and sustainable platform for future growth.

e) RISKS AND CONCERNS

The pharmaceutical industry operates in a dynamic and highly regulated environment and is exposed to various risks arising from market conditions, competition, regulatory developments, supply chain disruptions and changes in the global economic environment. Your Company continuously monitors these risks and undertakes appropriate measures to mitigate their potential impact on its operations and financial performance.

Your Company continues to face pricing and competitive pressures, particularly in certain key products. Fluctuations in raw material prices, changes in product demand and increased competition may impact margins and profitability. The Company seeks to mitigate these risks through product diversification, process optimisation, cost-control measures and the development of new products and markets.

Your Company is also exposed to supply chain and logistics risks. Geopolitical developments and disruptions in key shipping routes may affect the availability and cost of raw materials, freight and logistics services. Your Company continuously monitors market conditions and works towards optimising procurement and supply chain processes to minimise the impact of such disruptions.

As API manufacturer, your Company operates in a stringent regulatory environment. Changes in regulatory requirements, delays in approvals or observations arising from regulatory inspections may impact product commercialisation and access to regulatory markets. The Company continues to strengthen its quality systems, manufacturing processes and compliance framework to address evolving regulatory expectations.

Your Companys growth strategy also involves new product development and commercialisation, which is subject to development timelines, successful validation, regulatory requirements and market acceptance. Delays in commercialisation or ramp-up of new products may affect the anticipated growth and financial performance. Your Company continues to monitor development programmes and undertake appropriate measures to improve execution and commercialisation timelines.

The performance of your Company may also be influenced by customer concentration, credit and receivables risks. Delays in customer payments or deterioration in the creditworthiness of customers may affect cash flows and working capital. Your Company has strengthened its credit assessment and monitoring processes, including the evaluation of customer creditworthiness before accepting orders and taking appropriate recovery measures whereever necessary.

The performance of Mahi Drugs Private Limited remains dependent on the successful commercialisation and ramp-up of new products and achieving optimum capacity utilisation. Delays in product commercialisation and lower-than-optimal utilisation levels may continue to exert pressure on its financial performance. Your Company is working towards improving the subsidiarys performance through increased product sales, new product commercialisation and improved capacity utilisation.

Senior management and the Board members regularly identify, evaluate and monitor risks that may have a material impact on the Companys operations, profitability, financial position or regulatory compliance. Functional heads are entrusted with the responsibility of identifying and managing risks within their respective areas and implementing appropriate mitigation measures.

The Company has adopted a structured Risk Management Policy to provide a framework for identifying, assessing, monitoring and mitigating key business risks. Through continuous monitoring and review, the Company endeavours to maintain an appropriate risk management framework and strengthen its ability to respond effectively to changes in the business and regulatory environment.

f) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY.

Your Company has in place an adequate internal control system commensurate with the size, scale and nature of its operations. The internal control framework is designed to ensure the orderly and efficient conduct of business, safeguard the Companys assets and ensure the accuracy and reliability of financial reporting. The systems and processes are periodically reviewed, upgraded and strengthened to incorporate necessary improvements, thereby enabling the Company to remain resilient and adaptable in a dynamic regulatory and business environment.

The internal control framework enables the Company to:

- Safeguard its assets against unauthorized use, loss or disposition;

- Ensure the efficient conduct of operations in accordance with established policies and procedures;

- Maintain the accuracy, completeness and reliability of financial and accounting records;

- Ensure compliance with applicable laws, regulations and accounting standards; and

- Detect and prevent fraud and irregularities in accounting and financial reporting processes.

To review and monitor the adequacy and effectiveness of the internal control systems, the Company has appointed M/s Adusumilli and Associates, Chartered Accountants, as its Internal Auditors. The Internal Auditors provide an independent and objective assessment of the design, implementation and operating effectiveness of the internal control framework and make recommendations for improvement, wherever necessary.

The Board of Directors and the Audit Committee exercise active oversight over the Companys internal control and internal financial control systems. Periodic reviews are undertaken to assess the adequacy and effectiveness of the controls, adherence to applicable accounting standards and compliance with statutory and regulatory requirements.

Through this continuous process of monitoring, review and evaluation, the Company endeavours to ensure that its internal financial control systems remain robust, reliable, efficient and responsive to its evolving business and organizational requirements, thereby supporting sustainable growth and strong corporate governance practices.

g) FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Particulars	FY 2025-26	FY 2024-25	Change%
Revenue from operations	300.99	333.37	(9.71%)
Other Income	1.42	3.95	(64.05%)
Total Income	302.41	337.32	(10.35%)
EBITDA	41.89	48.18	(13.06%)
Depreciation	10.66	10.26	3.90%
PBIT	31.23	37.92	(17.64%)
Profit Before Tax	25.19	30.04	(16.15%)
Tax Expense	7.41	8.67	(14.53%)
Profit after Tax	17.78	21.37	(16.80%)

Break-up of Sales:

Particulars	FY 2025-26	FY 2024-25	Change%
Sale of Goods
- APIs	196.58	204.99	(4.10%)
- Intermediates	78.31	98.89	(20.81%)
- Others	11.01	12.93	(14.85%)
Sale of Services	15.09	16.56	(8.88%)
Total Sales	300.99	333.37	(9.71%)

The reasons for the decline in the Companys financial performance are discussed in the Directors Report.

h) HUMAN RESOURCES

The total employee strength of the Company stood at 611 as on March 31, 2026.

The Company recognizes its employees as its most valuable asset and has adopted various Human Resources policies aimed at developing, empowering and supporting its workforce. The focus remains on providing equal and fair opportunities for career development while fostering an inclusive workplace free from discrimination on the basis of religion, gender, race, colour, caste or any other grounds. The Company is committed to building a motivated workforce that feels valued, respected and inspired to contribute meaningfully towards the achievement of organizational objectives.

To promote a culture of accountability, transparency and ethical conduct, the Company has instituted a robust Whistleblower Policy that enables employees to raise and report genuine concerns without fear of reprisal. Further, in line with its commitment to providing a safe, secure and respectful workplace, the Company has implemented a Prevention of Sexual Harassment (POSH) Policy in accordance with applicable statutory requirements. The Policy provides employees with an appropriate mechanism and support system for addressing grievances in an effective and confidential manner.

Beyond statutory compliance, the Company endeavours to be an enabling employer by providing its employees with the necessary tools, guidance and opportunities for learning and professional growth. By fostering a supportive and inclusive work environment, the Company seeks to enable its employees to progress in their individual careers while contributing meaningfully to the Companys sustained growth and long-term success.

i) DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS.

Particular	FY 2025-26	FY 2024-25	Variance (%)
Debtors Turnover Ratio	5.07	5.86	(13.48%)
Inventory Turnover Ratio	4.62	4.93	(6.29%)
Interest Coverage Ratio	5.17	4.81	7.48%
Current Ratio	1.37	1.43	(4.20%)
Debt Equity Ratio	0.44	0.40	10.00%
Operating Profit Margin	13.92%	14.45%	(3.67%)
Net Profit Margin	5.91%	6.41%	(7.80%)
Return on Net worth	8.63%	11.45%	(24.63%)

There have been no significant changes in the financial ratios; hence, an explanation for the same is not required. The return on Net worth for the year 2025-26 has decreased by 24.63% as compared to preceding year due to decrease in profitability and marginal decline in operations.