Hester Biosciences Ltd Management Discussions

ECONOMY OVERVIEW

GLOBAL ECONOMY

The global economy is expected to witness moderate growth during 2026, reflecting resilience in economic activity amid a challenging and evolving macroeconomic environment. Global GDP growth is projected at around 3.1% in 2026, with a modest improvement to 3.2% in 2027.¹ Growth remains below historical averages, reflecting the combined impact of tighter financial conditions, elevated geopolitical tensions and persistent structural challenges. Inflationary pressures have shown signs of moderation in several economies; however, recent increases in commodity prices and heightened geopolitical uncertainties may lead to temporary upward pressures on inflation in the near term. As a result, the pace of monetary policy easing is expected to remain gradual and uneven across countries.

Global economic conditions continue to be shaped by the lingering effects of earlier disruptions, including the pandemic, ongoing geopolitical conflicts, supply chain adjustments and elevated public debt levels. Increasing geopolitical fragmentation and trade- related restrictions are also contributing to uncertainty in global trade and investment flows, thereby affecting medium-term growth prospects.

Emerging Market and Developing Economies (EMDEs) remain a key driver of global growth and are expected to expand at a relatively faster pace than advanced economies. Nevertheless, the pace of income convergence with advanced economies has slowed in recent years. Structural constraints such as high debt burdens, limited fiscal headroom, productivity gaps and demographic pressures continue to weigh on growth potential in several countries.² Without sustained policy reforms and increased investment in productivity-enhancing sectors, many low-income economies may face challenges in achieving meaningful income convergence.

The global outlook remains subject to significant downside risks, including the escalation of geopolitical tensions, volatility in financial markets, climate-related disruptions and persistent inflationary pressures in certain regions, which may also delay the pace of monetary easing and affect investment activity. At the same time, improvements in supply conditions, easing of inflation and stable demand across major economies could provide support to global growth.

Regionally, growth prospects remain divergent across emerging markets. East Asia and parts of Europe are expected to witness relatively slower growth amid weaker external demand and ongoing structural adjustments. In contrast, South Asia and Sub-Saharan Africa are projected to record relatively stronger growth, supported by domestic demand and favourable demographic trends. Latin America is expected to see a gradual recovery, although growth may remain constrained by fiscal pressures and external vulnerabilities.

For many economies, sustaining long-term growth will require continued policy focus on macroeconomic stability, structural reforms, investment in infrastructure and human capital, and strengthened international cooperation to address shared global challenges.

INDIAN ECONOMY

Indias economy remained resilient in FY 2025-26, supported by strong domestic demand, steady services sector growth and continued government capital expenditure. As per the Government of Indias revised estimates, real GDP growth for FY 2025-26 is estimated at around 7.6%, reflecting broad-based expansion led by private consumption, infrastructure spending and improving manufacturing activity.³

Geopolitical tensions in the Middle East continue to pose an external risk to the outlook. Any escalation or prolonged disruption could impact global energy prices and supply chains. Given Indias reliance on crude oil imports, volatility in oil prices may have implications for inflation and the external balance.

The situation remains uncertain and could weigh on growth if disruptions persist.

Inflationary pressures moderated during the year, providing a stable macroeconomic environment. The Reserve Bank of India maintained a neutral monetary policy stance and kept the policy repo rate unchanged in its February 2026 Monetary Policy Committee meeting, noting that both headline and core inflation remained relatively subdued. The RBI expects inflation to gradually move towards the medium-term target of 4% over the coming quarters.⁴

The Government continued its focus on public investment and fiscal consolidation, with sustained capital expenditure on infrastructure, logistics and digital public infrastructure. The Economic Survey highlighted that public capex has supported economic activity and helped crowd-in private investment while strengthening medium-term growth prospects.⁵

Indias macroeconomic fundamentals remain relatively strong despite global uncertainties. The International Monetary Fund has noted Indias position as one of the fastest-growing major economies, supported by sound macroeconomic policies and domestic demand. However, global geopolitical developments, trade disruptions and commodity price volatility remain key external risks.

Overall, the outlook for the Indian economy remains positive, supported by continued infrastructure investment, improving private sector participation and expanding digital adoption. While global uncertainties persist, domestic growth drivers are expected to support economic activity and business expansion over the medium term.

INDUSTRY OVERVIEW

GLOBAL VETERINARY HEALTHCARE INDUSTRY

The global veterinary healthcare industry continues to register steady growth, supported by increasing pet ownership, rising expenditure on animal health and growing demand for livestock productivity. The global veterinary animal healthcare market is estimated at USD 62.28 billion in 2025 and is expected to reach USD 66.48 billion in 2026, with projections indicating expansion to around USD 92.34 billion by 2031, reflecting a CAGR of about 6.8% during 2026-2031.⁶ The growth trajectory is supported by increasing adoption of preventive healthcare, expanding veterinary services and continuous innovation in animal health products.

Demand growth is largely driven by the companion animal segment, supported by rising pet humanisation, increasing disposable incomes and greater focus on preventive and chronic care treatments. Higher spending on veterinary pharmaceuticals, vaccines, diagnostics and wellness products continues to support market expansion. At the same time, increasing pet insurance coverage and improved access to veterinary care in developed markets are further strengthening industry growth.

The livestock healthcare segment also remains a key contributor to industry demand. Rising global consumption of animal protein, coupled with the need to improve farm productivity and disease control, is driving adoption of vaccines, parasiticides and therapeutics across poultry, swine and cattle segments. Governments and regulatory bodies across several regions are strengthening disease surveillance and biosecurity measures to safeguard livestock health and food safety.

The industry is also benefiting from technological advancements in veterinary diagnostics and treatment. The adoption of point-of-care diagnostics, molecular testing and digital veterinary platforms is enabling faster disease detection and improved treatment outcomes. However, the industry continues to face certain challenges including regulatory complexities, increasing scrutiny on antibiotic usage in livestock and supply chain constraints in certain markets.

Looking ahead, the global veterinary healthcare industry is expected to maintain a positive outlook, supported by structural drivers such as expanding companion animal populations, increasing livestock

healthcare spending and continued innovation in vaccines, therapeutics and diagnostic technologies. These trends are expected to sustain industry growth and create long-term opportunities across the animal health value chain.

INDIAN VETERINARY HEALTHCARE INDUSTRY

The Indian veterinary healthcare industry continues to expand, supported by the countrys large livestock population and rising awareness of animal health.

The market is estimated at USD 1.62 billion in 2025 and projected to reach USD 1.76 billion in 2026 and is expected to grow at a CAGR of about 8.6% during 2026-2031. Demand is driven by increasing use of vaccines, pharmaceuticals and preventive healthcare products across livestock and companion animals.⁷

Livestock healthcare remains the largest segment of the market. India has one of the worlds largest populations of cattle, poultry, sheep and goats. Growing consumption of poultry and dairy products is supporting demand for vaccines, anti-infectives and parasiticides. Government vaccination programmes and disease-control initiatives continue to strengthen adoption of animal healthcare products.

The companion animal segment is also expanding steadily. Urbanisation and rising pet ownership are increasing demand for veterinary services and wellness products. Spending on diagnostics, preventive care and nutrition products is gradually rising. Growth of organised veterinary clinics and pet care services in urban areas is further supporting the segment.⁸

The industry continues to face certain structural constraints. Veterinary infrastructure remains uneven across regions, particularly in rural areas. Distribution of temperature-sensitive vaccines and biologics depends on reliable cold-chain networks. Regulatory oversight on antimicrobial use and product quality is also increasing.

The outlook for the Indian veterinary healthcare industry remains positive. Demand is expected to be supported by livestock health needs, expanding companion animal care and greater focus on preventive healthcare. Continued investment in vaccination programmes, veterinary infrastructure and product innovation is likely to support industry growth over the medium term.

INDIAN POULTRY HEALTHCARE INDUSTRY

Indias poultry healthcare industry is expanding in line with the rapid growth of the poultry production sector. The Indian poultry market was valued at approximately INR 2,636 billion in 2025 and is projected to reach around INR 8,433 billion by 2034, reflecting a CAGR of about 13.8%.⁹ The increasing scale of commercial poultry farming is supporting higher demand for vaccines, therapeutics and disease prevention solutions across hatcheries and broiler operations.

Demand is driven by rising consumption of chicken and eggs, supported by urbanisation, population growth and increasing preference for affordable protein sources. Expansion of quick-service restaurants, organised retail and food delivery platforms has further strengthened poultry demand. With greater commercialisation of poultry farming, producers are increasingly adopting structured flock health management practices, including vaccination programmes against diseases such as Newcastle disease, infectious bronchitis, Mareks disease and infectious bursal disease.

Technological developments in poultry biologics are also supporting the sector. Advances such as multivalent vaccines, recombinant vaccines and in- ovo vaccination technologies are improving disease protection and enabling large-scale immunisation at hatcheries. Continued investments in vaccine development and expanding distribution networks are strengthening access to poultry healthcare products.

The sector remains exposed to certain risks. Disease outbreaks such as avian influenza can affect poultry populations and disrupt supply chains, highlighting the importance of strong biosecurity and vaccination practices. In response, the Government of India has strengthened disease-control measures for avian influenza through a three-pronged strategy comprising stricter biosecurity protocols at poultry farms, enhanced disease surveillance and mandatory registration of poultry farms to improve monitoring and early detection of outbreaks.¹⁰ In addition, volatility in feed costs and the presence of small and fragmented farms in certain regions continue to pose operational challenges.

The outlook for poultry healthcare remains favourable. Growth in poultry consumption, expansion of organised farming and increasing focus on preventive healthcare are expected to support sustained demand for poultry vaccines and health management solutions over the medium term.

INDIAN ANIMAL HEALTHCARE INDUSTRY

India has one of the largest livestock populations globally, with over 536 million livestock, including around 303 million cattle and buffaloes forming the backbone of the countrys dairy economy.¹¹ The country also has a substantial population of small ruminants, including approximately 149 million goats and 74 million sheep. Livestock farming is an integral part of the rural economy, supporting millions of small and marginal farmers by providing a steady source of income, employment and nutrition. Despite having only 2.4% of the worlds land area, India supports nearly 10.7% of the global livestock population, highlighting the importance of efficient livestock management and robust animal healthcare systems.

The livestock sector is a key contributor to the agricultural economy of India. It accounts for around 5.5% of Indias Gross Value Added (GVA) and nearly 30% of the GVA from agriculture and allied sectors, generating economic output of over INR 9 trillion.

India also remains the largest producer of milk globally, contributing around 24% of global milk production, supported largely by its cattle and buffalo population. Growing demand for dairy and livestock products is increasing the need for better herd health management and veterinary care.

Livestock diseases continue to pose a major economic challenge. Diseases such as Foot-and- Mouth Disease (FMD), Brucellosis, Peste des Petits Ruminants (PPR) and Lumpy Skin Disease (LSD) affect animal productivity and farmer incomes. Studies indicate that Lumpy Skin Disease outbreaks caused losses exceeding INR 20,000 crore during 2022-23, highlighting the economic vulnerability of the livestock sector to disease outbreaks.¹²

The livestock healthcare market in India is therefore witnessing steady expansion. The Indian animal health market was valued at approximately INR 9,260 crore in 2025 and is projected to reach about INR 17,190 crore by 2034, driven by rising demand for vaccines, pharmaceuticals and preventive healthcare solutions.¹³

Key Growth Drivers:

a) Rising livestock population and productivity needs

b) Rising demand for milk, meat and other animal- derived products

c) Growing awareness of animal health and welfare among farmers

d) Increasing adoption of preventive healthcare and vaccination programmes

e) Expansion of organised dairy and livestock farming

f) Government-led disease control and vaccination programmes

g) Advancements in veterinary vaccines and disease surveillance systems

Despite strong growth prospects, the livestock sector faces structural challenges including recurring disease outbreaks, limited veterinary infrastructure in rural and remote regions, low awareness of preventive healthcare among smallholder farmers, risks related to zoonotic diseases and antimicrobial resistance and low penetration of organised veterinary services and livestock insurance. To address these gaps, the Government is expanding veterinary outreach through mobile veterinary units and telemedicine, strengthening veterinary training and capacity and promoting livestock insurance to improve financial protection for farmers.

Key initiatives such as the National Animal Disease Control Programme (NADCP), Rashtriya Gokul Mission and the Livestock Health and Disease Control Programme (LHDCP) focus on large-scale vaccination, disease surveillance and improved livestock productivity. Complementary programmes like the Animal Health System Support for One Health (AHSSOH) project are upgrading veterinary laboratories and hospitals, while a DAHD-UNDP digital vaccine monitoring system is improving cold-chain tracking and immunisation coverage.

These initiatives are aligned with the broader One Health approach, integrating animal, human and environmental health to strengthen disease prevention and food safety systems across the country.

INDIAN PET CARE INDUSTRY

The pet care market in India has expanded steadily, driven by rising pet ownership and higher household spending on pet health and nutrition. Industry estimates place the market at about USD 3.6 billion (around INR 30,000 crore) in 2024, with roughly 100 million pets nationally, including approximately 30 million in urban homes.¹⁴ Growing acceptance of pets as family members has led to higher spending on nutrition, grooming and veterinary care, while

organised retail and e-commerce channels continue to improve product availability and access across major cities.

The Indian Pet Care industry has expanded across key segments such as pet food, veterinary healthcare, grooming products and accessories. Pet food remains the largest organised category, supported by increasing adoption of packaged and specialised diets. Industry studies suggest that the market could grow at around 15-20% CAGR over the next few years, reflecting higher pet ownership, rising disposable incomes and a gradual shift from home-prepared diets towards commercial nutrition.

Growth in the sector is supported by several structural factors. Urbanisation, changing lifestyles and the prevalence of nuclear households have contributed to higher pet adoption, particularly in metropolitan areas. At the same time, increasing awareness around pet health and wellness is encouraging spending on quality nutrition, grooming and preventive healthcare. The continued expansion of organised retail and digital commerce platforms has further improved product reach across urban and emerging markets.

Despite favourable growth trends, the industry faces certain structural constraints. Pet ownership penetration remains lower than in developed markets and awareness regarding scientific pet nutrition and preventive veterinary care continues to evolve. Access to organised veterinary infrastructure and specialised services also remains uneven across smaller towns and rural markets.

The long-term outlook for the Indian pet care sector remains favourable. Increasing pet adoption, improving consumer awareness and a gradual shift towards preventive healthcare are expected to support sustained industry growth. These trends are likely to drive demand for veterinary medicines and vaccines, creating opportunities for companies operating in the animal health segment focused on veterinary vaccines and animal health products.

ABOUT HESTER BIOSCIENCES

COMPANY OVERVIEW

Hester Biosciences, founded by Mr. Rajiv Gandhi in 1987 and headquartered in Kadi, Gujarat, is one of Indias leading animal healthcare companies.

The Company operates state-of-the-art vaccine manufacturing facilities in India, Nepal and Tanzania. It is publicly listed on both the National Stock Exchange (NSE) and BSE Limited, and holds certifications including WHO-GMP, ISO 9001:2015, ISO 14001:2015, ISO 45001:2018 and GLP, reflecting its commitment to international standards of quality, safety and operational excellence.

The Company specialises in the research, manufacturing and marketing of vaccines and health products for poultry, ruminants and pets. With a strong focus on disease prevention and animal productivity, Hester has established itself as an important contributor to livestock health, food security and rural livelihoods.

Hester has established a strong global footprint, exporting products to Asia, Africa, Europe and South America, with a strategic focus on India, Nepal and Africa. The Company maintains an active presence in over 35 countries and has engaged in key collaborations with renowned organisations such as the Gates Foundation, GALVmed and the Golchha Organisation to strengthen vaccine accessibility and livestock health initiatives.

The Company is the second-largest poultry vaccine manufacturer in India, with an estimated domestic market share of around 35%. Globally, Hester is the largest supplier of Peste des Petits Ruminants (PPR) vaccines, with approximately 75% share of the global market. In India, the Company holds a marketleading position in the goat pox vaccine segment, with a market share exceeding 70%. Hester is also recognised as Indias first commercial manufacturer of goat pox vaccine and manufactures PPR vaccines using both Nigerian and Sungri strains.

Hester operates through two primary business divisions, Poultry Healthcare and Animal Healthcare (including ruminants and pets). The Company offers a diversified portfolio of over 50 vaccines and more than 70 animal health products, along with value- added services including sero-monitoring kits, poultry diagnostic support and mastitis control programmes for cattle.

The Company has a well-established manufacturing presence across India, Nepal and Tanzania, enabling it to meet demand in both domestic and international markets in a timely and efficient manner. All facilities are strategically located to support smooth operations and consistent supply. In addition to manufacturing, Hester operates diagnostic laboratories in Kadi (Gujarat), Hyderabad and Kolkata, providing free diagnostic services and technical support to customers across regions, contributing to better disease control and overall animal health.

Driven by strong research and development capabilities, market insights and a commitment to innovation, Hester continues to expand its product portfolio and geographic reach. The Company remains well-positioned to capitalise on emerging opportunities in the global poultry, livestock and pet healthcare sectors while strengthening its role in advancing animal health and sustainable food production.

STRATEGIC FOCUS AND INITIATIVES

Strengthening Vaccine Portfolio and Government Programme Participation

Vaccines remain the core of the Companys business, particularly in poultry and livestock. Hester continues to support national livestock disease control programmes through the supply of vaccines such as PPR and Goat Pox. The launch of the Avian Influenza vaccine will further strengthen the poultry vaccine portfolio. Ongoing engagement with government institutions and veterinary networks supports the Companys participation in large-scale disease prevention programmes. Continued investments in product development and customer engagement will support the Companys objective of protecting and growing its core vaccine revenues.

Expansion of Export Markets

International markets remain an important growth avenue. The Company continues to pursue regulatory registrations and approvals across multiple geographies to expand the export footprint. Participation in government tenders and institutional procurement programmes is expected to support export volumes, particularly across Africa and Asia, while strengthening the Companys global presence.

Enhancing Operational Efficiencies

Improving operational efficiency remains a priority.

The Company is focused on better utilisation of manufacturing capacity, disciplined cost management and improvements in supply chain efficiency. These initiatives are expected to support better absorption of fixed costs and contribute to improved operating margins as volumes scale.

Optimising Global Operations

The Company will continue to focus on improving the performance of its international subsidiaries while strengthening operational efficiencies across overseas markets. Growth initiatives in Africa and Nepal remain a priority. Participation in international tenders and engagement with regional partners are expected to support export growth and expand market access.

Focused Research and Development

Research and development remains central to the Companys long-term strategy. Efforts are directed towards developing next-generation vaccines for poultry and livestock diseases. Existing manufacturing infrastructure will be leveraged to support upcoming product launches and scale production in line with market demand.

BUSINESS STRENGTHS

Dominant positions that Hester holds in the Animal Healthcare market:

1. Second-largest poultry vaccine manufacturer in India with a 35% market share

2. Worlds largest producer of PPR vaccines with 75% global market share

3. Over 70% of Indias Goat Pox vaccine market

4. Serves as a supplier to the PPR OIE vaccine bank

5. Leading LSD vaccine supplier across Africa

Diversified Product Portfolio

Hester offers a comprehensive portfolio of vaccines, healthcare products and diagnostic services catering to poultry, ruminants and pets. The Companys portfolio comprises over 50 vaccines and more than 70 healthcare products, addressing a wide range of diseases across livestock, poultry and pets. This diversified offering enables participation across multiple segments of the animal healthcare market.

Manufacturing Scale and Infrastructure

Hesters flagship manufacturing facility is located at Kadi, Gujarat, making it one of the largest animal biological manufacturing facilities in Asia. The Company also has manufacturing presence in Nepal and Tanzania, which supports regional supply and facilitates access to international markets.

Research and Development Capabilities

Hester operates a DSIR-recognised R&D centre at Kadi, Gujarat, focused on vaccine development, strain improvement and process innovation in veterinary biologicals. The Companys R&D efforts support expansion of its product portfolio and the development of solutions for emerging animal health challenges. In addition, its GMP-certified facilities in India, Nepal and Tanzania reflect over four decades of expertise in developing high-quality veterinary vaccines.

Integrated Distribution Network

Hester has built a well-established distribution network across domestic and international markets. The Company services veterinarians, institutional customers, government programmes and commercial farms through an organised distribution system that ensures product availability across diverse geographies.

Expanding Global Presence

Hester continues to strengthen its international presence through exports and regional partnerships.

Its manufacturing footprint across India, Nepal and Tanzania enables the Company to serve markets across Asia and Africa. Operations in Tanzania also support the supply of vaccines for key diseases such as PPR, Lumpy Skin Disease (LSD), CBPP and CCPP, positioning the Company to benefit from increasing vaccination initiatives in emerging markets.

Quality and Regulatory Compliance

Hester maintains stringent quality and biosafety standards across its operations. Its manufacturing facilities operate under GMP and GLP frameworks and are certified under ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018, reflecting adherence to internationally recognised quality and safety standards.

BUSINESS OUTLOOK

Hester continues to be well positioned for long-term growth, supported by its established capabilities in veterinary biologicals and an expanding portfolio of animal healthcare products. Over the years, the Company has evolved from a poultry-focused vaccine manufacturer into a diversified animal healthcare player offering vaccines and health solutions across multiple species. This broader portfolio, combined with growing awareness of disease prevention, biosecurity and livestock productivity, provides a supportive foundation for sustained business growth.

The Company is also strengthening its operational capabilities to support future expansion. The capitalisation of the Fill-Finish Facility and BSL-3 Facility marks a significant step in strengthening the Companys manufacturing and R&D capabilities. The Fill-Finish Facility will increase drug product manufacturing capacity to meet growing market demand while improving asset utilisation. The repurposing of its BSL-3 facility towards veterinary vaccine development is expected to enhance its ability to address emerging and complex animal diseases while optimising the utilisation of existing infrastructure. Strengthened quality systems and regulatory compliance are aimed at improving production flexibility to meet evolving domestic and international demand.

Hester continues to align its product strategy with changing industry requirements, including the gradual shift towards sustainable and preventive animal healthcare solutions. The expansion of natural and plant-based health products reflects the Companys commitment to supporting animal immunity and reducing dependence on antibiotics in livestock farming. In addition, participation in national animal health programmes and growing engagement in export markets further strengthen the Companys long-term growth platform.

Internationally, the Companys operations in Tanzania provide an important base for expansion across African markets. With regulatory approvals and manufacturing capabilities in place, the facility is expected to progressively strengthen the Companys presence in the region. Overall, the Company remains focused on leveraging its technical expertise, manufacturing infrastructure and expanding market relationships to support sustainable growth in the evolving animal healthcare landscape.

FINANCIAL ANALYSIS

FY2025-26 was a year of resilient operational performance and significant profitability improvement for Hester despite an uneven demand environment across certain business segments. The Company continued to strengthen its position in the poultry and animal healthcare industry through disciplined execution, improved product mix, enhanced manufacturing capabilities and sustained focus on operational efficiency. The years performance reflects the important progress of the Companys business model and its ability to adapt effectively to changing market conditions while continuing to invest in longterm growth initiatives.

During FY2025-26, standalone revenue from operations increased to INR 2,921.36 million from INR 2,864.66 million in FY2024-25. On a consolidated basis, revenue from operations grew to INR 3,325.99 million compared with INR 3,111.02 million in the previous year. Although overall revenue growth remained moderate due to timing-related delays in certain government-led immunisation programmes, the Company recorded significant improvement in profitability driven by better operating leverage, favourable business mix and continued cost optimisation measures.

The Companys performance during the year was primarily driven by the strong growth momentum in the Poultry Healthcare division, which continued to benefit from increasing disease awareness, growing focus on preventive healthcare and sustained demand for vaccination programmes across the poultry industry.

SEGMENT PERFORMANCE

Poultry Healthcare

The Poultry Healthcare division emerged as the key growth driver during FY2025-26 and delivered a robust performance across product categories. Revenue from the division increased by 24% year- on-year to INR 2,060.79 million from INR 1,664.39 million in FY2024-25. Consequently, the divisions contribution to total revenue increased significantly to 70% compared with 58% in the previous year.

Growth in the segment was supported by healthy demand for poultry vaccines, higher immunisation activities and improved market penetration across key poultry-producing markets. Increased awareness regarding disease prevention and biosecurity measures also supported stronger vaccine adoption during the year. In addition, the Company continued to gain traction in newly introduced feed supplements and disinfectants, thereby strengthening its integrated poultry healthcare portfolio and improving customer engagement opportunities.

The division also benefited from continued investments in field-level technical support, deeper customer relationships and expansion of the distribution network, which enhanced market reach and strengthened the Companys competitive positioning. The increasing contribution of specialised and value-added vaccine products further improved the overall quality of revenue generated from the segment.

During the year, the Company capitalised its enhanced fill-finish facility will increase product manufacturing capacity to meet growing market demand. The expanded infrastructure is expected to improve manufacturing flexibility, strengthen supply reliability and support future growth in both domestic and international markets. Further, in the last quarter of the year, the Company received marketing and manufacturing licences for its low-pathogen Avian Influenza H9N2 vaccine, which strengthens the poultry vaccine portfolio and provides additional opportunities for growth in the preventive healthcare segment.

Animal Healthcare

The Animal Healthcare segment, comprising Ruminants and Petcare businesses, reported revenue of INR 818.32 million during FY2025-26 as compared to INR 1,198.83 million in FY2024-25 and contributed 28% of total revenue.

Performance of the segment during the year was impacted primarily by delays in certain government-led vaccination and immunisation programmes, resulting in deferment of procurement and execution timelines. However, the underlying demand environment for livestock healthcare remained stable and the Company continued to maintain participation in key national immunisation initiatives.

Core vaccine and therapeutic products continued to witness stable demand, reflecting the strength of the Companys established product portfolio and customer relationships. The Petcare business maintained steady growth during the year, supported by a diverse range of nutritional and therapeutic products, increasing brand visibility and improved market outreach initiatives. The Company continues to view the companion animal healthcare market as an important long-term growth opportunity, supported by rising pet ownership and increasing awareness regarding preventive healthcare.

The Animal Healthcare segment remains strategically important to the Companys long-term growth plans and is expected to benefit from improving vaccination awareness, increasing investments in livestock productivity and continued focus on animal health management across India.

PROFITABILITY

The Company reported substantial improvement in profitability during FY2025-26, reflecting stronger operating leverage, favourable product mix and sustained focus on efficiency enhancement initiatives.

Gross Profit Margin improved significantly to 72% in FY2025-26 from 67% in the previous year. The margin expansion was supported by a favourable product mix and continued operational discipline across procurement, manufacturing and operational processes.

EBITDA increased by 56% to INR 871.03 million from INR 557.08 million in FY2024-25. EBITDA margin improved significantly during the year, reflecting improved product mix, better absorption of fixed costs, continued cost optimisation initiatives and benefits arising from scale efficiencies in the Poultry Healthcare business.

Net Profit increased by 64% to INR 521 million compared with INR 318.42 million in the previous year. The strong growth in profitability reflects improvement in operating performance, margin expansion and disciplined financial management during the year.

The Company continued to maintain a healthy balance sheet and comfortable liquidity position, which provides adequate financial flexibility to support future growth initiatives while maintaining financial prudence. DIVIDEND

In line with the Companys dividend distribution policy of distributing at least 18% of net profits, the Board of Directors has recommended a final dividend of INR 11 per equity share, representing 110% of the face value, subject to shareholders approval.

The proposed dividend reflects the Companys healthy cash flows, strong financial position and continued commitment to delivering sustainable long-term value to shareholders while retaining adequate financial flexibility for future growth opportunities.

Outlook

Looking ahead, the Company remains focused on strengthening its leadership position in animal and poultry healthcare through product innovation, capacity enhancement, operational excellence and deeper market penetration. The expanded manufacturing infrastructure, strengthening vaccine portfolio and continued focus on preventive healthcare solutions are expected to support sustainable longterm growth across domestic and international markets.

Increasing awareness regarding animal health, biosecurity and preventive vaccination continues to support long-term demand for animal healthcare products. With a diversified product portfolio, strong technical capabilities and continued focus on operational efficiency, the Company remains well positioned to capitalise on emerging opportunities in the animal healthcare sector and deliver sustainable value creation over the medium to long term.

KEY FINANCIAL RATIOS

In line with the improved profitability and disciplined financial management discussed above, the Companys key financial ratios reflect stable liquidity, prudent leverage and strengthening return metrics during the year under review. The improvement in margins and earnings translated into better returns and debt servicing capability, while the balance sheet remained conservatively structured with adequate liquidity buffers. A summary of the key financial ratios for the current year as compared to the previous year is presented below:

Sr. Ratio	Current Period (2025-26)	Previous Period (2024-25)	% Variance	Reason for variance
1 Current Ratio	2.06	1.92	8%
2 Debt-Equity Ratio	0.19	0.31	(37%)	Reduction in borrowings has resulted in improvement of debt-equity ratio
3 Debt Service Coverage Ratio	2.07	1.48	40%
4 Net Profit Margin (%)	17.83%	11.12%	60%	Due to increase in profits during the year
5 Return on Net Worth (%)	14.39%	9.77%	47%
6 Return on Investment (%)	13.60%	NA	100%	During the year there was gain on sale of investment in subsidiary which was not in previous year

KEY RISKS AND MITIGATION STRATEGIES

Hester operates in a dynamic and highly regulated global veterinary healthcare market, presenting a broad spectrum of strategic, operational, regulatory, financial and technological risks. To proactively manage these challenges, our Risk Management Committee, in collaboration with cross-functional teams, undertakes periodic reviews aligned with our approved risk appetite framework. This structured approach supports business continuity, strengthens operational resilience and enables the sustained creation of stakeholder value. The principal risks and the corresponding mitigation strategies are outlined below:

qKey Risks	Particulars	Mitigation Strategy
Economic Risks	Global inflation, fluctuating raw material prices due to geopolitical conflicts and shifts in consumer spending, particularly in emerging economies, can affect the affordability of animal protein and influence demand for veterinary products.	We monitor global and local macroeconomic indicators to fine-tune pricing, procurement and inventory strategies. Hester is expanding into recession-resilient geographies, emphasising operational efficiency and offering cost-effective, high-quality vaccines and health products. Long-term supply contracts and PPP models also provide stability to revenue streams.
Regulatory Risks	Increasing global scrutiny on environmental impact, antimicrobial resistance and animal welfare standards is intensifying compliance requirements across veterinary products.	The Company has established a robust regulatory affairs team and implemented well-structured compliance tracking systems. We proactively engage with industry forums and regulators to stay ahead of policy changes. Periodic internal audits, employee training and a strong compliance culture help mitigate regulatory risks and reinforce our reputation as a responsible industry leader.
Peer Risks	Industry consolidation, rapid innovation cycles and pricing pressures from multinational corporations pose challenges to market share and profitability.	We invest strategically in R&D, enter into licensing and codevelopment partnerships and continuously upgrade our product pipeline. Competitive benchmarking, agile go-to-market strategies and a focus on customer-centric solutions, including strong aftersales support, help us maintain differentiation and customer loyalty in an evolving market landscape.
Product Development Risks	Emerging disease trends, evolving regulatory landscapes and the high cost of vaccine development can impact time-to-market and product success.	Hester follows a structured and agile product development framework supported by innovation hubs and advanced laboratories. Investments in talent, digital R&D tools and infrastructure accelerate time-to-market. Regular portfolio reviews and feedback loops with veterinary professionals ensure that new products meet real-world needs efficiently and effectively.
Foreign Exchange Risks	Volatility in currency markets, driven by geopolitical shifts, global interest rate movements and trade policies, can impact profitability, especially for export operations.	We employ a prudent forex risk management strategy combining natural hedging, forward contracts and currency diversification. Our finance team works closely with operations to dynamically manage exposure. Export contracts in stable currencies and selective localisation of manufacturing further reduce the impact of forex fluctuations on margins.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Companys Corporate Social Responsibility (CSR) initiatives are guided by its enduring commitment to sustainable, inclusive and responsible growth.

For FY 2025-26, the Company continues to focus on key priority areas including education and infrastructure development, healthcare and sanitation, poverty alleviation, nutrition, women empowerment, environmental sustainability, rural development and livelihood enhancement. All CSR activities are undertaken in accordance with the provisions of the Companies Act, 2013 and the rules notified thereunder.

In addition to these, the Company is dedicated to promoting gender equality and empowering women through the establishment of homes, hostels, old age homes, orphanages and daycare centres. It actively supports the differently-abled, provides vocational training and employment opportunities and contributes to improving livelihoods. The Company also supports senior citizens by facilitating access to basic amenities and care.

Environmental sustainability is another core area of focus. The Company undertakes efforts to preserve ecological balance through activities related to conservation of flora and fauna, animal welfare, agroforestry and the protection of natural resources. Furthermore, rural and slum development projects are implemented to uplift communities and create longterm, positive social impact.

The CSR Policy is formulated and recommended by the CSR Committee in line with the Companies Act, 2013 and the rules notified by the Ministry of Corporate Affairs. The Committee is responsible for monitoring the implementation of CSR activities and recommending the annual CSR budget. Through consistent outreach, the Company aims to address challenges faced by developing communities, particularly in areas such as animal husbandry and poultry farming.

During FY 2025-26, the Company implemented the following CSR initiatives under its CSR framework:

1. Environmental Sustainability:

INR 2 million was allocated to the Nehru Foundation for Development - Centre for Environment Education Society under the Amdavadam Project for enhancing green cover in Ahmedabad through sustainable environmental practices.

2. Promotion of Education and Mobility Support for Students:

INR 1.61 million was spent on distributing more than 300 cycles to students in Palitana District, Gujarat, under the FIT India Sundays on Cycle programme. The initiative improved access to education for students in remote areas by reducing travel time and physical hardship, supported regular attendance and promoted girl child education. It also enabled basic repair and maintenance training at the village level. The programme strengthened community goodwill and received positive feedback from beneficiaries and stakeholders.

3. Education, Training and School Infrastructure Support:

INR 1.30 million was spent on the construction of essential school infrastructure in villages near the Companys plant, along with the provision of necessary equipment and accessories to support the education of underprivileged children.

4. Waste Management and Rural Cleanliness Drives:

INR 1.30 million was allocated and spent on waste management programmes and rural cleanliness drives, including the cleaning of lakes, temple area and other important public places in villages across Ahmedabad and Mehsana districts of Gujarat.

5. Promotion of Sports:

INR 1 million was allocated to the Foundation for Promotion of Sports and Games to support Paralympic and Olympic sports initiatives across India.

6. Educational and vocational training support:

INR 1 million was allocated to Shri Bhartiya Sanskruti Samvardhak Trust, Porbandar District, Gujarat, to support education and related initiatives.

All these initiatives were carried out with active participation from the Companys workforce, reflecting its commitment to social responsibility and community development. Through its CSR efforts, the Company continues to support education, health, sustainability and cultural development, creating lasting value for the communities it serves.

HUMAN RESOURCES

People capability remained a key enabler of FY 2025-26 priorities as the Company strengthened systems, execution discipline and readiness for scale. The Companys HR approach focuses on building a performance-oriented and values-led culture, with emphasis on capability development, safety and engagement.

Key pillars include:

1. Workforce planning and capability building: Strengthening functional depth across manufacturing, quality, R&D, regulatory, supply chain and commercial functions, supported by structured on-boarding and role readiness.

2. Learning and development: Ongoing technical and functional training, including programmes aligned to quality systems, documentation discipline, compliance and operational excellence.

3. Performance management: Clear goal setting, periodic reviews and development planning to strengthen accountability and delivery.

4. Employee engagement and culture: Regular communication forums, recognition practices and initiatives that reinforce collaboration, discipline and ownership.

5. Health, safety and wellbeing: Reinforcement of safety protocols, training and wellbeing initiatives to support a safe and healthy workplace.

6. Equal opportunity: Practices aimed at maintaining a workplace based on respect, fairness and merit.

INTERNAL CONTROLS

Hester has established a robust internal control framework designed to safeguard its assets and uphold operational excellence. This system ensures that every transaction is meticulously documented and compliant with all applicable regulations. The internal auditors periodically monitor the effectiveness of these controls, providing the Audit Committee and the Board of Directors with independent and reasonable assurance regarding the Companys risk management, governance and internal control processes.

The internal control framework is proportionate to the nature, size, scope and complexity of the Companys operations. It ensures that all financial transactions are properly authorised, accurately recorded and appropriately reported. Regular audits and inspections are conducted to confirm that responsibilities are fulfilled effectively. The Audit Committee oversees the implementation and maintenance of these financial controls, ensuring the Companys operations are conducted in an orderly and efficient manner.

The Audit Committee also periodically reviews key issues and material weaknesses identified by both internal and statutory auditors. Timely and appropriate corrective actions are undertaken to mitigate risks and enhance control measures.

CAUTIONARY STATEMENT

The statements included in the Management Discussion and Analysis section of this report relate to the Companys objectives, projections, estimates, expectations or predictions. These are considered “forward-looking statements” under applicable securities laws and regulations. Such statements are based on certain assumptions and expectations regarding future events. However, actual results may differ materially from those expressed or implied, due to various factors. These may include global and domestic economic developments, changes in government policies, tax and regulatory laws and unforeseen events beyond the Companys control.