Hikal Ltd Management Discussions

= Government Focus Strengthening Veterinary Infrastructure and Innovation

Favourable government initiatives, such as increased funding, vaccination programs, and the launch of digital approval platforms like ‘Nandi, are reinforcing the regulatory ecosystem and encouraging innovation. These efforts are critical to improving livestock health, boosting veterinary drug development, and supporting the sectors long-term growth.

Hikal - Business Review of the Animal Health Division

Our Animal Health business continues to grow steadily, not merely as a manufacturer but as an integrated development partner to global innovators, supporting early-stage process development, validation, and lifecycle management of differentiated APIs. With strategic sourcing and backward integration for key intermediates, we help global animal health companies de-risk their supply chains while maintaining cost and quality controls. For animal health innovators navigating increased scrutiny on API traceability, we offer transparent supply chains, cGMP-compliant quality systems, and robust documentation, helping ensure market access and regulatory continuity.

With rising demand for pet care and livestock productivity, we are augmenting capacity and diversifying product platforms to support global growth in veterinary medicine.

We continue to enhance our digital manufacturing practices to improve yield, impurity control, and operational throughput, critical levers in API manufacturing. Our animal health operations also emphasise green chemistry, solvent recovery, and effluent management, aligned with the principle of protecting animal and environmental health together.

Under a long-term agreement with a leading innovator customer, we have successfully completed validation for eight products and are on track to complete a few more. These efforts support product registration and will enable commercial launches in global markets in the coming quarters. Our proven execution of technology transfer and rapid scale-up across multiple products has helped partners derisk commercialisation and meet regulatory timelines globally.

This partnership has acted as a force multiplier—early wins brought new inquiries and opportunities from other innovator customers. As a result, we are now engaging with multiple global clients and building a healthy pipeline of high-value projects.

We are also expanding our capabilities into process development and synthesis of complex molecules. Early results have been encouraging and reinforce our reputation as a reliable partner in differentiated chemistries. With rising demand for veterinary therapeutics, tighter regulations, and a global shift toward innovation-led outsourcing, the Animal Health segment presents strong longterm growth potential.

Global Crop Protection Industry

According to IMARC, the global crop protection chemicals market was valued at USD 96.05 billion in 2024 and is expected to reach USD 141.69 billion by 2033, growing at a CAGR of 3.96% (2025-2033). North America leads with over 39.9% market share in 2024. Key growth drivers include the rising global population, projected to reach 9.7 billion by 2050, and the need for higher crop yields from limited arable land. Soil degradation, climate-

induced pest pressure, and changing dietary preferences are pushing demand for effective pest and disease control.

Technological advances like precision farming, improved formulations, and integrated pest management are supporting market expansion. Government support, increasing farmer awareness, and the shift toward sustainable, bio-based solutions are shaping the future of the industry.

In the U.S., adoption of advanced farming technologies, GM crops, and a focus on maximising yield are major factors. Climate variability and increased pest outbreaks have raised the demand for reliable chemical solutions, backed by research investments and evolving regulatory support.

Growth by Product Type

Herbicides make up about 42% of the global crop protection market in 2024. Their strong position is due to the need for effective weed control, as weeds can reduce crop yields by nearly 28%. The growth of farmland and modern farming practices has further driven herbicide use. Farmers also rely on herbicides to fight resistant weeds, which are becoming a bigger issue worldwide. Herbicides work well across different types of crops and weeds, making them a top choice.

The herbicide segment is expected to grow at a CAGR of about 5% from 2024 to 2029. This is supported by increasing weed-related crop losses and the need to improve yields. The rise of conservation agriculture, better herbicide formulations

for resistant weeds, and new application technologies are boosting demand. Greater farmer awareness and rising food needs globally are also fuelling this growth.

Insecticides protect crops from insect pests, especially in areas affected by climate change.

Fungicides help manage fungal diseases, mainly in humid climates. Molluscicides I control snails and slugs, and nematicides target soil pests that harm roots. Together, these tools support integrated pest management for better crop health and productivity.

Growth by Region

North America dominates the global crop protection chemicals market with over 41% share in 2024. Growth is led by large- scale farming and a shift to biopesticides as stricter EPA regulations take hold. The U.S. market alone is expected to grow at ~6% CAGR, reaching USD 40.1 billion by 2034.

In Europe, the move toward organic farming is accelerating, driven by the EUs Green Deal goal of cutting chemical pesticide use by 50% by 2030.

Asia Pacific is the fastest-growing region, with a projected CAGR of 3.07%. Growth is fuelled by large-scale farming in India and China, rising food security efforts, and continued reliance on synthetic pesticides.

Latin America, led by Brazil, is adopting precision agriculture tools like drones and satellite tech to optimise pesticide use and reduce environmental impact.

The Middle East and Africa are expanding steadily, with countries like South Africa using specialised chemicals to protect crops from extreme weather and ensure stable food production.

Indian Crop Protection Industry

Indias crop protection chemicals market is expected to grow from USD 2.59 billion in 2025 to USD 3.21 billion by 2030, at a CAGR of 4.35%.

As farming practices evolve, Indias agriculture is increasingly adopting modern and sustainable techniques. About 20.8% of cultivated land is used for oilseeds, showing strong potential for crop protection solutions. Farmers are now using precision farming and integrated pest management, especially for commercial crops.

Key market trends include the rising adoption of precision farming and integrated pest management, growing demand for bio-based and sustainable solutions, increased use of insecticides driven by persistent pest pressures, and a shift towards targeted, technology- enabled strategies to improve farm productivity.

The market is facing growing pest-related losses. In 2022, pesticides accounted for 72.5% of the market, as farmers tackled pests like aphids, stem borers, and armyworms. Rice alone faces annual losses of USD 296.1 Million due to root- knot nematodes. Across all crops, 21.3% of yield losses are caused by plant parasitic nematodes, leading to economic losses of USD 1.58 billion.

Despite these challenges, targeted solutions are showing success. In Kodagu, Karnataka, strategic molluscicide use across 300 acres helped reduce mollusk infestations by 90%, improving outcomes for 40-45 plantations. Rising farmer awareness and the development of pest-specific products are helping improve productivity nationwide.

Hikal - Research and Technology Review

Elevating Capabilities

We continued to enhance our commercial and technical capabilities to meet evolving customer needs and ensure scalability from lab to pilot to plant. As a technology-driven partner in pharmaceuticals and crop protection, Hikal invests 4-5% of annual sales in Research & Technology (R&T), with a strong emphasis on safe, efficient, and eco-friendly processes.

During the year, we commissioned a Reaction Calorimeter facility (May 2024) at our R&T Centre, equipped with Mettler Toledo RClmx.

This advanced tool enables safe scale-up by accurately determining thermal profiles, including MTSR, heat of reaction, and accumulation. By bringing this capability in-house, we are reducing outsourcing costs and development timelines, while strengthening our ability to assess thermal hazards early in the process development stage.

We also expanded lab infrastructure and invested in advanced analytical tools to support high-complexity chemistry, aligning with our long-term focus on innovation and quality.

Process Improvement

During process development, we focus on reducing cycle times and solvent usage by recycling recovered solvents, with the goal of minimising waste and its longterm environmental impact.

Filings

Our R&T team filed two US Drug Master Files (DMFs) and completed one Certificate of Suitability (CEP) to the European Pharmacopoeia, along with six CEP amendments and six US DMF amendments for the pharmaceutical segment.

Advancing Innovation in Animal Health APIs

As part of our portfolio expansion, we are making significant progress in developing Animal Health APIs. Several APIs developed by our R&T team have been successfully validated at our new Animal Health Manufacturing facility in Panoli, with validation for additional APIs currently underway. We have filed patent applications for three of these APIs, covering the innovative processes developed by R&T, and submitted related journal articles for publication.

Additionally, we have initiated the development of two Complex Chemistry Molecules in the Animal Health segment. For the one molecule, process development is ongoing at R&T, with validation planned at our manufacturing facility. The second molecule is being validated at the Kilo Lab, with initial customer supply in progress, followed by further process optimisation and commercial scale validation.

Embedding Green Chemistry in Animal Health API Development

We apply Green Chemistry principles in the development of our Animal Health APIs, reinforcing our commitment to sustainability. Several APIs were successfully developed alongside ongoing projects, with plant-scale validation completed at Unit 2. The completion of multiple API developments demonstrates our technical strength and consistent focus on environmentally responsible solutions that deliver both efficacy and positive environmental impact.

CDMO

During 2024-25, the CDMO team has secured a repeat order for a hazardous Click Chemistry project and are preparing for larger-scale batches at Unit 2.

We also completed batches in a cryo reactor for a customer project, safely handling highly pyrophoric butyllithium solution.

Innovation, Safety and Sustainability in Process Development Scaling Click Chemistry with Safety

We reached a major milestone by successfully developing and scaling Click Chemistry for large- scale application, becoming the first in India to do so with stringent safety protocols in place. This reflects our strong focus on both innovation and safe operations.

Process Development for a Flavouring Agent

Our team developed a robust synthesis route for a flavouring agent, laying the groundwork for future scale-up. This achievement reinforces our focus on delivering high-quality, customer-aligned solutions.

Greener Processes for Advanced Intermediates

We created an environmentally sustainable process for an advanced intermediate by eliminating hazardous reagents and enhancing both Process Mass Intensity (PMI) and throughput, demonstrating our commitment to greener and more efficient manufacturing.

Establishing a Process Safety Lab

A new Process Safety Lab was set up at our R&T centre, equipped with advanced tools such as Reaction Calorimetry, Gas Evolution Kit, HF-Cal, and DSC. A dedicated team of scientists oversees the lab to drive safe innovation and process reliability.

Zero Liquid Discharge (ZLD)

We undertook a project to achieve zero liquid discharge (ZLD) at our facility. We have successfully installed and commissioned a 30 KLD Ultrafiltration (UF) and Reverse Osmosis (RO) plant, along with a 10 KLD Mechanical Vapour Recompression (MVR) system followed by an Agitated Thin Film Dryer (ATFD).

Crop Protection

Our dedication to innovation and process optimisation has led to remarkable achievements this year.

As part of our R&T strategy, we will continue to prioritise customer-recommended and in-house product developments, with a focus on effective commercialisation. Our aim is to convert contract development projects into long-term manufacturing opportunities across the pharmaceutical and crop protection divisions.

To enhance product competitiveness, we areimplementing process improvements, productivity measures, and cost-reduction strategies. We continue to invest in advanced technologies and forge strategic partnerships to support these efforts.

Our commitment to newer, greener technologies will help reduce our carbon footprint, optimise resource use, and improve overall process efficiency.

Financial Review

Consolidated Abridged Profit and Loss Statement

Cash Flow Position

As of 31 March 2025, cash flow position is strained on account of market dynamics predominantly driven by increased account receivables by four days. The Company generated INR 2,804 Million from operating activities, a increase from the previousyears figure of INR 1,866 Million. The Companys investing activities resulted in a cash outflow of INR 1,365 Million, which was utilised to expand capacity as part of Hikals ongoing capex programme aimed at realising future business opportunities.

Meanwhile, financing activities led to a outflow of INR 1,436 Million, indicating an degrade Cash Flow from the previous years figures. As of 2024-25, the Companys closing balance of cash and cash equivalents stood at INR 129 Million.

Commentary o

Improved cash flow on account of significantly high operating profit coupled with controlled capital expenses towards assets.

Debt Position

In 2024-25, the net-debt equity ratio has decreased to 0.59 compared to 0.67 in the previous year. The interest cost incurred during the current fiscal year was INR 752 Million, indicating an increase from the previous years interest cost of INR 564 Million.

Commentary

Long-term debt repayment and capital expenditure was funded largely through the internal accruals resulted in improved debt equity ratio. v

Return on Equity (RoE) and Return on Capital Employed (RoCE)

2024-2025 saw an increase in the Return on Equity (RoE) to reach 7.41% compared to the previous years figure of 5.99%. The Return on Capital Employed (RoCE) has also increased by 204 bps from 7.69% in 2023-24 to 9.73% in 2024-25.

Commentary ?

Improved profitability on account of cost improvement initiatives and operating leverage has culminated in improved returns.

Capex

For 2024-25, we have allocated a total of INR 1,373 Million towards a Capex programme aimed at increasing capitalisation. The funds will be used to create multi-product plants that will benefit both the Pharmaceutical and Crop Protection divisions, as well as upgrade the infrastructure of existing production facilities.

Commentary

We anticipate that these new plants will reach full capacity utilisation within next 2-3 years. We are committed to the Capex investment for capitalising on long term growth opportunities such as emerging Animal Health business.

Key Financial Ratios

Strategic Review

Project Pinnacle

Project Pinnacle is our business transformation initiative designed to advance the next phase of our growth strategy and strengthen our operational pipeline. Now in its third phase, the project is continuing its results, driving sustainable growth through supply chain momentum, de-risking measures, differentiated capabilities, global customer acquisition, and the development of a robust technology platform.

I Leadership in ESG

In line with our purpose of improving lives and serving the community, we are committed to embedding sustainability across all aspects of our operations.

As part of our ESG framework, we continuously identify areas for improvement and engage with global rating agencies to benchmark our progress.

Our efforts have earned us notable recognition, including a Bronze Medal from EcoVadis at an organisation level and inclusion in the CDP B List. Looking ahead, it will continue to be a strategic priority, supported by a defined roadmap to drive lasting environmental and social impact.

In 2024-25, we submitted the UNGC Communication on Progress (CoP) report and carried out BRSR limited assurance. We also initiated GHG Scope 1, 2, and 3 emission accounting for the current year as part of our commitment to submit nearterm SBTi targets by the end

of 2025-26. Implementation of the SBTi roadmap is already underway.

We made significant strides in energy sustainability, with 77% of our electricity consumption met through renewable sources. A comprehensive safety diagnostic study was conducted by a renowned consultant to enhance our inherent safety strategy at manufacturing facilities.

We are also embedding ESG considerations into our technology selection process for upcoming projects, such f as, we adopted automatic

vertical plate filters, electrically operated diaphragms, and water- based PU paints, technologies chosen for their lower environmental footprint.

Initiatives Undertaken

Key Account Management (KAM) Systems

We enhanced our KAM approach across multipleaccounts to build deeper strategic relationships.

As part of our KAMs, we have:

• Defined priority accounts basis current size and full potential

• Defined key roles and responsibilities to manage priority accounts and ensure delivery excellence

• Developed a mechanism to consistently ensure customer delight

Customer Roadshow

• Roadshow through strategic locations across the globe, including Japan, South Korea, Europe, the US, and Latin America

• It is an opportunity to engage with senior leadership from our existing esteemed clientele while forging new connections with potential customers

• It will help in paving the way for future partnerships that will be instrumental in realising our vision

Regulatory Compliance

We are committed to green chemistry and engineering and continue to invest in processes and systems that enable safe, responsible operations in line with global regulatory standards.

Competitive Advantage

Our production plants are compliant with international agencies like the US FDA, PMDA, EU, and other global agencies.

We Use it

• To create shared value and maintain business sustainability

• To align our interests with collective well-being

Risk Management

At Hikal, we believe that managing risks is a vital part of our overall strategy. It enables us to operate efficiently and meet our goals. We recognise that effective risk management is essential to achieving our objectives. That is why we proactively identify and mitigate potential risks.

This approach allows us to embed risk management into our Company culture. We consider it not just a requirement but vital for successfully navigating our business challenges.

Since implementing a structured risk management approach in October 2021,

we have observed significant improvements in areas such as Supply Chain Management, Business Continuity Planning, Compliance, Financial Oversight, and Information Technology. This approach equips us to tackle challenges and accomplish our strategic goals.

Risk Management Objectives

To ensure that all our current and future material risk exposures are identified, assessed, quantified, appropriately mitigated, and managed, i.e., to ensure adequate and robust systems for risk management.

To ensure compliance with appropriate regulations, including those related to ESG, through the adoption of best practices.

To ensure business continuity and sustainable growth with financial stability.

Risk Management Process

An effective risk management process requires continuous and consistent assessment, mitigation, monitoring, and reporting of risk issues across the full breadth of the Company. All senior executives, under the guidance of the Managing Director, are responsible for monitoring managements processes and results in identifying, assessing, and managing risks. The risk management process adopted by us has been tailored to our business processes, with reference to ISO 31000 and the COSO ERM frameworks.

Hikal Limiteds focus is on mitigating risks towards meeting the following broad objectives:

Broadly categorising, the risk management process consists of the following stages/steps:

Risk Assessment (Identification, Analysis and Evaluation)

This involves identifying risks and likely causes that could affect the Companys objectives. Risk evaluation involves comparing the level of risk identified during the analysis process with the predefined risk weight to assess the potential severity of impact and the probability of occurrence.

Risk Profile

We regularly monitor the identified risks using Key Risk Indicators (KRIs) and Key Performance Indicators (KPIs). In our Group meetings with Risk Champions, we analyse and discuss each risk to encourage ongoing conversations about managing them. We reassess the risks based on feedback from the Management Committee. This continuous evaluation has resulted in Hikals risk register listing 19 different risks, with six rated as catastrophic, six as significant, two as moderate, three as low, and two as negligible.

Risk and Response

Human Resources

Our people are integral to our long-term growth and operational excellence. In 2024-25, we continued to strengthen our human capital through focused efforts in inclusion, employee well-being, learning and development, and workplace safety.

We maintained a strong emphasis on diversity and equal opportunity, with structured initiatives such as the Womens Forum, MD Connect sessions, and leadership engagement platforms. Our wellness programme Ojas and employee engagement platform Uday supported physical and mental well-being across locations. High-performing individuals and teams were recognised through the Parigyaan awards framework.

Skill development remained a key priority, with over 44,521 training hours delivered through technical, behavioural, and digital learning formats, including LinkedIn Learning. Programmes focused on safety, compliance, leadership, and functional capabilities were implemented

across levels. Safety performance was further strengthened through structured interventions, including the 21-Day Safety Challenge, site-specific mock drills, and expanded digital reporting systems.

We upheld our commitment to human rights through robust governance mechanisms, awareness sessions, and policy enforcement. Grievance redressal, anti-discrimination measures, and adherence to global labour standards remain core to our people practices.

Internal Controls and their Adequacy

The Company is dedicated to maintaining an independent and objective internal audit function that operates across all sites and business units. The mission of Hikals Internal Audit Department is not just a function but a crucial pillar of the Companys success.

It plays a vital role in assisting management and the Board in achieving their objectives by employing a systematic and disciplined approach to evaluate and enhance the effectiveness of Hikals governance, risk management, and internal control processes.

Objectives of Hikals Internal Audit Department

• Assist the organisation in fulfilling its governance responsibilities

• Ensure the adequacy of controls within Hikals systems and activities and bring any deficiencies to the attention of operational management and, ultimately, the Audit Committee or relevant authorities.

• Advise management on cost-effective controls for new or modified systems and activities.

• Identify opportunities to reduce costs through improved efficiency within systems and activities.

• Examine whether employees actions comply with policies, standards, procedures, and applicable laws and regulations.

• Support management in developing risk management strategies for business risks.

• Assist management in standardising departmental processes.

• Stay updated with industry best practices and emerging trends.

The Internal Audit Department assesses the adequacy and effectiveness of internal control systems using a systematic and disciplined approach. It collaborates with management to challenge and enhance existing and proposed practices while suggesting ideas for process improvements.

The Management Committee ensures the establishment of internal controls that effectively comply with relevant laws and regulations. Procedures are in

place for the timely detection of errors and fraud. Management is accountable for taking prompt and appropriate actions to address any control issues or risks that exceed acceptable limits.

The Internal Audit Department has completed all audits as per the audit plan for the fiscal year 2024-25. Audit reports were discussed with the management committee and audit committee on a quarterly basis, and appropriate actions were taken to address all audit findings.

Additionally, the Company has implemented an internal control system that includes entity-level controls, Information Technology General Controls, and financial and operating controls. Operational effectiveness testing of these controls over financial reporting was performed for the fiscal year 2024-25, as mandated by SEBI Regulations and the Companies Act, 2013, with satisfactory performance noted for all these controls.