Hikal Ltd Management Discussions.

STRATEGY

The Road Ahead

Hikal today is one of the leading global suppliers to the Life Sciences industry. We have six sites providing a multitude of services across the value chain and serve several different industries which include the Crop Protection, Pharmaceutical, Biotechnology, Animal Health, Food and the Specialty Chemical industry.

Our strategy was further refined in FY 2018-19 which focused on long term growth balanced with our responsibility to the environment and society. We retained a global consulting company and have identified new opportunities in the speciality chemical and biocides business. We want to grow sustainably and profitably. In 2019-20, we have committed significant capital expenditure to begin the execution of our growth strategy.

Hikal will be implementing a Business Excellence Program which will focus on operational and commercial excellence across all functions in the company. Through operational excellence we will become leaner and more efficient. Our Commercial Excellence Program will provide seamless integration across all functions ultimately delivering a better experience and solution to our customers. We are always simplifying and de-risking our supply chain to ensure quality and security of supply to our customers. With the implementation of this new program, we expect to become faster, flexible, more efficient and more effective.

We will do this while investing in innovation and technology which is the lead differentiator for us in the competitive marketplace. We are focusing our initiatives on strengthening and broadening our integrated solutions across different technology platforms in the Life Sciences industry. We are leveraging technology and engineering synergies across our two divisions to provide our customers with an integrated solution. Furthermore, we are investing in digitization of our commercial facilities which will provide additional safety, reliability, flexibility and ease of operations. We are utilising technology to make simpler, flexible, sustainable and more efficient processes which will ultimately benefit the environment and our customers.

Success in our business amounts to creating value in the environment in which we operate. We view it as a driver for growth and risk management. Through our Corporate Social Responsibility platform, we have developed several outreach programs to benefit the community around which we operate. Being a Responsible Care company, we are committed to the safety, health and security of our people and the environment. We have developed a new generation of products using bio-catalysis which is more efficient and environment friendly. Additionally, we are also investing in manufacturing technologies which will be more cost effective and which will make products in a safe and efficient manner.

We are confident about our strategy and growth prospects in the next few years which will be driven by the investments in capacity, infrastructure, people and technology. We have a stronger base and the right people and passion to deliver on our goals. We expect the ongoing initiatives to accelerate the top line growth and profitability in the near to mid term horizon.

RESEARCH AND TECHNOLOGY

At Hikal, we believe that Research and Technology plays the most critical role in the innovation process. We consider it as an investment in future capabilities which is further transformed into new products, processes, and services. R&T is the crucial component of innovation and sustainability which gives us a competitive advantage in the marketplace. Having a robust research and technology setup is vital for our manufacturing organization to differentiate itself. Our business model supports global companies across their value chain: from pre-launch to launch to post-launch lifecycle management, where we are reliant on cutting-edge technology and sustainable processes developed by our scientists. Value chains, supply chains and market relationships are changing, so our business model must adapt. Sustainable development is both a challenge and an opportunity for our industry and we are adopting this model as part of our global strategy.

Strategy

Over the past several years, our average annual R&T spend has been between 3-4% of sales and we will continue to invest at a similar pace going forward. We offer integrated solutions while maintaining flexibility, reliability and efficiency. We aim to create value which requires significant and continuous investment in resources and developing technology.

We offer the following services from R&T

Process Development

Analytical Development

Product Development

Pilot Plant and Scale up Manufacturing

Commercial Manufacturing

We service the following Industries

Pharmaceutical (Generics & Custom Manufacturing)

Biotech

Animal Healthcare

Crop Protection, Specialty Chemicals and Biocides

Food

Our strategy to have a healthy balance between contract manufacturing and developing a robust pipeline of our niche products is moving in the right direction. We are building a pipeline of projects where our scientists identify safe, effective, and economical manufacturing processes using advanced technology. We have several projects under evaluation in various stages of their lifecycle in both the Pharmaceutical and Crop Protection divisions.

Our R&T activities at our Pune site support the Crop Protection (active ingredients, speciality chemical & biocides) and Pharmaceutical (contract manufacturing and generics) businesses.

Our expertise is in the development and scale up of active ingredients, intermediates and active pharmaceutical ingredients. We support these activities through our process and chemical development laboratories where we develop scalable, cost-effective and robust manufacturing processes meeting our customers and market needs. Our analytical development ensures the processes are safe, sustainable, effective and robust. We provide high-quality, customized solutions for complex products and unique production processes, specializing in the development of innovative technologies and solutions for our customers. Our strength is to take efficient chemical processes developed at R&T and scale them up into cost effective and robust manufacturing processes. Last year several products of ours have completed the journey from lab scale to kilogram scale to pilot plant / validation scale to commercialization / semi-commercialization scale. Post commercialisation of these products, we continue to focus on process improvements to meet our market and customer needs. We are confident our concentrated efforts on technology and process innovation will boost our productivity, revenue, and profitability of the company.

R&T Crop Protection

In the crop protection industry, it can take over 10 years and cost over USD 250 mn to turn an interesting molecule into a product that farmers can use. It is a lengthy process and there are no guarantees. Our customers are constantly looking for new active ingredients that can control crop pests in unique ways. We help our customers by developing viable commercial manufacturing processes so that their products can reach the marketplace in a safe, efficient and cost-effective manner. The goal of the industrys research and development programs is to improve the range and quality of its crop protection products. These advances include both the refinement of existing products and the development of new products and applications.

The development and launch of new products in the crop protection industry is limited to less than five molecules per year and there is a clear focus on improving the efficacy and delivery system of these products into the agricultural system.

In our crop protection business, our R&T team was at the forefront of developing several new processes for products that should be commercialized by this year and the year to follow. We developed processes for two fungicides, a biocide and an insecticide in the generic space. Additionally we also developed processes to manufacture a novel insecticide for an innovator and developed a process to create a derivative for an existing product for another innovator. For one of the new fungicides we have developed a novel polymorph that could potentially enable an earlier market entry for our customers.

A concerted effort is being made to develop treatable measures to decrease the volume as well as the COD and BOD content, total measurement of all chemicals (organic and inorganic) in water. The amount of oxygen required for bacteria to degrade the organic components present in water / waste water is a part of our sustainability initiative to reduce waste from our commercial processes.

While we continue to focus on Active Ingredients, our team has intensified efforts to identify, develop and market intermediates that are in short supply in China. We were successful in developing processes of two intermediates of commercial significance that we will take to market this year.

We were able to develop processes to convert components of our waste stream in to two valuable reagents. This served the dual purpose of reducing waste significantly as well as creating products of value from waste streams.

We also worked on commercializing a product from a technologically complex solid gas phase reaction in the plant using a novel catalyst and are very close to realizing the objectives of this project. It may be noted that this is one more example of a successful scale up of a continuous manufacturing process in the crop protection business.

We found a way of optimizing the yield of a fungicide for an innovator thereby lowering the cost of production as well as decreasing the total waste generated. This has led to additional capacity in the plant and is a far more efficient process.

We have also developed a process to convert a side product to the desired product using a novel reaction for an innovator and are working on protocols to commercialize this process.

The process intensification efforts for products we have already commercialized, ensured continuous cost reduction for proprietary as well as contract manufactured products.

We developed several new commercially viable processes for products belonging to new and existing clients as part of our contract development business and expect to commercialise these products in the near future.

R&T Pharmaceuticals

As part of our proprietary generic portfolio in the Pharmaceuticals division, we filed two US drug master files (DMFs), one veterinary master file (VMF) and one certificate of suitability (CEP) for Europe. Our product selection strategy has been a mix of short-term, medium-term and long-term opportunities. The US DMFs we filed are for, Dapagliflozin and Empagliflozin, which are anti-hyperglycemics. The VMF is for an antiparasitic active ingredient for veterinary use. The CEP is for Flunarizine which is a migraine prevention medication.

As part of our cost improvement program we have significantly improved the yield and throughput processes for some generic products such as Celecoxib, Venlafaxine, Quetiapine, and Buproprion thereby ensuring that we remain competitive in the marketplace. These products are already available in the market and we have further developed more efficient and cost-effective processes to enable our customers to gain additional market share. As part of our strategy to de-risk the supply of raw material from China, we have back integrated most of our synthetic routes thereby ensuring continuity of supply of some of the key raw materials.

On the technology front, our R&T team has also developed a next generation process to produce Pregabalin used in the treatment of epilepsy and neuropathic pain. This is a greener process than its predecessor, increases throughput and reduces waste substantially. These improvements should see Hikal occupy a leadership position in the market for Pregabalin after the molecule becomes generic. Hikal has also developed a very innovative and cost effective bio-catalytic route to Sitagliptin, a global blockbuster which goes off patent in 2024.

Our R&T facility in Pune and our Development and Launch Plant (DLP) in Jigani, Bengaluru delivered many contract development and manufacturing projects successfully during the year. These are high margin, complex products that are at various stages in the innovators pipeline. The number of repeat orders that Hikal has received from its customers indicates the satisfaction of our customers. This is a critical area of our business which requires a large allocation of R&T resources due to the complexity, value and importance of the projects to our customers. Going forward we expect the revenue and margins from the DLP plant to increase due to repeat orders of increasing value and because of new businesses in the pipeline.

On the Animal Healthcare front, our R&T facility has successfully filed a VMF for an antiparasitic active ingredient used in veterinary medicine in livestock and pets against internal parasites. We have developed a process for the preparation of a leading flea and tick medicine. This is a niche, high value complex molecule. We have also developed a cost-effective route to an intermediate that goes into several other products that we will sell in the market independently. We have commercialized the process for manufacturing a synthetic antagonist opioid analgesic, another very niche high value complex product. We are steadily building a pipeline of products for the animal healthcare market and our R&T team is playing a crucial role in supporting our business development efforts.

In the Pharmaceutical business, our current focus is on introducing better productivity measures and ensuring optimal utilization of all our labs and equipment. Many of our chemists are trained to monitor the progress of their reactions using sophisticated equipment that lead to an acceleration of the development process. We continue to invest significantly in relatively new technology areas like catalysis development, batch-to-continuous transformation including ammoxidation and enzyme-based bio-catalysis. We routinely use Design of Experiments (DOE) to optimize our experiments thereby arriving at superior outcomes.

As part of our initiative to improve the cost of goods, we continued to establish a proof of concept for continuous manufacturing for several of our leading active pharmaceutical ingredients (APIs) and Active Ingredients (AIs) last year. As we continue to evaluate the scalability of these processes, we are looking to collaborate with global leaders in flow chemistry. We have already received positive indications from several select innovators who are interested in our capabilities.

We are positive that our focused initiatives in R&T will deliver significant growth in the near future. Our primary R&T goal is to develop new technologies and innovative processes that offer significant benefits to our clients. We continue to build scale agility and expertise to deliver sustainable solutions across all our businesses.

Technology and the Way Forward

Our R&T strategy has dual focus. We strive to develop new products with cost-effective and sustainable processes as well as optimize the productivity, yields, and costs for existing products. The core of our philosophy is based on understanding the processes that we develop for our customers and our own products. This involves understanding reaction mechanisms, reaction kinetics, and reasons for formation of impurities among other things. This approach in turn leads to more robust and scalable processes that are more amenable for troubleshooting problems in the plant. Last year, we successfully filed and launched several products, and we plan to build on this momentum to commercially launch more products this year.

To achieve this objective, we have added significant resources in the Pharmaceutical and the Crop Protection business. We are growing our process engineering team in R&T and appointed a senior professional as a leader of the group. This should enhance our technology transfer as well as flow chemistry efforts significantly. We are also in the process of increasing simulation capabilities to increase the efficiency of the scaleup efforts. We are investing in a new pilot plant at our R&T center. This will further streamline the process of technology transfer between R&T and our commercial sites and will validate new technologies before we commercialise them.

We are also building on the growth drivers that we have identified for the future. We aim to enhance our capabilities in the chemistry of bio-catalysis by planning a backward integration into protein engineering. This would enable us to screen enzymes for chemical processes thereby identifying new opportunities. Our batch-to-continuous manufacturing initiative is another focus area which has the potential to decrease our manufacturing footprint & increase our profitability significantly.

We continue to focus on prevention of waste generation through the application of green chemistry principles and the treatability of effluent streams. We are investing in the creation of an effluent treatability lab that can improve our understanding of the science of treatability. This will ensure treatability of all waste products under development so that the manufacturing teams will be geared to adapt the transferred processes faster on the sites. This can also become a potential revenue stream in the future.

In both businesses, our current focus is on introducing better productivity measures and ensuring optimal utilization of our labs and manufacturing facilities. Many of our chemists are trained to monitor the progress of their reactions using sophisticated equipment leading to an acceleration of the development process.

Our newly established Solid-State Lab has started to play a leading role in the area of identifying polymorphs, solvates, cocrystals and others. This has resulted in generating intellectual property for Hikal which will enable us to compete with other generic players in a more efficient manner. Additionally, we are armed with better knowledge about crystallizations from this lab and this has helped us improve the robustness of the processes connected with the physical characteristics of the products for commercial use and those which are under development. The outcome has often led to products that require decreased manipulation post crystallization thereby giving rise to increased productivity and better bioavailability.

We are investing to keep pace with the increasingly stringent norms on the regulatory as well as safety, health, and environment (SHE) front. Introduction of a new process safety software onsite has accelerated the screening of processes for thermal safety. Enhancing regulatory understanding for both APIs and formulations and ensuring early responses to deficiencies are our focus areas for the regulatory team this year. We have an impeccable SHE track record and are following stringent measures to maintain it.

Hikals Research & Technology is committed to provide innovative and sustainable chemistry solutions to the industry. We believe that the efforts of our R&T team will create significant growth opportunities for both our Crop Protection and Pharmaceutical divisions at Hikal.

PHARMACEUTICALS

Global Market Overview

2018 was a mixed year for the industry. This was largely due to a background of considerable political uncertainty, and government attention on drug pricing, particularly in relation to older drugs and the rise of generic and biosimilar approvals. The US Food and Drug Administration (FDA) set a record for new drugs and biologics approved by the agencys Center for Drug Evaluation and Research (CDER).

The worldwide prescription drug market had an underlying growth of 4.3%, boosted to 4.8% in USD terms, in 2018 to USD 865 bn, up from USD 825 bn in 2017. This is consistent with the 5% growth rate that was reported in the annual reports of several global drug companies. 1

The US market was an important driver of growth, rising 4.3% to USD 337 bn in 2018, from USD 323 bn in 2017, representing 39% of the global market. The FDA approved a new record number of drugs in 2018, with 59 approvals, which is a clear reflection of the Commissioners stated goal to improve the agencys efficiency.

Following a 10 year (2003-13) period in which the rate of growth of the drug industry was trending downwards, the last five years have been more volatile. The CAGR of the global pharmaceutical market was 2.12% (from 2013 to 2018) and 2.76% (from 2009 to 2018), lower than what many industry commentators had predicted given the introduction of some high-profile, and high-priced, new drugs.

1 Hardman & Co.

FDA Approvals in 2018

2018 proved to be another exceptional year for the FDA with regards to new approvals. 59 NCEs (new chemicals entities) made it through as compared to the previous record set in 2017, when 46 new drugs were approved. The composition of this was 42 small molecule NCEs and 17 biopharmaceuticals / biologicals respectively which can be seen in the below chart.

The FDA has substantial new authority, resources and resolve to make it easier for generics to enter the market, viewing competition as a keyway to bring down drug prices. These efforts will likely succeed in bringing new generics to the market more quickly and predictably, but significant competitive hurdles may limit their impact on drug pricing or competition. By the end of the 2018, there were a total of 971 drugs approved in 2018 (781 final approvals and 190 tentative approvals). This continues the string of record-setting trend approval rates, 937 approvals in 2017 and 835 in 2016, making them both the highest in their turn. 2

Generics are widely seen as the key to providing affordable access to many important medications. One way to measure that effect is to note that while generics account for about 90% of all prescriptions filled, they represent only 23% of total prescription spending.

In a world of rapidly rising drug costs, generics continue to provide good value. The generic manufacturers estimate that generics save hundreds of billions of dollars each year – almost two trillion dollars over the last decade. Here we can see the impressive increase in savings due to generic drugs:

The FDA has improved competition in the generic space by making it easier for generics to come to market. The agency has announced several steps to further encourage generic competition. These include reducing the ability of brand-name manufacturers, delaying generic drug entries and simplifying the approval process for complex generics like asthma inhalers, and improves the overall efficiency of the generic review process.

3 Optum Research

4 Optum Research

However, these steps were only announced as plans in January 2018. While we can hope that they will eventually help improve the process, they cannot have affected the total approvals seen in recent years. The flood of new generic approvals stem from a year-long effort to improve the generic drug review process. The key moment came in 2012 with the approval of a new user fee program which got implemented called the Generic Drug User Fee Act (GDUFA).

The purpose of the act was to tap the generic manufacturers themselves to create a new funding stream for the FDA. The new funds allowed them to hire additional review staff, and overall it appears to have worked as intended which can be seen by the substantial increase in approvals in the last few years.

Opportunities and Challenges

The increasing pricing pressure in the regulated market is squeezing margins and profitability. Key drivers include customer consolidation, greater competition in commoditized, easy3to manufacture products with increased ANDA approvals, and slowdown in new launches. Another key challenge stems from compliance issues affecting the reliability of supply. While many Indian companies have fared well in regulatory audits over the last year and seem to be emerging out of remediation, others still continue to face challenges.

5 IQVIA Research

India continues to rely on imports of key starting materials, intermediates and APIs from China and this dependence has increased over time. Potentially, this exposes us to raw material supply disruptions and pricing volatility. There is an opportunity for us to drive growth by building on the cost advantage and improving reliability of supply which is a major buying criterion for our customers.

To succeed we must build stronger quality systems, achieve full compliance and refocus our efforts on operational and business excellence. We must diversify the supply chain through alternate sourcing and be self-sufficient to a large extent in raw materials and intermediates. Operational excellence is a strong enabler of quality and supply reliability.

The last few years have seen Indian pharmaceutical manufacturers experience intense regulatory scrutiny and numerous compliance challenges in meeting the evolving cGMP requirements. However, things have vastly improved in the last few years. Hikal has an impeccable track record with the global regulatory authorities and our customers. This bodes well for the new opportunities which are knocking at our door.

Hikal Generic API Business

Last year, Hikals generic API business registered a robust growth of 22% in terms of value as compared to the previous year. This is despite the pricing pressures we faced from the US market and the supply-chain disruptions in China. The availability of certain key raw materials was a constraint and prices from China were significantly higher than earlier. Based on our efforts in backward integration and alternate vendor developments in India, we were able to mitigate some of the risks facing the global API market and capture a larger market share in the generic business.

Going forward, we expect the shortages and pricing pressures to continue in the short term. While we are passing on the price increase to our customers to the maximum extent possible, we are also making concerted efforts in improving yields, recoveries, time-cycles, productivity and reducing effluents, wastages and costs to achieve operational excellence and keep our products profitable. We have successfully developed alternate raw material sources for two of our major products, one being an anti-convulsant drug and the other being a drug used for the treatment of cholesterol. We have invested in our plant infrastructure to recover higher volumes of solvents and also established a partnership to outsource handling some of our solvents.

Being committed to sustainability, we have taken up several initiatives for protection of the environment around us. We have made substantial capital investments to upgrade the ETP infrastructure and equip it with the best-in-class technologies that are available today. We have successfully developed and rejuvenated a lake near one of our manufacturing facilities which was contaminated earlier by pollution from neighbouring industries. Moreover, initiatives utilizing power from renewable sources such as solar and wind energy and using biomass have helped us to reduce our carbon footprint. We have also started monitoring stack emissions inside our plants to track the air quality and to ensure compliance.

Additionally, being a technology driven company, we have developed a ‘green process for one of our molecules that is used as an anti-convulsant which will significantly reduce effluent levels and make the manufacturing process environment friendly.

While the USFDA continues to tighten its grip over Indian companies, quality and regulatory compliance remains at the forefront of our priorities. Last year our API site successfully cleared a stringent 4-day inspection by the Pharmaceutical and Medical Devices Agency (PDMA), Japan. We were able to meet the expectations of the PMDA through our compliance on cGMP (current good manufacturing practices) and quality requirements. We continue to focus on ensuring our quality control systems are compliant and satisfy all data integrity requirements of the governing bodies.

Last year we filed two US drug master files (DMFs), one Veterinary Master File (VMF) and one certificate of suitability (CEP) for Europe which included both ‘already generic and ‘to be generic products.

We are creating a mixed portfolio of APIs, both niche and therapeutic which shall enable us to get into a deep strategic relationship with customers. We are significantly investing in capacity to cater to the increased demand from our customers while mitigating the risk of supply-chain disruptions. Last year we were able to improve our sales significantly in the Latin American region. Improving our global outreach, last year also marked the beginning of registrations of some of our products in the Commonwealth of Independent States (CIS) and China. We were also able to file one of our anti-convulsant APIs in Japan and register generic sales in the Japanese market.

Hikal aspires to be a global cost leader in key APIs with a strong product development pipeline and a focus on continuous improvement in operations and costs. We also remain committed to providing regulatory and QA support to our customers. Going forward, we aim to maximize the sales and outreach of our legacy generic products through cost leadership and to capture a large market share in select APIs where we have backward integration and scale and technology as a differentiator. Building on our success, where we had filed 10 DMFs in the last 3 years and we plan to commercialize 3-4 APIs every year with economies of scale and a cost position.

We are in the midst of increasing manufacturing capacities at both our Bengaluru and Panoli site. This new flexible capacity will address the future market demands of generic API molecules. We have already de-bottlenecked two of our API blocks that manufacture an anti-convulsant drug and installed a powder transfer system for automation which has increased the speed of operations and its efficiency.

Several supplemental capacity enhancement projects are underway in our other API blocks and multipurpose plants which shall be completed this year. We have also put up a multipurpose solvent recovery unit to further aid us in reuse of solvents and to achieve a better cost position for our products. Additionally, significant capital expenditure plans are underway for creating an entirely new multi-purpose facility at our Bengaluru site for commercialization of some of our new generic API molecules. We are also increasing the capacity at our Panoli site by putting up another plant for manufacturing of advanced intermediates. Meanwhile, we have already made notable progress in expanding our Panoli facility for API manufacturing to de-risk production of APIs at Bengaluru.

Global Contract Development and Manufacturing Organization (CDMO) Business

The global pharmaceutical contract manufacturing market size was estimated to be valued at USD 120 bn in 2018. It is expected to witness a CAGR of 9.3% till 2026. The share of the API contract manufacturing (merchant) market is roughly USD 50 bn which is still less than 40% of the global synthetic APIs market, comprising of advanced intermediates and chemically synthesized APIs. At a time when large pharmaceutical companies are focusing on reducing their operational expenses and prioritizing capital investments on their most innovative products, this in-house capacity represents a large reservoir adding to the growth potential for Hikal in the CDMO industry.

After a gap of almost five years, India is back on the radar for CDMO projects. Big Pharma companies are increasingly trying to develop alternative options for Europe (given the high cost of manufacturing) and China (given the unpredictability associated with it). Innovators are moving away from pure technical transfer projects and are looking for ‘off the shelf APIs and intermediates for life cycle extension. CDMOs with advanced manufacturing technologies like continuous manufacturing, flow chemistry, cryogenic processes, high containment facilities and capabilities to produce controlled substances and HPAPI drugs will have an edge in attracting pharmaceutical companies to outsource manufacturing.

However, innovators are now very cautious in introducing a new supplier to their network. With China tightening environmental norms, compliance track record is critical to securing business from innovators and pharmaceutical companies. Indian companies are increasingly getting better in terms of environmental and statutory compliances with issues of warning letters getting resolved. CDMOs are now also engaging with smaller innovator companies besides big Pharma companies and are offering solutions across the entire value chain. Well executed projects by CDMOs will lead to further opportunities and will build better relationships with innovator companies.

Hikal Animal Health Business

Hikal continues its efforts to grow the animal health business. Our exclusive manufacturing contract with a leading US-based veterinary drug innovator for a non-antibiotic veterinary drug API was stable in terms of volume this past year. In 2019-20 we expect volumes to reduce slightly due to the build-up of inventories from the customer‘s end.

Last year, Hikal completed the validation of a niche pain management veterinary drug. This product is used to treat severe pain from surgery, muscle pain and headaches. We plan to file a VMF for this product this year. Additionally, we plan to commercialise several advanced intermediates for a new generation ectoparasitic API that belongs to the isoxazoline group. We also filed a VMF for an antiparasitic active ingredient used in veterinary medicine for livestock and pets to fight against internal parasites. This is a niche product that will yield commercial sales in the FY 2019-20.

We continue to establish relationships with global animal health companies in the world and we are positive about the future prospects of this business.

Hikal Performance in the CDMO Business

Hikal has developed strategic partnerships with customers across the globe by providing value added solutions to their problems. We understand the needs of our customers well and use our agility to address them. Our continued focus on regulatory compliance combined with reliability, flexibility and advanced technology capabilities continue to attract and retain global clients across the value chain.

As part of contract development and manufacturing, we offer early-stage R&D services such as synthesis, scale-up, API development, stability studies and analytical development all the way through manufacturing services, ranging from preclinical R&D material for clinical trial purposes and commercial production, Phases I through IV. By combining advanced technology and chemical engineering solutions, we provide our customers integrated solutions across the life sciences value chain.

Hikals CDMO business registered a robust growth of 25% owing to the high volumes of our legacy contract manufacturing products as well as several new projects that were undertaken in custom development. To augment the future growth of the CDMO business, Hikal is actively engaging with several small, medium and large innovator companies to develop a pipeline of products. These are currently under various stages of evaluation and development.

To cater to the current market demands and capitalize on future opportunities, Hikal is aggressively creating capacity for growth in the CDMO business. There are significant capital expenditure plans this year for debottlenecking our development and launch plant as well as for creation of new multipurpose facilities for contract manufacturing.

We have identified several new opportunities for custom development and manufacturing of intermediates and Active Pharmaceutical Ingredients (APIs) which are in different stages of development at our R&T Centre. We have added several new biotech and virtual companies as clients for the development of early stage molecules.

Hikal also provided process development and manufacturing services for high value complex intermediates in clinical trials to leading innovator companies. A high level of customer satisfaction has led to repeat orders showcasing our technical strength and execution skills on these complex projects.

Last year we have successfully delivered a complex molecule to a Japanese innovator company and an advanced intermediate to a US based contract manufacturing company. Furthermore, we were successful in adding several key global customers to our portfolio.

We delivered larger volumes for an intermediate to a leading US company for one of their APIs under development. This year we expect a repeat order of two intermediates going into new generation APIs to be launched in Japan. We also expect to supply additional volumes of a versatile chiral intermediate going into a high-value Prostaglandin API. We will supply an intermediate going into Phase 1, which is used for the treatment of breast cancer as well as different types of other cancers and is developed by a biotech company.

Our long-term exclusive multi product manufacturing contract agreement with a leading European innovator grew significantly in terms of volumes. Based on the forecast provided by the client, it is expected to grow even further this year. One of these molecules is an anti-epilepsy drug that is widely used to control seizures and the other one is a nootropic drug used for memory enhancement.

Over the years, Hikal has maintained an impeccable track record in technically transferring projects and has established a strong relationship with innovator companies. We have backward integrated two large volume molecules to ensure a more robust supply-chain to provide an uninterrupted, on-time delivery to a leading US-based innovator company. One of these molecules is a neuropathic pain reliever and the other is an anti-cholesterol drug. In the past year, we have also focused on developing secondary sources of raw materials for these molecules to reduce dependencies on China. We expect the volumes of both these molecules to continue to increase this year.

We have undertaken several initiatives last year for achieving operational excellence and to save cost. This has enabled us to increase the capacity of one of our products made exclusively for a European Innovator customer. As a technology driven company, we have developed solutions for achieving better yields and recoveries during the synthesis of the molecules that we manufacture. This has given us a better cost position which in turn has benefitted our customer through an increased market share.

Being committed to sustainability, we have taken up several initiatives for protection of the environment that we operate in. We continue to make substantial capital investments to upgrade the ETP infrastructure and equip it with the latest technology. Sourcing a large proportion of our power requirements from renewable sources such as solar and wind energy and using non-polluting fuels such as briquette have helped us reduce our carbon footprint.

Global pharmaceutical companies are increasingly focused on early stage research, clinical development and marketing of their products. They outsource production to companies like Hikal and have confidence in our ability to reduce the complexity of the supply chain. We take on the responsibility of development, quality, compliance, logistics and supply of the final product. This type of strategic outsourcing reduces their investments in manufacturing assets and improves the total return on capital. In effect we reduce the risk of our customers so that the much needed medicines can reach the patients.

We are confident of our growth in the CDMO business and are focusing on expanding our capabilities in continuous manufacturing, flow chemistry and bio-catalysis which is broadening our technological base. Creating the aforesaid technology differentiation is helping Hikal better engage with virtual, big and medium sized pharma companies in existing and new geographies. We are also focusing on seamless project execution as a tool to differentiate ourselves from the competition and have implemented a world class project management philosophy across the organization. We expect sustainable growth in the CDMO business through a healthy pipeline of new projects in their early and late stage development, the addition of new clients and the growth in volumes of existing products being supplied to global innovator companies.

Future Outlook

We believe we can achieve our target of sustainable growth in the coming years. We have a strong product pipeline, both in the API and CDMO business which continues to give us traction with our existing and several new customers globally.

Overall, we are confident of the prospects of our pharmaceutical division. This year our focus is on increased cost awareness through business excellence as we are investing significantly in building new capacity. Innovation and technology combined with our new capacity coming on-stream, makes us extremely well positioned to capitalise on the opportunities in the near future.

CROP PROTECTION

The Global Agrochemical Market in 2018

The global agrochemical market in 2018 in both crop and non-crop grew by 5.6% to USD 65 bn at the ex-manufacturer level. In 2018, the market benefitted from improved prices of generic materials, particularly glyphosate, derived from China. As a result of a crackdown on production in the country driven by a mandate imposed by the Ministry for the Environment, chemical companies had to invest in costly pollution control and effluent treatment infrastructure. In addition, financial pressures to display improved profitability by the increasing number of Chinese companies that are listed on the local stock market resulted in improved prices emanating from the country.

The situation of high inventory levels experienced in recent years, particularly so in Brazil and Western Europe largely ended with efforts to reduce inventory from major companies and had a positive effect on stocks which resulted in an increased demand for crop protection products.

As for non-crop agrochemicals, the market is estimated to have grown by over 3.1%, largely in line with global GDP growth. This market can continue to grow in the coming years boosted by improving economies in developing nations.

Global Agrochemical Market (USD mn)1

Sales (USD mn) 2018 2017 Change %
Conventional crop protection 57,561 54,319 +6.0
Non-crop agrochemical market 7,538 7,311 +3.1
Total agrochemicals 65,099 61,630 +5.6

The global agrochemical industry has undergone a major shift in 2018 due to the scale of the recent mergers and acquisition activities. ChemChinas USD 43 bn successful bid to acquire Syngenta as well as the merger between Dow and DuPont closed during the year. Bayer also completed its USD 63.5 bn acquisition of Monsanto and more recently, in February 2019 UPL announced that it closed the acquisition of Arysta LifeScience Inc. from Platform Specialty Products in a transaction valued at USD 4.2 bn. As a result of significant M&A in the past year, we expect growth going forward to most likely come from second-tier companies. This bodes well for us as a company as we have diversified our customer base and we expect the tier one customers to rationalise manufacturing operations which will eventually lead to significant opportunities for our company.

1Phillips McDougall: Agri Futura – April 2019

Major Factors affecting Global Market Performance in 2018:

• Improved generic product prices

• Increased adoption of new GM technologies driving demand for more expensive agrochemicals

• Ethanol production was sustained at record level

• Reduced distributor inventories and levels of stocks

• Strong cereal acreage increase in both USA and Canada

Market driven by year-round specialty crop production and improved political stability in north and east Africa

• Favourable rainfall in key Middle Eastern markets

• Rebound in Brazilian market

• High inflation in Argentina

• Hot, dry weather in key central and western markets reducing pest pressure

• Increasing regulatory pressures on agrochemicals in EU

• Russian agricultural economy continues to boom in response to sanctions imposed from EU

• Indonesia boosted by import bans on rice and corn, elevating domestic crop prices

• Favourable monsoon benefitting India and SE Asian markets

• Australian drought detrimental to pest pressure and agrochemical demand

Crop Protection Market Distribution1

In 2018 the herbicide sector increased by 5.9% to reach an estimated USD 24.5 bn, equating to 42.7% of the crop protection market. The herbicide segment was boosted by improved glyphosate prices, reduced channel inventories and improved market conditions in Latin America following year-on-year declines in the region.

In 2018, fungicide sales increased by 4.7% to USD 16 bn, representing a 28.4% share of the global crop protection market. Similar market drivers to herbicides contributed to the growth in this sector, however this growth was somewhat offset by dry conditions in Europe leading to reduced disease pressure. In addition, the significant Brazilian soybean fungicide market has been impacted by reduced Asian soybean rust pressure in the country.

The insecticide market is estimated to have experienced the greatest growth over the previous year, with sales increasing by 7.6% to reach USD 14.5 bn in 2018, representing a 25.3% share of the crop protection market. Sales during 2018 were boosted by improved prices and reduced channel inventories. The market also benefitted from increased demand in India, particularly for cotton which is a large crop.

In 2018, crop protection sales in USMCA are estimated to have increased by 8.0% in comparison with the previous year. Growth was largely driven by increased prices of generic products in line with the increased environmental pressures and consolidation in the Chinese industry.

In Latin America, sales are estimated to have increased significantly, up by 11.1% with the rise largely attributable to Brazil, which benefitted from reduced inventory levels driving crop protection purchasing as well as the improved prices of products from China.

The European crop protection market is estimated to have decreased in 2018, falling by 3.0%. Major declines are estimated for France, Germany and the UK where hot, dry weather during spring and summer, reduced disease and pest pressure and hence demand for crop protection products, especially fungicides. Elsewhere, growth is estimated to have continued in key eastern markets, notably Russia where the domestic agricultural economy continues to boom in response to the sanctions imposed by the EU.

The Asia/Pacific region performed well with sales estimated to have increased by 7.2%. The market benefitted from increased generic product prices, generics having a particularly high share of many Asian countries. The growth experienced in this region was however somewhat offset by continued drought in the country which lowered pest pressure.

As for the Middle East & African region, sales are estimated to have increased by 7.4% where growth is attributable to buoyancy in the Middle Eastern markets, notably Turkey and Iran. Improved rainfall in Turkey boosted crop production expectations and increased demand for agrochemicals. Most of the growth was derived from fruit and vegetable crops.

Future Market Outlook2

The crop protection market in 2019 is forecasted to grow in mid-single digits with much of the growth dependent on what happens to product prices and the situation in China. If the prices of products coming out of China remain high and we experience unavailability of products as they have this past year, the value of the market will increase.

Increasing population, decreasing per capita availability of arable land and focus on increasing agricultural yield are major factors driving the global agrochemical market. Producing more food in a sustainable manner for a growing population will be one of the decades most important global challenges. There is a shift from governments towards using fewer pesticides. Globally we expect 2019 to be a better year.

Hikal Crop Protection

Hikals Crop Protection division achieved a substantial growth of 19% in FY 2018-19. We ended the year with revenues of 3 6,504 mn as compared to 3 5,473 mn in the previous year. We outperformed the broader global crop protection market which grew by 6% in real terms. We achieved this growth by successfully growing our existing product volumes and commercializing new products in our portfolio. The continuation of our strategic diversification into the biocides and specialty chemicals market has also led to increased opportunities which have contributed to last years revenue. We succeeded in significantly growing our top and bottom line despite challenging market conditions.

Sales of Thiabendazole, one of our oldest crop protection products was stable last year. The product is extremely versatile and used in both, crop protection to control mold and other fungal diseases in fruits and vegetables, as well as an anti-parasitic to control roundworms. It is also used in the material protection industry to prevent fungal growth. We have invested significantly in upgrading the plant which has been operational for over 20 years. We expect sales of Thiabendazole to grow in the years to come.

An on-patent fungicide that is used to prevent late blight and downy mildew on vine, potato fruit and vegetables saw a significant increase in volumes last year. The growth was driven by increased demand from a global innovator for whom we manufacture this product exclusively. Multiple new registrations across various geographies and the introduction of a new combination of products which use this fungicide are expected to see further increase in volumes this year.

Last year we successfully commissioned a new state-of-the-art plant for manufacturing an advanced intermediate for a key herbicide for one of our leading global innovator customers. The demand for this product remained stable last year and its profitability increased with the client offering us the exclusive production rights to its key precursor. Going forward, we expect slightly lower volumes due to inventory correction at the customers end, but we expect the demand to return to its normal level in the subsequent years. Based on the positive experience of our customer, they have given us an opportunity to manufacture another advanced intermediate that is produced from the same precursor which will add to revenues and profitability.

We also manufacture a broad-spectrum fungicide for a leading Japanese innovator company. Last year the supply situation of raw materials from China improved significantly over previous years, resulting in significant increase in sales. Demand is strong for the product and we expect volumes to grow significantly. The customer was delighted with Hikals performance and dedication towards continuous improvements in processes and costs and has enhanced the relationship by awarding us with another new product which will result in higher turnover and profitability going forward.

The volumes of a fungicide that is used to control the Oomycete disease in potatoes, tomatoes and mildew in vegetables remained stable last year. We exclusively manufacture this product under a contract for a leading European innovator. The volumes of this product are expected to reduce this year as we have an opportunity to replace it with a high margin Japanese on-patent product in our production facility.

We continue to manufacture two on-patent herbicides for a Japanese innovator company. These products are used predominantly for controlling broad-leaved weeds in water, seeded rice and for seed treatment of cotton. These are high margin niche products and the volumes of both these products have a stable outlook going forward.

The volume of a niche fungicide that we manufacture for another Japanese innovator client remained stable. This special product is a selective new compound with new modes of action for protection from fungal diseases, especially in rice crops. The volume was stable last year, and we expect to continue to supply them to our customer.

In FY 2015-16, we commercialized another such niche product, an insecticide, for a leading Japanese innovator company. Since the client was in the process of developing the market for this innovative product, we did not have any volume demand for it in the last two years. Nonetheless, as expected, the demand has now resumed. The successful development and scale-up of such niche products fits well into our business model by maintaining a healthy mix of high margin and high-volume products. It also helps diversify our Crop Protection product portfolio by de-risking our existing customer and product base.

We have diversified into biocides and specialty chemicals businesses as part of our strategy to enter new business areas. We have successfully established ourselves in the market with several molecules commercially and have a pipeline of products at various stages of development which will be launched in the near future.

The volumes of a broad-spectrum residual herbicide and algaecide we manufacture have grown multi-fold in the last several years and demand is expected to remain buoyant in the future. This versatile product is used in agriculture for pre-emergent and post-emergent control of broadleaf and grass weed. It is also used to control weed and algae in and around water bodies and is a component of marine anti-fouling paints. The decision to explore the biocides and specialty chemicals market for this product has proven to be very successful for us. Volumes and values of this product have increased significantly last year even though we faced some issues with raw material supply from China and Europe. Demand for this product is expected to grow further this year.

Two years ago, we successfully commercialized a novel insecticide which belongs to a new neonicotinoid class. This product is used to control a wide range of insects on rape, maize, fruits & vegetables and works as a wood preservative to control termites and other insects. Last year, we could not produce significant volume of this product due to raw material supply issues from China and lack of availability of production capacities. We have now debottlenecked our plants and have created additional capacity to cater to the market. We will ramp up the production and sales this year.

New Product Development

Developing and scaling up new products at our R&T center is at the heart of the future growth strategy of our Crop Protection, Biocides and Speciality Chemicals business. We have several new products in the pipeline, each of which has a strong potential to provide us significant growth in our top line as well as bottom line. Our portfolio is a mix of products for our customers in contract manufacturing and our own products.

We expect to commercialize a versatile product that is used as a microbicide as well as a fungicide. It has a wide range of applications as a preservative and in leather, textiles and paint industries. We have created an annex facility at one of our sites to manufacture and commercialize the product this year. To reduce the dependency and exposure to supply chain issues in China, we are working on backward integrating a key intermediate by developing a new technology for manufacturing it in-house.

We are in late stages of developing a commercially viable process for manufacturing a fungicide which has recently gone off-patent. This product is used to control a wide range of diseases by pests on soybean, cereals, vine, fruits and vegetables. This product class of fungicides has a particular strength against powdery mildew on cereals as well as on sugarcane. Even though this product involves a complex, multi-step chemistry, our R&T has developed a novel process using breakthrough technology and we expect to launch this product commercially early next year. We have started construction on a multipurpose production facility to cater to the market demand.

Future Outlook

Market trends for 2019 remain positive. Much will depend on weather conditions, distributor inventory, and farmer confidence in the face of global challenges. Although the market grew by 6% in real terms in 2018 and the growth is expected to continue this year, a huge uncertainty remains on the availability of raw materials and effects of the ongoing trade war between the US and China.

In FY 2018-19 our Crop Protection division showed significant revenue growth. While demand in the crop protection business is cyclical based on the current market forecast for commercial and under development products, we do expect the outlook to remain positive over the next few years.

Last year we continued to add several new products to our portfolio and moved forward on our strategy of diversification. We forayed into new markets and further established ourselves in the biocides and specialty chemicals marketplace. We are focusing on targeted opportunities with a range of products and customers. We are continuing to expand our niche portfolio of products. These measures will continue to add to our future revenue growth and profitability.

The development of new products and markets is on-going and well established. The complexity of our product portfolios will add value to our customers as we provide them with a secure supply chain. Some of the new products being developed are client-specific while the rest are part of our own portfolio. Along with these developments, our focused efforts, we will continue to deliver positive results for our Crop Protection division.

For our own product portfolio, we are adding value by creating data for registration purposes. We are making it easier for our customers to register these products in global markets. This significantly reduces regulatory obstacles to ensure unhindered growth of our products in new markets. This is part of our strategy to increase the value of services and products for our clients in existing and newer geographies.

We see a lot of new market opportunities and are optimistic about the future demand for our existing product base as well as for our new products in the pipeline. We are investing in capacity to cater to our growing product portfolio. Based on our growth projections, we are setting up new production streams and are de-bottlenecking the existing production streams to provide the necessary infrastructure and support to our facilities. The creation of new capacity along with the necessary infrastructure will add to the revenue and profitability in the years to come. This year we are focusing on operational excellence to cater to the increased demand of our existing products while our new capacity comes on stream.

Being a Responsible Care Certified company, Hikal continues to maintain the highest environmental standards while improving our safety record year on year. We are investing in environment, health and safety infrastructure to ensure that the highest quality standards are always met. Waste reduction, energy conservation, and better utilization of raw materials and capacity are our key focus areas for achieving operational excellence in this year.

SUPPLY CHAIN

It is said that when China sneezes, the world catches a cold. Widespread chemical plant closures in China have been threatening supplies of raw materials and finished goods across the world. Last year, the Ministry of Environmental Protection (MEP) had promised to tackle Chinas air pollution by tightening its grip on polluting industrial sites. Since then, the authorities have shut thousands of chemical plants in the country. The shutdown has taken place across industries, affecting energy production, finished product manufacturing, and essential raw materials.

The Chinese governments decision to improve air quality by forcibly closing the countrys most polluting factories, is sending ripples around the world. The crop protection and pharmaceutical industry are among those reeling under the effects of this clampdown right now. Supplies of a ‘broad range of raw materials and active pharmaceutical ingredients (APIs) were affected last year and the disruptions are expected to continue this year as well.

Hikal sources about 30% of its raw materials from China. In the past two years we have taken focused steps to de-risk the supply chain wherever possible. Firstly, we have developed in-house processes using our own technology to manufacture critical raw materials for some of our products. We have continued to develop partnerships and alliances in India to manufacture some of these key raw materials. This year, we have inducted an experienced professional to head our supply-chain activities and have created an outsourcing team to effectively manage our procurement operations. We have identified the most important products that require a robust supply chain and have determined the optimal manufacturing, sourcing and inventory strategies for each product. Additionally, we have shortlisted the optimal levels of risk inventory for the different products across our portfolio to minimise the effects of raw material shortages and to ensure supply chain security for our customers.

It is vital for our customers to have reliable suppliers, ideally from different countries. Many companies went to China to source cheaper and readily available products. With the environmental impact causing a shortage and a huge increase in the price of raw materials, a lot of companies have faced supply chain disruptions. With favourable cost structures and investor friendly policies such as strict intellectual property protection laws and better environment compliance norms, India has the required potential to plug the current demand supply gap globally. We see this as an opportunity for Hikal.

Last year we had several customers approach us to supply products for which they had earlier moved to China. While several of these discussions are in early stages, we are confident that de-risking the supply chain out of China is critical not only for us but also for our customers. Both Crop Protection and Pharmaceutical companies are re-evaluating and diversifying their supply chains so that they dont end up in similar situations again, which is a significant opportunity for Hikal as we are expanding our capacities and becoming fully backward integrated.

SUSTAINABILITY

Being a sustainable company is key to long-term success. At Hikal, we believe we are successful when our products, solutions and technologies add value to our stakeholders, environment, economy and society at large.

As a manufacturing company, our chemical processes are energy intensive and require precautionary measures for our employee safety and the environment in which we operate. Regulatory compliance, integrity and ethical conduct are the foundations on which we function as a company.

At our R&T centre, we ensure the processes we develop minimise any undesirable effects on the environment and are always safe to operate in large scales. In our Pharmaceutical business, sustainability is incredibly important as our products need to meet the highest standards of quality for the end-users health and wellness. In our Crop Protection business, we are ensuring our products help farmers meet their complex needs in a consistent, safe and sustainable way. We believe our R&T spend is not only an engine of economic growth but a driver of sustainable development. We are confident that our efforts in innovation will continue to have positive effects in reducing CO2 emissions.

Last but not the least, our people are vital to the sucess of our business and we aim to ensure our employees grow and develop professionally by providing them a safe, nurturing and an empowering workplace.

Hikal believes in taking progressive but steady steps towards sustainability and therefore continuous efforts have been made towards risk mitigation, occupational health and safety, waste management, research and technology, corporate governance, community and CSR. These initiatives were selected after carrying out a need analysis on various initiatives that were considered important by the stakeholders as well as the management of the company. A list of these key initiatives that were implemented across Hikal last year are outlined below:

Imparted behavioural training to convert safety awareness into habit

Achieved a continuous reducing trend in safety related incidents

Revamped drainage systems to prevent accumulation of water

Improved recoveries for fuel and water savings

Reduced effluent levels significantly through segregation, usage of additional aeration tanks, sludge removal from bioreactors etc.

Brought the effluent handling tanks and pipes above ground for better monitoring

Reduced energy consumption at sites through various initiatives such as automation of chillers, upgrading the power infrastructure, replacing pumps etc.

Identified partners like cement industries for co-processing solid wastes

Utilized renewable energy sources like solar energy and wind energy for reducing the carbon footprint

Replaced most of the CFL and Mercury Vapor lamps with LED lights

Started the monitoring of air quality and emissions inside the plant premises

Optimized chemical processes to reduce effluent generation and water requirements

Developed green processes for our new and existing products with focus on usage of enzymes and bio-catalysis

Innovation in manufacturing and developing sustainable processes will remain our focus in the year ahead. Some of the initiatives we plan to undertake are listed below.

Harvesting of rainwater for water conservation

Installation of a solar power plant for handling captive load

Further upgradation of ETP infrastructure with latest technologies

Setting up of a new Effluent Treatment Lab at our R&T site

At Hikal we have redefined our strategy to reinforce sustainability as a key driver to improving efficiency, creating synergies and delivering an improved customer value proposition. We want our people to think about sustainability and increase the relevance of sustainability in our decision-making processes and business model. We are confident this will ensure the long-term success of our company, create new business opportunities and establish us as a key partner to our customers.

HUMAN CAPITAL

Hikals success to a large extent is attributed to our employees knowledge, passion and commitment. By bolstering the strength of individuals and maximizing the power of our people, we strive to enhance our organizational goals and build a stronger more competitive company.

As we enter a rapid phase of growth, it is important that people and processes are aligned to Hikals business strategy. Our HR strategy, ‘Shashwat is fully aligned with our long-term business goals. In the current competitive global environment, we need to be more agile, flexible, yet fully compliant and disciplined. We are focused on maintaining our culture and corporate values based on trust, integrity and transparency. In 2019-20 the focus of our Human Resources will be on increasing efficiency, improving skill sets and delivering on our commitments.

Over the years, Hikal has been recognized by leading organizations, industry experts and professionals alike. Last year we have won numerous external awards which stand testimony to our excellent reputation as an employer and our commitment to excellence.

National Best Employer Brands 2018

The Global Employer Branding Institute and World HRD Congress have conferred Hikal with the ‘National Best Employer Brands 2018 in February 2019. The National Best Employer Brand Awards 2018 features top organizations from across India, who are exemplary in HR and have used marketing communications effectively for Human Resource Development.

Business Leader of the Year Award

World Federation of Marketing Professionals and World Federation of Human Resources Professionals in association with Business Television India presented the prestigious ‘Business Leader of the Year award to Hikals Joint Managing Director & CEO, Sameer Hiremath. This award was conferred to selected CEOs of organizations which won the National Best Employer Brands 2018, based on their orientation towards HR and the contribution made by HR in their organizations.

ET NOW CSR Leadership Award for

Best Corporate Social Responsibility Practices

In February 2019, Hikal was conferred with the ET NOW CSR Leadership Award for the Best Corporate Social Responsibility Practices by the World CSR Congress. Hikal was recognized for its comprehensive CSR Policy Srijan, and its deployment across sites in the areas involving secondary education, skill development, employability and infrastructure development, healthcare, sanitation, environmental sustainability, ecological balance and protection of national heritage, art and culture.

CIIs Significant Achievement in HR Excellence Award

Hikal won the coveted Confederation of Indian Industry (CII)s Significant Achievement in HR Excellence award at the CII National HR Excellence Award Confluence in March 2019. The recognition for CII HR Excellence Award, involves a stringent assessment process of various components of the HR Function in an organization. These include leadership, learning and development, HR strategy, peoples well-being, employee engagement and HR processes.

Prestigious awards such as these speak volumes about the credibility that Hikal has built in the industry as an employer and as a sustainability-driven ‘Responsible Care company.

Below are some of the key initiatives undertaken in FY 2018-19

30 Years Celebrations and Values Week

On July 8th, 2018 Hikal completed 30 years since its inception. This was a significant milestone for the company. All Hikalites in unison celebrated the 30th Anniversary of Hikal along with the Values Week between July 9th and July 14th, 2018.

This celebration week was inaugurated by our Chairman & MD along with our Joint Managing Director & CEO and Head – Strategy & Business Development. This was telecasted LIVE to all locations via webcast. Further to the very inspiring opening remarks by the Chairman, the 30 Years Celebration film was unveiled which provided an in-depth insight into the history and journey of the company.

The senior leadership team visited all our sites during this week to commemorate the celebrations and make people feel important and valued.

Shashwat - HR Strategy Review Meet

With the objective of understanding the renewed expectations in view of our changed business scenario and future business aspirations, we are gearing up to upgrade competencies to deliver beyond expectations and are creating a great place to work for every Hikalite. Shashwat – The HR Strategy Review Meet was organized between September 5th and 7th, 2018.

Three days were spent in understanding the expectations from the Chairman, CEO, Business Heads and other key stakeholders. In lieu of the changing business environment and long-term strategy of the company, Shashwat was created to align our HR practices with business goals.

6th Quality Week

Hikal celebrated its sixth quality week from November 19th to November 23rd, 2018 with the theme of ‘Quality is everyones responsibility. The activities during this week were centered around the concept of quality, what customers expect from us and how to deliver on those expectations.

Safety Week

The 48th National Safety Day/Safety Week was celebrated across all Hikal sites from March 4th to March 11th, 2019 under the theme ‘Cultivate and sustain a safety culture for building the nation. The aim was to develop safety awareness amongst all employees and create a safety culture that focuses on a goal of zero accidents.

Uday: Employee Engagement Program

Uday is an integrated deep-rooted employee engagement program to develop the skills and competences of our people and engage them meaningfully.

Strengthening the capabilities of each individual employee is an important part of corporate growth. Through a variety of Learning and Development initiatives, Hikal is working to maximize the capabilities of its people. Under ‘Uday we have several programs such as Lakshya, Apex and the Ambassador Program which focuses on enhancing self-awareness, building confidence and helping establish productive relationships.

Tarang – Campus to Corporate Program

Hikal believes in creating the right talent within the organization to suit its business needs. Tarang, our campus to corporate drive n the last year saw a lot of aspiring engineers and chemists showing keen interest in being part of the Hikal family.

Hikal also participated in technical events at several premier institutions and sponsored several events such as IIT Bombays ‘AZeotropy Annual Chemical Engineering Symposium.

Employee Communication

Effective internal communication is important for developing trust within our organisation and we believe it has a significant impact on employee engagement, organisational culture and ultimately, productivity. We facilitated several initiatives last year where employees were able to freely interact with the senior management and decision makers across all our sites. Programmes such as CEO Connect, Site Management Committee & Town Hall Meeting, Employee Hour, HR Help Desk and Management Committee (MC) Interaction has enhanced transparency within the organisation.

Empower

Our digitisation drive has extended to our HR practices. Last year we implemented Oracle HCM Fusion an online portal which automates several manual processes and is integrated across a single platform. This new system enables every Hikalite to have uninterrupted access to all the relevant information such as tracking performance goals, development and training needs.

Parigyaan

Under Parigyaan, our rewards and recognition policy, 933 employees were recognised under various award categories such as Spot Awards, Spark Awards and Employee of the Month Awards. All awardees were felicitated by the Senior Management in Town Hall Meetings. The awards motivated our employees through recognition and created a strong culture of performance.

Hikal Womens Forum

International Womens Day was celebrated on March 8th 2019 across the company. The theme for Womens Day celebrations at Hikal was #BalanceforBetter. We had a renowned guest speaker from a leading Information Technology company. She shared her professional accomplishments and touched upon the challenges she faced in the workplace as a woman. She shared her recipe for success which was to ‘embrace change into life as change is the only constant.

Ojas: Employee Wellness Program

Under our Ojas initiative, annual medical health check-ups were organized across the company with a purpose of maintaining a healthier, more productive and engaged workforce. Hikal also launched the National Pension Scheme (NPS) scheme for all the employees to look after their financial well-being.

SRIJAN – CORPORATE SOCIAL RESPONSIBILITY

(CSR) PROGRAM

Hikal believes that the local community where we operate is a key constituent of our growth. ‘Srijan, our social responsibility initiative, is actively involved in the well-being of the less fortunate in our society. We partner with non-governmental organizations (NGOs) in areas like secondary education, skill development, employability and infrastructure development, healthcare, sanitation, environmental sustainability, protection of national heritage, art, and culture.

In FY 2018-19, Hikal spearheaded several projects to make a positive difference to the lives of underprivileged people which included children, women & senior citizens and also invested in environment protection initiatives.

Projects implemented in FY 2018-19

Anahat (Environment & Ecology Protection)

Hikal completed the ‘Rejuvenation of Konasandra Lake situated near our Jigani plant in Bengaluru. As the lake is surrounded by many Industries, the same was contaminated due to granite waste, plastics and other toxic substances. This led to severe water pollution and deplorable water quality for aquatic animals and birds. Hikal decided to adopt this lake and initiated the cleaning, rejuvenation and repair work of the lake in October 2018. This was executed through a leading NGO, SayTrees that specialized in project execution related to environment protection.

Work done and Impact of the Konasandra Lake Rejuvenation Project

• Encroachment of water bodies has been stopped by proper demarcation of the lake

• Water holding capacity has increased more than 3 times due to desilting & creation of wider & stronger bunds

• Pollutants have been removed and cleared by a natural filtration method and water can now be used for cattle and birds

• Maintained ecology & biodiversity

• Stopped the silt from entering the lake by making silt traps

• Increase in activity of birds around the lake

• Growth of aquatic life in the lake

• Slowly helping borewells yield more water

• Increased the farmers income since the water holding capacity in the lake increased

• Involvement of more than 1000 citizens for this noble cause and outreach to around 2300 villagers

Hikal supported the World Wide Fund for Nature (WWF - India) for the conservation of satellite wetlands of Keoladeo National Park (KNP). KNP is one of the most significant bird sanctuaries in the country, supporting more than 370 species. Increased pressure on the catchment of water sources resulted in reduced water flow into the park. The park which has remained dry for several years was faced with losing recognition as a World Heritage Site. During the years, it was observed that the migratory birds used the satellite wetlands as their feeding grounds hence the area is very critical especially for the resident and migratory bird species. The revitalisation project of KNP was initiated in October 2018 and was completed in March 2019.

Hikal partnered with International Association of Human Values (IAHV) towards ‘The Afforestation Project at Tetvali, Rabale which is spread over 33 acres of land. The project involved planting and maintaining trees across the barren hills. Hikal has adopted 1 acre of land in the area where we have planted about 450 trees and will maintain them.

Hikal in association with IAHV constructed a borewell at

Sutarkond village, Mahad which solved the water shortage problems of this village permanently. This borewell was attached to their main tank which supplies water to about 1500 people residing in the village. We handed over the borewell to the people of the village in May 2018 with a commitment from them to maintain it.

Medha (Education & Skill Development)

With the view of supporting athletes in sports, Hikal along with its partner NGO, International Association for Human Values (IAHV) extended support to Mayank Vaibhav Chaphekar, a professional Modern Pentathlon Athlete, who is preparing for 2020 Olympics. Hikals support is an important step in helping Mayank make a mark in this challenging global event for which India is set to participate for the first time.

This is the 4th consecutive year of Hikals relationship with the Mehli Mehta Music Foundation (MMMF), to facilitate their outreach program which caters to providing musical education to the underprivileged children of municipal schools that they partner with. Hikals financial aid has helped MMMF consolidate its outreach programme where students are trained to play the violin, viola, cello and piano by international conservatory trained teachers.

Hikal has been supporting special children of

‘Aai Day Care Sanstha in Pen, Raigad District, in Maharashtra, over the past three years. Items made by the differently abled children, were put on display in an ‘Exhibition at several Hikal sites. The amount collected from this exhibition through sale of the products contributed to their development fund, which were utilized for physiotherapy and speech therapy for children.

Hikal collaborated with IAHV to better the infrastructural needs of the Nere Zilla Parishad School, Pune. Upon conducting the need assessment, it was observed that the sanitation, clean water and drainage facility of the school was in a bad shape and hence it was decided to take this up on priority which benefitted 140 students from the 1st to the 4th standard.

The initiatives taken included:

• Creation of new sanitation facilities

• Hand pump converted into electric operated borewell pump with storage tank facility

• Water pump/water storage facilities

• Water connection for existing toilets & new toilets

• New RO water filter system with new stainless-steel water tank

• Safety drainage tank was connected to a new sanitation facility

• A provision for washing hands was made

Hikal Mahad undertook the development of two Zilla Parishad Schools at Vadovali & Dadali in the FY 2018-19. The following work was carried out in both the schools which benefitted about 85 school children, teachers and administrative staff.

Hikal initiated the development of Ghot Camp Government School near its Taloja manufacturing unit in collaboration with IAHV after conducting a comprehensive need assessment exercise.

The work will be completed in three phases.

The following work has been completed as part of Phase I development of this school:

Staircase, terrace, grilling and other repair work

Flooring, parapet wall and plaster work of the terrace

Tiling on the terrace which has enabled the terrace to be used for various activities

Kaushalya (Healthcare & Sanitation)

Hikal employees visited Ashraya old age home near Jigani to distribute fruit baskets & medical aid devices to senior citizens. Medical aid items included blood pressure monitor, glucometer, pulse oximeter, stethoscope and sugar test strips in addition to wheelchairs which were also donated to the home.

Hikal installed a metallic roof shed above the Mahad MIDC police station to protect the building from heavy rains during monsoons. Every rainy season, the police station faced problems due to severe roof leaks. The team at Mahad quickly got this work done before monsoons so that there were no disruptions in the day-to-day functioning of the police station.

Hikal has been supporting Seva Yagna Samiti for the past three years. The work done has enabled the underprivileged in getting ICU/ICCU facilities along with access to the right treatments, proper diagnosis on time, medicines and hospitalization in the case of critical conditions. We are pleased to report that during the period between April 2018 and March 2019, our association with Seva Yagna Samiti has facilitated medical assistance and provided medical allied services to about 7,530 patients.

Heavy rains and the subsequent flooding in Kerala wreaked havoc in several parts of the state. Recognising this, Hikal partnered with IAHV, whose volunteers had been actively working on the ground in the affected areas. A relief fund was extended via contribution of one days salary of our employees which was matched by the company. This was utilized towards rebuilding two Zilla Parishad Schools at Kerala which were completely destroyed during the floods.

Rachana

(Protection of National Heritage, Art & Culture)

Hikal supported a unique musical and theatrical presentation, that challenged established aesthetic binaries. Hikal is proud to have supported this initiative and hopes to make a difference in spreading awareness towards these lost musical and theatrical performances, which highlights the rich ancient tradition of our country.

Jnanapravaha facilitates critical thinking in the arts through courses, lectures, seminars, conversations and performances. With the aim of facilitating art education and providing space in the city of Mumbai for a global exchange of creative Indian thought, Hikal extended support to Jnanapravaha for the second consecutive year.

Sampark (Employee Contribution)

Hikal celebrated ‘Srijan – Sampark day on July 11th, 2018 across all sites to commemorate the 30th Anniversary of Hikal. Employees in large numbers voluntarily came forward to contribute to the society by undertaking various activities such as tree plantation, a visit to zilla parishad schools, old age homes and orphanages, distribution of notebooks and uniforms in schools, organized medical check-up camps and painting competition at schools, delivered awareness lectures at villages, conducted cleanliness drive at local bus stops of their cities and organized various health and career related awareness campaigns in the nearby villages and schools.