Kimia Biosciences Ltd Management Discussions

Annexure I

The pharmaceutical industry has demonstrated remarkable agility by developing highly effective medicines and treatments at an unprecedented pace. Although there was a temporary slowdown in global medicine use in recent years, the industry is expected to return to sustainable growth levels.

The industrys future expansion will depend on multiple factors, including healthcare access, policy measures, and economic as well as geopolitical uncertainties. Over the next five years, the US market is expected to grow at 1-2% CAGR on a net price basis due to the Inflation Reduction Acts conservative outlook, while Europe is expected to focus on generics and biosimilars, leading to greater pressure on the pricing of novel medicines. The Asia-Pacific region is projected to maintain steady growth, although Chinas growth may moderate due to pricing pressures.

Expanding healthcare access in most countries and increased spending on new medicines are likely to drive growth in these markets. However, the presence of off-patent branded medicines and the low pricing of generic medicines may temper growth potential.

According to IQVIA, the pharmerging markets are expected to grow 5-8% in spending through 2027. Meanwhile, lower-income countries are expected to experience a CAGR of 4.5-7.5% in spending growth, with projected spending of US$29-33 billion by 2027, up from US$23.2 billion in 2022, the same report noted.

INDUSTRY STRUCTURE AND DEVELOPMENTS

India, a Leading pharma producer:

India is the largest provider of generic drugs globally and is widely recognized for its affordable vaccines and generic medications. The Indian pharmaceutical industry is currently ranked third worldwide in pharmaceutical production by volume and has evolved into a thriving sector, growing at a CAGR of 9.43% over the past decade. Key segments include generic drugs, over-the-counter medications, bulk drugs, vaccines, contract research & manufacturing, biosimilars, and biologics. India also has the highest number of pharmaceutical manufacturing facilities compliant with the US Food and Drug Administration (USFDA) and around 500 API producers, accounting for nearly 8% of the global API market.

Indias economy continues to benefit from strong fundamentals such as a young, tech-savvy population and a growing emphasis on innovation. Despite global geopolitical and economic headwinds, India remains one of the fastest-growing major economies. According to the World Bank, the countrys economy is projected to expand at around 6.5% in FY25, driven by resilient domestic demand and policy support.

The government is taking significant steps to improve healthcare access through flagship initiatives such as the Ayushman Bharat programme, which provides healthcare insurance coverage to more than 500 million people, and the National Health Stack, which aims to establish a unified digital healthcare framework across the country. These measures are expected to improve health outcomes and support long-term economic growth.

Recent growth momentum has been fueled by strong private consumption, which has emerged as a primary growth driver, alongside steady increases in production activity and capacity utilisation across sectors. Improved consumer confidence has contributed to higher spending on services such as retail, hospitality, travel, and entertainment. The governments sustained focus on infrastructure investment has further accelerated economic activity. In FY24, central government capital expenditure continued its sharp upward trajectory, laying the foundation for further private sector participation. The strengthening of corporate balance sheets, improved credit availability, and rising private capital expenditure are expected to reinforce growth in FY25 and beyond.

Internal Control systems

The Company has an adequate system of internal controls commensurate with the nature, size and complexity of its manufacturing, finance and marketing operations including controls over financial reporting. The company has adopted well laid down processes and procedures, encapsulating all its operations, financial and compliance functions, for efficient and orderly conduct of its business, adherence to the Company Policies, safeguarding its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial information and compliance with applicable statutes and rules and regulations thereunder. Appropriate review and control mechanisms are in place for ensuring the internal control systems are operating effectively. The internal control system is supported by qualified personnel and a continuous program of internal audit. The prime objective of such audits is to test the adequacy and effectiveness of all internal control systems laid down by the management and to suggest improvements, robustness of internal processes, policies and accounting procedures, compliance with laws and regulations. For this purpose, a yearly audit plan will be made with the approval of the Audit Committee of the Board of Directors. The internal audit function, reports directly to the Audit Committee, maintaining independence and objectivity in its function. Based on the reports of internal audit function, respective process owners carryout corrective action in their areas. The Audit Committee reviews the significant audit observations and status of rectification measures thereon regularly. The Audit committee also reviews internal controls over financial reporting and ascertain with the statutory auditors about its adequacy and effective operation. Based on its review and report of the statutory auditors, the internal financial controls during the year are adequate and operating effectively. The Company also encourages and recognizes improvements in work practices. The Management duly considers and takes appropriate action on the recommendations made by the internal auditors, statutory auditors, and the Audit Committee.

Risk Management

Kimia lays emphasis on risk management and has an enterprise-wide approach to risk management, which lays emphasis on identifying and managing key operational and strategic risks with a dynamic business continuity plan. The Company strives to identify opportunities that enhance organisational values while managing or mitigating risks that can adversely impact its future performance through:

• Integrated process for identification, assessment and reporting

• Decentralized management of specific opportunities and risks and

• Aggregation at corporate level monitored by the Risk Management Committee with the overall direction and control by the Board.

Risk Management Process

1. Risk identification: Risks are identified through discussion with Business heads and updated risk registers.

2. Risk assessment: Evaluation of risks to determine likelihood of occurrence and its impact to prioritise risk and mitigate within tolerance limit.

3. Risk mitigation: Risk mitigation procedures involve undertaking appropriate actions by the business heads/ process owners who are accountable to mitigate risks within adequate timelines. Progress of mitigation actions are monitored and reviewed periodi- cally.

4. Risk monitoring & reporting: Risk reports are submitted to the Risk Management Committee periodically. The assessment of key risks, analysis of exposure and potential impact are carried out periodically, presented and discussed with RMC. Periodic updates are provided to the Board highlighting key risks, their subsequent impact, and the required mitigation measures.

Mitigation strategy

Kimia is committed to supplying the highest quality medicines to customers for promoting healthier lives. Hence, the Company strives to conform to regulatory and compliance standards to meet stringent requirements of regulators to ensure that our medicines provide best health care for the consumers. Robust quality systems & control measures are in place to ensure that the quality is ensured by process design. The Company is constantly improving compliance practices by imposing strict adherence to its code of conduct that is focused on ethics and integrity, which reduces risk of non-compliance. To drive the compliance initiatives and achieve

a culture of compliance, Kimias Senior Management has initiated a Quality Culture Excellence programme. The Company has leveraged industry expertise by engaging an US-based consulting firm to establish, train and constantly monitor Quality Culture Excellence. An organisation-wide training has been kickstarted and is currently ongoing at all levels. A powerful multi-dimensional monitoring tool to measure Quality Culture Maturity has been developed and shall be used to quantify and improve, where required, the progress of implementation of the Quality Culture Excellence initiative. The Company has a robust "Statutory compliance system/ solution” (Vision 360 Tool) for ensuring compliance with all applicable laws and it is designed to meet the compliance goals of the Company. Periodic updates to the system are made as and when there is a change in any applicable law. Quarterly compliance declarations generated electronically from the system are submitted to the compliance officer. Quarterly compliance audit is done by the transaction auditors to ensure that compliance is mapped with applicable laws. In case of any non-compliance, necessary steps are taken by the concerned functional heads for compliance. There is continuous monitoring by the QC/QA team to deliver the highest quality. The Company has a talent pool of over scientists and analysts, who have proficiency and experience in handling complex chemistry and filing of applications with the regulatory authorities.

Human Resources

We consider employees as an integral part of our operations and we put in place appropriate compensation plans, feedback process, continuing training and upgradation of skills in their functional areas. Employee relations are affable and harmonious with safe and healthy working environment and all-round contribution and participation in the growth. The Company sincerely apprecixates the hardwork and dedication of employees despite the covid-19 pandemic and working in the factories/offices complying with all covid safety measures.

Environment, health and safety

As the Companys manufacturing operations involve complex chemical reactions, risks exist on any issues relating to safe operations and environment compliances. Kimia policies and processes are designed and reviewed from time to time to adhere to all applicable regulations on the environment management, employee health and safety. Continually strives to optimize the resources and upgrade its processes in order to reduce the environmental impact of its processes, products and services, besides ensuring health and safety of employees involved in the processes.

Information Technology (IT)

The Company has put in place an IT policy in order to ensure consistency, protection and security of data and IT systems to ensure smooth business processes. The systems used for information security are constantly tested, continuously updated and expanded. In addition, our employees are regularly trained on data protection and safety including secure online banking transactions. IT-related risk management exercise is conducted using appropriate protocols and tools.

Business continuity

The Company has appropriate strategies for business continuity for addressing disruptive events, of various nature, on business operations and has set up a comprehensive and proactive framework to mitigate such disruptive events by deploying available alternative solutions; and reduce their potential damages.

A Responsible Organisation

Kimia Biosciences Limited (KBL), the philanthropic arm of the Company, remains committed towards the growth and well-being of the community through various programmes and activities. The Foundations CSR efforts focus on several aspects of society, including nutrition, education, health and hygiene, women empowerment, rural development, and disaster management. With a dedicated team of people, the Company has partnered with several charitable organisations for improving the quality of life in the society.

CURRENCY FLUCTUATION RISKS

Currency risks mainly arise out of overseas operations and financing activities. Exchange rate fluctuations could significantly impact earnings and net equity because of invoicing in foreign currencies, expenditure in foreign currencies, foreign currency borrowings and translation of financial statements of overseas subsidiaries into Indian rupees. The Company has a defined foreign exchange risk management framework to manage these risks excluding translation risks.

New technologies impact on Pharma: An ongoing issue for the pharmaceutical industry is how new technologies, particularly digital-related technologies, will impact drug development and commercialization. The Company reports emerging technologies in healthcare as a whole, such as artificial intelligence, 3D printing and their impacts on business models, operations, workforce needs and cyber security risks as well as the positive impact of a digitized supply chain in reducing manufacturing costs.

OPPORTUNITIES AND THREATS

The Pharmaceutical industry is a highly dynamic and competitive market. The Indian Pharma Industry is faced with significant export opportunities. Marketing alliances for MNC products in domestic and international market is another emerging opportunity. India can become a niche player in global pharmaceutical R&D and possibilities exist for expansion of biotechnology generics (also known as bio-similar) and biopharmaceuticals.

However, product patent regime poses serious challenge to domestic industry unless it invests in research and development. R&D efforts of Indian pharmaceutical companies are hampered by lack of enabling regulatory requirement. This threat does not affect Kimia Biosciences as a large portion of capital is invested in R&D for the company. The company has volatile and dynamic market strategies to cope with various market changes and challenges.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The sale of manufactured goods done by company is 11,892.08 Lakhs during the year 2024-25 in comparison to 11,892.08 Lakhs for the year 2023-24.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

In the context of people employed, there has been significant increase in workforce employed during the financial year 2024-25 as compared to the previous year.

Details of significant changes in the Key Financial Ratios

Ratios	31/Mar/2 5	31/Mar/2 4	% change	Explanation for change >25%
i) Debtors Turnover	3.70	3.61	2.49%	Due to increase in sale
(ii) Inventory Turnover	2.17	1.90	14.21%	Due to increase in sale
(iii) Interest Coverage Ratio	3.99	-0.42	-735%	Due to increase in sale
(iv) Current Ratio	0.92	0.88	4.55%	Due to increase in sale
(v) Debt Equity Ratio	1.04	64.68	98.39%	Due to reduce in Debt
(vi) Gross Profit Margin (%)	42%	30%	40%	Due to increase in sale
(vii) Operating Profit Margin	42%	30%	40%	Due to increase in sale
(%)
(viii) Net Profit Margin (%)	8%	-5%	-259%	Due to increase in sale

Detail of changes in the Return on Net Worth

Ratios	31/Mar/2 5	31/Mar/2 4	% change
Change in Return on Net Worth as compared to the immediately previous financialyear along with a detailed explanation thereof	996.61	33.1	2910%