Lactose India Ltd Management Discussions

Industry Overview

The pharmaceutical industry continues to remain one of the most critical components of the global healthcare ecosystem. The industry is supported by structural growth drivers such as increasing healthcare expenditure, ageing populations, rising prevalence of chronic and lifestyle-related diseases, increasing access to healthcare in emerging economies, technological advancement and continued demand for affordable medicines.

During FY 2025-26, the global pharmaceutical industry continued to demonstrate resilience despite several challenges, including pricing pressures, regulatory developments, geopolitical uncertainties, supply-chain disruptions and increasing scrutiny of manufacturing quality and compliance. At the same time, opportunities arising from the increasing demand for generic medicines, specialty products, complex formulations, active pharmaceutical ingredients ("APIs") and pharmaceutical excipients continued to support long-term industry growth.

According to IQVIA, global medicine spending is expected to grow at approximately 5% to 8% CAGR through 2030 and is projected to reach approximately US$ 2.6 trillion by 2030. The outlook reflects continued expansion in medicine consumption, particularly in emerging markets, while innovative therapies, specialty medicines and new treatment modalities are expected to remain important growth contributors.

The pharmaceutical value chain is increasingly focused on supply-chain resilience, manufacturing localisation, quality assurance and diversification of sourcing. This trend is creating opportunities for reliable manufacturers of APIs, excipients and other critical pharmaceutical inputs.

Global Pharmaceutical Industry - Key Trends

The global pharmaceutical industry is undergoing significant structural changes. Some of the key trends are: a. Increasing Healthcare Expenditure

Healthcare expenditure continues to increase globally owing to ageing populations, increased life expectancy, greater disease awareness and wider access to healthcare. Emerging economies are expected to contribute significantly to incremental pharmaceutical demand. b. Growth in Generic and Affordable Medicines

The increasing focus of governments and healthcare systems on reducing healthcare costs is supporting demand for generic medicines and cost-effective pharmaceutical products. This continues to provide a favourable environment for manufacturers of APIs, excipients and pharmaceutical intermediates. c. Supply-Chain Diversification

Recent global disruptions have highlighted the importance of diversified and dependable pharmaceutical supply chains.

Pharmaceutical companies and global customers are increasingly evaluating alternate manufacturing locations and suppliers to reduce geographical concentration risk.

India, given its establishedThistrendpresents pharmaceutical significant manufacturing capabilities, skilled workforce, cost competitiveness and growing regulatory capabilities. d. Increasing Regulatory and Quality Requirements

Pharmaceutical manufacturers globally are subject to increasingly stringent quality, environmental, safety and regulatory requirements. Customers are increasingly seeking suppliers with robust quality systems, traceability, validated manufacturing processes and consistent product performance.

Accordingly, investments in quality systems, manufacturing infrastructure, laboratory capabilities, regulatory compliance and employee training are becoming essential for sustainable growth. e. Increasing Demand for Specialty and High-Value Products

The pharmaceutical industry is progressively moving towards complex products, specialty medicines, biologics, advanced therapies and differentiated pharmaceutical ingredients. This is encouraging manufacturers to expand their product portfolios and develop higher-value products.

For manufacturers of pharmaceutical excipients and APIs, opportunities exist in developing differentiated grades, customised specifications, higher-purity products and products meeting stringent international regulatory requirements.

Global Market Outlook

The global pharmaceutical market is expected to maintain a healthy growth trajectory over the medium to long term. According to IQVIAs 2026 outlook, global medicine spending is projected to reach approximately US$ 2.6 trillion by 2030, representing a 5% to 8% CAGR during the forecast period.

Growth is expected to be supported by:

- Increasing pharmaceutical consumption in emerging economies;

- Ageing global populations;

- Increasing prevalence of chronic diseases;

- Expansion of healthcare coverage;

- Continued introduction of innovative medicines;

- Increasing demand for generic and affordable medicines;

- Growth in biologics and specialty products;

- Increasing outsourcing of pharmaceutical manufacturing; and

- Diversification of global pharmaceutical supply chains.

- The medium-term outlook for pharmaceutical manufacturers remains positive. However, the industry is expected to remain competitive, with pricing pressure, regulatory requirements, raw material volatility and geopolitical developments continuing to influenceprofitability.

Pharmaceutical Excipients Market and Lactose

Pharmaceutical excipients are essential components of pharmaceutical formulations and play a critical role in the manufacture, stability, functionality and delivery of medicines. Unlike APIs, excipients generally do not provide the therapeutic effect of a medicine but are essential to ensure the desired formulation characteristics and manufacturing performance.

Lactose is one of the widely used pharmaceutical excipients and is used extensively in tablets, capsules, dry powder formulations and other pharmaceutical dosage forms. Its established functional characteristics, compatibility with several APIs and widespread acceptance in pharmaceutical formulations provide a stable underlying demand base.

The demand for pharmaceutical-grade lactose is expected to be supported by:

- Continued growth in generic pharmaceutical manufacturing;

- Increasing tablet and capsule production;

- Expansion of oral solid dosage formulations;

- Increasing pharmaceutical production in emerging economies;

- Increasing demand for high-quality and compliant excipients; and

- Growing outsourcing and contract manufacturing activities.

For manufacturers, the opportunity lies not merely in volume growth but also in developing and supplying consistent, high-quality pharmaceutical grades with appropriate particle characteristics, purity, microbial control and regulatory documentation. The Companys focus on pharmaceutical-grade lactose positions it within an important segment of the pharmaceutical value chain, where quality consistency, supply reliability and regulatory compliance are critical purchasing considerations.

Lactulose - API Market

Lactulose is an important pharmaceutical ingredient primarily used in products for the management of constipation and hepatic encephalopathy. Demand for lactulose is supported by increasing healthcare awareness, ageing populations, gastrointestinal disorders and continued requirements for effective and established therapeutic products.

As an API manufacturer, the Company operates in a segment where product quality, consistency, regulatory compliance and manufacturing reliability are important differentiating factors.

The long-term opportunity in lactulose is supported by:

- Increasing awareness and treatment of gastrointestinal disorders;

- Ageing populations and associated digestive health requirements;

- Continued use of established therapies;

- Growth of generic pharmaceutical markets;

- Increasing demand from international pharmaceutical manufacturers; and

- Opportunities to expand into additional regulated and emerging markets.

- The Company can leverage its manufacturing expertise, quality systems and regulatory capabilities to expand its customer base and geographic presence in the lactulose API segment.

Indian Pharmaceutical Industry Structure and Development

India is one of the worlds leading pharmaceutical manufacturingcentresandcontinuestoplay significantrole in the global pharmaceutical supply chain. India ranks third globally in pharmaceutical production by volume and 14th by value. The country supplies approximately 20% of generic medicines globally by volume and has developed strong capabilities across APIs, formulations, vaccines, biosimilars and contract manufacturing.

The Indian pharmaceutical ecosystem comprises a large number of manufacturers, suppliers, contract manufacturers, API producers, formulation companies and specialised pharmaceutical service providers. The industry is supported by a large pool of technical talent, established manufacturing infrastructure and comparatively competitive operating costs.

The Indian pharmaceutical industry has progressively evolved from being predominantly focused on generic medicines to developing capabilities in complex generics, specialty products, biosimilars, APIs, contract development and manufacturing and other high-value pharmaceutical segments.

The Government of India continues to support the sector through various policy initiatives, including the Production Linked Incentive ("PLI") Scheme, promotion of domestic API manufacturing, bulk drug parks, research and innovation initiatives and measures aimed at reducing dependence on imported pharmaceutical inputs.

Indian Pharmaceutical Market Size and Growth

The Indian pharmaceutical market continues to demonstrate strong long-term growth prospects. According to industry estimates cited by IBEF, the Indian pharmaceutical market was valued at approximately 4.97 lakh crore (US$57.61 billion) in 2025 and is estimated to reach approximately 6.89 lakh crore (US$79.74 billion) by 2031.

Another industry outlook indicates that the Indian pharmaceutical market could reach approximately US$120-130 billion by 2030.

Indias pharmaceutical exports also continue to expand. Pharmaceutical exports were approximately US$30.47 billion during

FY 2024-25, reflecting Indias growing role as a global supplier of medicines and pharmaceutical products.

The Indian industrys growth is expected to be driven by:

- Rising domestic healthcare expenditure;

- Increasing healthcare penetration;

- Growing middle-class population;

- Ageing population;

- Increasing incidence of chronic diseases;

- Increasing demand for affordable medicines;

- Export opportunities;

- Global supply-chain diversification;

- Increasing API and excipient outsourcing; and

- Government support for domestic manufacturing.

Indian Pharmaceutical Industry Key Developments During FY 2025-26

During FY 2025-26, the Indian pharmaceutical sector continued its transition towards higher-value manufacturing and greater self-reliance.

The Government continued to emphasise domestic manufacturing of APIs and critical pharmaceutical inputs. Policy initiatives have increasingly focused on reducing import dependence, strengthening domestic manufacturing capabilities and promoting research and innovation.

The sector is also witnessing increasing adoption of technology and artificial intelligence in areas such as research and development, quality systems, manufacturing optimisation and supply-chain management.

The Indian pharmaceutical industry is therefore expected to increasingly move from a cost-driven manufacturing model towards a combination of cost competitiveness, quality, regulatory capability, innovation and supply-chain reliability.

Companys Business and Strategic Position

The Company operates in the pharmaceutical value chain with its core product portfolio comprising Lactose as a pharmaceutical excipient and Lactulose as an API.

Both products serve essential requirements of pharmaceutical manufacturers and are positioned in segments where product quality, consistency, regulatory compliance and reliable supply are important factors.

The Companys business model is supported by the following fundamental strengths:

- Established manufacturing capabilities;

- Focus on pharmaceutical-grade products;

- Technical expertise;

- Quality-oriented manufacturing systems;

- Established customer relationships;

- Potential for domestic as well as export markets;

- Ability to serve pharmaceutical manufacturers requiring consistent and reliable supplies; and

- Opportunities for product and market diversification.

Going forward, the Company intends to focus on strengthening its existing product portfolio, expanding customer relationships, improving operational efficiencies, enhancing manufacturing capabilities and increasing its presence in domestic and international markets.

Opportunities

Growth in Global Pharmaceutical Consumption

The expected growth in global pharmaceutical consumption provides a favourable long-term demand environment for APIs and pharmaceutical excipients.

India as an Alternative Global Manufacturing Base

Global pharmaceuticalcompaniesareincreasinglyevaluatingdiversifiedsupply chains. Indias established pharmaceutical ecosystem provides an opportunity for Indian manufacturers to become preferred suppliers for global customers.

Export Market Expansion

The Company can explore opportunities in regulated as well as emerging pharmaceutical markets. Expansion into new geographies can reduce dependence on individual markets and provide a diversified revenue base

Increasing Demand for Pharmaceutical Excipients

Growing production of generic formulations and oral solid dosage products is expected to support demand for pharmaceutical excipients, including pharmaceutical-grade lactose.

Growth in API Outsourcing

Increasing outsourcing by pharmaceutical formulation manufacturers creates opportunities for API manufacturers with consistent quality, reliable supply and appropriate regulatory capabilities.

Product Portfolio Expansion

The Companys existing manufacturing capabilities provide an opportunity to evaluate adjacent products, specialised grades, higher-value pharmaceutical ingredients and other products that can utilise existing infrastructure and technical capabilities.

Regulatory Approvals and Customer Qualification

Obtaining additional regulatory approvals, customer qualifications and registrations can create higher-value and regulated international markets.

Operational Efficiency and Technology

Automation, process optimisation, energy efficiency, digitalisation and improved manufacturing controls can support productivity improvement, cost optimisation and consistent product quality.

Threats and Challenges Raw Material Price Volatility

Fluctuations in the prices of raw materials, energy, utilities,packagingmaterialsandotherinputscanaffectmanufacturing costs and operating margins.

Regulatory Compliance

The pharmaceutical industry is highly regulated. Any changes in regulatory requirements or non-compliance with applicable standards could adversely affect operations, customer relationships and market access

Pricing Pressure

The pharmaceutical industry remains highly competitive. Customers may seek periodic price reductions, particularly in generic and commodity-oriented segments. Sustaining margins therefore requires continuous improvement in productivity, quality and cost efficiency.

Foreign Exchange and Geopolitical Risks

For companies with significant export exposure, fluctuations in foreign exchange rates, geopolitical restrictions, tariffs and changes in international policies may affect business performance.

Recent geopolitical and trade developments have also demonstrated the potential for disruption in pharmaceutical export routes and international payments, reinforcing the importance of market and logistics diversification.

Customer Concentration

Dependence on a limited number of customers or markets may expose the Company to fluctuations in demand, pricing negotiations and changes in customer sourcing strategies.

Competition

The API and pharmaceutical excipient sectors are competitive, with domestic and international manufacturers continuously investing in capacity, technology and regulatory approvals.

Environmental and Sustainability Requirements

Increasing environmental expectations and regulatory requirements relating to emissions, effluent treatment, waste management, energy consumption and sustainable manufacturing may require additional investments.

Risk Management

The Company recognises that effective risk management is integral to sustainable business growth. The Company continuously evaluates operational, financial,regulatory, market, supply-chain and other business risks and takes appropriate measures to mitigate their potential impact.

Key areas of focus include:

- Strengthening quality management systems;

- Ensuring regulatory compliance;

- Maintaining diversified supplier relationships;

- Monitoring raw material and utility costs;

- Improving manufacturing efficiencies;

- Maintaining appropriate inventory levels;

- Strengthening customer relationships;

- Expanding domestic and international markets;

- Monitoring foreign exchange exposure; and

- Continuously upgrading manufacturing and testing infrastructure.

- The Company will continue to review its risk management framework in line with changes in the operating environment.

Road Ahead

The medium- to long-term outlook for the pharmaceutical industry remains positive. Global pharmaceutical consumption is expected to continue expanding, while India is well positioned to benefit from increasing demand for cost-effective and reliable pharmaceutical manufacturing.

The Companys strategic priorities for the coming years are expected to include:

Strengthening Core Products

The Company will continue to focus on strengthening its position in pharmaceutical-grade lactose and lactulose API through consistent quality, reliable supply and customer-focused service.

Increasing Manufacturing Efficiency

Continuous improvement in manufacturing processes, capacity utilisation, energy consumption and process yields will remain key priorities for improving competitiveness.

Expanding Export Footprint

The Company intends to explore opportunities in new international markets and deepen relationships with existing overseas customers, subject to applicable regulatory approvals and commercial viability.

Enhancing Product Quality and Regulatory Capabilities

The Company will continue to invest in quality systems, laboratory capabilities, regulatory compliance and employee training to meet evolving domestic and international customer requirements.

Product Diversification

The Company will evaluate opportunities for expanding its product portfolio into complementary APIs, excipients and specialised pharmaceutical ingredients where such opportunities are commercially and technically viable.

Sustainable Growth

The Company remains focused on achieving sustainable growth through responsible manufacturing, efficient utilisation of resources, prudent capital allocation and adherence to high standards of corporate governance and regulatory compliance.

Outlook

The Company believes that the fundamental outlook for its business remains encouraging. Growth in global pharmaceutical consumption, Indias increasing importance as a pharmaceutical manufacturing hub, supply-chain diversification continued demand for APIs and pharmaceutical excipients provide a favourable operating environment.

The Companys established presence in pharmaceutical lactose and lactulose API provides a foundation for further growth. The Companys ability to leverage its manufacturing capabilities, strengthen quality and regulatory systems, expand its customer base and enter new markets will be important factors in determining its future growth trajectory.

The Company remains cautiously optimistic about the medium- to long-term outlook while recognising that the operating environment will continue to be influenced by raw material prices, competitive intensity, regulatory requirements, foreign exchange movements, geopolitical developments and global economic conditions.

The management remains committed to pursuing a balanced strategy focused on growth, quality, operational efficiency, customer relationships, regulatory compliance and sustainable value creation for all stakeholders.

Internal Control System and their adequacy:

Being a pharma company and ISO Certified the process parameters are fully documented and are in place. The role and responsibilities of various people are fully defined in all the functional level. There is a continuous flow of information at all level and effective internal audit and internal checks are done at regular interval to ensure their adequacy and .

Additionally, the following measures are taken to ensure proper control:

- Budgets are prepared for all the operational levels.

- Any material variance from budget has to be approved by the Commercial director.

- Any major policy change is approved by the managing director.

- Any deficiency in not achieving target is reviewed at management meetings.

Discussion on financial performance with respect to operational performance:

(Rs. In Lakhs)

Particulars	F.Y. 2025-26	F.Y. 2024-25
Revenue from Operation	16329.01	11639.93
Other Income	107.19	145.39
Profit/Loss Before Depreciation and Tax	1944.83	1841.22
Tax (Including Deferred Tax) Net	255.73	175.49
Profit/Loss	606.28	516.29

Human Resource development / Industrial relations:

The company continues to focus on training and motivation of manpower so as to develop team of qualified and skilled in a number of projects and activities. It is in this context; we have personneltoeffectively been working towards promoting the skills and professionalism of our employees to cope with and focus on the challenges and growth. The overall industrial relations atmosphere continues to be cordial. The company has revamped the existing HR policies to me more people friendly and offered them a better work-life balance.

Details of significant changes:

(Rs. In Lakhs)

Particulars	F.Y. 2025-26	F.Y. 2024-25
Debtors Turnover	5.93	6.29
Inventory Turnover	2.34	2.56
Interest Coverage Ratio	4.13	3.59
Current Ratio	1.10	1.28
Debt Equity Ratio	0.97	0.97
Operating Profit Margin (%)	11.25%	14.57%
Net Profit Margin (%)	3.70%	4.39%

Details of any change in Return on Net Worth:

The Company Return on Net Worth (RoNW) has increased up to 9.34% for financial year 2025-26 as compared to8.71% for financial year 2024-25. The increase in RoNW was primarily due to increase in turnover of the company.

Cautionary Statement

This Management Discussion and Analysis contains forward-looking statements concerning the Companys business, financial performance, industry trends, growth prospects and future plans. These statements are based on the Companys current expectations, estimates, assumptions and available information.

Actual results may differ materially from those expressed or implied in such forward-looking statements due to various factors, including changes in economic conditions, pharmaceutical industry trends, regulatory requirements, competition, raw material prices, foreign exchange fluctuations, geopolitical developments, supply-chain disruptions, customer demand and other risks and uncertainties.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, except as may be required under applicable laws and regulations.