Nectar Lifescience Ltd Management Discussions

Management

1. Global Economic Overview:

According to the International Monetary Fund (IMF), the global GDP is estimated to have grown at 3.2% in 2024, with projections for 3.1% in 2025. Inflation trends are cooling in advanced economies (down to 3.5%), while emerging markets continue to grapple with elevated price pressures (6.9%). Key Factors Influencing Global Growth: Stabilization of energy markets post Israel-Gaza and Ukraine conflicts.

Slower monetary tightening across the US and EU. Improved consumer demand in North America and Southeast Asia.

However, risks persist:

Geopolitical tensions in the South China Sea, Israel-Gaza and Eastern Europe.

Financial tightening pressures in debt-heavy emerging markets.

Price volatility in key raw materials like crude oil and chemical intermediates.

Sources: IMF World Economic Outlook Jan 2025, OECD Interim Report Mar 2025, World Bank Global Prospects Feb 2025

2. Indian Economic Overview:

India remained one of the worlds fastest-growing large economies in FY24-25, with GDP growth estimated at 7.0%. Key drivers included robust domestic demand, a strong services sector, increased capital expenditure, and resilient rural recovery. Inflation moderated to 5.2% in FY25.

Highlights:

PLI Schemes contributed to manufacturing revival in electronics, APIs, and pharma.

Export performance remained stable despite global demand slowdown, aided by diversified trade partners and FTAs. Credit growth improved in industrial sectors, including pharmaceuticals and chemicals.

Sources: RBI Bulletin March 2025, Ministry of Finance Economic Survey 2024-25, Deloitte Insights

3. Indian Pharmaceutical Industry:

Indias pharmaceutical market stood at USD 66.7 billion in March 2025, with an annual growth rate of 7.5%. The industry benefited from: Surge in chronic therapies, oncology, and biosimilars. Increasing investments in R&D, innovation in complex generics.

Supportive regulations including updated UCPMP enforcement.

Pharma Exports: India exported over USD 27.9 billion worth of pharmaceutical products in FY25, with North America, Africa, and Southeast Asia being major markets. The industry continues to contribute 20% of global generics volume.

Challenges:

Regulatory tightening in major markets (USFDA, EMA). Raw material price volatility and China dependency.

Sources: Pharmexcil, Ministry of Chemicals & Fertilizers, AIOCD March 2025, McKinsey Pharma Tracker Q1 2025

4. Cephalosporin Market Outlook:

The global cephalosporin market reached USD 19.8 billion in 2024 and is projected to grow at a CAGR of 4.3% over the next five years. India remains a key manufacturing hub due to cost efficiency and regulatory readiness.

Key Market Drivers:

High prevalence of antibiotic-resistant infections.

Rising demand for sterile APIs and injectable formulations. Supply diversification efforts by US and EU buyers.

Nectar Lifesciences Limited Overview:

Nectar Lifesciences Limited ("Nectar" or "Company") is a global pharmaceutical company specializing in Cephalosporins. The Company maintained a leadership position in the 3rd and 4th generation cephalosporins segment with global approvals in 2024-25.

Operational Highlights in 2024-25:

Sterile injectable capacity remained fully operational with optimized throughput.

R&D introduced 4 new cephalosporin APIs and filed 3 DMFs in regulated markets.

Baddi formulation facility utilized at 78% capacity across tablets, capsules, and vials.

Slump Sale of Active Pharmaceutical Ingredients (API) and Formulation Business:

Although the Company successfully navigated turbulent periods-including the One-Time Restructuring (OTR) of COVID-related stressed assets-and maintained Earning before interest, tax, depreciation and amortization ("EBITDA") margins as per industry standards, its debt burden and high finance costs were significantly impacting the bottom line.

Therefore, the board of directors of the Company in their meeting held on July 07, 2025, have approved the Sale of business of manufacture, distribution, marketing and sale of API and formulations ("Business") of the Company to Ceph Lifesciences Private Limited ("Purchaser") for INR 12,70,00,00,000/- (Indian Rupees one thousand two hundred seventy crore only) as a slump sale on a going concern basis.

Menthol Assets:

The Board has also approved the Sale, transfer and delivery of the assets of the Company in relation to its menthol business ("Assets") to Purchaser for INR 20,00,00,000/- (Indian Rupees Twenty Crores only), plus applicable GST payable on the sale of such Assets under the applicable law.

Following the slump sale of Business and sale of Assets, the Company will become completely debt-free. The remaining proceeds will be strategically deployed to drive long-term shareholder value through investment in emerging growth areas and by rewarding shareholders.

Empty Hard Gelatine Capsules:

Nectars EHGC manufacturing facility adheres to international standards, offering high-quality capsules for domestic and export markets. Company is endeavouring to dispose off it as well.

Financial Performance:

Specific financial metrics and changes from previous periods are detailed in the Boards Report. Continuing from there, the further highlights of financial performance are as under:

Details of significant changes (i.e., change of 25% or more as compared to the immediately previous FY) in key financial ratios has been provided in Note no. 61 of Standalone Financial Statements, along with detailed explanations thereof. However, the ratios not provided in the said note are provided hereunder:

* EBIT - Earning before interest and tax

Return on Net worth [Profit (Loss) After Tax/ Net Worth*]

* Net worth is calculated on average basis. Also refer to Note 61 in financial statements i.e. return on average equity.

Note: The negative figures are in brackets

Internal Control System & Adequacy:

The Companys internal financial control system complies with the requirements of the Companies Act, 2013 ("Act"), and ensures the effectiveness of internal controls over financial reporting, as outlined in Regulation 17 of the LODR Regulations, as of March 31, 2025. These controls are seamlessly integrated into automated business processes, a centralized global framework, and essential support functions. Nectars internal controls are appropriately tailored to its operational size and nature. The Company also employs a Standard Operating System and the Deloitte Compliance Management Tool as part of its internal control systems. These tools are used to manage business operations and administration, while also improving real-time tracking of regulatory and process deviations.

The statutory auditors of the Company have audited the financial statements and provided an attestation report on the companys internal control over financial reporting, as outlined in Section 143 of the Act. A professional has been appointed to supervise and conduct the internal audit of the Companys activities based on a plan that is reviewed and approved by the Audit Committee. The Audit Committee regularly examines audit reports from both internal and statutory auditors. Recommendations for improvement are taken into account, and the committee ensures follow-up on corrective actions. Additionally, the Company undergoes periodic audits by specialized third-party consultants and professionals to ensure compliance with business-specific requirements such as quality management, service management, and information security.

Outlook & Strategy with Opportunities and Threats

Through the slump sale and asset sale, the Company aims to invest in new projects in emerging growth sectors while also rewarding its shareholders. Additionally, the Company is considering the divestment of the EHGC unit.

Key growth drivers for the Company include global demand, emerging markets, product innovation, and industry expansion. At the same time, effectively managing threats like regulatory challenges, supply chain disruptions, and price pressures is essential for maintaining sustained performance.

Human Resource & Employee Welfare:

As part of the slump sale, most of the employees will be transferred to the Purchaser. The Company intends to adopt a refreshed approach to human resources, introducing new talent with innovative ideas and energy to revitalize the workforce and break the monotony.

The number of people employed with the Company are 1786 as on March 31, 2025.

Whistle Blower Policy/ Vigil Mechanism

The Company has implemented a Whistle Blower Policy that allows employees to report any instances of unethical behaviour, suspected fraud, or violations of the Companys code of conduct or ethics policy directly to management. According to the policy:

1. Whistle Blowers will not face any unfair treatment solely for reporting a Protected Disclosure under this Policy.

2. Whistle Blowers will be fully protected from any retaliatory actions, including threats, intimidation, termination, suspension, disciplinary measures, transfer, demotion, denial of promotion, or any misuse of authority that may hinder their ability to continue performing their duties or making further Protected Disclosures.

Risk Management:

Nectar employs a proactive risk management approach, identifying and mitigating critical risks such as competition, regulations, economic volatility, and supply chain disruptions. A dedicated Risk Management Committee (detailed provided in the Corporate Governance Report) oversees risk mitigation strategies, ensuring operational resilience and long-term stability. Overall, Nectar Lifesciences Limiteds strategic direction, market standing, regulatory adherence, financial performance, and human resource initiatives collectively enhance its competitive edge and growth potential within the pharmaceutical industry. Post slump sale and sale of Assets, the bank loans will be paid fully to mitigate the credit risk. The Company will not have any liquidity issue as it will have enough funds to explore investment in new projects in emerging growth areas and by rewarding shareholders. The regulatory and legal risks will be mitigated to ensure the Compliance of regulatory ecosystem.

Nectar is maintaining high standards of corporate governance, public disclosure and compliance with evolving laws, regulations and standards. It helps the Company to address risks of Financial Reporting, Corporate Accounting Frauds.