Neuland Laboratories Ltd Management Discussions

Global Economic Overview¹

In 2023, the global economy experienced a significant upsurge despite persistent geopolitical tensions. Inflation rates decreased to 5.3% and the growth in Gross Domestic Product (GDP) reached 3.4%, surpassing the International Monetary Funds (IMF) initial predictions. Moving forward, global economic growth is projected to continue at a stable rate, supported by monetary policies from major economies Central Banks, including Europe, China and the US, with inflation showing signs of stabilisation.

Other factors helping the recovery were lower energy costs and an increase in both government and private expenditures, which, in turn, increased consumer demand. Despite ongoing labour market challenges, an increase in real disposable income spurred growth in both public and private sectors.

Consumers also played a significant role in this economic upturn by spending savings accumulated during the pandemic. On the supply side, there was an improvement due to increased labour force participation, the resolution of supply chain issues from the pandemic, and improved delivery efficiency.

Looking ahead, advanced economies are expected to ease fiscal policies, with the United States taking a more lenient approach than the Europe area.

Conversely, other economies are still in the process of financial recovery. In emerging markets and developing economies (EMDEs), productivity levels remain below pre-pandemic standards, with fiscal policies generally staying neutral.

Outlook²

The global economy is expected to show significant resilience, with growth projected to remain stable at around 3.2% for both 2024 and 2025. Advanced economies are expected to see a slight increase in growth, rising from 1.7% in 2024 to 1.8% in 2025, while emerging markets and developing economies will experience a modest slowdown, maintaining growth at 4.2% for both years. Global inflation is anticipated to decrease steadily, from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Advanced economies are likely to achieve their inflation targets sooner than emerging markets and developing economies, with core inflation expected to decline at a more gradual pace.

Indian Economic Overview

In the fiscal year 2023-24, Indias economy sustained its position as one of the worlds fastest-growing economies, maintaining its rank as the fifth-largest globally and advancing to the third-largest in terms of purchasing power parity (PPP). With the inflation rate decreasing to 5.4% in 2023-24 compared to 6.7% in 2022-23 and a GDP expanding by 8.2% as compared to 7% in the previous year driven by increased government spending on infrastructure, a booming service

sector and stable governance with policies geared towards health, education, land and agriculture.*

As the host for the G-20 presidency, India facilitated significant multilateral initiatives, while its financial sector exhibited remarkable resilience. Despite the implementation of tightened fiscal policies, consumer price inflation remained within the targeted range of 2-6%³. Looking forward, businesses are anticipated to perform even more strongly with stable interest rates and deleveraged balance sheets, as evident from growing credit demand, highlighting the inherent potential of the Indian economy.

Outlook⁴

The Indian economys outlook remains positive, supported by strengthening macroeconomic fundamentals, strong financial and corporate sectors, and a resilient external sector. The governments continued emphasis on capital expenditure while maintaining fiscal consolidation, along with consumer and business confidence, bodes well for investment and consumption demand. These elements are anticipated to generate new employment opportunities, enhance labour incomes, and boost domestic demand. Considering these factors, real GDP growth for 2024-25 is projected at 7.0%, with balanced risks.**

Global Pharmaceutical Industry

The global pharmaceutical industry has shifted its focus from the COVID-19 public health emergency, declared to be over on May 5, 2023, by the World Health Organisation, to the prevention and treatment of other communicable and noncommunicable diseases. This shift highlights the pivotal role of pharmaceuticals globally. Breakthrough therapies introduced over the past decade have significantly transformed patient care across various medical domains. Projections for medicine usage and expenditure up to 2028 have been revised upward to USD 1.2 trillion , primarily due to the introduction of novel drugs, despite a notable downward revision in forecasts for COVID-19 vaccines and therapeutics.

Over the next five years, the primary catalyst for expenditure growth in the pharmaceutical industry is set to be the introduction and adoption of innovative treatments in developed markets, balanced against the impact of patent expirations and the subsequent affordability of generic and biosimilar drugs.

Global Specialty Pharmaceutical Market

Specialty pharmaceuticals include expensive biotechnological goods along with orphan and ultra-orphan treatments. In most of the cases it either meant for rare cancers or orphan indications, apart from that some are emerging for the treatment of chronic diseases as well.

A rapid expansion of the specialty pharmaceutical industry has been observed, leading to the predictions of a significant increase from USD 68.3 billion in 2023 to USD 1,532.8 billion by 2033. This represents a strong CAGR of 36.5%.

North America is emerging as the largest market. This sector is experiencing growth and expansion due to the rise in chronic and rare diseases along with various advances in biotechnology and personalised treatment.

Indian Pharmaceutical Industry

The Indian pharmaceutical industry is experiencing a rapid change, shifting its focus from generic medications to innovation-driven solutions. With a substantial market size of USD 54.6 billion in 2023⁶, this evolution is fuelled by various factors such as the escalating prevalence of diseases, growing healthcare demands and proactive government initiatives aimed at strengthening healthcare infrastructure. Contract Development and Manufacturing Organisations (CDMOs) are leading this shift by implementing advanced methods and driving innovation in the industry.

According to the projections the pharmaceutical industry is expected to reach USD 163.1 billion by 2032, growing

at a compound annual growth rate (CAGR) of 12.3% from 2024 to 2032*. India, recognised as the worlds third- largest pharmaceutical producer, is renowned for its reliable production and supply of critical vaccines, accounting for about 60% of global vaccine output. This production capacity is vital for meeting the vaccine requirements set by the World Health Organisation (WHO), especially for vaccines such as Diphtheria, Tetanus, Pertussis (DPT), Bacillus Calmette-Guerin (BCG) and Measles. Moreover,

India serves as a major exporter of pharmaceuticals, catering to over 200 countries worldwide and fulfilling a substantial portion of the global demand for generic medications.

Catalysts for Growth

O Government schemes⁷ - The Indian government has been actively supporting the growth of the pharmaceutical industry through various schemes and initiatives. Some of these schemes include the scheme for Strengthening of Pharmaceuticals Industry (SPI), the Production Linked Incentive (PLI) for pharmaceuticals, the Production Linked Incentive (PLI) scheme for promotion of domestic manufacturing of critical Key Starting Materials (KSMs)/Drug Intermediates and Active Pharmaceutical Ingredients (APIs) in the Country and scheme for promotion of Bulk Drug Parks. These schemes aim to improve the productivity, quality and competitiveness of the pharmaceutical sector in India, and to promote domestic manufacturing of critical inputs and intermediates.

O Research and development- The Indian pharmaceutical sector benefits from substantial government-supported research and development endeavours. The National Policy on Research and Development and Innovation in the Pharma-MedTech Sector in India has allocated H 4250 crores in financial aid to industries, MSMEs,

SMEs, and start-ups collaborating with government institutes for research⁹. This policy emphasises fostering industry-academia partnerships, prioritising key areas for industry enhancement, launching marketable products and devising affordable healthcare solutions. The establishment of the Indian Council of Pharmaceuticals and Med-Tech Research and Development serves to facilitate domestic and international collaborations between academia and research institutions¹⁰. These initiatives are pivotal in fostering innovation, strengthening research capabilities and positioning India as a global front runner in pharmaceutical research and development. *Source: Indian Healthcare Industry Analysis : IBEF

Industry Overview Global API Market

Active Pharmaceutical Ingredients (API) manufacturing involves the production of the active substance responsible for the therapeutic effects of pharmaceutical medications.

The global pharmaceutical API market has experienced robust growth in recent years, with projections indicating further expansion. From a valuation of USD 206.95 billion in

2023, the market is expected to reach USD 219.76 billion in

2024, reflecting a Compound Annual Growth Rate (CAGR) of 6.2%. This growth is driven by several factors, including increased expenditure on pharmaceutical research and development (R&D), patent expirations leading to generic API production and the implementation of supportive government policies favouring API manufacturing.

Looking ahead, the market for APIs is anticipated to continue its upward trajectory, with projections indicating a strong growth trajectory in the coming years. By 2028, the global API market is estimated to reach the valuation of USD 279 billion continuing at a steady CAGR of 6.2%. This consistent growth underscores the critical role of API manufacturing in addressing the evolving healthcare needs across the globe, highlighting the sectors pivotal role in advancing pharmaceutical therapies.

Indian API Market¹¹

Indias pharmaceutical industry is set for significant growth, expected to reach USD 65 billion by the end of FY24 with Active Pharmaceutical Ingredients (APIs) manufacturing making up about 35% of this sector. India stands as the worlds third-largest API producer, holding an 8% share of the global API market and producing over 500+ types of APIs. Notably, 57% of these APIs supplied by India are included in the WHO prequalified list, highlighting the nations contribution to the global pharmaceutical market.

Projections indicate that Indias API manufacturing sector will experience a Compound Annual Growth Rate (CAGR) of 13.7% in the coming years. This forecast is supported by several factors, including a robust domestic market, a leading chemical industry known for its innovation, a highly skilled workforce and operational costs that are approximately 40% lower compared to Western countries. Moreover, Indias commitment to maintaining rigorous quality standards promotes its reputation and strengthens its position in the global API market.

In recognition of the strategic significance of API manufacturing, Indian government has implemented various initiatives to strengthen this segment. In 2020, the government approved a production-linked incentive (PLI) scheme amounting to INR 6,940 crores. This scheme aims to encourage the domestic production of Key Starting Materials (KSMs)/Drug Intermediaries (DIs) and APIs, aiming to reduce the countrys dependence on imports. Following the implementation of this scheme, production for 35 different APIs has started in India, minimising the need for imported materials. These initiatives demonstrate Indias dedication to creating a supportive environment that maximises its API manufacturing potential.

Global Contract Development and Manufacturing Organisation (CDMO) Industry

The global market for pharmaceutical Contract Development and Manufacturing Organisations (CDMOs) is experiencing rapid growth, propelled by evolving customer needs for specialised technical services. The Pharmaceutical Contract Development And Manufacturing Organisation Market size is estimated at USD 243.29 billion in 2024, and is expected to reach USD 331.98 billion by 2029, growing at a CAGR of 6.41% during the forecast period (2024-2029)¹². This growth is attributed to an uptick in mergers, acquisitions and investment activities, alongside a surge in demand for generic injectables, as well as an expanding portfolio of COVID-19 vaccines and biologics. Key factors contributing to the markets expansion include the burgeoning generic drugs market, the widespread adoption of small molecule drugs across various therapeutic areas, and the expiration of numerous drug patents. Furthermore, innovations in Active Pharmaceutical Ingredients (API) manufacturing techniques are necessitating more complex processes and production technologies to comply with regulatory standards. Additionally, the rising elderly population is playing a significant role in driving market growth.

Company Overview

Founded in 1984 with its headquarters in Hyderabad,

India, Neuland Laboratories Limited is a renowned publicly traded Company recognised for its leadership in the Active Pharmaceutical Ingredients (APIs) sector.

The Company has established a strong market presence by offering comprehensive chemistry solutions tailored to the pharmaceutical industrys needs. These solutions encompass custom synthesis, the supply of advanced intermediates and APIs throughout various clinical development stages, CMC (Chemistry, Manufacturing and Controls) support for NDA filing, manufacturing through the commercial product lifecycle from launch to genericization.

With over three decades of experience, Neuland has led the way in cGMP API manufacturing and expediting drug development. Its technical and scientific teams deliver extensive services and solutions to the pharmaceutical industry. Neulands standout capability lies in its production of high quality APIs in US FDA-approved facilities, leveraging robust process chemistry within a regulatory- compliant framework, supported by a dedicated workforce of over 1600 professionals.

Neuland has become a global player, operating in more than 80 countries with exports comprising over 78% of its total revenue. The US and Europe are its largest export markets, accounting for more than 79% of its total exports. Additionally, the Company has filed over 499 Drug Master Files (DMFs) with European regulatory authorities, 67 DMFs with the US Food and Drug Administration (USFDA) and several DMFs with health regulatory bodies in Canada, Japan, Korea and Australia.

Financial Performance

(H in crores)

Categories	FY20	FY21	FY22	FY23	FY24
Total Income	766.6	953.0	953.2	1,200.9	1571.1
EBITDA	105.3	162.5	144.3	281.1	474.5
EBITDA Margin	13.7%	17.1%	15.1%	23.4%	30.2%
PAT	15.9	80.3	63.5	163.1	299.6
PAT Margin	2.1%	8.4%	6.7%	13.7%	19.2%
EPS	12.4	62.6	49.5	127.1	233.5
Current Ratio (x)	1.4	1.5	1.6	1.7	2.1
ROCE(%)	8.9%	13.5%	9.7%	21.3%	32.8%
Fixed Asset Turnover (x)	2.3	2.4	2.1	2.7	3.1
Debt to Equity (X)	0.4	0.2	0.2	0.1	0.1

Statement of Profit and Loss

Revenue for the Company stood at ? 1,571.1 crores in FY 2024 as compared to ? 1,200.9 crores in FY 2023, clocking a y-o-y growth of 30.8%. The growth was led by increase in revenue in the CMS and Specialty business.

Further, the fiscal saw the EBIDTA of the Company growing at 68.8% y-o-y to reach ? 474.5 crores in FY 2024 compared to ? 281.1 crores in FY 2023. Profit after tax for Neuland grew by 83.7% y-o-y, to reach ? 299.6 crores in FY 2024 compared to ? 163.1 crores in FY 2023.

Interest Coverage Ratio

During the fiscal, interest coverage ratio increased to 76.8x in FY 2024 from 36.9x in FY 2023 on account of increase in EBIDTA margin.

EBITDA Margin (%)

The EBITDA margin for the Company grew by 680 bps to reach 30.2% in FY 2024 (? 474.5 crores) from 23.4% in FY 2023 (? 281.1 crores). The increase in EBITDA margin was on account of an improved business mix and operating leverage during the fiscal.

Net Profit Margin (%)

Net profit margin grew 540 bps to 19.2% in FY 2024 (? 299.6 crores) from 13.7% in FY 2023 (? 163.1 crores) due to slower increase in depreciation compared to increase in EBITDA.

Net Debt to Tangible Net Worth Ratio

Net debt to tangible net worth ratio improved to -0.03 in FY 2024 from 0.09 in FY 2023 on account of negative net debt.

Current Ratio

Current ratio increased to 2.1 in FY 2024 from 1.7 FY 2023.

Cash Conversion Cycle

The cash conversion cycle (number of days of revenue) stood at 122 days in FY 2024 compared to 141 days in FY 2023. The decrease in days is due to faster collection of receivables.

Return on Capital Employed and Return on Invested Capital

Return on capital employed increased by 1,150 bps to reach 32.8% in FY 2024 compared to 21.3% in FY 2023. Further, the return on invested capital was pegged at 24.7% in FY 2024 compared to 16.1% in FY 2023.

Fixed Assets Turnover

The fixed assets turnover ratio stood at 3.1 in FY 2024 compared to 2.7 in FY 2023. During the fiscal, the Company made capex investments of ? 143.7 crores.

R&D Investment

In FY 2024, the total R&D spend stood at ? 43.5 crores compared to ? 30.1 crores in FY 2023. The Company has further strengthened R&D capabilities by adding scientific personnel, technological equipment, and debottlenecking of operations.

Company product-wise performance

Generic Drug Substances (GDS)

Neuland Laboratories Limited has distinguished itself as a premier provider in the Generic Drug Substances (GDS)/ Generic APIs manufacturing space. The company is renowned for its commitment to product quality, expertise in complex chemical processes and reliability.

Neuland has built a reputation as a trusted and preferred API supplier within the pharmaceutical field. It has an extensive portfolio of APIs across 10 varied therapeutic categories and has made an impressive mark with 973+ Drug Master File (DMF) submissions globally. This showcases Neulands exceptional operational capabilities and profound expertise in synthetic chemistry and process innovation. The Companys success is further supported by an efficient supply chain and stringent project management practices, making Neuland an ideal API partner for generics, adept at navigating the evolving pharmaceutical landscape.

Neuland categorises its GDS offerings into two segments, Specialty APIs and Prime APIs. The Specialty API segment includes critical compounds such as Paliperidone, Apixaban and Dorzolamide, while the Prime API segment covers essential compounds such as Escitalopram and Mirtazapine.

Prime APIs

The Companys Prime segment has a strong portfolio of 10 active pharmaceutical ingredients (APIs), which are key drivers of business volume. Among these essential chemicals are Mirtazapine, which is an anti-depressant, and Levetiracetam, which is effective in treating epilepsy. Furthermore, the category contains important compounds like as Escitalopram , Levofloxacin, Ciprofloxacin, Enalapril, Sotalol, and Labetalol.

Specialty APIs

The specialty APIs business is the profit-driving segment, which comprises complex and niche products. With a strong portfolio of over 50 value-added APIs, the company provides compounds that are frequently covered by patents and are used in validation batches and regulatory filings. This segments key compounds are Paliperidone, Brinzolamide, Dorzolamide, Deferasirox, Donepezil, Entacapone, and Salmeterol.

? Increased demand of specialty APIs such as Paliperidone, Dorzolamide and Ezetimibe

? Maintaining a robust pipeline with the Company poised to file Difelikefalin DMF this year

Custom Manufacturing Solutions (CMS)

Under Custom Manufacturing Solutions (CMS), the Company provides customised small molecule API development and manufacturing support to help customers bring their innovations to the market. The customer profile comprises innovator pharmaceutical and biotech companies. While being a high-margin vertical, CMS is also characterised by variances in performance in the short term due to the inherent nature of the business.

The Companys fast-growing CMS vertical is supported by its robust infrastructure that meets leading regulatory, environmental and safety requirements and its strong domain expertise in complex chemical processes and manufacturing. It offers a range of chemistry services from pre-IND (Investigational New Drug) through to the manufacturing of small-scale clinical trial batches and commercial supplies with minimal technology transfer timelines.

The Company is emerging as an important player in the small molecule CDMO industry on the back of its reliable solutions for API development and manufacturing. The services encompass designing and developing manufacturing processes; process optimisation for competitiveness; cGMP manufacturing of APIs and intermediates; filing of CMC (Chemistry, Manufacturing and Controls) documentation/DMF for the API; and solid-state and pre-formulation technologies, thereby enabling the Company to serve as a complete partner to its customers.

The Company leverages its rich experience of handling complex reactions to transfer the processes from small-scale through validation to commercial manufacturing. Additionally, the Company follows a consultative approach for maintaining longstanding and enduring customer relationships.

Salience of the Segment Revenue

The presence of dedicated local teams across the globe along with the support rendered by technical and commercial employees, helps the Company to expedite the development-to-market timelines for its customers.

R&D and Manufacturing of Products in the Pipeline

Under this segment, the Company generates revenues by undertaking process chemistry, analytical R&D and lab-scale work and manufacturing operations for molecules that are in the clinical pipeline. These projects are usually high on margins but have a lower probability of repeat business. The highly collaborative manner of working with customers and the strong trust build during the development stage strengthens the Companys proposition as a commercial partner when the drug receives regulatory approval. This segment contributes to the uneven nature of the business as there is high attrition of molecules in clinical trials as well as variability in timelines based on the indications and data from the trials. The development revenues are a healthy indicator of the CMS business health as increase in revenues imply either increasing number of projects or molecules close to commercialisation.

Commercial Manufacturing

Under this segment, the Company manufactures intermediates and APIs for commercial novel molecules, covered under patent protection. Commercial manufacturing is a recurring revenue driver for the Company as it is among the few approved suppliers for products that have attained commercialisation status. Scale in such projects is, however, dependent upon the success of the commercialised drugs. The Company has a healthy portfolio of late-stage development projects that are likely to transition to commercial manufacturing contracts in the near future. This will further enhance long-term revenue visibility and predictability.

? Strong portfolio of commercial and close to commercialisation products with patent life beyond 2030

? Several molecules have progress through the clinical pipeline

? Multiple new projects added across the clinical lifecycle

? Increasing number of projects from customers with multiple drugs in the pipeline

? Efficient technology transfers at all stages of drug lifecycle and scaleup

Prospects

The Companys aim to strengthen its CMS business by leveraging advanced technologies, robust research and development capabilities and sustained customer relationships, is reflected by the rising revenues in the CMS vertical. The Company strives to maintain a healthy mix of Phase III and early development projects to ensure consistent and de-risked revenue generation.

For more details on R&D, move to page 74 of the report.

Human Resource

Neuland Laboratories Limited has a dedicated workforce that serves as the foundation for its achievements. The employees prioritise customer satisfaction, addressing their needs with dedication, passion and a sense of purpose.

The Company stringently follows an all-inclusive policy that guarantees the objective irrespective of gender, ethnicity, religion, or nationality.

The company creates a lot of room for talent showcasing and also rewards good performance. The company has created a challenging yet supportive work culture for over thirty years, attracting and nurturing top-tier talent.

During the fiscal year, the Company focused on the following:

o Talent Attraction and Development O Leadership Development O Enrich Employee Experience O Promote Diversity O Ensure Employee Health and Safety

The organisation is making significant efforts to improve the quality of goal setting and appraisal mechanism. Neuland has introduced an online HRMS system to enable employees to create their SMART goals which are then reviewed by their appraisers. Appraisers are expected to interact with the employees and ensure the goals align with the organisational objectives.

On the other hand, the Company has introduced midyear appraisals with the aim to acknowledge the progress on goals, make changes to the goals and also provide developmental feedback.

It is essential for the appraiser to spend adequate time with the appraisee to give feedback on his or her performance during the year and share views on their performance.

This is usually done through writing as well as during the appraisal discussion. The feedback provided must include inputs from all other stakeholders that the appraisee has worked with during the year. The Company requires confirmation on the HRMS system that one-on-one feedback with the appraiser has been completed.

Training and P^eve?^pment

The Company offer training and development opportunities to enhance their skills, expand their knowledge and facilitate advancement in their careers. This includes workshops, seminars, online courses and mentoring programs, among others.

The Company have revamped the rewards and recognition program and branded it as ACE awards (Acknowledging Commitment and Excellence). The ACE awards comprises quarterly and annual recognition programs for both individual and team excellence.

Quarterly ACE awards are announced online where more than 700 employees participated and witnessed the proceedings while the annual awards including the Employee of the Year Award are presented in an exclusive in-person function where the top 100 employees are invited.

mm^{Employee Wellness}

The Company provides wellness initiatives that promotes physical, mental and emotional well-being of the employees. These include regular health checkups, medical insurance, vaccinations and health awareness seminars.

The health check-ups have been crucial to identify early stage of any ailment and has facilitated taking preventive actions. The Company have engaged a third party, YourDOST, to support the company with managing employees emotional well-being. Employees, and even their family members, can book appointments online and interact with the psychologists and counsellors of YourDOST at no cost.

The conversations are kept extremely confidential, and this initiative has proven to be beneficial for both the employees and the Company. 1648

Employees trained in FY24

For more information refer to Human Capital, on page 78 of the report.

Research and Development

Neulands research and development (R&D) centre in Bonthapally, Hyderabad, is a hub of innovation in the pharmaceutical industry. Equipped with cutting-edge facilities and a team of brilliant scientists, the centre focuses on the efficient development of complex molecules. Its key objectives include creating noninfringing processes, designing cost-effective routes and minimising impurities, all grounded in a profound knowledge of chemical processes.

The Company has fifteen state-of-the-art development labs, including 75 fume hoods that ensure optimal safety and operational efficiency. The analytical labs have been designed to facilitate precise analyses, while a dedicated kilo lab is ready for seamless scale-up processes. On the other hand, the Company also has specialised labs for peptides and a separate facility for D2 analogues, underscoring Neulands commitment to diverse research pursuits. The facilities include a dedicated hazardous waste lab for safe chemical management, a wet lab for various experiments and a Focused Beam Reflectance Microscope (FBRM) for particle size analysis and crystallisation monitoring. Additionally, the Company has pilot plants with polyblock reactors for solubility and crystallisation studies, laboratory reactors for varied temperature reactions and heating and cooling systems for Design of Experiments (DoE) studies. Having approvals secured from the Department of Scientific and Industrial Research, Neuland has assembled a robust research and development team of around 350 individuals to drive innovation and foster scientific advancement.

The centre is supported by a Pilot Plant and Kilo Lab, showcasing expertise across a diverse range of reaction capabilities that facilitate the exploration and refinement of new methods. A key area of focus is Custom Synthesis, where Neuland engages in close collaboration with clients under confidentiality agreements to accelerate product development. This approach ensures customisable solutions tailored to specific client needs, supported by thorough analytical backing throughout the development process. Neulands R&D initiatives highlight its dedication to pushing the boundaries of innovation and excellence in pharmaceuticals. With a team of skilled scientists and advanced infrastructure, Neuland strides forward in drug development, reinforcing its leadership position in pharmaceutical research and development.

O Continuous improvement of technical skills and quality advancements in research and development activities.

O Engagement with complex chemicals requiring automation, sophisticated chemistry and the adoption of complementary new technologies.

O Ongoing investment in process engineering and Quality by Design (QBD) laboratories, demonstrating a commitment to robust quality control measures and the optimisation of manufacturing processes.

O A focus on developing technical prowess and enhancing quality to ensure the delivery of high- quality products to clients.

These principles align with Neulands overarching aim to foster innovation and maintain a competitive edge in the marketplace.

Supply Chain Management

Neuland has implemented various measures to ensure a robust supply chain management system. To ensure the efficiency and reliability of the supply chain to meet manufacturing demand and delivering products to customers on time, the Company has employed several strategies.

The Companys SCM has implemented several measures to mitigate supply chain risks and ensure business continuity in the face of disruptions. The Company fosters collaboration with suppliers and logistics partners through various strategies to optimise inventory management, reduce lead time and minimise costs throughout the supply chain.

Priorities

To promote environmental stewardship, the Company integrates ethical practices and digital intelligence into its supply chain operations, ensuring equal opportunities for all stakeholders. Leveraging its innovative capex procurement engine, the Company ensures equal access to procurement opportunities, with 30% sourced from Micro, Small and Medium Enterprises (MSMEs).

The resilient supply chain is anchored by five core principles, enabling swift adaption to market dynamics and assurance of uninterrupted operations. Through streamlined processes and strategic partnerships, the Company continuously optimise supply chains, shortening lead times and enhancing efficiency to meet the evolving needs of customers and communities.

The Company has established key performance metrics to measure supply chain performance and identify areas for improvements. This ensures the Company maintains a culture of continuous improvement to optimise the supply chain processes and performance.

The Company also improved its transportation routes, modes and schedules to reduce lead times and costs, using advanced technology such as supply chain management software, predictive analytics and loT devices. This streamlines processes and also improves overall visibility across the supply chain.

? Ensured adherence to sustainable goals to be one of the primary criteria for onboarding new suppliers

? The Company partnered with CM-Sohrabji Godrej Green Business Centre for training the vendors, while establishing ethical sourcing policies for procuring materials and labour throughout the supply chain

? Neuland is implementing vendor-managed inventory (VMI) programmes to reduce manpower and streamline operations. The programme monitors inventory levels, replenishes stock automatically and automates invoicing processes of P2P and ERP engine

? The Company collaborates with multiple suppliers for critical raw materials, reducing reliance on any single source

? The Company also established a comprehensive supplier Code of Conduct that outlines guidelines for ethical behaviour and

social responsibility

? To ensure the efficiency and reliability of supply chain to meet the manufacturing demand and on-time delivery of products, the Company has employed several strategies to optimise efficiency, minimise disruption and maintain the right inventory

? Cultivated strong relationships with suppliers to avoid bottlenecks during delivery.

? The Company also managed to reduce geographical risks by 14.2% as it reduced dependency on China.

For more information, please refer to Manufactured Capital on page 58 of the report

Quality Assurance and Quality Control

Neuland Laboratories Limited complies with the various international regulations through its well-established comprehensive quality management framework. The Company made significant efforts to remain ahead of the regulators and implement policies ahead of time. These actions together endorse the Companys focus on quality assurance and control. This helps the Company to constantly serve the customers better and provide them with quality goods and services.

The Company adheres to strict regulatory standards, emphasising quality assurance and quality control throughout its manufacturing process. Quality assurance involves upholding high-quality standards from the procurement of raw materials to the distribution of finished products. It incorporates the implementation of comprehensive quality management systems, risk assessment practices and adherence to Good Manufacturing Practices (GMP). Quality control, conversely, is centred on the testing and evaluation of intermediates, final products and raw materials to ensure they meet established standards and legal requirements. Through analytical testing, method validation and batch release testing, quality control verifies the consistency and integrity of products.

Quality Control	EHS
Quality Control can be facilitated with Wet Chemistry, Instrumentation and Microbiology Laboratories	Hazard and EHS Impact studies are regularly conducted
The Company is equipped with sophisticated instruments like HPLCs, GCs, FTIR, UV and Particle Size Analyzer	24X7 occupational health centre with ambulance facility has been provided
About 50+ chemists perform activities round the clock in 3 shift operations	The effluent treatment plant equipped with an RO system and Zero Liquid Discharge systems for wastewater has been successfully implemented and is operating continuously and effectively across all three manufacturing sites. The treated wastewater is fully recycled for utilities makeup.
Stability studies have been conducted as per ICH guidelines	VOC (Volatile organic compound) monitoring has been in the plant through an Online Environmental Monitoring System, which is connected to the servers of both state and central pollution control boards across all manufacturing sites. This system ensures effective control of environmental parameters.

Certifications

Received during FY24

o GMP certification by DCA

o WHO GMP certification by CDSCO

o EU written confirmation by CDSCO

o ISO 9001:2015 surveillance audit certification

o ISO 14001:2015 certification¹³

o ISO 45001:2018 certification¹⁴

Priorities

Neuland Labs remains vigilant in monitoring and adhering to pertinent regulations and standards in the pharmaceutical sector. The Company consistently updates internal processes and procedures to ensure alignment with evolving requirements. The internal audits and inspections serve as regular checkpoints to verify compliance and any identified deviations prompt swift corrective actions.

The Companys commitment to excellence extends to provision of comprehensive training programmes for employees, empowering them with the knowledge and skills necessary to uphold regulatory standards. The Company cultivates a culture of compliance and continuous improvement, while upholding unwavering dedication to delivering products of the highest quality to the customers.

The structured complaint handling process ensures that each customer complaint is meticulously investigated. This leads to the implementation of the required corrective actions to address underlying issues and prevent recurrence.

Information Technology

The Companys focus on building a strong IT foundation Ensures robust, resilience systems, seamless workflow, increased connectivity, maintain strong data security measures and better cooperation across its organisational structure.

11 Infrastructure and t^nterprise

The Company makes use of a range of enterprise applications to streamline operations and enhance efficiency. SAP ERP incorporates the key business functions of an organisation facilitating seamless information transfer across all functions. SAP Success Factors ensures smooth operations of human resources by effectively managing all HRMS processes.

The Company has also installed face recognition technology for secure and efficient access control. Quick Response (QR) codes have been implemented for online compliance in commercial dispatches.

Inventory management and forecasting have been optimised through sales and operational planning tools. CRM tools aid in lead management and marketing campaigns. LIMS and QAMS systems ensure quality and manufacturing compliance.

Base camp, which is an in-house web-based intranet application, enables employee self-service with role-based access control. The Offices 365 suite along with Enterprise Mobility Suite (EMS) on the cloud, facilitates mobile device and application management with single sign-on.

Virtual Desktop Infrastructure (VDI) enhances hybrid working and security across 90% of the organisation. Virtualised server stacks with high availability ensure data centre security.

SDWAN connectivity ensures secure network access between locations, supported by a comprehensive Data Leak Prevention (DLP) solution at all layers. Additionally, the Company has a robust Business Continuity Plan (BCP) and Disaster Recovery (DR) solution in place, regularly tested for efficacy.

Neuland Laboratories Limited gives importance to data security and confidentiality, particularly in relationships with creative partners. The Company has taken strong precautions to protect against ransomware, unauthorised access, and human error. These include regular Vulnerability Assessments and Penetration Testing (VAPT) to strengthen IT infrastructure.

It also includes Security Information and Event Management (SIEM) for early attack detection.

Neuland has recertified its ISMS to ISO 27001:2013 standards, assuring compliance with international security guidelines.

The staff goes through ISMS standard orientation and refresher training programmes, which improves their security awareness.

Neuland also enforces Confidentiality Disclosure agreements with all stakeholders, including customers, workers, suppliers, and consultants, to ensure data confidentiality across the organisation.

For more information, please refer to Intellectual Capital on page 72 of the report

Environment, Health and Safety (EHS)

The senior management at Neuland is dedicated to corporate responsibility, particularly in Environment, Health and Safety (EHS), actively pursuing excellence in EHS practices, emphasising environmental preservation, preventing occupational illnesses and minimising work-related injuries.

The Company encourages a Safety First approach among its employees, stressing the importance of individual wellbeing and environmental conservation in every operational aspect. The Companys efforts in EHS have been recognised with a global ESG (Environmental, Social, and Governance) score of 64 out of 100 from S&P Global rating, highlighting its commitment to these critical areas.

1. Energy Management

o Installed energy meters across its facility to monitor day-to-day energy consumption, improve energy efficiency and track reduction. This also enables to observe change in calorific value of the coal used

o Installation of Automatic Power Factor Correction Systems, KVAR EC Units, Pressure Transmitters and Variable Frequency Drives (VFDs) in different equipment reduced energy consumption and enhanced operational efficiency

o Replaced old Air Conditioners with more energy- efficient 5 Star rated inverter type systems

2. Water Management

o Installing water meters at key points within facilities to measure water consumption both in real-time or at regular intervals

o Conducting water audits and assessments to identify areas of high-water usage, leaks and inefficiencies

o Establishing water consumption benchmarks and performance metrics to set targets, track progress and compare performance across facilities and industry standards

3. Waste Management

o Seeking certifications such as ISO 14001

(Environmental Management Systems) and adhering to circular economy principles in implementing waste reduction and circularity practices

o Conducting regular waste audits to identify opportunities for waste reduction and tracking progress toward waste reduction targets

o Implementing waste minimisation programs to identify opportunities for reducing waste generation at the source. This involve optimising production processes, redesigning products and packaging to minimise waste and implementing lean manufacturing principles to reduce inefficiencies.

4. Effluent Management

o Invested in dedicated collection and storage tanks with suitable Materials of Construction (MOC) for wastewater collection and treatment

o Introduced checklists to ensure proper containment during API storage and loading and unloading activities

o Minimising outdoor process activities and maintaining registers for tank overflow, spillages and leakages

o The quality of water is analysed before release, ensuring compliance with environmental standards

o Stripped effluents are treated in a Multiple Effect Evaporator (MEE) and subsequently processed through an Agitated Thin Film Dryer (ATFD).

The salts from ATFD are either disposed of at a Treatment, Storage, and Disposal Facility (TSDF) or pre-processed.

The Zero Liquid Discharge (ZLD) system for wastewater treatment involves a Stripper to remove Low VOCs (Volatile Organic Compounds) from the solvent. Post-stripping, the wastewater undergoes concentration in a Multiple Effect Evaporator (MEE) to achieve a solids concentration of 30-35%.

This is followed by treatment in an Agitated Thin Film Dryer (ATFD).

The solids generated after ATFD are sent to facilities that process alternate fuel resources, including co-processing in Cement industries as a co-fuel for energy conservation.

For more information, please refer to Natural Capital on

page 104 of the report

Risk Management

Risk management is of utmost importance to Neuland Laboratories Limited, essential for protecting public health, ensuring compliance with regulations and safeguarding the Companys reputation and financial health. The drug development, production and distribution process involve significant complexities and uncertainties, exposing the Company to various risks. Neuland implements comprehensive risk management strategies and frameworks to proactively identify, evaluate and address these risks. By effectively managing potential risks, Neuland aims to minimise negative impacts, guarantee product quality and safety and uphold the trust and confidence of stakeholders in its operations and offerings.

Risks	Definition	Mitigation
	Interruptions affecting the timely delivery of raw materials, components or finished products due to transportation issues, geopolitical events or supplier problems, potentially leading to production delays and shortages of essential drugs.	O Actively expanding supply chains to reduce dependence on any single source.
Supply Chain Volatility		O Maintaining a deep understanding and staying ahead of global market trends.
Non Compliance	Risks associated with the Companys inability to comply with laws, regulations and guidelines set by pharmaceutical regulatory authorities such as the FDA in the United States or the EMA in Europe, could lead to legal penalties, product recalls and reputational damage.	O Successfully passed inspections by international regulatory bodies including the by US FDA, EDQM, BfArM (Germany), TGA (Australia) and PMDA (Japan), AFSSAPS (France), ANVISA ( Brazil) and Cofepris ( Mexico). O Ensuring full compliance with regulatory standards and preventing any breaches.
Market Volatility	Changes in demand, pricing pressures, currency exchange variations and competitive dynamics can affect the Companys sales, profitability and investor confidence. Risks to the Companys intellectual property rights, such as patents, trademarks and trade secrets, from patent infringement lawsuits, generic competition, or counterfeit products, potentially resulting in loss of market exclusivity and revenue.	Staying aware of market conditions and adapting to changes effectively.
Intellectual Property Risks		O Diligently monitoring intellectual property rights to identify potential infringements and challenges to patents. O Prioritising ongoing research and development efforts to create innovative and improved products and processes, sustaining a competitive edge.

Internal Control and Audit

The Company has devised comprehensive internal control systems commensurate with the size and nature of business and industry in which it operates. The internal control systems are built in compliance with applicable laws and statutes. The systems ensure adequate assets safeguard and efficient productivity at all levels. The control systems are crucial for securing sensitive data, easing out audit process, maintaining proper accounting controls, monitoring operations, conservation of assets, preventing frauds and errors, executing authorised transactions, safeguarding assets from unauthorised use and ensuring compliance with corporate policies. The

empowered authority is allowed to approve contracts and expenditure as per defined limits.

Processes to articulate annual and long-term business plans are clearly defined in the systems along with periodic review. The effectiveness of the internal control over financial reporting (as defined in Regulation 17 of SEBI Listing Regulations, 2015) was assessed by the management as of March 31, 2023. The Audit Committee evaluated internal financial controls (as defined in Section 177 of Companies Act, 2013 and Regulation 18 of SEBI Listing Regulations, 2015) as on March 31, 2024, and concluded the systems to be appropriate and operating effectively.

The financial statements included in this annual report have been audited by M S K A & Associates, the statutory auditors of the Company who have issued an attestation report on the internal control over financial reporting (as defined in Section 143 of Companies Act 2013).

The internal auditors, Ernst & Young LLP, are responsible to oversee and carry out internal audit of the Companys activities. The Audit plan along with the audit process is defined on an annual basis, in consultation with the Auditors, and post approval by the Audit committee.

The internal audit is directed towards the review of internal controls and risks in the Companys operations such as manufacturing, R&D, supply chain management, accounting and finance, IT processes, EHS following international practice rules.

Business specific compliances such as quality management, production management, and information security, among others are periodically reviewed and audited by specialised third party consultants and professionals. The Audit Committee reviews the reports from the management and audit reports submitted by internal auditors and statutory auditors.

Improvements and corrective actions as required are also suggested by the Audit Committee. The Audit Committee and the statutory auditors discuss and review the adequacy of internal control systems. Major observations from this meeting are discussed with the Board of Directors on a periodic basis. The Audit Committee concluded that the Companys internal financial controls were adequate and operating effectively, based on its evaluation (as defined in Section 177 of Companies Act, 2013 and Regulations of SEBI Listing Regulations, 2015) as on March 31, 2024.

Cautionary Statement

This document contains forward-looking statements regarding expected future events and financial and operating results of Neuland Laboratories Limited. As these statements rely on assumptions, they are inherently subject to risks and uncertainties. There is a significant risk that these assumptions and predictions may not prove to be accurate. Readers are cautioned against placing undue reliance on forward-looking statements, as various factors could cause actual future results and events to differ materially from those expressed in these statements. Accordingly, this document is subject to the disclaimer and qualified in its entirety by the assumptions, qualifications, and risk factors outlined in the Managements Discussion and Analysis of Neuland Laboratories Limited Annual Report for the fiscal year 2023-24.