Neuland Laboratories Ltd Management Discussions.

World economic overview

The year 2020 posed significant challenges for economies across the globe with lockdowns posing a threat of deep recession. However, sizeable, swift and unprecedented fiscal, monetary and regulatory responses by most Governments helped to maintain disposable income for households, protect cash flow for firms, and support credit provision. The global contraction for 2020 is estimated at 3.5%, led by Chinas quick recovery and better than expected GDP outturns in large advanced economies. Massive vaccination drives and additional policy support in

few large economies have raised hopes of a turnaround in 2021 with growth expectations of 5.5% followed by 4.2% in 2022. Across countries, recovery levels may vary significantly depending on access to medical interventions, effectiveness of policy support, exposure to cross-country spillovers, and structural characteristics entering the crisis.

Indian economic overview

Second half of FY 2020-21 saw some recovery as restrictions on inter-state movements were lifted to ensure mobility of goods, thereby easing supply-side pressures. This was also reflected in pick-up seen in industrial activity.

The second advance estimates of National income for FY 2020-21 by the National Statistics office indicate real GDP contraction at 8% for FY 2021 distorted on account of significant growth of subsidies. A sharp recovery in GDP growth was witnessed in Q3 FY 2020-21 at 0.4% as compared to the steepest ever 24.4% contraction in Q1, and 7.3% contraction in Q2. in order to boost the economy, the Government initiated several investment- focused spending programmes like the national infrastructure pipeline, demand- driven capex, and the Centres Production- Linked incentive (PLi) scheme.

However, post March 2021, economic growth witnessed setbacks caused by the fragmented, yet prolonged state lockdowns, following the tremendous rise in infections in the second wave of the pandemic.

The second wave appears to have hit the affluent, city-dwelling, consumer population harder resulting in deeper economic losses, owing to reduced consumption and investment. Lower consumption may have a cascading effect and result in less hiring, lower wages, and a second hit to consumption.

indias economic growth is estimated at 9.3% in FY 2021-22 as per Moodys Analytics, with expectations that the second wave of CoviD-19 to be less disruptive than the first wave. The re-imposition of "microcontainment zone" lockdown measures are likely to curb economic activity and could dampen market and consumer sentiment. Unlike the first wave where lockdowns were applied nationwide for several months, the second wave measures are more localised, targeted and will likely be of shorter duration. Businesses and consumers have also grown more accustomed to operating under pandemic conditions.

The demand for healthcare and innovative solutions is growing globally with chronic diseases on the rise. The global pharmaceuticals market is expected to grow from $1,228.45 billion in 2020 to $1,250.24 billion in 2021 at 1.8% CAGR. The slowdown in growth is mainly due to the companies rearranging their operations and recovering from the COViD-19 impact, which had earlier led to restrictive containment measures involving social distancing, remote working, and the closure of commercial activities causing operational challenges. The market is expected to reach $1,700.97 billion in 2025 at 8% CAGR.

North America was the largest region in the global pharmaceuticals market, accounting for 46% of the market in 2020, owing to increasing prevalence of chronic diseases and skyrocketing number of COViD-19 cases in the US. Asia-Pacific was the second largest region accounting for 26% of the global pharmaceuticals market. Africa was recorded as the smallest region in the global pharmaceuticals market.

The global pharmaceuticals market is projected to rise at a considerable pace driven by the increasing investments in product R&D. The efforts put in to develop efficient products will bode well for the growth of the overall market in the coming years.

(Source: https://www.globenewswire.com/news-release/ 2021/03/31/2202135/28124/en/Global-Pharmaceuticals- Market-Report-2021-Market-is-Expected-to-Grow-from- 1228-45-Billion-in-2020-to-1250-24-Billion-in-2021-Long- term-Forecast-to-2025-2030.html)

Specialty Medicines

The global pharmaceutical market is segmented by two types: traditional pharmaceutical and specialty pharmaceutical. At present, traditional pharmaceutical is in the dominating position across the globe, but due to increasing demands of specialty pharmaceutical products, it is anticipated that specialty pharmaceuticals growth will become the dominant segment in the coming years. These drugs are mainly used to treat serious, chronic or life-threatening conditions such as cancer, growth hormone deficiency, rheumatoid arthritis and multiple sclerosis. Specialty drugs are more expensive than traditional drugs. Currently, about 36% of total pharmaceutical spending in the commercial market is specialty medications. According to iMS institute for Healthcare informatics, about 42% of drugs in the late stage of the FDA approval process are specialty medications. Global Specialty Pharmaceuticals Market is expected to be $568 billion by 2026.

North America dominates the global specialty pharmaceuticals market owing to heavy investments in R&D initiatives, technological expansions and integration of pioneering technologies, presence of major players and high occurrence of lifestyle-related diseases. Asia-Pacific market is expected to witness a strong growth rate majorly due to high population growth rate, growing prevalence of chronic diseases and rising adoption of advanced technologies. As per World Health organisation (WHo), chronic disease risks and deaths are increasing rapidly, especially in pharmerging countries. According to WHo, almost 23.6 million people will die from cardiovascular diseases, mainly from heart disease and stroke by 2030.

(Source: https://www.pharmiweb.com/press-release/2020- 08-24/specialty-pharmaceuticals-market-size-2020-top- companies-analysis-share-growth-trend- and-research)

Pharmacy of the world

The Indian pharmaceutical market for the first time ever crossed the Rs.1,00,000 crores mark in November 2020 on the basis of Moving Annual Total (MAT).

Indian pharma sector

The Indian pharmaceutical industry is worth $41 billion. India produces the cheapest drugs in the World, exporting pharma products to ~200 countries, with export earnings of $16.28 billion in FY 2020. India manufactures more than

50% of the Worlds vaccines and is also the biggest player in the global generic drugs market with 20% market share.

40% of generic medication in the US and 25% of all medicines in the UK are provided by India alone. India has the highest number (more than 664) of US Food and Drug Administration (US FDA) approved facilities outside the US, over 2,050 World Health Organisation-Good Manufacturing Practices (WHO-GMP) approved pharmaceutical plants and over 697 European GMP compliant plants.

The cost of manufacturing in India is ~33% lower than that of the US making it a suitable marketplace for investors to invest more in the country. The increasing FDI inflows is a reflection of the firm belief by global investors that India will lead as one of the major growth engines coupled with a steady spate of market reforms. The pharma sector is well poised and is attracting FDI and exploiting the several opportunities the pandemic has presented.

With access to large consumer markets, generation of new employment opportunities, rapidly budding R&D and rise in net foreign exchange earnings, the total market size of the Indian pharma industry is expected to reach $100 billion by 2025, as per a report by India Brand Equity Foundation (IBEF).

Government push for pharma sector growth

The Governments concerted push towards the pharma sector through initiatives such as Make in india, Ayushman Bharat Scheme, National Digital Health Mission etc., has cemented india as a leading global capital market.

¦ Production linked incentive (PLi) scheme for the pharma industry worth Rs.15,000 crores ($2.04 billion) to promote domestic manufacturing of critical key starting materials (KSM), drug intermediates,

and active pharmaceutical ingredients (APis) making india a leading supplier.

The Government has approved a total of 33 applications with a committed investment of Rs.5,082.65 crores under a separate PLi scheme for APis

increased thrust on rural health programmes, lifesaving drugs and preventive vaccines

¦ Plan for a mega bulk drug parks to reduce raw material dependence on imports

¦ The Union Budget 2021-22 saw an unprecedented increase in allocation for health sector like:

• increased spending on healthcare from 1.2% of the GDP to 2.5% of the GDP

• Rs.64,180 crores allocation for the Atmanirbhar Swasth Bharat Yojana for development of primary, secondary, and tertiary healthcare over a period of six years

• Rs.2,23,846 crores budget outlay for health and well-being for FY 2022, an increase of 137% over previous year o Rs.35,000 crores outlay for COViD-19 vaccines and national rollout of pneumococcal vaccines to help save over 50,000 lives annually

• Rs.6,429 crores for health insurance scheme, Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana

Key growth factors of the pharma sector

The indian pharma sector growth looks promising given strong Government focus on improving accessibility, increasing affordability and growing acceptability of pharma. The Government has taken several initiatives like massive inoculation drive, Atmanirbhar Swasth Bharat Yojana to develop capacities of primary, secondary, and tertiary healthcare systems, focus on Medical Value Travel, launch of PM-JAY to increase penetration of health insurance, $200 billion investment on medical infrastructure over 10 years, Ayushman Bharat Yojana, Pradhan Mantri Bhartiya Janaushadhi Pariyojana, focus on medical education etc.

Active Pharmaceutical Ingredients (APIs)

Global API Sector

The global active pharmaceutical ingredients market size was valued at $187.76 billion in 2020 and is expected to expand at 6% CAGR to $248.3 billion by 2025. Market growth is attributable to rising drug R&D, increasing incidence of chronic diseases, growing importance of generics, and increasing uptake of biopharmaceuticals. However, unfavourable drug price control policies across various countries and high manufacturing costs may dampen growth. The prominent trends that the market is witnessing include, growing geriatric population, rapid growth in biopharmaceuticals sector and technological advancements in manufacturing. Patent expiration of the major drugs, rising demand for biotech APIs from government and private companies, market entry of biosimilars, increasing scope of high potent drugs and increase in the prevalence of chronic diseases such as cancer, musculoskeletal disorder, cardiac disease are some of the major factors that are driving the market growth. india is expected to become the second largest global generic APi merchant market by 2020, overtaking italy.

Geographically, the active pharmaceutical ingredients market is segmented into North America, Europe, Asia, and Rest of the World. North America accounted for the largest revenue share of 39.5% in 2020 attributed to the rising epidemiology of cancer, along with other lifestyle-induced diseases, thus encouraging the R&D activities, thereby boosting the market growth. india is the second largest supplier of generic APIs to the US market capturing 24.4% share, according to the CPA report. india is also increasing its supply to

Western Europe, accounting for 19.2% of the supply to the region. Asia-Pacific market growth is driven by low labour cost, abundant availability of raw materials, infrastructure facility, rise in generic drugs demand, increased production capabilities, the presence of a large number of domestic and international players, and concentration of CMo companies.

The APi market can be segmented into innovative and generic APIs based on types. The innovative APIs segment accounted for the largest share of the global active pharmaceutical ingredients market in 2019. increased FDA approvals for new molecular entities, high price of innovative APIs as compared to the generic drugs, increased focus on R&D by the innovator API companies are the factors contributing towards the growth of the innovative APIs segment.

With the rising cost of healthcare, governments are pushing for increasing generics consumption over branded drugs, thus driving the growth of generic APIs market. Additionally, several major pharmaceutical companies are also focusing on generic drugs along with branded drugs due to eroding product pipeline and patent expirations.

(Source: https://www.marketsandmarkets.com/Market-Re- ports/API-Market-263.html)

Indian API Sector

Active Pharmaceutical ingredients (APi) is an important segment key to the indian pharmaceutical industry. The industry in india includes domestic and in-house consumption as well as exports. The country contributes 57% of APIs to the WHos prequalified list. in FY 2019-20, 33% of all Abbreviated New Drug Applications (ANDAs) were filed by indian companies.

The growth of the industry has been driven by adopting global standards and setting up large scale plants in the country. india has the highest number of US FDA approved plants, approximately 665.

Due to the competitive pricing offered by Chinese suppliers, in the last few years, the indian APi industry has been dependent on China for imports of APIs and advanced APi intermediates. APi imports from China has spiked from around 1% in 1991 to around 70% in 2019, primarily backed by large-scale manufacturing incentives and state-driven subsidies offered in China to promote exports. in the recent past, the actual market price of some of the APIs which are imported from China has risen steeply, thereby raising the input cost.

The recently announced PLi schemes of the Government and bulk drug parks can - help reduce this dependence on China. These schemes provide level playing field by lowering the cost differential between india and China to close to zero for the APIs included in the PLI scheme as well as for any player who set up a plant in bulk drug parks. Between 2018 and 2024, patents worth $251 billion are going to expire globally, which will also present a lucrative opportunity for the Indian pharmaceutical sector. With such a major focus on pharmaceutical industry in general and APIs in particular, India seems set to become the pharma supplier for the world.

There are over 2,700 API manufacturers in the country, of which majority are small unorganised manufacturers. Though API market is currently highly fragmented, consolidation in the coming years is due led by increasing competition and foreign investment.

(Source:https://www.pwc.in/assets/pdfs/industries/ pharmaceuticals-and-life-sdences/reviving-indias-api-industry.pdf)

Challenges impacting the Indian bulk drug industry

Indian API manufacturers lost their competitive edge in manufacturing APIs at the lower end of the spectrum and fermentation technologies to countries like China, largely on account of factors like:

¦ Stricter implementation of pollution control norms and complex approval process for setting up manufacturing plant, leading to higher costs of manufacturing

¦ Issues in interpretation of the Drug Price Control order (DPCo), 2013

¦ No financial incentives like lower tax, cheaper utilities and land subsidy to lower capex requirement

¦ Lack of large-scale mega parks to manufacture bulk drugs

¦ Collapse of the fermentation industry in India

¦ Strict price control regime

Outlook

Indian API market holds huge potential to cater to the domestic market and to cater the needs of all leading manufacturers of the world. The over-dependence on China is reducing due to rising cost of Chinese APIs and positive reforms by Indian government. Indian API market is expected to grow at 10.67% CAGR by 2025. However, stringent regulations are one of the major challenges that the market faces. Such regulations are particularly well defined for the export of products to developed regions such as Western Europe and North America. The global API market is extremely competitive with a number of large and small manufacturers. Firms that engage in API manufacturing have to move from generic synthetic to high potency APIs, and biotech and bio similar APIs to retain competitive edge in world markets. Several US and Europe based pharmaceutical companies are actively looking to de-risk their supply chain from China, post CoviD-19 pandemic. Indian companies have an edge, given their long history of supplying APIs and formulations globally, better quality, regulatory compliance, better supply reliability and cost-effective products.

Contract Development & Manufacturing Organisations (CDMO)

The global pharmaceutical CDMO market was valued at $160.12 billion in 2020 as compared to $148.5 billion in 2019.

It is expected to reach $236.61 billion by 2026, registering 6.5% CAGR during 2020-26. The CDMo service sector has gained a specifically uniquely edge to address some of the challenges that drug developers are facing amid the CoviD-19 pandemic. This pandemic has impacted multiple aspects of the pharma and biopharma industry, from drug development, clinical trials, supplies, manufacturing to supply chain logistics. However, the drug shortages due to CoviD-19 are limited, and they are expected to remain so for short-term, due to stockpiles of pharmaceuticals, APIs, globally.

CDMO is advantageous and gaining popularity on account of growing demand for novel medicines and biologics, capital-intensive nature of R&D and pharmaceutical manufacturing facilities, and the complex regulatory requirements for setting up manufacturing facilities. These difficulties and cost burdens have led many pharmaceutical companies to prefer potential profitability in contracting with a CDMo for both clinical and commercial stage manufacturing. The biggest factor driving the growth of CDMos is the growing need for state-of-the-art processes and production technologies, which have proven highly effective in meeting regulatory requirements.

Several small-scale pharmaceutical companies have outsourced R&D to CDMos on account of research services made available at price point that prove to be more profitable than in-house pharmaceutical R&D departments. CDMos also follow several strategies to stay ahead of top pharmaceutical players.

Key trends

¦ Growing investments by several pharmaceutical and biopharmaceutical drug manufacturing companies are driving growth of the CDMo market

¦ Among dosage forms, sterile liquids are witnessing strongest growth in outsourcing of development and manufacturing activities

¦ US is the worlds largest market for drugs, and accounts for almost half of the R&D spending in the pharmaceutical and biotechnology markets. CDMos play a critical role in this market and have invested in new facilities and technologies to cater to a wide range

of outsourcing units. US is the primary hub for pharmaceutical development

outsourcing due to large amounts of available funding and unparalleled presence of university-affiliated pharmaceutical research clusters

¦ in the global CDMo market, Asia-Pacific is expected to witness the highest growth owing to the low cost as compared to other developed economies. Growing incidences of chronic and lifestyle diseases, such as diabetes and heart disease, coupled with ease of patient recruitment and availability of expertise for clinical trials, are few other driving factors

¦ With the increasing privatisation of clinical trials, there has been an increase in the outsourcing of research processes in developing regions like China and india. For instance, large pharmaceutical companies in these markets are increasingly outsourcing research services, such as Clinical Data Management, Pharmacovigilance, Biostatistics, etc.

(Source: https://www.mordorintelligence.com/industry-re- ports/pharmaceutical-contract-development-and-manu- facturing- organization-cdmo-market)

Opportunities for CDMOs

¦ Larger companies view CDMos as vital partners and build strategic integrated long-term partnerships

¦ CDMos can receive co-investments from firms finance specialised development and manufacturing facilities at strategic CDMos

¦ CDMos using advanced technology and specialised expertise create a niche given the increasing number of complex and high potency compounds

¦ They can capture projects at an early stage and profit from upselling opportunities

CDMos engaging in continuous manufacturing benefit in the form of increased operational efficiency, reduced costs and minimal wastages

¦ increased number of small and medium sized pharmaceutical companies with no manufacturing capacity responsible for increasing share of new drug approvals

(Source: https://www.pwc.de/de/gesundheits-

wesen-und-pharma/studie-pharma-cdmo-market.pdf)

Neuland Laboratories Limited (Neuland or the Company) established in 1984, is a market leader in manufacturing APIs and one-stop solution for the chemistry needs of the pharmaceutical industry. its two main business verticals are Generic Drug Substances (GDS) and Custom Manufacturing Solutions (CMS). Neuland has a presence in over 80 countries with more than 75% of our revenues accounted for by exports. The US and Europe are its key markets, accounting for 70% of total exports. The Company has filed over 898 Drug Master Files (DMFs). The Company boasts of three state-of-the-art US FDA and EU GMP compliant manufacturing facilities with a collective capacity of around 860 KL. in addition, it has a dedicated state-of- the-art 3,400 square metres R&D centre, located near Hyderabad, which had

been inspected by US FDA in February 2016, without any observations.

Neuland has been at the forefront of facilitating and accelerating drug development and cGMP manufacturing of APIs. The Companys technical and scientific teams, of over 1,400 members including 299 strong R&D teams, provide comprehensive solutions and services to the global pharmaceutical industry. The Company is capable of providing solutions across the full range of the pharmaceutical industrys chemistry requirements, from the synthesis of library compounds to supplying NCEs and advanced intermediates at various stages in the clinical life-cycle, as well as commercial supply as has been the case through its history.

Statement of Profit & Loss

Neuland witnessed robust performance during the fiscal despite challenging conditions in the aftermath of the COVID-19 outbreak. The resilience and the commitment to rise to the occasion enabled the Company to execute as per plans. Strong financial performance and operating leverage led to significant margin improvement. While headwinds from the second and third waves of CoviD-19 persist, the Company remains committed to long-term growth and expects differentiated focus on complex APIs and the CMS business to drive sustainable growth.

The Company clocked revenue growth of 24.3% from Rs. 766.6 crores to Rs. 953.01 crores. EBiDTA grew 54.3% from Rs. 105.3 crores to Rs. 162.5 crores. Profit after tax grew 4x from Rs. 15.9 crores to Rs. 80.3 crores.

Crores 2020-21 2019-20
Income 953.0 766.6
EBITDA 162.5 105.3
Finance cost 17.9 21.6
Profit before tax 105.0 52.5
Profit after tax 80.3 15.9
Earnings per share (?) 62.6 12.4

Rationale for growth

01 Net Debt Tangible Net Worth Ratio

Debt Equity Ratio decreased by 39.7% from 0.50 (FY 2020) to 0.30 (FY 2021) on account of increase in net worth and decrease in borrowings.

02 Current Ratio

Current Ratio increased by 3.4% from 1.44 (FY 2020) to 1.47 (FY 2021) on account of increase in inventories, receivables and decrease in working capital borrowings partially offset by increase in payables, other financial liabilities and current liabilities.

03 Debtors Turnover Ratio

Debtors Turnover Ratio increased by 8.5% from 4.04 (FY 2020) to 4.38 (FY 2021). increase in Revenue by Rs. 186.4 crores and Trade Receivables from Rs. 189.9 crores to Rs. 217.7 crores - higher proportion of increase in revenue as compared to the proportion of increase in receivables on account of better receivables management.

04 Inventory Turnover Ratio

Inventory Turnover Ratio is 3.85 (FY 2021) versus 3.49 (FY 2020). Higher proportion of increase in revenue as compared to the proportion of increase in inventories on account of better inventory management.

Net Profit Margin (%)

Net Profit Margin for FY 2021 is 8.4% (Rs. 80.3 crores) versus 2.1% in FY 2020 (Rs. 15.9 crores).

06 Operating Profit (EBIT) Margin (%)

operating Profit Margin increased by 33% from 9.7% in FY 2020 (? 74.1 crores) to 12.9% in FY 2021 (Rs. 122.9 crores). improved product mix aided increase in operating profit.

Interest Coverage Ratio

increased by 124.09% from 5.4 in FY 2020 to 12.2 in FY 2021 on account of improved operating profits supported by lower borrowing cost.

Revenue Vertical - 1

Since inception, the Companys core business and operational expertise has been as a service provider in the manufacturing of Generic Drug Substances. This pure-play API manufacturer for better management separated the GDS business into two segments - prime APIs comprising large volume, mature products and specialty APIs which are lower volume, complex APIs with less competition. The Company has to its credit a product portfolio of over 75 APIs across 10 therapeutic categories.

Prime APIs

This is the primary revenue generating segment comprising of 15 mature APIs with higher competition.

The anti-bacterial agent, Ciprofloxacin, and anti-epileptic agent, Levetiracetam, are the key molecules. Other important molecules include Levofloxacin, Mirtazapine, Enalapril, Sotalol and Labetalol. The Company works on identified strategic molecules with a business leadership approach. The strong position in this vertical is attributed to over three decades of fulfilling quality commitment with uninterrupted supply. The Company aims to maintain its leadership position in key molecules by investing in lifecycle management initiatives. The endeavour remains to optimise process to achieve better yields, productivity and margins.

Specialty APIs

This is the profit driving segment comprising high value complex molecules.

The team strives to work with leading companies helping them meet their technical requirements while being competitive and manufacturing consistent quality products. The team focuses on developing molecules that allow it to leverage its areas of strength such as processes involving chiral chemistry, hydrogenation, and inhalation products. Of the 20 odd molecules in the segment, some continue to enjoy patent protection which are supplied for validation batches and regulatory filings. Brinzolamide, Dorzolamide, Deferasirox, Donepezil, Entacapone and Salmeterol are some of the important revenue generating molecules. The Company looks to focus on specialty APIs in the segment with complex chemistry and file IP for non-infringing processes.

Competitive Advantage Robust product portfolio

The strong foothold of the Company in the existing markets is attributable to its sizeable product basket which also provides ample growth opportunities to expand global presence in newer geographies.

Strategic product mix

The Companys product mix is a blend of high-volume and high-value products making it resilient to economic risks and providing ample growth opportunities, robust profits and steady cash flow.

Strong brand equity

The Company has a strong presence in highly regulated markets which has helped build a strong brand equity in terms of superior quality products. This enables the Company to command a premium for its products and expand reach in pharmerging markets.

Future growth prospects in place

In the coming decade, the Company has planned launch of over 18 new products in phases securing its future earnings and reflecting strong business continuity plans.

Prospects

Since inception, GDS business has been of prime importance for the Company. The specialty segment is expected to drive profits and prime segment is expected to strengthen the vertical in the coming future with through patent expiry and increased genericisation over time. The Company is aiming to expand geographical footprint with its sizeable product basket in the prime segment while increasing reach in existing markets in the specialty segment.

Quality-led portfolio of this vertical is driving market penetration for both prime and specialty APIs. The Company is in the process of filing five DMFs in the current fiscal, which will strengthen the product portfolio and present new growth opportunities.

With progression of time, Unit iii will be used for commissioning more blocks of important large volume molecules like Levetiracetam, to leverage economies of scale.

The Company will continue to focus on serving quality conscious consumers and building a technologically advanced differentiated product pipeline.

In Retrospect: 2020-21

¦ The GDS business grew based on volumes and price increases of 3-4%

¦ in this segment, the growth in prime segment was driven by Levetiracetam and Mirtazapine while Dorzolamide and Deferasirox performed well in the specialty space. Both segments have contributed equally to the vertical revenues

¦ The Company is a market leader in several molecules and focused on gaining market share for other key products

¦ Three peptides, Linaclotide, Liraglutide and Semaglutide, are at various stages of development for the generic business

Revenue Vertical - 2

Catering to the needs of pharma and biotech companies, the Company has established its presence in CMS vertical, a high-risk, high-margin, relatively less crowded business opportunity. Based on its rich experience in research, the Company develops and delivers APIs and intermediates in small-scale clinical trial quantities and later commercial- scale requirements as a product moves through the clinical cycle. The Company also provides building blocks and cGMP manufacturing of APIs. The CMS business helps customers to deliver the products on time by providing a range of technology platforms and product services maximising the value opportunity.

Being one of the key CMS providers in India, the Company has been at the forefront of aiding and accelerating the drug substance development and manufacturing process. The Company has built a strong brand equity and is a partner to some of the worlds leading pharmaceutical and biopharma companies. The Companys teams working at Hyderabad, New Jersey and Tokyo, offer integrated and versatile GMP manufacturing facilities capable of handling complex reactions. The Company enables its customers to expedite their discovery-to- market timelines backed by the experienced transfer of processes from small-scale through validation to commercial manufacturing.

I) R&D and Manufacturing of products in the Pipeline

The vertical is further split into two segments (a) R&D-related soft work and lab-scale work and (b) Manufacturing operations for molecules which are in the clinical pipeline. At times, the innovator drops the molecule from its new chemical entity pipeline for various reasons, and so even post successful completion of a project, there is no assurance to be awarded with repeat work. However, the Company earns credibility of being a capable and dependable partner in the innovation journey, in the global innovator community.

II) Commercial Manufacturing

This stable revenue stream encompasses manufacturing of intermediates/

APIs for commercial novel molecules (covered under patent protection). The Competition is limited as the Company is likely to be the sole or one of the few approved suppliers. As the approved formulation gathers global acceptance, APi/intermediate volume increases.

Large part of revenue from this vertical is accrued from regulated markets and is lumpy in nature as most projects are still in the clinical part of the lifecycle. The Company is now winning larger number of late-stage projects, having a greater propensity to transform into commercial manufacturing contracts. As these projects have a long-term revenue visibility, they provide a stable growth platform and steady flow of revenue in the near future.

Competitive Advantage

1) Collaboration and Communication

The Company possesses unmatched collaboration and communication skills enabling it to provide better customer experience than vanilla custom synthesis. Such value addition is needed by the small to mid-sized innovator companies and biotech organisations in regulated markets. These players are largely virtual, requiring additional assistance from their innovation partners to address business related challenges and issues, in addition to expertise in custom synthesis.

2) Power of Focus

The Company is a pure-play APi company, as opposed to its competitors who have a presence in multiple pharma segments. Neuland is thus able to provide undivided focus to the CMS projects at hand depicting a strong customer-centric approach.

3) Prioritising projects

The Company undertakes a well-defined due diligence exercise of project screening to ensure the project needs to match with Companys skill capabilities. This allows the Company to provide effective and meaningful service to innovator companies.

In Retrospect: FY 2021

¦ The vertical clocked revenue of Rs.269 crores in FY 2021 as against Rs.189 crores in FY 2020, registering 42% growth

¦ The number of projects increased from 76 as on March 31,2020, to 78 as on March 31,2021

¦ US is the largest market for CMS vertical, followed by Europe and Japan

¦ Baseline projects in CMS continued to perform well with good progress seen from some of the projects under development which are expected to commercialise over the short to midterm

¦ Inflow of late-stage projects, having potential to boost revenue in the next fiscal, increased significantly during the year under review

¦ The Company has a few peptides under development in the CMS portfolio

Prospects

There has been a steady rise in execution of the number of CMS projects reflecting the trust of existing customers as well as recognition of the Companys capabilities by new customers. The strong pipeline of CMS projects - currently 78 active projects with 24 in late-stage development, and the continued emphasis on targeting molecules in the later stages of the clinical cycle, position the Company well to grow revenue in the coming years.

Peptides: A flanking capability

Neuland has a few projects in the peptide space. Some of these are at an advanced stage of development and show considerable promise for commercialisation.

The Company believes that human resources are the most critical element responsible for its growth. it ensures a safe, conducive and productive work environment across its facilities. The Company provides regular skill and personnel development training to enhance employee productivity. Employee-centric approach has enabled the Company to sail through smoothly amidst CoviD-19 pandemic.

Talent Acquisition

Taking advantage of the National Apprentice

Promotion Scheme introduced by the Government, the Company successfully on-boarded apprentices in partnership with the Life Sciences Skill Development Council, creating a strong pipeline for shop floor operations. in addition, the Company has launched a fixed term employee contract scheme. These schemes are expected to generate rural employment, target skill building and de-risk shop floor level attrition. The Company also introduced buddy programme to improve early integration of new recruits.

For the senior level hiring, the Company is looking at skilled experts having international experience. The Company has launched behavioural-based panel interviewing to screen incoming leadership talent, complementing the regular one-on-one interview process and 30-60-90-day integration strategy to ensure smooth integration of senior leaders.

Talent Management

The Companys top talent / \ programme encompassed engagement, recognition, retention and development to keep top talent motivated and excited. The HR policies are directed to striving to deepen and strengthen leadership pipeline in terms of success and readiness. The Company is focused on developing the functional, leadership, and technical skills of distributed leaders required to execute on strategic priorities.

Learning & Development

The Company remained laser-focused on building a learning organisation. The learning and development programmes are designed around the short and long-term goals of the organisation while meeting individual needs. High business-metric impact programmes were initiated like reduction of human errors in HPLC, reduced documentation and errors in production. Multiple online learning initiatives were launched during the year for upskilling and to ensure employee connect. The entire compliance training was moved online through Microsoft Teams.

Employee Experience

Success Factors is the employee platform for all people processes. The Company also offered six sigma project management to employees as part of online learning. To ensure remote connectivity keeping in view limitations on account of CoviD-19 pandemic, the Company initiated recreational activities like quiz, kids fancy dress competition, singing, etc. and corporate engagement activities like weekly leadership webinars. Mobile application helped employees for leave approvals, attendance and leave management.

The Company introduced medical insurance coverage on group policy basis for CoviD hospitalisation also covering parents. The Company also provided vitamin C and D supplements, pulse oximeters etc. to safeguard employees health and wellness.

Culture of Feedback & Distributed Leadership

To encourage workforce feedback and to assess employee loyalty, feedback after meetings and niche theme-based engagement surveys were conducted.

HR held awareness sessions, especially for the new recruits, on meeting culture, conversation and feedback and for all employees in general on CoviD safety.

R&D is considered a critical business driver as it enables expansion of product pipeline, modernising technologies, increasing efficiencies and regulatory filings. The Company works in areas that demand extensive research, development and analytical capabilities to secure future growth in earnings.

The R&D innovation centre at Bonthapally houses a 300-member strong team of research scientists working together to develop and deliver future growth engines. The Company has further strengthened the team by recruiting competent resources specialised in certain key areas like peptides, catalysis, chiral synthesis and process engineering. This Department of Scientific and industrial Research (DSiR)-approved facility houses 12 chemical development laboratories and analytical laboratories equipped with modern instruments.

The team focuses its energies on certain specific areas for maximising returns from its patient and passionate efforts such as:

¦ Non-infringing patentable processes for APis across therapeutic categories

¦ Enhanced lifecycle of mature products by making their processes more efficient and cost effective

¦ Peptide APis for the GDS and CMS business

¦ Customer specific and exclusive contract research and process development for manufacturing APis

- intellectual property and international regulatory filings

Key Initiatives of FY 2021

The key achievement of the R&D team was strengthening the product pipeline by adding new molecules and making mature products more robust.

Product Pipeline

The team developed a few molecules in the lab and filed 2 USDMFs during the year and is ready to file a further 5 DMFs. The team managed to successfully add sterile EPA portfolio to the basket.

Product Life Cycle Management

The team is working on cost management and market penetration through cost effective products. The focus also remains on the processes for products to make its spread competitive and enhance product life cycle. The team managed to significantly reduce dependency on China and will continue to embark self-reliant journey.

Infrastructure and Capacity

The Company added a new peptide lab with 7 fume hoods. The additional specialty lab has been created from the existing wet lab creating more space and accommodating more resources and equipment at R&D.

A non-GMP kilo lab has been commissioned at Unit-iii which is exclusively for R&D to take up pilot scale reactions and other non-GMP intermediates. New analytical validation lab is being commissioned at Unit-iii for R&D.

Investment

The Company is focused to modernise its equipment and software to solve challenges like handling nano size particles, measuring online, etc. The Company added several high-end sensitive equipment to further improve process efficiency like optical microscope, Corona Aerosol Detector (CAD), PSD analyser, DvS for hygroscopicity study, AMv facility to Unit iii, Radley poly block reactors, triple walled reactors with heating cooling systems, polarising microscope, HPLCs, and many analytical machines to assess particle polymorphism. instruments like iCPMS for metal detection at nano level, XRPD, LCMS, auto-samplers for GC, 3D image instrument, coulometer have been added to AR&D. instruments like Parallel port reactors, heating cooling systems and double jacketed reactors for performing QbD/DoE studies are added to R&D labs. Equipment like FBRM, aerosol detector, particle size analyser, portable dehumidifiers are added to process engineering and safety lab.

Project Efficiency

The team worked on modernising the EPA including the particle shape, size, safety studies and the ability to run the QED equipment which enables automated measuring etc. The iT enables to generate data and record online as analytical instruments were mapped on the online server. The Company also enhanced the review process with every document going through review process of analytical method transfer.

Increasing breadth of Technology

The Company brought on board new technologies like imperative profiling, mapping of the ability or the genome toxic impurity assessment capabilities to predict, synthesised, develop an analytical tool, which can measure in the ppm level. The Company has SAP and other enabling tools for managing inventory and raw materials.

Priorities

The team remains committed to develop high value molecules involving complex chemistry. it is investing heavily to automate further moving to high end equipment enabling more refined testing abilities like online monitoring and testing of particle size. The Company is working towards digitisation in the R&D facility. The Company remains committed to building deep competency in complementary new technologies. These will pave the path to provide differentiated offerings which are highly valued by target customers.

FY 2020 was a defining year in terms of supply chain management (SCM) as the Company significantly reduced its dependency on China for sourcing Key Starting Materials (KSM) and intermediates for most APIs. This was extremely important as 80% of the Companys production serves the regulated markets abroad.

Key Initiatives of FY 2020-21

Agility and timely decission-making from top management enabled the Company to freight out finished goods though at a slightly higher cost in the last week of March 2020 and early April 2020. This benefited all stakeholders concerned.

The Company faced several challenges in April and May months as well due to shortage of manpower, limited supply of raw material, and logistics of finished goods. Despite having the status of essential industry, the Company faced a plethora of challenges in these two months leading to significant increase in freight costs.

Post June when exports from China resumed, there were some initial hiccups in terms of timing of deliveries. The Company was able to effectively manage these issues with the help of trackers and advanced inventory planning.

The Company continues its efforts to reduce its dependency on China and has seen good traction in reducing Chinese imports to ~20% during FY 2020-21 as compared to over 40% two years ago. The Company is actively looking out for suppliers in close proximity preferably india or Southeast Asian countries. The Company mapped majority of its key suppliers in terms of their compliance to iSo 14001, iSo 9001, oSHAS 18001.

With many of its customers emphasising on sustainability and ESG in supply chain, the Company is trying to emphasise the importance of sustainability to all supply chain partners.

The Company commenced work on two digitalization initiatives to launch Supplier Portal and e-logistic platform, one being P2P Procure2Pay and second being GoComet e-logistics platform. The Company is taking lead in completely digitalising its supply chain management having achieved success in automating price discovery, getting offers awards, tracking shipments and invoice printing.

Priorities

The main focus remains to reduce direct sourcing dependency from China. The aim is to reduce imports to below 10% levels in the coming fiscal and less than 5% in the succeeding year. The Company also aims to introduce massive digitalisation in supply chain making the entire purchasing process non-physical. For this, the Company has a b2b procure to pay software being developed. The process has been accelerated substantially from the outbound logistics side and into the inbound procurement side.

The Supply Chain team is assessing this indirect dependence separately and seeks to reduce this for their inputs over the coming years. From a longer-term strategic perspective, the Company is seeking to shorten the supply chain, by developing sources which are closer in terms of geographic proximity. other priorities include powering up capacities using CMo model and supply chain mapping and pathways. The Company is looking to deeply mapping all its supplies and understand all touch points to better gauge vulnerabilities or dependencies. The Company remains committed to enhancing procurement effectiveness and efficiency. it is working on optimising manufacturing capacity for agility, including flexible response to consumer needs, multi-product production and reserve capacity to respond quickly to customer needs.

Neuland believes in meeting or exceeding the quality levels set by the customer by adhering to stringent international standards. Continuous improvement of products and process and commitment to quality has led to enhanced attention to detail. Quality management framework and practices ensure that every single product meets the specification of all pharmacopoeia and our customer requirements. our team has a clear understanding of the possible direction of regulations and standards so that we are implementing policy ahead of legislation. The Company has cleared over 35 regulatory authority inspections, including 15 FDA audits over the years.

Key Initiatives of FY 2021

The Company continued to invest in quality control and upgrade its product and process quality during the year under review.

1) Post successful implementation of QAMS (Quality assurance Management System) to effectively manage deviation management, customer complaints, CAPA and change controls, automation of Laboratory information and Management System (LiMS) is under progress.

2) it is working with the USFDA to expedite the inspection and the approval of products for commercial use in the market from Unit iii.

3) it invested in the development of a wet laboratory at Unit i. Also significant investment was made in software at Unit i and Unit ii. At Unit iii, we created a stability chambers lab and control samples storage area. Additionally, the Company spent significant sums

in purchasing new instruments across the units.

Priorities

¦ Round the clock 24x7 GMP compliances across the sites and all-time inspection readiness " Achieve First Time Right through robust technology transfers

¦ Closing of failure investigations with Adequate Root causes with scientific rational

¦ Enhance QC efficiency by meeting aggressive TAT (Turn Around Time) for analysis, reduction of errors (Lab ooS & Lab incidents)

¦ Strengthening of Quality Units with Quality of Manpower

Scale people capabilities to meeting rising expectations from CMS customers

Neuland has become a more cohesive and closely connected organisation aided by efficient use of Information Technology (IT), despite its vast international footprint. iT has evolved into a business enabler function. in FY 2021, iT gained tremendous popularity as work-from- home became the new normal of corporate functioning. The Company further strengthened its digitisation initiatives, iT infrastructure, upgraded business enterprise applications and made significant investments in information security as work-from-home became commonplace.

IT Infrastructure

Comprehensive iT audit was made possible by the digitisation of manual processes and enterprise apps integration, which captured the data efficiently. iT team strengthened its BCP/ DR plan by deploying highly available converged infrastructure in its data centres in a private cloud and embracing comprehensive back-up solutions. Calibre solution was deployed to automate the process of Quality Assurance function in the Phase i. Complete virtualisation

(moving application and data from physical servers onto a private cloud) of Units i and ii and the R&D department was also achieved. To maximise network uptime, iT team deployed SDWAN (Software Defined Wide Area Network) enabling the users to remains connected to their applications despite a link failure.

Enterprise Application

The internal portal Basecamp witnessed addition of new modules to improve business/process management and enable informed decision-making.

Track EHS application allows team members to report EHS violations across locations. Modules like Capex Management Tool, Leave and Attendance Management system (including mobile app), Meeting Organizer and an insider Trading and Contract Management system enhanced digitalisation of processes. Various features of SAP modules were configured to strengthen business process. The SAP Fiori Application, allowing the senior management team to approve critical transactions on the move proved to be extremely useful amidst COViD-19 pandemic restricted movements.

Data Security

Data security has been strengthened by using comprehensive Data Leak Prevention (DLP) System and information Rights Management (iRM) solutions, which prohibits sharing of digital information by unauthorised users. Neuland is consistently certified for its information Security Management Systems as per iSO 270001:2013 std. and guidelines and compliant with EU-GDPR.

Priorities

The Company continued to exploit technology to become more agile, protect its intellectual property better, increase employee engagement, and customer service towards Digital Transformation journey. it is working on digitising planning to delivery processes, financial processes, customer serving processes and build company-wide dashboard providing shared, real-time, granular data and analytics to create shared context across functions. This will enable to improve the quality and speed of decision-making at every level in the organisation.

Environment, Health & Safety (EHS) is a critical part of organisational culture.

The Company has always given utmost priority to EHS of all its stakeholders. For all strategic decisions implemented, go ahead from EHS has been mandatory.

The guidelines on Occupational Health & Safety have been upgraded to iS0 45001 standards from OHSAS 18001, in addition to iSO 14001 (Environment Management Systems).

Environmental Management

The Board has adopted the Environmental Policy and formalised its green commitments with a framework articulating the Companys approach to environmental management. Special focus is given to ensure pollution control right at the source. The Company has made significant investments in green infra and advanced pollution control equipment for solid and gaseous waste management. All the three manufacturing facilities have adopted the Zero Waste Water Discharge concept and it has been ensured that all operating processes are limited to closed environments.

Sustainable environment management systems centre on Wealth from waste concept aimed at minimising wastage of natural resources and curtail waste disposal to incineration. Working towards achieving 0% incineration of waste, the Company sent its complete spent solvent and other materials waste to cement manufacturers, who use co-processing technology to convert this waste to an auxiliary fuel.

The Company achieved a recovery rate of 80-85% in FY 2021, at its operating units, through sophisticated solvent recovery systems. A wastewater treatment plant with higher capacity came on stream, which enables efficient management of any additional load on the effluent system which may be generated from a surge in operations. The Company continued to encourage local population around its operating units to plant trees so as to strengthen the green cover. Over 6,000 trees were planted in five villages. in addition, to help in systematic waste collection and improve community hygiene, the Company distributed over 10,000 waste bins among the villagers.

Process Safety

At Neuland, we had stringent standards for Process Safety Assessment at all levels of volumes which includes R&D, Pilot and Plant, by which we ensure the safe travel of molecules from R&D to commercial.

a. R&D: Chemical Hazard Evaluation, Toxicology Data, Thermal Screening

b. Pilot: Process Safety Data Interpretation, Inventory Hazard Management, Powder Safety Analysis, Process Hazard Analysis

c. Plant: Scale-up Safety Assessment, Equipment Design Assessment,

Pre Start-up Safety Review, Hazop.

People Health & Safety

Human capital is the key resource for profitable growth of the Company. Employees health and safety is given great importance. To analyse, assess and mitigate risks impacting employees the Company has devised an elaborate structure. Automation of critical processes on the shop floor and real-time monitoring of the ambient environment in confined areas were undertaken to enhance the safety of the concerned employees. To ensure employee safety at every step, the Company has specific protocols which are meticulously recorded to ensure strict enforcement.

EHS Track software, accessible to all employees, enables the Company to effect online reporting and tracking of incident management and near-miss reporting. All warehouses have automatic fire and smoke detection systems to ensure utmost safety of these areas which are not manned round the clock.

To promote a culture of preventive health management, the Company undertakes several initiatives like mandatory annual health check-up camp and various programmes for stress management, cardiac management, diabetes management and kidney management conducted by experts. Womens health management classes were also conducted by expert gynaecologists.

All operating units of the Company have a well-equipped occupational health centre and ambulance facility. For efficient emergency management, the Company has tied up with several multi-specialty hospitals and diagnostic facilities close to its locations.

The internal control systems of the Company are designed to safeguard the assets and ensure efficient productivity at all levels. The systems are adequate for the size and nature of business and industry in which it operates. The robust control systems safeguard sensitive data, ease out audit process, enables maintenance of proper accounting controls, monitoring of operations and conservation of assets and enable prevention of frauds and errors. The control systems are designed keeping in mind all applicable rules and regulations to execute authorised transactions safeguarding the assets from unauthorised use and ensuring compliance with corporate policies.

The systems clearly demarcate limits for approving contracts and expenditure with empowered authority only. The systems also define processes to articulate annual and long-term business plans and periodic review. The effectiveness of the internal control over financial reporting (as defined in Clause 17 of SEBi Regulations 2015) was assessed by the management as of March 31,2021. The audit committee evaluated internal financial controls (as defined in section 177 of Companies Act 2013 and Clause 18 of SEBi Regulations 2015), as on March 31,2021, and concluded the systems to be appropriate and operating effectively.

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

The responsibility to oversee and carry out internal audit of the Companys activities is with Ernst & Young LLP, our internal auditors. Annually, in consultation with the Auditors and post approval by the Audit committee, the audit plan is defined which spells out the audit process. 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.

Specialised third party consultants and professionals are appointed to periodically audit business specific compliances such as quality management, production management, information security, etc.

The management reports and audit reports submitted by internal auditors and statutory auditors are reviewed by the audit committee, which also suggests improvements. Appropriate corrective actions, as deemed necessary to ensure sustainability and future growth prospects of the Company, are put forth by the audit committee. The adequacy of internal control systems are discussed and reviewed by the audit committee and the statutory auditors. Major observations from this meeting are discussed with the board of directors periodically.

As of March 31,2021, the Audit Committee has concluded that Companys internal financial controls were adequate and operating effectively, based on its evaluation (as defined in section 177 of Companies Act 2013 and Clause 18 of SEBi Regulations 2015).

The employment of an effective risk management process is critical to Neuland achieving its strategic and operational goals, particularly in the current environment of change and uncertainty. We recognise that risk is intrinsic to the business and that there is a balance to be struck between managing risk and exploiting opportunities. our robust risk management framework is designed to identify, evaluate and appropriately respond to the existing and emerging risks to business. A few of the important risks are enlisted below along with steps for mitigation. The list is strictly indicative and not exhaustive.

The framework addresses the specific responsibilities and accountabilities of the various managers at different levels.

Risks are duly identified and categorised as per their likely impact with the help of a formal monitoring process at the unit and company level. Post initial assessment key responsibilities are handed down to select managers, and implementation of risk reduction actions and appropriate internal controls is ensured.

Competition Risk:

impact on business revenue and earnings

Relevance:

Earnings of the prime segment of the GDS vertical with intense competition and a mature product portfolio.

Mitigation Strategy:

The Companys mitigation strategy includes:

¦ Dynamic life-cycle management for all Prime products to continue to expand market share while retaining the existing customer base

¦ Target larger volumes for a specific molecule by expanding geographical footprint and attract new customers

¦ increased emphasis on the Specialty segment and CMS vertical growth, to improve earnings

Supply Chain Risk:

Production disruption hampering client base

Relevance:

The dependence on China for imports mainly in APi manufacturing, for raw materials, ingredients and APis.

Mitigation Strategy:

" Since past several years, the Company is meticulously working to derisk a significant part of its supply chain and bring it closer to home

¦ Close co-ordination with sales and R&D teams for raw material planning and availability

" Earlier ~60% of raw materials were coming from China, whereas from June 2021 less than 10% of raw materials will be imported from China

¦ We are not dependent on China for any raw material, but import to remain competitive

¦ For KSM and critical intermediaries, we are working to create two or more active and dependable sources

" Focus on in-house manufacture of some of the intermediates at Unit iii

Intellectual Capital Risk:

Key to R&D and operations

Relevance:

Human capital is key to the growth and prosperity of the pharmaceutical industry.

Mitigation Strategy:

Mindful of the importance of intellectual capital, HR policies are designed to ensure sufficient bench at all times:

¦ internal progression of employees well suited to assume greater work responsibilities with apt training and skill development programmes

¦ Ensure suitable talent at the middle and senior management levels from within the organisation or outside

¦ Ensure high retention rate through open door policy, healthy work environment, job rotation and other initiatives to provide stronger career path

¦ Position a stronger Neuland brand to attract talent from abroad/ multinationals/post-doctoral/chemical engineering cadre

¦ Acquire external talent/leadership pipeline where internal bench may be slightly weak

Regulatory Risk:

Non-compliance a Threat to operations

Relevance:

High exposure of regulated markets for the Companys revenue.

Mitigation Strategy:

The Company constantly strives to up its ante in terms of safety, health and hygiene more than ever in the current scenario, while already having successfully secured multiple approvals by various global regulatory bodies.

¦ Enhance efficiency and accuracy, the Company is increasingly investing in automation of its quality management system and has strengthened monitoring of metrics through QA Dashboard

¦ Promote high standards of regulatory compliance across all operating units 24x7

¦ Efficient redressal of customer complaints through a well devised structure ensuring non-recurrence

¦ Stringent internal monitoring and review mechanism with exceptions directly communicated to CEo / Quality Head

¦ initiation of quality focused audits by external party

Product Scaling Risk:

impacting growth prospects

Relevance:

To improve business growth prospects, healthy product pipeline is to be scaled to the operating units continuously.

Mitigation Strategy:

Seamless scalability of products from R&D to manufacturing unit is of utmost importance to bank on growth opportunity. Any product scaling glitch may cost the Company an existing or a new customer. The Company emphasises on the First Time Right concept enlisting a detailed checklist to ensure that every aspect of the process is followed resulting in unified product transfer.

Data Security Risk:

New-age risk to damage credibility

Relevance:

IT solutions have gained unparalleled importance for integrated business operations

Mitigation Strategy:

Business automation and integration is carried out efficiently, ensuring sufficient security measures to safeguard IT infrastructure and systems:

¦ Data Leak Prevention System alarming sensitive data access from any system

¦ Data Leak Prevention System checking leakage through emails in the backdrop of increased work-from-home

¦ Device Advanced End Point Security solution

¦ Integrated check on all IT infrastructure _ through a single dashboard like Security

Incident and Event Monitoring Solution

R&D Infrastructure Risk:

Adequate space to handle growing business

Relevance:

Growing business and complexities require more R&D space.

Mitigation Strategy:

The Company is constantly identifying space for increasing the number of chemical and AD labs to handle growing business demand. Also proactive identification and upgradation of equipment ensures adequate handling of product complexities such as in the field of APIs solid state, enzymatic, peptide and polymorph chemistry.

Geopolitical Risk:

Trade wars disrupts business

Relevance:

Businesses across the globe faced several hardships amidst the COVID-19 pandemic, the consequent lockdowns and disruption of human life.

Mitigation Strategy:

The Company is always striving to expand its geographical footprint to minimise impact of macroeconomic slowdown in a particular region. The Company is looking to increase market penetration in geographies which are currently under-represented and shorten its supply chain.

Unforeseen Risk:

Cause deviations from Plans and Strategies

Relevance:

Businesses across the globe faced several hardships amidst the COVID-19 pandemic, the consequent lockdowns and disruption of human life.

Mitigation Strategy:

The Companys risk management team needs to be agile and equipped to deal with any unforeseen risks. The Company must be prepared to respond to fast-changing consumer behaviours and demand patterns with changing environment. Implementation of agile practices and operating models enables organisations to solve specific problems quickly and efficiently. Different situations may require reconfiguring strategy, structure, processes, people, and/or technology. The Company has exhibited agility in its operations to minimise the impact of unforeseen risks like the COVID-19 pandemic with prompt adaptation to changing work environment, rules and regulations and Government priorities.

To ensure smooth business functioning, the Company is actively working with alternate factories for raw material supplies and tracking re-opening schedules, clubbing shipments, closing tracking and approving freight amounts, monitoring truck transit and arrival closely and actively pursuing FedEx/UPS/DHL movements based on freight quotes ensuring efficient supply chain management. Effective work from home measures are quickly put into place. The Company is committed to protect operations by proactively managing employees health, sanitation and safety at the workplace and outside under unpredicted emergencies. De-risking workforce dependency by leveraging full spectrum of options including apprentice, fixed term employment, remote working, part time workforce to ensure efficient people management.

Since the beginning of the COViD-19 pandemic, Neuland had undertaken a slew of measures to not only ensure smooth functioning of all business operations but also to ensure utmost safety of all employees, site safety, supply chain management, regular flow of logistics, and cash management. As an entity being categorised under essential products and services, we had to ensure timely supplies to our pharmaceutical client base and keep up with the ever-evolving customer demand led by the lockdown and subdued economic activity in several of our end-markets.

Neuland has been constantly thriving to overcome all challenges with employee safety being our topmost

priority. We diligently implemented the guidelines specified by the State Government of Telangana as well as the

National Directives for COVID-19 Management. We undertook several initiatives to ensure business continuity

and employee safety including:

¦ Remote working has been implemented for all employees whose roles allowed them work-from-home by enabling them with the required tools and technology

¦ To ensure safe transportation of employees during the peak of COViD-19 outbreak, special buses were organised running at less than 40% occupancy

¦ On a daily basis, all employees are required to fill up an e-self declaration form for health and safety management

¦ Touch less maintenance of attendance is being practised as opposed to biometric attendance recording previously

¦ At entry and exit, every individual is screened for temperature and deviation from normal is referred to Company Medical Officer for appropriate action

¦ Circular markings and limited seating arrangements help maintain social distance of 3 feet at all common places in the factory including entry gates and canteen

¦ COViD-appropriate behaviour is encouraged at all times and any employee showing any symptoms such as cold, cough, shortness of breath and fever is referred to Occupational Health Centre for medical screening and sent back home until they are medically fit

¦ Virtual meetings are encouraged keeping employee safety a priority. Any physical meeting are conducted with minimum separation of 6 feet. Large meetings are strictly prohibited

¦ All employees have been provided medical insurance coverage through third party or ESi

¦ Company Medical Officer has been made responsible to refer any employees needing urgent medical care for COViD -19 treatment to appointed Government facilities

¦ We now have a 24/7 helpline number that our employees can call to express any of their concerns with respect to COViD-19