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OneSource Specialty Pharma Ltd Management Discussions

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Jun 27, 2025|12:00:00 AM

OneSource Specialty Pharma Ltd Share Price Management Discussions

OF FINANCIAL CONDITION AND RESULTS OFOPERATION

The following discussion of our financial condition and results of operations should be read in conjunction with our Restated Consolidated Financial Statements. Unless the context requires otherwise, the financial information in this Information Memorandum is derived from our restated consolidated summary statement of assets and liabilities for the six month period ended September 30, 2024, and for the years ended March 31, 2024, March 31, 2023, and March 31, 2022 and the restated consolidated summary statement of profit and loss (including other comprehensive income), audited cash flow statement and changes in equity for the six months period ended September 30, 2024, March 31, 2024, March 31, 2023, and March 31, 2022 of our Company together with the summary statement of significant accounting policies, and other explanatory information thereon. For further details, see "Financial Statements" on page 112.

The NCLT, vide its order dated November 14, 2024, has approved the Scheme. Pursuant to the Scheme, the Demerged Undertaking 1 and Demerged Undertaking 2 is transferred to and vested with our Company. The Effective Date of the Scheme is November 27, 2024, with effect from the Appointed Date.

Some of the information contained in the following discussion, including information with respect to our plans and strategies, contain forward looking statements that involve risks and uncertainties. You should read

"Forward Looking Statements" for a discussion of the risks and uncertainties related to those statements and also "Risk Factors" for a discussion of certain factors that may affect our business, results of operations or financial condition on pages 9 and 13.

A. Overview

Our Company is a fully integrated, multi-modality specialty pharmaceutical contract development and manufacturing organisation ("CDMO") company, focused on developing and manufacturing drug device combinations ("DDC"), biologics, sterile injectables and oral technologies like soft gelatin capsules for our customers out of our five (including access to the facility housed in Strides) globally compliant facilities located in Bengaluru. (collectively, the "Manufacturing Facilities"), under contractual arrangements.

Prior to the Scheme of Arrangement, our Company, Strides and Steriscience were involved in the businesses of biologics and DDC, soft gelatin capsule and injectables business, respectively. Pursuant to the Scheme becoming effective, our Company brings together the Demerged Undertakings of Strides and Steriscience, with the aim of achieving substantial operational synergies. We intend to capitalise on the significant experience and capabilities of Strides in soft gelatin capsule business and Steriscience in the sterile injectables space.

Our Company is built on the legacy of quality compliance spanning three decades. Our Company has five globally compliant Manufacturing Facilities located in Bengaluru. Our customer list includes some of the top pharmaceutical generic companies, innovator pharmaceutical and biopharmaceutical companies, small biotechs and dedicated R&D houses, spread across the globe. Our Manufacturing Facilities have been successfully audited by global regulatory health agencies, including the USFDA (United States), MHRA (United Kingdom), cGMP (WHO), MCAZ (Zimbabwe), NDA (Uganda), cGMP (Germany), cGMP (Hungary) and cGMP (Canada), amongst others. In the year 2022, our Company received successful FDA approvals for our Unit-II facility.

Our Company is led by an experienced management team which has significant experience in the pharmaceutical industry. Our Individual Promoter, Arun Kumar Pillai is a first-generation entrepreneur and has been leading Strides (one of the Group Company of OneSource) since its incorporation. Neeraj Sharma, our Managing Director, has over 28 years of experience in pharmaceutical industry. Our Chief Financial Officer, Anurag Bhagania, has over 25 years of experience in the finance domain. Further, our Company has more than 1,500 employees, comprising of over 1,250 permanent employees as on September 30, 2024. With over 100 scientists and techno commercial leaders, our Company has extensive expertise across multiple therapeutic modalities and technology platforms. agreement dated November 16, 2024, entered with Strides.

Our business operations are conducted under the following categories of the CDMO segment of our Company

(i) Drug device combinations and biologics: Our Unit II Facility is equipped with the development and manufacture of products under this category. Our DDC products range from multiple device formats including pen devices, autoinjectors and safety syringes.

(ii) Sterile injectables: Our SPD, BLD and Unit II Facilities are is equipped with the development and manufacture of products under this category.

(iii) Oral technologies (Soft gelatin capsules): Our KRSG Facility is equipped with the development and manufacture of products under this category.

B. Significant Accounting Policies (as per Restated Financial Statements)

For details in respect of statement of significant accounting policies, see "Financial Statements" on page 112.

C. Principal components of income and expenditure

a. Income:

i. Revenue from operations; and ii. Other income

b. Expenditure:

iii. Cost of materials consumed; iv. Changes in inventories of finished goods and work-in-progress; v. Consumables; vi. Employee benefits expense; vii. Finance costs; viii. Depreciation and amortisation expenses; and ix. Other expenses

D. Our results of operations

The following table sets forth our income and expenditure for the six month period ended September 30, 2024, and for Fiscals 2024, 2023 and 2022, in absolute terms and expressed as a percentage of our total income for such periods.

Particulars Six month period ended Fiscal 2024 Fiscal 2023 Fiscal 2022
September 30, 2024
Amount ( million) As % of Total Income Amount ( million) as % of Total Income Amount ( million) as % of Total Income Amount ( million) as % of Total Income
Continuing Operations
Revenue from operations 6,263.37 98.68 1,719.19 97.60 387.14 93.50 1,281.78 97.21
Other income 83.96 1.32 42.25 2.40 26.92 6.50 36.73 2.79
Total income 6,347.33 100.00 1,761.44 100.00 414.06 100.00 1,318.51 100.00
Expenses
Cost of materials consumed 1,556.27 24.52 - 0.00 - 0.00 - 0.00
Changes in inventories of finished goods and work in progress 293.82 4.63 - 0.00 - 0.00 - 0.00
Consumables 375.84 5.92 705.09 40.03 204.11 49.29 48.94 3.71
Employee benefits expense 1,068.49 16.83 793.61 45.05 728.01 175.82 533.57 40.47
Finance costs 870.91 13.72 894.48 50.78 475.45 114.83 464.95 35.26
Depreciation and amortization expenses 1,366.28 21.53 762.93 43.31 656.80 158.62 530.73 40.25
Other expenses 1,656.38 26.10 1,102.88 62.61 1,061.89 256.46 739.37 56.08
Total expenses 7,187.99 113.24 4,258.99 241.79 3,126.26 755.03 2,317.56 175.77
Restated loss before exceptional items and tax (840.66) (13.24) (2,497.55) (141.79) (2,712.20) (655.03) (999.05) (75.77)
Exceptional items - loss - 0.00 (1,159.42) (65.82) (1,444.25) (348.80) - 0.00
Restated loss before tax (840.66) (13.24) (3,656.97) (207.61) (4,156.45) (1,003.83) (999.05) (75.77)
Tax expense
Current tax 165.59 2.61 - 0.00 - 0.00 (1.05) (0.08)
Deferred tax (530.01) (8.35) - 0.00 - 0.00 - 0.00
Total tax expense (364.42) (5.74) - 0.00 - 0.00 (1.05) (0.08)
Restated loss after tax from continuing operations (476.24) (7.50) (3,656.97) (207.61) (4,156.45) (1,003.83) (998.00) 75.69)
Restated loss after tax from discontinued operations - 0.00 (254.68) (14.46) (3,841.85) (927.85) (1,313.60) (99.63)
Restated loss for the period/year (476.24) (7.50) (3,911.65) (222.07) (7,998.30) (1931.68) (2,311.60) (175.32)
Total other comprehensive (loss)/ income (34.94) (0.55) (5.31) (0.30) 20.87 5.04 20.74 1.57
Total comprehensive (loss) for the period / year (511.18) (8.05) (3,916.96) (222.37) (7,977.43) (1,926.64) (2,290.86) (173.75)

Overview of Income and Expenditure

Income

The total income comprises revenue from operations and other income.

Revenue from operations

Our revenue from operations consists of sale of services - contract manufacturing and development fees and sale of goods.

Other Income

Our other income primarily consists of interest income, foreign exchange gain, profit on sale of assets and scrap sale.

Expenditure

Our expenses primarily comprise of the following:

Cost of materials consumed, which primarily consists of raw material and packing material.

Changes in inventories of finished goods and work in progress, which primarily consists of change in inventory carrying value of finished goods and work-in-progress.

Consumables, which primarily consists of indirect materials used in manufacturing operations.

Employee benefits expense, which primarily consists of salaries, wages and bonus, contributions to provident fund and other fund, compensated absences and staff welfare expenses.

Finance costs, which primarily consists of interest on borrowings, interest expenses on lease and other borrowing costs.

Depreciation and amortization expenses, which primarily consists of property, plant and equipment, intangible assets and right-of-use assets.

Other expenses, which primarily consists of legal and professional fees, Support service charges, repairs and maintenance, power and fuel, travelling and conveyance expenses, insurance premium, rent, rates and taxes and miscellaneous expenses.

Exceptional Items

The exceptional items refer to items of income or expense within the restated consolidated statement of profit and loss which are non-recurring and are of such size, nature or incidence that their separate disclosure is considered necessary to explain the performance of the group.

The exceptional items primarily consists of provision for inventory obsolescence related to Sputnik Light vaccines, write-off of GST related balance (including the balances of discontinued operations), write-off related to inventories and other related balances of Akston Project, intangibles under development written-off expenses.

Our Company and the Russian Direct Investment Fund (RDIF, Russias sovereign wealth fund) had entered into a manufacturing and supply agreement to produce Russian Sputnik Vaccines during FY 2020-21. The agreement between RDIF and our Company was reached under the aegis of Enso Healthcare LLP, RDIFs coordination partner for sourcing Sputnik vaccines in India. The above tactical opportunity with Sputnik Lights take or pay contract with RDIF did not fructify due to geopolitical conflicts between Russia and Ukraine and subsequent sanctions on Russia.

During the previous year ended March 31, 2024, our Company has made provision of balance inventories (including GST inputs credit of 46.14 million on such inventories) of 1,159.42 million in the absence of any immediate alternate usage for these inventories.

Our Company and Akston Biosciences Corporation entered into the license and manufacturing agreement dated October 20, 2021, to develop AKS-452 vaccine. During the year ended March 31, 2023, our Company and Akston Bioscience Corporation entered into termination agreement whereby all the licenses granted to our Company are revoked and our Company does not have the right or obligation to commercialize the licensed product. Pursuant to such termination, our Company debited exceptional items of 491.05 million towards following:

- Write off of intangibles under development relating to Akston amounting to 200.59 million;

- Write off Akston inventories amounting to 146.48 million; and

- Allowance for doubtful advances given to Akston Bioscience Corporation amounting to 143.98 million.

Pursuant to impairment assessment, intangibles under development were written off amounting to 953.20 million towards various products as exceptional items for the year ended March 31, 2023.

Discontinued operations

During the year ended March 31, 2024, for strategic business reasons, our Company entered into a business transfer agreement dated September 01, 2023 (amendment to business transfer agreement dated December 01, 2023, and December 21, 2023) with Syngene International Limited for sale of its unit III, a multimodal facility on a slump sale basis for a consideration of 6,161.41 million. The transaction recommended by Board of Directors was approved by shareholders in the Extra-Ordinary General Meeting held on July 04, 2023, and the parties have completed the transaction.

Tax Expenses

Elements of our tax expenses are as follows:

Current Tax: Our current tax expenses primarily consist of income tax on the taxable income generated by us during a financial year / period.

Deferred Tax: Our deferred tax expenses consist of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes.

Other comprehensive income

Other comprehensive income consists of remeasurements of post-employment benefit obligations - (loss) / gain and exchange differences in translating the financial statements of foreign operations.

Total Comprehensive Income/(Loss) for the year

Total comprehensive income for the year consists of profit/(loss) for the year and other comprehensive income.

Cash Flows based on our Restated Financial Statements

The table below summarizes the statement of cash flows, as per our restated consolidated cash flow statements, for the periods indicated:

Period ended September 30, 2024 Fiscal 2024 Fiscal 2023 Fiscal 2022
Net cash (used in)/ generated from operating activities (1,244.54) (1,072.11) (1,628.80) (4,158.86)
Net cash (used in) / flow from investing activities (1,753.32) 5,105.45 (677.19) (6,916.04)
Net cash (used in) flow from financing activities 1,950.76 (3,905.44) 1,183.18 11,619.60
Net increase / (decrease) in cash and cash equivalents (1,047.10) 127.90 (1,122.81) 544.70

E. Capital expenditure

For the six month period ended September 30, 2024 and for Fiscal 2024, Fiscal 2023 and Fiscal 2022, our capital expenditure was 375.84 million ( 228.77 million due to additions through business combination), 186.71 million, 1,699.67 million, and 6,442.21 million, respectively. This primarily related to capacity enhancement.

F. Indebtedness

As of September 30, 2024, we had non-current borrowings (including term loans from banks and loans from related parties) of 5,746.77 million, current borrowings (including term loan from banks, non-convertible debentures and loans from related parties) of 7,892.71 million and total debt (net off free cash and cash equivalent of 1,979.16 million ) is of 11,660.32 million, with a net debt to equity ratio* of 0.23 as per our Restated Financial Statements.

*Net debt is calculated as total debt (including both current and non-current borrowings) less cash and cash equivalent, bank balances other than cash and cash equivalents and fixed deposits with remaining maturity of more than 12 months.

G. Related Party Transactions

For details of our transactions with related parties, see "Financial Statements- Related Party Transactions".

H. Contingent Liabilities and Capital Commitments

Our contingent liabilities as on September 30, 2024, are set out below:

Particulars Amount of obligations as on September 30, 2024
Claims not acknowledged as debts by the Group 11,423.48
Total 11,423.48

Our capital commitments as on September 30, 2024, are set out below:

Particulars Amount of obligations as on September 30, 2024
Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances):
-Property, plant and equipment 248.47
Total 248.47

Our contingent liabilities may become actual liabilities. In the event that any of our contingent liabilities become non-contingent, our business, financial condition and results of operations may be adversely affected. Furthermore, there can be no assurance that we will not incur similar or increased levels of contingent liabilities in the current fiscal year or in the future. For further details, see "Risk Factors" on page 13.

I. Quantitative and Qualitative Disclosures about Market Risk

Our Companys activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. Our Companys primary focus is to foresee the unpredictability of financial markets and seek to minimize potential adverse effects on its financial performance. The primary market risk to our Company is foreign exchange risk. Our Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below:

Credit Risk

The credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to our Company. The credit risk to our Company primarily arises from trade receivables. The credit risk also arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions and other financial assets. Our Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. Our Company only transacts with entities that are rated the equivalent of investment grade and above.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Foreign currency risk management

Our Company is exposed to foreign exchange risk due to:

a. debt availed in foreign currency; and

b. exposure arising from transactions relating to purchases, revenues, expenses, etc., to be settled (within and outside the group) in currencies other than the functional currency of the respective entities.

Liquidity risk

The ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of our Companys short-term, medium-term and long-term funding and liquidity management requirements. Our Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual short term and long term cash flows, and by matching the maturity profiles of financial assets and liabilities.

J. Cyclical nature of business

The pharmaceutical industry is not cyclical in nature.

K. Changes in accounting policies

There have been no changes in accounting policies in the last three fiscal years, for details, see "Financial Statements" on page 112.

L. Reservations, qualifications and adverse remarks

There are no reservations, qualifications, matters of emphasis and adverse remarks by our Statutory Auditors for the Fiscal 2024, 2023 and 2022 except as mentioned below.

Material uncertainty related to going concern - FY 2022

"We draw attention to Note 2.2(b) of the Restated Consolidated Financial Statements, which indicates that the Group has incurred a net loss of 2,311.60 million during the year ended March 31, 2022, and, as on date, the Groups current liabilities exceeded its currents assets by 2,975.99 million, these events or conditions, along with other matters as set forth in Note. 2.2(b), indicate that a material uncertainty exists that may cast significant doubt on the Groups ability to continue as a going concern. However, the Restated Consolidated Financial Statements of the Group have been prepared on a going concern basis for the reasons stated in said note.

Our opinion is not modified in respect of this matter"

Emphasis of Matter September 30, 2024

Emphasis of Matter basis of accounting and restriction on distribution and use

We draw attention to Note 2 to the Special Purpose Combined and Carve-out Interim Financial Statements, which describes the basis of accounting. The Restated Consolidated Financial Statements are prepared to assist our Company in preparation of the Restated Consolidated Financial Statements for inclusion in the Information Memorandum. As a result, the special purpose combined and carve-out interim financial statements may not be suitable for another purpose. Our report is intended solely for the Group, our Company and statutory auditors of our Company and should not be distributed to or used by parties other than the Group or our Company or statutory auditors of our Company.

Our opinion is not modified in respect of this matter."

M. Significant developments after September 30, 2024

For details, see "Outstanding Litigation and Material Developments Material Developments" on page 184.

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