Par Drugs & Chemicals Ltd Management Discussions

Review of the Global Economy

The global economy entered 2025 on a modest recovery path, although growth remains uneven and exposed to downside risks. The International Monetary Fund projects global GDP growth at 3.0% in 2025, improving slightly to 3.1% in 2026. Advanced economies are expected to grow at a subdued pace of ~1.5%, constrained by high interest rates, fiscal consolidation, and productivity challenges. In contrast, emerging markets and developing economies are forecast to expand by 4.1% in 2025, supported by resilient domestic demand, infrastructure investments, and diversified trade flows.

The global economy is on a fragile but improving trajectory. Growth is projected at 3.0% in 2025 and 3.1% in 2026, but this recovery is neither broad-based nor insulated from shocks. Advanced economies remain weighed down by high interest rates, elevated debt levels, and subdued productivity, with growth forecast at ~1.5%. By contrast, emerging and developing economies are expected to expand by over 4.0%, driven by resilient domestic demand and infrastructure-led investment.

Key themes shaping the global outlook include:

• De-globalisation of supply chains: Reshoring in the US and Europe, coupled with Southeast Asias growing capacity, is reducing dependence on China and India.

• Energy transition capital flows: Green energy projects are attracting unprecedented global investment, reshaping the competitive landscape.

• Geopolitical volatility: Conflicts and trade frictions continue to disrupt commodity flows, impacting cost structures across industries.

• Financial tightening: While inflationary pressures have eased, global liquidity remains vulnerable to policy divergence among central banks.

This environment is characterised by pockets of resilience but persistent volatility, necessitating strategic repositioning for corporates reliant on global value chains.

Easing supply chain pressures, stabilising commodity prices, and improved financial conditions have provided

some tailwinds. However, geopolitical tensions, energy security concerns, climate-related disruptions, and policy divergence between major central banks

continue to cloud the outlook. The transition towards green and renewable energy is also shaping global capital allocation, with significant cross-border flows into sustainable infrastructure.

Review of the Indian Economy (FY 2025-26)

India remains the worlds fastest-growing major economy, with GDP growth projected at 6.4% in FY 2025-26 and FY 2026-27. On a calendar basis, the economy is expected to expand by 6.7% in 2025 and 6.4% in 2026.

Indias growth is anchored by:

• Domestic demand resilience, supported by a rising middle class and increasing consumer formalisation.

• Public capital expenditure, especially in

infrastructure, housing, and renewable energy.

• Policy continuity, with reforms in taxation, digitalisation, and capital markets strengthening long-term fundamentals.

• Urbanisation and demographic momentum, fueling demand for housing, services, and clean energy solutions.

Growth is supported by strong domestic consumption, robust public investment, and continued government emphasis on infrastructure, housing, digitalisation, and clean energy. Crucially, India is positioning itself as a global hub for sustainability-linked investment, making real estate, capital markets, and renewable energy the three fastest-evolving verticals with multidecade growth visibility.

Structural drivers—including a favourable demographic profile, formalisation of the economy, and rising capital market participation—are expected to sustain Indias medium-term momentum. Large-scale investments in renewable energy, construction, and urbanisation are accelerating job creation and transforming the growth composition, positioning India as a global hub for sustainable development and green finance.

Active Pharmaceutical Ingredient (API) Market Dynamics

The global API industry in 2024-25 is undergoing significant structural changes. Regulatory scrutiny has intensified, focusing on end-to-end traceability, ESG compliance, and digital integrity, raising compliance costs across geographies. Concurrently, the US and Europe are reshoring strategic pharmaceutical manufacturing with policy support, while Southeast Asia is building supplementary capacity. This reduces historical dependence on India and China.

The global API industry is facing structural disruption:

• Compliance drag: ESG norms, data integrity, and end-to-end traceability have raised compliance costs across the board.

• Regional fragmentation: US/EU incentives for domestic production and Southeast Asias entry are diluting Indias long-held cost advantage.

• Tariff and trade frictions: Ongoing US-China disputes and shifting procurement policies create supply-demand uncertainty.

• Muted growth: Indian API growth in FY25 has been price-led, not volume-led, with export growth exposed to margin volatility.

The API sector has moved from being volume-driven with structural tailwinds to margin-compressed with regulatory overhang. Players relying solely on pharma face earnings visibility risks.

Indian API players face challenges of price-based competition, volatile raw material costs, and tariff frictions, particularly between the US and China, which continue to disrupt trade flows. Export growth has largely been value-driven rather than volume-led, exposing the sector to margin compression. While generics and biosimilars remain key demand drivers, they are subject to intense competition and unpredictable government procurement cycles.

Given these headwinds, diversification beyond APIs

into resilient domestic sectors such as real estate, construction, and renewable energy has become strategically imperative. These sectors not only offer demand visibility but are also aligned with Indias national development priorities.

Strategic Direction - Diversifying into New Growth Verticals

Par Drugs and Chemicals Limited has initiated a strategic diversification journey beyond its pharmaceutical foundation. With shareholder approval, the Company is investing in real estate & construction, clean & renewable energy, and capital markets.

This transformation reflects a conscious pivot towards sectors that:

• Align with Indias long-term growth agenda (Vision India @ 2047),

• Offer stable cash flows and scalability, and

• Reduce dependence on volatile global pharma cycles.

Recognising the evolving risk profile of the API industry, we have pivoted towards a multi-sector growth model.

With shareholder approval, the Company has committed investments of ?95 crore across:

• Real Estate & Construction - ?27 crore

• Clean & Renewable Energy - ?27 crore

• Capital Market Ventures - ?41 crore

This strategic shift is not opportunistic but structural. It

addresses three critical imperatives:

1. De-risking: Reducing dependence on a single global-cyclical industry.

2. Alignment with macro priorities: Tapping Indias infrastructure boom and energy transition.

3. Sustainable growth visibility: Securing stable and scalable cash flows beyond APIs.

The Companys portfolio realignment positions it to benefit from domestic demand resilience and global green finance flows, while protecting against volatility in pharmaceutical exports.

By building a multi-sector portfolio, the Company seeks to create diversified revenue streams, enhance resilience, and contribute meaningfully to national sustainability and infrastructure priorities.

Review of Sales Product Portfolio APIs:

Magnesium Hydroxide: Widely used as an antacid and as an intermediate for producing magnesium metal, residual fuel additives, sulphite pulp, and in uranium processing.

Dried Aluminium Hydroxide Gel: Primarily used as an active ingredient in antacid formulations and to manufacture of lake colours, inks, catalyst carriers.

Magaldrate: A common antacid drug used for treating duodenal and gastric ulcers and esophagitis from gastroesophageal reflux.

Magnesium Trisilicate: Used as an antioxidant,

decolorizing agent, and industrial odor absorbent

Fine Chemicals:

Precipitated Silica: Used in pesticides, detergents, freeflow salt, anti-caking agents, and cosmetics.

Alusil: A silicate and aluminium salt composition used in paper, paint, and coating applications.

PARSIL-HT: Used in specialised agro formulations.

Magnesium Aluminium Silicate: Used as a plant growth supplement and as an antacid raw material in specific antacid formulations, ceramics, suspending agents, and thickening agents.

Our sales portfolio remains concentrated in group of Active Pharmaceutical Ingredients (APIs) and Fine Chemicals products. APIs accounted for 66.68% of total revenue, highlighting the Companys continued reliance on this products, while Fine Chemicals contributed 33.32%. However, on a volume basis, the composition is inverted: Fine Chemicals comprised 58.00% of total quantities sold, compared to 42.00% from APIs.

This mix underscores that while APIs generate the larger share of revenue due to higher value realisation, Fine Chemicals provide the bulk of physical sales volume, as depicted below:

This indicates that APIs, despite lower physical volumes, dominate value contribution. The concentration in APIs exposes the business to sector-specific risks, including escalating regulatory costs, global tariff interventions, and geographic supply chain realignments that are increasingly shaping demand and pricing structures. Fine Chemicals, though smaller in revenue share, provide scale, yet remain vulnerable to margin pressure and fluctuating demand cycles in their end- use markets. This composition underlines the structural exposure to the challenges of the API industry and the need for measured balance across unrelated domestic opportunities.

Summarily, while APIs dominate value contribution, the high concentration risk is evident. Fine Chemicals add volume scale but remain exposed to end-market volatility. This validates the diversification thesis.

• Revenue grew 5.6% YoY, but EBITDA contracted 6.0% due to input cost inflation.

• Margins softened: EBITDA margin declined to 21.36% from 24.00%.

• ROE compressed to 18.76% vs 21.89% in FY24, reflecting both lower earnings and high equity base.

Margins have softened in FY25 due to higher raw material and operating costs. ROE and ROCE also moderated, reflecting both margin compression and equity base expansion.

This financial profile underscores the need for new growth engines.

Threats

• Global risks: geopolitical tensions, inflation volatility, supply chain realignments, energy shocks.

• Sector risks: rising regulatory costs, fragmented demand cycles, intense pricing pressure in APIs.

• Operational risks: natural disasters, climate impact, raw material price swings.

• Pharma volatility: Pricing pressure, regulatory overhang, trade fragmentation.

• Macro shocks: Energy price spikes, inflation resurgence, geopolitical conflicts.

• Climate & ESG risks: Transition costs for noncompliant industries.

Opportunities

• Infrastructure & Real Estate: Urbanisation,

affordable housing, and government-backed construction projects.

• Capital Markets: Robust domestic liquidity,

regulatory reforms, and retail investor participation.

• Clean Energy: Net-zero targets driving investments in solar, wind, green hydrogen and clean energy transition, where India targets 500 GW of renewable capacity by 2030.

Strengths

• Strong balance sheet and zero-debt position.

• Governance and compliance culture.

• Ability to realign portfolio strategically in response to market realities.

Key Developments in FY25

• Slump Sale of Pharma Unit: The Company executed the slump sale of its manufacturing establishment— including land, building, plant & machinery, specific current assets, and current liabilities—to PHAL-JIG Fine Chemicals Pvt. Ltd. (a promoter group entity) for a consideration of ?95 crore. The transaction, conducted on an arms length basis and approved by shareholders, was aimed at portfolio rebalancing and strategic redeployment of capital.

• Diversification Approval: Shareholders approved a structured investment plan of ?95 crore, to be

deployed across three verticals: Real Estate (?27 crore), Clean Energy (?27 crore), and Capital Market Ventures (?41 crore). This reflects the Companys pivot from a single-sector model to a multi-sector growth platform aligned with Indias infrastructure and sustainability priorities.

• Strengthened Cash & Liquidity Position: Following the slump sale and optimization of working capital, the Company expects to hold a minimum cash and liquid asset base of approximately f141 crore. This position is derived from (i) the ?95 crore slump sale proceeds, and (ii) realization of current investments, other assets, and surplus working capital not transferred under the divested unit, together with existing balance of cash and cash equivalents.

The enhanced liquidity creates a strategic financial cushion, allowing the Company to:

a) fully fund its diversification initiatives without external borrowings,

b) maintain flexibility to capture market-driven opportunities, and

c) reinforce its balance sheet to support future scalability and resilience.

Together, these developments represent a decisive transformation in the Companys history—from a concentrated pharmaceutical player to a diversified enterprise with strong liquidity and a multi-sector growth agenda.

Outlook

The Company maintains a measuredly optimistic outlook, supported by diversification into real estate, renewable energy, and financial markets. The

diversified model is expected to:

• Enhance earnings resilience,

• Deliver better capital efficiency, and

• Align the Company with Indias long-term development story.

These segments provide countercyclical balance against pharmaceutical volatility, while positioning the Company for sustainable long-term growth.

Risks & Mitigation

The Board oversees a structured framework covering financial, operational, strategic, and regulatory risks. Specific focus areas include:

• Currency volatility: Conservative hedging.

• Regulatory compliance: Continuous monitoring and alignment with global ESG standards.

• Diversification execution: Phased capital

deployment with governance oversight.

• Sector Concentration Risk: Strategic diversification into unrelated but resilient domestic sectors.

To manage these risks systematically, the Company has developed a comprehensive risk management framework that identifies, monitors, and addresses financial, operational, strategic, and regulatory exposures. This framework is rooted in proactive risk identification, structured reporting, and timely assessment, with mitigation measures designed to reduce both probability and impact. The Board of Directors regularly reviews the effectiveness of this approach, ensuring that the Company remains resilient and well-prepared to navigate uncertainties while pursuing sustainable growth.

Human Resources

The Company recognises its people as its most important asset and is committed to nurturing an equitable,

inclusive, and professional workplace. It encourages collaboration, knowledge-sharing, and alignment of individual and team goals with wider organisational priorities. This culture creates an environment that supports performance and long-term success.

Employee performance is evaluated regularly through structured assessments, enabling accountability, recognition, and alignment with business objectives. The Company also emphasises training and capability building, offering employees opportunities to acquire new skills, pursue career advancement, and achieve personal growth. As of March 31, 2025, the organisation employed 121 individuals, each making a meaningful contribution to the Company and remains committed to an inclusive, performance-driven culture. The Company continues to invest in capability-building and leadership pipelines to support its expanding business model. Focus areas include upskilling, structured evaluations, and leadership development.

Internal Controls & Adequacy

Internal financial controls are essential to maintaining the reliability of financial reporting and ensuring the accurate preparation of accounts in line with generally accepted accounting principles. The Company has established a strong internal control system that provides reasonable assurance on three fronts: records are maintained with accuracy and completeness, transactions are properly authorised and recorded, and assets are safeguarded against misuse or unauthorised disposition that could affect financial reporting.

Robust systems ensure accurate reporting, asset protection, and compliance with ICAIs internal financial controls framework.

Cautionary Note

This Management Discussion and Analysis contains certain forward-looking statements, reflecting the Companys expectations, objectives, and outlook. However, these should not be interpreted as guarantees of future performance. Actual results may differ materially due to a variety of factors, including shifts in the political and economic environment in India and overseas, foreign exchange volatility, changes in government regulations, taxation, and statutory compliance requirements.

The Company remains focused on strengthening its core capabilities, ensuring that employee development and performance management systems are closely aligned with organisational goals and external requirements. At the same time, it emphasises adaptability and resilience to address emerging risks and opportunities. Forwardlooking statements herein are subject to risks, including geopolitical instability, policy changes, FX volatility, sectoral disruptions and global economic shifts. The Company assumes no obligation to revise such statements in light of future developments.