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Total operating income breakup

Revenues break-up % Sales FY2020 FY2019 % Change
Financial Services 59% 7,649 8%
Pharma 41% 5,419 4,786 13%
Pharma CDMO

24%

3,154

2,783

13%

Complex Hospital Generics

14%

1,853

1,669

11%

India Consumer Products

3%

418

334

25%

Others - - 34 -
Total 100% 13,068 11,883 10%

(1) Previous year figures are restated for accounting effect of Piramal Phytocare merger and discontinued operations from HIA

(2) Pharma revenue includes revenue from Pharma CDMO, Complex Hospital Generics and India Consumer Healthcare and certain Forex exchange loss

(3) Others include revenue from discontinued operations of Imaging business

STRENGTHENING THE BALANCE SHEET

To further strengthen the balance sheet, the Company raised capital through multiple transactions worth 14,500 Crores during the year.

was raised from preferential allotment of Compulsorily Convertible Debentures (CCDs) to CDPQ - an existing long-term investor.

was raised through the Rights Issue - oversubscribed more than 1.14 times, with participation from most large existing investors. The promoters had not only underwritten the entire issue but also fully participated in the Rights offer, reinforcing their commitment to the future of the Company.

was brought in from the sale of the Healthcare Insights & Analytics business.

from the sale of the 10% stake in Shriram Transport Finance (STFC)

i FINANCIAL REVIEW

Consolidated Balance Sheet

Particulars As on March 31, 2020 As on March 31, 2019
Equity Share Capital 45 37
Other Equity 30,526 27,187
Non-Controlling Interests - 9
Borrowings (Current & Non-Current) 42,055 56,040
Deferred Tax Liabilities (Net) 8 19
Other Liabilities 1,965 2,109
Provisions 310 211
Total Liabilities & Equity 74,909 85,613
PPE, Intangibles (Under Development), CWIP 5,794 5,751
Goodwill on Consolidation 1,139 5,939
Financial Assets
Investment 19,443 25,747
Others 31,854 33,661
Other Non-Current Assets 1,144 633
Deferred Tax Asset (Net) 2,372 4,068
Current Assets
Inventories 1,061 831
Trade Receivable 1,324 1,403
Cash & Cash Equivalents & Other Bank balances 4,771 919
Other Financial & Non-Financial Assets 6,006 6,660
Total Assets 74,909 85,613

Note: The above numbers have been regrouped from IND AS Financial Statements for Presentation purposes only

Equity

The net worth as on March 31, 2020 was 30,572 Crores as compared with 27,224 Crores as on March 31, 2019. The increase in equity was primarily driven by the proceeds from the preferential allotment to Caisse de depot et placement du Quebec (CDPQ), capital raise via the Rights Issue and profit from the sale of the Healthcare Insights & Analytics business. However, the increase was partly offset by one time DTA write-off and MAT credit reversal, additional conservative Expected Credit Loss (ECL) provisions, dividends, movement in other comprehensive income due to the stake sale in Shriram Transport Finance Company and movement in share price of listed investments.

Post the revised equity allocation adjusted for the one-off items, the financial services business now has an equity of 15,599 Crores and borrowings of  Rs 40,000 Crores at a leverage ratio of 2.6x vs. 3.9x in March, 2019. Pharma business has an equity base of 4,491 Crores.

In addition to both the businesses, there is unallocated equity pool of  Rs 10,500 Crores available, comprising investments in Shriram, proceeds from capital raise and sale of DRG, net of debt.

Loan Funds

Total borrowings decreased to 42,055 Crores as on March 31, 2020 vis-a-vis 56,040 Crores as on March 31, 2019. The reduction in debt was primarily on account of deleveraging in the Financial Services business. At the PEL-level, net debt-to-equity ratio decreased from 2.0x on March 31, 2019 to 1.2x on March 31, 2020.

Goodwill

During FY2020, goodwill decreased from 5,939 Crores to 1,139 Crores, primarily on account of sale of the Healthcare Insights & Analytics business.

Loan Book

Loan book as on March 31, 2020 was 50,963 Crores as compared to 56,624 Crores as on March 31, 2019, as the business continued to enhance granularisation and reduce large single-borrower exposures.

BUSINESS-WISE REVENUE PERFORMANCE

PELs consolidated revenues grew by 10% to 13,068 Crores in FY2020 vis-a-vis 11,883 Crores in FY2019. Revenues generated in foreign currencies constituted 34% of the Companys FY2020 revenues.

Financial Services:

Income from the Financial Services business increased by 8% YoY to 7,649 Crores in FY2020 as compared to 7,063 Crores in the previous year. The moderation in YoY revenue growth was due to the reduction in average loan book size, which was partly offset by improved yields in the wholesale loan portfolio.

Pharma:

Revenues for the Pharma business increased by 13% in FY2020 to 5,419 Crores as compared to 4,786 Crores for FY2019. The increase was on account of growth in core businesses, new product launches, strong order book and robust demand. Pharma revenues grew at a CAGR of 15% over the last nine years and now contributes 41% to PELs overall revenues.

(1) FY2015 results have been prepared on IND GAAP anf FY2016 onwards on IndAS basis

(2) Previous year figures are restated for discountinued operations of HIA

(3) Pharma revenue includes Pharma CDMO, Complex Hospital Generics and India Consumer Healthcare and certain foreign exchange loss

P&L Performance

( Crores or as stated)

FULL YEAR ENDED

31-Mar-20 31-Mar-19 % Change
Net Sales 13,068 11,883 10%
Non-operating other income 491 310 59%
Total Income 13,559 12,192 11%
Other Operating Expenses 4,926 4,692 5%
Expected Credit Loss 1,875 324 478%
OPBIDTA 6,758 7,175 -6%
Interest Expenses 5,321 4,100 30%
Depreciation 520 401 30%
Profit before tax & exceptional items 918 2,675 -66%
Exceptional items (Expenses)/Income - (452) -
Income tax
Current Tax and Deferred Tax 203 852 -76%
DTA and MAT Credit written off 1,758 - -
Profit/(Loss) after tax (before MI & Prior Period items) (1,043) 1,370 -
Minority interest - - -
Share of Associates1 490 319 53%
Profit / (Loss) from Continued operations (553) 1,690 -
Profit / (Loss) from Discontinued operations 574 (226) -
Reported Net profit 21 1,464 -
Normalised Net Profit3 2,615 2,142 22%

(1) Income under Share of Associates primarily includes our share of profits at Shriram Capital and profit under JV with Allergan, as per the new accounting standards.

(2) Previous year figures are restated for accounting effect of Piramal Phytocare merger and discontinued operations.

(3) Normalised Net profit excludes one-time impact of gain/loss from sale of businesses; reversal of Deferred Tax Asset (DTA) and Minimum Alternate Tax (MAT) credit and additional provisions created on account of COVID-19, net of tax.

Expected Credit Loss

Expected credit loss for the year was higher at 1,875 Crores as compared to 324 Crores in the previous year. Taking into cognisance the current indicators of future economic conditions from COVID-19, the Company conducted a scenario analysis based on macro-economic factors to enhance the provision.

Finance Costs

Finance costs for the year increased to 5,321 Crores from 4,100 Crores in FY2019, due to an increase in cost of borrowings amidst a challenging business environment, particularly for the Financial Services business.

Depreciation

Depreciation for the year was 520 Crores as compared to 401 Crores in FY2019. This was primarily due to increased capitalisation in the Pharma business, movement in average foreign exchange rate and reclassification of expenses on account of adoption of Ind As 116 -"Leases".

Taxation

Current tax and Deferred tax expenses were at 203 Crores in FY2020 vis-a-vis 852 Crores in FY2019, primarily on account of adoption of the new income tax regime by the Company and some of its Indian subsidiaries. The Company has re-measured the opening balance of Deferred Tax Assets, including Minimum Alternate Tax as on April 1, 2019 and accounted for a one-time charge of 1,758 Crores.

Net Profit after Tax

Reported net profit after tax for FY2020 stood at 21 Crores vis-a-vis 1,464 Crores in FY2019. The decline in reported net profit after tax was primarily due to one-time DTA write-off and MAT credit reversal of 1,758 Crores on adoption of the new income tax regime by the Company and some of its Indian subsidiaries, and the incremental conservative ECL provision in the Financial Services business of 1,903 Crores (or 1,411 Crores, net of taxes).

Net Profit Reconciliation: Details of one-off adjustments to determine Normalised Net Profit:

*One-off adjustments ( Crores, unless otherwise stated) FY2020 FY2019
Reported Net Profit 21 1,464
(A) Add: DTA write-off and MAT Credit Reversal
- One-time gain on creation of DTA of  Rs 3,570 Crore in Q4 FY18
- 0 pted for lower rate under new corporate tax regime, resulting in one-time write-offs of 1,758 Cr. due to: +1,758
(i) Forgoing partial benefit under DTA; and (ii) unutilised MAT credit
- Benefit to profitability/cash flows to continue in future by opting for lower tax rate regime
(B)Add: Incremental conservative provisions
- Adopted a conservative and prudent approach to provisioning
- Incremental provisions of 1,903 Cr. (1,411 Cr., net of taxes) in Financial Services +1,411
- Conservative provisioning is in addition to the usual provisions created for GNPAs
- Provision has been created out of Abundance of Caution
(C)Less: (Profit)/loss from discontinued operations
- Sold DRG for a consideration of USD 950m -574 +226
- Orofit/loss from operations (including gain on sale of DRG) has been reversed to determine normalised profit
(D) Add: Accounting charge on sale of Imaging Business in FY19 +452
Normalised Net Profit 2,615 2,142
YoY Change in Normalised Net Profit +22%

Normalised Net Profit

Normalised net profit (i.e. excluding the impact of one-time adjustments*) for FY2020 grew by 22% to 2,615 Crores as compared to 2,142 Crores in FY2019, primarily driven by the improved performance in Pharma business.

Dividend

Keeping in mind the global environment of heightened uncertainty caused by COVID-19 on the one hand and on the other, the recent sale of our DRG business as well as the interest of the minority shareholders, the Board has recommended a dividend of 14 per share for your approval as against a dividend of 28 per share in the previous year. The total dividend payout on this account would be 316 Crores.

FINANCIAL SERVICES

PELs Financial Services business offers a wide range of financial products and services to cater to the diverse needs of its clients. The Financial Services business had a strong portfolio with loans, alternative assets under management (AUM) and investments of nearly 66,500 Crores as on March 31, 2020.

BUSINESS OVERVIEW

Over the past few years, the Company has consistently diversified its exposure across both wholesale and retail financing through its presence in the following sub-segments:

Wholesale Lending

• Real Estate Developer financing loan book stood at 37,561 Crores

• Corporate lending book (including Emerging Corporate Lending) stood at 7,868 Crores

Retail Lending

• Housing Finance loan book of 5,534 Crores, accounted for 11% of overall loan book

• Building a multi-product retail lending platform

Alternative Asset Management

• Strategic partnership ventures with Caisse de depot et placement du Quebec (CDPQ), Bain Capital Credit, Canada Pension Plan Investment Board (CPPIB) and APG Asset Management (a Dutch pension fund asset manager)

• AUM of 11,496 Crores across various investment platforms and Joint Ventures

Investments in Shriram Group

• Investments of 3,954 Crores1 in Shriram Group of Companies, which includes a ~20% stake in Shriram Capital Ltd. (SCL) and a ~10% stake in Shriram City Union Finance (SCUF)

Market Scenario - Financial Services

Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) play an important role in ensuring last-mile funding across the economy. Their niche financial intermediation complements and competes with the banking credit network, fostering better efficiency and wider financial inclusion. Indian policy makers have reiterated the relevance of NBFCs in India. To quote Hon. Finance Minister, Ms. Nirmala Sitharaman, during her FY2020 budget speech, "NBFCs are playing an extremely important role in sustaining consumption demand as well as capital formation in small and medium industrial segment."

Balance sheets of NBFCs witnessed a sharp growth between FY2017 and FY2019 (CAGR 25%). The asset size of NBFCs, including HFCs, grew to 44.4 Lakh crores by March, 2019 dominated by loans to industries, real estate and retail. Major beneficiaries of NBFC/HFC credit include micro, small and medium enterprises (MSMEs) and real estate developers. NBFCs in real estate is evident from the fact that they account for over 33% of the total credit exposure to the top 310 real estate developers in India as identified by the RBI. This rapid growth among NBFCs and

HFCs was fuelled largely by funds from Indian banks and asset management companies (AMCs). As on Q2 FY2020, NBFCs and HFCs owed 14.2 lakh Crores to the rest of the financial sector (including ~44% to banks and 26% to AMCs), deeply intertwining them with Indias financial system.

In recent times, NBFCs and HFCs are experiencing liquidity stress owing to rating downgrades and defaults in a few large NBFCs in the aftermath of the IL&FS event. This slowdown has been witnessed mainly in the systemically important (assets >INR 500 Crores) non-deposit taking NBFCs. Consequently, financial markets and investors have been discriminating between stronger and weaker NBFCs, based on asset quality and asset-liability mismatch. Due to a rise in risk aversion, only well-governed, sufficiently capitalised NBFCs with a strong parentage have continued to receive funds, even though their cost of borrowings increased marginally. Both the RBI and the Goverment of India have introduced measures to alleviate some of these stresses through liquidity injections, regulatory relaxations and partial guarantees. These measures have eased business conditions and assisted several NBFCs/HFCs to build adequate capital buffers, reduce ALM mismatches and improve their asset quality.

However, due to the COVID related lockdowns, business conditions for NBFCs and HFCs are once again likely to get impacted. The RBI announced a moratorium on loan repayments between March 1 and August 31, 2020. The moratoriums on loan repayments may lead to a substantial decline in cash inflows over the next few months for some NBFCs and HFCs. This may also increase liquidity stress and ALM mismatches, in case the NBFC/HFC does not have sufficient on-balance sheet liquidity. Several weaker NBFCs/HFCs have already halted disbursements and are looking for avenues to raise capital, which has shrunk considerably. Hence this could accelerate the on-going consolidation in the sector, with the "strong becoming stronger" as the more resilient and adaptable NBFCs/HFCs are able to navigate the current market volatility.

Owing to the economic uncertainties, some of the larger NBFCs/ HFCs are focusing on portfolio stress tests based on worst case macro-economic scenarios, in order to assess the impact of COVID-19. Based on the outcome of these stress tests, these NBFCs/ HFCs are creating COVID-19 provisions and calibrating their internal credit-risk models.

Some of the major developments post the COVID-19 outbreak have been the rising prominence of technology and changing consumer behaviour. These mega trends are likely to create new opportunities for the NBFC/HFC sector. So players who embrace digitalisation will be able to address the evolving needs of clients and potentially benefit from the market dislocations caused by COVID-19.

In the past, players who have adopted transformational strategies have emerged winners from a crisis. Hence adaptability and agility of NBFCs will be key to navigating the current macroeconomic headwinds. Moreover, the players with:

i. sufficient on-balance sheet liquidity,

ii. access to long-term funding,

iii. healthy provisioning,

iv. a diversified loan portfolio and

v. adequate capital buffers with low leverage are relatively well- positioned to withstand the impact of disruptions caused by the COVID-19 outbreak.

Factors determining resilience and stability of NBFCs

Owing to the growing importance of NBCFs and HFCs, policy makers are expected to work towards harmonising their regulatory framework with that of banks. This will benefit the well-governed and well-capitalised NBFCs and HFCs and, in all likelihood, lead to quicker consolidation within the space.

KEY HIGHLIGHTS

Significantly improved capital adequacy and deleveraged the business

• As of March-2020, out of the total equity of 30,572 Crores, equity allocated to the Financial Services business was 15,599 Crores (vs. 11,400 Crores a year ago)

• A he Financial Services business has a best-in-class capital adequacy ratio1 of 31% (vis-a-vis 22% a year ago)

• A ross debt-to-equity multiple reduced to 2.6 times as of March 2020 from 3.9 times a year ago

Diversifying the loan book by gradually increasing the share of retail loans

• Share of real estate developer loans has declined from 83% in Mar-2015 to 70% in Mar- 2020

• As of Mar-2020, Retail loans (Housing Finance) accounted for 11% of overall loan book

• Expect to further improve the share of retail loans through the launch of other retail financing products

Reducing large single-borrower, on-balance sheet exposures

• 12% YoY reduction in wholesale loan book, which includes real estate and corporate loans

• Exposure to top-10 accounts reduced by  Rs 4,200 Cr. during the year (decline of 23% YoY)

• As of Mar-20, only 3 exposures were >10% of the net worth of the FS business

Made conservative provisions, as a matter of prudence, in response to COVID-19

• Adopted a conservative and prudent approach to provisioning, given macroeconomic uncertainty

• Created incremental conservative provision of 1,903 Crores in Q4 FY2020, resulting in an overall provision of 2,963 Crores (vis-a-vis 1,094 Crores a year ago)

• Total Provisions at 246% of GNPAs or 5.8% of overall loan book

Diversifying borrowing mix by raising long-term funds and maintaining adequate liquidity

• The Company has raised  Rs 30,000 Crores in longterm borrowings (including securitisations) since September 2018

• As a result, the share of bank borrowings1 stands at 65% of overall borrowings as of March 2020 vis-a-vis. only 49% as of September 2018

•  Rs 8,900 Crores were available in the form of cash and undrawn bank lines as of March 31, 2020

Reduced exposure to Commercial Papers

• Significant reduction in CP borrowings - exposure to CPs has declined 94% to 1,080 Crores as of Mar-2020 vis-a-vis 18,017 Crores as of Sep-2018

Building a multi-product retail lending platform

• The Company has announced the launch of a multi-product retail lending business

• We plan to build a fully tech-enabled, digital at the core business model

• Retail financing market in India has significant untapped potential, which offers longterm growth opportunities

• Consolidation is expected to pick up further speed in the sector as a result of the COVID-19 pandemic

• We are currently focused on:

(i) building the technology infrastructure

(ii) setting up key processes

(iii) hiring top-tier talent

(iv) refining product and channel strategy

(v) identifying target markets for the retail lending business

Building fund-based platforms (off-balance sheet) by partnering with marquee global investors

Senior debt platform with CDPQ to invest in senior-debt in non-real estate, non-infra sectors

IndiaRF - a Distressed Asset Investment platform in a JV with Bain Capital Credit - to tap into distressed asset resolution opportunity in India

Partnered with Ivanhoe Cambridge to provide long-term equity to blue chip residential real estate developers

Strategic alliance with APG Asset Management, a Dutch pension fund asset manager, to invest in infrastructure companies / projects

Co-sponsored a renewable energy-focused infrastructure investment trust (InvIT)

Investor in IndiaRF (the Companys Distressed Asset Investment platform)

Wholesale Lending

Real Estate Developer Finance

Market Scenario

The Indian real estate sector has been adapting to a rapidly evolving environment over the last few years. Several regulatory reforms and policy measures, such as RERA, GST and demonetisation, have reduced the sectors growth momentum, but helped to improve transparency and accountability while contributing to healthy consolidation and driving sustained long term performance.

Even while the sector is re-emerging from the impact of regulatory reforms and a system-wide liquidity tightening, it faces further headwinds from the COVID-19 pandemic. The pandemic is likely to further accelerate the pace of the on-going consolidation in the sector, as many weak, unorganised players will cease to exist.

Real estate directly accounts for 7% of GDP and 17% of employment. The impact is more pronounced through inter-linkages with about 250 auxiliary industries, such as steel, brick kilns, cement, paint, hardware, sanitary etc. The National Council of Applied Economic Research (NCAER) estimates that for every 1 Lakh invested in the housing sector, nearly three new jobs are created in the economy. Till now, the Pradhan Mantri Awas Yojana (PMAY) alone has created 12 million jobs. Hence the slowdown in real estate has reverberated into an overall economic slowdown in India.

Given the significance of the sector, the Government of India and the RBI have announced several measures to combat the social and economic crisis arising out of the COVID-19 breakout, which should likely improve system-wide liquidity and provide some relief to the real estate sector. Some of these measures include last-mile stressed asset funds, extension in date of commencement of commercial operations (DCCO) by 24 months applicable for bank and NBFC loans, extension in PMAY housing loan subsidy and extension in RERA completion timelines of projects. It is likely that more demand boosting measures will be undertaken going forward.

Impact of COVID-19: Outlook and Current Trends in the Real Estate Sector

A. Residential Real Estate

Sales through digital platforms: Developers are adapting to technology and creating an online presence. As a result, virtual site tours and digital sales are gaining prominence. For instance, one of our largest clients sold ~300 housing units via digital channels during the lockdown period of March and April 2020.

Discounts to boost sales: Enquiries for ready inventory are likely to increase and a few developers could offer further discounts to close transactions.

Focus on cash flow management: There is a greater focus by developers on liquidity and cash flow management, along with other risk management practices.

Demand for housing and home office space likely to pick up: As confidence in the economy is restored, demand for housing will gradually pick up. Also, people would increasingly prefer to stay in their own homes and so demand for housing with modern amenities is likely to improve. Moreover, developers plan to launch larger apartments, where extra rooms can be used as a home-office to facilitate the work from home culture.

Some of these measures are structural in nature and shall not only help developers navigate the current crisis, but will also yield longer-term benefits.

B. Commercial Real Estate Sector

Working from home (WFH) is likely to become the new norm: As more companies adopt a WFH policy, allowing a large portion of their employee base to work remotely (especially IT & ITES companies), rental growth is expected to remain muted on a YoY basis, and lessees are likely to seek reduction or deferment of rent escalations.

Changing demand for the type of office spaces: Deferment of large space lease commitments in the next 12 months as corporates may shrink existing leased space and smaller companies may opt for co-working spaces. Also, some companies may opt for centralised operations and consolidate their space holdings to cut cost and optimise operations.

Investments by global funds: Total investments by global private equity (PE) firms in the Indian real estate sector is estimated at around USD 5 billion during CY 2019, of which nearly two-thirds was towards commercial real estate. Global funds may continue to invest in Grade-A commercial assets, which may offer reasonable valuations.

C. Hospitality

Adverse impact due to lockdowns: Hospitality sector is amongst the most severely affected, as cash flows of hotels have been impacted due to the nationwide lockdown.

Marquee brands relatively better positioned: As the environment normalises gradually over the next 12-18 months, hotels/ properties in prime locations with marquee brands are likely to be the first to recover.

PELs positioning:

Despite significant headwinds faced by the real estate sector,

PELs asset quality has been resilient, that can be attributed to the Companys domain expertise, client selection, underwriting and strong risk and governance mechanism. Further, PELs ability to proactively cure stressed deals and swiftly adapt to an evolving business environment has enabled its loan portfolio to withstand market volatility.

While the eventual impact of COVID-19 is difficult to predict, real estate construction activity has been delayed and industry-wide sales can be expected to remain slow in the near term. As a matter of prudence, the Company has created an additional provision of   Rs 1,900 Crores in Q4 FY2020, which takes the total provision to  Rs 3,000 Crores. This sizeable provision should be sufficient to meet any contingencies.

Also, we were able to raise long-term funds during the year and maintained adequate liquidity in the form of cash and undrawn bank lines as of Mar-2020. As a result, during the nationwide lockdown due to COVID-19, we were able to ensure that there are enough funds to meet the liquidity and working capital requirements of our clients. The Company continued to support its partners and clients during the volatile market environment by extending moratorium to all its clients, with non-NPA accounts, as per regulatory guidelines.

Operational Performance:

Loan book: The real estate developer financing loan book reduced by 6% YoY to 37,561 Crores as of March 31, 2020 from 40,160 Crores as of March 31, 2019, as the Company has continued to reduce large single-borrower exposures. As of March 2020, real estate developer financing accounted for ~74% of the overall book.

Yields: Yields in wholesale lending have improved significantly due to consolidation and limited supply of credit in developer financing. Also, we remain focused on "risk-adjusted" returns, which has led to an improvement in yields. As a result, average yields in our wholesale RE loan portfolio have improved by ~150bps to 15% in Mar-2020 from 13.5% in Sep-2018 (i.e. pre-liquidity tightening).

Granularisation of the developer financing loan book:

The Company has been making consistent efforts to reduce concentration risk and has made a conscious decision to reduce large single-borrower exposures. Since Sep-2018,

PEL has made significant progress in reducing singleborrower exposures as a percentage of the net worth of the Financial Services business. This has been driven by both re-financing of loans and capital raise.

As of Mar-2020, only one exposure was above the threshold of 15% of net worth of the Financial Services business and two other exposures at >10% of net worth, whereas all other exposures were below 10% of the net worth. The exposure to Top-10 wholesale accounts was reduced by  Rs 4,200 Crores as of Mar-2020 vis-a-vis Mar-2019.

Commercial Real Estate exposure:

Our wholesale commercial real estate portfolio is split across underconstruction projects, lease rental discounting (LRD) and loans against property (LAP). Many of our projects are in mid-stage and have continued to witness steady sales (for e.g. smaller offices, etc.).

Our exposure to the hospitality sector accounts for ~4% of the overall loan book, where we have exposure to operating assets/ properties by marquee brands. While the sector may take 1218 months to recover from the impact of the COVID-19 related lockdown, we expect that the properties to recover first would be hotels in prime locations with marquee brands.

Selectively tap superior risk-reward opportunities in wholesale financing

Amid consolidation in the real estate sector, PEL plans to leverage its underwriting strengths to focus on last-in, first-out (LIFO) deals that offer attractive yields. In its endeavour to reduce developer concentration, the Company plans to enter into co-lending arrangements with public sector banks, global funds as well as foreign banks, to selectively tap superior risk-reward opportunities in the wholesale real estate space.

Corporate Lending (CFG and ECL)

Market Scenario

In India, corporate lending covers a wide range of financing requirements which were traditionally served by the banking system. With rising NPA levels, especially in public sector banks, NBFCs stepped in to fill the void. Over the last few years, NBFCs have continued to gain market share in corporate lending as a result of their domain expertise, ability to price risks and financial innovation.

However, post COVID-19, availability of credit to corporates has further declined, with lenders focusing only on select high-rated companies. For instance, corporate credit growth within the banking system decelerated to 1.4% YoY as of Mar-2020 vis-a-vis 6.9% YoY growth in Mar-2019.

The magnitude of the impact of COVID-19 varies from sector to sector, depending on supply-side disruptions and the duration for demand recovery for the respective sector. Some sectors such as auto and auto ancillaries, export-oriented industries, hotel and tourism, and engineering and manufacturing have been more adversely impacted than others. Hence the overall availability of wholesale financing in the system remains limited, with only few banks and NBFCs lending actively.

Corporate Finance Group (CFG)

CFG works closely with clients across several non-real estate sectors to develop credit solutions that tie in to the underlying cash flows of the business. The portfolio comprises loans to sectors such as infrastructure, renewables, cement, auto components, logistics, warehousing, packaging, building materials, cash management and various sub-segments within manufacturing and services industries. CFG offers multiple solutions with yields ranging from 12% to 16%.

CFGs loan book stood at 7,198 Crores as of March 31, 2020 compared to 9,889 Crores a year ago, given the focus on exits and the endeavour to reduce single-borrower exposure through down- selling/re-financing.

Emerging Corporate Lending (ECL)

ECL is a sector-agnostic platform and engages with clients from Manufacturing to Trade and Services, offering funding with a ticket size of 10 Crores to 100 Crores. ECL caters to the borrowers requirements with customised solutions, in terms of security and repayment tenor to match the underlying cash flows of the business.

The business follows a regional origination and a centralised underwriting model. Origination efforts are led by a team of Relationship Managers based in Mumbai, Delhi Hyderabad, Pune and Ahmedabad, alongside a centralised underwriting team at Mumbai.

In the current environment, the business remains focused on preserving liquidity through refinancing, resulting in the shrinkage in loan book YoY. As of March 31, 2020, the ECL loan book stood at 670 Crores (as compared to 1,387 Crores as of March 31, 2019), with an average ticket size of 47 Crores across 14 deals, with 13 unique client relationships.

Retail Lending

Market Scenario

Retail lending penetration in India is relatively low and stands at ~15% of the countrys GDP, as compared to 66% in China and 81% in the US. Over the last few years, NBFCs/HFCs have played a crucial role in providing retail credit, owing to their deep understanding of target customer segments, use of technology, lean cost structures and differentiated business models to reach credit-starved segments.

Within retail lending, housing finance forms a sizable portion of the loan book of NBFCs/HFCs. Housing is an economic and social priority for the Indian society. More than 60% of Indias household savings is invested in homes as estimated by the Central Statistics Office. Economic development, rising per capita income and urbanisation have led to the emergence of an aspirational India. And owning a home continues to remain a key aspiration.

While Central and State governments have focused on housing ever since Independence and continue to do so, housing remains a distant dream for many. The Government of India estimates that by 2022, about 100 million new homes will be required.

Bulk of this requirement (95%) will be for low income group (LIG) and economically weaker sections (EWS) of the population. This presents an immense opportunity, for affordable homes as well as for housing finance. Due to low financial inclusion, penetration of housing finance in India has been restricted to primarily within the mid-income and high-income groups of the population. Similar to the trends observed in overall retail lending, mortgage to GDP ratio in India is ~9% as compared to 18% in China or 56% in the U.S. But, strong demand will likely raise this to ~12%, as per a RBI Report in September 2019. Recent reforms like RERA, Benami Property Act, Pradhan Mantri Awas Yojana (PMAY) and even GST were aimed at strengthening the demand and supply enablers for housing in India.

At present, the key providers of home loans are commercial banks (57.8%) and HFCs (42.2%). Among HFCs, the market is highly concentrated within the top 5 companies, accounting for 85% of the loans. It is quite likely that due to this rise in demand for new homes and low penetration of mortgages, the housing finance market will undergo a secular growth over the next few years. The Government of Indias Smart City Mission will benefit the cities with better connectivity and infrastructure boosting urbanisation. In fact, as per a study by Oxford Economics, the top 10 fastest growing cities in the world are in India.

However, the sector has faced a liquidity stress owing to rating downgrades and defaults in a few large HFCs in the aftermath of the IL&FS event, which challenged the sectors secular growth assumption. Prompt policy interventions from the RBI, NHB and the Government of India led to the easing up of some of these issues, especially for the well managed larger HFCs. We expect additional proactive efforts by the government and the RBI to boost housing demand and ease cash flow issues within developer balance sheets. Also, a new normal could emerge post the COVID-19 pandemic that could benefit real estate and HFCs. Factors like work from home, hub-and-spoke models adopted by employers, lower prices and interest rates, etc. could lead to higher demand for homes as consumer sentiment revives over the next 2-3 quarters.

PEL is well-positioned to tide over such times and emerge stronger post this crisis. While the Company continues to increase the share of Housing Finance in its loan book, it also aims to build a retail financing multi-product lending platform, which would be digital at its core. The current market dislocation caused by the COVID-19 pandemic is creating opportunities for some incumbents, as well as new entrants, to capture market share, provided they have adequate capital, robust underwriting processes and are able to meet the evolving needs of retail customers.

Housing Finance

Business performance during FY2020

As of March 31, 2020, the Housing Finance loan book stood at 5,534 Crores compared to 5,188 Crores as of March 31, 2019. The book is largely stable as the growth in the book was partly offset by routine pay-downs, accelerated pre-payments, balance transfers and sale/securitisation. Also, we plan to gradually move from affluent to mass affluent category in housing finance space.

The Housing Finance loan book accounted for 11% of overall loans as of March-2020 (vis-a-vis 9% a year ago) and its share is expected to increase in the medium-to-long term.

Amidst the lockdown due to COVID-19, the Company offered a 3-month moratorium to its retail housing finance clients and 24% of its clients (as of Apr-2020) availed themselves of the benefit.

Housing Finance: Loan book profile and KPIs

As on Mar-20
Share of Housing Finance in Overall Loans 11%
Average ticket size (Home Loans) 70 lakhs
Weighted average loan-to-value 65%
Salaried: Self-employed customers 62 : 38
GNPA ratio 0.17%

Strategic priorities and focus areas: HFC

Given the market environment, we are being cautious on disbursements. Hence the portfolio size may remain steady for the next few months. Simultaneously, we will continue to shift the loan book mix towards mass affluent housing finance. In the near-to-medium term, the mass affluent housing finance market is also expected to witness significant consolidation, which is likely to create substantial growth opportunities for the business.

Consumer and other Retail Lending

The competitive intensity in the retail consumer financing space is expected to reduce due to COVID-19. Given the Company did not have a legacy retail financing book, it will incorporate learnings from the current environment, and build the book more conservatively.

FY2021 will be used for laying the foundation of the business, with focus on the following areas:

• Product strategy: There have been some changes to our retail strategy due to the COVID-19 impact. We are now working towards launching a combination of secured and unsecured products. We already have a presence in the safe-end of the retail business with our housing portfolio, which we plan to enhance with other products now.

• Channel strategy: We plan to have a combination of Physical and Digital distribution. We are exploring opportunities to create channel partnerships to enable distribution.

• Geography selection: We will be focusing on small-town and midtown markets of India and are in the process of identifying target markets and creating a presence there.

• Technology: Technology is a central component of our retail strategy and we are putting together the tech stack necessary for a successful launch. We plan to have a fully tech-enabled, digital at the core business model. Also, given that we are a new entrant, we do not have to manage or deal with any legacy infrastructure.

• Team: We are hiring top-tier talent to lead our retail business across roles in business, collections, operations, as well as technology.

• Processes: The existing Housing Finance team and fresh talents who are coming on board will be working with top quality external consultants to set-up robust processes and controls for the business.

investments in Shriram Group

PEL had invested a total amount of 4,583 Crores in Shriram Group companies, which comprised 1,636 Crores for a ~10% stake in Shriram Transport Finance Corporation, 2,146 Crores for a ~20% stake in Shriram Capital Limited and 801 Crores for a ~10% stake in Shriram City Union Finance.

In June 2019, PEL sold its entire direct investment of 9.96% in Shriram Transport Finance Corporation for  Rs 2,300 Crores. Post the Shriram Transport Finance Corporation stake sale, the investments were worth 3,954 Crores1 as of March 31, 2020.

Additionally, the investment is part of the unallocated equity pool - serving as an accessible, return-generating pool of capital for PELs future growth initiatives.

Alternative AUM

indiaRF - JV with Bain Capital Credit (BCC)

IndiaRF is a "Distress to Control" fund set up with PEL and BCC, as General Partners. BCC is the credit-investing arm of Bain Capital with about USD 39 billion in assets under management.

IndiaRF seeks to provide attractive, long-term risk-adjusted returns to investors primarily by making distressed investments with significant control, influence or management in Indian companies / assets, across all sectors other than real estate. The Fund would look to invest in companies /assets which are currently under distress but have fundamentally strong growth prospects linked to Indias infrastructure and consumption needs or are competitive on exports. The Fund aims to drive a resolution plan focused on specific financial and operational turnarounds with dedicated management oversight, while protecting the sustainable debt value and maximising stakeholder value.

The platform is fully operational and invests in debt and/or equity, through secondary purchases and/or primary investment into companies or assets. The platform also has a licence for an asset reconstruction business, which would allow it to consolidate debt, with the intent to gain a position of control so as to further aid the objective of the investment.

The Fund currently has US$ 567 miilion under management. PEL and BCC have each committed US$ 100 million to IndiaRF. CPPIB and IFC have also committed US$ 225 million and US$ 100 million, respectively to the Fund.

The Fund till date has invested US$ 398 million along with its affiliates, across sectors including marine chemicals, pharmaceutical and steel.

Co-investment platform with ivanhoe Cambridge

PEL has formed a strategic partnership with Ivanhoe Cambridge, a real estate subsidiary of Caisse de depot et placement du Quebec (CDPQ), to provide long-term equity capital to top-tier residential real estate developers across India. Ivanhoe Cambridge had committed an initial US$ 250 million for both pure and preferred equity transactions. PEL had committed to co-invest 25% of pure equity transactions and 50% of preferred equity transactions, with the balance coming from Ivanhoe Cambridge. The platforms investment focus included the Mumbai Metropolitan Region, Delhi-

NCR, Bengaluru, Pune and Chennai. The capital, which will be in the form of pure and structured equity, will be deployed with a 7-10 year investment horizon.

So far, Piramal and Ivanhoe Cambridge have made an equity investment of 500 crores in an integrated smart city project being developed in the Mumbai Metropolitan Region. The Fund continues to evaluate several other deals to provide long term equity capital to blue chip residential developers across major cities in India.

inviT platform for renewables with CPPiB

In May-2019, PEL and CPPIB launched a renewable energy-focused Infrastructure Investment Trust (InvIT). With an initial targeted corpus of up to US$ 600 million, with an option to scale up further, InvIT would seek to acquire up to 1.5-2 gigawatts (GW) of stable and long-term cash generating renewables assets, with a firm focus on diversification of clients of both solar and wind assets as well as consumers for the generated electricity.

AlF platform with iiFL Wealth for last-mile funding

In Dec-2019, PEL and IIFL Wealth Management Limited announced a co-investment on an Alternative Investment Fund (AIF) platform to fund select advance stage/last-mile real estate projects across Tier 1 cities in India. With a target size of 2,000 crores, AIF aims to provide capital to Tier 1 developers in key markets. The Fund will initially be seeded with existing loans from Piramal Groups portfolio while continuing to explore quality deals from the market in the future. The platform enables PEL to facilitate external capital (on a fund or co-investment basis) alongside its lending business, and to further grow the lending business through a new co-investment/co-origination model.

Progress on strategic alliance with APG Asset Management

PEL and APG Asset Management (a Dutch pension fund asset manager) have a strategic alliance for investing in rupee- denominated mezzanine instruments issued by Indias infrastructure companies. The aim is also to focus on operational and near completion projects with limited execution risks and high visibility of cash flows coming from a portfolio of projects.

Both PEL and APG had initially committed US$ 375 million each as part of this 50:50 strategic alliance. The Fund is fully-deployed across six deals totalling US$ 750 million, largely in the Renewable Energy and Infrastructure space. The investments were primarily used towards growth capital and to provide exit to existing investors. In the Renewable Energy space, the investments have helped facilitate an increase in capacity across the country.

Senior-debt platform with CDPQ for private credit financing

In February 2020, PEL announced a US$ 300 million platform with Canadian Pension Fund CDPQ to target private credit financing opportunities in India spanning across multiple sectors (other than real estate). CDPQ and Piramal will contribute 75% and 25% capital respectively. The partnership affirms CDPQs confidence in the deep expertise and track record of Piramal in this segment. The partnership will focus on performing credit.

Asset Quality

Asset Monitoring and Risk Management

PEL has a strong risk management framework and robust asset monitoring in its financial services business. The risk management framework spans across the pre-qualification and pre-approval stage, whereas asset monitoring takes place throughout the life cycle of a project.

As part of our Review and Governance mechanism, Risk and Legal teams are independent and report directly to the Board. The investment committees, apart from Executive Directors and Business Heads, also include Independent Directors and External Experts.

The Company maintains a healthy security and cash cover, which varies across deals, based on its conservative underwriting assumptions, with the ability to enforce security. Also, all our deals follow the escrow mechanism and hypothecation of receivables, resulting in visibility and control of project-level cash flows.

Review and governance mechanism

GNPA and Risk Mitigation Actions

The Asset Monitoring team critically analyses the key set of triggers like financials, operational performance, regulatory changes, macro-economic factors etc., and highlights the Early Warning Signals (EWS). The early-warning predictive model helps in identifying deals that could potentially go into stress in the near-to-medium term. Further, by leveraging both the Companys proprietary data as well as the rich external data sources, the team identifies ways to minimise NPA risk.

As of Mar-2020, GNPA stood at 2.4% (vis-a-vis 1.8% as of Dec-2019 and 0.9% as of Mar-2019). While the Company built additional conservative provisions in Q4 FY2020, it continues to take several risk mitigation actions and proactively cure some of the potentially stressed deals.

WHERE WE STAND RISK MITIGATION ACTIONS
• 100% secured portfolio • Conducted Sensitivity Analysis on loan book
• Adequate security cover taken at the time of deal origination • Adopted a conservative and prudent approach to provisioning
• Superior client selection • Deal-specific actions including reconfiguration of projects, equity infusion by clients and additional security cover
• Conservative underwriting
• Proactive corrective actions to cure potentially stressed projects • Maintaining adequate liquidity surplus
• Raising long-term borrowings

Examples of mitigation actions taken during the year

real estate deal resolution plan actions taken
Mumbai-based Credit Risk shifted to stronger developer • The new developer took over the project by land purchase of 270 Crores.
Gurugram-based Last-mile funding provided, while seeking re-financing options • Provided last-mile funding of 40 Crores for project completion while maintaining the required security cover and obtaining DCCO extension.
• Simultaneously, carried out discussions with a real estate fund for re-financing the deal.
Bengaluru-based Entered into a Development Management agreement • Development Management agreement executed with a stronger, listed developer.
• Soft launch done by the new developer and the project has received DCCO extension.

Scenario Analysis and Provisioning

While the balance sheet of the Financial Services business has adequate buffers for contingencies, given the low debt-to- equity of 2.6x times (gross), low GNPA (2.4%) and track record of resolving stressed deals, it was prudent to be cautious during this unprecedented macro crisis emanating from COVID-19.

The portfolio may face potential headwinds due to the emerging economic conditions, as sectors such as residential and commercial real estate, renewables, logistics etc., where the company has exposure, might be impacted directly or indirectly by COVID-19. Hence the Company ran a scenario analysis using proprietary algorithm-based risk models on both its wholesale and retail portfolio. The adverse economic scenario was translated into sectoral impacts through detailed econometric models. These sectoral impacts were then applied at the deal-level to assess the impact of the scenario on the overall portfolio.

For the wholesale residential real estate portfolio, we estimated the impact of macro factors on the revenues of real estate developers (borrowers). Further, we applied specific micro stresses on each deal based on decline in prices for additional collateral assessment, financial closure analysis, approval delays, ability of the developer to contribute equity and estimating probable losses.

For the non-real estate portfolio, the macro-economic scenario was converted to sector-specific risks. The sectors covered included renewables, auto ancillaries, logistics, etc. Each transaction was then assessed in detail to calculate a loss estimate.

For the retail portfolio, we took into account the impact of potential loss or drop in income of the borrowers. The average loan-to-value of retail loan book (housing finance) is 65%.

It may be noted that the estimated potential impact is based on hypothetical scenarios and the Company may not incur these losses. However, given the current macro-level uncertainty, the Company decided to be conservative and made an incremental provision of 1,903 Crores, based on the scenario analysis.

As a result, total provisions increased to 5.8% of the overall loan book as of Mar-2020 versus 1.8% as of Dec-2019. This incremental provision has been split between some specific asset provision and general provision spread across the entire portfolio. Moreover, a large part of the portfolio is standard (97.64%) and the asset quality has been robust, as reflected in the low NPA levels over the years. However, the Company has decided to provide higher as a matter of abundance of caution.

Details of stage-wise provisioning:

Particulars As on Dec-19 As on Mar-20
Gross Stage 1 & 2 loans 50,485 Cr. 49,761 Cr.
Provision - Stage 1 & 2 loans 717 Cr. 2,480 Cr.
Provision Coverage Ratio - Stage 1 & 2 loans 1.4% 5.0%
Gross Stage 3 loans (GNPAs) 944 Cr. 1,202 Cr.
GNPA Ratio (% of loans in Stage 3) 1.8% 2.4%
Provision - Stage 3 loans 230 Cr. 483 Cr.
Provision Coverage Ratio - Stage 3 24% 40%
Total Provision 947 Cr. 2,963 Cr.*
Total Loans 51,429 Cr. 50,963 Cr.
Total Provision/ Total Loans 1.8% 5.8%
Total Provision/ GNPAs 100% 246%

* Mar-20 data includes incremental conservative provisons of 1,903 Cr.

Borrowing Side

Market Scenario/Key developments

In the current uncertain environment, liquidity remains the top priority for most NBFCs. However, liquidity continues to remain scarce for NBFCs owing to heightened risk aversion amongst lenders.

Over the last several months, the RBI announced several measures to improve system-wide liquidity and make funds available particularly for NBFCs and HFCs. Some of these measures include reduction in repo rate to 4% and reverse repo rate to 3.35% during the May 22, 2020 announcement; 30,000 Crore Special Liquidity Scheme; Partial Credit Guarantee Schemes for NBFCs/HFCs/MFIs with total guarantee of 10,000 Crores; Targeted Long-term Repo Operations (TLTRO) amounting to 1.5 Lakh Crores. As a result of these measures, investment-grade NBFCs, with strong parentage, are still able to access funds.

Liquidity/long-term debt fund raising

Over the last one year, the Company has raised  Rs 13,500 Crores of long-term debt (via bank term-loans, NCDs, etc.). As of March 31, 2020, the Company had  Rs 4,350 Crores of cash and cash equivalents and  Rs 4,500 Crores of undrawn bank lines.

In April-May 2020, the Company raised 5,000 Crores of longterm borrowings, which included drawing-down bank lines from large public sector banks. Further, it issued NCDs amounting to 2,590 Crores in June 2020.

Funding Sources

The Company primarily sources funds through term loans, NCDs and commercial papers. Our borrowings are primarily long term in nature, with the predominance of term loans and NCDs in the funding mix.

Cost of borrowings

The average cost of borrowings in FY2020 was higher at 11.2%. The increase in funding costs reflects the system-wide liquidity shortage following the default by IL&FS in September 2018 and the shift in the borrowing mix towards long-term sources of funds, which continues to be a focus area in FY 2021.

Capital adequacy ratio

As of March 31, 2020, PELs Financial Services business had a capital adequacy ratio1 of 31% as compared to 22% a year ago.

Financial Performance for the Year

In line with our stated strategy, for the last few quarters we have been treading with utmost caution, preserving liquidity and deleveraging the business instead of chasing growth. However, average yields in our wholesale real estate loan portfolio have improved by ~150bps to 15% in Mar-2020 from 13.5% in Sep-2018. The revenue performance of the Financial Services business was primarily impacted by the reduction in loan book from 56,624 rores to 50,963 Crores during FY2020, partly offset by an improvement in wholesale yields. As a result, revenue growth of

Financial Services moderated to 8% YoY to 7,649 Crores during FY2020.

The Company also adopted a conservative and prudent approach to provisioning. While GNPAs stood at 2.4%, incremental conservative provisions of 1,903 Crores were built in Q4 FY2020, over and above the usual provisions created for GNPAs. The provision was created out of an abundance of caution, resulting in total provision of 2,963 Crores - at 5.8% of overall loan book and ~2.5 times of GNPA.

Excluding the additional conservative provisioning of 1,903 Crores and the recent incremental capital allocation of  Rs 2,000 Crores to the Financial Services business, ROE stood at 16.3% on a cash tax basis.

Note: (1) The capital adequacy ratio is for the overall Financial Services business and is based on internal estimates.

Key Performance Indicators: PEL Financial Services (Lending Business)

Particulars FY2020
Total Loan Book size 50,963 Cr.
Total Equity on Lending (utilised synergies from reverse merger) 15,599 Cr.
Gross Debt 39,832 Cr.
Net Debt 35,480 Cr.
Gross Debt-to-Equity (for Lending business) 2.6x
Average Yield on Loans 14.3%
Average Cost of Borrowings 11.2%
Net Interest Margin 5.2%
Cost to Income Ratio (CIR) 22.7%
Total Provisioning as a % of loan book (as on Mar 31, 2020) 5.8%
Gross NPA ratio (based on 90 dpd) 2.4%
ROA 0.5%
ROA (considering Cash Tax and other synergies from merger) 0.8%
ROE 1.9%
ROE (considering Cash Tax and other synergies from merger) 3.3%

PHARMA

PELs Pharma business includes a global Contract Development and Manufacturing business ("CDMO"), a global Complex Hospital Generics business ("CHG") business and a Consumer Healthcare business in India ("CHD").

CDMO (Piramal Pharma Solutions)

• Offers integrated drug discovery, development and manufacturing services to pharmaceutical companies globally for both drug substance (APIs) and drug products (formulations)

• Through integrated offering, the CDMO business supports a customers product across its lifecycle from discovery and clinical development to commercial launch

• Has a diversified customer base that includes large global innovator pharma companies, emerging biopharma companies and generic pharma companies

• Has development and manufacturing facilities located in India, the UK, the US and Canada

• These facilities have requisite approvals from global pharma regulatory agencies including US FDA (Food and Drug Administration), UK MHRA (Medicines and Healthcare products Regulatory Agency), Japan PMDA (Pharmaceuticals and Medical Devices Agency), ANVISA (Brazilian Health Regulatory Agency), and Health Canada to supply products to respective markets

• Offers strong development and manufacturing capabilities including in several niche areas such as handling of Highly Potent APIs (HPAPIs), Antibody Drug Conjugates (ADCs), Injectables and Hormonal products

• Can support manufacturing of both small volume products as well as those requiring several tons of supply per year

Complex Hospital Generics (Piramal Critical Care)

• Markets niche inhalation anaesthesia, injectable anaesthesia, pain management, intrathecal spasticity and other products used in hospitals or other managed care settings

• Is one of the few global suppliers of inhaled anaesthetics with an internal capability to manufacture all four generations of inhalation anaesthetic products

• Is building a portfolio of injectable products with strong presence in anesthesia, pain management and intrathecal therapy. Launched 9 injectable products during FY20 and has a pipeline of [20+] products, in various stages of development, targeted for launch over the next 3-4 years

• Has strong commercial capabilities that allow the business to distribute products in over 100 countries with (a) direct sales presence in the US, the UK, Italy and Germany and (b) strong local marketing partnerships in other markets including in Japan and South Africa

Consumer Healthcare

• Is among the leading players in India in the self-care space, with established brands in the Indian consumer healthcare market

• Markets marquee brands such as Saridon, Lacto Calamine, I-Pill, Supradyn, Polycrol and Tetmosol across key OTC categories such as Analgesics, GastroIntestinal, Skin care, Vitamins and supplements, Women care and Baby care

• Has a large India-wide distribution network across 1,500+ towns with 1700+ field force reaching ~2,80,000 outlets, giving us a chemist coverage comparable with the top OTC players

Market Scenario: Pharma Industry

In the times of health emergencies such as the ongoing COVID-19 global pandemic, the contribution of the Pharma sector becomes even more critical. Pharmaceutical and healthcare companies are playing an extremely important role by enabling the supply of key medicines across the world, despite having to deal with challenges of managing workforce safety and handling constantly evolving government restrictions, while preparing for new vaccines and therapeutics. This makes the Pharma industry one of the most important, safest and most resilient industries in such periods of uncertainty.

During this pandemic, the pharmaceutical industry has also been impacted both on demand as well as supply side. And though the impact on the demand side may be short-lived, that on the supply side is expected to have long-lasting effects on the global pharma supply chain.

A) Demand: The demand for pharma products is driven by underlying medical requirements, which are unlikely to change materially due to COVID-19. Therefore, while there is likely to be a dislocation in sales and procurement patterns in the shortterm, pharma businesses are expected to normalise over time. For example, as the pandemic progressed and hospitals were repurposed to treat or be available to treat COVID-19 patients, elective and other surgeries were halted or reduced in many geographies. This in turn resulted in reduced consumption of some anaesthesia and allied products typically used in these surgeries. However, these surgeries will take place as the severity of the pandemic reduces and the demand for these products will normalise.

B) Supply: At the industry level, supply chain network strategies are evolving. While requirements around quality and environment health and safety have enhanced, the relative emphasis has shifted from cost efficiency to resilience and security of the supply chain. While these strategies were always present, there is greater intensity and focus on supply chain initiatives including: backward integration, adding additional sources, geographic diversification or rebalancing, and increased safety stocks of inventory across the supply chain. This shift may result in increased industry-wide capacity and investment in some markets or product types.

Further, as a result of this pandemic and the challenges the industry has faced due to it, there could also be some new opportunities for pharma industry:

• Greater demand in certain categories such as hygiene products or preventive healthcare products - e.g. multivitamins, sanitizers

• Building of redundancies into supply chain by global companies as well as a focus on regional and local manufacturing for some products, leading to opportunities for companies with global production networks with a track record for reliable supply, high quality and good EHS practices

At the individual company level, companies are now more focused on operational resilience and agility — including workforce agility as workforces become more remote and distributed—and transparency through greater deployment of digital and analytics tools and automation.

As the recovery begins to shape, there are considerations for the regulators as well. In the wake of the ongoing COVID-19 pandemic and the subsequent lockdowns, shelter-in-place and travel restrictions, site inspections have become challenging. Key global agencies, such as the US Food and Drug Administration (USFDA) are now considering alternative approaches for inspections of manufacturing sites such as physical examinations and/or product sampling at borders, review of companys compliance history, and use of information from other governments. There have also been examples of speedier approvals of regulatory submissions which can reduce the time for new product introductions or changes to existing products. These moves may have also been triggered by the current priority of the agencies to minimize drug shortages at the time of already stretched global pharma supply chains.

Overall, the industry will be different after the crisis passes, and the pharma companies must prepare for the changes to come. Those companies that will be able to learn quickly and adapt to this fastchanging business environment and take proactive steps to secure supply chain and business continuity while maintaining a strong focus on quality and compliance, will emerge stronger on the other side of this pandemic.

Contribution of our Pharma businesses during COVID-19 pandemic

Our company manufactures drugs that are considered essential by many governments across the world. Hence, most of our manufacturing facilities and those of our manufacturing partners around the world have largely remained open and operational, despite lockdown or other restrictions. In line with our value of Care efforts have been focused on sustaining our operations in a manner that allows us to serve patients across the globe while protecting the health and well-being of our workers. In the case of our CDMO, we are engaged with a number of our customers assisting them in their endeavour to develop therapeutics or vaccines for COVID-19 or associated diseases. In the case of Complex Hospital Generics business, some of our products are used during treatment of COVID-19 patients in critical condition, and we have continued to supply these products globally. In our consumer healthcare business, demand surged for hand sanitizers, wet wipes, and multivitamins and we took necessary measures to meet most of the increased demand by ramping up production and maintaining higher stocks.

Business continuity

The Companys production facilities are diversified geographically across India, the US, the UK and Canada that provides customers with flexibility and business continuity options.

As a responsible business, PEL prioritises the health and safety of its employees. Under the circumstances induced by COVID-19, business continuity plans were triggered at all our sites to ensure employee health and well-being. This included enabling work from home for roles that did not require physical presence at a factory, revising visitor guidelines and providing regular updates on health and travel advisory to all employees.

The Company has also taken suitable measures to ensure robustness of supply chain for all our businesses in view of disruption in movement of goods / supplies globally. PEL manufactures several intermediates, APIs and finished drug products internally. Further, through our initiatives taken over last few years to proactively reduce supplier concentration and location risks, we have developed alternative vendors or have taken backward integration initiatives for most of our key raw materials.

So far, while we have encountered numerous challenges, we have not faced any material supply or production disruptions due to COVID-19 that adversely impacted patients access to our medicines. There were some situations where we experienced periods of abnormally high demand for products used in COVID-19 treatments, which we addressed proactively with the relevant stakeholders to ensure medical needs were prioritized and met to the best of our ability. The current environment remains dynamic, and we remain cautiously optimistic towards managing any possible future impact of COVID-19 pandemic on our operations and eventual delivery of our products and services to our patients and clients.

Strong focus on Quality and Compliance

• Successfully cleared 36 USFDA inspections, 169 other regulatory inspections, and 1,130 customer audits since start of FY2012

• Never had any Official Action Indicated (OAI) for any of the USFDA audits

• Strong quality governance model with the Quality function reporting directly to a Board Member

Year USFDA Total Regulatory Inspections (incl. USFDA) Customer Audits
FY2012 5 13 60
FY2013 2 10 71
FY2014 4 14 116
FY2015 7 17 115
FY2016 5 26 140
FY2017 5 25 157
FY2018 3 27 167
FY2019 2 44 163
FY2020 3 29 141
Total 36 205 1,130

Differentiated Business Model

• With over 90% of revenues derived from complex hospital generics and CDMO, PEL has a differentiated business model in Pharma as compared with most of the other large Indian peers in the industry.

• Due to this differentiation, PELs Pharma business has been comparatively less affected by the industry headwinds such as pricing pressures in the US and other regulated markets over last few years

Integrated model in the Pharma CDMO business

Integrated model of services spanning across the entire drug life-cycle with strong capabilities in High Potency APIs, Antibody Drug Conjugates, sterile fill finish, and hormones

Numerous successful integrated programs till date turning a contract manufacturing relationship into a strategic partnership

• Helping pharma companies go to market with fast track, breakthrough designated drugs in considerably reduced time

Differentiated product portfolio of Complex Hospital Generics:

• Niche portfolio of injectable anaesthesia, inhalation anaesthesia, intrathecal spasticity, pain management and select antibiotics

• Strong core base of inhalation anesthesia business with vertically integrated in-house manufacturing

• Expansion in to broader hospital channel through injectable products

Leveraging a large country-wide Distribution Network in the India Consumer Healthcare business

• PELs chemist coverage of 160,000+ outlets across 1,500+ towns is comparable with top OTC peers

India Consumer Healthcare: Large India-wide Distribution Network

FY2008 FY2012 Now
No. of Towns present 16 481 1500+
Total Outlet presence 24,000 200,000 280,000+
Chemist Outlet presence 16,000 100,000 160,000+
Field Force 80 800 1,700+

Pharma CDMO

Market Scenario

Contract Development and Manufacturing Organisations (CDMOs) offer services ranging from preclinical and clinical development and commercial manufacturing to pharmaceutical companies.

Pharmaceutical companies are striving to de-risk R&D efforts and increase the speed to market of their drugs, while simultaneously reducing their development and manufacturing costs. A growing number of specialty and biotech firms now rely on service providers to avoid the high fixed costs of in-house development, investments in building manufacturing capabilities required to drive clinical development and potential commercial manufacturing. CDMOs are therefore an important and growing part of the pharmaceutical value chain. With increased outsourcing, the CDMO market, which is valued at US $80 - 100bn, is growing at 5-6% p.a.

Despite ongoing consolidation, the CDMO market remains fragmented, with only a small number of companies achieving global reach and scale. The market is competitive and, hence, differentiation is important. Players with differentiated technologies, offering niches having high barriers to entry and higher regulatory standards or scrutiny enjoy higher growth and higher margins as compared to their peers. CDMOs who can provide customer-centric, high quality, integrated solutions, including niche capabilities, across drug product and drug substance from multiple continents have been differentiated versus other market participants.

Moreover, outsourcing has evolved from being a transactional activity to a strategic function. Working with a limited number of supplier partners helps sponsor companies to optimise operational and capital expenses, get products to market faster, reduce internal complexity and increase agility. The ability to be aligned with the requirements of customers and their patients, while prioritising values over commercial interests, supports long-term win-win partnerships between CDMOs and their customers.

Impact of COVID-19

This pandemic has impacted multiple aspects of the pharma and biopharma industry, from drug development, clinical trials, supplies, and manufacturing, to supply chain.

In such a scenario, the CDMO industry can be more important as the global pharma industry tries to overcome challenges and capitalize on COVID-19 related opportunities. As pharma companies look to develop new therapeutics and vaccines, many do not have idle capacities available to support this near-term unplanned demand. In addition, as pharma companies look make their supply chains more resilient and re-balance their activities, they will want to make changes that require new capacities in new places. In both cases, CDMOs can provide flexible immediate capacity to support these shifts without the capex and time implications of developing new internal capacities. CDMOs which have capabilities and capacities aligned with these evolving needs will be well positioned to grow and support their customers changing priorities.

In the current scenario, customers are approaching existing CDMO partners (including PEL) for new and additional work because on-site visits to qualify new partners is not possible or more difficult in the near term, thus enabling the business to deepen its relationship with existing customers. Conversely, it makes it harder to progress entirely new relationships as rapidly as before.

Operational Performance

PELs positioning

We have an integrated model of services spanning across the entire drug life-cycle with strong capabilities in High Potency APIs and Antibody Drug Conjugates and have delivered many successful integrated programs till date turning a contract manufacturing relationship into a strategic partnership. We have been helping pharma companies go to market with fast-track, breakthrough designated drugs faster and with less complexity.

Along with the niche capabilities and integrated services, PELs CDMO business also exhibits numerous other strengths:

• Top quality process chemists and formulation scientists who are experts in oral solid dose and injectable drug development

• World-class infrastructure to support these chemists

• Manufacturing facilities in both eastern and western parts of the world

• Strong track record for API and formulation developments, including several successful commercial launches for our clients

On the supply side of the CDMO business, our supply chain teams have been working for nearly 2 years on a project to diversify our vendor base and to secure alternate vendors to mitigate supplier-concentration and location risks in case of unexpected future disruption. The business also makes contingency arrangements with back up suppliers and maintains inventory levels to offset risk to supplies. As the impact of the pandemic and disruptions have intensified across various continents and countries, we have broadened the scope of our tracking of supply chain related issues to cover these additional affected geographies.

All these factors have established the Company firmly as one of the favoured strategic partners of global pharma and biotech firms, making it one of the frontrunners in the race for attracting a significant share of the additional business being generated due to the impact of the COVID-19 pandemic. We also have an attractive pipeline of molecules at various stages of development, including a strong late stage pipeline where we will support our clients to commercialize their new medicines in the near term.

FY20 Performance

During FY20, PEL stayed on course in executing and delivering on its 3C strategy - Customers, Capability and Capacity:

• Revenues grew by 13% over FY19 to 3,154 Cr

• Diversified Customer base with >900 customers served

• Substantial growth in the order book and pipeline in FY20

• Emerging biotechs that are looking for integrated solutions across drug substance and product development and manufacturing, are key drivers for the growth

• A significant part of the development pipeline from integrated projects

• Launched Patient Centricity drive to be a better partner to customers by working towards a common goal of serving patients

Complex Hospital Generics

Market Scenario

PELs Complex Hospital Generics business is present in the Inhalation Anaesthesia and Sterile Injectables segments which have a global market size of over USD 50 billion.

These market segments have significantly high entry barriers that limit the scale of new entrants and hence maintain reduced competition versus traditional generics. In the inhalation anaesthesia segment, heavy investments for dedicated manufacturing facilities for difficult-to-manufacture products and high upfront investments for providing and maintaining the required medical devices like vaporizers are some of the big entry barriers for new entrants. Even for the sterile injectables segment, there are significant entry barriers such as highly stringent quality and compliance requirements and specialized expertise and resource requirements. Additionally, a very large chunk of both these segments consists of institutional, Group Purchasing Organisation (GPO) and tender based business that is highly relationship-based in nature, which further makes it difficult for new entrants.

Impact of COVID-19

Since most of the products in this category are critical, life-saving, or life-sustaining drugs, aside from the initial government response in China, in many parts of the world, governments supported continued pharmaceutical manufacturing operations throughout the pandemic. At different points in the pandemic, some governments limited the export of certain pharmaceutical products to focus limited supplies on domestic demand. The industry did face some challenges, especially for input materials from China during the peak of the pandemic there. This has reinforced the importance of a resilient supply chain.

On the demand side, during the initial phases of the pandemic, in some geographies there was some stock-piling of hospital generic pharmaceuticals driven by perceptions around potential supply chain challenges, which resulted increased demand. As the pandemic progressed and hospitals were repurposed to treat or be available to treat COVID-19 patients, elective and other surgeries were halted or reduced in many geographies. This in turn resulted in reduced consumption of some anaesthesia and allied products typically used in these surgeries. As different regions confronted the pandemic or started to resume activities, surgeries are also resuming, along with the use of the generic pharmaceutical products that enable them. Given the underlying medical drivers behind these surgeries were present throughout the pandemic and were largely unmet during the pandemic, we expect demand for these products to normalize in due course.

Some products used in the hospital setting to treat COVID-19 patients experienced periods of abnormally high demand, leading to short-term supply and demand mismatches for these products. As and when the number of COVID-19 related hospitalizations reduce, we expect the demand for these pharmaceutical products to return to the normal levels.

Given some negative experiences of shortages during this pandemic, some customers and supply chain partners will want to hold more inventory than in the past and may show preference for local or regional supply going forward.

Operational Performance

PELs positioning

With a strong presence in niche therapy areas and complex hospital generics with high entry barriers, the business has delivered consistently high growth with a CAGR of 19% over nine years.

Over the last few years, through organic and inorganic routes, PEL has added various new therapy areas and product ranges to its product portfolio in order to diversify its offerings and leverage its strength and capabilities in the channel.

On the supply side, Piramal had been sourcing key starting materials (KSMs), APIs and finished dosage forms for its products from various countries, to bolster supplies. It has also aggressively taken initiatives to develop alternative vendors and backward integration to reduce supplier concentration and location risks.

It has further established a distribution network in over 5,500+ hospitals in 118 countries, leveraging direct sales force as well as distributor channels. PEL operates through its own field force in the US, the UK, Italy, France, Germany and South Africa and through multiple business partners in other countries. Leveraging this global distribution network to add new products to its portfolio with minimal incremental fixed costs, has resulted in improved operational profitability.

FY20 Performance

During the year, the business has witnessed strong growth, driven by PELs focus on forging deeper relationships with its extensive customer base while also adding new customers:

• Revenues grew by 11% to 1,853 Cr.

• New launches including pilot launches of Desflurane in the UK, South Africa, Italy, France and Germany supported growth in existing portfolio

• Sevoflurane registered and launched in Russia

• Fentanyl launched with PELs partner in Japan

• Won dual award to supply Sevoflurane to members of Vizient - the largest Group Purchasing Organization (GPO) in the US that covers ~50% of the hospitals and surgery centres

PHARMA

India Consumer Healthcare

Market Scenario

The health-focused branded consumer segment in India has a market size of around US$ 19 billion in 2019 and is growing at a rate of 7%-8% annually.

This segment in India is expected to continue growing at a considerable rate in the years to come due to the following factors:

• Young, urbanizing population with increasing health consciousness

• Digital revolution

• Retail disruptions like e-commerce

• Continued value-seeking behaviour of consumers

After undergoing a couple of difficult years due to disruptions like demonetisation and GST implementation, PELs business in this segment bounced back strongly in FY20 and it is expected to continue this strong positive momentum.

Impact of COVID-19

The pandemic has brought quite a few lifestyle changes globally, and the Indian consumer healthcare market is also witnessing many changes. A recent report on consumer spending patterns highlights the current state of the Indian consumer who is anxious about health and safety while also trying to plan for the new normal.

The COVID-19 pandemic is driving growth in the market segments such as preventive healthcare and personal hygiene. Consumers are now seeking more preventive healthcare products such as multivitamins, ayurvedic supplements, etc. for boosting immunity. Even personal hygiene products are expected to become an essential part of the monthly grocery basket of Indian consumers.

Operational Performance

Strong product portfolio: Over the years, PEL has built a significantly large portfolio of commercially successful products

• Grown from a six-brand portfolio in FY11 to 20+ brand portfolio by FY20, led by acquisitions and new products development

• Portfolio of products, primarily in areas of routine health disruption and proactive care, ranging from value to premium- priced products

Strategic shifts made in the business in FY20

• Augmenting strengths of distribution with investments in mass media for power brands like Saridon, Lacto Calamine, Polycrol and Littles

• Delivering successful new products via an E-commerce first strategy

• Using analytics and technology to improve productivity and strengthen distribution

FY20 Performance

• Achieved sales of 418 Cr. in FY20, delivering 25% growth over last year despite the uncertainty around COVID-19 and the resulting lockdown impacting sales of  Rs 22 Cr. in March 20

• Delivered a strong EBITDA growth during the year over FY19

• Implemented significant Return on investment improvement measures, including field force productivity enhancement and enhanced credit controls

• The business also took steps to launch two new brands of hand sanitisers as it ramped up its production in response to the COVID-19 pandemic

Financial Performance

Revenue from Pharma business grew by 13% YoY in FY2020 to 5,419 Crores on account of growth in base business, new product launches, strong pipeline and robust demand. Revenue has grown at a CAGR of 15% over the last nine years, now contributing 41% to overall PEL revenue mix. The Pharma business has delivered a strong growth in EBITDA margins from 7% in FY2011 to 26% in FY2020.

Notes:

(1) Revenue includes Pharma CDMO, Complex Hospital Generics and India Consumer Healthcare and certain foreign exchange loss

(2) EBITDA disclosed is for continued operations

Pharma growth drivers

In each of the three Pharma segments that PEL is present in, it has identified key drivers for future growth.

CDMO COMPLEX HOSPITAL GENERICS CONSUMER HEALTHCARE
• Healthy pipeline of early and late- stage development projects • Increasing market share in the inhalation anesthesia portfolio • Leveraging strong brand equity and consumer pull for the core brands to cater to a larger share of the consumer healthcare market
- Share of innovator products in the CDMO portfolio is increasing • Leveraging strong global distribution network and GPO relationships by adding new complex hospital generics
• Strong capabilities in niche, complex areas such as Antibody Drug Conjugates (ADCs), high potency APIs and sterile injectables, serving high growth segments • Increased investment in marketing and launch of successful new products through Ecommerce-first route
• Strong pipeline of new products across various stages of development
• Ability to pilot and pivot to newer business models and newer products portfolio in response of market conditions and changing consumer needs
• Integrated services across the drug life-cycle to increase customers stickiness
• Enhance production capacity through brownfield expansions

With its focused efforts to leverage these growth drivers, PEL is confident about growing all its Pharma businesses significantly in terms of both revenue and profitability in the years to come.

Fundraising in the Pharma business:

To raise a strategic growth capital for the Pharma business and as a step in the direction of eventual demerger and separate listing of the Pharma and Financial Services businesses, PEL decided to do a fund raising in our Pharma business. Accordingly, Pharma businesses of Piramal Enterprises will be integrated into a wholly- owned subsidiary of PEL - Piramal Pharma Limited.

In June 2020, Carlyle Group Inc. agreed to invest fresh equity capital of ~US$490 million for a 20% stake in Piramal Pharma Limited. The transaction valued the Pharma Business at an enterprise value (EV) of US$2,775 million with an upside component of up to US$360 million depending on the companys FY21 performance.

The capital raise will accelerate Piramal Pharmas organic and inorganic growth plans. Also, Carlyles global healthcare experience will bring significant value to Piramal Pharma. This transaction is one of the largest private equity deals in the Indian pharmaceutical sector, and is expected to close in 2020, subject to customary closing conditions and regulatory approvals.

Quality And Compliance

Committed to building a strong quality culture, the Company has established an exemplary framework that is implemented across all its manufacturing facilities, including those of its suppliers. PEL consistently strengthens its systems by introducing improvement initiatives and hiring world-class talent, which ensures its competitive edge and helps it to remain attractive to customers who seek preferred partners with strong regulatory credentials.

Patients are at the centre of any quality decision PEL takes on product disposition. To further fortify this, it up-scaled its data governance process to include the maturity model and risk mitigation. Its post-marketing Pharmacovigilance system closely tracks risks, if any, with the products and all products of the Company continue to remain under the low risk and high benefits bracket.

Key Highlights of FY2020:

• Brexit readiness: With its offices and Marketing authorisation entities established in the EU region, the Company was approved and listed on the EU website well ahead of the Brexit cut-off date. More than 500 batches have been released from the Companys EU entity, which also offers a ready facility for customers with EU Quality Person (QP) and Brexit solutions. This was necessary to continue supply of products to Europe from the two manufacturing facilities of the Company located in the UK.

• Nitrosamine compliance was an unforeseen regulatory challenge imposed due to serious safety concerns raised with respect to Ranitidine (Zantac, a GlaxoSmithKline brand). PELs Quality team stepped in to complete all required assessment of the product well before the regulatory timeline to enable the Companys products to stay afloat in the market

• Exemplary track record with regulatory inspections at the Companys facility continues this year too with no OAI (Official Action Indicated) categorisation

Staying Ahead of the Regulatory Curve

The dynamic regulatory landscape coupled with greater scrutiny by regulatory authorities has been a key challenge for the pharmaceutical industry. PEL addresses the evolving regulatory requirements by establishing even higher internal standards that ensure perpetual inspection readiness. Over the past several years, the Company has successfully cleared 36 USFDA audits, 205 total regulatory inspections and 1130 customer inspections.

The Companys internal search engine closely tracks any upcoming regulatory guidance at its nascent stage and updates the global quality guideline well before time to enable the site quality system to align with the new regulation in a timely manner.

Quality-centric Culture

At PEL, quality is viewed as an integral part of the Companys identity and as one of the most important aspects of its brand that dictates the Companys culture, hires, and policies. The Company employs a 3-tier quality governance model to prevent dilution of the quality bandwidth while enabling central, regional and local controls. To provide due authority and enablement to the Quality group, this group is permitted to operate in an independent functional silo and reports to the Board. The Quality team is competent, multilayered and capable of handling any compliance challenge with strategies spearheaded from its central cell. Quality continues to be a collective responsibility of all functions across the organisation.

Quality Tool Kit

In order to enable easy oversight and identify focal points, PEL uses patented tools to identify site quality health, site audit readiness index and the sites data integrity compliance. These strategies are controlled through the central cell at the Head Office and apply to all businesses and sites. Calculations computed using these tools are validated from time to time by corporate audits at the site. Periodic and designed reviews keep close track of site systemic health by measurement o on the basis of compliance metrics. Quality of products manufactured at CMO locations is closely tracked by the CMO governance model there by ensuring that it measures to the Companys quality standard.

Summary

At PEL, quality is a collective responsibility, and is part of its DNA. The quality advancement journey to be best-in-class continues.

RISK MANAGEMENT

A well-defined risk management framework is integral to any business. , risk management becomes especially important during times of crisis and uncertainty. The outbreak of COVID-19 and the ensuing lockdown has resulted in disruption in the business environment. Hence, it becomes crucial to conduct a scenario analysis to assess the potential risks. Also, during such a crisis, system-wide capital and liquidity becomes scarce, resulting in a greater focus on optimal capital deployment and risk-adjusted returns on capital.

Enterprise Risk Management

PEL has an independent and dedicated Enterprise Risk Management (ERM) system to identify, manage and mitigate business risks.

Risk management, internal controls and assurance processes are embedded into all activities of the Company.

PELs ERM framework is designed by integrating COSO* framework at its core.

The Risk Management Group (RMG) establishes the risk policy and processes for risk evaluation and measurement; and business units focus on developing and implementing mitigation measures while taking controlled risks. Specific risk approaches are in place for both the Financial and Pharma businesses.

The Company ensures seamless interaction between the Strategic Business Units (SBUs) and RMG to assess the real risks and their severity. The RMG is independent of SBUs and reports directly to the Board.

The Board

The Board oversees PELs risk management programme. It regularly reviews and evaluates the programme to ensure that adequate policies, procedures and systems are in place to execute the strategy and manage related risks. The Board-level Risk Committee reviews the micro-level risks and reports it to the Board. Additionally, the Risk Management Committee for Financial Services (FS) - formed in FY2018 - focuses on strategy and risk management practices followed in the FS business unit.

The RMG periodically appraises the portfolio health in the FS vertical and the risk profile of the business verticals in non-financial services (non-FS) businesses to the Board.

Financial Services

The RMG independently assesses all investments and loans of PELs FS business. The Group uses internal risk assessment models to evaluate credit, market and concentration risks embedded in any deal. Based on the assessment, the RMG recommends a plan to mitigate or to eliminate the identified risks in the investments.

Risk Assessment Approach

The approach involves identification and measurement of risk for each investment. Risks are classified into quantifiable and non-quantifiable risks.

1) Quantifiable risks are estimated as the deficit in Cash Flow

2) N on-quantifiable risks are estimated through comprehensive scorecards and standard mark-ups

• Security value, promoter evaluation, exit options, etc. are rated through scorecards

• Operational and concentration risks are covered through standard mark-ups (multiples) to the risk-weights, for determining the risk rating of a deal

The Risk team considers various factors, such as historical performance, execution capability, financial strength of the promoter and company, competitive landscape in the industry and specific segment, regulatory framework and certainty, impact of macroeconomic changes, etc. while assessing the deal. The security structure is assessed for value, enforceability and liquidity. The rating generated is used for internal benchmarking and pricing. The Credit team takes inputs from the RMG to arrive at optimal deal structuring.

Portfolio Revaluation Process

All executed deals are re-valued by the RMG at regular intervals. The portfolio revaluation provides the Management with latest overview of the portfolio performance. It also triggers specific action plans for identified deals and data-based insights for enhancing the underwriting criteria for future deals.

Underwriting and Risk Mitigation

Generally a conservative, data-driven underwriting and structuring approach is adopted. The deal related idiosyncratic risk and the risks emanating from exogenous events are thoroughly analysed as part of the risk assessment process. The impact of any event on specific micro-markets, industries and product segments are carefully analysed and the deal underwriting criteria is altered accordingly.

Governance Structure

A robust governance structure for the risk management process has been put in place. Various committees, both at the senior executive management level and at the Board sub-committee level, have been formed to evaluate risk and the risk management process at PEL.

Framework to evaluate Risk Adjusted Returns

The Risk team assesses every loan proposal independently using proprietary risk assessment models.

Risk Assessment & Measurement: Transaction Assessment

Identify primary risk drivers: Industry/Company Cash flow modelling-stress case scenario Security risk: Adequacy & enforceability Promoter risk: Track record, management strength Exit risk: Refinance ability, capital markets, liquidity event Output: Risk adjusted return, risk rating, commentary

• Quantitative and score cards based rating methodology

• Scoring of around 40+ parameters

• Comparability across transactions; clear record of transitional matrices

• Amenable to analytics

Appropriate Stress is Assumed for Key Project Variables to Compute Cash Flow at Risk

Factors such as business strength, competition and industry risks are evaluated to arrive at cash flow at risk

Retail Risk Management

PEL determines the creditworthiness of a borrower based on the policy and process standards set by the Company. There are several credit checks and controls at multiple stages of the loan process to ensure and strengthen the asset quality of the portfolio. Following are the credit checks and controls at various stages:

Onboarding Credit Appraisal Credit Appraisal
Documentation & Verification Customer Assessment Collateral Assessment
• Collection of mandatory documents • Bureau assessment • Legal assessment
• Registrar of Companies & other relevant checks (Litigations, stake holding and sister concerns, etc.) • Technical assessment
• Residence & office address verification • Dual valuation
• Project level feedback
• KYC authenticity & independent fraud check • Collateral visit
• Negative & defaulter database checks
• Fraud Analytics Rule Engine trigger
• Internal application scorings
• Financial & Banking assessment
• Personal discussion

Approval Process & Delegations in the Retail Business:

The sanctioning authority has been assigned based on the level of hierarchy within the organisation to ensure smooth processing of loan applications. However, at the transaction level, exceptions are built in to capture the severity of risk. Also, critical policy revisions (new product / income programs etc.) are jointly approved by the National Credit Manager, COO and Compliance Head and placed to Group Risk Head and Board for ratification on a quarterly basis.

Operational Risk:

The independent Operational Risk Management (ORM) team aims to create a framework and review mechanism to rigorously monitor, manage these risks and measure the effectiveness of governance, risk management, and internal controls under the guidance of the Board-approved Operational Risk Management Policy. The framework comprises two lines of defence:

• Line Business Management (including support and operations):

Manages operational risk on a daily basis, maintains strict internal controls, designs and implements internal control-related policies and procedures.

• ORM: Focuses on development and implementation of policies, procedures, tools and techniques to assess and monitor the adequacy and effectiveness of the internal controls.

Fraud Risk:

The Fraud Risk Management Policy and the applicable regulations require the Company to report all instances of frauds and attempted frauds to the Board of Directors / Audit Committee of the Board, along with the actions taken by the Company in each instance.

The Fraud Risk Management Committee comprises members from the Companys top management and is supported by a group of experts, using advanced software systems and techniques to prevent, detect and investigate frauds.

Impact of COVID-19:

The Companys balance sheet is adequately ring-fenced for contingencies given PELs low debt-to-equity and steady asset quality. However, caution needs to be exercised during the unprecedented macro-crisis caused by COVID-19.

The Risk Management Group has run a macro-economic stress test to assess the impact of the pandemic on the Financial Services (FS) portfolio. The economic scenario generated was translated to sectoral impacts through detailed econometric models. These proprietary models were created and calibrated for each sector where the Company has significant exposure. The sectoral impacts were applied at the deal-level to assess the impact of the situationon the portfolio.

The output of this conservative approach was used to determine the amount of incremental provision. Based on the stress testing output, the RMG along with the senior management and other control functions has initiated a detailed review of the portfolio to ensure early resolution of any potential stress on the deals.

The RMG has also evaluated the regulatory guidelines issued in the context of COVID-19 and implemented a Board-approved policy for the subsidiaries involved in Financial Services business.

Non-Financial Services Businesses

Risk assessment at non-Financial Services business units is carried out using risk registers. Risks across different business units, their probability, impact and mitigation plans are properly documented at regular intervals. These risks are then aggregated, and key risks across each business unit, along with the proposed mitigants, are presented and reviewed by the Board on a periodic basis.

Another important focus area for PEL in mitigating risks associated with the non-Financial Services businesses is to harness quality as a culture. The Company strongly believes that quality is driven by concern for patient safety. An exemplary quality framework is implemented at PELs facilities as well as at several contract manufacturing operations. A deep commitment to building a quality-driven organisational culture has helped PEL achieve the highest level of regulatory compliance.

The two key risks faced by the Pharma industry due to COVID-19 were:

• Business Continuity: As life-saving drugs are considered essential by governments across the world, companies were required to make efforts to sustain operations and ensure that manufacturing facilities were operational during the lockdown periods.

• Securing the supply chain: During a pandemic, supply chains can be at significant risk due to over-reliance on a location. As a result, companies may be required to reduce supplier concentration and reduce dependence on certain markets for raw materials. Some businesses may also be required to ramp-up production and inventory management to meet the higher demand for certain products amidst the pandemic (e.g. hand sanitizers, multivitamins and painkillers.

These have been explained in detail in the Pharma section

(Refer to page no. 67 of this report)

Major Risks and Mitigating Actions

The major risks perceived by PEL, along with the measures taken to mitigate them, are as follows:

impact Mitigating Measures
Default and concentration risk in the Financial Services business
In the Financial Services (FS) business, the risk of default and non-payment by borrowers may adversely affect profitability and asset quality. The Company may also be exposed to concentration risks across sectors, counterparties and geographies. At PEL, each investment is assessed by the investment team as well as an independent risk team on the risk-return framework. The combined analysis of these teams is presented to the Investment Committee for investment decision.
The loan book is generally secured in nature, with healthy security cover obtained at the time of deal origination. Moreover, the deals are based on conservative underwriting parameters.
Concentration risk is partly mitigated by the concentration risk framework, which incentivises businesses to diversify portfolio across counterparties, sectors and geographies.
Some of the key measures during the year to mitigate default and concentration risks in the FS business are:
• 12% YoY reduction in the wholesale loan book, which includes real estate and corporate loans.
• Exposure to top-10 accounts reduced by  Rs 4,200 Crores during the year (decline of 23% YoY).
• As of Mar-20, only three exposures were greater than or equal to 10% of the net worth of the FS business.
In Q4 FY2020, the Company created additional provisions of 1,903 Crores, based on the outcome of a macro-economic stress test to assess the impact the of the COVID-19 pandemic. It should be noted that the provision is to cover for extremely conservative hypothetical scenarios.
The Company continues to regularly assess the incremental working capital requirements of its clients, based on the project completion status and maintains adequate liquidity buffer to meet any disbursement requirements - thus ensuring that progress on projects remains on track.
Client and product concentration risk in the Pharma business
Client Concentration: Pharma business has some major contracts with few customers. Any set back at customers end may adversely affect the Companys financials. PELs business development teams continue to actively seek to diversify its client base and products to mitigate concentration risk.

The Pharma business continues to focus on backward integration, alternative vendor development and geographically-diverse production facilities, to ensure production is closer to end markets.

Product Concentration: Decrease in sale of products with a significant share in revenue may lead to adverse profit margins.
The Company also acquired niche products to reduce its dependence on inhalation anaesthesia in the Global Pharma Products business.
Product and quality risk
PEL is expected to maintain global quality standards in manufacturing as some of the products are directly consumed/applied by consumers. A dedicated Corporate Quality Assurance Group actively monitors adherence to prescribed quality standards.
PEL has a strong governance and escalation mechanism. The Companys quality management system is independent of its businesses and reports directly to the Board.
Any deviation with regard to quality compliance of products would impact consumers worldwide, and hence, adversely affect the Companys performance. PEL is on a quality advancement journey from Quality for Compliance to Quality as a Culture, with a focus on systems, processes, technology and people.
PEL has successfully cleared 36 USFDA inspections, 169 other regulatory audits and 1,130 client audits, since the beginning of FY2012.
Adverse fluctuations in foreign exchange risk
PEL has significant revenues in foreign currencies through exports and foreign operations. Thus, the Company is exposed to risks arising out of changes in foreign exchange rates. The centralised treasury function aggregates the foreign exchange exposures and takes prudent measures to hedge these exposures based on prevalent macro-economic conditions and in line with applicable regulatory guidelines.
impact Mitigating Measures
interest Rate Risk
Volatility in interest rates on investments, loans and treasury operations could cause the net interest income to decline adversely, affecting profitability of the Financial Services business. ALCO (Asset Liability Committee) actively reviews the interest rate risk and ensures that interest rate gaps are maintained as per ALCOs interest rate view.
A healthy mix of fixed-and-floating assets and liabilities enables PEL to pass on any changes in borrowing costs to customers.
Liquidity and ALM Risk
Mismatch in the tenor of assets and liabilities in the Financial Services business could lead to liquidity risk. ALCO reviews the GAP statements and formulates appropriate strategy to manage the risk. PCHFL maintained a positive GAP between cumulative inflows and cumulative outflows across all maturity buckets as on March 31, 2020.
The Company shifted its borrowing mix towards long-term sources of funds and raised   Rs 13,500 Cr. via long-term borrowings during FY20. Also, the Company reduced its CP exposure to 1,080 Crores as on Mar-2020 vis-a-vis 18,017 Crores as of Sep-2018.
Financial Leverage
The Company needs to be adequately capitalized both at the Group-level and in Financial Services business. In FY20, the Company brought in  Rs 14,500 Crores of funds through several capital market transactions and also significantly deleveraged its balance sheet.

As a result, the net debt-to-equity reduced to 1.2 times as of Mar-2020 compared to 2.0 times as of Mar-2019.

This serves as a buffer to absorb any risks arising from a volatile market/business environment and helps the Company to meet regulatory requirements from RBI/NHB. As of Mar-2020, out of the total equity of 30,572 Crores, equity allocated to the Financial Services business was 15,599 Crores (compared to 11,442 Crores a year ago). Gross debt-to-equity for the Financial Services business reduced to 2.6 times from 3.9 times a year ago.
Regulatory risk
PEL requires certain statutory and regulatory approvals for conducting businesses. Any failure to obtain, retain or renew them in a timely manner may adversely affect operations. The applicable regulatory framework is continuously tracked by various teams within PEL.
A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of investment and/or change the competitive landscape. Necessary and appropriate actions are undertaken to ensure compliance with all regulatory requirements.
Also, PEL is structured through various subsidiaries across various countries in a tax- efficient manner. Regulatory changes in terms of repatriation and funding may lead to adverse financial impacts.
investment risk
PEL has equity investments in various companies in India which are exposed to systematic and unsystematic risks. The Company continues to effectively evaluate various risks involved in underlying assets, before and after making any such strategic investments. These investments are re-valued and appropriate valuation adjustments are taken into consideration.
Environment
PEL is committed to conserving resources as it recognises the importance of preserving the environment. The Company has adopted the reduce, reuse and recycle mantra for natural resources. Several sustainability initiatives are underway in areas such as reduction of carbon footprint, water conservation, waste re-use / re-cycle.
Any non-adherence to the Companys approved EHS practices and procedures may expose it to adverse consequences.

ANALYTICS

Data analysis, at its core, is an attempt to find a pattern within, or correlation between different data points, and draw insights and conclusions from these patterns and correlations. PELs presence across diverse businesses gives us access to a significant amount of data. The Analytics function aims to deliver data-driven actionable insights to key decision-makers across the organisation and embed this approach in the day-to-day processes.

With an increasing proficiency in collecting and managing data, the opportunity to find valuable insights through analytics has become manifold. Moreover, analytics is critical to assessing and addressing the impact of COVID-19, as it would help identify and prepare for the emerging risks across our businesses. Artificial Intelligence- and Machine Learning-backed tools are also likely to bring greater focus on improving efficiency through business process re-engineering and automation.

Recognising the importance of data analytics, PELs in-house Analytics function has developed tools with diverse applicability and replicability across the Companys Financial Services and Pharma businesses.

Financial Services

Analytics is crucial to facilitating better customer engagement, mitigating risks and navigating through complex data to solve business problems. In the Financial Services business, the power of data is being effectively used to detect frauds, determine creditworthiness of potential customers, monitor loan portfolios and measure business performance.

(A) Fraud detection and loan application screening:

The Fraud Analytics Rule Engine (FARE) for retail lending is a data- driven fraud detection platform which aims to strengthen the loan application screening process. The system ensures minimal fraudulent applications and improves the overall quality of lending by declining upfront suspect applications. There are plans to further enhance fraud analytics through collaboration with fintech partners. Some of the approaches followed are:

• Integration of information from third-party fraud detection service providers to match loan application data against fraud prevention databases and watch-lists

• Use machine learning algorithm to detect fraudulent applications by analysing data from credit information bureaus based on loan applications received by other lending institutions.

(B) Credit analytics for new loan applicants:

For the Housing Finance business, a predictive credit risk model was developed called the Credit Analytics Rule Engine (CARE) - which helps in determining whether an applicant is likely to default over the next 24 months. Going forward, we plan to further enhance the model by incorporating additional credit assessments criterions.

(C) Portfolio monitoring:

The framework ranks customers according to their creditworthiness by leveraging data from both internal data sources and credit bureaus. It leverages Machine Learning to provide the most updated and accurate risk assessment of existing customers and is used for pre-emptive decision making.

(D) Performance management:

A framework has been developed for real-time monitoring of sales, credit and other operational key performance indicators (KPIs) to enable quick and data-driven actionability. Some of the KPIs include: portfolio-level loan-to-value, login productivity to assess performance of direct sales agents (DSAs), turnaround time (TAT) at various stages of the customers journey (i.e. from on-boarding to disbursal).

Many of these existing tools and frameworks, currently being implemented in the Housing Finance business, shall be leveraged across other retail lending products that will form part of the Companys upcoming multi-product retail lending platform.

Pharma

India Consumer Products Division:

Use of data analytics has been instrumental in the identification of the following goals for the Consumer Products Division:

• Categorisation of distributors based on key parameters, such as business relevance, risk etc.

• Development of a smart bidding search marketing algorithm (for online/web search) to optimise the e-commerce marketing mix for the entire portfolio.

- The algorithm leverages Natural Language Processing (NLP) to increase sales at a lower cost of acquisition.

- Incorporation of frameworks to understand the end customer, competition and return on investment (RoI).

Machine learning to increase sales

In the India Consumer Products business, the Company has leveraged a Machine Learning algorithm which uses in-house data to categorise retailers based on their performance. The movement of retailers across these categories is monitored on a monthly basis to identify high opportunity and high impact areas in order to increase sales at the most granular level.

Global Pharma Products business:

Leveraged analytics across the value chain of the Global Pharma business to maintain and enhance PELs competitive advantage.

• Developed a sales analytics engine leveraging Machine Learning to predict the likelihood of purchases, based on metrics such as monetary value, repeatability and recency.

• Market assessments conducted by leveraging big data to identify high opportunity areas - for example, potential markets for penetration and product rationalisation to improve the wallet share.

These are a few areas where the Company is leveraging analytics to ensure its continuous success and growth. As data-driven decisionmaking becomes an essential part of PELs everyday operations, it is strongly pursuing technology-enabled opportunities and adapting contemporary best practices to deliver exceptional business value.

INFORMATION TECHNOLOGY & DIGITAL

Information and digital technology has revolutionised the way companies engage with customers, partners and employees, COVID-19 is a catalyst that is bringing the new order to the forefront. What was once done as a matter of convenience, is now a necessity. Companies are focusing on the adoption of technologies that would future-proof their businesses against contingencies. Post COVID-19, technological transformation will pivot around a low-contact workplace that ensures business continuity amid social distancing.

Vision and Strategy

In line with the Companys Technology Vision ASPIRE spire to be a Strategic Partner through Innovative solutions for Rapid growth Enablement — the Information Technology function continues to transform the business through several technology and digital-led initiatives and programmes.

While PEL has launched multiple initiatives in getting technology- ready for business, it continues to focus on:

• Strengthening the core: Exploring the known while streamlining core business functions such as sales, manufacturing, logistics, etc.

• Building for the future: Solving new problems and optimising areas of uncertainty to make them more predictable.

Key Group-level Initiatives

PELs Digital Ecosystem

• Digital Centre of Excellence (COE): Established last year, the Digital COE is at the core of the Companys digital ecosystem which focuses on enhancing business value.

PELs Digital Ecosystem

PEL leverages different technologies and processes, established under the Digital COE, to impact partners, customers, employees and machines. These include Robotic Process Automation (RPA), Organization Change Management (OCM) and Business Intelligence (BI), among others.

• RPA enables automating select processes and redeploying or removing excess capacity. With RPA, 50+ processes were automated across Financial Services, Pharma, HR, M&A and shared services at PEL.

• OCM enables a cultural shift towards technology through multiple initiatives and programmes.

• BI comprises strategies and technologies used for data analysis of business information.

The Digital COE promotes an effective and efficient work environment, enhances communication with customers, collaborates with partners and facilitates strategic decision-making. Some of the key initiatives that leverage the Digital COE include:

- Enhanced employee experience: Online HR portal was revamped, HR service delivery processes streamlined and new apps introduced to allow employee self-service. A new Learning & Management tool was also launched to help build leadership skills and retain talent.

• Effective communication and collaboration: Our best-in-class Enterprise Service Management platform was enhanced with self-service capabilities, coupled with new modules of Change Management and Knowledge Management. New workflows and functions, such as Information Security and HR Operations, are being added to enhance visibility, transparency and productivity.

- Partner Ecosystem: Supply chain is being digitalised using Supply Chain Management System for planning and demand forecasting. Through automation of supply chain and operations planning, the Company will be able to better manage quality, visibility and transparency for its pharmaceutical products.

- Enhanced customer experience: PEL continues to focus on better communication and engagement with clients, increasing trust and building long-term customer relationships. Chatbot and WhatsApp for business were introduced to facilitate this engagement process.

- Machines: Launched 3D Virtual Site Walkthrough for the Pharma Solutions manufacturing site to give customers a feel of the actual site.

Other key initiatives:

Cloud journey

The Company migrated its Global HR function, corporate websites and portals to the digital cloud and shifted to an industry-led cloud platform to improve employee productivity and collaboration while increasing flexibility and controlling costs.

Driven by its evolving business needs, the Company has adopted a blend of hybrid and multi-cloud, and now has ~40% of the workload now running of this blend. PEL has also introduced a cloud-based secure messaging gateway solution to prevent insidious email threats.

INFORMATION TECHNOLOGY & DIGITAL

Information security, data protection and privacy

• The data leakage protection tool in use for the Financial Services workforce, restricts and monitors external media access, internet uploads and outgoing emails containing sensitive information.

• Enterprise mobility and security is being implemented in the Financial Services business to strengthen data protection capabilities when employees access work-related sensitive information on personal assets.

• Vulnerability assessment and penetration testing are conducted periodically to identify any weakness in the IT infrastructure and applications.

• Security incident and event monitoring has been put in place to monitor security alerts pertaining to corporate IT infrastructure and PCHFL applications. Security incident and event monitoring will be extended to the Pharma network and applications in 2020.

• Ensuring employee awareness on Information security / cyber security issues / breaches via periodic awareness emails.

Business Continuity Plan

In response to COVID-19, the Company took necessary actions to safeguard the health and wellbeing of all employees. Technologies that enabled employees to work from home were adopted and implemented, while several necessary measures and tools were deployed to ensure information security and prevention of data leakage during remote working. As a result, the Company has been able to run its business operations with minimal downtime.

Critical technologies and practices deployed to enable work from home include:

• Secured remote connectivity options

• Collaboration platforms for conducting meetings

• Remote IT support desks with extended working hours

• Regular sharing of technology tips, awareness initiatives and best practices for effective work from home

An in-house tool, COVID Safe (C-Safe) Tracker, was launched to ensure the safety of employees, contractors, visitors etc. for our sites and offices in India. C-Safe is a tool that supports self-reporting, selfevaluation and self-monitoring of the health status of an individual.

It also provides automatic instructions on self-isolation or selfquarantine as needed.

Financial Services

The Companys Financial Services business has made early investments in next-gen core tech platforms interweaved with analytics.

• Wholesale Finance: Launched Pinnacle - an end-to-end digitalised platform - to support loan origination as well as loan management.

• Retail Housing Finance: Launched new-age IT system to enable an end-to-end digital journey for our frontline along with our partners, via their handhelds. This was empowered by an ecosystem that included a digital campaigning platform, WhatsApp, self-service portals, chatbots and alternate data sources.

• Other Retail Lending: PEL is building a multi-product retail lending platform, with technology at its core. Key IT and digital initiatives include:

- Digital assets driving persona-based user journeys, co-lendinj partnerships

- Bouquet of AI, voice, facial recognition driven loan origination and loan management services

- End-to-end digital collection strategy

- Smart contact centre

- Big data, security and fraud architecture

- Branch in a box distribution strategy

Second edition of Piramal TechFest:

After the success of the first Piramal TechFest in FY19, the Company unveiled the second edition of the TechFest for its Pharma business and corporate functions. With digital disruption changing the face of pharmaceutical industry,

PELs top management is constantly trying to leverage smart manufacturing, smart supply chain, connected customers and connected workplace in the Pharma businesses. At the event, 12 leading technology partners and innovative tech start-ups showcased futuristic technologies and hosted experiential learning sessions for employees.

Pharma

The Pharma business of PEL strategy continues to focus on customer, quality, workforce and capabilities.

Enhanced customer experience

• Launched a 3D Virtual Site Walkthrough for the Ennore Plant to enhance customer centricity at the time of lead discussion. The facility is currently being extended to all global Pharma solutions locations.

• Digitisation of the entire Contract Lifecycle Management process for Pharma Critical Care is being considered. This will be integrated into the existing CRM platform and enable preparation and routing of contracts to customers.

• The roll out of an application to capture around 2.25 lakh retailer profiles used to execute strategic marketing campaigns, targeted communication etc. in the OTC business.

Workforce efficiency

• Launched an initiative to enhance productivity and automate MIS preparation in the Pharma Solutions business, saving ~1,200 manhours annually.

• Enabled AI-based HR Bot for domestic sites in the Pharma Solutions business that acts as a shadow HR consultant and resolves HR-related queries instantly.

• An application built for field users in the Consumer Products Division to capture and submit photos of stock & sales statements of distributors in order to derive secondary sales.

Quality/Compliance

• The Company continues to drive automation of regulatory and quality systems across locations. Further steps are being taken to enhance compliance, using innovative solutions such as chatbots for IT compliance.

• Pharma Critical Care implemented a new GxP Learning Management System, which offers role-based training and provides online dashboards of training statuses.

Futuristic capabilities

• Leveraged technology to enable expansion to newer geographies while being compliant with local regulations.

• Implemented radio-frequency identification (RFID) technology across manufacturing sites for inventory management with handheld devices.

• Seamlessly integrated newly acquired entities and products into enterprise-wide core systems and processes to increase overall productivity.

The way forward

The COVID-19 outbreak has accelerated the pace of IT and digital transformation across companies. PEL had laid the foundation of its digital transformation in last four to five years, and is now leveraging its technology and digital footprint to achieve faster innovation at a greater scale, in renewing customer experience, automating core business processes, and creating value for its customers as well as stakeholders. In response to COVID-19, the Company is moving towards newer ways of working without any loss of productivity or efficiency. PEL will now incorporate remote working as a part of its business model and continue to build on a digital culture that is closely aligned with the business, talent and technology strategies to scale up its digital transformation.

Manufacturing CEO Roundtable:

Ms. Nandini Piramal (Executive Director, PEL) and Mr. Satya Nadella (CEO, Microsoft) along with other select industry leaders attended Manufacturing CEO Roundtable

At the roundtable, the industry leaders shared their views on the intersection of technology & manufacturing industries and its future.

SUSTAINABLE GROWTH INITIATIVES

Values and Purpose

All our sustainability initiatives originate from and are driven by our corporate purpose of Doing Well and Doing Good. This purpose is embodied in our constant endeavour to make a positive difference by serving people and living our values. We stay true to our purpose by following three basic tenets:

SERVING PEOPLE MAKING A POSITIVE DIFFERENCE LIVING OUR VALUES

Environment

Conservation of resources

Our continuous endeavor to conserve natural and man-made resources fuels the positive initiatives towards doing more and doing better by consuming less

PAGE 95

Waste management

With focus on recycling wherever possible and safe & secure disposal in remaining cases, the emphasis is on continuous conservation of environment

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Energy conservation & climate security

In order to achieve long-term sustainability, concerted efforts are made to conserve energy, assess viable energy efficient projects and take initiatives to help environmental stability

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Social

Health, safety and well-being

PEL is committed to protecting our employees from work-related hazards and promoting their well-being

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People practices

At PEL, we believe that human resources are critical to the Companys ability to drive growth, efficiency and productivity. PEL continues to attract and retain the best talent due to its value-driven high-performance culture and its brand reputation

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Serving communities

Our Corporate Social Responsibility (CSR) entities develop innovative approaches and solutions to resolve issues that are critical roadblocks towards unlocking Indias economic potential and delivering a sustainable impact.

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Customer centricity

Our aim is to get into the hearts and minds of our customers through delivery of highest quality products and services

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Care for patients and end-consumers

We engage with and provide value to our patients and end-consumers in a responsible manner and strive to make our businesses and brands find a uniquely relevant place in hearts of the consumers

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Governance

Corporate governance

PELs Board of Directors views corporate governance in a comprehensive manner with its main objective being creation of and adhere to a corporate culture of integrity and consciousness

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Enterprise risk management

An independent and dedicated Enterprise Risk Management (ERM) system to identify, manage and mitigate business risks. Risk management, internal controls and assurance processes are aligned to the Companys goals and integrated throughout all significant activities.

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Quality governance

PEL employs a 3-tier quality governance model to prevent dilution of the quality bandwidth while enabling central, regional and local controls

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Responsible sourcing

PEL has procedures in place for sustainable sourcing, which are in-line with its endeavor to continuously improve the social and environmental performance of its supply chain

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At our Company, we are committed towards ethical and transparent business practices. Our values act as guiding principles to steer the path in forming the right partnerships in creating sustainable, long-term stakeholder value.

The Companys Code of Conduct for Board Members, Code of Conduct for Senior Management and the Code of Conduct applicable to all employees of the Company are testaments to the Companys efforts in ensuring that ethical conduct is not compromised. We have also laid down a Business Code for Contractors (BCC) covering vendors and sub-vendors with whom we engage, to ensure that they also adhere to our high ethical standards.

ENVIRONMENT

PELs Environment Philosophy

PEL is dedicated to maintaining high standards of environment performance through its employees, who strive to achieve Environmental excellence. Doing Well and Doing Good, coupled with doing the right things so that the employees, the community at large, and the environment, including the natural and man-made resources, are protected while leaving minimal environmental footprints, is integral to PELs Environment philosophy.

The Company has a Corporate Environment team that continually builds excellence in environment management, monitors performance and supports all operations and functions on all environmental aspects.

Building Environmental excellence

The Companys environmental initiatives are designed to create long term sustainability and value for the Company and all its stakeholders. With that in mind, PEL has implemented the CORE (Creating Optimal and Responsible Environment) programme, which has helped it contribute to the larger goal of sustainable development.

The Company is redefining its Environment management system through an integration of current global best practices, technology absorptions and its learnings. The journey began with the development, ratification and release of PEL Environmental Standards that are applicable to its global operations. In response to the changing market dynamics that require improved and efficient supplies, the year witnessed upgradation of the Environment protection infrastructure at the Companys sites through several capex projects.

Conservation of resources

As a responsible corporate citizen, PEL is committed to designing, constructing, operating and maintaining its facilities in a manner that results in conservation of resources, including water and energy. Our major manufacturing sites in India continued their accreditation to ISO14001 certifications. All sites remained compliant to the current environmental regulations.

Water security

At our API sites, besides conventional biological treatment, the wastewater is also subjected to tertiary treatment of reverse osmosis (RO) and thermal systems comprising multiple effect evaporators and agitated thin film dryers. Continuous monitoring ensures compliance and confirmation that the statutory norms are met. The treated water from these systems is fully re-used as cooling tower make-up and utilities, thereby conserving this valuable natural resource. These initiatives in water management have resulted in making our API manufacturing facilities "zero liquid discharge (ZLD) sites". PEL sites do not discharge any untreated or treated wastewater from its site boundaries.

During the year, the additional water conservation initiatives included improved steam condensate recovery and recycle, improved efficiencies in manufacturing processes and use of efficient alternatives to reduce tap water flow, to name a few. This resulted in overall reduction in fresh water consumption by ~3%.

Air quality

Air quality is well managed through the use of stringent process controls and technologies, including nitrogen blanketing in the equipment, efficient gas scrubbing systems, use of HEPA filters to control indoor air quality in the pharmaceutical powder handling areas, and the use of closed systems.

Waste reuse, recycle and management

The solid hazardous wastes are carefully contained and stored for further disposal at approved secure hazardous waste disposal sites. We tag and treat rejected/expired pharmaceutical products originating from our manufacturing facilities as hazardous waste. These wastes are sent out through authorised transporters to the authorized secure disposal sites for incineration or for co-processing (high temperature thermal destruction) or else to secured landfills as per the permitted conditions. We recycle solid waste like recovered metal catalysts, metal scrap, paper, wood, glass, plastic waste etc.

The year saw an increase of recycling hazardous waste by ~5%

through the co-processing route, mainly in the cement industry. Further, under extended producer responsibility, PEL recycled 402 MT of recyclable plastic waste and disposed 90 MT non-recyclable plastic waste through the incineration route.

Energy Conservation & Climate Security

The Company identifies climate change, extreme events like floods and droughts and energy availability as material issues that can impede business operations and impact the future growth of the Company. Assessment of viable energy efficient projects like renewables for our sites and processes is a key focus area for the Company.

With this in in mind, tree plantation was increased by ~5% over the previous year.

Robust Environmental governance

A robust governance framework comprising a Governance Committee, Global Sustainability Coordinator, Site Sustainability Sponsor, Site Sustainability Lead and Site Sustainability Champions ensure effective implementation of various initiatives. PEL participates in CDP (Carbon Disclosure Project) and voluntarily discloses environmental information (Climate Change and Water Security information).

SOCIAL

Occupational Health, Safety and Wellbeing

PEL believes that all injuries and illnesses are preventable. We are committed to protecting our employees from work-related hazards and promoting their well-being. Safety of our personnel is ensured through implementation of safe work practices driven by Life Safety Rules and standard operating procedures.

Industrial hygiene and risk-based workplace exposure assessment are accorded high importance and there are programmes around it. The year witnessed active upgradation of the management system and engineering controls around these programmes.

Safety management system implemented at a majority of our sites in India is through OHSAS 18001 certification, and the sites are in the process of switching to ISO 45001 standards.

Responsibility of people safety rests with the Site Heads, who conduct regular safety meetings with site leadership teams.

The safety performance of each site is tracked by the Corporate Health and Safety team and its reports are reviewed by the senior management.

Health and safety considerations are integrated in the overall management systems and are an important driving force for our operations. Numerous safety training programmes, both by internal as well as external specialists, were conducted at manufacturing sites to refresh and enhance the Health and Safety competence of our people.

The injury frequency rates viz. First Aid Injury Rate (FAIR) and Total Recordable Injury Rate (TRIR), are continuously monitored. During the year, there was no fatality at any site nor were there any reported occupational illnesses. The TRIR for the year was 0.38 (per 100 employees).

We witnessed an increased employee involvement in Health and Safety matters through various programmes. This resulted in an impressive 39% jump in reporting of learning incidents (near misses).

COVID-19 Response

Faced with the unprecedented challenge of COVID-19, PEL executed a proactive and strategic response to ensure the safety of all employees while ensuring business continuity. Our value of "Care" took centre stage as we rolled out the following initiatives for the group companies:

• Continuing manufacturing of medicines: Even when India and other large economies were in lockdown, our Pharma plants continued to operate to ensure essential Pharma supplies are not disrupted.

• Stringent precautionary measures: Measures such as disinfecting the sites with sanitisers, fumigation, fogging etc., cleaning common touch points, contact-less attendance systems, revised shifts to maintain social distancing norms were implemented at the plants.

• Care for the employees: Support was provided to employees through financial assistance for testing for them and their families, extended medical insurance cover and additional leave.

• Nerve Centre: A central committee called Nerve Centre continuously tracked real time field reports in the Consumer Healthcare business with the objective of tracking the well-being of our employees and ensuring that the business contingency plan works for areas where we foresee a concern.

• Sales in a virtual setting: Sufficient training and support were provided to the sales team of the Consumer Healthcare business to enable them to connect with the retailers and distributors on call to ensure sales continuity during the times of the lockdown.

• Transition to Work From Home mode ensuring business continuity through a planned, concerted transition.

• Employee Helpline for PEL employees and their to address any queries related to COVID-19.

• Employee Assistance Programmes on a mental health platform, Inner hour, to help employees cope with the uncertainty through online therapy.

• Online learning modules on our Piramal Learning University Virtual Campus to equip employees to handle the tough times better.

People practices

PELs Philosophy

At PEL, we believe that human resources are critical to the Companys ability to drive growth, efficiency and productivity. In an increasingly competitive market for talent, PEL continues to focus on attracting and retaining the best talent.

One of our most important success factors is a value-driven high- performance culture which is defined by our values of Knowledge, Action, Care and Impact, and it plays an integral part in guiding our people philosophy.

PELs strength lies in its diversity across teams and businesses, and it brings together fresh ideas, perspectives and experiences. It also fosters a truly collaborative workplace. Our people initiatives focus on enabling this diverse, global workforce to consistently deliver on the Groups purpose of Doing Well and Doing Good.

The year 2019 saw PEL getting recognised as one of the worlds top employers in Forbes Global 2000 Rankings. The Company ranked 32 out of a list of 2000 of the worlds largest public companies (highest ranked Pharmaceutical Company globally and second-highest ranked Indian organisation) based on 1.4 million employment recommendations sourced from a global poll and regional surveys.

Demographics Snapshot & Diversity Initiatives

Business segment March 31, 2020 March 31, 2019 Change
Pharma 5,565 5,329 +236
Financial Services 1,014 1,330 -316
Total1 6,579 6,659 -80

Note: (1) The numer for employees as on March 31, 2019 mentioned here does not include 1,161 employees of the Healthcare Insights & Analytics business that was divested during FY20

Diversity

At the heart of PELs diversity agenda is the promise to be an equal opportunity employer. PELs code of conduct emphasises the Companys commitment towards supporting diversity in hiring and promotions across levels. Gender diversity is the first area of focus in building a culture of diversity and inclusion.

Women employees comprise:

15%

of the workforce

39%

of the corporate level workforce 26%

of identified High-Potential employees Safety

PEL has a Zero Tolerance policy towards any form of discrimination, including sexual, racial or other unlawful harassment, threats or acts of violence or physical intimidation, abuse of authority or any other discriminatory conduct. PEL is 100% Prevention of Sexual Harassment (PoSH)-compliant with 11 Internal Committee (IC) panels institutionalised to swiftly address any incidence of sexual harassment, bullying or misdemeanour, and regularly conducts sensitisation campaigns for employees and IC panel members.

inclusivity at the Workplace

• Inspiration at Work: An exclusive network was launched for our women colleagues in India to gather, stay connected, learn and grow together. We conducted 15 inspiring sessions for over 400 colleagues.

• Second Innings: This programme aims to provide an opportunity to well-experienced and capable women who want to foray back into the workforce after having taken a career break.

• Flexi-work policies to empower employees to balance their personal and professional commitments.

• Childcare support: The Company provides childcare support to employees who have children below the age of six years through an in-house creche and collaboration with other childcare facilities near offices in Mumbai.

• Parental support: The Company adopts a gender neutral leave policy for the primary caregiver and has in place a Parental Support Scheme.

Whistleblowing Policy

The Company has established a vigil mechanism, which includes a Whistle Blower Policy, for its Directors and employees, to provide a framework to facilitate responsible and secure reporting of concerns of unethical behaviour, actual or suspected fraud or violation of the Companys Code of Conduct & Ethics. No Director/ employee has been denied access to the Audit & Risk Management Committee.

Human Rights

PELs Code of Conduct includes clauses on human rights applicable to all group companies/suppliers/vendors/NGOs associated with PEL. We promote respect for human rights among suppliers and vendors through contractual obligations that ensure legal viability. We also set out the minimum requirements of compliance with clauses on human rights, failing which PEL reserves the right to terminate any purchase or other agreement with the contractor.

We sensitise our stakeholders on the importance of human rights as well.

Enabling performance through HR technology

Driving efficient people decisions through HR Analytics

HR Analytics for monitoring performance and productivity helps us leverage our data based decision-making capability through our people metrics and algorithms to improve the effectiveness of the HR function.

This year, we democratised analytics through a state-of-the-art Business Intelligence platform, which enables our HR teams to analyse large and complex datasets with the help of multiple dashboards designed for gathering real-time data-driven insights.

Launch of Piramal Learning University Virtual Campus (PLU VC)

Keeping in mind the VUCA (volatility, uncertainty, complexity and ambiguity) world that we operate in today, building a world class Piramal Learning University has been one of the key focus areas of the HR strategy to upskill, reskill and enable continuous learning of our employees.

With this in mind, the PLU VC was launched in November 2019, as a mobile-first learning management system to help us create a culture of self-driven learning at Piramal. The success of the launch is evident in the fact that 99% of our target audience has already accessed the new platform.

Some key features of the PLU VC include:

• Access to 20,000+ world-class Skillsoft courses, videos, audiobooks and e-books

• Learner and Manager friendly dashboards to manage and optimise learning

• Tracking of all learning activities on one unified platform, including classroom learning and external training

Attracting Talent

Employee Value Proposition (EVP) launch

2019 saw the launch of our EVP - "Design your Destiny".

After a detailed analysis through focus group discussions, senior leadership interviews and data analysis, we finalised the embodiment of our commitment towards our existing and potential employees.

The logo captures each element of our 3 pillars:

• Seek to Grow stands for inclusive growth and is about empowering our employees to make critical decisions and be part of our success story

• Seek to Transform is about providing our employees enormous autonomy to voice their ideas, take initiative or seek larger responsibilities

• Seek to Serve encapsulates not only the happiness and satisfaction of our customers, but also the goodwill of the society we live in

Campus Initiative (TANGRAM)

Tangram is one of our flagship campus engagement initiatives through which students from premier business schools are provided an opportunity to engage with the organisation through a creative and interactive learning experience. It provides students a platform to ideate and present solutions to some of Indias prevalent social issues across healthcare, education and safe drinking water.

The contest, in its second year, saw three times the participation, received over 1,800 registrations from 40 institutes from India, with over 7,000 students participating.

Nurturing home-grown leaders

High Potential Programme

At PEL, home-grown leaders are the preferred choice for every critical role. Hence, various high potential development programmes are conducted to nurture home-grown talent and take them to the next level of success:

• IGNITE: Every year, the programme identifies ~25 high potential young leaders from junior management, who then undergo a 15-month long development journey that includes multiple aspects of functional and leadership learning, live functional projects and a certification course by Harvard.

• ASCEND: The platform selects and grooms high-potential employees at the middle management who undergo a 24-month structured development intervention which includes learning labs, individualised coaching, application of learning through strategic business improvement projects and access to Harvard ManageMentor resources.

• SUMMIT: The leadership programme focuses on preparing senior leaders to become successors to the CEOs of PEL businesses. Senior leaders define their own business mandate - to act as true entrepreneurs of their business units or functions.

Talent Review & Succession Planning:

In line with the guidelines of SEBI and Companies Act, development of a succession plan for the Board and senior management is the objective of the Nomination and Remuneration Committee of the Company. Accordingly, the Talent Review and Succession Planning process was launched at the Piramal Group in the financial year 2019-2020.

The process aims to achieve 3 objectives

In the first year of running the process, we achieved the following milestones:

• Documentation and discussion on career aspirations for 450+ employees across mid-senior level and identification of potential

• Identification of succession pipeline for ~46 Executive Committee members

• Capability building of eligible employees and global HR teams on the process

The Group views this critical process as a continuous cycle and a governance mechanism has been put in place to keep track of the progress on development plans.

Piramal Leadership Series

The Piramal Leadership Series is a set of flagship leadership programmes designed for a targeted profile of future leaders at different career stages. The programme aims to strengthen the leadership pipeline of the Piramal Group to meet long-term business needs by equipping employees to develop essential leadership skills in line with the Piramal Success Factors.

Thinks Big

- Focuses on the long term

- Translates vision into actionable plan

- Welcomes new ideas

- Leads change

Serves Customers

- Identifies customer needs

- Delivers on customer expectations every time

- Finds new ways to add value to customers

- Builds trusted partnerships with customers

Commits & Delivers Results

- Identifies and acts on opportunities

- Sets high standards for self and team

- Persists despite setbacks

- Takes ownership for business and quality goals

Empowers and Develops

- Shares and accepts feedback

- Builds own and teams capability

- Creates a learning environment

- Encourages others to take on larger roles

Collaborates

- Works cooperatively with others

- Prioritises team goals

- Builds relationships across boundaries

- Creates consensus

Displays Humility

- Is humble

- Is open and transparent

- Treats others with respect

- Values diversity

Serving communities

PEL conducts its Corporate Social Responsibility (CSR) initiatives through the subsidiaries of Piramal Foundation, namely Piramal Swasthya Management and Research Institute, and Piramal Foundation for Education Leadership (collectively referred hereinafter as "CSR entities”). The CSR entities develop innovative approaches and solutions to resolve issues that are critical roadblocks to unlocking Indias economic potential. The Company believes in collaborating with like-minded partners and nurtures projects that are scalable and deliver a sustainable impact.

Piramal Groups core values of Knowledge, Action, Care and Impact guide the organisation in carrying out its responsibilities towards society. In line with the Groups sustainable development goals, the CSR entities are focused on:

Vision

Piramal Foundation is committed to transforming health, education and social sector ecosystems through high impact solutions, thought leadership and partnerships.

Operating Model

The operating model of the CSR entities is built on the following principles:

Seeding innovation Partnerships are a way of life In touch with ground reality Technology as a key enabler Scale, an important lever
The CSR entities attempt to address complex and deep- rooted issues by developing out-of-the- box approaches and solutions. The CSR entities philosophy is rooted in partnerships to deliver holistic solutions, including public-private partnerships with governments In order to generate an optimal social return on investment, approaches and solutions are developed in conjunction with stakeholders, tested for proof of concept and fine-tuned Technology is used to automate processes and digitise data to enhance seamless operations across the delivery chain, and promote accountability and transparency The organisation ensures that all its efforts are maximised for improved social returns with solutions that are robust and scalable across geographies and different socioeconomic contexts.

Our initiatives

Democratising Healthcare - Piramal Swasthya

Piramal Swasthya, is focused on bridging public healthcare gaps by supplementing and complementing the Government of Indias vision to meet Universal Health Coverage.

Piramal Swasthya is one of the largest not-for-profit organisations in India in the primary public healthcare space with a focus on maternal health, child and adolescent health, non-communicable diseases. Piramal Swasthya employs 2500+ employees (including over 250 medical doctors).

Public Healthcare Scenario in India

India ranked 129 in

Human Developed Index (2019)

Key milestones:

21

states impacted positively by serving more than 12 crore beneficiaries through 35 healthcare initiatives

8+ crore

beneficiaries have been provided with validated health advice through Remote Health Advisory and Information programme across 8 states through 439 call centre seats

2.5+ crore

have been delivered health facilities at their doorstep through community outreach programmes in 15 states through 132 mobile medical vans

3+ lakhs

beneficiaries have been provided specialist consultations through 80+ telemedicine services across

3 states

Some of the initiatives under Piramal Swasthya are:

a. Remote Health Advisory and Information (RHAI):

RHAI services provide 24x7 health advice to remote and vulnerable sections of the community and aims to reduce the minor ailment load on the public health system. This service is provided through a toll-free health helpline number and Mother and Child Tracking System (MCTS) across eight states.

b. Community Outreach Programme:

Mobile Health Services: The aim is to tackle the barriers faced by people in hard-to-reach areas, who are unable to access primary healthcare, by reaching them through mobile medical vans that are equipped with medical devices, medicines and healthcare workers. In partnership with various state governments and corporates, two models - 1) Doctor-led and 2) Nurse-led - are operated across 15 states.

c. ASARA Tribal Health Programme: Tribal health programme is a unique model in the country which has demonstrated elimination of maternal deaths in the Vishakhapatnam tribal belt, including Araku valley, for more than three years by bringing healthcare to the doorstep of the beneficiaries and by linking them to the government facilities by a dedicated team that crosses difficult terrain every day. The significance of this programme rests with the fact that tribal areas have the highest maternal and infant mortalities. Hence any positive impact in such areas will result in a large impact on the national average.

d. D.E.S.H. Cancer Screening Programme:

D.E.S.H. (Detect early & save her/him), is a first- of-its-kind community-based cancer screening programme that addresses oral, breast and cervical cancers by taking screening services to the doorstep of beneficiaries in high incidence areas in the north eastern states, such as Kamrup (rural) district in Assam. The DESH team walks with the patient through the entire journey of initial screening to diagnosis to treatment. More than 28,000 community members have been screened so far.

e. Prerna - Integrated Healthcare Delivery Model:

This initiative screens and offers validated healthcare services and specialist consultation through mobile telemedicine in the Majuli (Jorhat) region of Assam, where the maternal and infant mortality rates are higher than the rest of Assam. The programme has served more than 57,000 beneficiaries

f. Accessible Medical Record via Integrated Technologies (AMRIT):

It is a technology platform to create and store electronic medical records of beneficiaries. Beneficiaries are given unique IDs that facilitate referral mechanism in the public health system and enable them to receive healthcare services by creating unified health records. AMRIT can also facilitate data sharing among various healthcare service providers and government schemes such as Ayushman Bharat.

Gosthani Nutrition Programme

in Araku Valley Visakhapatnam helps prepare, process and preserve nutritional food for families

2 Lakh +

population covered under ASARA Tribal Health initiative.

3,300+

Pregnant women educated on Nutri gardens and food

50,000+

Pregnant women served in the project area

Improved percentage of institutional deliveries from

18% to 72%

Piramal Foundation of Education Leadership (PFEL)

PFEL is a change management organisation that was founded with the objective of strengthening the public education system by transforming the new generation of leaders in education in order to create high performing environments for students by grooming school principals to be empathetic, pro-active and skilled practitioners. It is a multi-level partnership with state governments which aims to catalyse the turnaround of failing schools and help education system leaders in improving learning levels of students.

Major programmes:

a. School Leadership Development Programme (SLDP):

PFEL has partnered with many governments, corporates and educational institutions in the states of Rajasthan and Maharashtra and set up 375 functional libraries across all SLDP locations.

b. State Transformation Programme (STP):

PFEL collaborated with the 10 state governments to build institutional capabilities of state level education institutions. The STP programme refines organisational structures, capabilities, people policies and processes to build the leadership capabilities of more than 5,000 education officials across all the states.

c. Virtual Field Support (VFS):

PFEL established two empathetic call centres by developing 75 community women to provide support to government education officials and parents of students across Rajasthan and Gujarat.

It collaborated with the Integrated Child Development Scheme (ICDS) department of Jhunjhunu to intervene with Anganwadi workers to enhance their competency. PFEL also transformed the SLDP Fellowship model to pioneer system immersion where Gandhi Fellows shadowed education officials to realise the systemic challenges in education.

d. The New Millionaire Programme (TNMP):

PFEL supported the establishment of alumni chapters in four major cities for facilitating alumni support and learning from one another. Furthermore, the programme is developing four key products for career management, networking and Learning and Development aimed at the alumni.

e. Advocacy:

PFEL is advocating competency-based selection, role-specific induction, multi-mode continuous professional development and linked continuous professional development with career progression of school heads as well as system officials in the Ministry of Human Resources Development (MHRD). PFEL was nominated to the committee on strengthening District Institutes of Education Training (DIETs) and has supported in evolving guidelines for states.

Key milestones:

3 lakh +

students work with 1,360 headmasters and 4,896 teachers,as part of School Leadership Development Programme

3.4 crore+

students across 4,40,000 schools in 10 states have benefited from the State Transformation Programme

6,000+

children enrolled in Anganwadis and 1,558 Anganwadi workers supported as part of Early Childhood Development Programme

2,16,000+

stakeholders (teachers, principals, etc.) of government education system supported as part of Virtual Field Support Centres

Employee Social Impact (ESI)

Employee Social Impact (ESI) is an effort within Piramal Foundation that enables Piramal employees to affect real change by volunteering for various social causes such as youth empowerment, education, health and nutrition, elderly care, environment.

ESI functions as a platform to bring volunteers, NGOs and end beneficiaries together. The team ties up with various NGOs that provide either the skills or the opportunities that their beneficiaries lack.

Each office and plant of the Company has a lead volunteer - the Champion for Change (CFC) who:

• Leads their location/team

• Inspires colleagues to experience volunteering

• Helps build a socially conscious culture within the group and

• Creates positive change

During FY2020, Piramal Volunteers dedicated 55,418 volunteer hours, during which they worked with various NGOs and helped beneficiaries on a variety of engagements:

a. Seed Balls:

It is an ancient technique for propagating plants from seeds; volunteers make seed balls and later drop them in the outskirts of rural region.

b. Environment:

Regular beach clean-up and cleanliness drives in support of the nationwide agenda of Swachh Bharat.

c. Be a Santa:

It is a unique initiative as employees reach out to the organisations support staff (housekeeping, security, pantry staff etc.) appreciating and acknowledging their dedication and efforts.

d. One-to-One Mentoring:

Volunteers helped children in low-income communities reach their full potential by forging supportive one-to-one mentor- mentee relationships through various NGOs.

e. Paint the school walls:

Through Building as Learning Aid (popularly called BALA), volunteers painted the walls of municipal schools and drew educational concepts, cartoons, and graffiti on the walls, thereby building the infrastructure of schools and improving the learning experience for students.

f. Daan Utsav:

Every year, the National festival of giving (popularly called "Daan Utsav") is celebrated at all plants of the Company with great enthusiasm, wherein employees come together and collectively volunteer for diverse social causes like environment, women empowerment, education.

g. Coach Young Adults:

Volunteers helped young adults build their career readiness by polishing their interview skills, developing appropriate resumes, nurturing their IT skills, and developing a fair understanding of a professional environment.

Piramal Swasthya & PFEL support Indias fight against COVID-19

Piramal Swasthya has been supporting Indias fight against COVID-19 by complementing and supplementing governments efforts. Following are a few initiatives Piramal Swasthya has taken to address the ongoing pandemic:

a. Health Information Helplines:

Piramal Swasthya operates 104 toll-free health information helplines in public private partnership with eight state governments across India, namely, Assam, Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Karnataka, Maharashtra and Sikkim. The helpline in support of COVID-19 management has attended to nearly 6 Lakh calls (since February 1, 2020) touching a call load of nearly 20,000 calls/ day at the time of national lockdown. The helpline also proactively connected with quarantined people and created awareness around preventive measures to be taken for COVID-19.

b. Mobile Medical Units and Clinics:

Piramal Swasthyas staff from the mobile medical units and clinics have been engaged in door-to-door surveillance of quarantined people, creating awareness about social distancing, hand hygiene, cough etiquettes, etc. in the rural and peri-urban areas, and supporting in data collection and collation.

c. Telemedicine Services:

We operate 75 telemedicine centres across six remote districts in Himachal Pradesh in partnership with the Government of Himachal Pradesh. These centres, through the agency of six doctors including three specialists, continue to serve the vulnerable people in remote areas.

d. Life-saving Services:

While we are actively responding to COVID-19, we are also ensuring that essential lifesaving services remain unhampered despite mobility issues related to the lockdown.

• The team is ensuring services under the Ahana programme, which is focused on Prevention of Parents to Child Transmission of HIV (PPTCT), and continues to deliver medicines

• In our community outreach project for tribal population ASARA, we continue to provide antenatal care to high risk pregnant women and inform them about precautionary measures against COVID-19.

As the scenario unfolds in the days and weeks to come, the organisation will continue to learn, adapt and reposition the programmes to address the most critical issues during the crisis. We will ensure that COVID-19 does not affect our commitment towards thousands of people who rely on Piramal Swasthya for basic healthcare.

PFEL has also made efforts to find some innovative ways to minimise the impact of COVID-19. We tried creating active forums through which it can support their stakeholders which include government officers, teachers, headmasters, students and, most importantly, internal staff.

Support during COVID-19:

104

toll-free health information helplines operated

6 lakh+

calls since Feb 1, 2020

upto 20,000

calls per day

75

telemedicine centres operated

Solutions we have designed for stakeholders within and outside:

a. Piramal School of Leadership (PSL) space as Isolation Centre:

The government and community were extended our support by making the PSL space at Bagar available for the medical department as an Isolation Centre where >300 suspected patients have been admitted so far.

b. Learning at home for Early Childhood Development Program (ECDP) and Primary grades:

In states such as Rajasthan, Jharkhand, Madhya Pradesh, and Union territories such as Jammu and Kashmir, we took the digital route in education through video conferencing and capacity building on platforms such as WhatsApp, Teams, Zoom and others. New initiatives like Digi-Sath in Jharkhand and BOLO App in Rajasthan were executed successfully.

c. Surakshit Dada-Dadi, Nana-Nani Abhiyan with NITI Aayog:

Raised 11,500+ community volunteers across 25 aspirational districts to ensure the well-being of one of the most vulnerable age groups (senior citizens) for COVID-19 protection by ensuring prevention, access and detection.

d. VFS for Health and Well-being:

A helpdesk was initiated for the migrant labourers of Odisha affected by the lockdown. In collaboration with the Government of Odisha and Government of Tamil Nadu, we actively functioned for ensuring supply of necessary basic support (food/ accommodation/shelter) to migrant labours of Odisha stuck in Tamil Nadu.

Customer-centricity

Our aim is to get into the hearts and minds of our customers through delivery of highest quality products and services. And that is why Serving Customers is one of the six critical Piramal Success Factors that the organisation looks to inculcate in all its employees.

Care for patients and end-consumers

We engage with and provide value to our consumers in a responsible manner and strive to make our businesses and brands find a uniquely relevant place in the hearts of the consumers.

Over the years, the Company has evolved from being a ProductCentric business to a Customer-Centric to now a PatientCentric business. It believes that patient-centricity is all about understanding the needs and wants of patients and building an organisation that is dedicated to addressing those needs.

To serve this purpose, the Company launched a Patient-Centricity drive across the organisation in order to be a better partner to customers by working towards a common goal of serving patients. Patient Awareness Councils were established at all sites to promote awareness about patients and medicines being manufactured to serve them.

Moreover, with its Consumer Healthcare business, PEL is working towards making self-care more accessible to the masses. It is mindful of the fact that retailers play an important role in the dissemination of product related information to the end consumer. Therefore, the Company ensures that retailers are aware of the properties of its over-the-counter products, which, in turn, helps them respond to consumer queries appropriately. This business houses a range of consumer products - like Saridon and Lacto Calamine - and considers understanding consumer behaviour and needs as its topmost priority. It engages in listening to consumers, be it through first-hand research or custom studies that are done with independent research agencies. This process of unearthing consumer insights is then translated into decisions on new product launches, product improvements, and even other promotions that can help make PELs brands relevant for the consumer.

With its unique set of brands and robust consumer-led initiatives as part of the core processes that run the business, the Company strives to make itself and its brands find a uniquely relevant place in the heart of the consumer. PEL makes efforts to fuel the future with new introductions that can drive growth and sustainability in tandem with each other.

GOVERNANCE

Governance has a broad scope and includes both social and institutional aspects. It is the combination of voluntary practices and compliance with laws and regulations, leading to effective control and management of the organisation by encouraging a trustworthy, moral, as well as ethical environment.

Corporate Governance

Corporate governance deals with determining ways to take effective strategic decisions which are essential to adding value to our relationship with stakeholders. It also ensures transparency which ensures strong and balanced economic development. It brings into focus the fiduciary and trusteeship role of the Board to align and direct the actions of the organisation towards creating wealth and stakeholder value.

PELs essential character is shaped by the values of transparency, integrity, professionalism, accountability and customer delight. The Board views corporate governance in a comprehensive way with its main objective being creation of and adherence to a corporate culture of integrity and consciousness.

Board of Directors and Committees

Our Board of Directors is responsible for fostering the long-term success of the Company, and sustaining its competitiveness and profitability in a manner consistent with the Companys objectives and best interests of all stakeholders. They also play a key role in formulating the Companys vision, strategic priorities and policies that guide overall activities, and monitor performance.

Our strong governance and ethics are reflected in our business practices:

• Highly experienced Board of Directors - Most of them have been Chairman/CEO of large listed multinational companies across sectors we operate in.

• The Operations Board in Pharma and five Investment Committees in the Financial Services business comprise Executive Directors, Independent Directors, External Experts, Key Business CEOs and respective Business Vertical Heads

• Legal, Risk, Quality and Compliance teams are independent and report directly to the Board members

Enterprise risk management

A well-defined risk management framework is integral to any business. Moreover, risk management becomes especially important during times of crisis and uncertainty.

PEL has an independent and dedicated Enterprise Risk Management (ERM) system to identify, manage and mitigate business risks.

Risk management, internal controls and assurance processes are embedded into all activities of the Company.

The Board of Directors oversees PELs risk management programme. It regularly reviews and evaluates the programme to ensure that adequate policies, procedures and systems are in place to execute the strategy and manage related risks. The Board-level Risk Committee reviews the micro-level risks and reports to the Board. Additionally, the Risk Management Committee for Financial Services (FS) - formed in FY2018 - focuses on strategy and risk management practices followed in the FS business unit.

Quality governance

At PEL, quality is viewed as an integral part of the Companys identity and as one of the most important aspects of its brand that dictates the Companys culture, hires, and policies. The Company employs a three-tier quality governance model to prevent dilution of the quality bandwidth while enabling central, regional and local controls. To provide due authority and enablement to the Quality group, this group is permitted to operate in an independent functional silo and reports to the Board. The Quality team is competent, multi-layered and capable of handling any compliance challenge with strategies spearheaded from its central cell. Quality continues to be a collective responsibility of all functions across the organisation.

Responsible sourcing

The Company has procedures in place for sustainable sourcing, which are in line with its endeavour to continuously improve the social and environmental performance of its supply chain. PEL uses the CORE (Creating Optimal and Responsible Environment) programme to sensitise its supply chain about the benefits of effectively managing its performance while taking into consideration health, safety and the environment. The Company also encourages implementation of sustainable business practices.

The Companys Environment, Health & Safety (EHS) Policy, Sustainability Development Policy and Safety management principles have set out guidance for its supply chain partners for sustainable procurement practices. PEL places special importance on consequences of design, materials, manufacture, production, logistics, service delivery, operations, maintenance, recycling and disposal, which are fundamental to its supplier selection process. The supply chain management is guided by the Sustainable Procurement Policy as well as SOPs which evaluate suppliers on material risk assessment, compliance to environmental regulations, labour laws, carbon footprint and health and safety parameters for procurement process. By means of the above systems, PEL procured 60% of its goods and services sustainably.

Furthermore, a number of supply chain initiatives were undertaken to reduce carbon footprint. Some of them are described below:

a. Saving of 9,880 Kg CO2 equivalent (CO2e) by clubbing of effective shipments

b. Continuation of Direct Port Delivery (DPD) route, where import containers move directly from port to factory, reducing approximately 19,200 kms of transit distance, and thereby saving of 5,240 Kg CO2e

c. Continuing the usage of Dell energy efficient servers has led to an estimated electricity saving of 21.5 MWh, while avoiding emission of approximately 18.13 MT CO2e.

AWARDS & RECOGNITION

Mr. Ajay Piramal, Chairman, Piramal Group, won recognition as a titan of business and society at the vanguard of India and was ranked 11th on the "India Today Power List 2019" - July 2019

Mr. Ajay Piramal, Chairman, Piramal Group, was recognised as one of the most charitable Indians and was placed 5th on the "Hurun India Philanthropy List 2019" - October 2019

Financial Services

• Piramal Capital & Housing Finance Limited was awarded "Best Overall Investment Manager for Real Estate in India" at the 15th Annual Euromoney Real Estate Survey 2019 - September 2019

• Piramal Capital & Housing Finance Limited won "Best Private Equity Deal of the Year" at the 11th Estate Awards by Franchise India - August 2019

• Piramal Capital & Housing Finance Limited was awarded "Best In-House Legal Team of the Year" in the Banking and Financial Services sector at the Asian Legal Business India Law Awards 2020 - March 2020

Pharma

• Piramal Pharma Solutions won the "2020 Manufacturing Supply Chain Operational Industry Excellence Award" within the Pharmaceuticals Category at the 9th Edition of Manufacturing Supply Chain Awards - March 2020

• Piramal Pharma Solutions was ranked 1st by Biospectrum India in Bio Services - October 2019

• Piramal Pharma Solutions was honoured with the "Frost & Sullivan Global Customer Service Leadership Award"

- June 2019

Corporate Social Responsibility

• Piramal Foundation received the "Mahatma Award for Social Good 2019" hosted by Liveweek LLC for its for primary healthcare initiative - October 2019

• Piramal Sarvajal won "Best Corporate Social Responsibility Project" from the International Desalination Association October 2019

• Piramal Swasthya was awarded "Inclusive Access Health Prize - 2019" by on USAID - September 2019

Corporate / Others

• Piramal Enterprises Limited was Ranked 2nd in India and 32nd globally by Forbes, in "The Worlds Best Employers 2019" list - October 2019

• Piramal Enterprises Limited was ranked among the "Worlds Best Regarded Companies - 2019" by Forbes and among the Top-10 Indian companies featuring in the list - September 2019

• Piramal Enterprises Limited was Ranked 1st in India for its FY2019 Annual Report and 8th globally for its FY2019 Annual Report. It was Ranked 1st globally (Platinum Award) in Conglomerates category across both Print and Digital formats by League of American Communications Professionals (LACP). - February 2020

PERFORMANCE REVIEW

In accordance with the SEBI (Listing Obligations Disclosure Requirements 2018) (Amendment Regulations, 2018 the Company is required to give details of significant changes (change of 25% or more as compared to the immediately previous financial year) in key sector-specific financial ratios)

Standalone

Consolidated

Particulars FY2020 FY2019 FY2020 FY2019
Debtors Turnover ratio (in days) 99.62 95.86 84.51 84.02
Inventory turnover ratio (in days) 152.14 159.01 205.97 193.97
Interest Coverage ratioA 1.49 1.33 1.53 1.65
Current ratio 0.30 0.21 0.68 0.39
Net Debt to Equity Ratio 0.47 0.90 1.23 2.03
Operating Profit Margin (%)*
Pharmaceuticals 23.50 25.95 26.45 20.24
Financial Services 28.06 17.87 29.51 34.70
Normalised Net profit margin ratio* (%) 19.75 13.36 20.01 18.03
Return on Net worth* (%) 3.68 2.52 8.55 7.87

*Notes: FY 2020 normalised operating profit excludes Impact of Tax adjustment of prior years on account of adoption of new tax regime, additional expected credit loss on certain financial assets, on account of the anticipated effect of the global health pandemic and Profit / (loss) from discontinued operations and FY2019 normalised operating profit excludes non-recurring and non-cash accounting charge towards imaging assets and non-recurring exceptional item

^ Adjusted for additional expected credit loss on certain financial assets on account of COVID-19.

Following are reasons for movement in Key ratios:

• At Consolidated and Standalone level, movement in net debt to equity ratio and current ratio is on account of deleveraging in the Financial Services business

• Increase in Operating margins at Consolidated level for Pharma is driven by better sales realisation, Higher capacity utilization, synergies from acquisitions of high-margin products and niche manufacturing capabilities, Backward integration of raw materials, Integrated CDMO offerings resulting in higher stickiness and Leveraging global distribution network to introduce new product ranges in Complex Hospital Generics business

• Increase in Operating margin at Standalone level for Financial Services business is on account of dividend received from subsidiaries in FY2020. (Refer note 39 in Financial Statements)

10 YEAR FINANCIAL HIGHLIGHTS

Profit and Loss Account

I-GAAP

Ind-AS

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Revenuefrom Operations 2,009 2,352 3,544 4,503 5,123 6,381 8,547 10,639 11,883 13,068
EBITDA 379 471 611 860 1,140 1,929 3,733 5,419 7,175 6,758
Interest 89 215 575 1,050 511 959 2,031 2,978 4,100 5,321
Profit Before Tax 16,415 121 (193) (435) 3,035 954 1,480 2,244 2,675 918
Profit After Tax2 12,736 115 (227) (501) 2,850 905 1,252 5,120 1,464 21
Normalised Profit 3,4 185 112 (227) (501) 421 905 1,252 1,551 2,142 2,615
Earnings per share2 ( Only) 572.2 7 (13) (29) 165.2 52 73 281.8 72.2 1.14

Notes:

(1) EBITDA, Interest and PBT for FY2019 and FY2020 have been restated and restated for continuing operation.

(2) Profit after Tax & Earning per Share includes exceptional gain for the respective period.

(3) Normalised Profit excludes Exceptional profit/loss for the period.

(4) FY2011, FY2019 and FY2020 Normalised profit adjusted for discontinued operations during that period.

Balance Sheet

I-GAAP

Ind-AS

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020
Share Capital 34 35 35 35 35 35 35 36 37 45
Reserves and Surplus 11,803 11,208 10,689 9,287 11,701 12,914 14,848 26,526 27,187 30,526
Minority Interest 6 10 15 - 29 - 13 12 9 -
Debt 757 2,047 7,688 9,552 7,306 16,279 30,451 44,161 56,040 42,055
Net Deferred Tax 48 50 (46) (41) (27) (288) (594) (4,215) (4,049) (2,364)
Total Liabilities 12,647 13,349 18,381 18,832 19,044 28,940 44,752 66,520 79,224 70,262
Net Fixed Assets 1,582 2,089 6,081 6,682 7,342 7,880 10,852 11,373 11,691 6,933
I nvestments 1,482 6,964 7,877 9,446 7,768 16,317 25,181 28,843 25,747 19,443
Other Net Assets 9,584 4,297 4,419 2,704 3,934 4,743 8,719 26,304 41,786 43,886
Total Assets 12,647 13,349 18,381 18,832 19,044 28,940 44,752 66,520 79,224 70,262

Note:

FY2019 balance sheet figures are restated for accounting impact of Piramal Phytocare Merger.