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Rubicon Research Ltd Management Discussions

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Rubicon Research Ltd Share Price Management Discussions

You should read the following discussion in conjunction with our Restated Consolidated Financial Information as of and for Fiscal 2024, 2023 and 2022, including the related annexures. Our Restated Consolidated Financial Information has been prepared in accordance with Ind AS and restated in accordance with the requirements of Section 26 of the Companies Act, 2013, the SEBIICDR Regulations and the Guidance Note. Ind AS differs in certain material respects from IFRS and US GAAP. See "Risk Factors - Internal Risk Factors - Significant differences exist between Ind AS and other accounting principles, such as US GAAP and International Financial Reporting Standards ("IFRS"), which investors may be more familiar with and consider material to their assessment of our financial condition. " on page 73. Unless otherwise indicated or context otherwise requires, the financial information for Fiscal 2024, 2023 and 2022, included herein is derived from the Restated Consolidated Financial Information, included in this Draft Red Herring Prospectus. For further information, see "Restated Consolidated Financial Information " on page 304.

Our financial year ends on March 31 of each year. Accordingly, all references to a particular Fiscal are to the 12-month period ended March 31 of that year.

Unless stated otherwise, industry and market data used in this Draft Red Herring Prospectus is derived from the report titled, "Independent Market Research on the US Pharmaceutical Market" dated July 29, 2024 ("F&S Report") prepared by Frost and Sullivan, appointed by our Company pursuant to an engagement letter dated May 15, 2024, and such F&S Report has been commissioned by and paid for by our Company, exclusively in connection with the Offer. The F&S Report is available on the website of our Company at https://www. rubicon.co.in/investors. Unless otherwise indicated, financial, operational, industry and other related information derived from the F&S Report and included herein with respect to any particular year refers to such information for the relevant calendar year.

This discussion contains forward-looking statements that involve risks and uncertainties and reflects our current view with respect to future events and financial performance. Actual results may differ from those anticipated in these forward-looking statements as a result of factors such as those set forth under "Forward Looking Statements" and "Risk Factors" on pages 19 and 28, respectively.

Overview

We are a pharmaceutical formulations company, driven by innovation through focused research and development, with an increasing portfolio of specialty products and drug-device combination products targeting regulated markets and in particular the United States. Based on the peer set (of six listed Indian companies assessed by F&S, and our Company), we are the only Indian pharmaceutical player with a complete focus on regulated markets.

(Source: F&S Report)

According to F&S, between Fiscals 2022 and 2024, we were the fastest growing Indian pharmaceuticals formulations company with a CAGR for total revenue of 62.5% which was five times higher than the average (of 11 companies, including us) assessed by F&S. According to F&S, in Fiscal 2024, we ranked among the top 10 Indian companies in terms of total Abbreviated New Drug Application ("ANDA") approvals. We received 14 ANDA approvals from the US FDA in Fiscal 2024, 12 ANDA approvals in Fiscal 2023 and nine ANDA approvals in Fiscal 2022. According to F&S, in Fiscal 2024, among our 55 commercialized products ("Commercialized Products") in the US, we held a market share of more than 25% by volume for seven products. Furthermore, according to F&S, none of our manufacturing facilities have received an "Official Action Indicated" (" OAI") status by the US FDA since 2013.

We believe our multi-disciplinary, data-driven, and return on investment ("ROI") centric product selection framework is geared towards identifying sustainable opportunities for new product development. We identify and pursue such opportunities in a manner that provides us a competitive advantage by leveraging our development, manufacturing, and commercialization capabilities to create and grow our share of the market.

As on March 31, 2024, we had a portfolio of 69 active1 ANDA and New Drug Application ("NDA") products approved by the US FDA. According to F&S, our Companys portfolio includes 55 Commercialized Products, with a US generic pharmaceutical market size of USD 2,386.6 million, of which the Company contributed USD 154.3 million in Fiscal 2024. These products are being marketed and are available for purchase by customers in the US. According to F&S, in March 2024, we had a commercialization rate of 79.7% in the US market, with 55 Commercialized Products out of a total of 69 active US FDA approvals. A high commercialization rate allows us to better monetize our expenditure on development of our products. As of March 31, 2024, we have 19 new products awaiting US FDA ANDA approval and 46 product candidates in various stages of development.

As showcased in the following table, our total revenue from operations has more than doubled from Fiscal 2022 to Fiscal 2024. During the same period, as our portfolio of Commercialized Products expanded, the contribution of our top five and top 10 products to our total revenue from operations steadily decreased.

As of and For Fiscal ended March 31,
Particulars 2024 2023 2022
Total revenue from operations ( Rs million) 8,538.89 3,935.19 3,135.67
Number of Commercialized Products 55 28 18
Contribution of top five products to total revenue from operations (%) 45.96% 55.89% 78.50%
Contribution of top 10 products to total revenue from operations (%) 68.30% 77.10% 93.37%

Within our Commercialized Products portfolio, products in the analgesics / pain management therapy area contributed 33.08%, 26.67% and 29.85% of our revenue from operations in Fiscals 2024, 2023 and 2022 respectively. According to F&S, the growth of the analgesics market is supported by the incidence of chronic pain, the rising incidence of surgical procedures and the aging population, which is more prone to conditions requiring pain management.

Our Commercialized Products in CNS and CVS therapy areas contributed 40.71%, 38.08% and 27.16% of our revenue from operations in Fiscals 2024, 2023 and 2022, respectively. According to F&S, as of February 2024 there are an estimated 129 million individuals in the United States affected by at least one major chronic disease, such as heart disease, cancer, diabetes, obesity, and hypertension. Also, in 2019 approximately half of the young adult population in the US reported to be suffering from at least one chronic condition, with obesity, depression, and high blood pressure being among the being the most common conditions reported. (Source: F&S Report) Further, unlike an antibiotic prescription for an acute bacterial infection that typically lasts only 7-14 days, chronic therapies are long-term treatments designed to manage ongoing health conditions, often requiring continuous medication over extended periods of time. (Source: F&S Report)

The following table sets forth details of our revenue from sale of goods for Fiscals 2024, 2023 and 2022.

Particulars For Fiscal
2024 2023 2022
Revenue from sale - Goods ( Rs million) 8,398.32 3,763.67 2,929.86
Revenue from sale - Goods as a % of revenue from operations (%) 98.35% 95.64% 93.44%
Total revenue from operations ( Rs million) 8,538.89 3,935.19 3,135.67

1 Active ANDA, NDA and products are products that are not listed as "discontinued" by the US FDA. Discontinued products are approved products that have never been marketed, or have been discontinued from marketing, are for military use, or are for export only, or have had their approvals withdrawn for reasons other than safety or efficacy after being discontinued from marketing.

The table below indicates the therapy area-wise split of our revenue from sale of goods for Fiscals 2024, 2023 and 2022.

R million)

Therapy area For Fiscal
2024 2023 2022
Analgesics / Pain management 2,824.63 1,049.48 935.95
CVS 2,112.19 1,208.49 821.85
CNS 1,364.04 289.93 29.91
Hypokalemia 487.39 20.50 23.57
Skeletal Muscle Relaxants 417.11 258.18 784.79
NRT 337.81 608.68 244.93
Gastrointestinal 160.13 44.25 20.14
Metabolic 128.90

-

-

Immunosuppressant 116.22

-

-

Others 449.90 284.16 68.71

Our branded products, i.e. products prescribed by brand name, are marketed through our recently acquired subsidiary, Validus Pharmaceuticals LLC ("Validus"). Non-branded products, i.e. those for which a prescription with the specific active ingredient (but not a specific brand name) is required, are marketed by our wholly owned subsidiary AdvaGen Pharma Ltd. ("AdvaGen Pharma") and selectively via third-party distributors.

We define specialty products as products with no competitors or at most one competitor for a period of at least one year from our products date of commercial launch. As of March 31, 2024, we have seven specialty products within our Commercial Products portfolio. The following table sets forth the share of specialty products in our gross margin for the Fiscals 2024, 2023 and 2022.

As of and For Fiscal ended March 31,
Particulars 2024 2023 2022
Share of specialty products in our gross margin (1) ( Rs million) 1,011.49 342.15 341.12
% share of specialty products in our gross margin(1) 18.18% 13.17% 15.89%
Number of specialty products 7(2) 3 2

Gross margin is a non-GAAP measure. For a reconciliation of non-GAAP measures, see "Other Financial Information - Non-GAAP Measures " on page 361.

2 In Fiscal 2024, we acquired Validus and the seven specialty products are inclusive of two Validus products.

To develop our marketing and promotion channels for our branded products pipeline, in 2024 we acquired Validus, a New Jersey headquartered marketer of brand name formulation products in the US. Validus has two brand name products in the CNS therapy area (Equetro? and Marplan?). According to F&S, these products do not have any AB rated generics as of May 15, 2024.These are promoted to prescribers via personal and nonpersonal promotion methods.

In Fiscals 2024, 2023 and 2022, our revenue expenditure on research and development ("R&D") expense as a percentage of total revenue from operations was 13.00%, 18.52% and 40.15%, respectively. According to F&S, our R&D expenses as a percentage of operating revenue were two and a half times the average of Indian peers assessed by F&S in Fiscal 2024. This reflects our strategy for continued revenue growth through portfolio expansion. Our product selection and development efforts are aimed at consistently increasing the number of commercialized products we offer. The following table sets forth the details of the number of products filed and approved over Fiscals 2024, 2023 and 2022 in comparison with our outlays on R&D.

Particulars For Fiscal
2024 2023 2022
Total revenue from operations ( Rs million) 8,538.89 3,935.19 3,135.67
Revenue expenditure on R&D expenses ( Rs million) 1,110.22 728.80 1,258.97
Revenue expenditure on R&D expenses as a % of revenue from operations 13.00% 18.52% 40.15%
Number of ANDAs approved during the year 14 12 9
Number of ANDAs filed during the year 17 7 24

We have two US FDA inspected R&D facilities - one each in India and Canada, and two manufacturing facilities in India with multiple accreditations from multiple regulatory agencies such as US FDA, Food and Drugs Administration, Maharashtra (WHO-GMP accreditation) and Health Canada. Our facilities are equipped with a range of drug development and manufacturing capabilities across dosage forms.

Significant Factors Affecting our Financial Condition and Results of Operations

Our results of operations and financial condition are affected by a number of factors including:

New product launches and sales growth of existing products

New product launches are essential to increasing our revenue from operations. Our ability to consistently identify new opportunities and develop suitable products in a cost-efficient manner are essential to increasing the number of products we offer to customers. In Fiscal 2024, 2023 and 2022, we launched 19, 10 and 11 new products, respectively. These new products contributed to Rs1,085.48 million, or 12.71%, Rs184.75 million, or 4.69%, and Rs184.49 million, or 5.88%, of our revenue from operations, respectively, during those Fiscals. We typically see a higher impact of a new product launch on our revenue from operations in the year following the year of launch. Between Fiscal 2022 to Fiscal 2024, our portfolio of revenue-generating products developed by us increased from seven to 47. As on March 31, 2024, we have 19 new products awaiting US FDA ANDA approval.

We also successfully increased revenue from operations from our existing products by increasing our sales to existing customers as well as securing orders from new customers for these products. Our revenues from sale of goods from our top 15 products sold in Fiscal 2022 grew at a CAGR of 35.32% during the period Fiscal 2022 to 2024. Revenue from sale of the 10 products we launched in Fiscal 2023 grew by 753.68% in Fiscal 2024. Revenue from sale of the 11 products we launched in Fiscal 2022 grew at a CAGR of 274.69% during the period Fiscal 2022 to 2024. Cumulatively, revenue from new launch product sales amounted to Rs5,252.72 million, or 61.52%, ^1,315.36 million, or 33.43%, and Rs184.49 million, or 5.88%, of our revenue from operations, respectively, in Fiscal 2024, 2023 and 2022.

The prices and profit margins of our products also vary by the types of products produced and the raw materials used. Accordingly, the launch of new products and the increase in volume of existing products has continued to have a positive impact on our overall revenues. While we intend to further expand our product portfolio and utilize our intellectual property and development capabilities to develop new products and improve existing products, if we are not successful in continuing to launch new products or we experience a decline in sales of existing products, this will negatively impact our overall results of operations.

In particular, two product areas which we expect will contribute to driving revenue growth in future periods includes specialty products and expansion of our dosage form capabilities. For more details on the expansion of our dosage form capabilities, see "- Significant Factors Affecting our Financial Condition and Results of Operations - Expansion of our dosage form capabilities" on page 368.

We define specialty products as products with no competitors or at most one competitor for a period of at least one year from the date of our products commercial launch. Upon the entry of a second competitor, we no longer classify the product as a specialty product.

Our approach towards specialty products centers upon identifying unmet patient needs that offer us a meaningful economic opportunity. Upon identification of an opportunity, we typically carry out primary research to validate our assessment with healthcare professionals and pharmacy benefit managers, prior to allocating resources to the development of a product. Specialty products are generally characterized by relatively high profit margins, stemming from the incremental benefits offered to patients, coupled with our first-mover or early-mover position that together support a price premium.

In Fiscals 2024, 2023 and 2022, the share of specialty products in our total gross margins was 18.18%, 13.17% and 15.89%, respectively. Our ability to continue expanding our specialty products portfolio is expected to have a significant impact on our results of operations and cash flows.

Expansion of our dosage form capabilities

We believe that expansion of our dosage form capabilities increases our addressable market by enabling us to target additional market segments. In Fiscal 2024, we commenced marketing of oral liquid formulations and had six Commercialized Products in this segment as of March 31, 2024.

We produce various dosage forms out of two facilities, namely our oral solids dosages and nasal spray manufacturing facility at Ambernath in Maharashtra, India and our oral liquids manufacturing facility at Satara in Maharashtra, India. Our oral liquids facility at Satara was inspected for the first time by the US FDA in January 2023 and EIR was issued within 45 days of inspection in March 2023. The US FDA approved our first ANDA filing from the Satara facility in November 2022 before the pre-approval inspection was conducted. This facility is also accredited by the MHRA UK and TGA Australia. This facility is capable of manufacturing oral syrups, suspensions and solutions. We also utilize the services of a third-party manufacturer for oral liquids. We possess the know-how to formulate and manufacture sustained-release oral liquid formulations where these may offer incremental benefits to patients over conventional immediate release formulations.

The following table sets forth our revenue from operations for Fiscals 2024, 2023 and 2022:

Particulars For Fiscal
2024 2023 2022
Revenue from operations ( Rs million) 8,538.89 3,935.19 3,135.67

The table below sets out our revenue from operations by dosage form in each of the Fiscals 2024, 2023 and 2022.

Fiscal Ended March 31
2024 2023 2022
Particulars ( Rs in million) % of revenue from operations ( Rs in million) % of revenue from operations ( Rs in million) % of revenue from operations
Oral solids 7,503.67 87.88% 3,668.67 93.23% 2,886.40 92.05%
Oral liquids 855.15 10.01% 95.00 2.41% 43.46 1.39%
Others 180.07 2.11% 171.52 4.36% 205.82 6.56%

We received our first approval for a nasal spray product in Fiscal 2024 and this product is produced for us by a third-party manufacturer. Our new facility for unit-dose, bi-dose and multi-dose nasal sprays at Ambernath in Maharashtra, India was inspected for the first time by the US FDA in March 2024 and EIR was issued in May 2024, within 45 days of inspection. We expect our revenue from nasal spray products to grow significantly as we launch additional nasal spray products upon their approval by the US FDA.

Production capacity and utilization

Our results of operations are directly affected by our sales volume, which in turn is a function of several factors, including our production capacity and market demand. As such, an enabler of sales growth is increased production volume at our facilities. As at March 31, 2024, we operate two US FDA inspected manufacturing facilities in Ambernath and Satara both in Maharashtra, India. For more information, see "Business—Our Product Manufacturing". We will continue to seek opportunities to increase production volume by expanding and/or upgrading our production facilities, enhancing the overall effectiveness of our other facilities and the overall utilization of all our assets. This may include capital expenditures and investments for the additions to our product portfolio, particularly specialty products and drug-device combinations. For more information, see "BusinessOur Business Strategies".

Changes in distribution and marketing capabilities and relationships with customers

From Fiscal 2018 to 2021, we relied on our distribution partner, TruPharma, for the distribution of our products in the US. TruPharma has been selling certain of our generic products in the US under its own label for an agreed- upon portion of our sales revenue but bears the distribution costs itself. In Fiscal 2022, we started our own distribution activities through our wholly-owned subsidiary, AdvaGen Pharma, instead of relying solely on TruPharma. This transition from relying solely on a third-party distributor to commencing distribution through our wholly-owned subsidiary temporarily impacted our financial performance in Fiscal 2022 and Fiscal 2023, during which periods we incurred losses.

These losses arose in part as we established a sales and marketing infrastructure at AdvaGen Pharma. To ensure a smooth transition in Fiscal 2022, we started increasing inventory by selling goods to AdvaGen Pharma and significantly reduced its sales to TruPharma. This transition impacted our financial results in Fiscal 2022 in the following manner:

• the decrease in inventory at TruPharma and increase in inventory at AdvaGen Pharma was one of the key factors that impacted our revenue from operations, and resulted in us incurring losses; and

• the cost of establishing the sales and marketing infrastructure at AdvaGen Pharma in the US were significant and we incurred administrative costs ahead of generating any revenue from our subsidiary.

While our net losses reduced in Fiscal 2023, the decrease in inventory at TruPharma and increase in inventory at AdvaGen Pharma negatively impacted our revenue from operations , and resulted in us incurring losses in Fiscal

2023.

We believe, however, that over time, this transition in our distribution capabilities should have a positive impact on our results of operations by expanding our product distribution and customer base. As on March 31, 2024 we marketed over 250 SKUs to 101 customers including, the three major wholesalers who, according to F&S, account for more than 90% of wholesale drug distribution in the US, as well as group purchasing organizations ("GPOs"), national pharmacy chains, regional pharmacy chains and managed care organizations. We maintain product inventories at four 3PL facilities in the US, which allows us to offer quicker responses to the needs of our customers.

We also acquired Validus in Fiscal 2024 to further enhance distribution and marketing capabilities, which provides us with a marketing and promotion platform for our pipeline of branded specialty products in the CNS and CVS therapy areas. Through Validus, we have the ability to serve patients in 43 of the 50 states in the US and promote our products to prescribers via in-person and digital modes of promotion, which we expect will expand our footprint and customer reach. We expect to launch the first branded specialty product from our pipeline in Fiscal 2025.

Table below sets forth the steady increase in our revenue from sale of goods in Fiscals 2024, 2023 and 2022 from our top three ranked customers in Fiscal 2024:

Revenue from sale of goods in Rs million in Fiscal % of revenue from sale of goods in Fiscal
Customer 2024 2023 2022 2024 2023 2022
Customer 1(1) 1,303.97 462.60 52.68 15.53% 12.29% 1.80%
Cencora 1,169.46 278.50 16.53 13.92% 7.40% 0.56%
Customer 3 (1) 1,125.19 241.06 20.89 13.40% 6.40% 0.71%

Note:

(1) We have not received the necessary consents from certain of our customers to disclose the respective names.

For further details, see "Our Business - Our Product Distribution - Our Customers" on page 228.

Through our distribution and marketing capabilities, we not only expect to increase our customer base but also continue expanding the breadth of our relationships with our key customers. Our ability to expand and deepen our customer base and serve them efficiently impacts our results of operations and cash flows by contributing to revenue growth. For further details of revenue from customers which individually amounted to 10% or more of our product revenue in the last three Fiscals, see " - Significant dependence on single or few customers" on page 391.

Availability of materials consumed at competitive prices

Cost of materials consumed is a significant component of our total expenses comprising 29.03%, 39.25% and 30.28% of our revenue from operations in the Fiscals 2024, 2023 and 2022, respectively. Cost of materials consumed consists of the cost of raw materials used in the manufacturing of our products. Our cost of materials consumed is generally impacted by sales volume, mix of products, the prices paid for raw materials, production efficiency and cost control measures adopted.

We depend on third-party suppliers for our raw materials namely APIs, excipients, manufacturing consumables, lab chemicals and packaging materials. The availability of such raw materials at competitive prices is critical to our business, and price fluctuations or delays in procurement may affect our margins and, as a result, our results of operations. For certain products and with certain customers we are able to pass increased costs to buyers gradually overtime. However, there have been in the past, and may be in the future, periods during which we cannot pass raw material price increases on to customers due to competitive pressure. To the extent we cannot pass on some or all of any increases in the price of raw materials to our customers, any such increases could adversely effect our results of operations.

We identify and approve multiple suppliers to source key raw materials and we place purchase orders with them from time to time. We have executed supply agreements and quality agreements with vendors for our key APIs and typically have more than one qualified vendor for key APIs. For further details, see "Risk Factors - Internal Risk Factors - We depend on third parties for the supply of our raw materials and manufacture of certain products and such third parties could fail to meet their obligations, which may have a material adverse effect on our business, results of operations, financial condition and cash flows." on page 51.

We currently source most of our key raw materials from suppliers in India, EU and China. For Fiscal 2024, 46.96% of our purchases were from our top 10 third-party suppliers. No single supplier accounted for more than 10.00% of our supplies in each of Fiscals 2024, 2023 and 2022.

Research and development

Research and development ("R&D") is critical to our success. Our focus on R&D enables us to develop pharmaceutical products which provide us a competitive advantage by offering complex products, building IP- based barriers to entry or creating cost leadership that allows us to offer customers a compelling value proposition and contribute to driving revenue growth.

Our investments in R&D facilities and infrastructure enable us to work on specialty products and complex products that offer the potential for significant revenue and profits. Our US FDA inspected development facilities are equipped to develop most classes of drugs including steroids, hormones and potent substances. Our development team has the understanding and experience of working on diverse dosage forms including modified release oral solids and liquids, long acting injectables, nasal sprays and other drug-device combinations such as autoinjectors.

As of March 31, 2024, we had a team of 143 scientists as part of our R&D teams based in India and Canada. In addition, we have a team of 16 regulatory affairs professionals who are experienced in developing regulatory strategy and presenting applications to regulators for product approvals. Our focus on R&D at scale has resulted in us having a portfolio of 59 active ANDAs approved by the US FDA as of March 31, 2024, of which 14 approvals were received in Fiscal 2024. As on March 31, 2024, we had 19 new applications under review by the US FDA for ANDA approval. The table below sets forth the number of ANDAs filed and number of approvals received by us in the Fiscals 2024, 2023 and 2022:

Fiscal
2024 2023 2022
Number of ANDAs filed during the year 17 7 24
Number of ANDAs approved during the year 14 12 9

In Fiscal 2024, we entered into a settlement agreement with an innovator company in relation to our ANDA application for a substitutable generic version of their product. Pursuant to the settlement, we secured a nonexclusive, irrevocable, non-assignable license allowing us to sell the relevant ANDA product in exchange of a royalty amount from the sale of such product.

As of March 31, 2024, we have been granted seven patents in India, six in the US, five in Europe and one in Singapore. We have four pending patent applications in the US and one in India. We expect to continue to file patent applications seeking to protect our innovations and novel processes in both developed markets and emerging markets. To expand our product portfolio, we incurred significantly high revenue expenditure on R&D costs of ^1,110.22 million (13.00% of our revenue from operations), Rs728.80 million (18.52% of our revenue from operations) and Rs1,258.97 million (40.15% of our revenue from operations) in Fiscals 2024, 2023 and 2022, respectively.

We intend to continue to invest significant funds and other resources to our R&D initiatives and seek to expand and upgrade our capabilities to adapt to changes in our industry due to advances in science and medicine to ensure that we remain competitive.

Product Pricing

The pricing of our products depends on various market dynamics including pricing of competing products in the markets in which we operate. According to F&S, Indian pharmaceutical companies possess several advantages over their US counterparts, notably lower manufacturing costs, and robust research and development capabilities. These factors enable them to maintain profitability within the fiercely competitive US generics market. However, an emerging trend among some companies is the strategic pursuit of low-competition density generics and targeting therapy areas with lower-than-average price erosion. (Source: F&S Report) There is constant risk of price erosion owing to market dynamics such as increasing competition, customer consolidation, supply-demand gaps and changes in reimbursement policies. According to F&S, companies such as ours that can design an optimal product portfolio, incorporating a selection of complex and low-competition density drugs, can find insulation from pricing pressures, as lower competition results in reduced price erosion. For instance, while the overall US generic drug industry experienced an erosion of 11.3% between Fiscal 2019 and 2024, we managed to enjoy an average per unit price growth of 1.9% during the same period, (Source: F&S Report).

While we consider competitive conditions including those mentioned above, government regulations may also affect the pricing of our products in the countries in which we operate. We comply with legal requirements in the US to report the prices we charge for our products to the federal and state government authorities. While the US does not have a general national health insurance system, the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act in March 2010 ("ACA") in March 2010 and the Inflation Reduction Act ("IRA") in August 2022, among other federal laws, created downward pressure on the prices manufacturers may charge or reimbursement they may attain under federal programs, which has or will have an effect on the prices and demand of certain products, thus potentially adversely affecting the operating income of pharmaceutical companies.

Several healthcare reform initiatives culminated in the enactment of the IRA in August 2022, which, among other things, requires the United States Department of Health and Human Services ("HHS") to directly negotiate the selling price of a statutorily specified number of drugs and biologics each year that the Centers for Medicare & Medicaid Services ("CMS") reimburses under Medicare Part B and Part D. Only high-expenditure single-source drugs that have been approved for at least 7 years (11 years for single-source biologics) are eligible to be selected for negotiation by CMS, with the negotiated price taking effect two years after the selection year. Negotiations for Medicare Part D products begin in 2024 with the negotiated price taking effect in 2026, and negotiations for Medicare Part B products begin in 2026 with the negotiated price taking effect in 2028. In August 2023, HHS announced the ten Medicare Part D drugs and biologics that it selected for negotiations. HHS will announce the negotiated maximum fair prices by September 1, 2024. This price cap, which cannot exceed a statutory ceiling price, will come into effect on January 1, 2026, and will represent a significant discount from average prices to wholesalers and direct purchasers. The IRA also imposes rebates on Medicare Part D and Part B drugs whose prices have increased at a rate greater than the rate of inflation. In addition, the law eliminates the "donut hole" under Medicare Part D beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and requiring manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees prescription costs for brand drugs below the out-of-pocket maximum, and 20% once the out-ofpocket maximum has been reached. The IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to comply with the IRA may be subject to various penalties, including significant civil monetary penalties. We continue to evaluate the potential impact of the IRA on our business. CMS has issued a number of guidance documents, but it remains unclear how certain provisions will be implemented. Additional guidance, legislation or rulemaking may be issued that could reflect the governments evolving views. In addition, multiple manufacturers and trade organizations have challenged the Medicare negotiation provisions of the IRA, and additional legal challenges may be filed in the future.

While the full impact of the IRA on our business and the pharmaceutical industry remains uncertain at this time, we anticipate that the IRA will increase our payment obligations under the redesigned Part D discount program, limit the prices we can charge for our products, and increase the rebates we must provide to government programs for our products, thereby reducing our profitability and negatively impacting our financial results.

Furthermore, many state legislatures are considering, or have already passed into law, legislation that seeks to indirectly or directly regulate pharmaceutical drug pricing, such as requiring manufacturers to publicly report proprietary pricing information, creating review boards for prices, establishing drug payment limits, and encouraging the use of generic drugs. These initiatives and such other legislation may cause added pricing pressures on our products, and the resulting impact on our business is uncertain at this time.

Pharmaceutical marketing companies have also faced increasing pricing pressure from managed care groups and institutional and governmental purchasers. As government authorities and third-party payers, like private insurers, increasingly attempt to limit or regulate the price of medical products or services, we may face pricing pressures, which could result in a reduction of the net product prices. We believe our product selection and commercial strategy have contributed to our average realized prices being relatively less impacted by market-wide price pressures, however we cannot guarantee that we will continue to be successful in maintaining our average realized prices, which in turn may impact our revenues and profitability in future periods.

Regulatory compliance and consequences of non-compliance with product and/or manufacturing quality requirements

As a pharmaceutical company, we are subject to complex laws and regulations in the markets where we manufacture and sell our products, including federal, state and local laws. The laws and regulations cover a wide variety of areas, including product safety and quality, occupational health and safety (including laws regulating the generation, storage, handling, use and transportation of waste materials, the emission and discharge of hazardous waste materials into soil, air or water, and the health and safety of employees) and mandatory certification requirements for our facilities and products. All of these laws and regulations are broad in scope and subject to change and evolving interpretations, which could require us to incur significant additional expenses, increase our costs of regulatory compliance, increase our legal exposure and impose additional limits on our ability to grow our business. The resulting impact on our results of operations is uncertain and could be material.

For instance, the manufacturing process for pharmaceutical products is highly regulated and we are subject to oversight from regulators including, among others, the US FDA, MHRA UK, Health Canada and TGA Australia. We have put in place necessary quality systems and control measures to try to ensure quality is maintained throughout the manufacturing process. Since we began operations in 2013, we have not received any critical observations that resulted in an OAI inspection status from the US FDA. However, there is a possibility we may have to write off the costs of manufacturing any batch that fails to pass quality inspection or meet the specification set out in our regulatory approvals which in turn could adversely affect our results of operations. Nonetheless, if the US FDA at any time opines that our products or manufacturing facilities are not in compliance with applicable regulations, they may take one or more steps, which may extend from issuance of critical observations concluding in an OAI status to product bans or restricting our ability to supply product(s) from the affected facility, any of which could adversely affect our results of operations.

We also incur fixed costs associated with the compliance requirements applicable to our manufacturing facilities. Further, our costs may increase in situations where we must undertake additional compliance and quality control measures based on feedback from regulatory authorities. In addition, we may incur costs associated with any product recalls for any reason or for implementation of any remedial measures arising out of regulatory inspections.

Third party manufacturing, co-development and purchase of third-party products

We primarily sell products which we own, have obtained ANDA approval for and manufacture at our facilities. We may also in cases where we have an approved ANDA and do not have the requisite production facility ready, outsource the manufacturing of our products to third party manufacturers with USFDA-approved facilities. For example, Lidocaine hydrochloride solution, Baclofen Injection and Dihydroergotamine mesylate Nasal Spray. In each of these instances, i.e., wherein we develop, manufacture and sell our own product or those which are developed and sold by us but manufactured by third parties, we retain the intellectual property rights for such products.

We may also co-develop products with a third party, wherein we collaborate with third parties and have arrangements in place for sharing the development costs and agree to a profit share with the codeveloper. We either own the intellectual property associated with these products or secure licenses to exclusive use of the intellectual property and will undertake the process of applying for and obtaining the regulatory approval. We currently have two products filed with the USFDA pursuant to such arrangements.

In limited circumstances, we may procure for sale, certain products for which we do not hold an approved ANDA and which are developed and manufactured by third parties. In selecting such products, we consider our customers requirements, our assessment of the competitive advantage created by the manufacturer and the products fit with our basket of products and our sales and marketing channels. As on March 31, 2024, we sell two third-party products, namely Venlafaxine extended-release capsules and Mycophenolate Mofetil tablets and capsules. These products contributed 1.43% of our revenue from operations in Fiscal 2024, respectively.

Our Ability to Effectively Compete with Other Market Participants

The pharmaceutical industry is highly competitive and is affected by new technologies, new developments, government regulations, healthcare legislation, availability of capital or financing and other factors. Many of our competitors have longer operating histories and greater financial, R&D, marketing and other resources than us. Consequently, some of our competitors may be able to develop products and/or processes competitive with, more effective than or superior to, our products.

We face competition from other pharmaceutical formulation companies, some of whom are backward integrated and also manufacture API. While we face a different set of competitors in each of our products, depending on which companies hold regulatory approvals and have commercialized a product, we compete with certain companies on more than one product.

In the generic products market, we compete with

(i) the original manufacturers of the brand-name drugs for which our products are substitutable generic equivalents;

(ii) other generic drug manufacturers; and

(iii) manufacturers of new drugs that may compete with our generic drugs. In the recent past, the customer base for generic manufacturers has seen significant consolidation at the purchasing level, resulting in increased purchasing power for the customer.

In the specialty products market, many of our competitors have greater experience in the development and marketing of branded, innovative and consumer-oriented products. They may be able to respond more quickly to new or emerging market preferences or to devote greater resources to the development and marketing of new products and/or technologies than we can. As a result, any products and innovations that we develop may become obsolete or non-competitive before we can recover the expenses incurred in connection with their development. In addition, for these product categories we must demonstrate to physicians, patients and third-party payers the benefits of our products relative to competing products that are often more familiar to them or otherwise more well-established. If competitors introduce new products or new variations to their existing products, our marketed products may be replaced in the marketplace or we may be required to rationalize our prices by adjusting them, generally lower, to remain competitive.

For more information on our competitors across business segments, see "Business—Competition " and "Risk Factors—Internal Risk FactorsWe face significant competitive pressures in our business from other pharmaceutical manufacturers. Our inability to compete effectively would be detrimental to our business and prospects for future growth. " on pages 234 and 39, respectively.

Foreign Currency Exchange Rate Exposure

Majority of our customers are in the US market, which accounted for 97.40%, 93.25% and 92.88% of our total revenue from operations for the Fiscals ended March 31, 2024, 2023 and 2022. To a lesser extent, we also manufacture and sell products to customers in Canada and European countries in multiple foreign currencies and face translation and transaction risks related to fluctuations in the exchange rates of such currencies. See "Risk Factor - Internal Risk Factors - We are exposed to foreign currency fluctuation risks, particularly in relation to import of raw materials, export of products and our borrowings, which may adversely affect our results of operations, financial condition and cash flows" on page 45.

Our net foreign exchange gain increased from Rs 143.50 million in Fiscal 2022 to Rs 237.70 million in Fiscal 2023, it decreased to Rs 156.75 million in Fiscal 2024 due to prevailing rates of exchange, in particular for U.S. dollars.

Interest Rate Exposure

Changes in interest rates affect our interest expenses on floating rate debt instruments and loans and our interest income from cash and cash equivalents. As at March 31, 2024, 2023 and 2022, 75.82%, 45.38% and 9.54% of our total indebtedness bore interest at variable rates, respectively.

Critical accounting policies and significant judgments and estimates

The notes to our Restated Consolidated Financial Information included in this Draft Red Herring Prospectus contain a summary of our material accounting policies. Set forth below is a summary of our most significant critical accounting policies under Ind AS.

Accounting policy information may be material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material.

(a) Property, Plant and Equipment & Depreciation

(i) Recognition and Measurement:

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses, if any. The cost of an item of property, plant and equipment comprises:

- its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

- any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Any gain or loss on disposal of an item of property, plant and equipment is recognized in Restated Consolidated Statement of Profit and Loss.

Capital work-in-progress in respect of assets which are not ready for their intended use are carried at cost, comprising of direct costs, related incidental expenses and attributable interest.

(ii) Subsequent Expenditure

Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group and only when it meets the recognition criteria as per Ind AS 16 - Property, Plant and Equipment.

(iii) Depreciation

Depreciable amount for assets is the cost of an asset, less its estimated residual value. Depreciation on property, plant and equipment has been provided on the straight-line method as per the useful life prescribed in Schedule II to the Act.

Depreciation method, useful live and residual values are reviewed at each financial year end and adjusted if appropriate.

Leasehold land, leasehold building and leasehold improvements are amortised over the period of the lease.

Depreciation on additions (disposals) is provided on a pro-rata basis i.e from (upto) the date on which asset is ready for use (disposed of).

Individual assets with cost upto Rs20,000 are fully depreciated in the year of acquisition.

(b) Intangible assets

(i) Recognition and Measurement:

Intangible assets are carried at cost less accumulated amortization and impairment losses, if any. The cost of an intangible asset comprises of its purchase price, including any import duties and other taxes (other than those subsequently recoverable from the taxing authorities), and any directly attributable expenditure on making the asset ready for its intended use.

Expenditure on development eligible for capitalisation are carried as Intangible assets under development where such assets are not yet ready for their intended use.

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (See note d. above) less accumulated impairment losses, if any.

(ii) Subsequent Expenditure

Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.

(iii) Amortization

Intangible assets are amortized over their estimated useful life on Straight Line Method as follows:

Particulars Estimated Useful Life
Product development 5 years
Computer Software* 3 to 4 years

* SAP software is amortized over its estimated useful life of 10 years

The estimated useful lives of intangible assets and the amortization period are reviewed at the end of each financial year and the amortization method is revised to reflect the changed pattern, if any.

(c) Research and Development

Revenue expenditure pertaining to research is charged to the Restated Consolidated Statement of Profit and Loss. Development costs of products are also charged to the Restated Consolidated Statement of Profit and Loss in the year it is incurred, unless a products technological feasibility has been established, in which case such expenditure is capitalised. These costs are charged to the respective heads in the Restated Consolidated Statement of Profit and Loss in the year it is incurred. The amount capitalised comprises of expenditure that can be directly attributed or allocated on a reasonable and consistent basis for creating, producing and making the asset ready for its intended use. Fixed assets utilized for research and development are capitalised and depreciated in accordance with the policies stated for Tangible Fixed Assets and Intangible Assets.

Expenditure on in-licensed development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised, if the cost can be reliably measured, the product or process is technically and commercially feasible and the Group has sufficient resources to complete the development and to use and sell the asset.

(d) Foreign Currency Transactions / Translations:

(i) Transactions denominated in foreign currency are recorded at exchange rates prevailing at the date of transaction or at rates that closely approximate the rate at the date of the transaction.

(ii) Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the exchange rate of the reporting date. Non-monetary assets and liabilities that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction.

(iii) Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous consolidated financial statements are recognized in the Restated Consolidated Statement of Profit and Loss in the period in which they arise.

(e) Financial Instruments

(i) Financial Assets Classification

On initial recognition the Group classifies financial assets as subsequently measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss on the basis of its business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.

Initial recognition and measurement

All financial assets (not measured subsequently at fair value through profit or loss) are recognized initially at fair value plus transaction costs that are attributable to the acquisition of the financial asset. Trade Receivables that does not contain significant financing components are initially recognised at transaction price. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

Financial assets at amortised cost

A ‘financial asset is measured at the amortised cost if both the following conditions are met:

(ii) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and

(iii) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method. The losses arising from impairment are recognized in the Restated Consolidated Statement of Profit and Loss.

This category comprises trade accounts receivable, loans, cash and cash equivalents, bank balances and other financial assets. A gain or loss on a debt instrument that is subsequently measured at amortised cost and is not part of a hedging relationship is recognised in the Restated Consolidated Statement of Profit and Loss when the asset

is derecognised or impaired. Interest income from these financial assets is included in Other Income using the effective interest rate method.

Fair Value through Other Comprehensive Income (FVOCI)

Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets cash flows represent solely payments of principal and interest, are measured at FVOCI. The movements in carrying amount are taken through Other Comprehensive Income, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in the Restated Consolidated Statement of Profit and Loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in Other Comprehensive Income is reclassified from equity to the Restated Consolidated Statement of Profit and Loss and recognised in other gains/ (losses). Interest income from these financial assets is included in Other Income using the effective interest rate method.

Fair Value through Profit or Loss (FVTPL)

Assets shall be measured at FVTPL unless it is measured at amortised cost or at FVOCI.

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a Group of similar financial assets) is primarily derecognized (i.e. removed from the Groups Restated Consolidated Statement of assets and liabilities) when:

The rights to receive cash flows from the asset have expired, or

The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through arrangement; and either:

(i) the Group has transferred substantially all the risks and rewards of the asset, or

(ii) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Groups continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

In accordance with Ind-AS 109, the Group applies Expected Credit Loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:

(i) Financial assets that are debt instruments, and are measured at amortized cost e.g., loans, debt securities, deposits, and bank balance.

(ii) Trade receivables.

The Group follows ‘simplified approach for recognition of impairment loss allowance on trade receivables which do not contain a significant financing component.

The application of simplified approach does not require the Group to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.

(f) Income tax

Income tax expense comprises current and deferred tax. It is recognized in Restated Consolidated Statement of Profit and Loss except to the extent that it relates items recognized directly in equity or in OCI.

Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

Current tax assets and liabilities are offset only if, the Group:

(i) has a legally enforceable right to set off the recognized amounts; and

(ii) Intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Deferred tax

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if:

(i) the Group has a legally enforceable right to set off current tax assets against current tax liabilities; and

(ii) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.

(g) Inventories

Inventories of all procured materials and finished goods are valued at the lower of cost (on moving weighted average basis) and the net realisable value after providing for obsolescence and other losses, where considered necessary. Cost includes all charges in bringing the goods to their present location and condition, transit insurance and receiving charges. Work-in-process and finished goods include appropriate proportion of overheads and, where applicable, taxes.

(h) Revenue Recognition

Sale of Goods

The majority of the Groups contracts related to product sales include only one performance obligation, which is to deliver products to customers based on purchase orders received. Revenue from sales of products is recognized at a point in time when control of the products is transferred to the customer, depending upon the terms of contract. This is determined basis when physical possession, legal title and risks and rewards of ownership of the products transfer to the customer and the Group is entitled to payment. The timing of the transfer of risks and rewards varies depending on the individual terms of the sales agreements. Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns, sales tax/GST and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer, if part of the contract.

Income from research services

Income from research services including sale of technology/know-how (rights, licenses and other intangibles) is recognized in accordance with the terms of the contract with customers when the related performance obligation is completed, or when risks and rewards of ownership are transferred, as applicable.

Interest income

Interest income is recognized with reference to the Effective Interest Rate method.

Dividend income

Dividend from investment is recognized as revenue when right to receive is established. Income from Export Benefits and Other Incentives

Export benefits available under prevalent schemes are accrued as revenue in the year in which the goods are exported and / or services are rendered only when there is reasonable assurance that the conditions attached to them will be complied with, and the amounts will be received.

(i) Employee Benefits

Short term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Defined contribution plans

Obligations for contributions to defined contribution plans are expensed as the related service is provided and the Group will have no legal or constructive obligation to pay further amounts. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.

Defined benefit plans

The Groups net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.

The calculation of defined benefit obligations is performed periodically by an independent qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.

Remeasurement of the net defined benefit liability, which comprise actuarial gains and losses and the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income (OCI). Net interest expense (income) on the net defined liability (assets) is computed by applying the discount rate, used to measure the net defined liability (asset). Net interest expense and other expenses related to defined benefit plans are recognized in Restated Consolidated Statement of Profit and Loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in Restated Consolidated Statement of Profit and Loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Other long-term employee benefits

The Groups net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is measured on the basis of a periodical independent actuarial valuation using the projected unit credit method. Remeasurement are recognized in Restated Consolidated Statement of Profit and Loss in the period in which they arise

(j) Share-based payment transactions

Employees Stock Options Plans ("ESOPs"): The grant date fair value of options granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the options. The expense is recorded for each separately vesting portion of the award as if the award was, in substance, multiple awards. The increase in equity recognized in connection with share based payment transaction is presented as a separate component in equity under "Employee Stock Options Outstanding Reserve". The amount recognized as an expense is adjusted to reflect the actual number of stock options that vest.

(k) Leases

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in Ind AS 116.

Group as a lessee

The Group recognises right-of-use asset representing its right to use the underlying asset for the lease term at the lease commencement date. The cost of the right-of-use asset measured at inception shall comprise of the amount of the initial measurement of the lease liability adjusted for any lease payments made at or before the commencement date less any lease incentives received, plus any initial direct costs incurred and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset or restoring the underlying asset or site on which it is located. The right-of-use assets is subsequently measured at cost less any accumulated depreciation, accumulated impairment losses, if any and adjusted for any remeasurement of the lease liability. The right-of-use assets is depreciated using the straightline method from the commencement date over the shorter of lease term or useful life of right- of-use asset. The estimated useful lives of right-of- use assets are determined on the same basis as those of property, plant and equipment. Right-of-use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognized in the Restated Consolidated Statement of Profit and Loss.

The Group measures the lease liability at the present value of the lease payments that are not paid at the commencement date of the lease. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the Group uses incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The Group determines its incremental borrowing rate by obtaining interest rates

from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. For leases with reasonably similar characteristics, the Group, on a lease by lease basis, may adopt either the incremental borrowing rate specific to the lease or the incremental borrowing rate for the portfolio as a whole. The lease payments shall include fixed payments, variable lease payments, residual value guarantees, exercise price of a purchase option where the Group is reasonably certain to exercise that option and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. The lease liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments. The Group recognises the amount of the re-measurement of lease liability due to modification as an adjustment to the right-of-use asset and Restated Consolidated Statement of Profit and Loss depending upon the nature of modification. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Group recognises any remaining amount of the re-measurement in Restated Consolidated Statement of Profit and Loss.

(l) Provisions, Contingent Liabilities and Contingent Assets

A provision is recognized when the Group has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. If effect of the time value of money is material, provisions are discounted using an appropriate discount rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

Contingent liabilities are disclosed in the Notes to the Restated Consolidated Financial information. Contingent liabilities are disclosed for

(i) possible obligations which will be confirmed only by future events not wholly within the control of the Group, or

(ii) present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.

Contingent assets are not recognised in the Restated Consolidated financial information.

(m) Borrowing costs

Borrowing costs are interest and other costs that the Group incurs in connection with the borrowing of funds and is measured with reference to the effective interest rate (EIR) applicable to the respective borrowing. Borrowing costs include interest costs measured at EIR and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost.

Borrowing costs, allocated to qualifying assets, pertaining to the period from commencement of activities relating to construction/ development of the qualifying asset up to the date of capitalisation of such asset are added to the cost of the assets. Capitalisation of borrowing costs is suspended and charged to the Restated Consolidated Statement of Profit and Loss during extended periods when active development activity on the qualifying assets is interrupted.

All other borrowing costs are recognized as an expense in the period which they are incurred. Key components of Income and Expenses

Set forth below is a description of the principal components of our income and expenses:

Income

Our total income comprises our revenue from operations and other income.

Revenue from operations. Our revenue from operations primarily comprises sale of goods, income from research services and other operating revenues. Sale of goods primarily includes sales of our approved products across various dosage forms, including oral solid dosage, oral liquids and nasal sprays, mainly in the US. This includes sales of both generic (non-branded) as well as specialty (branded) products. Other operating revenues comprise of export benefits and incentives, compensation and settlement income, and royalty income. Variable components such as discounts, chargebacks, rebates, sales returns etc., including in respect of claims under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, are recognized as deductions from revenue in compliance with Ind AS 115.

Other income. Other income primarily comprises of, among others, interest income from bank deposits and net foreign exchange gain.

Expenses

Costs of materials consumed. Our cost of materials consumed expenses primarily comprise of raw materials consumed and packing materials consumed.

Purchase of traded goods. Our purchase of traded goods expenses primarily comprise of the purchase of third- party products and purchase of our own products for sale which were manufactured by contract manufacturers.

Changes in inventories of goods and work-in progress. Our changes in inventories of goods and work-in-progress expenses primarily comprise of the changes in inventory levels of finished goods and work-in-progress goods. Finished goods include both stock-in-trade and manufactured goods.

Employee benefits expense. Our employee benefits expense primarily comprises salaries and wages, contribution to provident and other funds, share based payment expenses and staff welfare expenses.

Finance costs. Our finance costs primarily comprise of interest on financial liabilities, interest cost on finance lease obligations, other borrowing costs and other interest costs.

Depreciation and amortization expense. Depreciation and amortization expense include depreciation on property, plant and equipment, amortization of intangible assets and amortization of right of use assets.

Other expenses. Our other expenses primarily comprise of, among others, consumption of stores and spares, repairs and maintenance costs, power and fuel expenses, contract labor charges, freight and forwarding costs, legal and professional fees, regulatory fees, product development expenses and CSR expenses.

Other comprehensive income

Other comprehensive income / (loss) comprises (i) re-measurement gain / (losses) on defined benefit plans; and (ii) income tax effect on (i) above.

Our results of operations

The following table sets forth select financial data from our restated consolidated statement of profit and loss for Fiscal 2024, 2023 and 2022 and we have expressed the components of select financial data as a percentage of total income for such years:

For Fiscal
2024 2023 2022
( Rs in million) (% of total income) ( Rs in million) (% of total income) ( Rs in million) (% of total income)
Income
Revenue from operations 8,538.89 97.88% 3,935.19 93.92% 3,135.67 94.90%
Other income 184.97 2.12% 254.80 6.08% 168.50 5.10%
Total Income 8,723.86 100% 4,189.99 100% 3,304.17 100%
Expenses
Cost of materials consumed 2,479.24 28.42% 1,544.61 36.86% 949.43 28.73%

 

For Fiscal
2024 2023 2022
( Rs in million) (% of total income) ( Rs in million) (% of total income) ( Rs in million) (% of total income)
Purchase of traded goods 885.22 10.15% 114.28 2.73% 3.82 0.12%
Changes in inventories of finished goods, work-in-progress and stock-intrade (530.06) (6.08)% (492.44) (11.75)% (170.47) (5.16)%
Employee benefits expense 1,253.35 14.37% 971.19 23.18% 788.99 23.88%
Finance costs 312.60 3.58% 189.60 4.53% 97.23 2.94%
Depreciation and amortization expense 389.73 4.47% 360.61 8.61% 340.07 10.29%
Other expenses 2,905.21 33.30% 1,612.63 38.49% 1,956.22 59.20%
Total expenses 7,695.29 88.21% 4,300.48 102.64% 3,965.29 120.01%
Profit / (loss) before tax 1,028.57 11.79% (110.49) (2.64) % (661.12) (20.01)%
Tax expense
Current tax 133.09 1.53% 83.18 1.99% 72.55 2.20%
Short/(excess) provision of tax relating to earlier years 0.48 0.01% 0.00 0.00% (37.10) (1.12)%
Deferred tax charges (15.12) (0.17)% (24.79) (0.59) % (25.39) (0.77)%
Total tax expenses 118.45 1.36% 58.39 (1.39) % 10.06 0.30%
Profit / (loss) for the period / year 910.12 10.43% (168.88) (4.03)% (671.18) (20.31)%
Total other comprehensive income/ (loss) for the period / year, net of tax (13.50) (0.15)% (42.14) (1.01)% (20.94) (0.63)%
Total comprehensive income / (loss) for the period / year 896.62 10.28% (211.02) (5.04)% (692.12) (20.95)%

Fiscal 2024 compared to Fiscal 2023

Total income

Our total income increased by 108.21% to Rs 8,723.86 million for Fiscal 2024 from Rs4,189.99 million for Fiscal 2023. This increase was primarily due to an increase in revenue from operations for the period.

Revenue from operations. Our revenue from operations increased by 116.99% to Rs8,538.89 million for Fiscal 2024 from Rs3,935.19 million for Fiscal 2023, primarily due to a 123.14% increase in revenue from sale of goods to Rs8,398.32 million for the Fiscal 2024 from Rs3,763.67 million for the Fiscal 2023. This increase was mainly

driven by: (i) the increase in sales due to the launch of our 19 new generic and specialty products in Fiscal 2024 amounting to Rs923.97 million and Rs161.50 million, respectively; and (ii) the increase in the sales of our existing generic and specialty products amounting to Rs 3,195.09 million and Rs497.50 million, respectively. Furthermore, in Fiscal 2024 our CnS, CVS and pain therapy area products grew by 370.48%,74.78% and 169.15%, respectively, from Fiscal 2023. However, this was partially offset by a decrease of 64.77% in the sales of our research services to Rs29.50 million in Fiscal 2024 from Rs83.74 million in Fiscal 2023 as we increased focused on development of our in-house portfolio. Our other operating revenue increased by 26.69% to ^111.07 million in Fiscal 2024 from Rs87.67 million in Fiscal 2023. This was primarily due to an increase in the export benefits and incentives received by us of Rs54.84 million in Fiscal 2024 as compared to Rs29.95 million for Fiscal 2023.

Other income. Our other income decreased by 27.41% to Rs184.97 million for Fiscal 2024 from Rs254.80 million for Fiscal 2023. This was primarily due to a decrease in our net foreign exchange gain to Rs156.75 million in Fiscal 2024 from Rs237.70 million in Fiscal 2023.

Expenses

Cost of materials consumed. Our cost of materials consumed increased by 60.51% to Rs2,479.24 million for Fiscal 2024 from Rs1,544.61 million for Fiscal 2023. This was primarily due to an increase in the raw materials we consumed to Rs2,251.52 million in Fiscal 2024 from Rs1,379.67 million in Fiscal 2023. This increase in raw materials consumed was largely attributable to the increase in sales of additional products, and in line with the increase in our revenue from operations owing to increased product sales. The costs of the packaging materials consumed also increased to Rs227.72 million in Fiscal 2024 from Rs164.94 million in Fiscal 2023, largely attributable to the increase in products sold.

Purchase of traded goods. Our purchase of traded goods increased by 674.61% to Rs885.22 million for Fiscal 2024 from ^114.28 million for Fiscal 2023. This was primarily due to purchase of third-party products and purchase of our own products for sale which were manufactured by contract manufacturers.

Changes in inventories of finished goods, work-in-progress and stock-in-trade. Changes in inventories of finished goods, work-in-progress and stock-in-trade increased by 7.64% to Rs(530.06) million for Fiscal 2024 from Rs(492.44) million for Fiscal 2023, primarily to support the overall sales of our products in the US market.

Employee benefits expense. Our employee benefits expense increased by 29.05% to Rs 1,253.35 million for Fiscal 2024 from Rs971.19 million for Fiscal 2023, primarily due to an increase in our total number of employees to 903 in Fiscal 2024 from 683 in Fiscal 2023. The increase in our total number of employees was primarily to support the functions of our production and quality control teams at our manufacturing facilities, who work on a three- shift basis.

Finance costs. Our finance costs increased by 64.87% to Rs312.60 million for Fiscal 2024 from Rs189.60 million for Fiscal 2023. This was primarily due to an increase in the interest on financial liabilities incurred for funding our working capital requirements to Rs266.31 million for Fiscal 2024 from Rs151.30 million for Fiscal 2023, and an increase in the interest cost of financial lease obligations to Rs19.72 million for Fiscal 2024 from Rs4.00 million for Fiscal 2023.

Depreciation and amortization expense. Our depreciation and amortization expense increased by 8.08% to Rs 389.73 million for Fiscal 2024 from Rs360.61 million for Fiscal 2023. This was primarily due to an increase in the value of depreciation of our property, plant and equipment to Rs208.54 million for Fiscal 2024 from Rs187.59 million for Fiscal 2023 and, an increase in amortisation of right-use-of-assets to Rs54.05 million for Fiscal 2024 from ^31.88 million for Fiscal 2023.

Other expenses. Our other expenses increased by 80.15% to Rs2,905.21 million for Fiscal 2024 from Rs1,612.63 million for Fiscal 2023. This was primarily due to an increase in freight and forwarding expense by Rs552.91 million to Rs869.76 million for Fiscal 2024 from Rs316.85 million for Fiscal 2023. Our regulatory fee expenses also increased by Rs257.68 million to Rs490.45 million for Fiscal 2024 from Rs232.77 million for Fiscal 2023, primarily due to the increase in the number of products filed for approval with the US FDA. Furthermore, there was also an increase in our in-house product development charges, such as costs paid to APIs and third-party services for testing, by Rs143.01 million to Rs345.65 million for Fiscal 2024 from Rs202.64 million for Fiscal 2023 due to an increase in number of products filed for approval with the US FDA.

Tax expense

Our tax expense increased by 102.86% to ^118.45 million for Fiscal 2024 from Rs58.39 million for Fiscal 2023. This was primarily attributable to an increase in profit before tax by 1,030.92% to Rs1,028.57 million in Fiscal 2024 from Rs(110.49) million in Fiscal 2023.

Profit / (loss) for the year

For the reasons discussed above, our profit for the year increased by 638.92% to Rs910.12 million for Fiscal 2024 from a loss of Rs(168.88) million for Fiscal 2023.

Total other comprehensive income for the year, net of taxes

Our total other comprehensive loss for the year, net of taxes, decreased by 67.96% to Rs(13.50) million for Fiscal 2024 from Rs(42.14) million for Fiscal 2023. This was on account of remeasurements of the defined benefit plans and foreign exchange difference in translating the financial statements of our foreign operations.

Total comprehensive income for the period

Our total comprehensive income for the year increased by 524.90% to Rs896.62 million for Fiscal 2024 from Rs(211.02) million for Fiscal 2023.

Fiscal 2023 compared to Fiscal 2022

Total income

Total income. Our total income increased by 26.81% to Rs4,189.99 million for Fiscal 2023 from Rs3,304.17 million for Fiscal 2022. This increase was primarily due to an increase in revenue from operations for the period.

Revenue from operations. Our revenue from operations increased by 25.50% to Rs3,935.19 million for Fiscal 2023 from Rs3,135.67 million for Fiscal 2022, primarily due to a 28.46% increase in revenue from sale of goods to Rs3,763.67 million for the Fiscal 2023 from Rs2,929.86 million for the Fiscal 2022. This increase was largely driven by: (i) by the increase in sale of goods due to the launch of our 10 new generic and specialty products in Fiscal 2023 amounting to Rs123.64 million and Rs 61.11 million, respectively; (ii) the increase in the sales of our generic products amounting to Rs320.95 million and (iii) the increase in the sales of our over-the-counter ("OTC") nicotine replacement therapy products amounting to Rs327.27 million. However, this increase was partially offset as a result of changes in our distribution model, whereby we replaced the third-party model with in-house sales and distribution of goods through our subsidiary, AdvaGen Pharma, in the US, although the impact was lower in Fiscal 2023 as compared to Fiscal 2022. Further, sales of our research services decreased by 23.06% to Rs83.74 million in Fiscal 2023 from Rs108.84 million in Fiscal 2022 owing to the continued focus on development of our in-house portfolio. In Fiscal 2023, the decrease in inventory at TruPharma and increase in inventory at AdvaGen Pharma led to a decrease in our revenue from operations in Fiscal Year 2022. Our other operating revenue decreased by 9.59% to Rs87.67 million in Fiscal 2023 from Rs96.97 million in Fiscal 2022. The decrease in other operating income predominantly relates to compensation and settlement income realized in Fiscal 2022 from suppliers.

Other income. Our other income increased by 51.22% to Rs254.80 million for Fiscal 2023 from Rs168.50 million for Fiscal 2022, primarily due to an increase in net foreign exchange gain to Rs237.70 million for Fiscal 2023 from Rs143.50 million for Fiscal 2022.

Expenses

Cost of materials consumed. Our cost of materials consumed increased by 62.69% to Rs1,544.61 million for Fiscal 2023 from Rs949.43 million for Fiscal 2022. This was primarily due to an increase in the raw materials we consumed for production of our products to Rs1,379.67 million in Fiscal 2023 from Rs817.50 million in Fiscal 2022. This increase in raw materials consumed was largely attributable to the increase in production of additional products, and in line with the increase in our revenue from operations owing to increased product sales. The costs of the packaging materials consumed also increased to Rs164.94 million in Fiscal 2023 from Rs131.93 million in Fiscal 2022, largely attributable to the increase in products sold.

Purchase of traded goods. Our purchase of traded goods increased by 2,891.62% to ^114.28 million for Fiscal 2023 from Rs3.82 million for Fiscal 2022. This was primarily due to netting off the difference arising from intercompany eliminations for products purchased by AdvaGen Pharma from us due to difference in reporting currency.

Changes in inventories of finished goods, work-in-progress and stock-in-trade. Changes in inventories of finished goods, work-in-progress and stock-in-trade increased by 188.87% to Rs(492.44)million for Fiscal 2023 from Rs(170.47) million for Fiscal 2022, primarily due to support the overall sales of our products in the US market.

Employee benefits expense. Employee benefits expense increased by 23.09% to Rs 971.19 million for Fiscal 2023 from Rs 788.99 million for Fiscal 2022, primarily due to an increase in the total number of employees to 683 in Fiscal 2023 from 581 in Fiscal 2022.

Finance costs. Finance costs increased by 95.00% to Rs189.60 million for Fiscal 2023 from Rs97.23 million for Fiscal 2022. This was primarily due to the increases in the interest on financial liabilities, particularly term loans, to Rs151.30 million for Fiscal 2023 from Rs82.33 million for Fiscal 2022, and other borrowing costs to Rs23.62 million for Fiscal 2023 from Rs7.86 million for Fiscal 2022.

Depreciation and amortization expense. Depreciation and amortization expense increased by 6.04% to Rs 360.61 million for Fiscal 2023 from Rs340.07 million for Fiscal 2022. This was primarily due to an increase in the value of depreciation of our property, plant and equipment to Rs187.59 million for Fiscal 2023 from Rs160.00 million for Fiscal 2022.

Other expenses. Our other expenses decreased by 17.56% to Rs1,612.63 million for Fiscal 2023 from Rs1,956.22 million for Fiscal 2022. This was primarily due to the decreases in regulatory fee paid to the US FDA to obtain product approvals by Rs162.16 million, clinical and analytical charges by Rs 122.92 million and product development charges by Rs189.18 million as we filed a higher number of product approvals with the US FDA in Fiscal 2022.

Tax expense

Our tax expense increased by 480.42% to Rs58.39 million for Fiscal 2023 from Rs10.06 million for Fiscal 2022. This was primarily attributable to a decrease in our loss before tax by 83.29% to Rs(110.49) million in Fiscal 2023 from Rs(661.12) million in Fiscal 2022.

Profit / (loss) for the year

For the reasons discussed above, our loss for the year decreased by 74.84% to Rs(168.88) million for Fiscal 2023 from Rs (671.18) million for Fiscal 2022.

Total other comprehensive income for the year, net of taxes

Our total other comprehensive loss for the year, net of taxes increased by 101.24% to Rs(42.14) million for Fiscal 2023 from Rs(20.94) million for Fiscal 2022, on account of remeasurements of the defined benefit plans and foreign exchange differences in translating the financial statements of our foreign operations.

Total comprehensive income for the year

Our total comprehensive income for the year increased by 69.51% to Rs(211.02) million for Fiscal 2023 from Rs(692.12) million for Fiscal 2022.

Cash flows and cash and cash equivalents

The following table sets forth our cash flows and cash and cash equivalents for the period indicated:

(in € million)

For Fiscal
2024 2023 2022
Net cash (used in)/generated from Operating Activities 210.09 (747.49) (626.34)
Net cash (used in)/generated from Investing Activities (685.13) (338.21) (549.20)
Net cash (used in)/generated from Financing Activities 435.53 1,228.14 630.51
Net increase / (decrease) in cash and cash equivalents (39.51) 142.44 (545.03)
Cash and cash equivalents at the beginning of the year 544.27 386.71 841.61
Effect of foreign exchange rate change 1.29 15.12 90.13
Cash and cash equivalents at the end of the year 506.05 544.27 386.71

Operating activities

Net cash flows generated from operating activities aggregated to Rs210.09 million for Fiscal 2024. Our profit before tax of Rs1,028.57 million, was adjusted primarily for finance cost of Rs312.60 million and depreciation and amortization expense of Rs389.73 million. Our changes in working capital for Fiscal 2024 primarily consisted of an increase in inventories of Rs1,270.57 million, primarily due to the increases in number of products and business volumes, an increase in trade payables of Rs686.70 million, an increase in current provision of Rs279.39 million, an increase in other current assets of Rs409.88 million and an increase in trade receivables of Rs666.52 million due to increased sales of goods.

Net cash flows used in operating activities aggregated to Rs747.49 million for Fiscal 2023. Our loss before tax of Rs110.49 million, was adjusted primarily for depreciation and amortization expense of Rs360.61 million, finance costs of Rs189.60 million and unrealized exchange gain on revaluation of Rs153.21 million. Our changes in working capital for Fiscal 2023 primarily consisted of an increase in inventories of Rs776.21 million, an increase in trade receivables of Rs736.63 million and an increase in trade payables of Rs401.71 million.

Net cash flows used in operating activities aggregated to Rs626.34 million for Fiscal 2022. Our loss before tax of Rs661.12 million, was adjusted primarily for depreciation and amortization expense of Rs340.07 million, finance costs of Rs 97.23 million and unrealized exchange gain on revaluation of Rs157.89 million. Our changes in working capital for Fiscal 2022 primarily consisted of an increase in inventories of Rs273.32 million, an increase in trade payables of Rs236.75 million, an increase in other current assets of Rs54.62 million and a decrease in trade receivables of Rs14.27 million and a decrease in other current liabilities of Rs45.88 million.

Investing activities

Net cash flows used in investing activities aggregated to Rs685.13 million for Fiscal 2024, primarily due to Rs561.43 million used for purchase of property, plant and equipment (including capital work-in-progress, capital advances, capital creditors, plant and equipment and for setting up our nasal spray manufacturing facility in Ambernath, Maharashtra, India), ^110.01 million used for the acquisition of Validus as per the terms set out in the equity purchase agreement dated February 14, 2024 between our Company, AdvaGen Pharma and Validus.

Net cash flows used in investing activities aggregated to Rs338.21 million for Fiscal 2023, primarily due to Rs444.64 million used for purchase of tangible assets such as computer and other related assets, furniture and other office equipment and intangible assets like computer software including internally generated intangible assets (including capital and intangible work-in-progress, capital advances and creditors). These cash outflows were partially offset by movement in balances with banks not considered as cash equivalents of Rs94.47 million and interest earned on deposit with banks of Rs9.59 million.

Net cash flows generated used in investing activities aggregated to Rs549.20 million for Fiscal 2022, primarily due to Rs 545.01 million used for purchase of tangible assets such as computer and other related assets, furniture and other office equipment and intangible assets like computer software including internally generated intangible assets (including capital and intangible work-in-progress, capital advances and creditors), partially offset by proceeds generated from redemption of current investment of Rs143.30 million and interest earned on deposit with banks of Rs14.75 million.

Financing activities

Net cash flows from financing activities aggregated to Rs435.53 million for Fiscal 2024, primarily due to proceeds from non-current borrowings of Rs 354.20 million, and net proceeds from current borrowings of Rs675.89 million. This was partially offset by repayment of non-current borrowings of Rs 250.66 million, and lease liabilities and interest payment of Rs43.38 million and Rs 297.98 million, respectively.

Net cash flows from financing activities aggregated to Rs1,228.14 million for Fiscal 2023, primarily due to proceeds from short term borrowings of Rs 1,002.97 million, Net proceeds from non-current borrowings of Rs 439.23 million, partially offset by lease liabilities and interest payment of Rs37.31 million and Rs 174.21 million respectively.

Net cash flows from financing activities aggregated to Rs630.51 million for Fiscal 2022, primarily due to proceeds from short-term borrowing of Rs478.18 million and proceeds from non-current borrowing of Rs 395.63 million, partially offset by interest and lease liability payment of Rs93.49 million and ^33.17 million respectively.

The following table sets forth our indebtedness as of March 31, 2024:

F in million)

Particulars As of March 31, 2024
Non-current borrowings
Secured loans
Term loans from Banks 926.05
Unsecured Loans
Term loans from banks

-

Sub-total (A) 926.05
Current borrowings
Secured Loans
Loans from banks 2,642.21
Current maturities of long-term borrowings 395.85
Unsecured Loans
Current maturities of long-term borrowings -
Sub-total (B) 3,038.06
Total borrowings of the Group (A+B) 3,964.11

For further details, see "FinancialIndebtedness" on page 395.

Liquidity and capital resources

We believe we have sufficient sources of funding to meet our business requirements for the next 12 months and in the longer term. Cash generated by operations, supplemented by external financing, is our primary source of liquidity for funding our business requirements. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under "Risk Factors" on page 28. For Fiscal 2024, our cash and cash equivalents at the end of the year was Rs506.05 million.

Our short-term as well as long-term capital expenditure requirements include expenditure for organic and inorganic growth opportunities, expenditure on manufacturing capacity and capability expansion, purchase of computers and related assets, purchase of software and intangible assets and for corporate actions. As of March 31, 2024, our estimated amount of contracts remaining to be executed on capital account and not provided for was Rs 76.11 million.

We monitor rolling forecasts of our liquidity position comprising cash and cash equivalents on the basis of expected cash flows. Our liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans. We have net current assets of Rs1,448.91 million, Rs1,402.72 million and Rs1,906.69 million as at March 31, 2022, March 31, 2023, March 31, 2024.

Capital expenditure

Capital expenditure primarily relates to purchase of computers and related assets, vehicles, furniture, office equipment, leasehold improvement, plant and machinery and purchase and development of software and other assets. The capital expenditure is funded through cash from operations.

In Fiscal 2024, we incurred capital expenditure of ^518.91 million, primarily for purchase of computers and related assets, vehicles, furniture, office equipment, leasehold improvement, plant and machinery, purchase and development of software and other assets and other intangibles.

In Fiscal 2023, we incurred capital expenditure of Rs572.23 million, primarily for setting up our nasal spray manufacturing facility in Ambernath in Maharashtra, India, purchase of computers and related assets, vehicles, furniture, office equipment, leasehold improvement, plant and machinery, and purchase and development of software and other assets.

In Fiscal 2022, we incurred capital expenditure of Rs350.11 million, primarily for setting up our nasal spray manufacturing facility in Ambernath in Maharashtra, India purchase of computers and related assets, vehicles, furniture, office equipment, leasehold improvement, plant and machinery, and purchase and development of software.

Contingent liabilities

The table sets forth our contingent liabilities as per Ind AS 37 as at March 31, 2024:

(in Rs million)

Contingent liabilities As at March 31, 2024
The Sales tax demands in respect of Maharashtra Value Added Tax and Central Sales Tax are in appeals and pending decisions. 16.04
The demands received from income tax authorities for various assessment years, on account of disallowances of expenses are in appeals and pending decisions. 86.32

For details in relation to our contingent liabilities as at March 31, 2024, see "Restated Consolidated Financial Information - Note 29 Commitments", "Restated Consolidated Financial Information - Note 30 Contingent Liabilities"" and "Outstanding Litigation and Material Developments" on pages 333, 333 and 399, respectively.

Off-balance sheet commitments and arrangements

We do not have any off-balance sheet arrangements, derivative instruments, swap transactions or relationships with affiliates or other unconsolidated entities or financial partnerships that would have been established for the purpose of facilitating off-balance sheet arrangements.

Quantitative and Qualitative Analysis of Market Risks

We are exposed to various types of financial risks during the normal course of business such as credit risk, liquidity risk, market risk and currency risk. For further details, see "Risk Factors"" beginning on page 28.

Credit risk

Credit risk is the risk of financial loss to our Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the receivables from our customers and investment securities. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the creditworthiness of customers to which we grant credit terms in the normal course of business. The Company establishes an allowance for doubtful debts and impairment that represents its estimate of incurred losses in respect of trade and other receivables and investments. The table below sets forth the amount of trade receivables outstanding as at March 31, 2024, 2023 and 2022.

(in Rs million)

As at March 31,
Particulars 2024 2023 2022
Not past due 2,090.46 1,094.87 949.14
1-180 days 798.42 1,151.94 417.16
181-365 days 124.96 2.48 27.60
More than 365 days 6.12 11.60 9.48
Total 3,019.96 2,260.89 1,403.38

Our exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer, including the default risk of the country in which the customer operates, also has an influence on credit risk assessment. As of March 31, 2024, 2023 and 2022, the trade receivables from our largest customer (who is based outside India) was Rs743.90 million, Rs677.93 million and Rs1,139.76 million, respectively and represented 24.63%, 29.99%, and 81.22%, of total receivables, respectively.

Liquidity risk

Liquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Our approach to managing liquidity is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation. We monitor funding options available in the debt and capital markets with a view to maintaining financial flexibility.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Companys income or the value of its holdings of financial instruments. Market risk is attributable to all market risk sensitive financial instruments including foreign currency receivables and payables and long-term debt. We are exposed to market risk primarily related to foreign exchange rate risk. Thus, our exposure to market risk is a function of revenue generating and operating activities in foreign currency. The objective of market risk management is to avoid excessive exposure in our foreign currency revenues and costs. The Company uses derivatives to manage market risk. Generally, we seek to hedge its exposure in foreign currency to manage volatility in profit or loss.

Currency risk

We are exposed to currency risk on account of our operations in other countries. The functional currency of the Company is Indian Rupee. The exchange rate between the Indian rupee and foreign currencies has changed substantially in recent periods and may continue to fluctuate substantially in the future. Consequently, the Company uses derivative instruments, i.e, foreign exchange forward and options contracts to mitigate the risk of changes in foreign currency exchange rates in respect of its highly probable forecasted transactions and recognized assets and liabilities. These foreign currency forward contracts are not intended for trading or speculative purposes but for hedging purposes to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables. We also enter into derivative contracts in order to hedge and manage foreign currency exposures towards future export earnings.

Interest rate risk

Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest-bearing financial assets or borrowings because of fluctuations in the interest rates, if such assets/borrowings are measured at fair value through profit or loss. Cash flow interest rate risk is the risk that the future cash flows of floating interest-bearing borrowings will fluctuate because of fluctuations in the interest rates.

Qualifications in the auditors report

There are no qualifications in the auditors report which have not been given effect to in the Restated Consolidated Financial Information.

Unusual or infrequent events or transactions

From Fiscal 2018 to 2021, we relied on our distribution partner, TruPharma, for the distribution of our products in the US. TruPharma has been selling certain of our generic products in the US under its own label for an agreed- upon portion of our sales revenue but bears the distribution costs itself. In Fiscal 2022, we started our own distribution activities through our wholly-owned subsidiary, AdvaGen Pharma, instead of relying solely on TruPharma. For more details, see Significant factors affecting our financial condition and results of operation"" on page 367.

We have historically undertaken acquisitions to grow our business and R&D capabilities, including the acquisition of Impopharma Canada Limited, an oral liquid formulations manufacturing business at Satara, Maharashtra, India and Validus Pharmaceuticals LLC. For more details, see "Our Business - Acquisition and Divestments" on page 232.

Known trends or uncertainties

Our business has been subject, and we expect it to continue to be subject, to significant economic changes arising from the trends identified above in " - Significant Factors Affecting our Financial Condition and Results of Operations" above and the uncertainties described in "Risk Factors" on page 28. Except as disclosed in this Draft Red Herring Prospectus, there are no known factors which we expect to have a material impact on our income.

Future relationship between cost and revenue

Other than as described in "Risk Factors" and this section, there are no known factors that might affect the future relationship between cost and revenue.

Related party transactions

We have engaged in the past, and may engage in the future, in transactions with related parties. For details of our related party transactions, see "Related Party Transactions" on page 393.

Net current assets

We believe that our net current assets is sufficient for our present operational requirements.

The net current assets increased to Rs1,906.69 million in Fiscal 2024 from Rs1,402.72 million in Fiscal 2023, primarily on account of increase in inventory by Rs1,332.83 million, increase in trade receivables by Rs764.91 million, increase in other current assets by Rs450.18 million, partially offset by increase in trade payables by Rs798.63 million and short term borrowing by Rs831.72 million.

The net current assets reduced to Rs1,402.72 million in Fiscal 2023 from Rs1,448.91 million in Fiscal 2022, primarily on account of increase in inventory by Rs776.22 million, increase in trade receivables by Rs854.07 million, increase in cash and cash equivalents by Rs157.56 million, partially offset by increase in trade payables by Rs399.04 million and short term borrowing by Rs1,148.60 million.

Competitive conditions

We operate in a competitive environment. Please refer to "Risk Factors, "Industry Overview and "Our Business" on pages 28, 164 and 215, respectively, for further information on our industry and competition.

Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or services or increased sales prices

Changes in revenue in the last three Fiscals "- Fiscal 2024 compared to Fiscal 2023" and "- Fiscal 2023 compared to Fiscal 2022" above on pages 383 and 385, respectively.

Significant dependence on single or few customers

Revenues from the following customers individually amounted to 10% or more of our revenue from sale of goods in any of the respective years:

Customer(1) For Fiscals
2024 2023 2022
(Revenue from sale of goods in Rs million) (% of revenue from sale of goods) (Revenue from sale of goods in Rs million) (% of revenue from sale of goods) (Revenue from sale of goods in Rs million) (% of revenue from sale of goods)
Customer 1(1) 1,303.97 15.53% 462.60 12.29% 52.68 1.80%
Cencora 1,169.46 13.92% 278.50 7.40% 16.53 0.56%
Customer 3 (1) 1,125.19 13.40% 241.06 6.40% 20.89 0.71%
TruPharma 1,042.15 12.41% 806.92 21.44% 2,266.07 77.34%
Customer 5 313.15 3.73% 581.58 15.45% 260.14 8.88%
Total 4,953.93 58.99% 2,370.66 62.99% 2,616.30 89.30%

Note:

(1) We have not received the necessary consents from certain of our customers to disclose the respective names.

New products or business segments

Except as disclosed in "Our Business" on page 215, and products that we announce in the ordinary course of business, we have not announced and do not expect to announce in the near future any new products or business segments.

Seasonality of business

Our business is not seasonal in nature.

Significant developments occurring after March 31, 2024

Except as set out below, to the best of our knowledge, no circumstances have arisen since March 31, 2024, which materially or adversely affect or are likely to affect, our operations or profitability, or the value of our assets or our ability to pay our material liabilities in the next 12 months.

• Our Companys status was converted from a private limited company to a public limited company. Pursuant to the provisions of Section 18 of the Companies Act, 2013, read with Rule 33 of the Companies (Incorporation) Rules, 2014, as amended from time to time, and pursuant to a resolution passed by our Board and by our Shareholders on April 11, 2024 and May 13, 2024, respectively, the name of our Company was changed from ‘Rubicon Research Private Limited to ‘Rubicon Research Limited, with effect from July 23, 2024, on which date the Registrar of Companies, Central Processing Center, Manesar, Haryana gave the permission for the said conversion.

Recent accounting pronouncements

As on the date of this Draft Red Herring Prospectus, there are no recent accounting pronouncements, which, we believe, would have a material effect on our financial condition or results of operations.

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