SMS Lifesciences India Ltd Management Discussions

[Pursuant to part B of Schedule V of SEBI (Listing Obligations and Disclosure Requirements) 2015]

Management Discussion & Analysis report sets out developments in the business, environment and Companys performance since our last report. The analysis supplements the Directors Report and audited financial statements which together form part of this Annual Report.

Post demerger, your Company has been a prominent player in Active Pharmaceutical Ingredients (API) manufacturing of various Bulk Drugs like Ranitidine HCL, Famotidine and their Intermediates, catering to both Indian and global markets at a large. It is pleasure to inform that the Company has developed products, processes and systems according to industry benchmarks and achieving sustained improvements to deliver quality products.

a) INDUSTRY STRUCTURE & DEVELOPMENT:

Indias pharmaceutical sector achieved a landmark milestone by crossing USD 30 billion in exports, reflecting a 9.4% growth over USD 27.85 billion in the previous year. The growth trajectory was further reinforced by a sharp 31% surge in exports during March, 2025, signifying sustained global demand for Indian pharmaceutical products. The United States retained its position as the largest export market, with shipments expanding 14.3% year-on-year to approximately USD 8.95 billion, contributing significantly to overall growth. Bulk drugs and active pharmaceutical ingredients (APIs) recorded healthy contributions in further consolidating Indias position as the "Pharmacy of the World."

The year gone by also witnessed significant electoral activities, with major elections in countries like India and the United States, contributing to heightened political and economic uncertainty. The global trade environment is also evolving, with a noticeable rise in protectionist trade policies and shifting global supply chains.

A major policy development during the year was the United States issuance of Executive Order 14257, imposing a 26% tariff on multiple Indian imports, including textiles, steel and chemicals. Initially, concerns grew that pharmaceutical exports could be affected. However, following sustained bilateral engagement and industry lobbying, pharma products were formally granted an exemption. This move preserved Indias competitiveness in the US market, shielding nearly $9 billion worth of exports from tariff shocks and averting a potential annual revenue loss estimated at $2-3 billion.

The decision had an immediate impact on investor sentiment. The pharmaceutical index on the NSE rose by 4.20% in a week. API-focused companies also saw sharper rises of 7-9%, reflecting optimism around sustained long-term demand. Ratings agencies and analysts now project that Indias pharmaceutical exports could maintain a 10-12% compound annual growth rate (CAGR) over the coming five years.

Looking forward, while the US will remain a cornerstone of growth, expanding footprints to the other parts of the world will be critical to balancing dependencies.

The Government of India has set an ambition to become a US$ 30 trillion economy by 2047, coinciding with 100^th year of Indian independence. With its robust global footprint, pharmaceutical industry is a critical component of this growth strategy and is expected to contribute US$ 450 billion towards this objective.

Key developments in the Company:

During the year, your Company continued to demonstrate operational stability and strategic growth across product lines, regulatory compliance, and capacity expansion initiatives.

Revenues from the Companys core products, Ranitidine and Famotidine, remained stable during the year, reflecting consistent market demand and reaffirming the strength of its established product portfolio. In line with its growth strategy, the Company also successfully executed a critical intermediate supply project for a large US-based customer, further consolidating its presence in the highly regulated American market.

A significant achievement of the year was the completion of two regulatory inspections by the US Food and Drug Administration (USFDA). Your Companys Unit 1 at Kazipally, Hyderabad underwent USFDA inspection in May, 2025, resulting in a successful outcome with a Voluntary Action Indicated (VAI) status. Additionally, the Companys subsidiary, Mahi Drugs also successfully completed its USFDA inspection in February, 2025 of its manufacturing facility located in Vizag, Andhra Pradesh. These back-to-back positive results strengthen the Companys compliance credentials and enhance its ability to tap opportunities in regulated markets.

On the manufacturing front, your Company successfully completed the expansion of a new API production line, which is expected to become operational in the latter half of the year 2025-26. This expansion is aligned with its strategy of scaling capacity to meet the increasing global demand for active pharmaceutical ingredients. Additionally, your Company invested in environmental infrastructure by enhancing effluent treatment capacities at Unit 1 and Unit 4, underscoring its commitment to sustainability and regulatory standards in environmental safety.

Together, these developments highlight your Companys balanced focus on regulatory compliance, customer relationships, operational growth, and environmental responsibility · key pillars that position it well for sustainable performance in the coming years.

b) OPPORTUNITIES & THREATS:

Your Company is confident of placing itself in a stronger position in the coming years by pursuing a strategy of targeted expansion and capacity enhancement.

The focus remains on increasing manufacturing capabilities to meet growing global demand, while exploring untapped markets and opportunities across the pharmaceutical value chain. As part of this forward-looking approach, the Company is actively pursuing alliances and partnerships with global business associates, which will significantly enrich its product portfolio and provide access to new customer segments. These initiatives are expected to not only strengthen market presence but also ensure long-term sustainable growth.

c) SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:

Company is engaged in only one segment viz. APIs & its Intermediates and Contract Manufacturing.

Your Company currently operates its manufacturing units with a combined installed capacity of 800 KL dedicated to the production of APIs and their intermediates. The Companys product portfolio is anchored by Ranitidine, Famotidine and other APIs, which continue to cater to both domestic and international markets.

Looking ahead, your Company is committed to its portfolio, with plans to introduce range of new products while strengthening its foothold in regulated markets over the current decade.

Research & Development:

Your Companys commitment to innovation and scientific excellence is reaffirmed with the robust R&D capabilities of the Company and its alignment with national priorities in advancing pharmaceutical research. Department of Scientific and Industrial Research (DSIR) of Government of India, Ministry of Science and Technology, New Delhi has accorded recognition to in-house Research and Development (R&D) Unit of the Company situated at Sanath Nagar, Hyderabad.

This unit is equipped with the latest state-of-the-art and sophisticated equipment, enabling a sharp focus on novel route synthesis, process robustness, cost optimization and analytical method development for both APIs and intermediates. The facility continues to play a strategic role in strengthening the Companys product pipeline and enhancing competitive advantages in regulated and semi-regulated markets.

As of March 31, 2025, the Companys R&D team comprises 72 employees, including 2 Ph.D. scientists leading critical projects and technological innovations. The strategic focus of the team has enabled continuous improvement in process efficiency and product development, supporting scale-up for commercial manufacturing.

Reflecting its strong emphasis on innovation-led growth, your Company incurred Rs.630 lakhs as R&D expenditure in the last year, which represents 30% of its profit for the year. This significant allocation not only highlights the depth of the Companys commitment to research but also reinforces its long-term goal of becoming a leader in cost-effective, high-quality API development globally.

d) OUTLOOK

Your Company will be able to place itself in a strong position by expanding strategically / enhancing capacities. Your Company is looking at different opportunities in untapped markets and also across a value chain.

Future Plans

Looking ahead, Your Company has outlined a series of strategic initiatives to drive growth, expand capacity and strengthen its global competitiveness in both regulated and emerging markets.

Key focus will be the addition of more than 5 new APIs across SMS Life and its subsidiary, Mahi Drugs, thereby broadening the product portfolio and catering to evolving therapeutic demands. These additions will position your Company to capture increased market share in existing geography while also creating entry points into new markets.

In the next year, Mahi Drugs is scheduled to commence the commercialization of its USDMF filings, a development that will enable access to the highly regulated and lucrative US pharmaceutical market. This milestone is expected to contribute significantly to the Companys long-term export revenues.

Alongside API additions, your Company is also initiating new contract manufacturing projects at both SMS Life and Mahi Drugs. These collaborations will enhance customer diversification, strengthen global partnerships and provide additional revenue streams through custom synthesis and contract manufacturing services.

On the regulatory front, Unit 1 of your Company is preparing for an ANVISA (Brazil health authority) inspection scheduled in September, 2025. A successful clearance will be a gateway to expanding the Companys presence across Brazil and other Latin American markets, further diversifying its geographic footprint beyond the existing market.

To support these growth ambitions, the Company is undertaking capacity expansion and renovation of a major production block in Unit 1, which will significantly enhance manufacturing capabilities and operational efficiencies. In parallel, a new API production line is also planned for Mahi Drugs, expected to be operational by the year 2026-27, which will further augment its installed capacity and strengthen readiness for future demand.

Together, these initiatives form the backbone of the Companys medium- to long-term strategy · anchored on portfolio expansion, regulatory readiness, capacity enhancement and strategic partnerships. With a balanced focus on regulated markets like the US and Brazil, and emerging opportunities in frontier economies, your Company is positioning itself to achieve sustainable growth and establish a stronger leadership position in the global API and intermediates space.

e) RISKS AND CONCERNS:

Given the increasing intensity of competition across the pharmaceutical sector, the role of favorable government policies has become one of the most critical determinants of growth. Simplification and easing of regulatory processes can significantly enhance Indias growth prospects in this industry, especially as private sector players continue to expand capacity and diversify product lines. Policy support in addressing existing industry challenges · such as high capital requirements, availability of skilled workforce, adoption of updated technologies and utilization of advanced data analytics · will remain pivotal. These structural and operational challenges continue to occupy the attention of industry leaders and influence key strategic decisions.

Within this wider context, the senior management and Board of Directors of the Company conducts regular and robust assessments to identify, evaluate and respond to risks that could potentially impact operations, profitability or regulatory compliance. The Board remains confident that these risks are being appropriately managed and consistently monitored in line with the Companys governance framework.

To ensure accountability, individual functional heads are entrusted with the responsibility of managing risks specific to their departments. They are expected to proactively identify potential risks in their areas, design and implement mitigation plans and ensure alignment with leading industry practices. This approach ensures that risks are continuously brought within the Companys defined appetite limits, while fostering a culture of resilience and adaptability.

Although the Risk Management Committee is not applicable to your Company under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board has nonetheless demonstrated its commitment to best governance standards by formally adopting a Risk Management Policy. This policy outlines the framework for identifying, monitoring, and mitigating risks and is accessible on the Companys website, thereby ensuring full transparency and stakeholder confidence. By maintaining this structured and proactive approach to risk management, your Company ensures not only regulatory compliance and operational sustainability, but also builds the resilience necessary to navigate evolving industry dynamics, policy changes and competitive pressures.

f) INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Your Company has in place an adequate internal control system, commensurate with its size and nature of its operations. These controls are designed to ensure the orderly and efficient conduct of business, safeguard assets and secure the reliability of financial reporting. The systems are periodically upgraded and strengthened to incorporate incremental improvements, enabling your Company to maintain resilience and adaptability in a dynamic regulatory and business environment.

The internal control framework enables your Company to:

¦ Protect assets from unauthorized use or losses,

¦ Ensure efficient conduct of operations in strict adherence to Company policies,

¦ Maintain accuracy, completeness and reliability of financial and accounting records,

¦ Ensure compliance with applicable laws, regulations and standards,

¦ Detect and prevent fraud in accounting and reporting processes.

To review and monitor the adequacy of these systems, your Company has appointed M/s Adusumilli and Associates, Chartered Accountants, as Internal Auditors. Their reports provide an unbiased and independent evaluation of the design, implementation and effectiveness of internal controls, with recommendations for continuous improvement wherever required.

The Board of Directors and the Audit Committee play an active oversight role, ensuring that internal financial controls are not only well-defined but also operated effectively. Regular reviews are undertaken to confirm the robustness of internal systems, adherence to applicable accounting standards and compliance with statutory and regulatory requirements.

Through this continuous monitoring and evaluation approach, Your Company ensures that its internal financial control system remains reliable, efficient and responsive to organizational needs, thereby supporting sustainable growth and strong governance practices.

g) FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

During the year, your Company has created a provision of Rs.5.06 crores towards doubtful trade receivables in accordance with its prudent accounting and risk management practices. This provision, while non-cash in nature, has had directly impacted the profitability of the Company for the year.

Break-up of Sales:

h) HUMAN RESOURCES:

The total employee strength of the Company as on 31^st March, 2025 stood at 592.

Your Company has adopted various Human Resources policies aimed at developing and empowering its employee base, which it regards as its most valuable asset.

The focus remains on providing ample, equal and fair opportunities for career development and progression, ensuring a workplace free from any form of discrimination on the basis of religion, gender, race, colour, caste, or any other grounds. The Companys approach is centered on building a motivated workforce that feels valued, respected and inspired to contribute meaningfully.

To foster a culture of accountability and transparency, the Company has instituted a robust Whistleblower Policy that empowers employees to raise and report concerns without fear of reprisal. Furthermore, in keeping with its commitment to ensuring a safe and respectful workplace, the Company has implemented the Prevention of Sexual Harassment (POSH) Policy, in line with statutory requirements. This provides employees with a clear platform and support system to address grievances effectively and confidentially.

Beyond compliance, the Company strongly believes in being an enabling employer that provides its workforce with the right tools, guidance and growth opportunities. By fostering such a supportive ecosystem, the Company ensures that employees not only progress in their individual careers but also contribute significantly to the organizations sustained growth and long-term success.

i) DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS:

j) The return on Net worth for the year 2024 - 25 has increased by 49.04% as compared to preceding year due to improvement in profitability.