SMS Pharmaceuticals Ltd Management Discussions

Economic Environment

Global Economic Overview

The global economy expanded by 3.3% in CY 2024, supported by robust growth in the US, although this was partially offset by slower growth in Europe. Inflation decelerated to 5.7%, from 6.6% in CY 2023, drivenbydecliningpricepressuresinadvancedeconomies.Tosupport liquidity and economic activity, the US Federal Reserve reduced interest rates by 100 basis points during the year, bringing them to a range of 4.25-4.50%. Governments around the world adopted selective policy measures, including increased investments in public infrastructure, expanded social welfare programmes and business incentives, to insulate their economies from geopolitical disruptions.

Investor sentiment, however, remained subdued due to a combination of geopolitical tensions in the Middle East and Europe, slower economic growth in China and evolving US policies. This cautious outlook was reflected in higher bond yields across advanced economies. Meanwhile, developed nations continued to invest in green technologies and digital infrastructure to address long-term structural issues such as aging populations and declining productivity. In contrast, numerous emerging and developing nations maintained growth momentum due to moderating inflation and a solid foundation in manufacturing and industrial output.

Global economic growth is projected to moderate to 2.8% in CY 2025, before rebounding modestly to 3.0% in CY 2026. This moderation is likely to persist due to the continued impact of policy uncertainty and trade tensions. As disinflation trends continue, particularly due to slowing labour markets and falling oil prices, European central banks are anticipated to cut interest rates further, while the Federal Reserve treads carefully to avoid reigniting inflation through trade-related pressures. Escalating protectionist policies could further decelerate trade and investment, deepening the divergence in growth rate between economies.

Structural reforms such as promoting healthy ageing policies, increasing female and senior workforce participation and nurturing innovation can help mitigate fiscal pressures and enhance long-term economic resilience. Maintaining strong monetary and fiscal frameworks, ensuring prudent public expenditure and prioritising infrastructure investments will be vital in anchoring inflation, creating financial buffers and increasing long-term productivity. Enhanced international cooperation will be crucial in supporting both domestic and international economic stability.

Indias GDP increased 6.5% in FY2025, showing resilience amid global macroeconomic uncertainties. While rural demand remained robust, supported by a healthy agricultural output, urban consumption witnessed some moderation. The services sector continued to be the key driver of growth and demand for high-end manufacturing exports, especially electronics, semiconductors, defence equipment and drugs, remained strong despite supply-chain woes. Fiscal discipline played a critical role in sustaining momentum. The fiscal deficit was contained at around 4.4-4.5% of GDP, enabling ongoing public spending.

During the year, government initiatives, including the Pradhan Mantri Jan Arogya Yojana, expanded health-insurance coverage and supported healthcare demand. Infrastructure investments surged, with spending increasing by 38.8% between FY2020 and FY2025, laying the groundwork for continued private sector participation.

India is expected to remain one of the worlds fastest-growing economies, with GDP growth of 6.5% projected for FY2026. With the nation becoming the third largest economy in the world by gross output, its outlook is supported by moderating inflation, benign monsoons and robust consumption trends. Retail inflation is expected to hover near 4%, aligning with the Reserve Banks target.

Continued global trade tensions and unpredictable tariffs will restrain exports and discourage new investment, necessitating the resilience of supply chains and diversification of foreign-direct-investment sources. As nations increasingly adopt China plus one strategies to fortify supply chains, India is well-positioned to emerge as the manufacturing hub of the world.

Moving forward, enhancing labour-force participation, upskilling the workforce and raising rural incomes will be crucial in boosting domestic productivity and countering demographic challenges.

Prudent financial management, increased financial inclusion and strong digital infrastructure will enable India to absorb shocks. Concerted international effort on trade and investment, such as the Free Trade Agreement with the UK, combined with transparent policy frameworks, will help ensure the maintenance of external stability and inclusive and sustainable growth.

Global prescription drug sales totalled around $1.1 trillion in 2024.2 That same year, pharmaceutical companies invested over $300 billion in research and development. The industry continues to leverage technology to expand access, raise awareness and enhance screening techniques, enabling earlier diagnosis and treatment. Partnerships with other healthcare stakeholders allow companies deliver patient-centric solutions, such as personalised support mobile apps and educational programmes, that improve both clinical outcomes and quality of life.

The sector is expected to focus on accelerating the approval of new treatments, particularly personalised medicines, while navigating pricing pressures and seeking growth in emerging markets. Oncology is anticipated to remain the leading therapeutic area in terms of value, with immunomodulators also experiencing strong growth. Treatments for obesity and central nervous system disorders are also likely to become significant drivers of expansion.

As populations grow in regions such as Asia, the Middle East and Latin America, biopharmaceutical companies are targeting these underserved markets, each with distinct regulatory and economic environments, for introducing innovative therapies. Global prescription drug sales are estimated to grow at a yearly rate of 7.7% each year over the next five years, reaching more than $1.7 trillion by 2030.

1.1 1.7 Global API Market3

Global Active Pharmaceutical Ingredient (API) use is approximately $240 billion and is expected to increase at 6% annually to hit $350 billion by 2030. Drivers of growth in this segment are, an aging population, increasing incidence of lifestyle and genetic conditions, need for advanced formulations to treat specified diseases (e.g., cytotoxins and antibody–drug conjugates for cancer) and growing demand for generics as patents run out.

Outsourced APIs currently make up half of global API demand and are projected to grow at 7% a year from 2023 to 2030, compared to 4% growth anticipated for captive manufacturing facilities. This growth is driven by the cost of efficiencies of large-scale production hubs in India and China, along with the rising demand for generics worldwide.

The global small molecule API market is valued at $205.69 billion in 2025, driven by increased prevalence of chronic diseases such as cancer, diabetes, arthritis, cardiovascular, neurological and respiratory diseases along with increasing small molecule efficiency and improved healthcare facilities. Augmenting research on COVID-19 vaccines and continuous drug discovery with small molecules, fuelled by demand from pharmaceutical industries and chronically ill patients, further drives the market. Increased government investments and incentive policies stimulating the development of small molecule API further increase research, improve efficiency and increase revenue. Moving forward, the market is anticipated to reach $331.56 billion by 2034, exhibiting a Compound Annual Growth Rate (CAGR) of 5.45% from 2025-2034.

Often referred to as the ‘Pharmacy of the World, India played a critical role during the COVID-19 pandemic, supplying vaccines, essential medicines and critical medical equipment to countries globally. As of 2024, the Indian pharmaceutical market was valued at approximately $58 billion, making it is the third largest in terms of volume and fourteenth in terms of value, with exports reaching over 200 countries and territories.

India is home to the highest number of US FDA-approved plants outside the US, boasting over 3,000 companies having over 10,500 manufacturing facilities. Product types vary from generics and bulk drugs to vaccines, over-the-counter drugs, formulations, biosimilars and biologics.

India also contributes 57% of the World Health Organizations prequalified Active Pharmaceutical Ingredients (APIs), with its market size valued at $18 billion in 2024. Moving forward, Indias pharmaceutical industry is poised for substantial growth, with projections placing the industrys value between $120-130 billion by 2030, potentially raising Indias share of the global pharmaceuticals market from 3% to almost 5%.

Geopolitical shifts and legislative changes, such as the US Biosecure Act, which limits collaboration with major Chinese biotech firms, are encouraging pharmaceutical supply diversification. India stands to benefit significantly, offering superior service levels, competitive manufacturing costs and a large and skilled talent pool.

Quality standards have improved, with Indian firms outperforming top Chinese producers in US-FDA inspections. Indian companies received a seven percentage points higher No Action Indicated (NIA) rate compared to the top Chinese counterparts.

A recovering economy and growing per capita income are fuelling domestic drug demand. Increased household incomes increase both the value and volume of the domestic market.

Government initiatives such as Ayushman Bharat and the expansion of private medical plans, are enrolling more individuals into formal healthcare systems, enhancing access to medicines and therapies.

Ayushman Bharat Digital Mission platform and the emergence of several digital healthcare services are simplifying patient registration, prescription management and teleconsultation. These developments enhance service delivery, particularly for marginalised sections.

Concentration on high-value products such as complex generics, biosimilars, new chemical and biological entities and advanced therapies such as antibody-drug conjugates and gene or RNA medicines—is increasing Indias export competitiveness. As pharmaceutical companies move up the value chain, new international opportunities keep unfolding.

Indias pharma prospects appear optimistic, powered by domestic demand, international market opportunities and strategic changes toward innovation and high-value products. Exports are forecasted to grow from $27 billion in 2023 to $65 billion by 2030 and possibly up to $350 billion by 2047. A shift from volume-based to value-based growth will highlight areas such as specialty generics, biosimilars, new drugs and innovative gene and cell therapies.

Growth of Contract Development and Manufacturing Organisations (CDMOs) and Contract Research Organisations (CROs) is unfolding Indias presence along the pharma value chain, from research and clinical trials to manufacturing. Digitalisation and use of Artificial Intelligence (AI) and Machine Learning (ML) are likely to revamp drug discovery, clinical development, manufacturing and supply chain operations. Regulatory reforms, quality enhancements and green manufacturing practices will be the key enablers of this evolution.

At the same time, the rising burden of conditions such as Metabolic Dysfunction-Associated Steatotic Liver Disease (MASLD), stimulated by obesity, diabetes, physical inactivity and insulin resistance, even among the non-drinkers, will fuel medication demand. Indias API exports are projected to grow to $22 billion by 2030 at an 8.3% CAGR, backed by evolving global supply chains and pro-policies. The biotech industry, with more than 800 core companies and a dynamic start-up ecosystem, is positioned for remarkable growth. Private equity and venture capital investments continue to accelerate innovation and capacity building, reinforcing

Indias position as a global pharmaceutical powerhouse.

SMS Pharmaceuticals Ltd. is one of Indias leading pharmaceutical manufacturers, equipped with state-of-the-art facilities and a wide array of process equipment that fully complies with cGMP and WHO norms. Backed by a well-established research and manufacturing team, along with advanced infrastructure, the Company has positioned itself as a global player in Active Pharmaceutical Ingredients (API) manufacturing.

Established in 1990 as a single-product, single-location manufacturing company, SMS Pharmaceuticals has evolved into a multi-location enterprise with a diversified product portfolio across various therapeutic areas. During 1997-98, the Company attained Export-House status, marking its foray into global markets.

At present, SMS Pharmaceuticals is a listed company with an increasing base of both domestic and international customers. The Company operates two multi-product plants and research facility and has more than 1,400 professionals on its payroll.

SMS Pharmaceuticals leverages its robust research and manufacturing capabilities to develop and commercialise APIs that meet rigorous market standards. The API segment generates ~98% of the Companys total sales and includes more than 55 products across 24 therapeutic categories. It is also the leading exporter of anti-migraine triptans , anti-diabetic and anti-inflammatory . SMS has two plants with several international authorities approvals, including the USFDA. Exhibiting its competence in both high-volume and niche molecules, the Company has established one of Asias largest production blocks to manufacture ibuprofen at its Vishakhapatnam facility, with a reactor capacity of 3,000 KL.

Product Portfolio

SMS Pharmaceuticals specialises in niche molecules, maintaining stringent regulatory compliance and adhering to the highest quality norms. It holds over 120 Drug Master Files (DMFs) with regulatory agencies such as the USFDA, PMDA, ANVISA, EU and KFDA and has obtained a CEP certification for multi products including ibuprofen, enabling its access into the European markets. The Company has achieved significant sales milestones in Bangladesh, Indonesia, Brazil, the MENA region and the US. With strong manufacturing processes and a competent workforce, SMS Pharmaceuticals continues to enhance its reputation among European customers while striving to strengthen its presence worldwide.

Countries associated to the business of the Company

Drug Master Files

The Companys growth strategy is built on achieving scale, leveraging portfolio strength, driving integration, expanding capacity, and accelerating product development. The Company is targeting global leadership in Ibuprofen by ramping up production to 1,000 MT per month, supported by competitive cost structures and process excellence. Alongside this, its diversified portfolio of high-value and high-volume APIs provides a strong platform for sustainable earnings and market leadership. Backward integration of key APIs has been successfully commissioned, strengthening supply security and driving profitability through improved efficiencies.

The Company aims to further introduce eight to ten products in existing and emerging therapeutic areas, while significantly stepping up investments in research and development, with plans to double R&D spend over the next 18 months. A robust pipeline of high-potential molecules will be supported by multiple DMF, CEP, and dossier filings, along with new infrastructure including a dedicated peptide-focused R&D facility and a CDMO greenfield site in Andhra Pradesh.

To sustain future growth, SMS Pharma is executing a 250 crore capacityexpansionprogrammetoscalemanufacturing,strengthen environmental systems, and support new product introductions. Strategic collaborations remain another cornerstone of its growth journey, with the joint venture with Chemo and its investment in VKT Pharma broadening the product basket, deepening presence in Europe, and unlocking opportunities in formulations. Underpinned by disciplined capital allocation, balancing internal accruals and debt to fund expansion while maintaining industry-leading asset turnover ratios, these initiatives ensure that SMS Pharma has a long runway for growth—delivering high-quality APIs with precision, efficiency, and innovation while creating long-term value for stakeholders across global healthcare.

(INR in crore except EPS)

(As at 31st March, 2025 vs. 31st March, 2024)

SMS Pharmaceuticals continues to drive innovation through substantial R&D investments and strategic global collaborations. With a team of more than 63 scientists and technical staff, the R&D division has incorporated 20 new products into its portfolio in recent years. The Companys joint venture with Chemo SMS Enterprises S.L., Spain, further enhances its research capabilities worldwide. Notably, the Company has enhanced a number of anti-migraine APIs, gaining leadership in the therapeutic segment. In FY 2025, the Company allocated 2.4% of sales for R&D.

With its state-of-the-art technology and advanced equipment, the R&D centre is equipped with a kilo lab support by 4,500-litre scale-up pilot plant in Plant. These units facilitate process development and the preparation of regulatory dossiers. The Company has submitted over 120 Drug Master Files (DMFs) and owns over 35 process patents, highlighting its technical competence and regulatory strength.

In its pursuit of sustainable chemistry, the Company has developed a process for recycling methyl mercaptan gas to dimethyl sulfoxide (DMSO) in ranitidine manufacture. The Companys green-chemistry innovation was awarded the Indo-US Green Chemistry Network (GCNC) Award.

SMS Pharmaceuticals upholds global quality management systems and ensures products consistently meet or surpass market specifications. On-going improvements coupled with adherence to compliance standards maintains SMS Pharmaceuticals leadership in terms of quality and compliance.

SMS Pharmaceuticals continues to promote a supportive and growth-oriented work environment, recognising the potential of its employees as its valuable assets. The Companys human-resource policy emphasises on comprehensive training programmes, continuous learning opportunities and skill-enhancement initiatives.

SMS Pharma ensures every employees contribution is respected and valued, with a focus on work-life balance, a healthy work environment and adherence to strict health and safety standards. The HR plays a pivotal role in aligning individual aspirations with organisational goals, ensuring high levels of productivity and engagement.

As of 31 March 2025, the Company employed more than 1400 personnel across its operations.

SMS Pharmaceuticals places a strong emphasis on employee well-being. Unit II operates in compliance with ISO safety standards, with regular training programmes in place to enhance workforce preparedness and capability. The facility is equipped with basic firefighting equipment, personal protective gear and specially trained first-aid squads, while on-site medical personnel and on-premises ambulance ensure rapid emergency response. These precautions are integral to the Companys overall safety policy.

The Company has implemented sustainable practices across systems to reduce environmental footprint. The Company carries out awareness programmes, offers employee training, uses latest technology and optimises use of resources. It has commissioned Zero Liquid Discharge plants at all locations and actively engages with suppliers to uphold the same environmental standards. The Company has an integrated management system that is certified to both ISO 14001 (environmental) and ISO 45001 (occupational health and safety) standards. The Companys innovative green-chemistry initiatives earned recognition through the Indo-US Green Chemistry Network Award.

SMS Pharmaceuticals is dedicated to achieve positive social and environmental outcomes through well-structured CSR programmes. With a focus on disadvantaged and underprivileged communities, the Company facilitates inclusive developments by improving access to healthcare and education. Its initiatives range from constructing schools and infrastructure, supporting healthcare growth, equipping villages with drinking-water facilities and stimulating rural livelihood. Through these efforts, SMS Pharmaceuticals contributes to holistic community development and fosters shared prosperity across its areas of operation.

Moving forward, the Company will establish a global presence in ibuprofen with a continued leadership in both high-margin and high-volume markets. It is leveraging a diversified product portfolio along with vertical and backward integration of some products to improve profitability.

The Company also aims to add 8-10 products in the next 12-18 months in existing and new therapeutic areas. Capacity expansion comprises new capex of 250 crore to drive new products and the CMO business.

SMS Pharmaceuticals has implemented robust internal control systems and processes across all of its financial and business activities. The Companys strong control framework supports its corporate governance, providing assurance of accurate record maintenance and credible reporting of financial and business information, compliance with relevant regulations, safeguarding of assets against misuse or loss, adequate authorisation of transactions and adherence to corporate policies. To put these practices into writing, the Company has an exhaustive delegation-of-authority document for authorisation of expenditures and revenues and is committed to continuously enhancing its controls.

The Audit Committee is central to this function. It regularly examines internal procedures, advises corrective actions when necessary and reports to the Board of Directors periodically on major findings, thus aiding in the provision of an effective and secure environment of controls.

The management of SMS Pharmaceuticals Ltd. has carefully prepared and takes full responsibility for the financial statements included in this report. These statements comply with Indian Accounting Standards and other relevant regulations, reflecting well-considered judgments and estimates.

Some sections of this report may contain forward-looking statements intended to help investors understand potential future opportunities and make informed investment decisions. However, these statements are subject to risks and uncertainties, such as regulatory changes, political or economic developments, technological challenges and other factors that could result in actual outcomes differing from those projected.

While the Company aims to make prudent assumptions, it cannot guarantee the realisation of these forward-looking statements. Various factors, including economic conditions affecting demand, supply and pricing in domestic and international markets, changes in regulations and other unforeseen events, may impact the Companys performance. Readers should consider these factors when evaluating the statements. The Company is not obligated to publicly update or revise any forward-looking statements based on new information, future events, or other circumstances.