Sotac Pharmaceuticals Ltd Management Discussions

The following discussion outlines the operational and financial performance of the Company, as well as its business outlook for the financial year 2025–26. This analysis is based on the prevailing business environment and current Government policies. It should be noted that future economic developments and other external factors may lead to variations in this analysis.

The Managements perspective on the Companys performance and future outlook is presented below:

ECONOMIC OVERVIEW

Global Economy

The global economy remained resilient during 2025 despite heightened trade policy uncertainty and geopolitical tensions. Global GDP grew by 3.4%, supported by sustained investments in artificial intelligence (AI) and technology, which helped offset the impact of tariffs and supply chain disruptions. Inflation moderated to 4.1%, while financial conditions remained broadly supportive.

Advanced economies recorded moderate growth, led by the United States, while emerging markets outperformed, with India and China remaining key growth drivers. Global trade remained stable, supported by strong technology exports despite ongoing tariff-related uncertainties.

Outlook

Global growth is projected to remain broadly stable at around 3.1% in 2026, supported by continued AI-driven investments and favourable financial conditions. However, the outlook remains subject to significant downside risks, including trade policy uncertainty, geopolitical tensions in West Asia, supply chain disruptions, energy market volatility, and tighter export controls on critical minerals. While technology investments are expected to provide resilience, elevated policy uncertainty and geopolitical developments may continue to weigh on global trade, inflation, and investment sentiment.

Impact of Geopolitical Developments

Escalating tensions in West Asia have increased uncertainty across global markets, disrupting energy supplies, trade routes, and supply chains. Higher energy prices, logistics challenges, and shortages of critical industrial inputs have contributed to increased operating costs and inflationary pressures across industries. These developments are expected to continue influencing global business conditions and economic activity in the near term.

Source: WEO (IMF)

Indian Economy Outlook

India continues to remain one of the worlds fastest-growing major economies, supported by resilient domestic demand, strong investment activity, and ongoing structural reforms. However, the latest GDP estimates indicate that India is currently the 6th largest economy in the world with a nominal GDP of about USD 4.15 trillion in 2026. The country is expected to retain its strong growth momentum and may regain a higher global ranking over the medium term as economic expansion continues. (Source: PIB-GOI)

Looking ahead, Indias growth is expected to remain robust, with most multilateral institutions projecting real GDP growth in the range of 6.3% to 6.5% over the medium term, significantly outpacing other major economies. Growth is expected to be supported by rising private investment, improving manufacturing competitiveness, expanding services exports, resilient rural and urban demand, and continued public investment in infrastructure. The countrys favourable demographics, increasing formalisation of the economy, rapid digital adoption, and ongoing structural reforms are expected to further enhance productivity and strengthen investment activity. (Source: IMF)

Inflation is expected to remain broadly within the Reserve Bank of Indias target range, supported by prudent monetary policy and easing food price pressures, although volatility in global crude oil prices, commodity markets, and adverse weather conditions could create intermittent inflationary pressures. The banking sector remains well-capitalised, credit growth continues to support economic activity, and improving corporate balance sheets are expected to encourage higher private capital expenditure. (Source: Reuters)

Despite its strong fundamentals, Indias economic outlook remains subject to external risks, including geopolitical tensions in West Asia, global trade policy uncertainty, supply chain disruptions, fluctuations in energy prices, and slowing global demand. These factors may impact exports, input costs, and inflation in the near term. Nevertheless, supported by sound macroeconomic fundamentals, continued policy reforms, and resilient domestic demand, India remains well positioned to sustain healthy long-term economic growth and reinforce its position as a leading global investment destination. (Source: OECD)

INDUSTRY STRUCTURE AND DEVELOPMENTS

The Indian pharmaceutical industry continues to be one of the largest and fastest-growing pharmaceutical markets globally, supported by a strong manufacturing ecosystem, skilled workforce and cost competitiveness. India ranks as the third-largest pharmaceutical producer by volume and is among the worlds leading suppliers of generic medicines, meeting nearly 20% of global generic demand. The industry continues to benefit from favourable government policies, increasing healthcare awareness and growing investments in research, manufacturing and digital healthcare.

Indias pharmaceutical sector maintained steady growth during FY 2025-26. The domestic pharmaceutical market was estimated at around US 60 billion (Rs 5.2 lakh crore) in 2026 and is expected to reach US60 billion (Rs 5.2 lakh crore) in 2026 and is expected for each US 80 billion by 2031, driven by rising demand for chronic therapies, expanding healthcare infrastructure and increasing penetration across Tier-II and Tier-III cities. Government initiatives such as the Production Linked Incentive (PLI) Scheme and Ayushman Bharat continue to support the sectors long-term growth. (Source: IBEF)

India further strengthened its position in the global pharmaceutical supply chain with pharmaceutical exports of approximately US$ 30.5 billion in FY 2024-25, registering a growth of around 9.4% over the previous year. The United States, the United Kingdom, South Africa and France remained key export destinations, while increasing demand for formulations and specialty products continues to create opportunities for Indian manufacturers. (Source: PIB & IBEF)

The industry continues to witness increasing focus on quality, regulatory compliance, product innovation and contract manufacturing. Growing outsourcing by global pharmaceutical companies, coupled with diversification of supply chains, presents significant opportunities for Indian formulation manufacturers with robust manufacturing capabilities and strong quality systems.

GOVERNMENT INITIATIVES

The Government of India continues to strengthen the pharmaceutical sector through policy initiatives focused on enhancing domestic manufacturing, promoting research and improving global competitiveness. The Production Linked Incentive (PLI) Schemes for Pharmaceuticals and Bulk Drugs are aimed at boosting domestic production of critical drug intermediates, APIs and high-value pharmaceutical products, while reducing import dependence and encouraging investments in advanced manufacturing. The Promotion of Research and Innovation in Pharma MedTech (PRIP) Scheme is expected to accelerate innovation, industry-academia collaboration and development of complex pharmaceutical products. (Source: DOP & PIB)

The Government has also introduced measures to improve quality standards and infrastructure through initiatives such as the Pharmaceutical Technology Upgradation Assistance Scheme (PTUAS) and support for pharmaceutical clusters. These initiatives are intended to help pharmaceutical manufacturers, particularly MSMEs, upgrade manufacturing facilities, strengthen regulatory compliance and improve global competitiveness. (Source: DOP)

Healthcare accessibility continues to improve through initiatives such as the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP), which has established over 16,000 Jan Aushadhi Kendras across the country, providing quality generic medicines at affordable prices. Further, the Ayushman Bharat Digital Mission (ABDM) is driving digital integration across the healthcare ecosystem, improving healthcare delivery and accessibility. (Source: PMBI & NHA)

The Governments continued focus on ease of doing business, 100% FDI under the automatic route for greenfield pharmaceutical projects, export promotion and strengthening Indias pharmaceutical manufacturing ecosystem is expected to support the industrys long-term growth. These initiatives are expected to enhance Indias position as a reliable global pharmaceutical manufacturing hub while creating opportunities for companies across the pharmaceutical value chain. (Source: DPIIT & DOP)

OUR BUSINESS

Sotac Group is engaged in the manufacturing of a broad spectrum of high-quality pharmaceutical products. Our therapeutic portfolio includes anti-diabetic, anti-psychotic, vitamins, minerals, iron supplements, anti-cold, anti-allergic, dermatological solutions, antacids, anti-ulcerants, PPIs, anti-emetics, cardiac care, anti-hypertensives, analgesics, anti-pyretics, anti-inflammatory, anti-bacterial, anti-viral, general antibiotics (IP-Lactams & Non-IP-Lactams), anti-fungal and cephalosporin products. We remain committed to delivering safe, effective and affordable healthcare solutions while maintaining high standards of quality, regulatory compliance and customer satisfaction.

The Company has established itself as a reliable contract manufacturing partner for several leading pharmaceutical companies and continues to strengthen its presence in both domestic and international markets. With a strong track record and a commitment to innovation, Sotac Pharmaceuticals Limited has emerged as a trusted name in the pharmaceutical industry. The Companys products are distributed across 14 major states in India and exported to over 20 countries worldwide, with the United States being a key contributor to its international business. The Company remains focused on delivering high-quality pharmaceutical formulations while strengthening customer relationships, expanding its market presence and maintaining the highest standards of quality and regulatory compliance.

We have built a diversified customer base comprising reputed pharmaceutical companies, including Cadila Pharmaceuticals Limited, J. B. Chemicals & Pharmaceuticals Limited, Lincoln Pharmaceuticals Limited, Intas Pharmaceuticals Limited, Viatris (formerly Mylan), Ipca Laboratories Limited, Corona Remedies Limited, Eris Lifesciences Limited, Strides Pharma Science Limited, Stallion Laboratories Private Limited, Acme Pharmaceuticals, Olecare Pharmaceuticals, Treatwell Pharmaceuticals, Ronak Healthcare, Curever Pharma, Kentoss Pharmaceuticals Private Limited, Sunrest Lifescience LLP and Ishan Healthcare Private Limited, among others.

Going forward, the Company remains focused on expanding its product portfolio, enhancing manufacturing efficiencies, strengthening customer relationships and increasing capacity utilisation. With growing demand for quality pharmaceutical formulations, increasing outsourcing by pharmaceutical companies and supportive policy initiatives for domestic manufacturing, Sotac Pharmaceuticals Limited believes it is well positioned to strengthen its market presence and create sustainable long-term value for its stakeholders.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE

The Company operates through four key business verticals, enabling it to offer integrated manufacturing and development solutions:

a. Manufacturing of Non-Beta-Lactam Medicines and Formulations

The Companys Non-Beta-Lactam (General) formulations business is its principal operating segment, undertaken through the manufacturing facilities of SOTAC Pharmaceuticals Limited. The Company manufactures a wide range of pharmaceutical formulations, including tablets, capsules, oral liquids, dry syrups, ointments, creams, lotions, and other external preparations, primarily under contract manufacturing and loan licence arrangements. With robust manufacturing capabilities and stringent quality standards, the Company serves more than 162 corporate clients across the pharmaceutical industry.

b. Manufacturing of Beta-Lactam Medicines and Formulations

The Companys Beta-Lactam formulations business is carried out through its subsidiary, SOTAC Healthcare Private Limited, which operates a dedicated manufacturing facility for Beta-Lactam products. The facility manufactures tablets, capsules, oral liquids, and dry syrups under contract manufacturing and loan licence arrangements, with an installed annual capacity of 32.40 crore tablets, 21.60 crore capsules, and 2.16 crore dry syrup bottles. The Company serves more than 162 corporate clients through this vertical while maintaining high standards of quality and regulatory compliance.

c. Molecule Research and Development

The Company is engaged in the research and development of pharmaceutical molecules and formulation technologies to support new product development and strengthen its formulation portfolio. The R&D function focuses on product innovation, process optimization, and the development of value-added pharmaceutical products, thereby enhancing the Companys competitiveness and supporting its long-term growth strategy.

d. Manufacturing of Nutraceutical and Food Products

The Company has diversified into the nutraceutical and wellness segment through its majority-owned subsidiary, SOTAC Lifescience Private Limited, which is engaged in the manufacturing of nutraceutical and food products under a contract manufacturing model. This business vertical complements the Companys pharmaceutical operations by expanding its presence in the growing nutraceutical market and supporting product diversification.

PRODUCT CATEGORY WISE REVENUE BIFURCATION

The revenue bifurcation of the issuer company for the last three years are as follows:

(Rs. in Lakhs)

OPPORTUNITIES & THREATS

OPPORTUNITIES

The cost of manufacturing pharmaceutical goods in India is lower and more effective compared to other nations, including:

- Growing Demand for Generic Medicines

India remains a global leader in generic medicines, supported by rising demand from regulated and emerging markets. Patent expiries and increasing healthcare costs worldwide continue to create export opportunities for Indian manufacturers.

- Expanding Domestic Healthcare Market

Growing healthcare awareness, rising incidence of chronic diseases, higher healthcare spending, and improving access to medical services are expected to support sustained growth in the domestic pharmaceutical market.

- Government Policy Support

Initiatives such as the Production Linked Incentive (PLI) Scheme, promotion of bulk drug parks, and the Atmanirbhar Bharat programme are strengthening domestic manufacturing and encouraging industry growth.

- Global Supply Chain Diversification

The shift towards diversified sourcing has enhanced Indias position as a preferred pharmaceutical manufacturing hub, creating opportunities for exports, contract manufacturing, and strategic partnerships.

- Growth in Contract Manufacturing

Increasing outsourcing by global pharmaceutical companies offers significant opportunities for Indian manufacturers to expand their contract manufacturing and third-party production businesses.

- Product Portfolio Expansion

Rising demand for specialty formulations, nutraceuticals, and value-added pharmaceutical products provides opportunities for product diversification and market expansion.

- Favorable Investment Environment

Liberalized FDI policies, improved infrastructure, and increased industry collaboration continue to attract investments and support capacity expansion and technological advancement.

THREATS

However, there are also some challenges facing the Indian pharmaceutical industry, including:

- Supply Chain and Geopolitical Risks

Dependence on imported APIs and key raw materials, coupled with geopolitical uncertainties and global trade disruptions, may impact procurement, production schedules, and input costs.

- Cybersecurity Risks

Increasing digitalization exposes pharmaceutical companies to cyber threats, data breaches, and system disruptions, which may affect business continuity, confidential information, and regulatory compliance.

- Regulatory and Compliance Risks

Evolving domestic and international regulatory requirements, including quality standards, data protection laws, and clinical trial regulations, may increase compliance costs and affect product approvals and market access.

- Pricing and Cost Pressures

Price controls on essential medicines, rising raw material, packaging, energy, and logistics costs, along with inflationary pressures, may impact operating margins and profitability.

- Environmental and ESG Compliance

Stricter environmental regulations and increasing stakeholder expectations on sustainability require continuous investments in pollution control, waste management, and responsible manufacturing practices.

- Intellectual Property and Legal Risks

Patent disputes, product liability claims, and evolving legal and regulatory frameworks may lead to increased litigation costs and operational challenges.

- Talent Availability

The increasing demand for skilled professionals in pharmaceutical manufacturing, quality assurance, regulatory affairs, and research may create challenges in attracting and retaining qualified talent.

The Company remains committed to maintaining high standards of quality, regulatory compliance, and operational excellence. It continues to strengthen its quality systems, invest in technology, and enhance manufacturing processes to effectively manage risks while delivering high-quality pharmaceutical products and superior customer service.

RISKS & CONCERNS

The pharmaceutical industry operates in a dynamic, highly regulated, and competitive environment, exposing the Company to various risks that may influence its operational and financial performance. The business remains subject to evolving regulatory requirements across domestic and international markets, where any changes in quality standards, manufacturing practices, or regulatory expectations may impact product approvals, market access, and operational continuity.

The industry also faces pricing pressures arising from government price control measures, intense competition in the generic pharmaceutical segment, and changing market dynamics, which may affect margins and profitability. In addition, fluctuations in the prices of Active Pharmaceutical Ingredients (APIs), key raw materials, packaging materials, energy, and freight, along with inflationary pressures and foreign exchange volatility, may increase operating costs and impact financial performance.

Dependence on global supply chains for certain raw materials exposes the industry to risks arising from geopolitical developments, trade restrictions, logistics disruptions, and supply shortages. At the same time, increasing digitalization of business processes has heightened exposure to cybersecurity threats and data security risks, making robust information security systems essential for ensuring business continuity.

The pharmaceutical industry is also witnessing increasing expectations relating to environmental sustainability, product quality, and corporate governance, requiring continuous investments in compliance, operational excellence, and responsible manufacturing practices. Further, the availability and retention of qualified professionals in manufacturing, quality assurance, regulatory affairs, and technical functions remain critical to sustaining long-term growth and competitiveness.

The Company continues to strengthen its enterprise risk management framework through robust internal controls, effective quality management systems, regulatory compliance, supply chain optimization, and continuous process improvements. With a prudent risk management approach and a strong focus on operational excellence, the Company remains committed to effectively managing these risks while pursuing sustainable growth and creating long-term value for its stakeholders.

INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has established adequate internal financial controls commensurate with the size, nature, and complexity of its business operations. These controls are designed to ensure the accuracy and reliability of financial reporting, safeguarding of assets, compliance with applicable laws and regulations, and efficient conduct of business. The internal audit function periodically reviews the effectiveness of the internal control framework, and its observations are reviewed by the Audit Committee. Necessary corrective actions are implemented wherever required. The management believes that the Companys internal financial control systems are adequate and operating effectively.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The key strategy will be focused around:

1. Strengthening Financial Stability

2. Operational Excellence

3. Timely Execution of Orders

4. Customer-Centric Approach

5. Sustainable Growth & Brand Development

FINANCIAL PERFORMANCE AND REVIEW OF OPERATIONS

(Rs. in Lakh)

OUTLOOK

The Company remains optimistic about its long-term growth prospects and is committed to strengthening its position in the pharmaceutical industry through sustainable business practices, operational excellence, and continuous innovation. The Companys strategy focuses on expanding its product portfolio, enhancing manufacturing capabilities, improving operational efficiencies, and strengthening customer relationships while maintaining the highest standards of quality and regulatory compliance.

The Indian pharmaceutical industry continues to offer significant growth opportunities driven by increasing healthcare awareness, rising demand for quality healthcare products, expanding healthcare infrastructure, and supportive government initiatives. However, the industry also faces challenges such as pricing pressures, changing regulatory requirements, intense competition, fluctuations in raw material costs, and global supply chain uncertainties.

To capitalize on emerging opportunities, the Company continues to invest in product development, process improvements, quality systems, and technology-driven manufacturing practices. It also aims to strengthen its distribution network, optimize costs through efficient resource utilization, and expand its presence across domestic and international markets.

The Company remains confident that its strong business fundamentals, experienced management, customer-centric approach, and focus on innovation will enable it to navigate industry challenges effectively and achieve sustainable growth. With a disciplined approach to operations and financial management, the Company is well positioned to create long-term value for its shareholders and other stakeholders.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS

The Company firmly believes that its employees are its most valuable asset and remains committed to fostering a performance-driven, collaborative, and inclusive work culture. During the year, the Company continued to focus on employee development through training and skill enhancement initiatives, while promoting operational excellence, accountability, and continuous learning.

Employee engagement, performance management, and transparent communication remained key priorities to support organizational growth and productivity. The Company also continued to strengthen its human resource practices to attract, retain, and develop talent.

As on March 31, 2026, the Company had Fifty-Five (55) full-time employees. Industrial relations throughout the year remained cordial and harmonious, with no significant disruptions to operations.

The Company will continue to invest in its human capital through capability building, leadership development, and employee engagement initiatives to support its long-term business objectives.

KEY FINANCIAL RATIOS

CAUTIONARY STATEMENT

This report contains forward-looking statements that reflect your Companys current views and future expectations in accordance with applicable laws and regulations. These statements relate to the Companys strategic objectives, business prospects, plans, projections, estimates, and anticipated financial performance. They are based on certain assumptions and expectations of future events which are inherently subject to risks and uncertainties. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors—both external and internal—that could cause actual results, performance, or achievements to differ materially from those expressed or implied in these statements. These may include, but are not limited to, changes in regulatory environment, economic developments, market conditions, interest rates, raw material prices, exchange rate fluctuations, or other factors beyond the Companys control. Your Company does not undertake any obligation to publicly update or revise any forward-looking statements in light of future events, developments, or new information, except as may be required by applicable law. Readers are advised not to place undue reliance on these statements and to exercise caution in interpreting them.

Registered office:

Plot No. PF-21 & PF-22/A, Charal Industrial Estate, Sanand GIDC-II, Sanand, Sanand, Ahmedabad, Sanand, Gujarat, India, 382110