Unichem Laboratories Ltd Management Discussions

Economy

The global landscape is marked by a multitude of black swan disruptions from geopolitical developments to supply chain challenges to climate change and rapid technological advancements. The year began with an escalation in tariffs, unsettling global trade patterns, particularly for export-oriented entities. Today, we live in an era of unprecedented geopolitical conflicts, uncertainty in trade policies, the accelerated climate crisis and regulations, as well as, the societal impact of dynamically evolving areas such as artificial Intelligence raising significant concerns.

The war in West Asia has created multiple vortexes of headwinds. Amid daily swings in crude oil prices, global growth prospects for 2026 appear grim. Even if the war ends soon, rebuilding energy infrastructure in West Asia may take months, if not years. A surge in energy prices and its availability could lead to higher inflation, impacting demand and this in turn would hurt corporate profitability. It is therefore expected that Indias economic growth is going to be impacted in FY 2027.

The country will, however, remain among the fastest-growing major economies in FY 2027 despite headwinds from West Asia, supported by strong macroeconomic fundamentals as per the World Bank. In the said emerging backdrop, our nation demonstrates remarkable resilience to external risks, driven by strong domestic fundamentals and a stable and progressive policy framework. India continues to advance at an exceptional pace towards becoming an inclusive and sustainable developed economy.

Global Pharma market

The Indian pharmaceutical industry is known for its generic medicines and low-cost vaccines globally. India, recognised as the pharmacy of the world, supplies one in five generic medicines globally and has risen from seventh place in 2019 to currently third in global export volume. India has the largest number of USFDA-compliant plants outside the US and over 2,000 WHO-GMP approved facilities, exporting to 150+ countries.

The pharmaceuticals export during the FY 2026 had shown a growth of 2.1% which is currently worth about $1.6 trillion, with India contributing around 3% to 3.5%. Indias pharmaceutical industry is poised for significant growth, with its share in the global market expected to rise to 5% by 2030, according to a report by Bain & Company. A unique aspect of Indias pharma industry is that its export market is as large as its domestic market. Indian pharma exports play a crucial role in the countrys economy, making up 6% of total merchandise exports by value.

Unichem, now being part of the Ipca Group and having a wide range of product portfolio and state-of-the-art R&D facility, with decades of experience and understanding of the global markets, is well positioned to serve this opportunity which will help further to consolidate our position in the market.

Generics & Generic Formulation

In FY 2026, the global generic pharmaceuticals market continues expanding at a robust CAGR of 5% to 8% to meet rising global demand for affordable medication. The market is currently estimated to be approximately US$ 450 to US$ 500 billion with high growth expected in oncology, cardiovascular, and CNS therapeutic areas. The market is undergoing a structural transformation from simple oral solids to complex generics and biosimilars in this segment and looking for new opportunities in the near future in patent cliffs of blockbuster drugs.

The global pharmaceutical market is estimated to reach approximately US$ 1.72 trillion in 2026, representing a year-over-year increase of roughly 5.8% from 2025. US remains the leading market, accounting for nearly 45% of global revenue in 2026. The Asia Pacific region is witnessing the fastest growth, driven by rapid healthcare infrastructure improvements in China and India.

Indias drugs and pharmaceuticals exports stood at US$ 30.38 billion in 2025 as compared to US$ 27.82 billion in 2024. Indian drugs are exported to more than 200 countries in the world, with the US as the key market. Contract research and manufacturing services is becoming one of the fastest growing segments in the pharmaceutical and biotechnology industry. The pharmaceutical market uses outsourcing services from providers in the form of contract research organizations and contract manufacturing organizations.

To combat intense price erosion in traditional generics, your Company is pivoting R&D toward complex generics. These include modified-release formulations, long-acting injectables, and inhalation products which offer higher barriers to entry and more stable margins.

Active Pharmaceutical Ingredients (API) market

API is a crucial segment of the pharma industry, contributing to around 35% of the market. India is the third-largest producer of API accounting for an 8% share of the Global API Industry. In December 2025, India announced a 60,000 crores API push to boost domestic pharmaceutical manufacturing and to cut import dependence.

The API division of your Company delivered a strong performance during FY 2026, even though alternate site qualification activities for API were accelerated to streamline commercial supplies as a part of the risk mitigation exercise. During the year, API domestic business accounted for 22% with Europe emerging as the key market for exports. Emerging markets faced pricing pressures and intense competition; however, business development initiatives taken with new molecules such as Montelukast, Ranolazine, Tadalafil, and Tizanidine are expected to provide fillip to your Companys future growth. Looking ahead with new product registrations in regulated markets such as Apremilast, Lacosamide, and Memantine, alongside cost-improvement initiatives on flagship molecules, we are confident of sustainable growth going forward.

Manufacturing Operations

Unichems manufacturing footprint includes three finished formulation plants and three API facilities in India, following stringent regulatory compliance and has consistently met the gold standards of the USFDA and MHRA. The Company continues to be a trusted global healthcare partner, successfully delivering high-quality pharmaceuticals that cater to its customers across the globe largely in the United States, Europe, Brazil and emerging markets including countries in Latin America, Asia Pacific region and Africa. The Company constantly upgrades its systems and processes to ensure stringent requirements of global regulation for the delivery of high-quality, cost-effective products in the international markets.

The Company continues to manufacture diverse dosage forms at a large scale, offering cost-effective and high-quality pharmaceutical products to customers worldwide. During the year, the Company manufactured formulations of around 9.4 billion tablets/capsules.

The global generic market, characterized by intense price competition, has profoundly impacted the Companys manufacturing strategy particularly in the last quarter of FY 2026. We saw operations rapidly turning less conducive, especially for export-oriented pharmaceutical manufacturers as demand witnessed high volatility due to geopolitical uncertainty, tariff threats, trade barriers, and war situations, causing increased cost of goods sold due to supply chain disruptions.

However, several strategic initiatives were implemented across the plants during the year to increase our cost competitiveness:

Cost reduction initiatives for energy conservation and solvent recovery.

Optimum use of human capital with substantial reduction in overtime wages.

Increase in the batch sizes enabled an increase in the capacities and improved manufacturing processes that resulted in yield improvements.

Transition to eco-friendly and cost-efficient fuels continues by replacing conventional energy sources.

The Company is also in the process of installing a solar plant for the electricity requirements of its Roha and Kolhapur facilities.

During the reporting year, two formulation facilities underwent USFDA inspections and received Establishment Inspection Reports with Voluntary Action Indicated status, reaffirming compliance with regulatory expectations. Additionally, one facility completed EU-GMP audits and successfully received EU-GMP certifications.

Safety remains a cornerstone of our operations, and we continued to foster safe work practices across our factories in FY 2026. This commitment has helped us maintain a record of zero fatalities and strive to prevent and reduce injuries. Our pledge to create a workplace that upholds the safety, health, and wellbeing of all our employees remains focused in all our activities.

Opportunities & Threats

The global generic pharmaceuticals market continues to be a cornerstone of sustainable healthcare, where India has established itself as the leader in this space to meet rising global demand for affordable medication. As patent cliffs on major blockbuster drugs totaling over US$150 billion in near future, shall unlock further opportunities for the sector.

It is imperative for India to bolster its Research and Development (R&D) capabilities, foster innovation, attain self-reliance in APIs and Key Starting Material, reinforce quality and compliance commitments and cement its status as a leading global destination for pharmaceutical innovation and manufacturing.

Geopolitical uncertainty has accelerated the regionalization of manufacturing. Major pharmaceutical players are exploring investments in US-based manufacturing to mitigate tariff risks, marking a strategic shift toward localizing production. The market is characterized by intense pricing pressure, high regulatory scrutiny, and frequent product shortages, especially in complex and niche therapeutic segments. However, it also presents lucrative opportunities for companies with strong operational execution, regulatory agility, and a broad pipeline of ANDAs.

Unichem has maintained a disciplined focus on expanding its portfolio in the US market, with an emphasis on therapeutic areas like CNS, Cardiovascular, Anti-infectives, and Gastrointestinal. Brazil remains one of Latin Americas largest pharmaceutical markets and has seen sustained growth in generics adoption by offering a consistent supply of high-quality products at competitive prices, Unichem has strengthened its brand equity in the Brazilian market. The company continues to build capabilities to navigate evolving ANVISA regulations and expand its commercial footprint.

Your Company is demonstrating its ability to adapt and focus on cost-effective manufacturing to address the challenges of policy volatility and take opportunity arising out of patent cliffs. To combat intense price erosion in traditional generics, the company is pivoting R&D towards complex generics. These include modified-release formulations, long-acting injectables, and inhalation products which offer higher barriers to entry and is expected to provide stable margins.

Research and Development (R&D)

Unichem has consolidated all its R&D functions at one place by the creation of the Centre of Excellence (CoE) at Goa. The CoE is dedicated to conducting high-quality generic pharmaceutical research aimed at regulatory submissions to major global markets including the USA, Mexico, Brazil, UK, France, Germany, Italy, Spain, Japan, Korea, South Africa, Tanzania, Malaysia, Sri Lanka, and others. Regulatory filings include DMFs & ANDAs (USA), CEP, ASMF, and dossiers (EU), and JDMFs (Japan).R&D activities follow an integrated workflow from molecule selection to non-infringing process development, formulation innovation, bioequivalence studies, and comprehensive regulatory submissions. The CoE contributes to significant cost optimisation and superior customised solutions.

The R&D has state-of-the-art facilities to undertake formulation development of tablets, capsules, liquid orals, creams, ointments and a separate facility for injectable and pre-formulation laboratories to carry out drug-excipient compatibility studies and physical characterisation of API. Plant simulation experiments designed by Process Engineers help to anticipate and address scale up issues that the laboratory developed processes may face in the plant during technology transfer exercise. The sustained efforts of R&D over the years resulted in 84 ANDA (70 approved) filings and 79 USDMFs, 36 CEPs, 3 JDMFs, 5 China DMFs among others across various markets and therapeutic categories. During the year under review, Unichem filed one ANDA, one USDMF, 6 CEPs, 8 CADIFA given to agents and initiated new API development for API marketing purposes.

Financial Performance

Consolidated Operations

On a consolidated basis, the revenue from operations for the financial year stood at 2,201.85 crores, as compared to 2,110.97 crores in the previous financial year, representing a growth of 4.31%. Profit after tax for the year stood at 252.84 crores against 137.52 crores reported in the previous financial year. Net sales for FY 2026 were higher than FY 2025, driven mainly by US & UK businesses whereas negative growth was seen in Brazil, Acasia division and in contract manufacturing operations. Unichem USA remains the largest, contributing 65% of the total revenue of your Company. The gross margin got impacted due to pricing pressure in US market, lower volumes seen in contract manufacturing and Acasia business, though UK market had shown better price realisation and volume.

The Company continues to maintain a strong focus on international markets, with exports contributing 98.5% to the total sales revenue. The Company has established its presence in the pharmaceutical formulations industry with a significant share of its revenue derived from regulated markets, primarily the US and Europe, with its US operations remaining the largest contributor.

Standalone Operations

On a standalone basis, the revenue from operations for the financial year stood at 1,412.29 crores, compared to 1,735.70 crores in the previous financial year. Profit for the year was 158.94 crores as compared to 162.96 crores in the preceding year. The Company continues to maintain a strong focus on international markets, with exports contributing 97.6% to the total sales revenue. Your Company has established its presence in the pharmaceutical formulations industry with a significant share of its revenue derived from regulated markets, primarily the US, Europe and Contract manufacturing operations (CMO) business.

During the year, the Company witnessed a modest revenue growth owing to pressures emanating from sustained price erosion and loss of volumes in select high-margin molecules in the US generics portfolio. However, the Companys growth and margins are expected to improve gradually driven by volume-led growth strategies and continued operational integration with its parent company Ipca Laboratories Ltd (Ipca) wherein synergies in procurement, backward integration and leverage in financial flexibility which Ipca enjoys with banking and financing channels should emerge. The Company has invested in capacity expansion of API facility, which is expected to augment its growth going forward.

The increase in cost had been contributed mainly from R&D related to products development, ANDA fee & bio equivalence studies apart from restructuring cost incurred for closure of Ireland plant and higher depreciation on account of capitalization of one of the Pithampur plant. The incremental impact due to New Labour Codes has been shown as employee benefit expenses under Exceptional Items. Increase in other income is mainly arising from exchange gains and profit on sale of mutual fund investments.

The Company is further expected to benefit in terms of revenue, as Ipca, a well-established and diversified pharmaceutical company with presence in both branded and generic formulations, as well as APIs will enable the Company to scale up its global generic portfolio and increase its market share with cost efficiency and competitiveness through centralised raw material procurement and lower logistics cost. As Ipca is present in various geographies, your Company will be able to expand to new geographies, especially in the rest of the world (RoW) markets, aiding its revenue growth.

The manufacturing facilities of the Company are accredited by various regulatory authorities across the globe and your Company has a clean track record with respect to regulatory inspections including from USFDA. Nevertheless, the ongoing West Asia conflict may keep supply chain costs at elevated level in the near term, which may impact the margins.

Risk & Concern

The Indian pharma sector is fraught with many challenges, including geopolitical tensions, supply chain issues, pricing pressures and increased scrutiny by global regulatory agencies, among others that need to be overcome. The pharmaceutical industry faces numerous business risks, including regulatory compliance, supply chain disruptions and counterfeiting. Additionally, companies are exposed to product recalls and liability where their reputation stake is very high. Ensuring patient safety and maintaining high quality standards are also crucial, requiring careful risk assessment throughout the entire drug development and manufacturing process.

Digital transformation has redefined modern business, with application systems such as ERP, CRM, RPA, and AI platforms moving from just support functions to the backbone of operations, transactions, and reporting. While these systems enhance efficiency and scalability, they also introduce risks in cybersecurity.

Securing investments for R&D funding remains a formidable challenge due to the extensive financial commitments required over an extended period and the high risk of failure. Indias gross expenditure on R&D and innovation is relatively low, with the country allocating merely about 0.7% of its GDP to research, trailing in innovation / new discovery behind the developed and some of the emerging economies.

Your Company has formulated a risk assessment group wherein periodic review of risk assessments is carried out to identify weaknesses, addressing them early with proper documentation to strengthen compliance and regulatory audits. Risk mitigation through multi-site validation of critical products provides operational flexibility and the ability to respond to market disruptions. During the year, mitigation efforts continued further by having adequate insurance coverage against various risks including cybersecurity. The risk identified and measures being taken are presented to the Risk Committee for its review.

Outlook

Indias pharmaceutical industry is projected to experience substantial growth, with exports expected to reach US$ 350 billion by 2047 from current levels. The Indian pharmaceutical sector has around US$ 10 billion opportunity by 2029 as various blockbuster drugs would be going off patent.

India is also emerging as a key player in the global pharmaceutical supply chain, with its Contract Development and Manufacturing Organisation (CDMO) industry set to double to US$ 14 billion by 2028, as per Macquarie. Indias fast-growing CDMO sector presents a major strategic opportunity for global pharma outsourcing and high-value drug development partnerships.

Reinvent and innovate will be the key mantra for the Indian pharma industry going forward as it looks to move from volume to value leadership, amid emerging challenges of inflation and pricing pressures in the global markets. R&D investment, market competitiveness and regulatory scrutiny are expected to shape the growth of generics and injectable products in the pharmaceutical industry.

The pharmaceutical industry is demonstrating its ability to adapt, focusing on high-impact innovation and cost-effective manufacturing. Green manufacturing and sustainable packaging are becoming strategic priorities rather than compliance exercises, as organisations are aiming to reduce energy consumption in intensive production processes.

Despite the challenges of policy volatility and patent cliffs, the strong demand for life-saving and chronic-care medicines guarantees long-term growth for the generic portfolio, which will be beneficial for your Company. In response to environmental regulations, Unichem is implementing eco-friendly packaging and reducing waste in its production.

However, the near-term outlook remains fragile as a rise in input costs, fueled by war-led supply chain disruptions, is likely to weigh on the performance of the companies. This divergence is especially pronounced in export-oriented entities which face higher freight costs and rising material costs which are harder to pass on, especially in an uneven demand environment.

As we move in the new financial year, the balance between resilience and risk remains finely poised, external shocks particularly those linked to energy and geopolitics can quickly reshape market conditions and macro expectations. For turbulence to recede, we need the Middle East conflict to end quickly and clarity to emerge on the status of Indias trade ties with the US. The trajectory of the global economy will depend on the duration and intensity of the current conflict, even as domestic fundamentals provide a degree of stability.

Despite the challenges of pricing volatility, the strong demand particularly for generic medicines ensures a positive long-term outlook for the sector. Your Companys strategy for the coming year emphasizes vertical integration to control costs, expanding its portfolio including in oncology and investing in advanced, patient-friendly dosage forms. Artificial intelligence and machine learning are now used for excipient ratios, predict bioavailability and shorten the drug development life cycle to further optimise the cost.

Internal Control Systems

The Company places strong emphasis on internal controls as a critical component of its overall management control system. The Internal Audit and Information Technology functions play a vital role in ensuring that management is regularly informed about the adequacy and effectiveness of these controls. The Company has established a robust internal control framework, commensurate with its size and nature of operations. These controls ensure strict adherence to documented policies, guidelines, authorization protocols and approval procedures.

A comprehensive framework titled IT Asset Allocation, Data Protection and Privacy Controls is implemented and applicable to all employees, contractual staff, trainees, consultants, auditors, vendors, service personnel, and any individual with access to IT assets. The internal control system also includes key elements such as operational review meetings, risk management processes, and entity-level as well as process-level controls, supported by regular internal audits.

The Company has a well-defined Whistle Blower Policy that enables reporting of any misconduct or unethical behaviour. To further strengthen governance, an external firm of Chartered Accountants has been appointed as Internal Auditors. They conduct audits throughout the year to evaluate the effectiveness of internal controls, including Internal Financial Controls, and identify areas for improvement.

In addition, Statutory Auditors independently review and assess the internal control systems as part of their audit process. Their observations and recommendations are presented to the Audit Committee, ensuring timely corrective actions and continuous process improvements. Relevant suggestions are also shared with respective process owners for implementation.

All employees undergo a mandatory security induction program and are encouraged to report incidents via a 24x7 monitored mailbox. The Company has implemented advanced firewall systems and centralized Network Operations Centre monitoring to strengthen cybersecurity. Additionally, robust data restoration mechanisms are in place to ensure recovery within a few hours, supported by a comprehensive disaster recovery system for business applications and critical quality data.

Human Resources (HR)

The HR Department exemplified a people-centric approach, aligning talent strategies with business growth, regulatory compliance, and cultural vibrancy. Through proactive workforce planning, innovative engagement initiatives, and robust capability building, HR drove operational excellence, delivered significant cost efficiencies, and achieved key regulatory milestones.

HR reviewed and aligned manpower requirements with business needs to optimize resource utilization. Your Company strategically onboarded apprentices through structured programs that met compliance standards and operational demands. These efforts provided career-start opportunities for fresh talent, delivered structured learning to them in the pharma industry, enabled agile scaling through an earn-while-you-learn model, and strengthened industry-academia partnerships building a resilient talent pipeline for sustained growth.

Monthly leadership meetings with key stakeholders including plant heads, department heads, and senior executives strategized business initiatives, reviewed projects, and addressed operational issues, yielding strong results. These forums offered clear visibility into operational challenges, talent gaps, growth objectives, production status, resource allocation, and risk mitigation. Outcomes included faster decision-making, enhanced cross-functional collaboration, and support for Unichems agile response to market demands.

New engagement activities strengthened team bonding, morale, and inclusivity. Highlights included shop-floor interactions, sports tournaments, spiritual/national/cultural events, family assimilation programs, and leadership sessions.

Learning and Development (L&D) remained a cornerstone, with employees logging over 135,000 man-hours of training an average of more than 34 hours per employee. Technical and compliance modules achieved 100% coverage via shopfloor sessions, Learning Management System (LMS) self-paced learning, Train-the-Trainer programs, skill development initiatives, and external nominations. Custom modules and workshops for certified trainers bolstered internal expertise. Amid rapid digital transformation, Unichem advanced HR processes through HRMS, LMS, online audit trails, and system integrations.

Well-being efforts featured annual health check-ups, mediclaim coverage, and other employee benefits. A five-year long-term union agreement was signed amicably at Roha, affirming our commitment to harmonious industrial relations. Compliance excellence featured zero major observations in major regulatory audits across locations and factory inspector audits, alongside seamless management of customer visits, town halls, and other events.

The workforce stood at 2,815 employees as of March 31, 2026, including 9.45% women.

Entering FY 2027, HR will build on this foundation by fostering a high-performance culture, sustaining strong momentum, and empowering talent. We remain dedicated to driving business progress with the right peoples strategies to achieve key objectives.

Cautionary Statement:

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward-looking statements. Actual results may differ materially from those expressed or implied due to various risks and uncertainties. Important factors that could make a difference to the Companys operations include global and Indian demand-supply conditions, finished goods prices, changes in government regulations & policies, tax regimes, economic conditions within India and the countries within which the Company conducts business and other such factors. The Company does not undertake to update these statements.

For and on behalf of the Board of Directors,

	Dr. Prakash A. Mody
Mumbai	Chairman
22nd May 2026	(DIN: 00001285)