Torrent Pharmaceuticals Ltd:Annual Report 2023-24 Analysis

Torrent Pharmaceuticals Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History: Torrent Pharmaceuticals Ltd. was founded in 1959 by the late Mr. U.N. Mehta. It started as Trinity Laboratories, a small-scale pharmaceutical company.

Headquarters Location and Global Presence: The company’s headquarters are located in Ahmedabad, India. Torrent Pharmaceuticals has a growing presence in over 40 countries with a significant presence in India, the US, Germany, Brazil, and Russia.

Company Vision and Mission: While specific vision and mission statements can vary over time, Torrent traditionally focuses on:

• Vision: To be a leading, research-oriented, international pharmaceutical company.
• Mission: To improve health globally by providing quality and affordable medicines.

Key Milestones in Their Growth Journey:

• 1970s: Focused on cardiovascular and neuropsychiatric segments.
• 1980s: Established a dedicated R&D center.
• 1990s: Ventured into international markets.
• 2000s: Acquired Heumann Pharma GmbH (Germany) expanding its European footprint.
• 2010s: Continued expansion in the US market and other emerging markets.

Stock Exchange Listing Details and Market Capitalization: Torrent Pharmaceuticals Ltd. is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Market capitalization fluctuates based on market conditions and company performance. [Please check live stock market data for the latest figures.]

Recent Financial Performance Highlights: [Check financial news sources for the latest quarterly and annual reports.]

Management Team and Leadership Structure: The leadership team typically comprises experienced professionals in the pharmaceutical industry, including:

• Chairman
• Managing Director & CEO
• Chief Financial Officer
• Heads of various business units (India, US, International, etc.)

Any Notable Awards or Recognitions: Torrent has received awards for its manufacturing excellence, corporate governance, and environmental sustainability initiatives. [Search for specific awards using online resources.]

Their Products #

Complete Product Portfolio with Categories:

• Cardiovascular: Hypertension, heart failure, angina.
• Central Nervous System (CNS): Depression, anxiety, epilepsy, schizophrenia.
• Gastrointestinal: Acid reflux, irritable bowel syndrome.
• Pain Management: Analgesics, anti-inflammatory drugs.
• Diabetes: Oral anti-diabetic agents.
• Women’s Healthcare: Hormone therapies, contraceptives.
• Dermatology: Topical treatments for skin conditions.
• Oncology: Medications for various cancers.

Flagship or Signature Product Lines: Products in the cardiovascular and CNS segments have traditionally been strong performers for Torrent.

Key Technological Innovations or Patents: Torrent has invested in novel drug delivery systems and formulations to improve drug efficacy and patient compliance. [Specific patent details can be found through patent databases.]

Manufacturing Facilities and Production Capacity: Torrent has multiple manufacturing facilities located in India. [Details regarding specific capacities can be found in annual reports and industry publications.]

Quality Certifications and Standards: Torrent’s manufacturing facilities adhere to international quality standards such as WHO-GMP, US FDA, and EU GMP certifications.

Recent Product Launches or R&D Initiatives: Recent product launches and R&D initiatives are typically focused on expanding existing portfolios and developing generic versions of off-patent drugs. [Check press releases and company announcements for specifics.]

Primary Customers #

Geographic Markets (Domestic vs. International): Torrent serves both the domestic (Indian) market and international markets. The company has a significant presence in India, the US, Germany, Brazil, and Russia.

Distribution Network and Sales Channels: Torrent utilizes a combination of direct sales forces, distributors, and partnerships to reach its customers.

Major Competitors #

Direct Competitors in India and Globally:

• India: Sun Pharmaceutical, Cipla, Dr. Reddy’s Laboratories, Lupin, Zydus Lifesciences.
• Globally: Teva Pharmaceutical Industries, Viatris (formerly Mylan), Novartis (Sandoz), and other major generic pharmaceutical companies.

How they differentiate from competitors: Torrent differentiates itself through a focus on specific therapeutic areas, a strong presence in certain international markets, and a commitment to quality manufacturing.

Future Outlook #

Expansion Plans or Growth Strategy: Torrent aims to expand its presence in key international markets (particularly the US), strengthen its R&D pipeline, and explore strategic acquisitions.

Sustainability Initiatives or ESG Commitments: Torrent is increasingly focused on environmental sustainability and corporate social responsibility. [Specific details about initiatives can be found in their sustainability reports.]

Industry Trends Affecting Their Business: Key industry trends impacting Torrent include:

• Increasing generic drug competition
• Regulatory changes in various markets
• Growing demand for affordable medicines
• Technological advancements in drug development and manufacturing

Long-term Vision and Strategic Goals: Torrent’s long-term vision involves establishing itself as a leading global pharmaceutical company with a strong R&D pipeline and a focus on providing high-quality, affordable medicines.

Financial Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

Revenue #

Consolidated revenue has demonstrated consistent growth, rising from ₹8,508 crores in 2021-22 to ₹9,620 crores in 2022-23, and reaching ₹10,728 crores in 2023-24, reflecting a 3-year CAGR of approximately 11%.

Operating EBITDA #

Operating EBITDA margins have improved, from 30% in 2022-23 to 31% in 2023-24. Operating EBITDA has seen steady growth over the three years, up from ₹2,621 crores in 2021-22 to ₹3,414 crores in 2023-24 reflecting 3 years CAGR of 19%.

Profit After Tax (PAT) #

PAT has increased from ₹777 crores in 2021-22 to ₹1,245 crores in 2022-23, then to ₹1,656 crores in 2023-24, demonstrating a 3 year CAGR of 18%.

Return on Equity (ROE) #

ROE has improved, rising from 18% (adjusted for exceptional items) in 2021-22 to 24% in 2023-24.

Return on Capital Employed (ROCE) #

ROCE increased significantly from 21%(adjusted for exceptional items) in 2021-22 to 28% in 2023-24.

Net Debt to EBITDA #

This leverage ratio improved, standing at 0.87x as of the end of 2023-24, down from 0.9x in the end of 2022-23.

Free Cash Flow #

The Company witnessed consistent growth in free cash flows over the five years registering a compounded annual growth of 20%.

Business Segment Performance #

Branded Generics (BGx) #

Contributed 72% of consolidated revenue in 2023-24. Strong growth in India and Brazil, driven by market share gains, new product launches, and field force expansion.

Generics (Gx) #

Contributed 24% of consolidated revenue in 2023-24. Germany registered robust growth, driven by new tender wins and better conversion rates.

India Business #

Contributes approximately 53% of revenues. Grew at 11% (AIOCD data MAT March 24), outpacing the Indian Pharmaceutical Market (IPM) growth of 7%. Growth was supported by performance of top brands, new launches, and expansion in dermatology following the Curatio acquisition.

Brazil Business #

Revenue growth of 20% in 2023-24. The Company is the largest Indian pharmaceutical company in Brazil.

Germany Business #

Revenue growth of 16% in 2023-24. The Company is the fifth-largest generic player and ranks first among Indian pharmaceutical companies in Germany.

US Business #

Revenue declined by 7% in 2023-24, primarily due to a lack of new product approvals pending USFDA inspection of facilities.

Major Strategic Initiatives and Their Progress #

Field Force Expansion (India) #

Expansion across key therapeutic areas to increase doctor coverage. Current field force strength is approximately 5,700.

Curatio Integration (India) #

Full integration achieved, with a focus on expanding coverage in pediatric and dermatology specialties.

Consumer Health (CHC) Business (India) #

Scale-up initiatives include portfolio expansion, enhanced distribution, and national media campaigns.

Trade Generics Business (India) #

Expansion with a network of ~4,000 stockists and dedicated teams.

Strategic Alliance with Zydus #

Strategic Alliance with Zydus for co-marketing of Saroglitazar to strengthen the Company’s gastroenterology franchise.

Brazil #

Accelerated product filings and expansion of the generics business. Entry into new therapies (Oncology, ADHD).

Germany #

Cost Leadership Programme implemented to improve competitiveness. Expansion in OTC and specialty channels.

US #

Portfolio rationalization and identification of low-cost CMOs for high-volume, low-value products. FDA clearance received for Dahej and Bileshwarpura facilities.

ROW Business #

Entry into new market like Colombia.

Risk Landscape Changes #

Competition Risk #

Increased competition and the threat of new entrants in key markets and therapeutic segments, putting pressure on costs and margins.

Commoditisation Risk #

Regulators encouraging the use of generic products, potentially impacting future business.

Pricing Control Risk #

Regulatory agencies regulating prices by capping drug prices or defining ceilings for price increases.

Overseas Market Risk #

Exposure to geopolitical, economic, and currency fluctuation risks in various overseas territories.

Information Technology Risk #

Risk of loss or disclosure of confidential information due to external attacks on the IT network.

ESG Risk #

Increased Stakeholder focus and increased regulatory expectations on ESG Risks.

ESG Initiatives and Metrics #

Environmental #

• Reduction in non-renewable energy consumption by 24.3% from 2022-23.
• 30.2% share of renewable energy in total energy consumption.
• Reduction in carbon footprint by 25.1%
• 6,766 MT of waste recycled and reused (excluding BMW, incineration, and landfill quantity. Including reclaimed plastic waste)
• Installation of 1.70 MW solar energy capacity.

Social #

• 5.20 lacs+ manhours of training imparted.
• 649 employees on-boarded (Net).
• 31,000+ children screened through medical camps.
• 1,87,000+ OPDs carried out across 11 centres.

Governance #

• 5 out of 9 Board members are Independent Directors.
• 2 female Directors on the Board.
• 100% compliance with the Code of Conduct.

Management Outlook #

• Focus on consolidating and strengthening market position in branded generic markets.
• Improvement of field force productivity.
• Growth of consumer health business portfolio.
• Cost competitiveness and strengthening of the R&D pipeline in generic markets.
• Further deleveraging of the balance sheet.
• Continued focus on reducing carbon footprint and environmental impact.
• Expects India business to continue outperforming the market growth.

Detailed Analysis #

Financial Position Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

(I in crores)

Significant Changes in Major Line Items (>10% YoY) #

• Capital work-in-progress: Decreased by 59.17% from FY23 to FY24, indicating significant assets were placed into service.
• Other Financial Assets (Non-Current): Decreased by 24.24% from FY23 to FY24.
• Other tax assets(net): Increased by 127.45% from FY23 to FY24.
• Cash and cash equivalents: Increased by 64.21% from FY23 to FY24, indicating improved liquidity.
• Bank balances other than cash: Decreased by 93.69% from FY23 to FY24.
• Other financial assets(Current): Increased by 85.11% from FY23 to FY24.
• Other Equity: Increased by 10.92% from FY23 to FY24.
• Borrowings(Non Current): Decreased 35.75%.
• Other Financial Liabilities (Non-current): Decreased by 55.73%.
• Deferred tax assets (net): Increased by 38.20% from FY23 to FY24.
• Borrowings (Current): Decreased by 16.68% from FY23 to FY24
• Other financial liabilities (Current): Decreased by 32.38% from FY23 to FY24.

Working Capital Trends #

Working capital significantly improved, shifting from a deficit of I(133.58) crores in FY23 to a surplus of I 186.23 crores in FY24, mainly due to increase in cash and cash equivalents and reduction in current borrowings and trade payables.

Debt Structure and Maturity Profile #

• Debt Structure: As of March 31, 2024, total borrowings (Non-current + Current) stood at I 3,937.42 crores, a decrease from I 5,297.30 crores in FY23. The debt is a mix of secured non-convertible debentures, secured term loans from banks and others, and secured and unsecured loans from banks for working capital.

• Maturity Profile (Consolidated):

The maturity profile indicates substantial repayments due in the next three years, especially from 2024-2026.

Off-Balance Sheet Items #

Guarantees:

• As at March 31, 2024: The company provided guarantees for I875.43 crores on behalf of its subsidiaries.

Contingent Liabilities

• Disputed demand of Income tax: I 1.60 crores.

• Disputed employee state insurance contribution liability under E.S.I. Act, 1948: I 16.76 crores.

• Disputed demand of Goods and Services Tax / excise duty: I 128.89 crores.

• Other disputed tax demands and cases: I 9.95 crores.

• Other contingent liabilities were difficult to assess as they required judgements.

Revenue Breakdown by Segment/Geography with Growth Rates #

• India: Contributed 53% of total revenue (₹5,666 crores) in 2023-24, with a growth of 14% year-over-year.
• Brazil: Contributed 10% of total revenue (₹1,126 crores) in 2023-24, growing by 20% year-over-year (12% in BRL terms).
• Germany: Contributed 10% of total revenue (₹1,074 crores) in 2023-24, growing by 16% year-over-year (8% in Euro terms).
• US: Contributed 10% of total revenue, with amount of (₹1,078 Crores) in 2023-2024, with -7% de-growth.
• Other Countries: Contributed 11% of total revenue (₹1,155 crores) in 2023-24, growing by 9%.
• Others: Contributed 6% of the total revenue (630 crores) in 2023-2024, with 14% growth.
• Branded Generics (BGx): Contributed 72% of consolidated revenue in 2023-24.
• Generics (Gx): Contributed 24% of consolidated revenue in 2023-24.

Cost Structure Analysis #

• Cost of materials consumed: ₹1,651.91 crores in 2023-24, showing an increase from ₹1,477.42 crores in 2022-23.
• Purchases of Stock-in-trade: Increased to ₹548.48 in 2023-2024, compared to ₹533.56 crores in 2022-2023.
• Employee benefits expense: Increased to ₹1,984.40 crores in 2023-24 from ₹1,677.69 crores in 2022-23.
• Selling, General and admin expenses (SG&A) Increased to 4,146 Crores in 2023-2024 from 3,527 crores in 2022-2023.
• Other expenses: Increased to ₹2,689.58 crores in 2023-24 from ₹2,365.22 crores in the previous year.

Margin Analysis #

• Gross Profit: Increased to ₹8,041 crores in 2023-24 (75% of revenue) from ₹6,885 crores in 2022-23 (72% of revenue), showing a 3% margin increase.
• Operating EBITDA Margin: 31% in 2023-24, improved from 30% in 2022-23, driven by higher share of branded generic markets, and implementation of cost optimization.
• EBITDA: Increased to 3,414 Crores, compared to 2,872 Crores in 2022-2023.
• Net Profit Margin (Adjusted for exceptional items): 15% in 2023-24, up from 13% in 2022-23.

Non-Recurring Items #

• Exceptional Item: A gain of ₹88 crores was recorded in 2023-24, related to the sale of a US manufacturing facility that was previously impaired.

EPS Analysis #

• Basic and Diluted EPS: ₹48.94 in 2023-24, increased from ₹36.79 in 2022-23.
• Adjusted EPS (excluding exceptional items): ₹46.88 in 2023-24.

Quarterly Trends #

• The document provides full-year data, but mentions “sequential growth on rolling quarter” for the Germany business, supported by new tender wins, better conversion of existing tenders, and growth in non-tender segments. The US Business is expected to gain momentum in 2024.

Cash Management: Financial Analysis #

Cash Flow and Liquidity Analysis #

Operating Cash Flow (OCF) #

• Increased to I 3,266.08 crores in 2023-24 from I 2,368.13 crores in 2022-23, driven primarily by the higher profit before tax.

Investing Cash Flow (ICF) #

• Net cash used in investing activities was I (167.90) crores in 2023-24, reduced from I (2,415.31) crores in 2022-23. This reduction is largely due to decreased investment in new launches and facility expansions.

Financing Cash Flow (FCF) #

• Net cash used in financing activities was I 2,779.64 crores in 2023-24, compared to a net cash from financing activities I 77.36 crores in 2022-23. This shows a shift in funding sources from debt and equity.

Working Capital Management Efficiency #

• Net trade working capital days decreased to 90 days in 2023-24 from 110 days in 2022-23.
• Debtors turnover days decreased to 64 days in 2023-24, from 75 days in 2022-23.
• Inventory turnover days decreased to 79 days in 2023-24, from 86 days in 2022-23.

Capex Analysis #

• Overall Capital work in progress addition has reduced by 13.56% to 305.28 in 23-24 from 404.27 in 22-23.

Dividend and Share Buyback Trends #

• Total dividend (interim + proposed final) increased to I 28.00 per share for 2023-24, from I 22.00 per share in 2022-23 (excluding special dividend).
• Total dividend payout increased to I 948 crores in 2023-24 from I 745 crores paid during the previous year.

Debt Service Coverage #

• The debt service coverage ratio was 1.72 for 2023-24, compared to 1.78 for 2022-23.

Liquidity Position #

• The current ratio remained stable at 1.20 for both 2023-24 and 2022-23.
• Cash and cash equivalents increased to I 835.14 crores as of March 31, 2024, from I 508.53 crores as of March 31, 2023.

Key Performance Indicators: Financial Analysis #

Profitability Ratios (3-Year Trends) #

• ROE: 2023-24: 24%, 2022-23: 20%, 2021-22: 18%* (*Adjusted for exceptional items). An increasing trend, indicating improved profitability relative to shareholder equity.
• ROCE: 2023-24: 28%, 2022-23: 22%, 2021-22: 21%* (*Adjusted for exceptional items). A rising trend, indicating improved efficiency in utilizing capital employed.
• Operating EBITDA Margin: 2023-24: 31%, 2022-23: 30%. A slight margin improvement.
• Net profit margin: 2023-24: 15%, 2022-23: 13%.

Liquidity Metrics #

• Current Ratio: 2023-24: 1.25, 2022-23: 1.15. Both years indicate sufficient current assets to cover current liabilities, with a slight improvement in the current year.

Efficiency Ratios #

• Inventory Turnover: 2023-24: 5.28, 2022-23: 4.44. An increase suggests improved inventory management.
• Trade Receivables Turnover: 2023-24: 5.07, 2022-23: 4.61. A higher ratio in the current year reflects quicker collection of receivables.

Leverage Metrics #

• Debt/Equity: 2023-24: 0.49, 2022-23: 0.71. A significant decrease indicates a reduction in financial leverage.
• Interest Coverage: 2023-24: 8.40, 2022-23: 7.56. An increase suggests improved ability to cover interest expenses.

Working Capital Ratios #

• Debtors Turnover (days): 2023-24: 64 days, 2022-23: 75 days. A decrease signifies faster collection of receivables.
• Inventory Turnover (days): 2023-24: 79 days, 2022-23: 86 days. A reduction in days indicates improved inventory management.
• Net capital turn over Ratio: 2023-24: 11.12, 2022-23: 14.57.
• Number of days of accounts payable: 2023-24: 87 days, 2022-23: 71 days.

Growth Metrics #

• Revenue Growth: 12%
• Operating EBITDA Growth: 19%

Business Segment Performance Analysis #

Revenue and Profitability Metrics #

• Branded Generics (BGx): Contributed 72% of consolidated revenue in 2023-24. Maintained strength and consistently outperformed the market in respective geographies.
• Generics (Gx): Contributed 24% of consolidated revenue in 2023-24. Registered strong growth in Germany due to new tender wins and better conversion rates.
• India Business: Revenue of ₹5,666 crores, 53% of total revenues, with 11% YoY growth.
• Brazil Business: Revenue of ₹1,126 crores, 10% of total revenues, with 20% YoY growth (12% in BRL terms).
• Germany Business: Revenue of ₹1,074 crores (Euro 120 million), 10% of total revenues, with 16% YoY growth (8% in Euro terms).
• US Business: Revenue of ₹1,078 crores, 10% of total revenue, representing a 7% YoY decline.
• ROW Business: Contributes to the revenue from other countries. Incremental investments are being made.

Market Share and Competitive Position #

• India: Ranked 5th in the Indian Pharmaceutical Market (IPM), 4th in Gastrointestinal and VMN segments, 2nd in cardiac, 3rd in CNS, and top 5 in combined chronic/sub-chronic segment, 6th By prescription among specialists.
• Brazil: Ranked 1st among Indian pharma companies and 1st rank in covered market for Branded Generics segment.
• Germany: Ranked 5th in the generic pharma market and 1st among Indian pharma companies, with a 5.7% market share.
• US: Ranked 11th among Indian players in the US market, with an 8.7% market share in the covered market.

Key Products/Services Performance #

• India: 21 brands in the Top 500, 16 brands with revenues over ₹100 crores. Key therapeutic areas: Cardiovascular, Central Nervous System, Gastro-Intestinal, Women Healthcare, Vitamins Minerals Nutrients, and Cosmo-Dermatology. Notable brands include Shelcal 500, Nikoran 5, Nexpro RD 40, and Chymoral Forte.
• Brazil: Key therapy areas: CNS, Oral Anti Diabetic/Obesity (OAD) and cardiovascular.
• CHC Portfolio: Strong growth in CHC brands like Shelcal, Unienzyme, Tedibar, and Ahaglow.
• US: Gains in market shares in some specialized niche product and dermatology.
• In-Licensing: Strategic alliance with Zydus Lifesciences Ltd. to strengthen gastroenterology portfolio, addressing NASH and NAFLD.

Geographic Distribution and Market Penetration #

• Core Markets: India (53% of revenue), Brazil (10%), Germany (10%), and the US (10%).
• Emerging Markets: Focus on the Philippines, UK, Mexico, and plans for expansion into the EU, LATAM, and Southeast Asia.
• New Market: Company Set up operation in Columbia in Latin America.

Operational Efficiency Metrics #

• Capacity Utilization: 59%.
• Cost Leadership Programme implemented in Germany to enhance cost efficiency.
• Implementation of a fully automated Manufacturing Execution System (MES) at Dahej Facility, integrated with other support systems, enhancing process control.
• Adopted digital technologies, such as automation and data analytics to optimize process.

Growth Initiatives and Challenges #

• India: Field force expansion to broaden doctor coverage, focus on brand building, scientific initiatives, Curatio integration and scale-up, and leveraging data analytics.
• Brazil: Acceleration of product filings, field force expansion in the CNS business, expansion of the Generics business.
• Germany: Cost competitiveness and tender bidding strategies, expansion in the OTC and specialty channels (hospitals).
• US: Focus on FDA clearance, strategic filings, and targeted product launches.
• ROW Business: Brand Building and scientific driven activities, expanding of presence in the diabetic segment.
• Acquisitions: Strategic acquisitions to enter high-growth segments (e.g., Curatio Health Care for dermatology).
• R&D: Focus on novel drugs and enhancing existing formulations, including novel Fixed-Dose Combinations (FDC).
• Sustainability: Initiatives to reduce carbon footprint, conserve water, manage waste, and promote responsible actions.
• Digital Technologies: investments in technology to establish sturdy, scalable and accessible framework.
• Challenges: Intense competition and pricing pressures in key markets, regulatory compliance risks, product liability risks, and currency fluctuation risks in overseas markets.

Risk Assessment #

Strategic Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing, due to intensified competition in core markets (India, Brazil, Germany, US) and therapeutic segments.
• Mitigation Strategies:
  • Branded Generics Markets: Specialty-driven approach, robust brand building, innovative product offerings, and therapeutic-focused sales structure.
  • Generics Markets: Ensuring a robust and agile supply chain, manufacturing infrastructure, incremental investment in R&D for complex drugs and diversified dosage forms, and continuous cost structure optimization.
• Control Effectiveness: Partially effective. The Company maintains a strong position in branded generics (72% of revenue), but competition may impact margins.
• Potential Financial Impact: Cost and margin pressures due to increased competition in existing therapeutic segments, market share.

Operational Risks #

• Severity: Medium to High
• Likelihood: Medium
• Trend: Stable to Increasing, affected by evolving regulatory landscapes and quality control requirements.
• Mitigation Strategies:
  • Supply Chain: Alternate sourcing and manufacturing strategies, digitalisation for enhanced visibility, productivity enhancement programs, and cost competitiveness initiatives across operations.
  • R&D: Market-centric portfolio, disciplined innovation culture, and use of digital tools to streamline R&D processes.
  • Quality: Strong quality culture, governance structures, integration of connected technologies, and digital quality management systems.
  • Sales Force: Implemented and monitored Field force expansion and productivity, with current strength of ~5,700, also improved field force productivty by enhancing in-clinic effectiveness.
  • Information Security: Implemented ISMS policies, multi-layer control mechanisms, vulnerability assessments, and penetration testing, including Red Team/Blue Team exercises.
• Control Effectiveness: Moderately effective. The Company has demonstrated FDA clearances (Dahej and Bileshwarpura facilities) and is investing in automation and digitalization (e.g., MES at Dahej).
• Potential Financial Impact: Product recalls, regulatory actions, declining sales, reputational damage, and increased litigation expenses could impact profitability.

Financial Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Potentially Increasing, due to foreign exchange rate fluctuations and interest rate changes.
• Mitigation Strategies:
  • Currency Fluctuation: Foreign exchange risk management policy and hedging currency exposures through long-term derivative instruments.
  • Interest Rate: Monitoring market interest rate movements.
• Control Effectiveness: Moderately effective. The Company has hedging policies, but exposure to currency fluctuations (especially USD and EUR) remains.
• Potential Financial Impact: Fluctuations could impact earnings, cash flows, and net equity, affecting profitability.

Compliance/Regulatory Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing, with evolving regulatory landscapes and increased scrutiny.
• Mitigation Strategies:
  • ‘Zero tolerance to non-compliance’ philosophy, regular assessments of regulatory and compliance requirements.
  • Robust internal controls, compliance with management systems, internal communication, and training.
  • Independent assessments and audits.
  • Monitoring of legal and regulatory compliances by senior management and the Board.
  • Product Quality and Safety: Internal and External Audits. Compliance met 100% of the time.
• Control Effectiveness: High. The Company emphasizes a strong governance mechanism and has received USFDA clearance for its facilities.
• Potential Financial Impact: Non-compliance could lead to financial penalties, reputational damage, and jeopardize the financial position.

Emerging Risks #

• Severity: Medium to High
• Likelihood: Medium
• Trend: Increasing, driven by evolving global ecosystems and ESG considerations.
• Mitigation Strategies:
  • ESG Risks: Adoption of structured ESG framework and strategy (GRI, SASB, UN SDGs), with four core pillars: responsible consumption, responsible practices, responsible communication, and responsible supply chain.
  • Geopolitical Risks: Due diligence during new market investments and continuous assessment of management oversight.
  • Commoditisation Risk: Monitor the regulatory landscape, Business model adjustments and product portfolio diversification.
• Control Effectiveness: Developing. The Company has initiated structured processes to manage ESG risks but is in the early stages of implementation.
• Potential Financial Impact: Failure to address ESG risks could impact stakeholder value, reputation, and long-term sustainability.

Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• Branded Generics (BGx):
  • India: Outperform the market, gain market share via field force expansion, sales force effectiveness programs, new product offerings, and entry into consumer healthcare.
  • Brazil: Accelerate new product launches in both BGx and Gx segments, expanding portfolio in CNS, Diabetes, Cardiovascular, and add new therapeutic segments. Goal is to reach 60,000 points of sale and over 8% market share.
• ROW Markets: Expand presence in growing markets and enter new markets. Allocate incremental capital to countries such as Philippines, Mexico, Russia, Malaysia.
• Generics (Gx):
  • Germany: Focus on cost competitiveness, tender bidding strategies, and expansion in OTC and specialty channels.
  • US: New product approvals are expected to drive performance, with 34 ANDAs pending approval at year-end. Target key emerging markets like Thailand, Vietnam, and Australia.

Competitive Advantages and Market Positioning #

• India: Ranked 5th in the IPM, and 4th in combined chronic/sub-chronic segments. Strong presence in cardiac, CNS, GI, VMN, and anti-diabetic therapies, with 21 brands among the top 500. The Curatio acquisition improved ranking in dermatology therapy.
• Brazil: Ranked 1st among Indian pharma companies and holds the 1st rank in the covered BGx market.
• Germany: Ranked 5th in the generic pharma market and 1st among Indian pharma companies, with a 5.7% market share.
• US: Ranked 11th among Indian players, with a 8.7% market share in the covered market. Market share gains have been achieved in specialized niche products and dermatology.

Innovation Initiatives and R&D Effectiveness #

• Focus on developing novel Fixed-Dose Combinations (FDCs), including first-in-India combinations, to address unmet medical needs and improve patient compliance. Strategic alliances, such as with Zydus, will further enhance company’s portfolio.
• In-house API R&D is focused on developing novel, non-infringing, and cost-effective processes for complex generics. Patent applications have been filed for improved processes.
• Lifecycle Management (LCM) initiatives track external and internal factors to monitor the competitive standing of its portfolio.
• R&D expenditure for 2023-24 was 527 crores, with 38 patents filed and 122 projects under development.
• The Bio-evaluation Centre holds accreditations from global regulatory agencies, enhancing credibility and demonstrating compliance.

M&A Strategy and Execution #

• The acquisition of Curatio Health Care (I) Pvt. Limited in FY 2022 strengthened presence in the high-growth dermatology segment, improving the company’s ranking from 21st to 7th in dermatology therapy.
• Entered into strategic alliance with Zydus Lifesciences Ltd which will further enhance gastroenterology franchise.

Management’s Track Record in Execution #

• India Business has been outperforming the market.
• Successful integration of Curatio Health Care which was acquired in FY 2022.
• Consistent margin improvement over the years due to enhanced operational efficiencies, strategic investments, and strong market performance in branded markets.
• Successful launch of the first oncology product from the Bileshwarpura facility and USFDA clearance for the Dahej facility, facilitating new product approvals in the US.

Capital Allocation Strategy #

• Prudent capital allocation is evident across organic and inorganic opportunities, focusing on branded generic markets.
• Investments have been made in capacity expansion, cost optimization, and improving in-clinic effectiveness, leading to operating EBITDA margin improvement of approximately 5% over the past 5 years.
• Free cash flow generation has grown at a CAGR of 20% over the last five years, allocated toward deleveraging the balance sheet.

Organizational Changes and Their Impact #

• Field force expansion in India to increase doctor coverage, enhance brand focus, and complement new product launches. Current field force strength is approximately 5,700.
• Expansion of Consumer Healthcare Portfolio and Trade generic portfolio to address low presence areas.
• New divisions added to target smaller towns and previously uncovered prescribers.
• Successful expansion of the OTC team in Germany, focusing on increased pharmacy coverage and new OTC product launches.
• Successful field force expansion in the CNS business unit in Brazil was completed in August 2023.

ESG Framework and Sustainability Analysis #

Environmental Metrics and Targets #

• Non-renewable energy consumption decreased by 24.3% from 2022-23.
• Renewable energy constituted 30.2% of total energy consumption in 2023-24.
• Carbon footprint was reduced by 25.1% during the reporting period.
• Scope 1 and Scope 2 emissions saw a 29.31% reduction since 2020.
• SOx emissions were reduced by 77.1% compared to the base year 2019-20 and by 51.3% compared to 2022-23.
• NOx emissions were reduced by 74.7% compared to the base year 2019-20 and by 54.7% compared to 2022-23.
• Water withdrawal increased to 1.082 million m3 in 2023-24, compared to 1.046 million m3.
• Water recycled remained steady at 40% during the reporting period.
• 74% of waste (excluding reclaimed plastic waste) was recycled during the reporting period.
• A target of 21% reduction in Scope 1 and Scope 2 emissions from 2020 levels by 2025 is set.
• A target to reduce freshwater withdrawal by 25% by 2024-25 is set.
• A target of 100% recycling of non-hazardous waste is set.
• The Company installed an 8 TPH biomass-based boiler at Baddi, saving 2000 metric tonnes of fossil fuel (LSHS) per year.
• Hybrid energy generation projects (solar and wind) are expected to lead to a substantial reduction in Scope 2 emissions.
• Commissioned Hybrid Power generation plant, reducing the environmental impact/carbon footprint (scope 2) by 21.5%
• Briquette fired boilers commissioned at Indrad, Dahej and Baddi reducing the environmental impact/carbon footprint (scope 1) by 39%

Social Responsibility Programs #

• The ‘REACH’ (Reach EAch CHild) program screened over 31,000 children across multiple locations, resulting in 58% improvement in malnourished children and 89% improvement in anemic children post-intervention in 2023-24.
• Cumulatively, REACH screened over 150,000 children, with 61% improvement in malnourished children and 90% improvement in anemic children post-intervention.
• Over 187,000 OPDs were conducted across 11 locations in 2023-24, with a cumulative total of over 621,000 OPDs.
• Reusable sanitary napkins were distributed to over 27,000 adolescent girls in 2023-24, and more than 72,000 girls cumulatively.
• UNM Children Hospital performed 1,709 surgeries in 2023-24, ~60% of which were major surgeries.
• Public parks revitalization program in Ahmedabad covered approximately 98,000 square meters with a daily footfall of 7,000+.
• The company spent 40.96 crores on CSR in 2023-24
• CSR unspent amount of 11.30 crores was transferred to Unspent CSR account

Governance Structure and Effectiveness #

• 5 out of 9 board members are Independent Directors.
• 2 out of 9 board members are female.
• The Board has 6 committees.
• 5 out of 6 committees are chaired by Independent Directors.
• 100% compliance with the Code of Conduct was reported, with zero conflicts of interest.
• The Board of Directors oversees risk governance through the Risk Management Committee (RMC).
• The Audit Committee composition complies with Section 177 of the Companies Act, 2013, and Regulation 18 of the Listing Regulations.

Sustainability Investments and ROI #

• The Company invested ’ 85 crores in hybrid renewable energy (solar & wind) for Indrad and Bileshwarpura manufacturing facilities and R&D Centre, generating 21 Mn KWH of green energy and saving ’ 14.60 crores annually.
• Invested approximately ’ 35 crores in agro-waste based (briquette) boilers at Indrad, Dahej, and Baddi facilities, reducing fossil fuel consumption by 38% and resulting in annual savings of ’ 10 crores.
• Invested in Captive renewable power generation system (Solar Roof Top- 1.7MW) generating 22 lakh Kwh of green energy and annual cost saving of 1.5 crores
• Investment in Low Temperature Evaporator at Baddi, reducing water consumption and promoting sustainability.

Regulatory Compliance and Future Preparations #

• The Company has a stated “zero tolerance to non-compliance” philosophy.
• The Company is compliant with the Plastic Waste Management Rules, 2016, and its amendments.
• Manufacturing facilities are certified for ISO 14001:2015 (Environment Management System) and ISO 45001:2018 (Occupational Health & Safety Management System).
• Two manufacturing facilities and the R&D Centre are accredited with ISO 50001:2018 (Energy Management System).
• The Bio-Evaluation Centre is approved by the Drug Controller General (India), and is accredited by ANVISA (BRAZIL), the Ministry of Health (UAE).
• The Company’s Research and Development (R&D) team maintains robust systems to ensure compliance with global standards, including GLP, ISO 50001:2018, ISO 14001:2015, ISO 45001:2018, and the National Accreditation Board for Testing & Calibration Laboratories (NABL), India
• The Company complies with national ambient air monitoring guidelines.
• The Company is registered as a Brand Owner with the Central Pollution Control Board (CPCB) under the Plastic Waste Management Rules.
• The Company is compliant with all the applicable Secretarial Standards issued by the Institute of Company Secretaries of India

Future Outlook: Segment-Wise Financial Analysis #

India Business #

Management Guidance and Assumptions #

• Expectation of continued market outperformance.
• Focus on chronic therapies.
• Expanding market share in focus therapies.
• Improving field force productivity.
• Prioritizing new product launches.
• Building the consumer health business.

Market Growth Forecasts #

• Indian Pharmaceutical Market (IPM) projected to sustain high single-digit growth (~8%).
• Growth driven by chronic therapies and a resurgence in the acute segment.

Planned Strategic Initiatives #

• Field force expansion in core therapy areas and smaller towns.
• Sales force effectiveness (SFE) and capability-building programs.
• Portfolio restructuring and brand-building efforts.
• Engagement with healthcare professionals (HCPs) through workshops and educational programs.
• Scaling up the Consumer Healthcare (CHC) and Trade Generics businesses.
• Strategic Alliances with companies like Zydus.

Efficiency Improvement Targets #

• Improving field force productivity by enhancing in-clinic effectiveness and governance processes.
• Building field force capabilities through structured Learning and Development (L&D) programs.
• Optimizing Cost Structure.

Potential Challenges and Opportunities #

• Challenges: Competition from trade generics and the Janaushadhi segment, which could impact volume growth.
• Opportunities: Population growth, rising income levels, growth in lifestyle diseases, increased insurance penetration, rising life expectancy, and government initiatives are all expected to provide substantial growth opportunities.

Brazil Business #

Management Guidance and Assumptions #

• Anticipation of outperforming the market in the retail sector.
• Growth driven by new product launches in both branded (BGx) and generic (Gx) segments.

Market Growth Forecasts #

• Both retail and non-retail channels in the Brazilian pharmaceutical market are projected to grow at rates between 8% and 12%.
• The generics market is estimated to have similar growth.

Planned Strategic Initiatives #

• Accelerated product filings and launches in the coming years.
• Field force expansion in the Central Nervous System (CNS) business unit.
• Expansion of the Generics (Gx) business to 60,000 points of sale, targeting over 8% market share.
• Entry into new therapies, including Oncology and ADHD segment of CNS therapy.
• Launch no more than 2-3 products in each branded business.

Potential Challenges and Opportunities #

• Challenges: Changes in patent law impacting market dynamics.
• Opportunities: Introduction of 13 new product filings in CNS, Diabetes, and Cardiovascular therapies, along with 3 new Oncology products. Plans of entering 2 new therapeutic segment in the coming years.

Germany Business #

Management Guidance and Assumptions #

• Aim to improve cost competitiveness and refine tender bidding strategies in the generics market.

Market Growth Forecasts #

• The German market is expected to grow by 4% to 7% CAGR.

Planned Strategic Initiatives #

• Implementation of the Cost Leadership Programme.
• Expansion in the German Generics Market.
• Over the Counter (OTC) Business Expansion and increased pharmacy coverage.
• Specialty Channels and Hospitals Expansion.
• Regulatory procedures initiated for injectable products, with expected Marketing Authorisation (MA) by mid-2025.

Efficiency Improvement Targets #

• Ongoing efforts to enhance cost efficiency across several identified products.

Potential Challenges and Opportunities #

• Challenges: Shifting market dynamics, rising competition, and pricing pressures in the generic pharmaceutical market due to buyer consolidation.
• Opportunities: Growing OTC and specialty channels (hospitals). Day 1 Launches.

US Business #

Management Guidance and Assumptions #

• Focusing on high-volume, low-value products and portfolio rationalization.
• Expects a positive momentum from new product approvals.

Market Growth Forecasts #

• US pharmaceutical market is projected to grow 2-5% CAGR through 2028, driven by oncology, immunology, diabetes, and obesity drugs.
• Generic drug approvals are increasing.

Planned Strategic Initiatives #

• Identification of low-cost CMOs for high-volume, low-value products.
• Plugging in new API vendors.
• Portfolio rationalisation to reduce low profitability products.

Efficiency Improvement Targets #

• Cost optimization by identifying low-cost Contract Manufacturing Organizations (CMOs) and plugging in new API vendors.

Potential Challenges and Opportunities #

• Challenges: Generic price deflation, increased US FDA inspections of manufacturing facilities.
• Opportunities: Increasing US FDA approvals for generics, potential to mitigate generic shortages. Market share gains in specialized niche products and dermatology.

ROW (Rest of World) Business #

Management Guidance and Assumptions #

• Focus on strengthening market share in core geographies (Philippines, Sri Lanka, Russia, and Nepal) through brand building and expansion.

Planned Strategic Initiatives #

• Brand Building and Scientific-Driven Activities.
• Expansion in Chronic Therapeutic Areas (CNS, CV, GI) and Diabetic segment (DPP4s).
• Strategic Expansion in Core Countries.
• Incrementally invest in other existing as well as new markets. Setup operations in Colombia in Latin America
• Targeting key emerging markets like Thailand, Vietnam, and Australia.

Potential Challenges and Opportunities #

• Challenges: Geopolitical, economic, and currency fluctuation risks.
• Opportunities: Leverage the existing product pipeline to expand and reinforce its presence in other growing markets. Venture into new markets.

Auditor’s Opinion and Qualifications #

• The auditor’s report expresses an unmodified opinion on the standalone and consolidated financial statements.
• No qualifications or adverse remarks were reported in the Companies (Auditor’s Report) Order, 2020 (CARO) report.
• No fraud was noticed.

Key Accounting Policies #

• The financial statements comply with Indian Accounting Standards (Ind AS).
• No new standards or amendments to existing standards were applicable during the reporting period.
• The Company uses the historical cost convention on an accrual basis, with exceptions for certain financial instruments and defined benefit plan assets measured at fair value.
• Useful Life of Intangible Assets such as brands has been considered upto 15 years.

Internal Control Effectiveness #

• The Company maintains adequate internal financial controls with reference to financial statements, deemed operating effectively.
• A formal framework of Internal Financial Control (IFC) is in place, aligned with the Companies Act, 2013 requirements.
• The Company has a robust system of internal controls.
• Vulnerability assessment and penetration testing (VAPT) has been performed with red/blue team excersises.

Regulatory Compliance Status #

• The Company has complied with applicable Secretarial Standards.
• The Company has generally deposited undisputed statutory dues regularly.
• No funds have been advanced, loaned, or invested in violation of Rule 11(e) of the Companies (Audit and Auditors) Rules, 2014.
• The Company has an accounting software with an audit trail feature that has operated effectively.

Legal Proceedings and Potential Impact #

• The Company is involved in legal proceedings, including product liability matters (Valsartan and Losartan MDLs) and commercial matters.
• Disputed demands exist regarding income tax, employee state insurance, Goods and Services Tax, excise duty, sales tax, stamp duty, and bonus payments.
• Financial impact of these matters is uncertain. The potential outcome is assessed through internal analysis and legal counsel.

Related Party Transactions #

• All related party transactions were conducted on an arm’s length basis.
• No related party transactions were considered “material” under the definition of Sub Regulation (1) of Regulation 23 of the Listing Regulations.
• The Company has policies and procedures in place to deal with related party transaction.

Subsequent Events #

• Curatio Health Care (I) Private Limited was amalgamated with the Parent Company, effective from the appointed date of October 14, 2022, per NCLT order dated May 17, 2023.
• A final dividend of ’ 6 per equity share was proposed by the Board on May 24, 2024, subject to shareholder approval.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: Regular review of accounting estimates, use of historical experience, and application of the accrual basis of accounting suggest adequate quality. The presence of an unmodified audit opinion supports the fairness and reliability of financial reporting.
• Regulatory Risk Assessment: The Company operates in a highly regulated industry, exposing it to compliance risk. However, the presence of governance mechanisms, internal controls, and continuous monitoring of legal and regulatory compliance are mitigating factors. Involvement in multiple legal proceedings, including product liability, represents an ongoing regulatory and financial risk.