IOL Chemicals & Pharmaceuticals Ltd

Accelerating Growth through

Diversification and Backward Integration

Dear Shareholders,

I am delighted to present you our annual report for the FY 2022-23, reflecting our performance and progress during the year and outlining our vision for the future. The bygone year unfolded against the backdrop of a dynamic global economy, influenced by various factors including geopolitical tension, decade-high inflation, energy shortages and supply chain disruptions. In response to the high inflation, major developed and developing economies implemented tightening monetary policies.

Despite these headwinds, the Indian economy showcased remarkable resilience and demonstrated a strong growth trajectory. India's economy exhibited notable strength amidst the prevailing global pessimism on the support of robust retail consumption growth and increased private sector spending. The government's strategic focus on infrastructure development post-COVID and the successful revival of the service sector further fortified the economy. In fact, the World Bank has projected a robust GDP growth rate of 6.3% for India in the fiscal year 2023-24, positioning the country favorably amidst global uncertainties.

Against this backdrop, the pharmaceutical and specialty chemicals sectors have emerged as key drivers of growth. The global pharmaceutical industry, valued at $1.5 trillion in 2022, is poised for steady expansion, with a projected compound annual growth rate (CAGR) of 3-6% over the next five years. India's pharmaceutical market, valued at $42 billion in 2021, is projected to grow at a CAGR of 13.9%, reaching $65 billion by 2024 and an impressive $120 billion by 2030.

The API market holds significant growth potential, driven by increasing demand for generic drugs and the shifting focus toward domestic manufacturing. India's expertise in API production, cost competitiveness, and regulatory compliance positions us favorably in the global market.

The specialty chemical sector in India has been experiencing sustained growth. India is anticipated to become a $850-1000 billion chemicals market by 2040, capturing a 10-12% share of the global chemicals market. The sector is projected to grow at a rate of 11-12% during 2021-27 and 7-10% during 2027-40, positioning India as a significant player in the global market.

These positive economic trends, coupled with favorable government initiatives and market dynamics, present substantial opportunities for our company. With our strategic focus on expanding our non-Ibuprofen business, initiating backward integration processes, and capitalizing on operational efficiencies, we are well-positioned to thrive in the evolving pharmaceutical and specialty

To drive future growth and innovation, we have strategically identified key areas of focus in research and development (R&D). Our priority is to establish ourselves as a reliable and innovative API and chemicals supplier.

In FY 2022-23, we achieved a revenue growth of from Rs 2,216 crores to Rs 2,243 crores. Our revenue from domestic operation reached Rs 1,583 crores, while our exports contributed Rs 634 crores. Segment wise, pharmaceutical segment played a pivotal role in our revenue growth, contributing Rs 1,262 crores while our specialty chemicals segment contributed a revenue of Rs 955 crores (net of intersegment), showcasing sustained growth in this thriving market. Our EBITDA for the year stood at Rs 252 crores against Rs 288 cores, while our Profit After Tax (PAT) was at Rs 140 crores as compared to 166 crores. The decline in our profitability metrics was due to higher energy cost on account of geopolitical issues.

To drive future growth and innovation, we have strategically identified key areas of focus in research and development (R&D). Our priority is to establish ourselves as a reliable and innovative API and chemicals supplier. Through the implementation of advanced technical methods, such as continuous flow reactions, we intensify the processing of our top products while eliminating unnecessary steps. We aim to enhance our API offerings by introducing new and complementary products. Moreover, our unwavering commitment to environmentally sustainable practices ensures the introduction of green alternatives, reducing carbon footprints while upholding uncompromised quality standards.

We strike a balance between in-house product development and strategic collaborations for R&D. Over the years, we have formed a skilled R&D team and built robust infrastructure to execute intricate chemical methodologies. Simultaneously, we have established strong partnerships with competent external institutes to scale up continuous processes and introduce enzyme reactions. Both in-house and external collaborations operate independently, ensuring our focus remains intact.

In terms of patents, and regulatory approvals, our R&D efforts have yielded better outcomes. We have secured three patents for our exceptional process in producing Sitagliptin, Valsartan, and Losartan products. In addition, our Pantoprazole, Paracetamol, and Levetiracetam have received CEP approvals. These achievements will help us drive growth in regulated markets, ensuring steady growth and revenue. Furthermore, our scientific prowess is likely to attract CDMO partners worldwide, further enhancing our long-term growth prospects.

Sustainability is at the core of our business values, and we have set ambitious goals and targets for the coming years. Our sustainability roadmap is already in motion, with a clear action plan for achieving water and carbon neutrality. We have signed the SBTi (Science-Based Target initiative) commitment, underscoring our dedication to sustainable practices. Our targets include a reduction in Scope-01 emissions by 45.21% and 100% reduction in Scope-02 emissions by 2035, based on the baseline emissions of FY 2021-22.

In line with our sustainability goals, we have been undertaking various operational excellence initiatives, addressing reduction in raw material consumption, energy and water usage, and waste generation. We have already made significant strides in using renewable energy sourced from green fuel. Our R&D team emphasizes sustainable manufacturing through green chemistry and efficient processes that consume fewer resources while minimizing cycle times and overall carbon intensity.

Digitalization is another key focus area for us, as we implement digital projects in manufacturing and R&D to achieve significant efficiencies and cost savings. By integrating digital technologies into every aspect of our work, we are positioning ourselves for a future-ready operation.

Looking ahead, we have planned strategic investments in infrastructure and technology. We are investing in renovating our R&D facilities, equipping them with cutting-edge instrumentation for synthesis and analytical labs. Furthermore, we are creating a new lab dedicated to process development, focusing on continuous flow reactions, electrolysis, and particle engineering activities. Investments in advanced wastewater recycling infrastructure, technology dryers for byproduct recovery and hazardous waste reduction, and sludge volume reduction further solidify our commitment to sustainable practices.

In conclusion, I would like to express my sincere gratitude to all our stakeholders for their continued support and trust. It is through our collective efforts that we have achieved remarkable growth and positioned ourselves for accelerated growth and sustainability. As we move forward, we remain steadfast in our commitment to driving growth, innovation, and sustainable practices. Together, let us create a brighter and greener future.

Warm regards,

Chairman