Message from Vice Chairman & Managing Director

The FY 2021-22 continued to be testing for the global pharmaceutical industry. This was largely due to pandemic-induced disruptions on the operational, supply chain, demand and pricing side. While pharmaceutical manufacturers are on the recovery path, they continue to face considerable challenges.

Saharsh Davuluri Vice Chairman & Managing Director
Dear Shareholders,

I am pleased to share that Neuland held up well in a difficult fiscal. Looking ahead, our strategic priorities are the roadmap for business fortification. We will focus on strengthening R&D capabilities and technologies, building flexible manufacturing capacities, further developing project and client management systems , investing in digitisation, and, more importantly, building and aligning talent to support business aspirations. Bolstered by a healthy pipeline of existing and new projects, and progressing on our strategic priorities, we remain confident our business is poised for long-term growth.

GDS SEGMENT

Comprising the Prime and Specialty APIs businesses, the GDS segment reported a slight dip year-over-year revenue growth. This was largely due to lower customer offtake for some of the products, particularly for Levetiracetam which has been doing well historically. The high global prices of raw materials also overshadowed the segment’s performance.

Notwithstanding the subdued financial results, there have been several positives for the segment. We filed 5 DMFs for products with differentiated technologies, including one sterile API. These are molecules we are excited about and which could have an exciting role to play in the future. We also continue to see good traction with GDS customers that could help us drive growth in the medium to long term. In our Prime business, molecules like Mirtazapine, Labetalol and Levofloxacin have performed well, which will help us leverage economies of scale and improve our profitability. In the Specialty segment, Entacapone, Salmeterol and Ezetimibe led the growth momentum.

Going forward, aligned with our strategic priority, we will continue to concentrate on building a GDS business that is focused on quality-conscious customers and has a product pipeline differentiated on technologies. To this end, the necessary investments are being made in R&D to bring to market those products where we compete on the merits of their complexity, quality and technology rather than on price. In parallel, our continued emphasis on product lifecycle management is enabling us to improve yields and reduce costs for the existing products in our portfolio.

CMS SEGMENT

Our CMS segment, which includes both commercialisation and development projects, delivered a strong performance for the full year, clocking the highest revenues to date. This enabled us to partially offset the loss of revenues from the GDS segment and also protect our overall margins in the face of huge raw material cost pressure. Another important milestone is that two molecule transitioned from development into commercialisation stage. Additionally, another one or two molecules are expected to get into the commercial stage in FY 2023.

A noteworthy highlight for the year is that the revenue contribution from the development business has been very promising – for several molecules even higher than our expectations. In fact, while revenues from commercial projects saw a sharp decline due to the de-growth of one of our older molecules (accounting for around 70% of our commercial revenue in the previous year) reaching the end of the patent cliff, the strong contribution from our development business enabled us to more than compensate the loss in commercial revenues. These development molecules are the future of Neuland and denote the potential for future commercialisation and scaling our CMS business. It is also noteworthy that there are no other molecules in our commercial pipeline that are likely to go generic in the next few years.

As of March 31, 2022, we have 81 active CMS projects in our portfolio, with 18 of them in the commercial stage, 18 in the development phase and the remaining 40 extending from early clinical trials to Phase III. While the number of new projects added in the past fiscal has been less than that added in some of the previous year, the quality/value of projects has increased. This is aligned with our focus on building a quality portfolio rather than a quantity-led one. To provide a better perspective, we received our highest initial order from a customer for a product in Phase III, which will be executed in FY 2023. We are also increasingly focusing on therapeutic areas that are our stronghold, green chemicals—those with a low-carbon footprint and futuristic new therapies including peptides and deuterated molecules.

The consistent growth of our CMS segment over the past few years validates our strategy of focusing on biotech companies. The pandemic has further brought to the fore the scientific innovation being driven by them. With biotech companies’ continuing to receive robust funding for late stage candidates, their drug development programs are expected to be in line with the norms of the industry. The strong relationships that we have built with our biotech clients – being a partner of choice for many – places us well to expand the scope of engagement with them as well as attract new biotech clients.

OUTLOOK

While the business outlook for FY 2023 is looking healthy, with both CMS as well as GDS speciality expected to deliver growth, input cost volatility and other factors could have a bearing on our financials. Over the longer term, given our focus on delivering complex projects in line with clients’ technical requirements, we retain our optimism that the overall business will grow in line with our stated expectations and reflect increased margins.

While we are building Neuland for the long haul, it is important to mention that quarterly variances in performance, to some extent, will continue to be a feature of our business, largely attributable to the CMS business and the speciality GDS business. To elucidate this further, whenever we execute a development project, it translates into significant revenues for that quarter; however, the absence of development projects in a particular quarter results in revenue reduction for that period. These variances are reduced when the development stage molecules become commercial molecules and start generating recurring revenues. As we become a larger Company and increase the base of the CMS business with more commercial projects, the impact of these variances will reduce further, though not completely go away. Our strategy would be to continue building very strong relationships with innovator companies for the CMS business wherein we are able to bring in a diverse as well as a high-quality portfolio of molecules.

Our focus would also be on entering into molecules where there is a very strong synergy in terms of our infrastructure, which means that we aim to have molecules in our CMS and GDS businesses where our capacities are fungible. The growing utilisation of Unit-III for both GDS and CMS businesses should also enable us to improve our profitability. With the pandemic subsiding, we are also seeing interest from newer companies for visiting our facilities and engaging with us, which makes us upbeat about growing our customer base.

In summary, Neuland is poised for long-term growth underpinned by the healthy pipeline of projects in our CMS business as well as existing projects, the DMFs we have filed and continued customer engagement for quality delivery. Our growth ambition is supported by a strong balance sheet, giving us the financial wherewithal to make calculated investments for the long term. With so much opportunity identified across our business and a detailed strategy, talented team and the right ways of working in place to unlock it, we are confident of the rewards.

Thank you for your investment and trust in our Company.

Warm Regards,

Saharsh Davuluri Vice Chairman & Managing Director