As the world is gradually recovering from the disruptions caused by the COVID-19 pandemic over the past two years, we are still witnessing multiple black swan events as geopolitical tensions unravel in different regions. The focus is gradually shifting from ensuring safety of our work force to bringing normalcy in operations as employees revert to office from a work-from-home environment.

Our strategic vision embraces commitment to being a welldiversified pharma business built upon a strong foundation in generics, where we rank among the top 10 generics companies in the world with a portfolio of complex generics with relatively high entry barriers entailing lower risk of price erosion and thus mitigating volatility in earnings.

INR
164,055 Mn

Total Revenue from Operations

60%

Gross Margins

0.16:1

Net Debt/Equity

FY22 has been challenging with headwinds in the U.S. on account of accelerated price erosion, inflation in input materials, several one-off incidents such as product recalls, penalties for failure to supply, settlement of claims for Glumetza, and impairment of Solosec®. The situation was further exacerbated by the decline in sale of acute therapy products relating to the API business. Amidst the flurry of setbacks, there were however notable achievements across our markets. Albuterol gained a distinctive market share of approximately 23% in the U.S. and is our top product by sales. Our India business registered growth of close to 14% in the past FY, primarily driven by growth in chronic therapy areas. In the Asia Pacific region, our acquisition of Southern Cross Pharma helps us further consolidate our position in the Australian market. Our growth in Europe has been on the back of the launch of Luforbec® (gFostair), and ramp up of NaMuscla® and Nepexto®.

Our capital allocation strategy had gone amiss in parts in the recent past with acquisitions unfortunately proving unsuccessful and spends on R&D not yielding the desired timely results. Our approach today is to be a lot more calibrated towards acquisitions as well as spend on R&D. The R&D spend pattern reflects a marked shift away from simple generics to more complex products straddling across inhalation, injectables and biosimilars. Further, we have drastically reduced the burn on Solosec®, our women’s health franchise in the U.S. Whilst we retain our aspirations for building Specialty, the current focus is on bringing EBITDA margins back to a healthy core of over 20% in the near future. A robust optimization plan embracing several initiatives to reduce costs, rationalise portfolio spends, rationalise the footprint and divest areas that cause the burn is underway in order to achieve the same. We believe that there would be favourable outcomes coming in the wake of these programs over the next several quarters and would be clearly discernible from the second half of the current fiscal.


Financial Performance

Our management of financial capital focuses on enhancing shareholder value by maintaining a healthy bottom line, coupled with judicious investments in research and development, cost optimization, capital expenditure and modernization through adoption of new technologies and Information Technology (IT) systems. Whilst this has been the overarching theme for long, there have been setbacks in recent times to vitiate our ratios and metrics.

The endeavour currently is to bring all of them back to historical levels whilst not losing sight of our mission of providing highquality, accessible and affordable healthcare for all.

Our financial performance during FY22 has been illustrated in the graphs below. A detailed account of our financial performance can be found in the standalone and consolidated financial statements, presented subsequently in the Integrated Report.


Cost Optimization

We believe that cost optimization and prudent capital allocation are key business imperatives. Creating a leaner and more efficient organization remains central to our approach and strategy. Over the past year, we have made significant strides in our cost optimization initiatives encompassing digitization, automation, and process-related improvements. These initiatives have created a strong foundation and our cost optimization momentum will continue with increased rigor in the future.

At Lupin, we realise that becoming a digital-enabled organization is not an option but a necessity. It is crucial for business growth and provides an opportunity to unlock even more potential by enabling us to scale, reach new customers, improve effectiveness of our business operations, and enable agility. In our quest to digitally transform operations at our manufacturing sites, we continue to evolve with Program ADAPT. Through this, we have initiated leveraging new technologies to not only optimize time, efforts and throughput, but also drive a paradigm shift in the way we approach our manufacturing processes and operations.

Enhancements in our Qlik Sense dashboards aim to achieve greater business transparency and enable data-driven decision making. This intervention has allowed us to leverage integrated data and meaningful insights in a user-friendly manner, which enables better decision making. For example, this has led to a 25% reduction in human efforts in our Australia team and has eliminated the need for manual intervention. We intend to extend these Qlik Sense dashboards to our other global locations such as EMEA and APAC and also leverage these Qlik Dashboards in our finance and supply chain modules.

In our operations in India, we have also leveraged Robotic Process Automation (RPA) to automate the process of matching & reconciliation of transactions aligned to GST GLs and GST records as per the Indirect Tax team and identification of matched and unmatched transactions and clearing of matched transactions in SAP. We have been able to reduce the time spent by Lupin employees on this activity by 61%, thereby providing the opportunity to deploy our employees on other meaningful tasks and activities. The other area of deployment of RPA has been to streamline the process related to the preparation of Form 15 CA as per the Indian income Tax Act, 1961. By implementing the RPA based process to automate the preparation and drafting of these forms, we have saved time to the extent of at least 10 days each month, i.e. 120 days a year.

Introduced in FY20, Lupin’s Project Inspire has led to incremental cost savings of approximately INR 1,000 Mn in FY22. We have been able to realise cost savings through improvement in procurement efficiency, optimization of batch output and improvement in yield and energy savings.

Some of the notable initiatives undertaken were to reduce energy consumption in fermentation of chilled water in Tarapur, installation of a back pressure turbine at our Ankleshwar plant, replacement of conventional motors with EC motors in AHU and ventilation in Tarapur, installation of LED lights across locations, and so on. We continue to explore process and product level interventions to further reduce our environment footprint and achieve cost savings.

Capital Expenditure

We invested INR 6,872 Mn for CAPEX requirements during the year towards newer capabilities, processes that increase efficiency and improve our environmental and social impact.

We have stepped up our investment towards automation, digitization and environmental management initiatives. Investments made during the year are summarised below3:

CAPEX Initiative

Environmental projects – installation of solar rooftops at multiple sites, air and water pollution control equipment and energy saving technologies

137.2

Investment (INR Mn)

Automation projects – all projects which lead to process improvement

83.0

Investment (INR Mn)

Digitization projects – initiatives such as Electronic batch records and Labware LIMS

46.4

Investment (INR Mn)

Tax Transparency

Lupin is committed to comply with all applicable laws and regulations, and we are transparent in our reporting to tax authorities all relevant information that is complete and accurate, in a timely manner. As a policy, Lupin does not engage in aggressive and contrived tax planning or tax structuring for the purpose of gaining tax advantages. Lupin’s tax policy is to optimize the tax cost and avail tax incentives where available. We have strong governance mechanism to adhere to our tax principles and manage tax risk in line with our tax risk management framework.

Lupin has zero tolerance towards tax evasion, or the facilitation of tax evasion, by itself or by its employees. Lupin maintains open and collaborative relationships with government and tax authorities worldwide. Where appropriate, Lupin seeks advance clearance from tax authorities on the proposed tax treatment of transactions, helping pre-empt future disputes. We are committed to the arm’s length standard in transfer pricing and OECD guidelines for international tax matters. Our Chief Financial Officer (CFO) is ultimately responsible for our overall tax position. The day-to-day management of tax is performed by the company’s global corporate tax department. Tax impact on critical transactions is also discussed and reviewed by prominent senior legal counsels and reputed firms.

Tax impact on critical transactions is also discussed and reviewed by prominent senior legal counsels and reputed firms7.

We monitor proposals and changes to tax incentives and regulations in the countries in which we operate to assess their impact on our business, and we actively participate in industry groups interacting with government representatives to support the development of effective tax systems that encourage innovation and growth. We also utilize available tax incentives and opportunities, such as Research and Development tax reliefs, in the spirit in which they were intended8.

We have robust internal policies, processes, training, and compliance programmes to ensure we have alignment across our business and meet our tax obligations. We understand the importance of tax in the wider context of business decisions and have processes in place to ensure that tax is considered as part of the decision-making process.

The tax strategy for Lupin Healthcare (UK) Limited for FY 21-22 is available at https://www.lupin.com/investors/policies/ in accordance with the requirements of the Finance Act 2016 Schedule 19, paragraph 16(2) of the United Kingdom.