IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021Disclaimer: Certain statements in this transcript concerning our future growth prospects are forward-lookingstatements, which involve number of risks and uncertainties that could cause our actual results to differ materiallyfrom those in such forward-looking statements. The Company do not undertake to update any forward-lookingstatement that may be made from time to time by us or on our behalf.Moderator:Ladies and gentlemen good day and welcome to IOL Chemicals & Pharmaceuticals Limited Q1FY22 Earnings Conference Call hosted by Antique Stock Broking Limited. As a reminder allparticipant lines will be in the listen-only mode and there will be an opportunity for you to askquestions after the presentation concludes. Should you need assistance during the conferencecall, please signal an operator by pressing ‘*’ then ‘0’ on your touchtone phone. Please note thatthis conference is being recorded. I now hand the conference over to Mr. Anubhav Adlakha fromAntique Stock Broking Limited. Thank you and over to you sir.Anubhav Adlakha:Good afternoon everyone. Hope everybody's safe and healthy. Thank you for joining us on theIOL Chemicals Pharmaceutical Q1 FY22 earnings call. Today we have with us, Dr. SanjayChaturvedi – Chief Executive Officer and Mr. Pradeep Khanna – CFO with us from the seniormanagement. We begin the call with opening remarks from the management, followed by aninteractive question and answer session. I will now hand over the call to Dr. Chaturvedi for hisopening comments. Thank you and over to you sir.Sanjay Chaturvedi:Thank you. Good afternoon everyone. Thank you all for taking the time to participate in thisearnings call. I trust you have read the earnings document and I'm certain that you will havequestions. But before we take up these questions, I would like to shed some light on the businessand share my perspective on the performance for the quarter that has gone by and thensubsequently my colleague Mr. Khanna, the CFO will then provide a lot more granular detailson the financials.IOL Chemicals and Pharmaceuticals is one of the leading API bulk drug manufacturers and weare a significant player in the field of speciality chemicals. We are the largest producer ofIbuprofen with an installed capacity of 12,000 metric tons per annum. We have completebackward integration of all the major chemicals that are required to produce Ibuprofen. Wecurrently hold about 35% of the world market share in this product ibuprofen. We are alsoamongst the top producers of Ethyl Acetate and we have a manufacturing capacity of just over100,000 metric tons per annum. Ethyl Acetate is a speciality product that has wide applicationsindustries like pharmaceuticals, ink, packaging adhesive, surface coatings etc. Our company isalso the second largest producer of Iso Butyl Benzene which is the key intermediate forIbuprofen. We hold about 30% market share for this product. IOL Chemicals and Pharma hassuccessfully completed in this quarter the installation of our new manufacturing facility whichis Unit-10 where we manufacture multiple pharma products including Fenofibrate Lamotrigineand UDCA to cater to the growing demand for these products. The installation of the newmanufacturing facility Unit-9 to manufacture Gabapentin and other pharma products is slightlyPage 2 of 15

IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021delayed because of the COVID second wave that happened. We are expected to complete thisin the third quarter of this year without any cost overruns and all the CAPEX that we are doingis currently being met through internal accruals.We are delighted to announce that our credit rating has been upgraded one notch for the bankingfacilities availed by the company. Our long-term which is the fund based working capital ratinghas been revised from CARE A to CARE A and the short term which is non-fund basedworking capital rating has gone from CARE A1 to CARE A1 . We have R&D facility that isapproved by Department of Scientific and Industrial Research, DFIR. We are equipped with allthe advanced analytical instruments for conducting research.Coming into financials; the company on a basis recorded 12% growth in total income. However,the EBITDA has declined by about 27% on a year-on-year basis, on account of the stress demandprimarily due to the second COVID wave globally. With this I would like to hand over to mycolleague Mr. Pradeep Khanna, the CFO who will be talking more in detail. Over to you sir.Pradeep Khanna:Thank you Sanjay Chaturvedi. Good afternoon everyone. A warm welcome to IOLCP Quarter1 financial year ‘22 earnings call. I will take you through mentioned highlights for the Quarter1 financial year ‘22. The total revenue for the quarter increased by 12% to Rs. 524 Cr ascompared to Rs. 466 Cr in the Quarter 1 of financial year ‘21. In quarter first of financial year‘22 Rs. 116 Cr as against Rs. 158 Cr reported in quarter first of financial year ‘21. EBITDAmargin in quarter first of financial year ‘22 has dropped to 22% from 34% in Quarter 1 of ‘21.Depreciation for the quarter was Rs. 10 Cr, finance cost stood at 1.7 Cr in quarter first of financialyear ‘22. In this quarter the company reported exceptional item amounting Rs. 13.93 Cr,representing the one-time cost toward write-off the compensation favor to the lenders againstsacrifice made by them in financial year ‘14-15, on account of restructuring done under JLSroute. Profit after tax for quarter first of financial year ‘22 stood at Rs. 67 Cr as against Rs. 128Cr during quarter first of financial year ‘21. PAT margin for Quarter 1 was 13% as compared to27% in quarter first of financial year ‘21. With this I would now request the moderator to openthe forum for question answer session. Thank you very much.Moderator:Thank you very much. We even begin the question-and-answer session. The first question isfrom the line of Manish Poddar from Nippon India AF.Manish Poddar:So, I have three questions. First one is probably if you could guide me what is your outlook forthe offtake for Ibuprofen for the FY22? And were there any shipment delays which happened inQ1 which we expect to happen in Q2?Sanjay Chaturvedi:Let me answer that question by saying that overall, the demand softened about 15% in thisquarter versus the previous year. We do think this is anomaly and a blip. This is not a structuralshift in demand. Our outlook for Ibuprofen for the rest of the year is that Q2 we expect to bemuted just like Q1 but the demand will pick up from our export customers in Q3 and Q4. Secondpart of your question was were there any delayed shipments in Q1 that spilled over into Q2, so,Page 3 of 15

IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021I don’t call them delayed shipments. Essentially some orders got deferred. See what is happeningon the shipment side is the prices for shipping have gone up dramatically. Today if I comparefrom 6 months ago, the shipment costs are 200%-300% more. Therefore, what customers aredoing is, they are trying to make good with whatever inventory they have and essentially pushany off-take hoping that by the end of this quarter when the Christmas season deliveries are overin the Western part of the hemisphere by then we do expect to see some normalization inshipping rates. The short answer to your question is, no we didn't lose any orders or we didn'thave any shipment delays. These were more deferments and that will be rolled from one quarterto the other.Manish Poddar:The large part of let's say a big contraction which you've seen in the pharma segment, it's largelyled by Ibuprofen and the other pharma products, there the losses are marginal. Is that a fairunderstanding?Sanjay Chaturvedi:Well, yes. That is a fair understanding. In fact, if you look at our non-Ibuprofen API business,that has grown. So, it depends on which number you want to look at but, in this year, if I look atnon-Ibuprofen API business, this quarter we delivered about 63 crores of business versus 45crores in the first quarter of the preceding year.Manish Poddar:Are we incurring loss there right now, our utilization in North of 45%-50% now and may bestarted making money up there?Sanjay Chaturvedi:Yes, we have just about broken even on this. I think we will be pushing into exports. Thechallenge here for us right now is for the regulatory approvals. Even now the live audit for Indiahave not really started full on. So, I think this quarter we will be having regulatory approvalsand audit from the Russian authorities for example. The customer audits are ongoing but theaudits from the regulatory bodies are getting pushed out and till those approvals come in place,it'll be really hard to push the exports.Manish Poddar:Just two smaller follow-ups. One is on this exception item, are we largely done with this item oris there any amount still in litigation?Sanjay Chaturvedi:No, we are done. This is for the one-time payment and we have settled. We have completed thistransaction. There will be no subsequent payments on this regard.Manish Poddar:So, one last one, now given that you’ve been in the company now for more than a quarter or so.Probably can you just highlight let's say 2 or 3 key focus areas? I believe there was a big CAPEXplan which the company had to announce. Just want to understand from a three year per se whatis the roadmap, just as the broader 2-3 key areas if you could highlight that will be helpful.Sanjay Chaturvedi:So, as I've said in the past as well, we are in the midst of a transformation. We are in the midstof a true business transformation where rather than look at what we are doing on a month bymonth and a quarter-by-quarter basis, one needs to kind of take a step back and see over a 2–3-Page 4 of 15

IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021year time period. If you look at what are the things that we have said we will do and what arethe things that we are trying to do. Number one, we are going to do de-risk the company fromIbuprofen, not to say that Ibuprofen, I think it'll continue to be our flagship product. We willcontinue to maintain global leadership position in that product. But we do see that because wehave a large leadership position in that particular molecule the growth options are somewhatlimited. So going forward what we will be doing is, adding more and more products to ourportfolio and growing the business of those products starting in India. And then as we get theregulatory approvals expanding into the export market. Now the only way you can add moreproducts to your portfolio is through technology. We are really taking a very strong focus to lookat technology and that will be the cornerstone for the growth. And you're right, we have capitalthat needs to be deployed but I am going to have a much higher level of asset utilization for mycurrent plans before I announced that a new CAPEX plans.Moderator:The next question is from the line of Alankar Garude from Macquarie.Alankar Garude:My first question is, can you comment on recent Ibuprofen pricing trends and what would beyour expectation for the next 12 months, especially in the context of muted demand in the firsthalf?Sanjay Chaturvedi:I would say two things, that one the prices have really bottomed out. We don't expect them todrop any further beyond where they are. That's the first message. The second message is goingforward we do expect to see some recovery and that will mimic the demand recovery as well.This quarter we should expect the same flattened prices that we saw in Q1. But in Q3 and Q4we should expect some upward movement in the Ibuprofen prices.Alankar Garude:What would it our realizations as of Q1, the number which you said has bottomed out, whatwould be that number?Sanjay Chaturvedi:So, we don't give out pricing information on a product-by-product level.Alankar Garude:My other question is more of a question on the de-risking strategy. So one hand you said thatyou want to de-risk the company from Ibuprofen but on the other hand we also have plans toexpand our presence in the regulated markets for Ibuprofen. So how should we look at these twopoints?Sanjay Chaturvedi:If you look at my current capacity of Ibuprofen versus my actual production, there is enough ofa differential that I can use that to cater to the enhanced demand that I would get from the exportmarket. I don't expect to have any more CAPEX going into Ibuprofen for now. So essentiallywhat we are talking is a two-pronged approach. One is milking of existing assets and the otheris creation of new assets both on a product basis and manufacturing basis to be able to createmore business from products other than Ibuprofen.Page 5 of 15

IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021Alankar Garude:One of our key competitors in Ibuprofen has announced backward integration. Now apart fromthem being perhaps more cost competitive because of this, I am assuming that we would also beone of our customers for IBP and other raw materials. Do you foresee any impact of this on ourbusiness?Sanjay Chaturvedi:We have a leadership position both in capacity and in backward integration. I am sure you willappreciate that decades of experience in Ibuprofen put us head and shoulders above thecompetition. Yes, I would actually say it is for the competition to catch up and we are prettymuch prepared. We don't think it will have any negative impact on our business or financialperformance.Moderator:The next question is from the line of Vikram Singh, an Individual Investor.Vikram Singh:I have one question, that our dependence on chemical has increased overtime so what’s our wayforward in that?Sanjay Chaturvedi:Our chemical, our dependence on chemicals business has increased not because strategically wedid that. It has more to do with the pricing and the pricing of the chemical product ethyl acetateand to do with the subdued demand of the pharma. As we grow our non-Ibuprofen pharmabusiness to higher levels, you will see that this kind of volatility and the dependence onchemicals will actually go down. I have a stated intent that in a few years, chemicals should beno more than 40% of my total portfolio. That is an area in which we are striving towards. Theintent of getting there is not through reduction of the chemicals business but really throughincreasing the pharma business.Vikram Singh:Also, I would like to ask one more question regarding the utilization of all the facilities that wehave?Sanjay Chaturvedi:We have multiple plants so I would say that overall, the plant utilization ranges anything from55%-60% all the way to 75%. That's the range of asset utilization and the chemical plant isrunning at about 100%.Moderator:The next question is from the line of Ashish Thakkar from Motilal Oswal Asset Management.Ashish Thakkar:Most of the formulation companies this quarter were saying there's some kind of pricingpressure, even the regulated market. So does that percolate to our API/intermediate business?How do we see this scenario panning out over the next say two to four quarters?Sanjay Chaturvedi:So, as I said earlier Ashish you are spot on. There is a lot of pricing pressure on to the formulationcompanies in the regulated market. Some of that is being pushed back to us. We see minor impactof that on our Ibuprofen business. Our Ibuprofen business is a mix of India and exports. Withinexports, we are exports to less regulated market and the regulated market and some of that hastranslated into not just subdued demand and subdued prices but we do believe that, that pricingPage 6 of 15

IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021has bottomed out and therefore going forward, Q2 will be similar to Q1 but Q3 and Q4 will beat a positive improvement both in terms of demand as well as pricing.Ashish Thakkar:In a way, you are also referring to the fact that even formulation price, any pressure mightstabilize in the next two to three quarters. right?Sanjay Chaturvedi:Yes.Ashish Thakkar:In terms of our capital deployment going ahead. Since you said our chemicals is broadlyoperating at 100% utilization. So, if you could give just the percentage split where, how shouldwe look at our capital allocation going forward?Sanjay Chaturvedi:We are in the midst of doing that exercise and I think in the coming few months, we will beready but broadly a lot more CAPEX is going to be deployed on the pharma side and thechemical side.Ashish Thakkar:One last question. I am very sure you might have got this question a lot many times from theinvestors but on the China Plus One strategy do you feel, it's still a valid strategy to play or itwas just a temporary phenomenon which played to the advantage of most of the Indiancompanies.Sanjay Chaturvedi:That's a very tough one to answer Ashish because the success of this strategy really depends onwhat our customers want to do. We are not really in the driver's seat for this. What we are doingvery aggressively is offering a China alternative. So, a lot of the products that we offer are analternative to buying from China and we are trying to de-risk our business by buying as fewhaving essentially lowering our dependence on China for raw materials and keep startingmaterials. Having said this, the China Plus One strategy to be successful in the real world andnot just for IOL but for players at large is really dependent on a combination of what thecompanies do, what the customers do and the government policies. I think the government isdoing their best by having, by incentivizing through a production linked scheme. I think severalplayers have done their filings as have we. I really think strategically that is a right direction.How much of it is going to hold really depends on how China responds and how the customersbehave.Ashish Thakkar:From a therapeutic exposure point of view any new therapies you guys are targeting or any newchemistries you guys are working on now?Sanjay Chaturvedi:So again, that's a work in progress on our strategy side and the portfolio and product selectionside. In the coming few months we will be ready to roll out a strategy for the next couple ofyears.Moderator:The next question is from the line of Monish Shah from Antique Stock Broking.Page 7 of 15

IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021Monish Shah:Just a question on backward integration for our non-Ibuprofen products like FLU and Metforminand Valsartan. Any update over there in terms of where we stand in terms of capacity or anyprocess integration?Sanjay Chaturvedi:So, I would say I believe it and say we have made good progress on the technical evaluationside. So, the technical evaluation is complete. The work is in progress to really figure out whatkind of backward integration advantage we really have. We are doing mapping of what kind ofCAPEX would be required for this complete backward integration because you will appreciatethat, if we put aside CAPEX for API without putting aside CAPEX for the intermediate the chainis as strong as the weakest link. In the next coming few months we will be ready to roll out theentire strategy of the therapeutic categories, the new products that we are targeting, what is ourbackward integration strategy in each of these and what is the CAPEX allocation that we will bedoing in each of these buckets.Monish Shah:Secondly, on you the US DMF filing so we intend to file more of these non-IBU products forthe US DMF because I believe you were targeting more of exports revenue from developedmarkets. The question is, in terms of customer registration how is it moving?Sanjay Chaturvedi:I would say directionally Monish the movement is in the right direction. The speed of thoseapprovals and the speed at which we are moving has been impacted because of COVID. Seethere are certain customers who are doing online audit and not all customers have started doingonline audits yet. The regulatory agencies like the Russian agency for example, we will behaving their audit this quarter. They have adopted kind of a hybrid and online model. I think tillthe COVID crisis is over the whole approval process for exports will continue to be subdued notonly for IOL but other players as well.Monish Shah:You think there is a delay of let’s say around 6 to 8 months and maybe in FY23 second-halfonwards we will see a better traction from our non-IBU sales?Sanjay Chaturvedi:Certainly, I think we are already seeing that traction. So, if you compare and see this quarterversus the previous quarter, we have gone from about 45 crores to about 63 crores. On apercentage basis this is a significant jump and we will continue to demonstrate that and you willbe able to measure that maybe if not on a quarter-by-quarter basis, certainly on an annual basis.Moderator:The next question is from the line of Aejas Lakhani from Unifi Capital.Aejas Lakhani:I missed your opening remark. As I joined in 10 minutes late. I just wanted both color on; couldyou tell us given that Ibuprofen is still the cash cow and you have stated your intent to reducethe dependency on Ibuprofen? Could you state some percentage in terms of how dependent areyou today and how you expect that percentage to move over the next 2 or 3 years? That's questionone.Page 8 of 15

IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021Sanjay Chaturvedi:If I look at my pharma business today, about 85% of my business in pharma is really Ibuprofen.If I look at going forward, I would say this number will drop to below 60% in the next 2 yearsor so.Aejas Lakhani:I just want to ask you that for the next 2 years, considering that Ibu would still be the cash cow.Could you throw some color on how you expect ‘23 to pan out because you have already givena quarterly outlook for ‘22. So, ‘23 some color on how you see Ibuprofen demand-supply andprices?Sanjay Chaturvedi:So, we see normalcy returning in demand and certainly what pricing levels operate in Q3 andQ4 of this year. We would expect that to continue because see Ibuprofen is essentially acommodity API and low large players are coming into Ibuprofen. The market is pretty mature.It is well established with three or four leading players and the smaller players because of thelow pricing that is observed now and continuing are facing tremendous pressure. I think thesmall players will essentially move into other products to be able to survive. So, I see a lot ofstability returning into FY23.Aejas Lakhani:Could you mention how many smaller players are there in Ibu?Sanjay Chaturvedi:It's hard to know but maybe between one to two small players are there in Ibuprofen.Aejas Lakhani:I read in the press release that there is an expansion that you are taking place in Gabapentin.Again, Gabapentin being a commoditized, well established sure product, it has a newer agemolecule which has competition coming in which is called out by another listed entity as well.Just wanted your thoughts on how you see Gabapentin as a market and whether that could becannibalization given that Pregabalin is the newer age molecule to that?Sanjay Chaturvedi:First of all, let me compliment you Aejas on your market knowledge. It's a delight to haveinvestors who are so well-informed about not only our products but the competition that ourproducts are going to have. I am really pleased to hear that. Pregabalin, it’s a very establishedvery large volume molecule and what do we bring to the table that is unique. What do we bringto the table is that we have a unique process with no dependence on China in our process andreally, I think that is what will differentiate us and allow us to gain a foothold. Having said that,our R&D team is also very aggressively working on Pregabalin. I think in future we hope tooffer both products.Aejas Lakhani:When you spoke about the backward integration you were planning for across categories. Youare considering these newer processes to be a part of that right? For Gaba and Prega?Sanjay Chaturvedi:Yes.Moderator:The next question is from the line of Thomas Priju from Alchemy Capital Management Pvt. Ltd.Page 9 of 15

IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021Thomas Priju:This is Thomas Priju from HME Capital. I had two questions. One is I can appreciate for as tosee the results of your strategic roadmap will take a couple of years. But just from a historicalperspective what is the main reason why Ibu prices corrected so much in the last 12 months andwhat gives you the confidence that the worst is over? That is question one. Two, in Ibu you allhave a good market share 35% but we have seen that with the exception of DVs, company inIndia has done a good job of picking market leadership in multiple generic API products. Youbriefly mentioned that you will be investing more in technology etc. But if you could providemore color on how confident you are that the success wise of Ibuprofen that you send replicatethat a couple of more products over the next 2-3 years and from where the confidence comesthat you can get maybe at least 10%-20% market share in a few more products? Lastly is thestrategy on only generic API’s or you will try to move up the value and look at the most state ofthe art APIs also?Sanjay Chaturvedi:So, I think let me begin by answering you really asked three questions in there. Your firstquestion is really why we have the confidence that demand and pricing will come back to morenormal levels in Ibuprofen. Now Ibuprofen being a commodity API is driven you know theentire price level is driven by demand and supply. The supply is pretty finite and that is cappedbased on the existing players. The demand that we see as low today is actually artificial for tworeasons. One was they were a lot of overstocking in the earlier part of COVID and that impactednot just us but all Ibuprofen suppliers. You see all Ibuprofen supplies actually had a bull run inthat timeframe. Now what has happened is that they were subsequently there was a researchreport that came out from French medical group that talked about the low efficacy of Ibuprofento manage COVID, but subsequently that report turned out to be untrue in terms of validations.So now I think the stocks are depleting for our customers and our customers are telling us thatthe demand is back and our experience of this market is that whenever the demand is back theprice is also inch upwards, so that's one.Second question that you asked me was what is our confidence level and with the exception ofDivis you gave an example and you know Divis is absolutely I think one of the finest examplesof API players that have managed to maintain global leadership position in multiple molecules.What gives us the confidence that we will do that? Given that we have a cost leadership positionprimarily through our operational excellence and backward integration in a commodity moleculelike API, like Ibuprofen, based on that experience we have a high level of confidence that inselect APIs that we pick that will be high volume APIs by backward integration we will replicatethat story. But your point is very well taken, will we go and occupy 35% market share in thoseAPIs, perhaps not. But certainly, we are looking at double digit market shares and those APIs aswell.The third question that you asked was will be we looking at all generic API’s or are we going tolook at some specialized products as well? I think given our DNA given our manufacturingcapabilities and the kind of operations we have and the confidence we have in those operationswe will continue to primarily be driven by generic APIs. We will not be looking at innovatorAPIs or that kind of business. I will certainly not be looking at molecule like a Fondaparinux orPage 10 of 15

IOL Chemicals & Pharmaceuticals LimitedAugust 20, 2021Eribulin that requires ( 70) synthetic steps that's not to be all, we will be focused on moleculeswith fewer number of steps that leverage the kind of chemistries where we have expertise. Wewill be focusing on manufacturing and operational excellence to get market share rather thanpure R&D.Thomas Priju:By extension you don't see yourself even in the distant future in customs synthesis business?Sanjay Chaturvedi:It's hard to say that because even the customs synthesis is being driven into two parts, I'll call itthe CDMO business where you have the contract development and then contract manufacturing.Within contract manufacturing there are a lot of innovative players that are offering contractmanufacturing services of generic APIs not necessarily innovator API and Divis again awonderful example that does a combination of that. We are evaluating opportunities in thecontract manufacturing space, but not necessarily in the contract development space.Moderator:The next question is from the line of Tanmay Krishna from BHI Advisors.Tanmay Krishna:My first question is, what's the CAP utilization on Metformin right now? And what are thegrowth prospects for the same and is it a key strategic de-restraint product in the future?Sanjay Chaturvedi:My current asset utilization in Metformin is about 50%. There is enough headroom for me togrow this business. And for your second question, absolutely it’s a key product and will continueto be a strategic product in my portfolio. Having a product like Metformin offers us the abilityto touch multiple customers. What happens is these customers buy Metformin from us and thatopens us conversations about what are other ranges of products that they have in mind and thathelps us prepare for our next round the portfolio.Tanmay Krishna:I just have one more question. Does the Metformin HEL have regulatory approvals and is itcurrentl