MANAGEMENT DISCUSSION & ANALYSIS

The Company's strategie focus in expanding business in newer horizon's resulted steady growth in various geographies particularly in Indian & Emerging markets during the year. India Business launched 48 new products during the year and achieved a turnover of INR 1432 crore resulting in a growth of 16%.The revenue share of the Company's International Business continues to be robust at 68%. The base business of UK continued to growata bout 15%.

During the year, the Company's research & development expense continued to grow keeping in view its strategie focus in Pharma, Biotechnology & NCE segment and was about 11% of Consolidated revenue.

REVENUES

Revenue from Operations during the year was Rs. 4,461 crore compared to Rs. 4,481 crore in the brvious year. Excluding one-offs revenue grew by 6%.

Revenue from operations

On a quarterly basis, Q1 and Q2 revenues are higher compared to its corresponding quarters in brvious year due to one time business opportunity in UK whereas revenue for Q3 and Q4 has declined compared to its corresponding quarters in the brvious year due to absence of one time opportunity in UK and decline in US business on account of continued regulatory alerts.

The revenue split of US operations stood at 22% (compared to 24% as in FY 2015) while European Business including one time opportunity in Contract Manufacturing in UK Business contributed 37% (compared to 41% in FY 2015). India and Rest of the World continue to grow and contributed a robust 41% (compared to 35% in FY 2015).

PROFITABILITY

The decrease in EBITDA is mainly due to decline on account of one time business opportunity in UK, one time income in Ireland in brvious year, genericisation of some key products . in US market, Inflationary impact in expenses and higher spends on R&D.

Material consumption for FY 2016 stood at 36% ofsales compared to 33% in FY 2015, largely due to impact of high margin one time business opportunity in UK in the brvious year.

The company's emphasis on R&D continued during the year with R&D costs for FY 2016 at 11%.

Other expenses for FY 2016 were at 24% of sales compared to 21% in the brvious year. Interest cost during the year has gone up due to additional borrowings.

During the year, Other Income has gone up from INR 66 Crores in the brvious year to INR 97 Crores mainly due to Interest income on surplus funds.

GLOBAL OUTLOOK

The global pharma market continued its growth journey to become a trillion dollar industry at USD 1.07 trillion in 2015. It is expected to attain USD 1.4 trillion by 2020 with a CAGR of 4-7%. This growth will majorly flow from Branded drugs offset by loss of exclusivites in developed markets.

Branded segment is expected to see robust flow of new medicines especially into oncology along with some price impacts. Loss of exclusivity for branded products is expected to reduce brand spending by USD 178 billion as entry of biosimilars begins to have larger impact. This will include both small drug molecules and biologics.

It was again a significant year for patent expiry and major drugs like Esomeprazole and Aripiprazole accounting for over USD 5 billion each were genericised. The first five years of this decade (2011-2015) have been significant with about USD 150 billion worth of drugs losing patent.

Geographical Sbrad

USA

US spending on medicines currently estimated at USD 425 billion is expected to reach USD 560-590 billion which is about 34% increase on 2015 levels.This growth will be driven by innovation & price increases offset by loss of exclusivity. Branded share of spending is continued to be at about 67%. The impact of patent expiries, though higher in absolute dollar terms, is expected to be lower in percentage contribution compared to last five years. Generics will continue to provide majority of brscription medicine usage (90% plus) by 2020 whereas Invoice price growth will continue to remain at historic levels through 2020.

(Source: IMS Global Use of Medicines in 2020)

Europe

EU5 current estimated market size USD 144 billion is expected to grow at CAGR of 4%-7% to about USD 190 billion by 2020 which would include USD 20 billion of exchange rate effects alone.This growth is majorly going to be dominated by Germany (USD 41 billion to USD 57 billion), Italy (USD 25 billion to USD 35 billion) and wider adoption of speciality medicines. 2020 Branded share of spending is expected to be at about 63%. Other major European countries including Spain, Italy & France, those who are facing budgetary challenges as fallout of global economie crisis, may see decline in volumes on per capita basis.

(Source: IMS Global Use of Medicines in 2020)

China

China's continued growth for last couple of years made the current market size to about USD 115 billion making it ahead of Japan. China's decade long access expansion is targeting basic medical insurance to entire 1.4 billion population by 2020 though not at rapid growth, owing to the slowing Chinese economy and lower consumer spending. 2016-2020 CAGR is expected to be between 6-9% making the market to USD 170 billion -180 billion through 2020. Branded share of spending will remain at 23% (+5 pts), generic share at 25% (-3 pts) and non original brand share at 35% (-3 pts).

(Source: IMS Global Use of Medicines in 2020)

Japan

Japan's Pharma market size in 2015 which is estimated to be USD 79 billion is expected to grow slowly at CAGR of 0-3% in the next 4 years to close 2020 between USD 85 billion -90 billion. The share of branded spending which is currently at 67% is expected to contract. 2020 generic share of spending would remain at 9%. The incentive to wider generic usage is expected to significantly improve the generic spending. Japan's growth is expected to return to historic patterns through 2020 and the long term effects of the new price regime will see average prices unchanged from 2015. The introduction of VAT in 2014 and planned increase to sales tax during 2016-2018 could offset expected growth and lead to zero growth for the next 3-4 years.

(Source: IMS Global Use of Medicines in 2020)

Emerging Markets and ROW

The combined market size for India, Brazil and Russia put together as of 2015 is USD 57 billion which is expected to grow up to USD 90 billion through 2020 growing at 10% CAGR. Other ROW markets which accounts for USD 249 billion in 2015 is expected to grow at CAGR of 4% to USD 305 billion in 2020. Pharmaceutical market in these economies like India, Brazil, Russia etc. is primarily comprised of generic medicines and hence the growth is determined by the growth of this subsector. While Brazil and Russia are expected to dock CAGR of 12% and 14% respectively through 2020, India is well placed to have a growth profile with CAGR of 8%. It is expected to grow to USD 20 billion by 2020 from current levels of USD 12-14 billion.

The Russian pharmaceutical market is one of the country's dynamic industries having consistently outperformed national GDP growth rates. An analysis of the pharma market, however, suggests that regulatory obstacles are more likely to hamper FDI than the current economie recession. The Russian Pharma market experienced 27% growth rate (in Rouble term) between 2011-2013 and the market was projected to expand three fold by 2020. However, as a resuit of the deteriorating economie situation in Russia, the beginning of 2015 saw a reduction of the annual rate of pharma market growth to 7.5% which is expected to be range bound and not exceeding 10% till 2020.

Generic Penetration

Generic share of brscriptions will continue to rise across the market. In US the generic penetration currently between 85-88% will rise to 91-92% levels by 2020. The major geographical change in generic brscriptions will be in Japan, a traditionally Brand forte, where the Health ministry foresees the generic share to 80% by 2020 from under 55% currently. EU and Major EM countries have traditionally been generic or branded generic oriented already along with Price controls for Brand drugs, and the scenario is set to continue. In EM's though there is a movement towards pure generic drugs with government support compared to currently dominating Branded generic case. Hence there is a possibility of shift within generic scenario bringing price consolidation.

Growth in Generic and Branded generic products between 2016-20 is expected to be 6.1%, higher than the branded products growth (5.1%) and OTC/other (4.8%) and will increase the overall share of Generic penetration (pure generic and branded generic) to 35% by 2020.

Developments in Biosimilars Space

The global Biosimilar market is expected to grow at CAGR of 49.1% to USD 55 billion by 2020. Biologics with patents expiring between 2015 and 2020 constitute the second wave of biosimilars. Biosimilars is expected to account for 4% to 10% of the biologics market total by 2020, depending on the number of biosimilars launched in the U.S. The U.S. is the largest market for biologics and the biosimilars can achieve 10% of the global sales in 2020, only if the volume growth for biologics is achieved in the U.S. market.

There is a large pipeline of biosimilars in different stages of development, with more than 160 biosimilars that relates to six top selling biologics whose patents are set to expire between 2015-2020. Till recently, industry did not see any significant biosimilars development activity for the third wave of biologics with patent expiries beyond 2020. One important factor for this is the lower market value of these products.

Since the first set of over-arching guidelines for biosimilars released by the European Medicines Agency in 2005, there has been much development in this space. The evolution continues, as earlier guidelines have been revised or are in the process of revision. The US Food and Drug Administration (US FDA) released its first set of draft guidelines in 2012 followed by additional guidelines in 2014-15, and others are in the pipeline. US FDA guidelines in the pipeline are expected to cover interchangeability, statistical approaches to evaluation of analytical similarity, and labelling of biosimilars.

Approvals of more biosimilars for anti-TNF biologics, as well as biosimilars for oncology products, are anticipated in 2016. Interchangeability/substitution and naming are two important considerations in the uptake of biosimilars once they are launched.

Industry R&D Pipeline

The (NPV) of the industry's R&D pipeline surged 18% over last year's reported to USD 493 bn as on June 2015. One technology wave that is taking the industry by storm is projects targeting the programmed death-1 (PD-1) pathway with many leading players in the fray. Should these projects getapproved the value will likely be revised upward, due to the removal of approval risk from the NPV. R&D expenditure is forecast to grow at a modest 2% per year to 2020, reaching $160 billion.

Source: EvaluatePharma® (22 May 2015)

GLOBAL ANTIBIOTIC SCENARIO AND NEW DEVELOPMENTS

Growth in global antibiotic resistance is not new phenomenon. What's alarming though is the rate of growth and the possibility of phasing out of some of the most commonly used antibiotic drugs in a not so far future. Last year witnessed another antibiotic defence being breached in form of emergence of Polymixin resistant bacteria. Though it will be low in number of incidence but Polymixins were themselves toxic enough to be given only in extremely rare cases of infection, and this is a major setback after the emergence of carbapenem resistant bacteria and discovery of New Delhi Metallobactamase (NDMs). US alone witnesses about 7 million infections ofwhich 2 million are resistant infections with direct cost of treatment at USD 20 billion and further USD 35 billion in loss of productivity. (CDC2013).

While regulated countries have strong patient tracking mechanisms built in to monitor the growth of drug resistant bacteria and undertake corrective measures, the emerging countries where antibiotic abuse is rampant and organism growth is high and untraceable, these drug resistant bacteria will be a cause of major concern. Most of the regularly used antibiotics like Azithromycin, Clarithromycin, PipTaz, various cephalosporin, etc. have attained a resistance level of 15-25% in regulated markets and much more in emerging market. With globalization yielding high frequency of travel between countries, regulated markets too will be at high risk of infection incidences, just as was witnessed in rise of another resistance bacteria Acinetobacter in USA.

With the movement of drug majors to more lifestyle oriented drugs (cardiovascular, diabetes management, etc.) the new antibiotic drug development queue has for long been a thin one. It has largely been left to relatively newer or specialized entities like your company to undertake the research in developing new antibiotics countering the rise of these superbugs.

OPPORTUNITIES

The Global Biosimilar market is one of the biggest opportunity in the years to corne with USD 62-67 billion worth of drugs going off patent by 2020. This growth will further be propelled with the keyfocus shift of regulators, payers, state governments towards cost containment and cheaper drug access and financial brssures on healthcare industry to make significant cost reductions. With USFDA opening up the regulatory pathways the US biosimilars market alone is projected to be around USD 25 billion by 2020 (Source- 2014 Thomson Reuters & GABI Online report). The acceptance of biosimilars in Europe and India is also quite imbrssive.

Growth opportunites in US, UK, Europe, India and in other Emerging markets are significantly high for the company because of the existing brsence of operations in these economies. Your company is striving in ail aspects to establish its brand and ramp up its brsence and operations in larger GCC countries, Latam Countries, New markets like Australia, New Zealand.Turkey and not last but significant partnerships in China, Japan and Korea. Your company is also in the process of constructing a State of Art manufacturing facility in Jebel Ali FreeTrade Zone (JAFZA), Dubai, UAE for manufacturing of speciality drugs for the US / European markets. Company's current operations except for USA which is still under regulatory scanner, has been significantly better than market averages in those regions.

There is a global crisis of availability of antibiotics to fight growing numbers of resistant bacteria and there has been a big void in Anti Infective as relatively very few drugs have been discovered in the last decade. However your Company's relentless focus for almost two decades in the Anti-lnfective space has started showing recognition with consecutive approvals for QIDP in quick succession. With the rise in number of new organisms and new strains of old organisms with significant resistance to existing medicines, the Company with its array of under-development drugs in this space aims to counter these unmet needs in both gram positive and gram negative bacterial infections in both regulated and unregulated markets. During last year (2014), Wockhardt received approvals for WCK 771 & WCK 2349 and in 2015 approvals were received for WCK 4873, WCK 4282 and WCK 5222, making it the only company globally to receive QIDP status for 5 drugs from US FDA. Qualified Infectious Disease Product (QIDP) is granted to drugs, identified by Center for Disease Control (CDC), USA that act against Pathogens which have a high degree of unmet needs in their treatment. QIDP status by US FDA makes way for an accelerated drug development cycle in addition to providing a five-year extension of the exclusively period post approval.

RISK

Quality compliance, globally, has gained significant impetus and has emerged asa key success factor for long term sustenance. Global Regulatory management continues to remain key focus area for entire pharmaceutical industry with agencies like USFDA, EMA, Anvisa and COFEPRIS etc. continuously enhancing the benchmark at regular intervals. The evolving cGMP regulations have become stringent and the industry is striving unanimously to create world class capabilities to adhere to the mandates. Your company which had received setback during 2013 undertook several measures to upgrade its regulatory framework in its manufacturing locations. These efforts have paid off in the current year 2015 with your company receiving the unrestricted cGMP certificate from the UK MHRA for its facility in Chikalthana, Maharashtra, India. Corrective measures for USFDA clearance are in process with significant automation, technology upgrades and rollout of best practices at the manufacturing facilities. The Shendra facility in Aurangabad, Maharashtra, India received nine observations from USFDA during the year. Your company is monitoring the situation closely and its ongoing efforts towards remediation and compliance measures for its manufacturing facilities continue to be in place.

Pricing brssures in India continue to impact several organizations with latest NPPA circulars to include many critical drugs under the scope of price fixation / reduction and your company has been no exception to the same. This has impacted the earnings of many Indian companies including yours. However, your company has maintained the pace of domestic growth amidst such challenges which is mainly because of new product portfolio and better brand management.

Last year was brtty dismal for major economies like Europe, Russia, China and other Emerging countries like Brazil, Greece facing decade long economie uncertainties.The Geo-political instabilites in many countries have translated into currency and commodity volatility - oil price crash and devaluation for many currencies. Your company is a global playerand is not insulated against such external risks despite the best financial practices and wide range of measures being taken. This has also to some extent impacted the earnings w.r.t to countries where your company operates in the home currency of these nations. This is an inherent risk which is carried when a company operates trans-border.

Transformation in disease treatments through 2020

A) Novel Active Substances (NAS) : In 2020 there will be 943 NAS introduced in the prior 25 years and the vast majority will be available to populations around the world. These new medicines will treat oncology and orphan diseases and provide a range of speciality small molecule medicines. Patients will have greater access to breakthrough therapies and clusters of innovation around hepatitis C, cancer, autoimmune diseases, heart disease and orphan drugs.

B) Oncology treatments will include more immunotherapies, targeted therapies and personalized medicines, sometimes used together in a regimen, improving further survival and life expectancy.

C) By 2020, the treatment options for orphan diseases- those affecting fewer than 200,000 patients in either the U.S. or Europe - will be at an all-time high. Some 470 orphan treatments will be available, including medicines with multiple uses and those with both orphan and non-orphan indications.

D) Other developments includes clinical transformations in disease like Hepatitis C bringing highly effective treatments with fewer side effects.

E) There are fifteen new HIV treatments at advanced stage of clinical trials many of which can be expected to be available in 2020 including a new medicine with a USFDA breakthrough designation that targets a mechanism with reduced potential for viral resistance.

F) Cell and Gene therapies are thought to offer some of the most powerful treatments for very hard to treat diseases and these are currently under development which are expected to treat conditions varying from cancers to HIV, autoimmune diseases and rarest of the rare conditions

(Source: IMS Global Use of Medicines in 2020)

Global Economic Scenario

The financial year 2015-16 has set a bearish tone for most global economies with conditions getting from bad to worse for Russia, Europe and now China.

Global growth, currently estimated at 3.1 percent in 2015, is projected at 3.4 percent in 2016 and 3.6 percent in 2017. In advanced economies, a modestand uneven recovery is expected to continue, with a graduai further narrowing of output gaps. The picture for emerging market and developing economies are diverse but in many cases challenging. The slowdown and rebalancing of the Chinese economy, lower commodity prices, and strains in some large emerging economies will continue to weigh on growth prospects in 2016-17.

The projected pickup in growth in the next two years despite the ongoing slowdown in China primarily reflects forecasts of a graduai improvement of growth rates in countries currently in economie distress, notably Brazil, Russia, and some countries in the Middle East, though even this projected partial recovery could be farfetched by new economie or geo political shocks. Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalized slowdown in emerging market economies, China's rebalancing, lower commodity prices, and the graduai exit from extraordinarily accommodative monetary conditions in the United States.

(Source: World Economic Oulook - Jan 19,2016)

RESEARCH

Research & Development as Strategic Core

The company's continuous strategie focus in complex research in Pharma, Biosimilars and NCE for last couple of years has started showing its positive impact on the product pipeline. It is the complex matrix of research encompassing technology intensive generic products for oral, nasal and parenteral administration, New Drug Discovery Program and Biosimilar research that has been playing pivotai role for the company's success and sustainability. Cross functional, highly educated, trained and stable project management team has been the core factor to success. The company has dedicated a lot of focus, investments and initiatives to ensure that the R&D organization stays at the threshold of latest technological advancements in the areas it operates on.

Research Efforts in Novel Drug Delivery Systems and ANDAs Pipeline

During the financial year ended March 31, 2016 the company has filed for 17 new products in US and 2 in UK. Currently for the US business, company's pipeline includes 84 products pending to be approved by US FDA.The company has always been a trendsetter in Indian generic pharma industry with its niche NDDS products like Metoprolol ER, Divalproex ER.Tamsulosin ER which were among the first few generics in US market. Out of the pending ANDAs about 30% ANDAs are complex generics, modified release formulations. It has also made advancements in the area of characterisation of complex muco-polysachharides and complex delivery technologies, integrating IT System with generic applications and has successfully developed its own patented REMS (Risk Evaluation and Mitigation Strategy) System for narrow therapeutic index medicines.

New Drug Discovery Programme

Company's focus on New Drug Discovery Program targeting Antibacterial infections has started yielding promising drug candidates. These drugs are targeting the current and emerging unmet needs in both gram positive and gram negative terrain where the dearth of medicine is substantial across the world. Anti-Infectives are the only class of medicines which has a curative therapeutic outcome and hence the merits of drug candidates in this class are decided based on clinical efficacy against resistant, difficult-to-treat organisms.

Globally most of the innovator companies have focused on cardiovascular, diabetes and other-lifestyle diseases or oncology which has left a big void in Anti-Infective space. With the global rise in the brvalence of resistant strains, and the emergence of newer resistance mechanisms as well as new pathogenic organisms, where the existing antibiotics are having little impact, the overall infectious disease scenario is highly concerning. The company with its array of drug under development in this space aims to counter these diseases in both regulated and unregulated markets.

Two of our drug candidates (WCK 771 & WCK 2349) received QIDP (Qualified Infectious Disease Product) status from US FDA during the FY 2014-15. Three more drugs under clinical development, WCK 4873, WCK 4282 and WCK 5222 have been granted QIDP status in the current year. QIDP was constituted under Generating Antibiotic Incentives Now (GAIN) Act in 2012 as part of the FDA Safety and Innovation Act to underline the urgency in new antibiotics development. Wockhardt has earned a unique distinction of being the only company globally which has five in-house discovered drugs with QIDP status.

With the rise in the number of new organisms and newer resistance mechanisms, where the existing medicines are having diminishing impact, the company has Consolidated its position as the leading innovator in the antibacterial space.

Your Company has strong focus in developing intellectual property and filed 311 patents during the year under review out of which 100 patents were granted. As on 31st March, 2016, combined pool of Company's patent has reached 2579 filings and 441 grants.

COMPANY OUTLOOK

The Company's long term outlook continues to be promising given the following:

a. Overall growth in the global pharmaceutical industry.

b. Continued focus on R&D in regards to its complex generic, bio technology and NCE programs.

c. Company's global reach in regulated market and continued efforts to enhance its reach in emerging markets.

d. Increasing pipeline of niche & complex technology generic products.

SEGMENT-WISE PERFORMANCE

The Company is exclusively into pharmaceutical business segment.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Company has internal control procedures commensurate with its size and nature of the business. These business procedures ensure optimum use and protection of the resources and compliance with the policies, procedures and statutes. The internal control Systems provide for well-defined policies, guidelines and authorizations and approval procedures. The prime objective of such internal audits is to test the adequacy and effectiveness of the internal controls laid down by management and to suggest improvements.

Your Company during the year undertook "Internal Financial Control (IFC)" evaluation by M/s KPMG in accordance with the requirement of the Companies Act, 2013. Your company is also in the advanced stage of implementing online compliance management tool in association with M/s EY.

The Company has an independent Internal Audit and assurance team that comprises of multidisciplinary and experienced professionals. This team is assisted by external audit firms wherever necessary, for specialized and other audits. There is a set practice of reviewing various key select risks of the various businesses and report to Audit Committee time to time. Material observations and recommendations under implementation are reported by the Head of Internal Audit at quarterly Audit Committee meetings.

HUMAN RESOURCES

The Company's talent base, as on March 31,2016 stands at 7376.

Wockhardt has introduced the ethos of the Group by adopting "Life Wins" as an extension of the brand. It is a Corporate Philosophy / motto / mission with a purpose of existence, emphasising that Life should Win, always! Life Wins is not just a tagline, but a far more fundamental principle forWockhardt by adding a meaning and commitment to the cause and purpose of making "Life Wins"

Your Company believes in exploring new avenues and attaining greater heights, by placing Human capital at the heart of ail actions. As an organization it equally emphasizes on the imperatives of capability building and workforce sustainability by using unconventional methods of hiring, developing, motivating, rewarding and thereby nurturing the Human capital.

Wockhardt believes that Associates are the most valuable assets and key players in business success and sustainable growth. Developing Human Capital is the core object for ail employee training programmes that effectively ensures adaptability to ever changing technology and functional fields while creating a pool of future ready talent. Employee benefits, engagement and team building programmes are conducted to enhance employee skill, motivation as also to foster team spirit. Continuous focus on strengthening existing middle and senior leadership through a structured Leadership Development Initiative, "Wocklead", that aims at identifying potential talent among senior professionals.

Employee engagement is an important element of the Company's success. To ensure a combrhensive and effective employee engagement, your company has built an enriching culture of communication with the Top Management through numerous initiatives such as Town Hall Meetings, MD Connect, Coffee with MD, Aadharshila, Engagement beyond work including participation of family members of the employees in various activities etc.

At Wockhardt the key focus areas are Innovation, Technology and people building. A new drive for growth today permeates every mind-set, process and techno-innovation within the company.

The Goal setting process is very unique at Wockhardt, that ensures horizontal alignment among various constituents of the organization. It starts with the Top Management being taken through a process called "ALIGN", an acronym denoting "Assimilate & Link Individual and Group Needs" as a starting point of defining the business objectives. In business parlance, the "ALIGN" process would ultimately link the organizational goals with each employees' goals and for that the Company has institutionalized a robust online performance management System.

In line with the SEBI Listing Regulations, the company has adopted a "Whistle Blower Policy" which encourages the Whistle Blower to report genuine concerns or grievances. It also provides adequate safeguard to the Whistle Blower against victimization. The policy on Whistle Blower may be accessed on the company's website at www.wockhardt.com

Pursuant to the requirement of The Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressai) Act, 2013 ('Act'), the Company has constituted Internal Complaints Committees (ICC) across ail the locations which are responsible for redressai of complaints related to sexual harassment at respective locations. The objective of the Policy is to create and provide a work environment that is safer, civilized, free from any sort of hostility, supportive to the diversity & dignity of ail Associates, where Associates feel secure, provide protection to the Associates at the workplace and established guidelines for brvention & redressal of complaints of sexual harassment and matters connected or incidental thereto at the workplace on the basis of natural justice and confidentiality. During the year ended 31st March, 2016, the Company has not received any complaints in the matter.