Where a generics CFO's judgement actually sits

I treat the cost of complying with current good manufacturing practice as part of what a plant costs to run, not as an exceptional charge that analysts can adjust away. When Unit III received its warning letter in May 2022, I worked with our head of quality to price the remediation in full: ₹190 crore of operating cost, ₹95 crore of laboratory systems and equipment, and the revenue we would forgo by running the plant about 20 per cent below its earlier output while investigations were cleared. My job was to make sure the programme was never starved halfway through a quarter. I also built the measures that now sit in our monthly management report: analyst hours against batches to be released, open deviations by age and the investigation backlog at each site. A plant budget that shows press capacity but not laboratory release capacity tells the board half the truth.

In US generics the invoice price is only the start of the calculation. Chargebacks to wholesalers, rebates to buying groups, returns, shelf-stock adjustments, Medicaid rebates and failure-to-supply penalties decide what is actually earned, and they shift every time a competitor enters. I learnt to model them product by product at Kavyansh Remedies and apply the same discipline at Meruvel, where deductions take roughly 64 per cent of gross invoice value. Each US product carries its own share of plant time and freight, so we can see which products pay for the capacity they consume. That analysis led us to exit 23 loss-making products in 2022–23, giving up ₹164 crore of annual revenue. It also shapes how I challenge our portfolio committee: I ask how many competitors a filing will meet at launch, not how many filings we made this year.

Our domestic business sells branded generics to Indian doctors and chemists through about 1,760 stockists and a field force of 2,150 representatives. Revenue is recognised when we sell to the stockist, which is why a company can report growth while its medicine sits in a godown. Since 2022 I have reported secondary sales, stockist inventory days and expiry returns to the board alongside reported revenue. I also manage the pricing constraints peculiar to India: ceiling prices for scheduled formulations, notified by India's National Pharmaceutical Pricing Authority, and the limit on annual increases in the maximum retail price of other products under the Drugs (Prices Control) Order. Because price can rarely rescue a weak brand, we decide launches and field-force deployment on cost of goods and expected volume, and we retire brands whose margins price control has made unworkable.

Most of our revenue is earned in US dollars and most of our costs are incurred in rupees, so currency is a permanent feature of the business rather than an occasional risk. I run a board-approved hedging policy covering a rolling share of forecast dollar receipts, and we use dollar-denominated export credit as a partial natural hedge. When I returned in 2020, gross debt was rising towards a peak of ₹1,240 crore, reached in March 2023 while we funded remediation. By March 2026 it was ₹520 crore, and net debt had fallen from 1.9 times EBITDA to 0.5 times. The reduction came from collecting domestic receivables faster, carrying less short-dated US inventory and deferring capital spending that did not protect a licence or remove a supply risk. Our lenders now see a quarterly cash forecast built on the same assumptions the board sees.

Meruvel is promoter-led, which makes the integrity of related-party processes a daily concern rather than an annual disclosure. Every transaction with a promoter-group entity reaches the Audit Committee for prior approval with an independent benchmark attached, and I have recommended terms to that committee which the promoter group did not welcome. The Ind AS judgements that most often reach the committee from my desk are impairment of acquired product rights, provisions for inventory held after quality events and the estimates behind US sales deductions. At Brennholt's Indian subsidiary I also defended the transfer-pricing basis of the royalty paid to the parent with benchmarking studies. I write Audit Committee papers so that an independent director can see the judgement, the alternative and the evidence on a single page, because that is what I would want if I were the reader.