Annual Report - Ranbaxy Labs - 2008-2009

RANBAXY LABORATORIES LIMITED

ANNUAL REPORT 2008

DIRECTOR'S REPORT

Your Directors have pleasure in presenting this 48th Annual Report and
Audited Accounts for the year ended December 31, 2008.

WORKING RESULTS

Rs. in Million

Year ended Year ended
December 31, December 31,
2008 2007

Net Sales 43,393.63 40,712.87

Profit/(Loss) before Interest,
Depreciation, Amortization and
Impairment (5,713.32) 6,745.35

Interest 1,458.28 934.26

Exchange Loss/(Gain)-(Net) on
Loans 7,474.52 (3,120.28)

Depreciation, Amortization and
Impairment 1,544.69 1,187.31

Profit/(Loss) before Tax (16,190.81) 7,744.06

Income Tax (benefit)/expense (5,742.79) 1,566.86

Profit/(Loss) After Tax (10,448.02) 6,177.20

Balance as per last balance sheet 2,162.69 471.18

Transfer from Foreign projects
reserve 19.50 24.87

Balance available for
appropriation (8,265.83) 6,673.25

Appropriations:

Dividend

Interim - 932.12

Final - 2,239.42

Tax on Dividend - 539.02

Transfer to:

General Reserve - 800.00

Surplus/(Deficit)carried forward (8,265.83) 2,162.69

(8,265.83) 6,673.25

CONSOLIDATED WORKING RESULTS
(UNDER INDIAN GAAP)

Net Sales 72,953.83 66,926.74

Profit/(Loss) before Interest,
Depreciation, Amortization and
Impairment (23626.26) 10,509.39

Interest 2,055.01 1,411.88

Exchange Loss/(Gain)-(Net) on Loans 7,494.35 (3,071.25)

Depreciation, Amortization and
Impairment 2,824.69 2,183.41

Profit/(Loss) before Tax (15,000.31) 9,985.35

Income Tax (benefit)/expense (5,650.84) 2,117.85

Profit/(Loss) After Tax (9,349.47) 7,867.50

Add: Share in profit or (loss)
of associates (Net) (78.21) 2.10

Less: Minority Interests 7 123.74

Profit/(Loss) After Tax and
Minority Interests 7,745.86

Balance as per last balance sheet 3 2,464.96

Transfer from Foreign
projects reserve 0 24.87

Balance available for appropriation 10,235.69

Appropriations:

Dividend

Interim - 932.13

Final - 2,239.42

Tax on Dividend - 539.02

Transfer to:

General Reserve - 800.00

Surplus/(deficit) carried forward (4,009.92) 5,725.12*

(4,009.92) 10,235.69

* Gross of goodwill adjustment of Rs. 242.49 mn


CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements for the year ended December 31, 2008,
under Indian GAAP form part of the Annual Report.

OPERATIONS

The Company recorded a net growth of 9% in sales, recording revenue of Rs.
72,954 millions in 2008. Sales continued to grow despite US operations
getting impacted due to US FDA Import Alert in respect of some of the
products of the Company. The growth was largely driven by change in sales
mix skewed towards more profitable and emerging markets, which now
contribute 54% of global sales. Overseas markets constituted 80% of the
total sales of the Company. Profit after tax registered a sharp decline at
Rs. (9,349) millions mainly due to rupee volatility coupled with provisions
for inventory and sale return pursuant to the Import Alert by FDA.

Consistent depreciation of the rupee in 2008 and large exposure of the
Company's business in the international markets has resulted in
unprecedented foreign exchange losses of Rs. 10,856.24 millions on
derivatives and loans represented in foreign currency. Besides as a matter
of prudent accounting practice, the Company voluntarily adopted Accounting
Standard 30 on 'Financial Instrument: Recognition and Measurement' issued
by the Institute of Chartered Accountants of India though the standard is
mandatory only in respect of accounting period commencing on or after April
1, 2011. As a result of early adoption of the said Accounting Standard the
Company had to recognize a net loss of Rs. 7,702.14 millions on fair
valuation of Financial Instruments. The combined impact of this stand at a
loss of Rs.18,558.38 millions which has adversely impacted the financial
performance of the Company.

The Company continues to focus on sustaining growth in the emerging
markets, cost optimization and efficient management of working capital. The
Company has been taking various steps for early resolution of the issues
raised by US FDA.

DIVIDEND

In view of the losses incurred by the Company, no dividend has been
declared for the year ended December 31, 2008.

ACQUISITION OF MAJORITY STAKE IN THE COMPANY BY DAIICHI SANKYO COMPANY,
LIMITED, JAPAN

During the year, Daiichi Sankyo Company, Limited, Japan ('Daiichi Sankyo')
acquired 63.92% equity share capital of the Company as per details given
below:

Date of Particulars Number % of share-
acquisition of Shares holding

October 15, Acquisition of Shares under Open
2008 Offer pursuant to Regulations 10
& 12 of the SEBI (Substantial
Acquisition of Shares and
Takeovers) Regulations, 1997 @
Rs.737 per share 92,519,126 22.01

October 20, Allotment of Shares on Preferential
2008 basis @ Rs.737 per share (as per
details herein below) 46,258,063 11.00

October 20, Acquisition of Shares from the then
2008 Promoters of the Company @ Rs.737
per share (First tranche) 81,913,234 19.49

November 07, Acquisition of Shares from the then
2008 Promoters of the Company @ Rs.737
per share (Second tranche) 48,020,900 11.42

Total 268,711,323 63.92

Accordingly, the Company became a subsidiary of Daiichi Sankyo effective
October 20, 2008. Further, Daiichi Sankyo became promoter of the Company
effective November 7, 2008.

Daiichi Sankyo is a Japanese pharmaceutical company established in 2005
through the merger of two leading Japanese pharmaceutical companies,
Daiichi Pharmaceutical Co., Ltd. and Sankyo Company, Limited. Daiichi
Sankyo is engaged in the business of research & development, manufacturing,
import and sales & marketing of pharmaceutical products globally.

CHANGES IN CAPITAL STRUCTURE

I. Allotment of shares on exercise of Employees' Stock Options

The Company allotted Equity Shares (on pari-passu basis) pursuant to
exercise of Stock Options by the eligible employees, as summarized below:

Date of Allotment No. of Shares

April 9, 2008 84,211

July 10, 2008 831,918

October 13, 2008 41,902

II. Allotment of Shares and Warrants on preferential basis

In terms of the approval of the shareholders at the Extra-ordinary General
Meeting held on July 15, 2008, Equity Shares and Warrants convertible into
equity shares were allotted on preferential basis to Daiichi Sankyo on
October 20, 2008 as per details given below:

a) 46,258,063 fully paid Equity Shares of Rs. 5 each at a premium of Rs.
732 per share subject to lock-in period of three years from the date of
allotment.

b) 23,834,333 Warrants - Each Warrant is exercisable at any time between
six months to eighteen months from the date of allotment at the option of
the warrant holder for one fully paid Equity Share of the Company of Rs. 5
each at a price of Rs. '737. Rs.&W has been pai6 in respect of each Warrant
(being 10% of the exercise price) at the time of allotment and the balance
amount of Rs.663.30 for each Warrant will be payable at the time of
exercise of Warrant(s).

SUBSIDIARIES AND JOINT VENTURES

A statement pursuant to section 212 of the Companies Act, 1956, relating to
subsidiary companies is attached to the accounts. In terms of approval
granted by the Central Government under section 212(8) of the Companies
Act, 1956, the audited accounts of the subsidiary companies are not
attached to this Annual Report. However, the consolidated financial
statements prepared in accordance with Accounting Standard 21 of the
Institute of Chartered Accountants of India presented in this Annual Report
includes the financial information of the subsidiary companies.

BUSINESS ALLIANCE

The Company has entered into a strategic business alliance with Orchid
Chemicals & Pharmaceuticals Limited ('Orchid') involving multiple
geographies and therapies for both finished dosage formulations and active
pharmaceutical ingredients. Orchid is a niche player in the global
pharmaceutical industry with a strong track record, particularly in sterile
products. With Ranbaxy's extensive front end presence, the alliance is
expected to be mutually beneficial and synergistic, allowing both
organizations to leverage each others strengths and capabilities.

DEMERGER OF NEW DRUG DISCOVERY RESEARCH UNIT

The Board of Directors of the Company in its meeting held on June 11, 2008
decided to not to proceed any further with the Scheme of Demerger of New
Drug Discovery Research (NDDR) unit of the Company.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Management Discussion and Analysis Report, as required under the Listing
Agreements with the Stock Exchanges, is enclosed at Annexure 'A'.

EMPLOYEES' STOCK OPTION SCHEME

Information regarding the Employees' Stock Option Scheme is enclosed at
Annexure 'B'.

LISTING AT STOCK EXCHANGE

The Equity Shares of the Company continue to be listed on Bombay Stock
Exchange Ltd. and The National Stock Exchange of India Ltd. Global
Depository Shares are listed on the Stock Exchange at Luxembourg aria
Foreign Currency Convertible Bonds are listed on the Singapore Exchange
Securities Trading Ltd. The annual listing fees for the year 2008-2009 have
been paid to these Exchanges.

DISCLOSURE OF PARTICULARS

As required by the Companies (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988, the relevant information and data is given
at Annexure 'C'.

FIXED DEPOSITS

The Company has not invited/received any fixed deposits during the year.

DIRECTORS' RESPONSIBILITY STATEMENT

In terms of provisions of Section 217(2AA) of the Companies Act, 1956
('Act'), your Directors confirm that:

(i) In the preparation of the annual accounts, the applicable accounting
standards have been followed, along with proper explanation relating to
material departures, wherever applicable.

(ii) The Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company, as at the end of the accounting year and of the loss of the
Company for the year.

(iii) The Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of this Act for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities.

(iv) The Directors have prepared the annual accounts on a going concern
basis.

DIRECTORS

Mr. Nimesh N. Kampani and Mr. Surendra Daulet-Singh resigned from the
Directorship of the Company on October 20, 2008 and December 15, 2008
respectively. On December 19, 2008, the Board of Directors of the Company
was reconstituted - Mr. Harpal Singh (Non-Executive Chairman), Mr. Vivek
Bharat Ram, Mr. Gurcharan Das, Dr. P S. Joshi, Mr. Vivek Mehra, Mr. Ravi
Mehrotra, Mr. V K. Kaul, Mr. Shivinder Mohan Singh, Dr. Brian W Tempest and
Mr. Ramesh L. Adige resigned as Directors and Mr. Takashi Shoda, Dr.
Tsutomu Une, Mr. Rajesh V Shah, Dr. Anthony H. Wild, Mr. Akihiro Watanabe
and Mr. Balinder Singh Dhillon were appointed as Directors against the
casual vacancies so caused. Mr. Percy K. Shroff was appointed as a Director
of the Company on March 27, 2009 against the casual vacancy.

The Directors place on record their warm appreciation for valuable
contributions made by the outgoing Directors.

Mr. Malvinder Mohan Singh, CEO & Managing Director of the Company has been
appointed as Chairman, CEO & Managing Director effective December 19, 2008,
for a period of five years, subject to requisite approvals.

Mr. Rajesh V Shah and Mr. Takashi Shoda who were appointed as Directors of
the Company in the casual vacancies caused by resignations of Mr. Gurcharan
Das and Mr. Vivek Bharat Ram respectively, hold office upto the date of
this Annual General Meeting. The Company has received Notice(s) along with
requisite deposit from member under Section 257 of the Companies Act, 1956,
proposing the candidatures of Mr. Rajesh V Shah aaMr. Takashi Shoda as
Directors of the Company.

In accordance with the Articles of Association of the Company, Mr. Sunil
Godhwani, retires by rotation as a Director at the ensuing Annual General
Meeting and is eligible for re-appointment.

CORPORATE GOVERNANCE

Report on Corporate Governance along with the Certificate of the Auditors,
M/s Walker, Chandiok & Co. confirming compliance of conditions of Corporate
Governance as stipulated under Clause 49 of the Listing Agreement with the
stock exchanges form part of the Annual Report.

COST AUDIT

The reports of M/s R J. Goel & Co., Cost Accountants, in respect of audit
of the cost accounts relating to formulations and bulk drugs for the year
ended December 31, 2008, will be submitted to the Central Government in due
course.

AUDITORS

M/s. Walker, Chandiok & Co., Chartered Accountants, the existing Auditors,
have expressed their unwillingness for re-appointment as Auditors of the
Company on their retirement at ensuing Annual General Meeting (AGM). Based
on the recommendation of the Audit Committee, the Board of Directors of the
Company proposed the appointment of M/s. BSR & Co., Chartered Accountants,
as the Auditors of the Company at the ensuing AGM. M/s. BSR & Co., have
expressed their willingness to act as Auditors of the Company, if
appointed, and have further confirmed that the said appointment would be in
conformity with the provisions of Section 224 (IB) of the Companies Act,
1956.

AUDITORS REPORT

With regard to the emphasis of matters and qualification contained in the
Auditors' Report, explanations are given below:

i) FDA matters - Note no. 32 of Schedule 26 to the financial statements -

Consequent to Import Alert issued by US FDA due to Good Manufacturing
Practices' (GMP) issues, 30 products from Company's two manufacturing
facilities located at Paonta Sahib (HP) & Dewas (MP) have been affected and
accordingly the Company is unable to export these products to US. The
Company has therefore created a provision of Rs.2,631.11 million towards
inventory and sales return in respect of these products. FDA has however
confirmed that there is no issue with the quality of the Company's
products. On February 25, 2009, the Company received a letter from the US
FDA indicating that the FDA had invoked its Application Integrity Policy
against the Poanta Sahib Facility. Since the products from this facility
were already covered by the import ban, the Company after discussions with
its legal counsel, believes no further provisions are required over the one
created subsequent to the import ban.

ii) Early adoption of Accounting Standard (AS) 30- Note no. 23 of Schedule
26 to the financial statements -

The Company has early adopted AS30 (Accounting Standard 30 - Financial
Instruments: Recognition and Measurement) with effect from October 1st
2008, pursuant to ICAI's announcement, though the standard is mandatory
only in respect of accounting period commencing on or after April 1, 2011.

iii) Excess managerial remuneration paid by the Company - Note no. 24(a) of
Schedule No. 26 to the financial statements -

The Company had adequate profits for past many years and thus has been
paying remuneration to its managerial personnel within overall limits as
specified under the Companies Act, 1956 (Act'). However, due to sharp
erosion in rupee value and import alert by US FDA, the Company incurred
losses in the second half of the year 2008. In view of this, the managerial
remuneration paid during the year exceeded the limits prescribed under the
Act. The Company has sought approval of the Central Government for waiver
of excess remuneration paid.

STATEMENT Of EMPLOYEES

Statement of particulars of employees as required under Section 217(2A) of
the Companies Act; 1956 ('Act') and Rules framed there-under forms part of
this Report. However, in terms of the provisions of Section 219(4) (b) (iv)
of the Act, this Report and Accounts are being sent to all the shareholders
excluding the Statement of particulars of employees under Section 217(2A)
of the Act. Any shareholder interested in obtaining a copy of the statement
may write to the Company Secretary at the Registered Office of the Company.

ACKNOWLEDGEMENTS

The Directors commend the continued commitment and dedication of employees
at all levels. The Directors also wish to acknowledge with thanks all other
stakeholders for their valuable sustained support and encouragement. It is
this unity of purpose that breeds success and your Directors look forward
to receiving similar support and encouragement from the larger Ranbaxy
family in the years ahead.

On behalf of the Board of Directors

Place: Gurgaon MALVINDER MOHAN SINGH
Date : April 15, 2009 CHAIRMAN, CEO & MANAGING DIRECTOR

ANNEXURE A

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

INDUSTRY STRUCTURE & DEVELOPMENTS

The Global Pharmaceutical market audited sales grew by approximately 5.1%
(at constant exchange rate) to reach US$ 726* Bn in 2008. North America,
Europe andjapan continued to remain the key markets accounting for 85%* of
the worldwide pharmaceutical sales in 2008.

Significant factors resulting in slowdown in growth figures include an
increased volume for generic drugs, low volume for new patent protected
products in the market and the economic downturn contributing to slower
consumer demand. The emerging economies further consolidated their position
in the global landscape with growth in countries like China, India, Russia,
Brazil and Turkey exceeding the growth in developed markets.

The world's largest market, the United States recorded prescription sales
of US$ 291 Bn, a growth of 1.1%. North American pharmaceutical sales grew
by approximately 1.5% to reach US$ 312* Bn, constituting 43%* of the global
sales in 2008. Sales in Europe grew by 6.2% to reach US$ 242* Bn,
contributing 33% to global pharmaceutical sales. Japan, the world's second
largest market clocked sales of US$ 65* Bn, recording a growth of 4.4%.
Sales in Latin America grew by 12% to reach US$ 35* Bn, with significant
contribution from the key markets of Brazil and Mexico; Asia, Africa and
Australia grew by 15% to US$ 72* Bn.

The recent past has seen a trend of deals and alliances between innovator
and generics companies, creating a collaborative business model. The
generic partner gets access to rich product pipeline under development and
research capabilities of the innovator and the innovator benefits from
lower research and development (R&D) costs and reach in emerging markets of
the generic partner, hence realizing higher gains from existing portfolio.
With competitive advantages in terms of R&D, manufacturing and marketing,
Indian companies are today well positioned to partner with innovator
pharmaceutical companies.

Generics

The Generics market witnessed a modest growth of 3.6% in 2008 to reach US$
78* Bn. The growth rate was adversely impacted due to low or negative
growth rates in advanced markets primarily due to price erosion. However
the emerging markets grew overall by 13-14%. The strategy of Ranbaxy to
focus on emerging markets aligns with the market trend. In the largest
eight generic markets (except USA and the UK), generic growth has outpaced
the growth of nongenerics including Canada, Japan and Germany. These
markets represented 80% of the global generic market in 2008. With over US$
80 Bn of drugs going off patent by 2012 and a higher generic penetration
across developed and emerging markets, the generics market will continue to
provide attractive growth opportunities in future.

The three largest markets for Ranbaxy today are USA, Europe and India. The
prevailing pharmaceutical market environment in these geographies is as
discussed below:

United States: Generics continue to play an increasingly prominent role in
the US healthcare market. Generic value growth in 2008 was about 2.9%*.
Strong price competition among generics has mitigated some upsides from the
expiry of patents on blockbuster products such as Imitrexo' (sumatriptan
succinate, launched Nov-08), Keppra. (levetiracetam, launched Nov-08) and
Pulmicort' Respules (budesonide, launched Nov-08).

Europe: The key markets in Western Europe were also under pressure from the
price erosion of generics. While volume remained at normal levels during
the year, lower prices resulted in slower growth. In Germany, France and
Spain market for generics grew 8%, 17% and 11% respectively*. However in
the UK, generics de-grew by 5%*. In Romania, a key market in Central
Europe, healthcare reforms were proposed and the ensuing uncertainty had an
adverse impact on the market. The Romanian market was also under pressure
from unprecedented currency devaluation especially in the second half of
year 2008. Central, Eastern & Southern Europe, including the CIS belt
continued to experience buoyant growth led by a higher per capita
pharmaceutical expenditure and an increasing utilization of generic drugs,
driven by the government's efforts to reduce healthcare spends.

India: The Indian Pharmaceutical market registered an annual growth of 9.8%
(MAT Dec-08). The chronic therapy segment recorded a growth of 13.1 % and
contributed 28.3% to the total market, while acute therapy segment grew at
a rate of 8.6%.

The overall market growth was a mix of higher volumes of existing products,
new product introductions and price increases with all three witnessing a
positive trend. Approximately 75% of the overall market growth was led by
volume increases in existing products.

Semi-urban and rural markets are becoming an important driver for growth in
the Indian market. With higher per capita income & increasing access to
modern medicine, this segment is expected to continue its strong growth
momentum. Extra-urban markets accounted for 40% of the total markets in
2008. Acute therapies dominate the extra-urban market with 80%
contribution, while chronic therapies are also growing especially in
cardiac therapy (8%).

The emergence of an organised pharmaceutical retail segment and the fast
growing area of medical insurance are likely to be other important factors
that would positively impact the sector in the coming years. -

The market has a potential to reach US$ 30 Bn by 2020 on back of increasing
health insurance and awareness, affordability, doctor and clinical reach,
growing organized pharmaceutical retail segment and various other factors.

OUTLOOK ON OPPORTUNITIES

The fundamentals of the generics continued to be strong. Ranbaxy today is
well positioned in the global generics space. The Company is amongst the
top 10 generic companies globally offering products in over 125 countries
across North America, Europe, Latin America and Asia. It has a balanced
revenue mix with high growing emerging markets contributing 54%, developed
markets at 39% with the rest being from the Active Pharmaceutical
Ingredients (API) business. With its brand building capabilities in the
emerging markets, First-to-File (FTF) product pipeline in USA and an
increasing presence in the specialty products segment, the Company is well
placed to capitalise on the generics growth opportunity.

During the year, Daiichi Sankyo, Japan's third largest innovator company,
became the majority shareholder (63.92%) in the Company, after completing
acquisition of the Singh family's stake, successfully completing an open
offer and issuance of preferential equity by the Company. The transaction
will provide Ranbaxy a new and much stronger platform to harness its
capabilities in R&D, manufacturing and global markets. Together with its
pool of scientific, technical and managerial resources & talent, the
Company would be well poised to enter a new orbit to chart a higher
trajectory of sustainable growth. This is a significant milestone in the
Company's Mission of becoming a Research based International Pharmaceutical
Company.

USA: In USA, the Company's potential for revenue growth from generic
products is closely related to its product pipeline. As of December 31,
2008, the Company had 241 ANDAs filed with the US FDA, of which 142 have
been approved. Pending pipeline of ANDAs represents an innovator market
size of close to US$ 55 Bn. Of these, based on the Company's own analysis
of publicly available US FDA data, it believes that it has a Paragraph-IV /
FTF Status on 19 of these ANDA applications, which relate to brand-name
drugs having aggregate sales in the United States of close to US $ 27 Bn.

During the year, Company entered into an agreement with Pifzer Inc., to
settle most of its pending litigations worldwide involving Atorvastatin
(Lipitorc), the world's most-prescribed cholesterol-lowering drug. The
Company will have a license to sell its generic version of Atorvastatin
(Lipitor.) and the fixed-dose combination of Atorvastatin and Amlodipine
Besylate (Caduet.) in the United States and seven other countries on
various dates. The Company has also entered into two other key settlements
for its FTF products during the year. Ranbaxy is taking appropriate steps
to introduce Atorvastatin in November 2011 in the US market with 180 days
exclusivity These were for Esomeprazole (Nexium., AstraZeneca) and
Sumatriptan Jmitrex., GSK). Esomeprazole is the second largest selling drug
in the USA with sales of US$ 5.5 Bn. The settlement with AstraZeneca is
expected to provide the Company with substantial revenues and profits from
API and Dosage Form supply agreements with the originator over the period
2009-2014 and subsequently a 180 days marketing exclusivity as sole generic
supplier of the product in 2014. The settlements provide certainty of
revenue flows and enhance product visibility for the Company going forward.
After some initial delay, the Company launched its generic Sumatriptan in
February 2009.

Europe: Business in Europe was under pressure during the year, due to
prevailing difficult market conditions, currency devaluation in key
countries and reducing government spending on healthcare. In Romania, the
Company's largest market in Europe, the Company's sales grew faster than
the Generic+OTC market (12.8% versus 9.9%; IMS Data).

India: Outlook on the Indian Pharma market continues to be positive.
Currently India has one of the lowest per capita drug consumption in the
world. Growth in the market would be driven by higher volume consumption
led by economic growth providing increased affordability of pharmaceutical
products coupled with a rising awareness of modern medicine.

OUTLOOK ON THREATS, RISKS AND CONCERNS

The global generics business has become more competitive with entry of new
players in emerging countries and government led healthcare reforms in
several countries. In developed economies Innovator pharmaceutical
companies continuously evolve ways to enhance lifecycle of patented drugs
which could delay entry of generic versions. The generic segment has
inherent risks of patent litigations, product liability, increasing
regulations and compliance related issues.

The manufacture of generic pharmaceuticals is heavily regulated by
governmental authorities around the world, including the US FDA. If we or
our third party suppliers fail to fully comply with such regulations, there
could be a government-enforced shutdown of concerned production facilities,
revocation of drug approvals previously granted, failure or delay in
obtaining approvals for new products, product recalls of existing drugs
sold in the market, prohibition on the sale or import of non-complying
products and criminal proceedings against non-complying manufacturers.

The Company received two warning letters from the United States Food & Drug
Administration (US FDA) on September 16, 2008 for two of its manufacturing
sites located at Paonta Sahib and Dewas in India. Simultaneously US FDA
also issued an import alert for products manufactured at these two plants.
Further, on February 25, 2009, the Company received a letter from the US
FDA indicating that the Agency has invoked its Application Integrity Policy
('AIP') against Paonta Sahib facility (the 'facility').

The US FDA has tested and analysed many products of the Company and has
found them meeting applicable specification. US FDA has consistently
maintained after above letters that the Company's products meet their
quality specifications, and there are no health risks associated with the
Company's products. Importantly, no other Ranbaxy plants, in India, or
anywhere globally, are covered by this latest action.

The Company continues to fully co-operate with the concerned authorities
for their final clearance, pending which we could continue to face delays
for new product approvals and sales of existing products to the US.

SEGMENT-WISE PERFORMANCE

Ranbaxy recorded global sales of US$ 1,682 Mn in 2008, a 4% growth over
last year. Dosage Form sales constituted 93% of global sales during the
year as against 94% in 2007. Overseas markets constituted 80% of the total
sales of the Company.

INTERNAL CONTROL SYSTEMS AND ADEQUACY

There are documented and well established operating procedures in the
Company and its subsidiaries in India & overseas.

The Internal Audit function at Ranbaxy, headed by a Vice President, reports
directly to the Chairman, CEO & Managing Director. The department consists
of a team of well qualified and experienced professionals that conduct
regular audits covering the Company's operations in India & overseas and
comments on the same are periodically communicated to the Chairman, CEO &
Managing Director and the Audit Committee. The Finance function of the
Company is also adequately staffed with professionally qualified and
experienced personnel.

FINANCIAL PERFORMANCE

For the year, the Company recorded consolidated global sales of Rs. 72,954
Mn, 9% higher than prior year (Rs. 66,927 Mn). Consistent depreciation of
the rupee in 2008 and large exposure of the Company's business to the
international markets, has resulted in substantial foreign exchange losses
of Rs. 10,856 Mn on forward covers and loans.

As a prudent measure to stay current in its accounting practices, the
Company adopted from October 1, 2008, Accounting Standard 30 on 'Financial
Instruments: Recognition and Measurement' issued by the Institute of
Chartered Accountants of India. As a result, a net loss of Rs. 7,702 Mn was
recognised during the year basis the fair value measurement principle
suggested in the Standard.

HUMAN RESOURCES

Human Resources have always been most valuable asset for Ranbaxy and the
Company constantly seeks to attract and retain the best available talent.
Human Resource management incorporates a process driven approach that
invests regularly in the training and development needs of its employees
through succession planning, job rotation, on the job training and
extensive training workshops & programs.

During the year, the leadership and management in the back end functions
was further strengthened with the joining of senior and highly experienced
industry persons. The Company held various employee engagement programs in
order to bolster employee morale, inculcate a feeling of team work &
camaraderie and create a mechanism to recognize individual and team
contributions to the organization. Programs such as 'Appreciate Awards' and
'Fun@Work' encompassed employees across locations and departments and were
well received by all.

The total number of employees of the Company and its subsidiaries as on
December 31, 2008 stood at 12,174.

CAUTIONARY STATEMENT:

Statements in the 'Management Discussion and Analysis' describing the
Company's objectives, estimates, expectations or projections may be
'forward looking statements' within the meaning of applicable laws and
regulations. Actual results could differ materially from those expressed or
implied. Important factors that could make a difference to the Company's
operations, include Government regulations, patent laws, tax regimes,
economic developments within India and countries in which the Company
conducts business, litigation and other allied factors.

* Source IMS MAT Sep 2008.

ANNEXURE B

Information regarding the Employees' Stock Option Scheme
(As on December 31, 2008)

Details Nos.

1. Total No. of Options in force at the
beginning of the year 7,168,956

2. Opiions granted in the year 2008 1,774,825

3. No. of Options vested during the year 1,385,950

4. No. of Options exercised during the year 880,605

5. No. of shares arising as a result of
exercise of options during the year
(including additional shares allotted on
account of bonus shares as provided in
Note 2 below) 1,040,861

6. No. of Options lapsed and forfeited
during the year 790,327

7. Variance in terms of options N.A.

8. Money realized by exercise of
options during the year Rs.308,761,664

9. Total No. of Options in force at
the end of the year 7,272,849

Notes:

1. The Grant/Exercise and number of Stock Options outstanding as onjune 30,
2005, have been proportionately adjusted in view of the sub-division of
equity shares of the Company from the face value of Rs. 10 each into 2
equity shares of Rs. 5 each.

2. Options granted upto October 3, 2002, are entitled for additional shares
on account of bonus shares in the ratio of 3 for 5.

Pricing formula: Closing price of the Equity Shares of the Company prior to
the date of meeting of the Compensation Committee ('CC') in which stock
options are granted on the stock exchange on which the shares of the
Company are listed. The closing price of the shares of the Company at the
National Stock Exchange of India Limited on the day immediately preceding
the date of grant and exercise price of the options granted by CC during
the year are as per details:

Date of CC meeting Closing Price Exercise price
per share at NSE per share

January 16, 2008 390.75 391.00

June 11, 2008 560.75 561.00
December 19, 2008 218.60 219.00


(i) Options granted in the year 2008 to senior managerial personnel*:

Name Designation (Present) No. of
Options granted

Mr. Malvinder
Mohan Singh Chairman, CEO & Managing Director 2,00,000

Mr. Atul Sobti Chief Operating Officer and
Whole-time Director 30,000

Mr. Ramesh President-Corporate Affairs &
L. Adige Global Corporate Communications 15,000

Mr. Dipak Chattraj President-Corporate Development 15,000

Mr. Arun Sawhney President-API GBU Global Manufacturing
& Supply Chain 15,000

Mr. Omesh Sethi Chief Financial Officer 12,500

* Excludes the Senior Managerial Personnel who ceased to be in employment
with the Company.

(ii) Employees who have been granted 5% of more : Nil
of the options granted during the year

(iii) Employees who have been granted options during : Nil
any one year equal to or exceeding 1% of the issued
capital of the Company at the time of grant

(iv) Diluted earnings per share (EPS) : Rs. (27.29)

(v) (a) Method of calculation of employee compensation cost:

The company has calculated the employee compensation cost using the
Intrinsic value of the stock options.

(b) Difference between the employee compensation cost so computed at (a)
above and the employee compensation cost that shall have been recognized if
it had used the fair value of the options:


Rs. 336.74 Mn

(c) The impact of this difference on profits and on EPS of the Company

Profit/(Loss) after tax : Rs.(10,448.02) Mn
Less: additional
employee compensation

cost based on fair value : Rs. 336.74 Mn

Adjusted PAT : Rs.(10,784.76) Mn

Adjusted EPS (diluted) : Rs. (27.77)

(vi) Weighted-average exercise price and fair value of Stock Options
granted (Post split adjusted price)

Stock Options Weighted average Weighted averageC losing market price
granted on exercise price Fair value at NSE on the date of
(in Rs.) (in Rs.) grant (in Rs.)

12.01.2001 336.50 145.00 324.15
03.12.2001 297.50 188.50 369.48
01.04.2002 372.50 226.00 449.48
07.02.2003 283.50 132.50 317.45
22.01.2004 496.00 212.50 503.10
17.01.2005 538.50 215.68 534.33
17.01.2006 392.00 194.07 391.15
17.01.2007 430.00 232.57 429.65
16.01.2008 391.00 107.06 390.75
11.06.2008 561.00 172.89 560.75
19.12.2008 219.00 63.31 218.60

(vii) Description of the method and significant assumptions used during the
year to estimate the fair value of the options, including the following
weighted average information:

The Black Scholes option pricing model was developed for estimating fair
value of traded options that have no vesting restrictions and are fully
transferable. Since Option pricing models require use of substantive
assumptions, changes therein can materially affect fair value of Options.
The option pricing models do not necessarily provide a reliable measure of
fair value of options.

The main assumptions used in the Black-Scholes option pricing model during
the year were as follows:

Particulars Options Options Options
granted on granted on granted on
16.1.2008 11.06.2008 19.12.2008

Dividend yield 2.17% 1.52% 1.96%

Expected life of options
from the date(s) of grant 6.5 years 6.5 years 6.5 years

Risk free interest rate 7.53% 8.22% 6.05%

Expected volatility 31.99% 32.43% 38.15%

ANNEXURE C

Information pursuant to Companies (Disclosure of Particulars in Report of
Board of Directors) Rules, 1988 forming part of the Report of the Directors

1. CONSERVATION OF ENERGY AND ITS IMPACT

Measures for Conservation of Energy Impact resulting
into saving of
Rs. Million

- Entertaining rebate in power tariff by maintaining
unity power factor through automatic and manual control 9.11

- Segregation of high head and low head areas catered
by cooling tower No.4 thereby reducing the operating
pressure from 4.5 kg/cm2 to 2.5 kg/cm2. Net saving
of 56 KW 2.75

- Optimisation of Air flow in Air washers in some of
plants resulting in saving of 107 KW 2.73

- Optimisation of Nitrogen pressure to storage tanks,
thereby reducing the running time of nitrogen generation
unit and achieving power saving of 40 KW 1.80

- Maintaining the chilled brine tank level @-75% to
avoid ingress of air in the pump suction.
This action resulted in steady flow of brine 1.76

- Segregation of brine system in new utility.
All AHUs separated from main system thereby
reducing running hour of one compressor by 8
hours and achieving saving of 45 TR load,
on brine compressors, corresponding to power
saving of 50 KW 1.72

- Modification in chilled water & cooling
water circulation circuits to achieve better
water flow in the condensers of chilled brine
machines 1.53

- Replacement of 30 KW Electric Heaters of
Dehumidifiers with steam heaters 0.61

- Management of 12 TPH boiler drum level at
50% instead of 65% thereby achieving better
water/steam interface in the boiler drum and
improving the quality of steam supply 0.52

- Improvement in condensate recovery system
for two areas from 27% to 44%. 0.50

- Replacement of old natural draft cooling
tower with new CHW cooling tower 0.46

- Replacement of reciprocating compressor (30 KW
with screw compressor in Brine Chilling Unit 0.36

- Replacement of 100 nos. of incandescent lamps
to CFL (100 watts to 20 watt) 0.15

- Provided direct steam heating in the process
hot water tanks instead heating 0.13

- Optimization of operation of MEE by increasing
continuous operation thereby avoiding energy
losses on account of frequent startups 0.12

2. RESEARCH & DEVELOPMENT

a) Specific areas in which R&D is carried out

- Develop technology for Active Pharmaceutical Ingredients (APIs),
conventional & value added innovative dosage forms - complying with
international quality & regulatory norms

- Develop 'Platform Technologies' and 'Products' in the area of Novel Drug
Delivery Systems

- Discovery and Development of new drug molecules in select areas:
Infectious Diseases, Metabolic Diseases, Inflammatory/Respiratory Diseases
and Oncology

- Develop herbal drugs with rationale scientific backing, involving
standardization of botanical Actives, followed by their toxicity and
clinical studies

- GLP/cGCP complying Bioavailability/Bioequivalence, Toxicology and
Clinical Studies (Phase - I, II & III)

- Innovation in packaging for improved patient convenience & compliance Up-
gradation of existing technologies/products on ongoing basis

b) Benefits derived as result of R&D activities

- Technology to manufacture APIs and Dosage Forms

- Oral Controlled Release Dosage Forms leading to better patient
convenience and compliance

- Improved productivity/process efficiencies

- Internationally competitive prices and product quality

- Safe and environment friendly processes

- Generation of Intellectual wealth for the Company in key potential
markets

- Grant of process patents for Active Pharmaceutical Ingredients (APIs) as
well as Dosage Forms (both Conventional & Novel Drug Delivery Systems)

- Product patents in the areas of drug discovery research

- Self reliance and import substitution for conservation of Foreign
Exchange

- Foreign exchange earnings/savings

- Speed to marketplace

- Enhanced business through Licensing arrangements and strategic alliances

- Enhanced Global presence/visibility

c) Future plan of action

- Continue augmenting R&D capabilities & productivity through technological
innovations, use of modern scientific and technological techniques,
training and development, benchmarking and global networking

- Greater thrust in the areas of Novel Drug Delivery Systems

- Continue developing innovative, commercially viable process know-how for
both Active Pharmaceutical Ingredients (APIs) and dosage forms

- Continue strengthening the Clinical Research infrastructure and
capabilities complying international GLP/ cGCP norms

- Continue improvements in packaging for pharmaceuticals to ensure shelf-
life/stability, quality and better patient convenience and compliance

- Enhance national and international research networking and strategic
alliances

d) Expenditure on R&D Rs. Million

Year ended Year ended
December 31, December 31,
2008 2007

Capital 558.28 465.74

Revenue 4,155.46 4,139.44

3. TECHNOLOGY, ABSORPTION, ADAPTATION AND INNOVATION

a) Efforts in brief, made towards technology absorption and innovation

- As per 2(a) above

b) Benefit derived as a result of the above efforts, e.g. product
improvement, cost reduction, product development.

Future course of action

a) To continue developing innovative and commercially viable process know-
how for APIs and Dosage Forms (Conventional and Noval Drug Delivery System)

b) Information in case of imported technology (imports during the last five
year)

- Not applicable

4. FOREIGN EXCHANGE EARNINGS AND OUTGO

Overseas sales (excluding sales to Nepal) were Rs. 28,013.82 Mn for the
financial year December 31, 2008.

- Drug Master Files (DMFs) for API were file with the regulatory
authorities in several markets

- Continued to receive income by way of royalty, technical and management
service fee and dividend from overseas subsidiaries/affiliates

Rs. Million

Year ended Year ended
December 31, December 31,
2008 2007

Earnings 28,537.83 26,608.64

Outgo 14,403.56 11,188.13

Form for disclosure of particulars with respect to conservation of energy

Current Year Previous Year
2008 2007

A. Electricity and Fuel Consumption

1. Electricity

(a) Purchased Units (KWH) 127,981,552 121,271,482

Total Amount (Rs. Million) 521.70 481.04

Rate/Unit (Rs.) Rs. 4.08 Rs. 3.97

(b) Own Generation

i) Through Diesel Generator Unit (KWH) 8,070,600 10,144,913

Unit per Ltr. of Diesel Oil 3.61 3.54

Cost/Unit Rs. 8.94 Rs. 8.29

ii) Through Steam Turbine/Generator Not Applicable Not Applicable

2. Coal (Specify quality and where used) Not Applicable Not Applicable

3. Furnace Oil Qty. (K. Ltrs.) 16,188 16,780

Total Amount (Rs Million) 476.62 329.99

Average Rate (Rs. per Ltr.) Rs. 29.44 Rs. 19.67

4. Others/internal generation Not Applitle Not Applicable

B. Consumption per unit of production:

Units Standards Current Year Previous Year
(if any) 2008 2007
Electricity
Active
Pharmaceutical
Ingredients (kwh per kg) No specific 70.55 58.71
Dosage Forms (kwh per standards - 91.7 92.76
1000 packs) consumption
per unit
depends on
product mix
Furnace Oil

Active
Pharmaceutical
Ingredients (Ltrs per Kg) 8.95 8.40
Dosage Forms K.Ltrs peryl 0.01 0.01
1000 packs)

Coal Not Applleable Not Applicable
Others Not Applicable Not Applicable