Annual Report - Sun Pharma - 2008-2009

SUN PHARMACEUTICAL INDUSTRIES LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Your Directors take pleasure in presenting the Seventeenth Annual Report
and Audited Accounts for the year ended 31st March, 2009.

(Rs. in million except book value and dividend per share)

Year ended Year ended
Financial Results 31st March, 2009 31st March, 2008

Total Income 40437 32767
Profit after tax 12653 10140
Dividend on Preference Shares 0 1
Dividend on Equity Shares 2848 2175
Corporate Dividend tax 484 372
Transfer to various Reserves 4500 3014
Amount of dividend per equity
share of Rs. 5 each 13.75 10.50
Book value per equity share
of Rs.5 each 249 203

Dividend

Your Directors are pleased to recommend an equity dividend of Rs.13.75 per
equity share of face value Rs.5/- each (previous year Rs.10.50 per equity
share of face value Rs.5/- each) for the year ended 31st March, 2009.



Management Discussion and Analysis

The management discussion and analysis on the operations of the Company is
provided in a separate section and forms part of this report.

Human Resources

A committed human capital of over 8000 multi-cultural employees have been
pushing boundaries of your aspirational organisation to maximize
opportunities across our corporate office, two R&D centres & 19 plants
(including associate companies) spread across three continents. The
potential and ability to deliver consistently is established by our
remarkable team, evident from our consistent growth. The company recognizes
the importance and contribution of human capital and therefore appreciates
and motivates them to pursue excellence. Focused efforts to develop and
nurture human capital through in-house, external professional development
programmes and on-job training are used for upgrading technical, marketing
and management skills. Performance orientation and ethics are high priority
areas. The work environment and career opportunities help retain talent.
Your Directors recognize the team's valuable contribution and place on
record their appreciation for Team Sun Pharma.

Information as per Section 217(2A) of the Companies Act, 1956, read with
the Companies (Particulars of Employees) Rules, 1975 as amended, is
available at the registered office of your Company. However, as per the
provisions of Section 219(1)(b)(iv) of the said Act, the Report and
Accounts are being sent to all shareholders of the Company and others
entitled thereto excluding the aforesaid information. Any shareholder
interested in obtaining a copy of this statement may write to the Company
Secretary/Compliance Officer at the Corporate Office or Registered Office
address of the Company.

Information on Conservation of Energy, Technology Absorption, Foreign
Exchange Earning and Outgo

The additional information relating to energy conservation, technology
absorption, foreign exchange earning and outgo, pursuant to Section
217(1)(e) of the Companies Act 1956 read with the Companies (Disclosure of
Particulars in the Report of the Board of Directors) Rules, 1988, is given
in Annexure and forms part of this Report.

Corporate Governance

Report on Corporate Governance and Certificate dated June 20, 2009 of the
auditors of your Company regarding compliance of the conditions of
Corporate Governance as stipulated in Clause 49 of the listing agreement
with stock exchanges, are enclosed.

Consolidated Accounts

In accordance with the requirements of Accounting Standard AS-21 prescribed
by the Institute of Chartered Accountants of India, the Consolidated
Accounts of the Company and its subsidiaries is annexed to this Report.

Subsidiaries

The Ministry of Corporate Affairs, Government of India, vide order No.
47/447/2009-CL-III dated June 18, 2009 has granted approval that the
requirement to attach various documents in respect of subsidiary companies,
as set out in subsection (1) of Section 212 of the Companies Act, 1956,
shall not apply to the Company. Accordingly, the Balance Sheet, Profit and
Loss Account and other documents of the subsidiary companies are not being
attached with the Balance Sheet of the Company. Financial information of
the subsidiary companies, as required by the said order, is disclosed in
the Annual Report. The Company will make available the Annual Accounts of
the subsidiary companies and the related detailed information to any member
of the Company and its subsidiaries who may be interested in obtaining the
same. The annual accounts of the subsidiary companies will also be kept
open for inspection by any investor at the Registered Office & Corporate /
Head Office of the Company and that of the respective subsidiary companies.
The Consolidated Financial Statements presented by the Company include
financial results of its subsidiary companies.

Finance

The banks in consortium continue to offer their highest rating to your
Company enabling it to source funds from banks at attractive rates of
interest. CRISIL continued to reaffirm their highest rating of 'P1+', for
your Company's Short Term Borrowing Programme throughout the year. The
Company does not offer any Fixed Deposit scheme.

Corporate Social Responsibility (CSR)

Your organization has identified health, education, disaster relief and
civic utilities around the plants and research centers as areas where
assistance is provided on a need-based and case to case basis.

Directors

Shri Dilip S. Shanghvi and Shri Keki Minoo Mistry retire by rotation and
being eligible offer themselves for re-appointment.

Directors' Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act,
1956, with respect to Directors' Responsibility Statement, it is hereby
confirmed:

(i) that in the preparation of the annual accounts for the financial year
ended 31st March, 2009, the applicable accounting standards have been
followed along with proper explanation relating to material departures;

(ii) that the Directors have selected appropriate accounting policies and
applied them consistently and made judgements and estimates that were
reasonable and prudent so as to give a true and fair view of the state of
affairs of the Company at the end of the financial yearand on the profit of
the Company for the year under review;

(iii) that the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act, 1956 for safeguarding the assets of the
Company and for preventing and detecting fraud and other irregularities;
and,

(iv) that the Directors have prepared the annual accounts for the financial
year ended 31 st March, 2009 on a 'going concern' basis.

Auditors

Your Company's auditors, M/s. Deloitte Haskins & Sells, Chartered
Accountants, Mumbai, retire at the conclusion of the forthcoming Annual
General Meeting. Your Company has received a letter from them to the effect
that their re-appointment, if made, will be in accordance with the
provisions of Section 224(1-B) of the Companies Act,1956.

Acknowledgements

Your Directors wish to thank all stakeholders and business partners, your
Company's bankers, financial institutions, medical profession and business
associates for their continued support and valuable co-operation. The
Directors also wish to express their gratitude to investors for the faith
that they continue to repose in the Company.

For and on behalf of the Board of Directors

Dilip S. Shanghvi
Chairman & Managing Director

Mumbai,
June 20, 2009.

ANNEXURE (1) TO DIRECTORS' REPORT

CONSERVATION OF ENERGY

2008-09 2007-08
A. Power and Fuel Consumption

1. Electricity

(a) Purchased

Unit (in '000 KWH) 48,104 41,412

Total Amount (Rs. in Millions) 260.0 197.0

Rate (Rs./Unit) 5.4 4.7

(b) Own Generation through Diesel Generator

Units (in '000 KWH) 2,421 1,060

Units per Litre of Diesel Oil 3.2 3.0

Cost (Rs./Unit) 11.6 11.4

(c) Own Generation through Gas

Units (in '000 KWH) 13,059 15,132

Units per M3 of Gas 3.8 3.8

Cost (Rs./Unit) 5.1 5.1

2. Furnace Oil

Quantity (in '000 Litres) 5,223 4,623

Total Amount (Rs. in Millions) 130.6 103.8

Average Rate 25.0 22.5

3. Gas (for Steam)

Gas Units (in '000 M3) 3,661 3,756

Total Amount (Rs. in Millions) 38.6 41.1

Average Rate (Rs./Unit) 10.5 11.0

B. Consumption per unit of production

It is not feasible to maintain product category-wise energy consumption
data, since we manufacture a large range of formulations and bulk drugs
having different energy requirements.

C. Energy conservation measures

1. Improvisation and continuous monitoring of Power Factor and replacement
of weak capacitors by conducting periodical checking of capacitors. We have
been able to maintain the Power Factor near to unity (above 0.99) and
thereby availing the rebate in electricity charges.

2. Alternative energy sources like Gas & steam have been used in place of
electricity for heating of De-mineralized water, fluid bed dryers for
producing hot air systems for coating department and for making starch
paste and for drying of Bulk Drugs in tray dryers. Steam from solvent
recovery plant condensate recovery of steam diverted to Boiler Feed water /
hot water tank.

3. Installation of Lighting Transformer for lighting circuit.

4. Installation of Cogeneration Power Plants at various locations to
generate electricity and use waste heat from power plant to achieve overall
best efficiency of electricity generation.

5. Usage of renewable carbon nil green fuels in place of fossils fuels in
boilers.

6. Using refrigerated type air dryer instead of desiccant type to reduce
air losses.

7. Replaced LRP insulation to Puff insulation in all chilled water and
brine pipe lines and improved chilling efficiency.

8. In ETP, High pressure steam line was stopped in MSR area and given low
pressure steam line and reduced steam consumption by more than 11% than
earlier year.

TECHNOLOGY ABSORPTION

A. Research and Development

1. Specific areas in which R&D is carried out by the Company

We continue to be one of the most aggressive investors and developers of
pharmaceutical research and technology in the country, with research
programs to support our generic business pursued at our state of the art
R&D centres. Our expert scientist team is engaged in complex developmental
research projects in process chemistry and dosage forms, including complex
generics based on drug delivery systems at these research centres. The
research activity supports the short, medium and long term business needs
of the company.

Projects in formulation development and process chemistry help us introduce
a large number of new and novel products to the Indian market including
products with complexity or a technology edge. This helps us maintain our
leadership position in the Indian market with specialty formulations and
derive market and cost advantage from API's developed and scaled up In-
house. Further, it helps us to compete in the international regulated
markets across US / Europe.

The team also works on projects involving complex drug delivery systems for
India Complex API like steroids, sex hormones, peptides, carbohydrates and
taxanes which require special skills and technology, are developed and
scaled up for both API and dosage forms. This complete integration for some
products works to the company's advantage. These projects may offer higher
value addition and sustained revenue streams.

2. Benefits derived as a result of the above R&D

In 2008-09, more than 40 formulations were introduced across marketing
divisions, (not including line extensions). All of these were based on
technology developed in house. Technology for more than 30 API was
commercialised. For some of the important API that we already manufacture,
technology was refined so as to have more energy efficient or cost
effective or environment friendly processes. A large part of our API sales
is to the regulated market of US / Europe, and this earns valuable foreign
exchange and also a reputation for quality and dependability. The company's
formulation brands are exported to 30 international markets where a local
field force promotes the same.

The Department of Scientific and Industrial Research, Ministry of Science
and Technology of Government of India has granted approval to the in house
research and development facility of your Company under the provision of
the Income Tax Act, 1961.

3. Future plan of action

A state of the art bioequivalence facility with a functional capacity of
220 beds with a well equipped, Phase 1 Clinical unit and ECG Core
Laboratory for clinical studies and safety studies and the same is being
expanded to more than 300 beds. Eighteen high capacity LCMS, fully
computerised blood chemistry labs capable of comprehensive analysis have
been in place for a year.

4. Expenditure on R&D

Year ended Year ended
31st March, 2009 31st March, 2008
Rs in Million Rs in Million

a) Capital 221.7 133.5
b) Revenue 1289.3 1310.4
c) Total 1511.0 1443.9
d) Total R&D expenditure as % of
Total Turnover 6.4% 6.1%

B. Technology Absorption, Adaptation and Innovation:

1. Efforts in brief, made towards technology absorption, adaptation and
innovation

Year afer year, Company continues to invest on R&D revenue as well as capex
and a large part of the spend is for complex products, ANDA filings for the
US, and API technologies that are complex and require dedicated
manufacturing sites. Investments have been made in creating research
sites,employing scientifically skilled manpower, adding equipment and
upgrading continuously the exposure and research understanding of the
scientific team in the therapy areas of our interest.

2. Benefits derived as a result of the above efforts e.g. product
improvement, cost reduction, product development, import substitution

(a) Market leader for several complex products, offers complete baskets of
products under the broad spectrum of therapeutic classes. Strong pipeline
of products for future introduction in India as well as in the US generic
market.

(b) Not dependent on imported technology, can make high cost products
available at competitive prices by using indigenously developed
manufacturing processes and formulation technologies.

(c) Offer products which are convenient and safe for administration to
patients, products with a technology advantage.

(d) We are among the few selected companies that have set up completely
integrated manufacturing capability for the production of anticancer,
hormones, peptide, cephalosporins and steroidal drugs.

(e) The Company has benefited from reduction in cost due to import
substitution and increased revenue through higher exports.

3. Your company has not imported technology during the last 5 years
reckoned from the beginning of the financial year.

C. Foreign Exchange Earnings and Outgo:

Year ended Year ended
31st March, 2009 31st March, 2008
Rs in Million Rs in Million

1. Earnings 8281.1 8157.2
2. Outgo 4258.9 3735.2

MANAGEMENT DISCUSSION AND ANALYSIS

Business Overview;

Sun Pharma's product portfolio consists of 4 main categories of products:

1. India Branded Generics
2. US Generics
3. International Branded Generics
4. Active Pharmaceutical Ingredients (API)

YEAR IN REVIEW

- Sun Pharma's annual sales for 2008-09 was Rs. 42,723 million, a growth of
27% over the previous year.

- This year, Sun's R&D expenditure was Rs. 3,320 million. The Company's
cumulative spend on R&D over the years now amounts to Rs. 15 billion.

- In line with our intent of becoming an international generic pharma
company, sales from international markets grew to 53% of our total
turnover.

- Sales at Caraco were down 4% to USD 337 million.

- Between Sun Pharma and Caraco, a total of 69 ANDAs are now approved and
107 more await approval with the US FDA.

- 233 patents were filed and 76 granted based on research at our R&D
centre.

Indian Pharmaceutical Market:

India is the world's fourth largest pharmaceutical market in terms of
volume and the 15th largest in terms of value (USD 8 billion) (Source: ORG
IMS). It is primarily a retail-based branded generic market with 80%
dispensed through pharmaceutical outlets. As in most emerging economies,
acute therapies dominate and account for close to 75% of the market.

The Indian pharmaceutical industry has recorded a CAGR of 13.5% over the
past five years. However, over the past two years, growth slowed a bit to
12.6%. Chronic therapies, such as diabetes, cardiovasculars, and products
used to treat central nervous system ailments, are growing faster than
acute therapy. While there was a slight decline in revenue growth in the
first nine months of FY09, this probably was largely driven by a cut in
excise duty from 8% to 4% that was passed through.

A draft of a new/revised drug price policy was being previously examined by
the group of Cabinet Ministers in the country. The draft proposal seeks to
expand the number of drugs significantly, to 354 molecules including those
used to treat lifestyle ailments, under the purview of a pricing control
regime. We continue to monitor the developments and will be able to assess
our situation with respect to the policy only when the final policy is out.
With a new government in place, this could likely be reviewed afresh.

With the domestic economy slowing, there have been well founded fears of
slowing growth in the pharma market. However, in our estimate, the impact
may be much lower and perhaps also be slower in comparison to the well-
known cyclicals due to the strength in the longer-term growth story and the
structural underpinnings of the market that remain intact:

- Changing demographics (including population growth) and rising disposable
income due to which spend on healthcare is increasing

- Early and improving diagnosis

- Scope to increase penetration in the country -less than 40% of population
is estimated to have access to modern medicines

- General increase in health awareness due to deep penetration of the
electronic media

- Improving therapy/prescription compliance

- Improving health infrastructure with support from government's incentives

According to ORG IMS, other trends which continue to be witnessed by the
industry include:

- Therapeutic profile of the Indian pharma market is changing from acute
illnesses to chronic ailments. While prescriptions written by General
Practitioners (GPs) are estimated to be growing at 2%, growth in specialist
prescriptions is estimated at more than 5-6% p.a.

- In order to gain penetration, companies are increasing their reach to
Class II-VI towns and rural areas. However, access to the market (i.e.
connectivity and infrastructure), limited availability of doctors and
dispensaries, lack of awareness and low inclination to pay are key hurdles.

- The hospital market is expected to become a meaningful opportunity.
Pharma sales to hospitals are estimated to be at Rs. 25 billion. Currently,
around 250 companies are participating in this market.

According to ORG IMS Research, long term prospects of India's domestic
market remain solid with the USD 8 billion market in 2008, expected to rise
to USD 30 billion in 2020, implying a CAGR of 11.6%.

India Branded Generics

The India Branded Generics market, valued at Rs. 353.7 billion, grew by 10%
during 2008. (Source: IMS- ORG Stockist Data)

THERAPY WISE COVERAGE: INDIA BRANDED GENERICS SEGMENT

Speciality Marketing Division

Psychiatry Synergy, Symbiosis and Sirius
Neurology Synergy, Symbiosis and Sirius
Diabetology Arian, Azura Life Sciences and Avior
Cardiology Arian, Azura Life Sciences and Avior
Ophthalmology Avesta and Milmet
Gastroenterology and Others Sun and Solares
Asthma (Chest) and COPD Radiant
Orthopedics Sun and Ortus
Gynecology Spectra and Inca Life Sciences
Fertility Inca Life Sciences
Urology Inca Life Sciences
Dermatology Ortus
Oncology Sun Oncology A and B
Interventional Cardiology Azura Critical Care
Anesthesia and ICU Sun Speciality Care

YEAR IN REVIEW

Domestic formulations or India Branded Generics has shown rapid growth,
contributing 45% to our total revenue during 2008-09. Our market share has
grown from 2.6% in March 2001 to 3.5% during March 2009. The top 10 brands
of the Company now contribute 21 % of the sales in this segment. (Source:
IMS - ORG Stockist Data)

During 2008-09, we demonstrated a 32% growth, with chronic therapy largely
driving the growth. Fast-growing chronic therapies like Psychiatry,
Neurology, Gastroenterology, Cardiology constitute more than 70% of our
portfolio. We continue to demonstrate market leadership in the chronic
segments. We rank amongst the top 3 in more than 50% of the brands from a
portfolio of over 500 brands. A2,500- representative strong field force
across 18 marketing divisions helps build strong brand loyalty.

Therapy-wise breakup;

28% Central Nervous System
25% Gastroenterology and Diabetelogy
19% Cardiovascular System
13% Others
7% Gynecology and Urology
4% Musculo-Skelatal System
4% Respiratory System

We have also been ranked number one among psychiatrists, neurologists,
cardiologists, ophthalmologists and orthopedics (as per the CMARC survey)
for a number of years now.

C MARC A B C D E F G H
Ranks

Psychiatrists 1 1 1 1 1 1 1 1
Neurologists 1 1 1 1 1 1 1 1
Cardiologists 3 1 1 1 1 1 1 1
Orthopedic 6 4 3 2 1 1 1 1
Ophthalmologists 4 3 1 1 1 1 1 1
Diabetologists 3 4 2 1 1 1 1 2
Gastroenterologists 3 2 2 2 2 2 2 2
Chest Physicians 4 4 5 5 5 5 4 3
Nephrologists 5 4 4 4 4 4 4 4
Consultant Physicians 5 5 5 5 5 5 5 5
Oncologists 6 8 3 4 4 6 6 7
Urologists 11 11 10 8 8 10 9 8
ENT Specialists 5 9 9 10 5 16 16 17

A = Nov'02-Feb'03
B = Mar'04-Jun'04
C = Mar'05-Jun'05
D = Nov'05-Feb'06
E = Nov'06-Feb'07
F = July'07-Oct'07
G = Nov'07-Feb'08
H = Nov'08-Feb'09

Participation at Conferences

Our CNS division participated strongly at three major conferences - the
annual meets of the Indian Association of Private Psychiatrists or IAPP (in
Hyderabad), Indian Association of Neurology or IAN (in Delhi), as well as
Neurology Society of India or NSI (in Pune). The participation was driven
towards creating brand awareness as well as enriching the customer's
knowledge base and was aided by distribution of CDs and journals.

Our Spectra & Inca Life Science (our Gynec division) saw strong
participation at the 52nd annual conference of Federation of Obstetric and
Gynecological Societies of India (FOGSI).

At the inaugural function of the Association of Radiation Oncologists of
India (AROI) conference, Sun Pharma was accorded special recognition for
its contribution to post graduate teaching programmes.

CME Programmes

Participation at CME programmes continued to be well attended. These
included (a) CME programmes for super specialties (b) Comprehensive review
of Movement Disorders (The Aspen India Course) (c) Teaching programme for
Oncology PG students under the wings of Indian College of Radiation
Oncology (ICRO) and AROI in teaching institutes and (d) Self study from
Europe for respiratory specialists and chest physicians all over the
country.

Empowering Knowledge

Under the guidance of The Indian Society of Gastroenterology (ISG)
Education Committee, our Gastro Division proposed and initiated an
exclusive twice in a year training programme for post graduate students in
Gastroenterology from across the country. This training will not only help
the students prepare for their exams better, but will also increase their
overall knowledge in their areas.

Working closely with the Academy of Master Teachers, an intensive two day
programme has been developed for various post graduate students across
Mumbai and Hyderabad. This gives students an opportunity to examine live
cases, and watch how leading professionals reach their diagnoses.

We continued with our initiative of bringing the latest international
medical advances to Indian doctors.

- Post our first success of using webcast technology, this year, we
arranged a video conferencing for 1,100 doctors in 20 Indian cities with
Dr. Paul Ridker, a principal investigator in the Rosuvastatin JUPITER
trial, the landmark trial for the key cholesterol lowering agent.

- We also hosted the President-elect, Medicine & Science of the American
Diabetes Association, Dr. John Buse and his team at four centers in India,
where they shared the latest highlights on scientific advances such as apo
B and post prandial hyperglycemia with 1,100 doctors.

- The other educational initiatives taken in the field of cardiology and
diabetes under the best practices series include the amalgamation of
leading Indian and foreign faculties under the banner ofwell appreciated
Best ofACC/Best of ESC/Bestof EASD events.

Others

Besides leaving a mark with the medical community, our Aakanksha-designed
campaign has also made its presence felt at the Rx Club Awards NY with our
promotional theme 'Every heart counts for us' and theAztor EZ theme 'The
lower you reach, the more rewarding it is'.

Highlights of the year

42 products have been broughtto the market in India in FY09, across 18
marketing divisions. 9 products used a technology-based differentiation or
were complex, 12 were integrated to API.

Pantocid group, Aztor, Strocit and Gemer continue to grow at double-digit
growth rates in extremely competitive markets.

We brought to the market hi-tech Octride Depot 20 mg and 10 mg once a month
injections, a one-of-its-kind product for the treatment of serious and
difficult to treat indications such as Neuroendocrine Tumors (NETs) and
Acromegaly. We introduced a number of complex products such as Tamlet
(modified release Tamsulosin Hydrochloride & Extended Release Tolterodine
Tartarate Capsules), Tyrogef (Gertifinib), Cernos Depot (Testosterone
Undecanoate).

OUTLOOK

Sun Pharma ranks as the leader in several therapies including Psychiatry,
Neurology, Cardiology, Diabetology, Ophthalmology and Orthopedics. Our goal
is to strengthen our leadership position. To this end, we continue to
concentrate on our strategy to focus on chronic therapies to create a
sustainable revenue stream from the Indian market. We intend to retain and
strengthen our position in these therapies as well as attain the first
position in other therapies where we currently have a lower rank, thus
increasing our market share and keeping consumer focus.

We have worked steadily to make Sun Pharma a company that can deliver
sustained, high-quality growth. We continue to help patients by bringing to
the market technically complex products supported by our very able sales
and marketing force and a productive Research and Development (R&D) cell.

From an operations perspective, we continue to focus on minimizing the time
taken to launch our products in the market and optimize operational costs
through vertical integration.

MARKET SCENARIO

The generics market remains a major growth area in the global healthcare
arena. It continues to grow at a faster pace than the global pharma market,
largely due to regular patent expirations of blockbuster drugs. Rising
healthcare expenditure also contributes to industry expansion, with
governments seeking cost-containment in several national healthcare
sectors, by promoting the use of generic products over higher-priced
originator products.

However, the year 2008 witnessed significant reduction in sales growth,
despite robust volume increases. This was largely on account of
manufacturers increasingly competing in price battles within most of the
world's major markets.

Global generic products generated USD 78 billion in audited sales in the
twelve months through September. The top eight global markets - the US,
Germany, France, the UK, Canada, Italy, Spain and Japan -today account for
840/0 of total generics sales. (Source: IMS 2008 Global Pharmaceutical
Market and Therapy Forecast)

US, the world's largest generics market with 42% of global sales,
experienced a 2.7% sales decline in the twelve months ending September 2008
while volume increased 5.4% during the same period. The market is currently
valued at USD 33 billion, compared with USD 34 billion last year,
reflecting declining prices and fewer blockbusters losing patent protection
in 2008. (Source: IMS 2008 Global Pharmaceutical Market and Therapy
Forecast) Generic products now account for 71.5% of the total US
pharmaceutical market volume, however accounting for only 21.6% of all
dollars spent on prescription. (Source: Generic Pharmaceutical Association
2009 Report)

The return of Democrats to power in the White House and US Congress should
further improve the prospects of generic companies in the US pharmaceutical
market. In all likelihood, the new Democrat regime in the US will be
additionally pro-generic, given the significant cost benefits associated
with generics. According to the Generic Pharmaceutical Association (GPhA),
while brand prescription drug prices rose by nearly 9%, generic drug prices
decreased by an average of 10.6% in 2008.

The new administration also has the eminent task of a comprehensive health
care reform to rein in the skyrocketing health care costs that are driving
Medicare closer to the financial brink. According to the Trustees' 2009
report on Medicare, the program will be insolvent by 2017, two years sooner
than projected in last year's report.

Perhaps the most important stimulus to the generics market will come from
implementation of health insurance coverage for all Americans. This would
mean that about 47 million Americans that are currently out of any health
insurance will come under coverage, expanding the market for cost-effective
therapeutics, including generics. Initial reports indicate that President
Obama has already begun to take steps in this direction. In his first
budget, he is expected to seek USD 634 billion over 10 years as a down
payment on health care reforms- more than half of the estimated total cost
of bringing 47 million Americans undercoverage.

YEAR IN REVIEW

The US generics market continues to be our highest Tpriority market, with
more than 35% of our total sales coming from this segment. With integrated
manufacturing capability and the flexibility to manufacture onshore/
offshore, we expect strong momentum in this segment going forward.

The year was marked with a number of ANDA approvals from the US FDA
including our first controlled substance approval.

During the year, we received ANDA approvals for 18 products, including the
following significant approvals:

* Carboplatin inj.

* Divalproex Sodium DRtabs

* Pamidronate inj.

* Leuprolide inj.

* Hydrocodone with Acetaminophen

As of March 2009, ANDAs for 107 products await approval (including 7
tentative), of this, 82 products are from Sun Pharma (3 tentative), and 25
from Caraco, (4 tentative).

Controlled Substances

During the year, our subsidiary acquired 100% ownership of Chattem
Chemicals, Inc. (Chattem) in Chattanooga, Tennessee, USA from Elcat, Inc.
Chattem is a narcotic raw material importer, registered to import and
manufacture controlled substances. The Company also manufactures a variety
of APIs with a focus on controlled substances. With this acquisition, we
have increased our presence in the controlled substances market and the
pain management segment in the US. Our Cranbury, US facility also received
ANDA approval for the production of Generic Hydrocodone bitartate with
acetaminophen (APAP) tablets. This is our first approval for products based
on controlled substances.

Generic Effexor XR(R)

In November 2008, the US FDA granted Osmotica's Citizen Petition regarding
Venlafaxine extended release tablets. In this petition, US FDA was
requested to refrain from approving any pending ANDA for such tablets that
cited Wyeth's Effexor XR(R). capsules as the reference drug. The FDA also
asked Sun Pharma to resubmit the ANDA if we wanted an approval.

We have not been sued in terms of our subsequent filing but the generic
approval will take its own course.

OUTLOOK

Today, there are nearly 9,000 generic drugs available for nearly 11,500
products approved in the US. The stream of brand product patent expirations
will continue to drive growth in the generic industry over the next several
years. Industry analysts estimate that brand products with approximately
USD 60 billion in annual sales will lose market protection by 2011 further
expanding patient options and savings. (Source: Generic Pharmaceutical
Association 2009 Report)

With more and more number of entrants wanting a pie of the US generics
market, there has been a sharp increase in the number of AND Aapplications.
This has led to increasing lead-time per approval as well as a concern
about high dependence of US citizens on medicines produced outside the US.
In order to cope with this, the US FDA is aggressively increasing its

Caraco

Caraco manufactures its own ANDAs and distributes ANDAs approved for Sun
Pharma. Caraco filed 10 ANDAs that cover 9 products in 2008-09. The Company
received approvals for 8 ANDAs relating to 3 products. 29 ANDAs (including
4 tentative approvals) for 25 products await approval by the FDA.

Caraco recorded sales of USD 337 million in 2008-09, a decline of 4% over
the previous year.

In June 2008, Caraco received a Form 483 from the US FDA, on inspections
conducted by the FDA at Caraco's Detroit manufacturing facility in May
2008. Caraco had responded to the FDA's observations.

In October 2008, Caraco received a warning letter from the FDA on quality
practices and non-conformance with SOPs related to its manufacturing site
in Detroit. Caraco had replied to the US FDA's warning letter, thereby
confirming that it has addressed the issues, making a few specific
timebound commitments.

While this will not have an impact on the existing products which are
already sold from Caraco, it does block the approval of any pending AN DA
submitted by Caraco.

Besides this, in March 2009, Caraco had to recall all tablets of Caraco
brand Digoxin, USP, 0.125 mg, and Digoxin, USP, 0.25 mg, distributed prior
to March 31, 2009, which have not expired and are within the expiration
date of September 2011, to the consumer level. The tablets were recalled
because they differed in size and therefore could have more or less of the
active ingredient, Digoxin.

Generic Protonix(R)

In 2007, we received ANDA approval to market a generic version of Wyeth's
ProtoniX , Pantoprazole tablets. We were one of the first-to-file an ANDA
for generic Protonix0 with a para IV certification, and shared a 180-day
marketing exclusivity with Teva for this product.

We launched this product in January 2008 after the exclusivity was
triggered by another generic filer and Wyeth had launched an authorized
generic, and since then generic Protonix(R) has significantly contributed
to our revenue and profits. We do not expect to discontinue selling generic
Protonix0 in 2009.

We are currently involved in patent litigation with Wyeth and Nycomed
concerning this product in the US District Courtfor the District of New
Jersey.

All registered trademarks are the property of their respective owners.

Staff strength as well as opening overseas offices and inspection
infrastructure to inspect manufacturing facilities.

The level of scrutiny by the US FDAalso appears to have increased after
some incidents and the legislative criticism that it received for the same.
This along with the fact that the FDA has now set up an office in India
could lead to more frequent and surprise inspections.

However, we do not see this to be an impediment to growth for the industry
as a whole and view it as a positive development which will result in
acceleration in product approvals.

We expect that the US market will continue to be progeneric and it will
continue to remain a high priority marketforus. With our diverse portfolio
and integrated manufacturing facility, we intend to participate well in
this opportunity in the coming years.

International Branded Generics

MARKET SCENARIO

Arecent study of the global pharma market by region clearly indicates the
growing importance of the international (Non-US/North America) markets in
the industry. Out of the approximately USD 773 billion global market in
2008, around USD 461 billion of sales came from the non-North America
regions. The global market is expected to grow at a CAGR of 3-6% over 2008-
2013 and North America is expected to experience negative growth or a
maximum of 2% growth. It is regions like Asia, Africa, Australia and Latin
America which are expected to grow at a CAGR of 11-14% in this period.
(Source: IMS Health Market Prognosis, March 2009)

YEAR IN REVIEW

International Branded Generics constitute 9% of the total sales of the
Company, growing at a 3-year CAGR of 41 %. Our reach extends to over 30
countries with a combined local sales force of over 400 people.

During the year, we had over 300 new registrations. In all, we have
registered close to 1,600 products and another 1,000 are awaiting
registration. Our growth in this segment has not only come from the
introduction of new products but also from increased sales on existing
products.

Our reach extends to countries in Asia, Africa and Latin America. We
entered two new markets this year viz. Algeria and Venezuela. Pantoprazole,
Encorate chrono, Aztor, Citopam, Zosert and Dazolic were amongst the
largest brands we marketed internationally.

Russia is moving from a government and hospital-based system to a
prescription pull-based market. With a large number of products awaiting
registration in several therapies, Russia promises significant growth
potential in the coming years.

Rules for product registration have become more stringent in China.
Registration now requires Bioequivalence or Clinical trials which increases
the time and costs significantly. On a positive note, we continue to
perform well in Mexico. The market here is innovation molecule driven but
we have been able to gain the most from their close generics. We are also
increasing our product basket.

OUTLOOK

We continue to rely upon our strengths viz. wide porffolio of specialty
prescription products and strong product promotion skills to execute our
international plans while we slowly gain expertise on handling
tender/government business in each of the countries we are present in.
Going forward, we will strongly focus on China, South-East Asia, South
Africa, Brazil, Mexico and the CIS region for this segment of our business.
By rapidly expanding our product offering and building a sizeable sales
force, we intend to significantly improve our prescription/market share in
these countries.

Europe

Europe is a region where we intend to increase our generic focus in the
years to come. According to European Generic medicines Association's (EGA)
Market Review 2007, the EU generic medicines market was about 31 billion.
We continue with our efforts to enter key markets with a limited number of
complex generic products viz. injectables initially. We will then offer
more products and selectively build up a portfolio in this market.

India is on its way to become a global leader in API production The Indian
API manufacturing industry is projected to make sales of USD 4.8 billion by
2010, exhibiting an average yearly growth rate of over 19%. Though, there
was a global slowdown in the API market in 2008 due to the recession, long
term prospects continue to be promising. With our rational costs, rapid
speed to market and strong regulatory capability (133 DMF/CEP have been
approved or are awaiting approval), Sun Pharma is well placed to capitalize
on this opportunity.

Around 160 specialty APIs are produced across 8 world-class locations, all
of which are ISO 14001 and ISO 9002 approved, besides being approved by the
respective foreign regulatory authorities. 6 of these are in India while we
have one plant each in Hungary and USAfor the manufacture of APIs for
controlled substances. We also have standalone units in our plants in India
for the manufacture of peptides, anticancers, steroids and sex hormones.

A large part of our API capacity is used for in-house consumption. During
2008-09, our API sales grew to Rs. 4,846 million, contributing 11% to our
total turnover. This segment has been growing at a 3 year CAGR of 21%.

78% of API sales come from international markets. The European market has
performed well for us this year with older products like 5 ASA,
Pentoxifylline and Clomipramine in which we have good market shares.

Our integration into API manufacturing is an important part of our
business. It strengthens our Indian and developing markets business, and
our ability to take on challenges in the US generic market.

This year, we scaled up 30 APIs. This brings our total regulated market
approved API to 81 of 133 filings made for DMF and CEP.

API PRODUCT LIST

Flurbiprofen [*]
Fluticasone Propionate [$,*]
Fluvoxamine Maleate [$, #]
Fosphenytoin Sodium [$]
Gabapentin [$, #]
Gemcitabine Hcl [$, #, *]
Glibornuride [# ]
Glimepiride [$]
Glycine, USP
Granisetron Hcl [$]
Hemihydrate [*]
Hydroxyamphetamine Hydrobromide, USP
Hydroxychloroquine
Ibandronate Sodium [$]
Imatinib Mesylate [$]
Irbesartan
Irinotecan [#]
Isradipine
Lamotrigine [$]
Lercanidipine Hcl
Letrozole
Levmetamfetamine, USP ~
Levosulpiride Prokinetic
Losartan Potassium [#]
Loteprednol Etabonate
Magnesium Valproate
Meloxicam [#]
Memantine
Mesalazine [$, *]
Metadoxine
Metaxalone
Metformin Hcl [$, *]
Methamphetamine Hydrochloride, USP
Methenamine ~
Methenamine Mandelate ~
Methylphenidate Base
Methylphenidate Hcl [#]
Methylphenidate Hydrochloride, USP
Methamphetamine Hydrochloride, USP
(Unmilled) ~
Metoprolol Succinate [$, *]
Metoprolol Tartrate [$, *]
Milnacipran Hcl
Mirtazapine [$, #]
Modafinil [$, #]
Mometasone Furoate
Morphine HCl
Morphine Sulphate
Naloxone Hcl Dihydrate
Naltrexone Hcl [$]
Naratriptan Hydrochloride
Nateglinide
Noroxymorphone
Noscapine Base
API PRODUCT LIST
Acamprosate Calcium
Acenocoumarol
Alendronate Sodium [#]
Aluminium-magnesium- hydroxyl
Carbonate-hexahydrate
Amisulpride
Amitriptyline
Ammonium Lactate Solution
Aqueous
Anastrozole
Atomoxetine
Balsalazide
Benzphetamine Hydrochloride
Bicalutamide [#]
Budesonide
Buprenorphine HCl
Bupropion Hcl
Buspirone Base [$, #]
Buspirone HCl [$, #]
Butabarbital Soduim, USP
Butabarbital, USP ~
Butalbital, USP
Calcitonin (Salmon)
Capecitabine
Carbamazepine
Carboplatin [*]
Carvedilol [*]
Cefuroxime Axetil [*]
Ciclesonide
Cisplatin [*]
Citalopram Hbr.
Clomipramine Hcl [*]
Clonazepam
Clopidogrel Bisulfate
Codeine Base
Codeine HCl
Codeine Phosphate
Concentrate of Poppy
Danazol
Darifenacin Hydrobromide
Desloratadine
Desmopressin Monoacetate
Dihydrocodeine
Divalproex Sodium
Dobutamine Hcl
Donepezil
Dothiepin Hcl [*]
Duloxetine [$]
Entacapone [$]
Epinastine Hcl
Eptifibatide
Escitalopram HBr
Eszopiclone
Ethylmorphine HCl
Exemestane
Fentanyl Base
Finasteride [$]
Noscapine HCl
Octreotide Acetate [$, #]
Olanzapine [$]
Ondansetron Base [$]
Ondansetron Hcl [$, *]
Oxaliplatin [$]
Oxandrolone
Oxcarbazepine [$]
Oxethazaine
Oxycodone HCL
Oxymorphone
Paliperidone
Pamabrom, USP ~
Pamidronate Disodium [$, #]
Pantoprazole [$, #]
Paroxetine [$]
Pentoxifylline [$, *]
Perindopril
Phenobarbital Acid [$, #]
Phenobarbital Sodium
Pholcodine
Pioglitazone
Piroxicam Betacyclodextrine
Pramipexole Dihydrochloride
Pregabalin
Raloxifene
Ranolazine
Repaglinide [$]
Risedronate Sodium Hemi Pentahydrate
Risperidone [$]
Rivastigmine Tartrate [$]
Ropinirole
Sennoside A+B
Sertraline Hcl [$]
Sodium Valproate [$, *]
Straw (CPS)
Sulphate [$]
Sumatriptan Succinate [$]
Tadalafil
Tamsulosin Hcl
Temozolamide
Testosterone
Thebaine
Tiagabine Hcl [$]
Tiotropium Bromide Monohydrate
Tizanidine Hcl [$]
Topiramate [$, #]
Tramadol Hcl [$, *]
Valproic Acid [$]
Venlafaxine Hcl [$]
Ziprasidone Hcl
Zoledronic Acid [$]
Zolpidem Tartrate [$, *]
Zonisamide [$]

$ USDMF, # EDMF, *COS***, ~ No DMF exists, PN** Producer's Norms

Intermediates available on request for above Active Pharmaceutical
Ingredients. All transactions are carried out in conformity with patent
laws applicable in the user country. Responsibility with respect to third
party's patent rights in a specific country lies exclusively with the
buyer.

NEW PRODUCT LIST (INDIA)

Brand name Use

Supatret Acne
Winolap Allergy/ rhinitis
Donamem Alzheimers'
Exmasin Anticancer
Lenzest Anticancer
Octride Depot 10 Anticancer
Carcidox Anticancer
Tyrogef Anticancer
Cernos depot Anticancer, hormone replacement
Milnorm Antidepressant
Levipil Antidepressant
Exzilor Antidepressant
Macorate Antiepileptic
Lobazam MD Antiepileptic
Oxetol XR Antiepileptic
Olmezest AM Anti hypertensive
Prolomet R Anti hypertensive
Olmezest H Anti hypertensive
Nexipride inj Antipsychotic
Paliris ER Antipsychotic
Sofalco Antiulcer
Etirest Anxiolytic
AB phylline Asthma
Mondeslor Asthma
Tamlet BPH
Camopan Chronic pancreatitis
Glytears Dry eye symptoms
Lesuride Gastric prokinetic
Brimosun LS Glaucoma
Rifagut Gut specific antibiotic
Inapure Herpes simplex
Suminat auto inj Migraine
Thioact Muscle relaxant
Miliflox plus Ocular Antiinfective +Antiinflamatory
Dronis Oral contraceptive
Lofecam Pain mgmt
VSL# 3 Caps Probiotic
Baclofen GRS Spasticity
Strocit CR Stroke/ Dementia
Vorizef Systemic antifungal
Vorizef injection Systemic antifungal
Darilong Urology, overactive bladder

R&D, Quality and Internal Control:

We are committed to ongoing investment in research and development as a way
to differentiate our existing products, while bringing innovative, high-
value products to market. Our research and development activities are
closely focused on market needs and driven by technological progress.

To this end, we allocate a significant amount of our operating budget to
research and development. Historically, we have increased our annual spend
from year to year. During 2008-09, total spending increased to Rs. 3,320
million from Rs. 2,990 million in 2007-08 to support current growth
projects. This represents 8 % of our total sales.

We have developed the skill set to create a wide range of pharmaceuticals
across the value chain from complex APIs to formulations. These projects
typically work with a lead time of a few years, and power our growth plans
across the world. We have close to 600 scientists working across 2
development centers. So far, 233 patent applications were submitted and 76
patents were granted.

The company continues to file ANDAs to create a strong pipeline in the US.
ANDAs for 107 products await approval (this includes 7 tentative approvals)
as of March 2009. We endeavour to scale up the pace of filings and the
speed to market to give us an edge in this highly competitive market. The
teams also develop complex generics for our branded generics business in
India and in the non-US international markets. In all, over 42 products
were brought to the Indian market including complex products like Tyrogef
(gertifinib) and Tamlet (modified release tamulosin and extended release
tolterodine).

As a strong, integrated pharma player, our API business is crucial to our
dosage form business. Sustainable growth in API has contributed
significantly to the success of the Company. In all, over the years we have
developed around 160 speciality APIs and during the year, 30 APIs were
scaled up. Out of the 133 DMF and CEP applications filed till now, 81 were
approved. We will continue to nurture our API business in the future in
order to develop high quality products.

As we strive to develop new technologies and products to create a
competitive edge and fuel our growth, the benefits we derive as a result of
R&D will only increase in the coming years.

Quality

Maintaining stringent quality control is of paramount importance in the
pharma industry. Customers globally are becoming increasingly demanding of
high standards. At Sun Pharma, quality has always been accorded extreme
importance. While 2008-09 has been a challenging year for us on the quality
front, the setbacks we faced has motivated us to attain and reach for even
higher standards of quality.

The Company has in place an expert quality team which ensures that our
processes and documentation are of global standards. We have successfully
gained the following regulatory approvals in recent times:

* US FDA approval for the Ahmednagar plant

* US FDAapproval for the Panoli plant

* US FDA and UK MHRA approval for the Dadra plant

* US FDA and UK MHRA approval for the Halol plant

* US FDA approval for our analytical laboratories at SPARC, Baroda

* German approval for the Karkhadi plant

As such, we have one of the strongest pipelines of ANDA products awaiting
approval with the US FDA. These new facility approvals will accelerate our
plans for the US and Europe markets with a range of products of differing
complexity.

Most European authorities and the US FDA require submission of all DMF and
ANDA electronically, i.e. no more paper copies. Therefore, the Corporate
Quality department has now validated eCTD (electronic Common Technical
Document) software and has begun making product applications using this
route.

Some of our other initiatives in the area of quality control include
frequent in-house training programmes at the shop floor level for basic QC
instrument operation and handling and environmental monitoring in the
formulation manufacturing area.

During the year, Caraco's facility received a Form 483 followed by a
warning letter from the US FDA on quality practices and non-conformance
with SOPs for its Detroit plant. Caraco replied to the letter in which it
has addressed the issues and has made specific time-bound commitments.
Caraco also voluntarily initiated a recall of certain product lots of
Digoxin. Quality teams at both Sun Pharma and Caraco are working closely to
review procedures and ensure that all systems are in line with the quality
standards expected of an approved site.

Internal Control Systems and their Adequacy:

Sun Pharma's well defined organizational structure, documented policy
guidelines and adequate internal controls ensure efficiency of operations,
compliance with internal policies and applicable laws and regulations,
protection of resources and assets, and accurate reporting of financial
transactions. Moreover, the Company continuously upgrades these systems in
line with the best available practices. The internal control system is
supplemented by extensive internal audits, conducted by independent firms
of Chartered Accountants so as to cover various operations on a continuous
basis.

FORMULATIONS MANUFACTURING

LOCATION MARKETS

1 Silvassa India and emerging markets
2 Dadra US generic market
3 Cranbury US generic market
4 Detroit US generic market
5 Bryan US generic market
6 Halol US generic market, India
and emerging markets
7 Jammu India
8 Bangladesh Bangladesh market
9 Brazil Brazil & Latam
10 Mexico Mexico & Latam

API MANUFACTURING

LOCATION MARKETS

11 Panoli Primarily US and Europe API
Markets but other markets too

12 Ahmednagar Primarily US and Europe API
markets but other markets too

13 Ankleshwar Internal use, India, other less
regulated markets

14 Maduranthakam Internal use, India, other less
regulated markets

15 Tennessee US API markets

16 Dadra India market

IAPI/FORMULATIONS MANUFACTURING

LOCATION MARKETS

17 Karkhadi India, US
18 Tiszavasvari Formulations for the European
generic market and API for
the US market

Financial Snapshot:

(Rs. in million)
Particulars 1999-00 2000-01 2001-02 2002-03 2003-04

Operating Performance
Income from Operations 4,784 6,148 7,505 9,725 9,847
Total Income 4,810 6,211 7,552 9,812 9,995
Profit After Tax 907 1,352 1,707 2,444 3,446
R&D Expenditure 201 250 336 966 1,268
a) Capital 102 71 197 363 598
b) Revenue 99 179 139 603 670
c) % of Turnover 4% 4% 5% 12% 13%
Financial Position
Equity Share Capital 154 468 468 465 464
Reserve and Surplus 2,997 3,859 4,956 5,141 7,540
Gross Block 2,312 2,675 3,007 4,033 6,232
Net Block 1,699 1,891 2,092 2,682 4,518
Investments 501 397 818 38 1,765
Net Current Assets 1,803 2,632 2,410 3,725 4,808
Stock Information
Number of Shares 15,422,833 46,756,018 46,774,537 93,048,478 92755678
Earnings Per Share
- Basic (In Rs.) 55.0 27.8 35.6 26.4 35.4
Earnings Per Share
-Diluted (In Rs.) 55.0 27.8 35.6 13.2 17.7