Annual Report - Ajanta Pharma - 2009-2010

AJANTA PHARMA LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

It is with great pleasure and satisfaction that your Directors present the
31st Annual Report and audited accounts for the year ended March 31st,
2010.



Financial Results Rs. in Lacs

Year ended 31st March 2010 2009

Total Income 38,477 32,380
EBITDA 7,250 6,112
Interest 1,908 2,203
Depreciation 1,976 1,315
Profit before Tax 3,366 2,594
Profit after Tax 2,854 2,138
Earning Per Share (EPS) Rs. 24.37 18.26
Dividend 35% 25%
Book Value per share
(Rs.10 paid up) Rs. 150.24 129.95

Dividend

Your Directors are pleased to recommend a dividend of Rs. 3.50 per equity
share on the face-value of Rs.10/- per share for the year ended 31st March
2010.

Operations

An excellent performance for the year, with 33% growth in net profit and
19% in sales reflects your company's robust business model. Exports
constituted 61% of total sales with establishment of your company's brands
in the global markets. Exchange rate movement, though remained the area of
concern, was contained through a systematic hedging policy, to avoid
adverse impact on profitability.

Your company was able to contain the interest cost during the year, thanks
to better cash flow and cooperation extended by its bankers. Various
projects and capital expenditure plans have been completed during the year,
which has resulted in higher depreciation cost. Overall,your company has
improved on its profitability during the financial year ended March 31,
2010.

Management Discussion and Analysis:

The Management Discussion and analysis of the operations of your company is
provided in a separate section and forms part of this report.

Subsidiary Companies:

The Central Government has granted exemption under Section 212(8) of the
Companies Act, 1956, from attaching to the Balance Sheet of the company,
the accounts and other documents of its subsidiaries. However, the
Consolidated Financial Statements of the Company, which include results of
the said subsidiaries, are included in this Annual Report. Further, a
statement containing the particulars prescribed under the terms of the said
exemption for each of the Company's subsidiaries and statement pursuant to
Section 212 of the Companies Act, 1956, are annexed. Copies of the audited
annual accounts of the subsidiaries can be sought by any investor of
the Company on making a written request to Company Secretary at the
registered office of the company in this regard. They are also available
for inspection for any investor at the Company's registered office.

Once again your company's Mauritius subsidiary has shown an excellent
performance with a growth of 32% in sales and 13% in profits. Its step down
subsidiary in Philippines had just commenced its operations and will add to
the performance during next financial year. Your company's subsidiary in
US had been playing an important role in ling ANDA registration and USFDA
approval.

Joint Venture

Joint Venture Turkmenderman Ajanta Pharma Limited, though continued its
operations during last calendar year, its performance had been much below
our expectations. Your Company continues to look for exit options from this
Joint Venture.

Research & Development

R & D remains the prime focus of your company, with facility at Advent in
Mumbai being further expanded to meet the growing needs of different
markets. During the last financial year, R&D had led 2 ANDA
applications with USFDA and working on few more in the current year. It had
also been instrumental in launching many new products in the markets, some
of them being amongst first to be in launched.

Capital Expenditure

During the last financial year company acquired a formulation facility
near Aurangabad to augment its manufacturing capabilities, specially for
rest of the world markets. The API manufacturing facility also ecommenced
its operation during the year, marking a major step in the direction of
mapping the complete pharma value chain.

Consolidated Financial Statements

In accordance with the requirement of Accounting Standards AS-21 prescribed
by the Institute of the Chartered Accountants of India, the consolidated
accounts of your company is annexed to this report.

Directors

Mr. Santosh Bhattacherjee, Nominee of IDBI Bank Limited ceased to be the
Director of the Company during the year. The Board places on record their
sincere appreciation and gratitude for all support and valuable
contribution made by him during his association with the Company. Mr. S. C.
Saha was appointed as the new Nominee Director by IDBI Bank.

Mr. Mannalal B. Agrawal, Mr. Purushottam B. Agrawal and Dr. Anil Kumar, the
Directors of your Company, retire by rotation and being eligible, offer
themselves for reappointment.

Auditors

The Auditors, M/s. Kapoor & Parekh Associates, Chartered Accountants,
Mumbai, retire at the conclusion of the ensuing Annual General Meeting and
are eligible for reappointment, holding peer review certificate. Members
are requested to appoint them as Auditors and fix their remuneration.

Auditor's Report

The remarks as contained in the Auditor's Report read with Notes forming
part of the accounts are self-explanatory.

Cost Audit

M/s. Sevekari Khare & Associates, Cost Auditor have been reappointed to
conduct the cost audit of the company's cost records for FY 2010-11 as
prescribed by the order received from Government of India, Ministry of
Company Affairs, Cost Audit Branch, New Delhi.

Fixed Deposits

The Company has not accepted any xed deposits from the public under
Section 58A of the Companies Act, 1956.

Director's Responsibility Statement

Your Directors confirm:

1. That in the preparation of the annual accounts, the applicable
accounting standards have been followed.

2. That the directors have selected such 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 year ended 31st March, 2010, and
of the pro t or loss account of the company for that year.

3. 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.

4. That the Annual Accounts have been prepared on going concern basis.

Social Responsibility

Your company is committed to its social responsibility and continues to be
a responsible corporate citizen. As in the earlier years, your company had
been working on free corrective plastic surgery and eye surgery camps,
blood donation camps, etc. for the needy and rural population in different
parts of the country.

Particulars of Employees

As required under Section 217(2A) of the Companies Act, 1956 and Rules
framed thereunder, the names and other particulars of employees receiving
remuneration above the prescribed threshold are set out in the Annexure
appended to this Report.

Conservation of energy, technology absorption, foreign exchange earnings
and outgo

The additional information relating to Conservation of energy, technology
absorption, foreign exchange earnings and outgo, pursuant to Section
217(1)(e) of the Companies Act, 1956 read with 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 from the Auditors thereon
regarding compliance of conditions of Corporate Governance as stipulated in
Clause 49 of the Listing Agreement with Stock Exchanges are enclosed.

Gratitude and Acknowledgments

Your Directors take this opportunity to express sincere thanks to the
medical fraternity and patients for their continued co-operation, patronage
and trust reposed in the Company and its products. The Directors place on
record their gratitude to the government, other statutory bodies, our
strategic partners, business associates, banks, financial institutions and
shareholders for their assistance, co-operation and encouragement. Your
Directors also place on record their sincere appreciation for significant
contribution made by the employees at all levels through their dedication,
hard work and commitment and look forward to their continued support and
unstinting efforts in ensuring an excellent all round operational
performance.

For and on behalf of the Board of Directors,

MANNALAL B. AGRAWAL
CHAIRMAN
Mumbai, 6th May, 2010

Statement Pursuant to Section 217(1)(e) of the Companies Act, 1956, read
with Companies (Disclosure of Particulars in the Report of the Board of
Directors) Rules, 1988.

A. CONSERVATION OF ENERGY:

1. Energy Conservation Measures

Your company is striving continuously to conserve every form of energy by
adopting innovative measures to reduce wastage and optimize consumption.
Notable measures for energy conservation were as follows:

* HVAC operation controlled

* Unwanted lighting kept off

* Optimised the efficiency of HVAC by PM

* Replaced high voltage motors with low voltage motors

* Zero load shedding

* Power consumption by using TEMP Controller

Adoption of above energy conservation measures have helped to curtail the
proportionate increase in total energy usage. This has helped to optimize
cost of production. Total energy consumption and energy consumption per
unit of production as per form A is as follows:

Year Ended March 31st 2010 2009

(i) POWER AND FUEL CONSUMPTION

Electricity

(a) Purchase

Unit 57,47,183 28,29,869
Total Amount (Rs.) 2,84,12,333 1,33,65,839
Rate/Unit (Rs.) 4.94 4.72

(b) Own generation

Unit 4,34,430 1,43,634
Unit per Ltr. of Diesel Oil 3.58 3.00
Cost / Unit (Rs.) 12.52 13.67

(ii) CONSUMPTION PER UNIT OF PRODUCTION

The Company manufactures several formulations of different pack sizes. It
is therefore, impracticable to apportion the consumption and the cost of
utilities to each product.

B. RESEARCH AND DEVELOPMENT & TECHNOLOGY ABSORPTION:

1. Specific areas in which R&D carried out:

Your company has a state-of-the-art R&D facility 'Advent' recognized by
DSIR, Govt. of India which houses a range of latest equipments for
formulation development and synthesizes high value APIs. R&D is a vital
component of business strategy which provides a long-term competitive
advantage to your company. A team of more than 250 diligent and committed
Ajantaites, including several PhDs, with research experience in drug
discovery, drug delivery systems, process development and analytical
research, work untiringly in the R&D centre. The team has been provided
with conducive environment tonurture excellence and innovation that is most
essential to develop complex and challenging first-time combination
products and also first-to-launch generic products in our focused
therapeutic segments.

The specific areas in which research was carried out are:

a) Development of new formulations in Ophthalmology, Dermatology,
Cardiology, Cosmetology and other focused therapeutic segments

b) Development on different dosage forms ranging from topical creams,
ophthalmological preparations, nasal sprays and dry powder inhalers

c) Development of new innovative technology for the manufacture of APIs

d) Development of new products, specifically for exports

e) Development of New Drug Delivery Systems

f) Development of analytical methods and conducting stability studies

g) Validation of analytical procedures to support development of new
formulations

h) Process validation and technology transfer of newly developed products

i) Cost reduction and product improvisation trials

2. Benefits derived as a result of R&D

R&D has developed number of novel formulations to cater to the demands of
domestic as well as international markets. It has brought latest
combination molecules; often using complex delivery systems, many of them
being introduced for first time in India Annexure to Directors' Report
and are enjoying leadership position in the market in their respective sub-
therapeutic segments.

3. Future plan of action

Our proposed objectives for Research center are:

- To develop new products in the focused therapeutic segments

- To develop and transfer technology for Novel Drug Delivery Systems
(NDDS)

- To work on novel combinations

- To chemically synthesize new pharmaceutical products

- To develop formulations for filing ANDAs

- To develop formulations for WHO/other Regulated Markets

- To develop innovative products for non-regulated markets

- To carry out Contract Research for multinational pharmaceutical
companies

- To continue working on cost reduction of existing formulations.

- To continue developing and validating analytical procedures for new
formulations

4. Efforts, in brief, made towards Technology absorption, adaptation and
innovation

a) Innovation that works on totally new-to-the-world product ideas

b) Latest combination molecules, often using complex delivery systems, that
help improve the quality of life

Expenditure on R&D:

Particulars Rs. in Lacs

Capital & ANDA Development Cost 169.96
Recurring 2,026.45
Total 2,196.41

Total R&D expenditure as a
percentage of total turnover 5.71%

C. FOREIGN EXCHANGE EARNINGS AND OUTGO:

1. Activities relating to exports, initiatives taken to increase exports,
development of new export markets for products and services and export
plans.

Exports constituted 61% of total sales for the financial year 2009-10.
Your company continues to focus on export markets with innovative R&D
products. With the objective of increasing the export, company had 1380
product registrations in hand and more than 1000 products under
registrations in different countries. The company has also started
providing contract research work to overseas companies, thereby earning
foreign exchange.

2. Total foreign exchange used and earned:

Rs. in Lacs
Year Ended March 31st 2010 2009

(i) Earnings 21,753.56 17,407.83

(ii) Outgo on import 6,289.82 5,700.49
of Raw Materials,
Capital Goods,
Traveling, Marketing
and other expenses.

MANAGEMENT DISCUSSION AND ANALYSIS

Research & Development:

Innovation pharmaceutical is the business key to and success it springs in
from focussed & committed Research & Development (R&D) initiatives. R&D is
the first & foremost important component in the pharma value chain.
Recognising this, we at Ajanta Pharma have been consistently investing in
R&D, for blossoming lives, better patient compliance and patient
convenience. Our constant initiatives are in the direction of targeting,
both identified market opportunities and challenge of unmet medical needs
which enables us to work on difficult to make products, in existing as
well as high potential new therapy areas. We continue to focus on New Drug
Delivery Systems (NDDS) and new combinations. With the help of our R&D
capabilities, we now have 1380 product registrations in different markets
of the world and over 1029 more are waiting in pipeline. Our R&D facility
at Advent', Mumbai, which is approved by Department of Scientific and
Industrial Research (DSIR), Ministry of Science & Technology, Government of
India, is being expanded which will ensure consistent growth for the
organisation in the coming years.

API Manufacturing:

The next key component of pharma value chain is manufacturing of critical
raw material, commonly known as Active Pharma Ingredient (API). Whenever a
new formulation needs to be launched, it has to start from its basic
compound, which during initial period, is not easily available in the
market place. It is here that, in-house capability for producing such API
becomes essential to reach the formulation to the needy patients at the
earliest. Further, it also helps to reduce costs by process improvement,
thereby improving profitability.

Realising its need and importance in the pharma value chain, we at Ajanta
Pharma have recently set up a state-of-the-art API facility at Waluj,
Aurangabad. This plant is equipped to produce different scale of volumes
right from laboratory to pilot to commercial level. This enables us to
carry out innovations in both product quality and cost. With this addition,
we have mapped the complete pharma value chain and are able to create a
class apart in healthcare. Addition of this component of pharma value chain
will accelerate our growth in the coming years.

Formulation Manufacturing:

We have identified our key strength as a niche pharmaceutical formulation
provider, in diverse dosage forms, most suitable to the complex patient
needs. Over the years, we have strengthened our formulation manufacturing
capabilities, which is, yet another important component of the pharma value
chain. During the year, we acquired a formulation manufacturing facility
near Aurangabad to cater to rest of the world markets. With this
acquisition, we now have independent facilities catering to specific
markets / segments. We are proud to have best of the practices for highest
quality standards in formulation manufacturing. This will ensure
uninterrupted availability of manufacturing capacities required for
consistent growth in the coming years.

Brands:

'Brands' in pharmaceutical industry conveys the quality and reliability of
a product. It is the brand which differentiates and gives the confidence to
the medical profession about the effectiveness of the product for providing
timely relief to the patient. The pharma value chain reaches its peak with
the 'Brand'. At Ajanta Pharma, we have always been conscious about this
part of the value chain and today our 'Brands' stand for highest quality in
the markets. We have built brands across countries and across niche
segments, with innovation at the core of our product, which enabled us to
improve our rankings year after year. During the financial year we have
launched 24 new products in different therapeutic segments, many of them
being amongst the first to be launched in the market. Today many of our
brands enjoy leadership position in their sub-therapeutic segments. Our
brand building exercise worldwide will continue to fuel growth in the
coming years.

Global Presence:

One of our early decisions to enter African market through our subsidiary
in Mauritius has proved to be extremely beneficial. The performance of the
Mauritian subsidiary, Ajanta Pharma (Mauritius) Limited (APML) has been
excellent in the recent years and it has established its niche in the
markets of Africa with strong brand equity. For the calendar year 2009,
APML has registered a growth of 36% in sales. APML has its own
manufacturing facility, which is having WHO GMP certification and approved
by FDA's of various African countries. APML has now entered the Philippines
market with a step down subsidiary and is planning to take a share in the
growing local market there.

Consistent Growth:

At Ajanta Pharma, the integration of pharma value chain has started showing
the effects with all round growth in all its markets. We have strengthened
our position in the markets we operate in and have built a strong
foundation for growth in coming years. The 19% growth in sales and 33%
growth in net profit (stand alone) is the confirmation of our belief in
mapping the complete pharma value chain. This excellent growth was the
result of dedicated efforts put in by a passionate and aligned team of
2000+ Ajantaites, who swear by Integrity, Respect for everyone and
Entrepreneurship. At Ajanta Pharma, Human Resource is the vital link
integrating different parts of complete pharma value chain.

REVENUE DISTRIBUTION

PAT 7%
Other Cost 28%
Material Cost 41%
Tax 1%
Interest 5%
Depreciation 5%
Staff Cost 13%

Overview:

Pharmaceutical industry globally is bracing itself for some fundamental
changes in the marketplace and is looking at newer ways to drive growth.
Boosting drug discovery potential, reducing time to market and squeeze
costs along the complete pharma value chain are some of the options being
evaluated and tried world over. We, at Ajanta Pharma, see this as a big
opportunity and have built strong brand equity with cost effective, best
quality products for the export markets.

India's population is growing rapidly, as is its economy - creating a large
middle class with the resources to afford quality medicines. Further,
India's epidemiological profile is changing, so demand is likely to
increase for drugs for cardio-vascular problems, disorders of the central
nervous system and other chronic diseases. These factors mean that India
represents a promising potential market for pharmaceutical manufacturers,
which was reflected in relatively stable growth in domestic formulation
market as compared to global turbulence. Government controls and volatility
in the foreign exchange rate movements remains the threat to the industry.
Our proactive approach and continuous thrust on innovation allows us to
overcome these threats.

Excellent internal control systems, supported by internal audit, enabled us
to improve our efficiency at all levels. We continue our efforts in meeting
our corporate social responsibilities in the form of eye camps, corrective
plastic surgery camps, blood donation camps, save the earth initiatives,
etc.

Cautionary Note:

Certain statements in the reports of the Board of Directors and
Management's discussions and analysis may be forward looking statements
within the meaning of applicable securities laws and regulations. Actual
results could differ materially from those expressed or implied since
company's operations are influenced by many external and internal factors
beyond the control of the company. The company assumes no responsibility to
publicly amend, modify or revise any of these statements on the basis of
any subsequent developments, information or events.