RISK IN RELATION TO FIRST ISSUE

This being the first issue of Equity Shares of the Company, there has been no formal market for the Equity Shares of the Company. TheIssue Price (as determined by the Company, in consultation with the Book Running Lead Managers (“BRLMs”) and Co-Book Running LeadManager (“CBRLM”), on the basis of assessment of market demand for the Equity Shares by way of book building) should not be taken to beindicative of the market price of the Equity Shares after the Equity Shares are listed. No assurance can be given regarding an active and/orsustained trading in the Equity Shares of the Company or regarding the price at which the Equity Shares will be traded after listing.

GENERAL RISKS

Investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds in this Issue unless theycan afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investmentdecision in this Issue. For taking an investment decision, investors must rely on their own examination of the Company and the Issueincluding the risks involved. The Equity Shares offered in the Issue have not been recommended or approved by the Securities and ExchangeBoard of India (“SEBI”), nor does SEBI guarantee the accuracy or adequacy of the contents of this Prospectus. Specific attention of theinvestors is invited to the summarized and detailed statements in Risk Factors beginning on page xi.

COMPANY’S ABSOLUTE RESPONSIBILITY

Biocon Limited, having made all reasonable inquiries, accepts responsibility for and confirms that this Prospectus contains all informationwith regard to Biocon Limited and the Issue, which is material in the context of the Issue, that the information contained in this Prospectusis true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein arehonestly held and that there are no other facts, the omission of which makes this Prospectus as a whole or any of such information or theexpression of any such opinions or intentions misleading in any material respect.

LISTING

The Equity Shares offered through this Prospectus are proposed to be listed on The National Stock Exchange of India Limited (“NSE”) andThe Stock Exchange, Mumbai (“BSE”). We have received in-principle approvals from these Stock Exchanges for the listing of our EquityShares pursuant to letters both dated February 5, 2004.

PROSPECTUSPlease read Section 60B of the Companies Act, 1956

Dated March 23, 2004100% Book Building Issue

BOOK RUNNING LEAD MANAGERS

DSP Merrill Lynch LimitedMafatlal Centre, 10th Floor, Nariman Point, Mumbai 400 021Tel: +91 22 5632 8000, Fax: +91 22 2204 8518Email: biocon_ipo@ml.com

Kotak Mahindra Capital Company LimitedBakhtawar, 3rd Floor, 229, Nariman Point, Mumbai 400 021Tel: +91 22 5634 1100, Fax: +91 22 2284 0492Email: biocon.ipo@kotak.com

CO BOOK RUNNING LEAD MANAGER REGISTRAR TO THE ISSUE

BIOCON LIMITED(Previously known as Biocon India Limited, subsequently renamed Biocon Limited on November 17, 2003)

(Our Company was incorporated on November 29, 1978 as a private limited company under the Companies Act, 1956. Our Company became apublic limited company on June 18, 2001)

Registered Office and Corporate Office: 20th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100Tel: +91 80 2852 3434; Fax: +91 80 2852 3423

Website: www.biocon.com; Email: bioconipo@biocon.com

PUBLIC ISSUE OF EQUITY SHARES COMPRISING FRESH ISSUE OF 10,000,000 EQUITY SHARES OF RS. 5/- EACHAT A PRICE OF RS. 315 FOR CASH AGGREGATING RS. 3,150 MILLION (REFERRED TO AS THE “ISSUE”).

THE ISSUE WOULD CONSTITUTE 10% OF THE FULLY DILUTED POST ISSUE PAID-UP CAPITAL OF THE COMPANY.

PRICE BAND: RS. 270 TO RS. 315 PER EQUITY SHARE OF FACE VALUE RS. 5/-In case of revision in the Price Band, the Bidding/Issue Period will be extended for three additional days after revision of Price Band. Anyrevision in the Price Band and the revised Bid/Issue Period, if applicable, will be widely disseminated by notification to the NSE and BSE, byissuing a press release, and also by indicating the change on the web site of the BRLMs and the CBRLM and at the terminals of the Syndicate.

In terms of Rule 19(2)(b) of the SCRR, this being an Issue for less than 25% of the post issue capital, the Issue is being made through the100% book building process with an allocation of 60% of the Issue size to Qualified Institutional Buyers, with a minimum of two millionsecurities being offered to the Retail Bidder and the minimum Issue size being Rs. 1000 million. Further, not less than 15% of the Issue shall beavailable for allocation on a proportionate basis to Non-Institutional Bidders and not less than 25% of the Issue shall be available for allocationon a proportionate basis to Retail Bidders, subject to valid Bids being received at or above the Issue Price.

ISSUE PROGRAM

BID/ISSUE OPENS ON MARCH 11, 2004 BID/ISSUE CLOSES ON MARCH 18, 2004

HSBC Securities and Capital Markets (India)Private Limited52/60 Mahatma Gandhi Road, Fort, Mumbai 400 001Tel: +91 22 2268 1284/5, Fax: +91 22 2263 1984Email: biocon_ipo@hsbc.co.in

Karvy Consultants LimitedKarvy House, 46, Avenue 4, Street No. 1, Banjara Hills,Hyderabad 500 034Tel: +91 40 2331 2454, Fax: +91 40 2331 1968Email: biocon@karvy.com

Biocon

TABLE OF CONTENTS

Definitions And Abbreviations ----------------------------------------------------------------------------------------------------- i

Glossary Of Technical And Industry Terms ------------------------------------------------------------------------------------- vi

Certain Conventions; Use Of Market Data--------------------------------------------------------------------------------------- viii

Forward-Looking Statements------------------------------------------------------------------------------------------------------- ix

Currency Of Presentation ---------------------------------------------------------------------------------------------------------- x

Risk Factors --------------------------------------------------------------------------------------------------------------------------- xi

Summary ------------------------------------------------------------------------------------------------------------------------------- 1

The Issue ------------------------------------------------------------------------------------------------------------------------------- 4

Summary Financial Data ------------------------------------------------------------------------------------------------------------ 5

General Information ------------------------------------------------------------------------------------------------------------------ 11

Capital Structure --------------------------------------------------------------------------------------------------------------------- 23

Objects Of The Issue----------------------------------------------------------------------------------------------------------------- 30

Industry Overview -------------------------------------------------------------------------------------------------------------------- 35

Business-------------------------------------------------------------------------------------------------------------------------------- 40

History And Certain Corporate Matters ------------------------------------------------------------------------------------------ 64

Management--------------------------------------------------------------------------------------------------------------------------- 70

Promoters ------------------------------------------------------------------------------------------------------------------------------ 79

Subsidiaries --------------------------------------------------------------------------------------------------------------------------- 81

Related Party Transactions--------------------------------------------------------------------------------------------------------- 84

Selected Financial Data (As Per Unconsolidated Financial Statements Under Indian GAAP)-------------------------- 86

Management’s Discussion And Analysis Of Financial Condition And Results Of Operations------------------------- 92

Regulations And Policies ------------------------------------------------------------------------------------------------------------ 118

Government Approvals --------------------------------------------------------------------------------------------------------------- 123

Outstanding Litigation --------------------------------------------------------------------------------------------------------------- 129

Material Developments--------------------------------------------------------------------------------------------------------------- 138

Dividend Policy ------------------------------------------------------------------------------------------------------------------------ 139

Other Regulatory Disclosures ----------------------------------------------------------------------------------------------------- 140

Terms Of The Issue ------------------------------------------------------------------------------------------------------------------ 141

Issue Structure ----------------------------------------------------------------------------------------------------------------------- 143

Issue Procedure ----------------------------------------------------------------------------------------------------------------------- 144

Basis For Issue Price ---------------------------------------------------------------------------------------------------------------- 159

Statutory And Other Information -------------------------------------------------------------------------------------------------- 162

Main Provisions Of Articles Of Association Of Biocon Limited ------------------------------------------------------------- 168

Material Contracts And Documents For Inspections--------------------------------------------------------------------------- 178

Financial Information ---------------------------------------------------------------------------------------------------------------- 180

Declaration ---------------------------------------------------------------------------------------------------------------------------- 352

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DEFINITIONS AND ABBREVIATIONS

Definitions

Term Description

“Biocon”, the “Company”, Unless the context otherwise requires, refers to, Biocon Limited, a public limited company “our Company”, “Biocon incorporated under the Companies Act, together with Syngene, Clinigene and BBPL.Group”, “our Group”,“we”, “us” or “Bioconand its subsidiaries”

Issue Related Terms and Abbreviations

Term Description

AGM Annual General Meeting

AG Accountant General of Karnataka

Allocation Amount The amount payable by a Bidder on or prior to the Pay-in Date after deducting any Bid Amounts thatmay already have been paid by such Bidder

AIG AOF or Investor AOF HS Mauritius Ltd (previously known as Albacore Investments Limited), a company establishedunder the laws of Mauritius with its registered office at 3rd Floor, Les Cascades, Edith Cavell Street,Port Louis, Mauritius and duly registered as a FVCI, which is a wholly owned subsidiary of AIG AsianOpportunity Fund L.P., a Cayman Islands limited partnership

Articles/ Articles of Association of Biocon LimitedArticles of Association

AS Accounting Standards as issued by the Institute of Chartered Accountants of India

Auditors Statutory auditors of the Biocon Group being, S.R. Batliboi & Associates, Chartered Accountants forIndian GAAP and Ernst & Young auditors for US GAAP. The auditors commenced their auditengagements with the Biocon Group in fiscal 2003.

Banker(s) to the Issue ABN Amro Bank N.V., Kotak Mahindra Bank Limited, The Hongkong and Shanghai Banking CorporationLimited, HDFC Bank Limited and Canara Bank

BCZ Biochemizyme India Limited, a company incorporated under the Companies Act with its registeredoffice at 20th KM Hosur Road, Electronics City P.O., Bangalore 560 100, which was merged into BioconLimited with effect from April 1, 1999

BBPL/Biocon Biocon Biopharmaceuticals Private Limited, a company incorporated under the Companies ActBiopharmaceuticals with its registered office at 20th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100, which is a

joint venture between our Company and CIMAB

Bid An offer made during the Bidding Period by a prospective investor to subscribe to the Equity Shares ofthe Company at a price within the Price Band, including all revisions and modifications thereto

Bid Amount The highest value of the optional Bids indicated in the Bid cum Application Form and payable by theBidder on submission of the Bid in the Issue

Bid / Issue Closing Date The date after which the Syndicate will not accept any Bids for the Issue, which shall be notified in awidely circulated English national newspaper, a Hindi national newspaper and a Kannada newspaper

Bid cum Application Form The form in terms of which the Bidder shall make an offer to purchase Equity Shares of our Companyin terms of this Prospectus

Bid / Issue Opening Date The date on which the Syndicate shall start accepting Bids for the Issue, which shall be the date notifiedin a widely circulated English national newspaper, a Hindi national newspaper and a Kannada newspaper

Bidder Any prospective investor who makes a Bid pursuant to the terms of this Prospectus

Bidding Period/ Issue The period between the Bid/ Issue Opening Date and the Bid/ Issue Closing Date inclusive of both daysPeriod and during which prospective Bidders can submit their Bids

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Biocon

BIFR Board for Industrial and Financial Reconstruction

Board of Directors/ Board The Board of Directors of Biocon Limited or a committee thereof

Book Building Process/ Book building route as provided in Chapter XI of the SEBI Guidelines, in terms of which thisMethod Issue is being made

BQIL Biocon Bioproducts India Limited (previously known as Biocon Quest India Limited), a companyincorporated under the Companies Act with its registered office at 20th K.M. Hosur Road, ElectronicCity P.O., Bangalore 560 100, which was merged into Biocon Limited with effect from April 1, 1999

BRLMs Book Running Lead Managers to the Issue, in this case being DSP Merrill Lynch Limited and KotakMahindra Capital Company Limited

BSE The Stock Exchange, Mumbai

BWSSB Bangalore Water Supply and Sewerage Board

CAN/ Confirmation of Means the note or advice or intimation of allocation of Equity Shares sent to the Bidders whoAllocation Note have been allocated Equity Shares after discovery of the Issue Price in accordance with the Book Building

Process

CBRLM Co-Book Running Lead Manager to the Issue, in this case being HSBC Securities and Capital Markets(India) Private Limited

CDSL Central Depository Services (India) Limited

CIMAB CIMAB S.A, a company organised and existing under the laws of Cuba with its principal office at 206,St., 1926 between 19 and 21 Playa, Havana City, Cuba

Clinigene Clinigene International Private Limited, a wholly owned subsidiary of the Company incorporated underthe provisions of the Companies Act and with its registered office at 20th K.M. Hosur Road, ElectronicCity P.O., Bangalore 560 100

Companies Act The Companies Act, 1956, as amended from time to time

CRISIL CRISIL Limited (previously known as The Credit Rating Information Services of India Limited) withits registered office at ‘CRISIL House’, Plot No. 121/122, Andheri Kurla Road, Andheri (East), Mumbai- 400 093.

CSEZ Cochin Special Economic Zone

Cut-off Price The Issue Price finalised by the Company in consultation with the BRLMs and CBRLM

Depositories Act The Depositories Act, 1996, as amended from time to time

Depository A depository registered with SEBI under the SEBI (Depositories and Participant) Regulations, 1996, asamended from time to time

Depository Participant A depository participant as defined under the Depositories Act

Designated Date The date on which funds are transferred from the Escrow Account to the Public Issue Account after theProspectus is filed with the RoC, following which the Board of Directors shall allot Equity Shares tosuccessful Bidders

Designated Stock Exchange NSE

Directors The directors of Biocon Limited from time to time

DSPML DSP Merrill Lynch Limited

EGM Extraordinary General Meeting

EPS Earnings per Equity Share

Equity Shares Equity shares of the Company of face value of Rs. 5/- each unless otherwise specified in the contextthereof

Term Description

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Escrow Account Account opened with Escrow Collection Bank(s) and in whose favour the Bidder will issue cheques ordrafts in respect of the Bid Amount when submitting a Bid and the Allocation Amount paid thereafter

Escrow Agreement Agreement entered into by the Company, the Registrar, BRLMs, CBRLM, the Syndicate Members andthe Escrow Collection Bank(s) for collection of the Bid Amounts and where applicable refunds of theamounts collected to the Bidders

Escrow Collection Bank(s) The banks which are clearing members and registered with SEBI as Banker to the Issue with whom theEscrow Account for the Issue will be opened

ESOP Scheme The Biocon India Limited Employee Stock Option Plan 2000 as adopted by the resolution of the Boardof Directors of the Company on July 27, 2001 and formulated by the Company

ESOP Trust The trust by the name of Biocon India Limited Employees Welfare Trust established by Ms. KiranMazumdar Shaw as the Settlor and Mr. John Shaw, Mr. Murali Krishnan K.N. and Dr. Arun Chandavarkaron May 18, 2001 for the purpose of implementing the ESOP Scheme

FCNR Account Foreign Currency Non Resident Account

FEMA Foreign Exchange Management Act, 1999, as amended from time to time, and the regulations framedthereunder

FERA Foreign Exchange Regulation Act, 1973, now repealed

FII/ Foreign Foreign institutional investor (as defined under SEBI (Foreign Institutional Investors)Institutional Investor Regulations, 1995) registered with SEBI under applicable laws in India

Financial year/fiscal/FY The twelve months ended March 31 of a particular year

FIPB Foreign Investment Promotion Board, Ministry of Finance, Government of India

First Bidder The Bidder whose name appears first in the Bid cum Application Form or Revision Form

FVCI Foreign venture capital investor, registered with SEBI under the SEBI (Foreign Venture Capital Investor)Regulations, 2000

GIR Number General Index Registry Number

Glentec International Glentec International (previously known as Rosemont Investments Limited), a company establishedunder the laws of Mauritius with its registered office at 10, Frere Felix de Valois Street, Port Louis,Mauritius

HLX Helix Biotech Limited, a company incorporated under the Companies Act with its registered office at20th KM, Hosur Road, Electronic City P.O., Bangalore 560 100, which was merged into Biocon Limitedwith effect from April 1, 1999

HSBC HSBC Securities and Capital Markets (India) Private Limited

HUF Hindu Undivided Family

ICI Imperial Chemical Industries Plc and its affiliate ICI Omicron B.V., a company established under thelaws of Netherlands with its registered office at Merseyweg 10, 3197 KG Botlek, Rotterdam, TheNetherlands

Identified Shareholders Collectively AIG AOF, a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. and thePromoters

Indian GAAP Generally accepted accounting principles in India

IPO Initial public issue/offering

IPO Committee A committee of the Board of Directors of our Company comprising Ms. Kiran Mazumdar-Shaw,Mr. John Shaw, Mr. Suresh Talwar and Mr. Santosh Senapati (as alternate Director to Ms. Ada K.H.Tse)appointed for the purpose of carrying out various actions in relation to the Issue

IRR Internal rate of return

Term Description

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Issue The fresh issue of 10,000,000 new Equity Shares of Rs. 5/- each at the Issue Price by the Companyunder this Prospectus

Issue Price The final price at which Equity Shares will be issued and allotted in terms of the Prospectus. The IssuePrice will be decided by the Company in consultation with the BRLMs and CBRLM on the PricingDate

I.T. Act The Income-Tax Act, 1961, as amended from time to time, except as stated otherwise

IVF India Value Fund Trustee Company Private Limited, a company established under the Companies Actwith its registered office at 12 Technopolis Park, Mahakali Caves Road, Andheri (West),Mumbai-400 093, a duly registered VCF managed by GW Capital Private Limited with its registeredoffice at 12 Technopolis Park, Mahakali Caves Road, Andheri (West), Mumbai -400 093

KIADB Karnataka Industrial Areas Development Board

KMCC Kotak Mahindra Capital Company Limited

KPTCL Karnataka Power Transmission Corporation Limited

Margin Amount The amount paid by the Bidder at the time of submission of his/her Bid, being 0% to 100% of the BidAmount

Memorandum/ Memorandum The Memorandum of Association of our Companyof Association

NAV Net Asset Value

Non Institutional Bidders All Bidders that are not QIBs or Retail Bidders and who have Bid for Equity Shares for an amount morethan Rs. 50,000

Non Institutional Portion The portion of the Issue being 1,500,000 Equity Shares of Rs. 5/- each available for allocation to NonInstitutional Bidders

Non Residents All Bidders who are not NRIs or FIIs and are not persons resident in India

NRE Account Non Resident External Account

NRI/ Non Resident Indian A person resident outside India, as defined in FEMA and who is a citizen of India or a Person of IndianOrigin, and as defined under FEMA (Transfer or Issue of Security by a Person Resident Outside India)Regulations, 2000

NSDL National Securities Depository Limited

NSE National Stock Exchange of India Limited

O.S. No. Original Suit number allotted when a civil suit is first filed in an Indian court having original jurisdiction

PAN Permanent Account Number

Pay-in Date Bid Closing Date or the last date specified in the CAN sent to Bidders, as applicable

Pay-in-Period This term means (i) with respect to Bidders whose payment has not been waived by the Syndicate andare therefore required to pay the maximum Bid Amount into the Escrow Account, the period commencingon the Bid/Issue Opening Date and extending until the Bid/Issue Closing Date, and (ii) with respect toBidders whose payment has been initially waived by the Syndicate and are therefore not required topay the Bid Amount into the Escrow Account on or prior to the Bid/Issue Closing Date, the periodcommencing on the Bid/Issue Opening Date and extending until the closure of the Pay-in Date

Price Band Price band of a minimum price (floor of the price band) of Rs. 270 and the maximum price (cap of theprice band) of Rs. 315 and includes revisions thereof

Pricing Date The date on which Company in consultation with the BRLMs and CBRLM finalizes the Issue Price

Promoters or Sponsors Ms. Kiran Mazumdar-Shaw, Mr. John Shaw and Glentec International

Prospectus The Prospectus to be filed with the RoC containing, inter alia, the Issue Price that is determined at theend of the Book Building process, the size of the Issue and certain other information

Public Issue Account Account opened with the Bankers to the Issue to receive monies from the Escrow Account for the Issueon the Designated Date

Term Description

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Qualified Institutional Public financial institutions as specified in Section 4A of the Companies Act, FIIs registered

Buyers or QIBs with SEBI, scheduled commercial banks, mutual funds registered with SEBI, multilateral and bilateraldevelopment financial institutions, venture capital funds registered with SEBI, foreign venture capitalinvestors registered with SEBI, state industrial development corporations, insurance companies registeredwith Insurance Regulatory and Development Authority, provident funds with minimum corpus of Rs.250 million and pension funds with minimum corpus of Rs. 250 million

QIB Portion The portion of the Issue being 6,000,000 Equity Shares of Rs. 5/- each available for allocation to QIBs

RBI Reserve Bank of India

RHP or Red Herring The Red Herring Prospectus which will be filed with RoC at least 3 days before the Bid/ Issue

Prospectus Opening Date

Registered Office of our 20th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100

Company

Registrar to the Issue Registrar to the Issue, in this case being Karvy Consultants Limited having its registered office as indicatedon the cover page of this Prospectus

Retail Bidder(s) Individual Bidders (including HUFs and NRIs) who have not Bid for Equity Shares for an amount morethan or equal to Rs. 50,000, in any of the bidding options in the Issue

Retail Portion The portion of the Issue being 2,500,000 Equity Shares of Rs. 5/- each available for allocation to RetailBidder(s)

Revision Form The form used by the Bidders to modify the quantity of Equity Shares or the Bid Price in any of theirBid cum Application Forms or any previous Revision Form(s)

RoC Registrar of Companies, Karnataka at Bangalore

SCRA Securities Contracts (Regulation) Act, 1956, as amended from time to time

SCRR Securities Contracts (Regulation) Rules, 1957, as amended from time to time

SEBI The Securities and Exchange Board of India constituted under the SEBI Act

SEBI Act Securities and Exchange Board of India Act, 1992, as amended from time to time

SEBI Guidelines SEBI (Guidelines for Disclosure and Investor Protection) 2000 issued by SEBI effective from January27, 2000, as amended, including instructions and clarifications issued by SEBI from time to time

Stock Exchanges NSE and BSE

Syndicate The BRLMs, the CBRLM and the Syndicate Members

Syndicate Agreement Agreement between the Syndicate, and the Company

Syndicate Members Kotak Securities Limited and Karvy Stock Broking Limited

Syngene Syngene International Private Limited, a subsidiary of the Company incorporated under the provisionsof the Companies Act with its registered office at 20th K.M. Hosur Road, Electronic City P.O.,Bangalore 560 100

TRS/ Transaction The slip or document issued by the Syndicate to the Bidder as proof of registration of the Bid

Registration Slip

Underwriters The BRLMs, the CBRLM and Syndicate Members

Underwriting Agreement The Agreement between the Underwriters and our Company to be entered into on the Pricing Date

Unilever Unilever Overseas Holding B.V., a company established under the laws of Netherlands with its registeredoffice at Weena 455, 3013 Al Rotterdam, The Netherlands and an affiliate of the Unilever Group

US GAAP Generally accepted accounting principles in the United States

VCF Venture capital fund, registered with SEBI under the SEBI (Venture Capital) Regulations, 1996

Welfare Trust The trust by the name of The Biocon India Limited Welfare Trust established by Ms. Kiran MazumdarShaw as the Settlor and Mr. John Shaw, Mr. Murali Krishnan K.N. and Dr. Arun Chandavarkar on April28, 2003 for the purpose of administering the shares granted to the Welfare Trust transferred from thePromoters.

Term Description

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GLOSSARY OF TECHNICAL AND INDUSTRY TERMS

Term Description

ANDA Abbreviated New Drug Application

API Active Pharmaceutical Ingredient

BE/BA Bio Equivalence and Bio Availability

CAGR Compounded Annual Growth Rate

CAP College of American Pathologists

CDSCO Central Drug Standard Control Organisation

CENVAT Central Value Added Tax

CGMP Current Good Manufacturing Practice

CoS Certificate of Suitability

CRO Contract Research Organisation

DCGI Drugs Controller General of India

DBT Department of Biotechnology, Ministry of Science & Technology, Government of India

DMF Drug Master File

DNA Deoxyribose Nucleic Acid

DPCO Drugs (Prices Control) Order, 1995

EDMF European Drug Master File

EDQM European Directorate for the Quality of Medicines

EMEA European Agency for the Evaluation of Medicinal Products

EOU Export Oriented Unit

EPCG Export Promotion of Capital Goods Scheme prescribed under the Indian Export Import Policy of 2002-2007

EP European Patent

EPO Recombinant Erythropoetin

EU European Union

FTE Full Time Equivalent

GCP Good Clinical Practice

GCSF Granulocite Colony Stimulating Factor

GDP Gross Domestic Product

GEAC Genetic Engineering Approval Committee

HR3 Thera CIM hR3 Ant-egf Monoclonal Antibody

ICMR Indian Council of Medical Research

ICRA Investment Information and Credit Rating Agency

IMS IMS Health Incorporated

INDA Investigational New Drug Application

kl Kilolitre

MPA Mycophenolic Acid

MMF Mycophenolate Mofetil

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NDA New Drug Application

NPPA National Pharmaceutical Pricing Authority

OTC Over-the-counter

PCT Patent Cooperation Treaty

RCGM Review Committee on Genetic Manipulation

RWTUV RWTUV Systems GmbH; for ISO Certification

rDNA Recombinant DNA

R&D Research and Development

SKO Super Kerosene Oil

TRIPs Trade-related Aspects of Intellectual Property Rights

US FDA United States Food and Drug Administration

WHO World Health Organisation

WIPO World Intellectual Property Organisation

WTO World Trade Organisation

Term Description

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CERTAIN CONVENTIONS; USE OF MARKET DATA

Unless stated otherwise, the financial data in this Prospectus is derived from our unconsolidated financial statements preparedin accordance with Indian GAAP included elsewhere in this Prospectus. Unless stated otherwise, references to consolidatedfinancial information is to the consolidated financial information under Indian GAAP. Our fiscal year commences on April 1and ends on March 31. In this Prospectus, any discrepancies in any table between the total and the sums of the amountslisted are due to rounding.

All references to “India” contained in this Prospectus are to the Republic of India, all references to the “US” or the “U.S.” orthe “USA”, or the “United States” are to the United States of America, and all references to “UK” are to the United Kingdom.

All references to “Rupees” or “Rs.” are to Indian Rupees, the official currency of the Republic of India. All references to“US$”, “U.S. Dollar” or “US Dollars” are to United States Dollars, the official currency of the United States of America.

For additional definitions, please refer to the section entitled “Definitions and Abbreviations” on page i of this Prospectus.

Industry data used throughout this Prospectus has been obtained from industry publications. Industry publications generallystate that the information contained in those publications has been obtained from sources believed to be reliable but thattheir accuracy and completeness are not guaranteed and their reliability cannot be assured. Although we believe industrydata used in this Prospectus is reliable, it has not been independently verified.

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FORWARD-LOOKING STATEMENTS

This Prospectus contains certain “forward-looking statements”. These forward looking statements can generally be identifiedby words or phrases such as “aim”, “anticipate”, “believe”, “expect”, “estimate”, “intend”, “objective”, “plan”, “project”,“shall”, “will”, “will continue”, “will pursue” or other words or phrases of similar import. Similarly, statements that describeour objectives, plans or goals also are forward-looking statements.

All forward looking statements are subject to risks, uncertainties and assumptions about us that could cause actual resultsto differ materially from those contemplated by the relevant forward-looking statement. Important factors that could causeactual results to differ materially from our expectations include, among others:

■ General economic and business conditions in India;

■ Our ability to successfully implement our strategy, our research and development efforts, our growth and expansionplans and technological changes;

■ Changes in the value of the Rupee and other currency changes;

■ Changes in the Indian and international interest rates;

■ Changes in laws and regulations that apply to the Indian and global biotechnology and pharmaceuticals industries;

■ Increasing competition in and the conditions of the Indian biotechnology and pharmaceuticals industries;

■ Changes in political conditions in India; and

■ Changes in the foreign exchange control regulations in India.

For further discussion of factors that could cause our actual results to differ, please refer to the section entitled “Risk Factors”beginning on page xi of this Prospectus. By their nature, certain market risk disclosures are only estimates and could bematerially different from what actually occurs in the future. As a result, actual future gains or losses could materially differfrom those that have been estimated. Neither our Company, our Directors, any member of the Syndicate nor any of theirrespective affiliates have any obligation to update or otherwise revise any statements reflecting circumstances arising afterthe date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition.In accordance with SEBI requirements, our Company and the BRLMs and CBRLM will ensure that investors in India areinformed of material developments until such time as the grant of listing and trading permission by the Stock Exchanges.

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CURRENCY OF PRESENTATION

This Prospectus contains translations of some Rupee amounts into U.S. Dollars which should not be construed as arepresentation that those Rupee or U.S. Dollar amounts could have been, or could be, converted into U.S. Dollars or IndianRupees, as the case may be, at any particular rate, the rates stated below, or at all. Except as otherwise stated in this Prospectus,all translations from Indian Rupees to U.S. Dollars contained in this Prospectus have been based on the noon buying rate inthe City of New York on December 31, 2003 for cable transfers in Rupees as certified for customs purposes by the FederalReserve Bank of New York. The noon buying rate on February 18, 2004 was Rs. 45.24 per US$ 1.0.

The following table sets forth, for each period indicated, information concerning the number of Rupees for which one U.S.Dollar could be exchanged at the noon buying rate in the City of New York on the last business day of the particular periodfor cable transfers in Rupees as certified for customs purposes by the Federal Reserve Bank of New York. The row titledaverage in the table below is the average of the daily noon buying rate for each day in the period.

Year ended Year ended Year ended Nine months endedMarch 31, 2001 March 31, 2002 March 31, 2003 Dec. 31, 2003

Period End Rs. 46.85 Rs. 48.83 Rs. 47.53 Rs. 45.55

Average Rs. 45.74 Rs. 47.71 Rs. 48.43 Rs. 46.20

Low Rs. 47.47 Rs. 48.91 Rs. 49.07 Rs. 47.46

High Rs. 43.63 Rs. 46.58 Rs. 47.53 Rs. 45.29

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RISK FACTORS

An investment in equity shares involves a high degree of risk. You should carefully consider all of the information in thisProspectus, including the risks and uncertainties described below, before making an investment in our Equity Shares. Ifany of the following risks actually occur, our business, results of operations and financial condition could suffer, the tradingprice of our Equity Shares could decline, and you may lose all or part of your investment. Unless specified or quantified inthe relevant risk factors mentioned below, we are not in a position to ascertain the financial and other implications of anyof the other risks mentioned below

Internal Risk Factors

Our portfolio of statins contribute to over half of our consolidated total income; any decline in the overall sales of ourstatins would reduce our profitability.

In fiscal 2003 and the first nine months of fiscal 2004, our sales of active pharmaceutical ingredients, or APIs, for the popularcholesterol-lowering drugs lovastatin, simvastatin, pravastatin and atorvastatin accounted for 42.7% and 54.5% of our totalconsolidated operating income respectively. Because our business is currently highly focussed on statins, a reduction inrevenue from sales of statins would have a significant impact on our overall profitability. The introduction of other drugs oralternative medical treatments, or an increase in the number of global suppliers of statins, could each have an adverse impacton the revenue and profits we derive from statin sales.

Any inability to manage our growth could adversely affect our business prospects and reduce our profitability.

We have grown significantly in recent years. From the beginning of fiscal 2001 through December 31, 2003, the number of ourfull-time employees has grown from 385 to 854. In addition, we have and continue to undertake major capital expenditureplans.

We expect our growth to place significant demands on our management and other resources. It will require us to continue todevelop and enhance our operational, financial and other internal controls. Inability to manage growth would adversely affectour business prospects and results of operations.

We have significant planned capital expenditures; our capital expenditure plans may not yield the benefits intended.

Our operations, especially our biopharmaceuticals business, require significant capital expenditures to increase capacity. Wehave commenced a Rs. 4,134.0 million capital expenditure plan aimed at significantly increasing our fermentation and syntheticconversion capacities to meet the growing demand for our portfolio of statins and other APIs. We also have other plannedcapital expenditures. Please refer to the section entitled “Business – Future Manufacturing Facilities” beginning on page 60and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidityand Capital Resources – Capital Expenditure” beginning on page 113. The figures in our capital expenditure plans are basedon management estimates and have not been appraised by any bank, financial institution or other independent organisation.In addition, our capital expenditure plans are subject to a number of variables, including possible cost overruns; construction/development delays or defects; receipt of critical governmental approvals including approvals of drug regulators in our targetmarkets; availability of financing on acceptable terms; and changes in management’s views of the desirability of currentplans, among others. In view of the reasons stated above, we cannot assure you that we will be able to execute our capitalexpenditure plans as contemplated. If we experience significant delays or mishaps in the implementation of our capitalexpenditure plans or if there are significant cost overruns, then the overall benefit of such plans to our revenues and profitabilitymay decline. To the extent that completed capital expenditure does not produce anticipated or desired revenue or cost-reductionoutcomes, our profitability and financial condition will be negatively affected.

Biocon Limited is responsible for the financing of Biocon Biopharmaceuticals’ proposed production facilities for biologicals.In this regard, Biocon Limited is required to make a US$5.1 million equity investment in Biocon Biopharmaceuticals andarrange or guarantee debt financing for Biocon Biopharmaceuticals for the balance of the investment. We have not yetdetermined the capital expenditure requirements of this company, although Biocon’s board of directors has given preliminaryapproval for financing capital expenditures of up to Rs. 850.0 million for the joint venture. Capital expenditure requirements ofBiocon Biopharmaceuticals may vary significantly from amounts currently approved by Biocon’s board of directors and aresubject to the same variables described above.

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We face growing and new competition that may adversely affect our competitive position and our profitability.

We operate in a highly competitive environment. Much of our recent revenue growth is the result of growth in the sales ofstatins in the US and European markets. Significant additional competition in the markets where we sell our statins and otherAPIs will likely erode our market shares and result in reduced prices and thereby negatively affect our revenues and profitability.Competitors from countries such as China may enjoy many of the same advantages that we do in biopharmaceuticals andmay even have lower cost structures, enabling them to compete vigorously on the basis of price.

In our enzyme export markets, global producers are significantly larger than us and have significantly stronger market positions,production capacities and greater financial resources than we do. We must differentiate ourselves by developing novel enzymeproducts and products with enhanced or unique characteristics to differentiate our products from those of our competitors.

In custom and clinical research, we face significant competition from both Indian and foreign players. These market participantsinclude other small, limited-service providers and a number of full-service global drug development companies. The largercompetitors have a much broader portfolio of business, greater resources and more experience than smaller companies suchas Syngene and Clinigene. Generally, the industry has few financial barriers to entry, and hence newer, smaller entities withspecialty focuses, such as those aligned to a specific disease or therapeutic area, are also able to compete for clients.

The growth in demand for our statins has required us to increasingly rely on outsourcing of intermediates for our APIproduction, which has significantly increased our raw materials costs in respect of important products.

On account of the strong growth in demand for our statins, since January 2003 we have faced growing capacity constraints,which have resulted in increased outsourcing of intermediates in the production of biopharmaceuticals. As a result, rawmaterials costs with respect to these products have increased over the corresponding period. Our capital expenditure plansare aimed at expansion of our fermentation and synthetic conversion capacities, principally for statins. However, due to thegrowing demand for statins, we cannot assure you that planned capacity expansion will enable us to reduce the outsourcingof intermediates in API production and thereby reduce our raw materials costs.

If we become subject to significant legal action, we may incur substantial costs related to litigation. We currently carry noproducts liability insurance.

The pharmaceuticals industry has been subject to significant product liability, intellectual property and other litigation. Manyof these actions involve large claims and significant defence costs. A growing portion of our API sales are to the UnitedStates market, where standards of care are very high and products liability and other claims can be relatively easy to pursue.We currently carry no products liability insurance with respect to our API and other businesses. Claims made against uscould result in substantial liability, which would have a material adverse effect on our results of operations, cash flows andfinancial condition.

We may also face significant liability for injuries incurred in connection with Clinigene’s human clinical trials.

We may not be able to develop economical non-infringing processes for new APIs, which would prevent us from sellingthose products.

In addition to patents on pharmaceutical products, many drug innovators and others make proprietary claims with respect tothe processes for the manufacture of pharmaceutical products. In order to sell our APIs into markets where process patentshave been issued or sought, we must develop non-infringing processes for their manufacture or an existing process mustcome off patent or be determined to be non-patentable. We cannot assure you that we will be able to develop economicalprocesses that are non-infringing in the key markets of new target APIs. Failure to do so would prevent us from selling thosetarget APIs in the key markets, which could have a material adverse effect on our business prospects.

A limited number of customers and clients account for a large percentage of our operating revenues, and the loss of one ormore of them could significantly affect our revenues and profitability or the revenues and profitability of our individualbusinesses.

We have historically earned, and believe that in the future we will continue to earn, a significant portion of our revenues froma limited number of customers and clients. The following table sets forth certain information on the contribution of our topcustomers to our revenues:

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% contribution of top 10 customers/clients to total % contribution of top 10 customers/clients toconsolidated operating income (for all businesses) consolidated operating income of each business

Bus iness Fiscal 2003 First Nine Months of Fiscal 2003 First Nine Months ofFiscal 2004 Fiscal 2004

Biopharmaceuticals 33.8% 45.9% 47.4% 56.5%

Enzymes 8.2 5.2 43.9 42.9

Custom Research 7.5 5.1 79.4 76.5

In addition, our top two biopharmaceuticals customers accounted for 12.2% and 6.0% of fiscal 2003 total consolidated operatingincome, and 13.4% and 10.3% of total consolidated operating income in the first nine months of fiscal 2004.

There are a number of factors, other than our performance, that could cause the loss of a customer or client and that may notbe predictable. In biopharmaceuticals, there is the risk that significant customers that are generic drug producers may losenecessary regulatory approvals in key markets with respect to products, which use our APIs. This would likely result in asignificant reduction in orders from them for such APIs. If we were to lose one or more of our major customers or clients or ifthey significantly reduce their business with us, our revenues and profitability or the revenues and profitability of our individualbusiness lines could be affected adversely and significantly.

We plan to enter the domestic Indian market for recombinant human insulin with our own branded formulation in the firsthalf of calendar year 2004, which would be our first branded pharmaceutical product.

To succeed in selling recombinant human insulin with our own branded formulation and certain other drugs we may developas branded formulations, we will have to develop a domestic sales capability for these products and will have to support theproducts’ brand and image among hospitals, clinics, doctors and patients. These are new activities for us and we cannotassure you that we will succeed in them.

Our strategy to eventually develop and commercialise novel drugs will subject us to significantly greater risks than ourcurrent pharmaceuticals business.

The development of novel drugs is significantly more uncertain, lengthy and costly and dependent on more factors outsideour control than the development of the active pharmaceutical ingredients we currently sell, all of which were discovered byother companies. Products that appear promising in the early phases of development may fail to reach the market for numerousreasons, including, but not limited to the following:

■ products may fail to receive necessary regulatory approvals;

■ products may turn out to be uneconomical to commercialise because of manufacturing costs or other factors;

■ products may be found to be ineffective or to have harmful side effects in preclinical or clinical testing; and

■ we may not successfully complete clinical trials for our products within any specific time period, or at all, for a variety ofreasons, such as our inability to attract a sufficient number of investigators, our inability to enrol and maintain a sufficientnumber of patients in the clinical trials and suspension of the trials by regulatory authorities.

These factors may also lead to gaps in the product development pipeline and delays between the approval of one productand approval of the next new product. We cannot assure you that we will be able to develop proprietary products on aprofitable basis or otherwise.

The success of our innovative processes and products depends on the effectiveness of our patents and confidentialityagreements to defend our intellectual property rights.

Our success with our innovative processes and products depends, in part, on our ability to protect our current and futureinnovations and to defend our intellectual property rights. If we fail to adequately protect our intellectual property, competitorsmay manufacture and market products similar to ours. We have been issued several patents covering our innovative processesand products, and have filed, and expect to continue to file, patent applications seeking to protect newly developedtechnologies and products in various countries, including the United States. Any existing or future patents issued to orlicensed by us may not provide us with any competitive advantages for our processes or products or may even be challenged,invalidated or circumvented by competitors. In addition, such patent rights may not prevent our competitors from developing,

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using or commercialising processes or products that are similar or functionally equivalent to our innovations.

We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation that we seek toprotect, in part, by confidentiality agreements with licensees, suppliers, employees and consultants. It is possible that theseagreements will be breached, and we may not have adequate remedies for any such breach. Disputes may arise concerningthe ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, our trade secrets andproprietary technology may otherwise become known or be independently developed by our competitors in full or in part.

Following India’s adoption of product patents for pharmaceuticals, we would lose certain advantages associated withcommercialising production processes before expiry of product patents.

Currently, because India does not grant or recognize pharmaceutical product patents, we are able to develop and sell APIswhile those products remain on patent in other countries. Selling products in unregulated markets, prior to product patentexpiry in the regulated markets, allows us to defray our development costs and introduce products into regulated marketssoon after patent expiry or invalidation. The advantages we currently enjoy in developing processes for pharmaceuticalproducts patented in the United States and the European Union will begin to wane following India’s adoption of pharmaceuticalproduct patents at the beginning of 2005. Please refer to the section entitled “Business – Intellectual Property” beginning onpage 56. From that time, we will not be able to sell in India or elsewhere pharmaceuticals whose patents are recognized inIndia, unless and until these patents expire or are invalidated. If we choose to develop these pharmaceuticals for the genericsmarkets, our development costs in respect of these products will be higher and our time to market will likely be longer.

If we are unable to enrol suitable participants for the clinical trials of our clients, our clinical development business maysuffer.

The clinical research business of our subsidiary Clinigene is dependent upon our ability to enrol participants for the clinicaltrials we are managing. These clinical trials rely upon the ready accessibility and willing participation of volunteer subjects.These subjects generally include volunteers from the communities in which the studies are conducted. Although to datethese communities have provided a substantial pool of potential subjects for research studies, there may not be a sufficientnumber of participants available with the traits necessary to conduct our clinical trials in the future. If multiple organizationsare conducting similar trials and competing for participants, it could also make our recruitment efforts more difficult. If we areunable to enrol suitable and willing participants on a consistent basis, it would have an adverse effect on the trials beingmanaged by our clinical development business, which in turn could have a material adverse effect on our business.

Our custom and clinical research businesses are subject to some additional risks.

Our custom and clinical research businesses are subject to the following additional risks:

■ Our contracts are generally terminable on short or no notice. Termination of a large contract for services or multiplecontracts for services could adversely affect our revenue and profitability. In addition, our clients generally retain us onan engagement-by-engagement basis. After we complete a project for a client we do not know whether the same clientwill retain us in the future for additional projects. A client that accounts for a significant portion of our revenues in agiven period may not generate a similar amount of revenues, if any, in subsequent periods. Since our operating expensesare relatively fixed and cannot be reduced on short notice to compensate for unanticipated variations in the number orsize of engagements in progress, we may continue to incur costs and expenses based on our expectations of futurerevenues.

■ In some of our contracts, we are not paid unless we achieve certain goals or milestones. This can result in the incurrenceof costs without corresponding revenue generation.

If we improperly handle any of the dangerous materials used in our business and accidents result, we could face significantliabilities that would lower our profits.

We handle explosive and combustible materials. If improperly handled or subjected to the unsuitable conditions, these materialscould hurt our employees and other persons, cause damage to our properties and harm the environment. This, in turn, couldsubject us to significant disruption in our business, legal or regulatory action, which could lower our profits.

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We depend on our senior management team, and the loss of team members may adversely affect our business.

If one or more members of our senior management team were unable or unwilling to continue in their present positions, thosepersons could be difficult to replace and our business could be adversely affected. If some of our key employees were to joina competitor or to form a competing company, some of our customers or clients might choose to do business with thatcompetitor or new company. Furthermore, customers, clients or other companies seeking to develop in-house capabilitiesmay hire away some of our senior management or key employees.

A subsidiary of AIG Asian Opportunity Fund L.P., AOF HS Mauritius Limited, our largest minority shareholder, has rightsunder our Articles of Association and a shareholders agreement that enable it to exercise some control over us.

Under our Articles of Association and a shareholders’ agreement, a subsidiary of AIG Asian Opportunity Fund L.P., AOFHS Mauritius Limited, or AIG AOF, has the right for the next three years to appoint one director to our Board of Directorsand this director has a veto right with respect to certain important board actions, including without limitation the issue ofequity shares, mergers and acquisitions, sale or other disposition of subsidiary shares or a material part of Biocon’s or asubsidiary’s assets and any amendment to Biocon’s or a subsidiary’s Memorandum and Articles of Association.

There can be no assurance that AIG AOF’s interests will not conflict with the interests of other shareholders or with us orthat they will be able to agree with our promoters in critical matters affecting us. Any such disagreements may adverselyaffect our ability to execute our business strategy or to operate our business. This may also result in a delay or prevention ofsignificant corporate actions that could be beneficial for our shareholders or us.

After giving effect to the Issue, our promoters will collectively own 61.5% of our Equity Shares and will continue to controlus.

After giving effect to the Issue, our promoters, a group that consists of our founder and Chairman, Ms. Kiran Mazumdar-Shaw, her husband, Mr. John Shaw (our Vice Chairman) and Glentec International, a company controlled by Mr. Shaw, willcollectively own 61.5% of our Equity Shares (on a fully diluted basis). As a result, our promoters will have the ability toappoint all but one of the members of our Board of Directors and determine the outcome of all actions requiring the approvalof our shareholders, other than those actions requiring supermajority votes. The interests of our promoters may conflict withthe interests of our other investors, and you may not agree with actions they take.

We may acquire businesses, technologies and products, but we may fail to realize the anticipated benefits of such acquisitionsand we may incur costs that could significantly negatively impact our profitability.

In the future, we may acquire other businesses, technologies and products that we believe are a strategic fit with our business.If we undertake any transaction of this sort, we may not be able to successfully integrate any businesses, products,technologies or personnel that we might acquire without a significant expenditure of operating, financial and managementresources, if at all. Further, we may fail to realize the anticipated benefits of any acquisition. Future acquisitions could diluteour shareholders’ interest in us and could cause us to incur substantial debt, expose us to contingent liabilities and couldnegatively impact our profitability.

We have not entered into any definitive agreements to utilise the proceeds of the Issue.

We intend to use the proceeds of the Issue for the capital expenditures described in section “Objects of the Issue” beginningon page 30 of this Prospectus. We have not entered into any definitive agreements to utilise such proceeds. We are yet toplace orders for the value of approximately Rs. 3,235.6 million constituting 78.3% of our estimated requirement for the projectsdescribed in “Objects of the Issue” on page 30 of this Prospectus. Pending any use of the proceeds of the Issue we intend toinvest the funds in liquid instruments. We intend to rely on our internal systems and controls to monitor the use of suchproceeds. Some of the equipment we intend to deploy is expected to be imported and must be paid for in foreign currency.Changes in foreign exchange rates adversely affecting the value of the Rupee may adversely affect the cost of the project.

Future sales by current shareholders could cause the price of our Equity Shares to decline.

If our existing shareholders sell a substantial number of our Equity Shares in the public market, the market price of our EquityShares could fall. Indian securities laws permit venture capital funds and foreign venture capital investors registered withSEBI as well as employees other than promoters holding Equity Shares pursuant to employee stock option schemes to dispose

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of their Equity Shares (totalling 12,834,782 Equity Shares, or 12.8% of our total Equity Shares post-Issue (on a fully dilutedbasis)) immediately following the Issue. The remaining pre-Issue Equity Shares, other than 20,000,000 Equity Shares, aresubject to a lock-in of 12 months following the date of allotment in the Issue. The 20,000,000 Equity Shares, or 20.0% of ourtotal Equity Shares post-Issue (on a fully diluted basis), are part of the Equity Shares held by our promoters and are subjectto a lock-in of 36 months following the date of allotment in the Issue. Sales or distributions of substantial amounts of ourEquity Shares by existing holders, or the perception that such sales or distributions could occur, could adversely affectprevailing market prices for our Equity Shares.

Our subsidiary, Clinigene and our joint venture Biocon Biopharmaceuticals have accumulated negative net worth, whichmay require additional funds from our other businesses or external sources and may continue to adversely affect ourconsolidated results of operations and financial condition.

As of December 31, 2003, our subsidiary, Clinigene, had accumulated losses of Rs. 22.9 million and a negative net worth ofRs. 21.4 million. This is because Clinigene is in the process of developing its clinical research capabilities, including theestablishment of a human pharmacology unit in association with a leading hospital in India and the hiring of employees.Clinigene may require additional funds from our other businesses or external sources to develop its businesses and may notbecome profitable. Until Clinigene becomes profitable, it will continue to adversely affect our consolidated results of operationsand financial condition.

Our joint venture company, Biocon Biopharmaceuticals, is in its development stage and has not yet commenced revenuegenerating operations. As of December 31, 2003, Biocon Biopharmaceuticals had accumulated losses of Rs. 3.2 million and anegative net worth of Rs. 3.0 million. Biocon Biopharmaceuticals is in the process of setting up its facilities. Biocon Limited isrequired to make a US$ 5.1 million equity investment and provide or guarantee the remaining debt financing for the fullcapital expenditure requirements of Biocon Biopharmaceuticals. We have not yet determined the capital expenditurerequirements of this company, although Biocon’s board of directors has given preliminary approval for financing capitalexpenditures of up to Rs. 850.0 million for the joint venture.

To the extent Biocon Limited is not able to recoup its investments in and advances to Clinigene and Biocon Biopharmaceuticals,Biocon Limited will have losses. Please refer to the section entitled “We have significant planned capital expenditures; ourcapital expenditure plans may not yield the benefits intended” on page xi of this Prospectus.

The income and profits of our promoter, Glentec International in the years ended December 2000 to 2002 have been subjectto fluctuation.

The income of our promoter, Glentec International has fluctuated from US$ 4,264.0 in calendar year 2000 to US$ 65,295.0 incalendar year 2001 and thereafter to US$ 16.0 in calendar year 2002. The profits of Glentec International have fluctuated fromUS$ 2,145,647.0 in calendar year 2000 to US$ 37,973.0 in calendar year 2001 and thereafter to US$ 589,078.0 in calendar year2002. The gain on disposal of investments for Glentec International has been US$ 2,163,282.0 for calendar year 2000, nil forthe calendar year 2001 and US$ 614,885.0 for the calendar year 2002.

There are restrictive covenants in agreements we have entered into with certain banks and financial institutions for shortterm loans and long term borrowings.

We have entered into agreements with certain banks and financial institutions for short term loans and long term borrowings.Some of these agreements contain certain restrictive covenants in their agreements. These restrictive covenants, some ofwhich require the prior permission of the said banks/financial institutions, inter alia pertain to the declaration of dividends,alteration of the capital structure, expenditure in new projects, transfer change in the key personnel, change in the constitutionaldocuments of Biocon Limited and the right to appoint a nominee director on the Board of Biocon Limited.

Some portions of the land on which the Company is establishing its new facility are not registered in its own name.

The land pertaining to our planned new facility situated at Plot No. 2 & 3, IV Phase, Bommasandra-Jigani Link Road, Bangaloreis allotted to us by KIADB on a lease cum sale basis on payment of the initial deposit/premium. At the end of six years,subject to the satisfaction of certain conditions, KIADB would sell the land to us at a value that may be fixed by KIADB andcommunicated to us. Any amount that we have paid towards the premium and earnest money deposit shall be adjustedtowards the balance of the value of the property as fixed by KIADB, and all costs in connection with the sale shall be borne

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by us. In the event that we are unable to satisfy any of the conditions stipulated by KIADB, the land may not be transferredand registered in our name.

We may lose certain benefits from payment of customs duty on machinery and equipment if we fail to meet our exportobligations.

We have availed of customs duty benefits in respect of import of machinery under the EPCG schemes. Under these schemes,we have export obligations of US$ 37.5 million over the next seven years, which is based on the formula provided by thenotifications or orders issued by the relevant authorities. The consequence of not meeting the above commitments would bea retroactive levy of customs duty on items previously imported duty free for these units. Additionally, the appropriateauthorities have the right to levy penalties on any defaults on a case-by-case basis.

We are involved in certain legal proceedings and claims against us.

We are involved in certain legal proceedings and claims against us in relation to certain contractual, employment, taxationand other civil matters. There have been 25 cases have been filed against Biocon Limited in relation to civil matters, labourdisputes, excise, customs and service tax claims. These claims amount to approximately Rs. 4.7 million. There are noproceedings initiated for any economic/civil/any other offenses against our subsidiaries.

In addition, we have received demand notices from Indian income tax authorities in respect of assessments made in the years1994-95 to 2001-02 wherein the aggregate income-tax payable as assessed by the authorities was Rs. 40.7 million as of December31, 2003. While we have appealed these assessments, Rs. 33.0 million has been provided for in our books of account.

Biocon Limited has filed 19 cases in relation to civil matters, excise claims, proceedings for winding-up and criminal cases fordishonour of cheques, which may be quantified at approximately Rs. 18.2 million.

We are aware of eight potential claims/disputes against Biocon Limited that may arise in relation to civil claims and othersmiscellaneous matters, which approximately amount to Rs. 2.8 million. There are seven other potential claims/disputes whichmay be initiated by our Company in relation to civil claims and proceedings for winding up, which approximately amounts toRs. 3.2 million.

Based on legal advice regarding the merits of our cases, we have not established reserves in our financial statements tocover the entire amounts of potential liability. Should any new developments arise, such as a change in Indian law or a rulingagainst us by appellate courts or tribunals, we may need to establish reserves in our financial statements, which could increaseour expenses and our current liabilities. Furthermore, if a claim is determined against us and we are required to pay all or aportion of the disputed amount, it could have a material adverse effect on our results of operations. However, it may be notedthat some of the above claims are currently not quantifiable in terms of monetary compensation.

All of the legal proceedings/claims are pending at different levels of adjudication before various courts, tribunals, enquiryofficers, and appellate tribunals. For more information regarding litigation, please refer to the section entitled “OutstandingLitigation” beginning on page 129 of this Prospectus.

There are two suits filed for dishonor of cheques against an independent director of Biocon Limited in his capacity as directoron the board of another company, not related to Biocon Limited or its subsidiaries.

As at December 31, 2003, we had contingent liabilities as disclosed in our consolidated statement of assets and liabilitiesunder Indian GAAP.

As at December 31, 2003, our contingent liabilities as disclosed in our consolidated statement of assets and liabilities, asrestated, under Indian GAAP, were as follows:

■ Corporate guarantees in favour of the Customs and Excise Department, or CED, in respect of certain performanceobligations of our Company and Syngene totalling Rs. 245.0 million;

■ Tax matters under appeal involving amounts totalling Rs. 7.6 million; and

■ Other claims against us not acknowledged as debts totalling Rs. 2.3 million.

The last two points are discussed above under the section entitled “We are involved in certain legal proceedings and claimsagainst us”.

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We are yet to apply for and receive certain statutory approvals required in the ordinary course of business.

We are yet to receive the following approval and renewals:

■ Renewal of Form 37 approval No. KTK/37/8/97 (Ref: QA/DRUG/BIL/00/139) dated December 30, 2002 submitted by us tothe Drug Controller, Karnataka for our premises at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore.

■ Renewal of Form 25 drug license No. KTK/25/407/98 (Ref: QA/DRUG/BIL/00/138) dated December 30, 2002 submitted byus to the Drug Controller, Karnataka for our premises at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore.

■ Application for renewal of license to import and store petroleum in installation Form XIII (Licence No. P-12 (SC) MYS4320) dated December 9, 2003 submitted by us to the Joint Chief Controller of Explosives, Chennai.

■ Renewal of factory license No: MYB: 11742 (Ref.ADMIN/INSP/BIL/2003-04) dated October 31, 2003 for Syngene submittedby us to the Inspector of Factories, Bangalore.

In relation to our new facility at Plot No. 2 and 3, IV Phase, Bommasandra-Jigani Link Road, Bangalore, we will be applying tovarious statutory authorities for their approvals and consents at the relevant stage.

Failure to obtain these approvals or renewals, which have been regularly obtained in the past, would adversely affect ourbusiness.

External Risk Factors

Our performance is highly dependent upon demand from and regulatory policies of the United States and Europe.

Since the largest and fastest growing component of our revenue comes from product exports and services to developedcountry markets, principally the United States and the European Union, our performance is highly dependent upon demandfrom and regulatory policies adopted in these markets. Demand in these markets is often driven by reimbursement policies oflarge health insurers and government benefits providers. As part of an effort to contain health care costs, governments andprivate insurers have sought to reduce the costs of prescription drugs. This effort may reduce the profitability of drug salesin developed country markets and the level of research and development undertaken by pharmaceutical companies that servicethose markets. These developments, in turn, could have a material adverse effect on our product sales and custom andclinical research businesses.

Policy decisions by major developed country regulators, such as the US FDA and EDQM, that have the effect of making itmore difficult for producers and service providers from developing countries such as India to provide products into theirmarkets or research services for other companies that service their markets, would have a material adverse effect on ourbusinesses. Such policies could include limitations on outsourcing to developing countries, extension of product patentrights and limitations on the importation of active pharmaceutical ingredients.

In addition, our ability to export recombinant human insulin to major developed country markets such as the United Statesand European Union in the medium term depends upon a decision by regulators in those markets – yet to be made – toapprove this product through a streamlined process that is closer to that required for generic drugs rather than newly discoveredones. One of the difficulties in establishing a process for biologicals that is similar to that for generics is that biologicals aregenerally much more complicated substances in respect of which bio-equivalence is difficult to establish. In the absence of astreamlined approval process, our recombinant human insulin might have to undergo the same process that drug innovatorsmust undergo to introduce new drug molecules into the market. If recombinant human insulin is treated as a newly discovereddrug requiring a full set of clinical trials, then it will be more difficult and costly and take substantially longer to obtainapproval, and we may therefore choose not to seek approvals to enter those markets.

Governmental regulations may restrict our ability to sell our products, which could result in a loss of revenues.

Our research, preclinical testing, clinical trials, facilities, manufacturing, labelling, pricing, and sales and marketing are subjectto extensive regulation by numerous governmental authorities, including authorities in India and the European Union, as wellas governmental authorities in the United States, such as the US FDA. Our research and development activities are subjectto laws regulating such things as laboratory practices and the use and disposal of potentially hazardous materials. We arealso required to obtain and maintain regulatory approval to market products for approved indications in India, the UnitedStates, the European Union, Japan and other markets. Even when we are able to obtain regulatory approval for our products,both our manufacturing processes and our marketed products are subject to continued review. Subsequent discovery of

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previously unknown problems with the safety or efficacy of our products or manufacturing processes may result in restrictionson these products or processes, including withdrawal of the products from the market or suspension of our manufacturingoperations.

Drug formulation and drug discovery will subject us to new and potentially more stringent regulations, especially in theareas of drug safety and efficacy. We cannot assure you that we will be successful in meeting applicable regulatory requirementswith respect to drug formulation or drug discovery or any other new business area we seek to enter.

If changes in technology or therapeutic preferences make our products obsolete, our product sales and revenues will decline.

Pharmaceutical and biotechnology development is characterized by significant and rapid technological change and sometimessignificant shifts in therapeutic preferences. Research and discoveries by others, including developments of which we arenot currently aware, may make our products obsolete. If changes in technology or therapeutic preferences make our productsobsolete, doctors will be less likely to prescribe our or our customers’ products, and sales of our products will be reduced. Ifsales of our products are reduced, our results of operations could be adversely affected.

Increasing employee compensation in India may erode some of our competitive advantage and may reduce our profit margins.

Employee compensation in India has historically been significantly lower than employee compensation in the United Statesand Western Europe for comparably skilled professionals, which has been one of our competitive strengths. However,compensation increases in India may erode some of this competitive advantage and may negatively affect our profit margins.Employee compensation in India is increasing at a faster rate than in the United States and Western Europe, which couldresult in increased costs relating to scientists and engineers, managers and other mid-level professionals. We may need tocontinue to increase the levels of our employee compensation to remain competitive and manage attrition. Compensationincreases may have a material adverse effect on our business, results of operation and financial condition.

If we fail to comply with environmental laws and regulations or face environmental litigation, our results of operation maybe adversely affected.

We may incur substantial costs to comply with requirements of environmental laws and regulations. In addition, we maydiscover currently unknown environmental problems or conditions. We are subject to significant national and stateenvironmental laws and regulations, which govern the discharge, emission, storage, handling and disposal of a variety ofsubstances that may be used in or result from our operations. Environmental laws and regulations in India have been increasingin stringency and it is possible that they will become significantly more stringent in the future. If any of our plants or theoperations of such plants are shut down, we will continue to incur costs in complying with regulations, appealing any decisionto close our facilities, maintaining production at our existing facilities and continuing to pay labour and other costs whichcontinue even if the facility is closed. As a result, our overall operating expenses will increase and our profits will decrease.

Our profitability would decrease if the Government of India or the State of Karnataka reduced or withdrew tax benefits andother incentives it currently provides to us.

The statutory corporate income tax rate inclusive of surcharge in India is currently 35.9%. We cannot assure you that the taxrate will not be increased in the future. We currently take advantage of various income tax exemptions and deductions, whichare applicable to companies engaged in export and R&D activities. Specifically, we avail of benefits under Section 10B, Section35(2AB) and Section 80HHC of the Income Tax Act, 1961. For details, please refer to the section entitled “Statement of PossibleTax Benefits Available to Biocon Limited, Its Subsidiaries and Its Shareholders” on page 264 of this Prospectus. Accordingly,our effective tax rates (provision for taxation/profit before tax, extraordinary items and adjustments on a consolidated basis)for fiscal 2003 and first nine months of 2004 were 25.4% and 18.7%, respectively. The Government of India has announcedthe gradual elimination of some of these benefits. For details, please refer to the section entitled “Statement of Possible TaxBenefits Available to Biocon Limited, Its Subsidiaries and Its Shareholders” on page 264 of this Prospectus. The loss orunavailability of these benefits would likely increase our income tax obligations and have a material adverse effect on ourprofits and cash flow.

We are also entitled to certain other benefits and concessions in relation to customs duty from the Government of India andalso to certain sales tax benefits from the State of Karnataka. For details of the sales tax deferrals, please refer to the sectionentitled “Statement of Possible Tax Benefits Available to Biocon Limited, Its Subsidiaries and Its Shareholders” on page 264

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of this Prospectus. Any reduction in the availability or amount of these tax benefits could have a material adverse effect onour profits and cash flow.

Our pharmaceutical products currently consist of APIs, whose prices can fluctuate dramatically.

Prices of our APIs can fluctuate dramatically, depending on, among other factors, the number of producers and their productionvolumes and changes in demand in the principal drug markets. Because APIs have become the most significant componentof our consolidated total income and may continue to grow as a percentage of our consolidated total income, our revenue issignificantly and increasingly dependent upon factors affecting API prices – factors that we cannot control. In addition, ourAPI sales into the regulated markets occur typically after the expiration or invalidation of product patents related to thoseproducts. During this time prices typically decline significantly and often rapidly, resulting in lower profit margins with respectto sales of these APIs in the regulated markets over time.

Much of our raw materials and fuel costs are linked to global commodity prices, which are outside our control.

Raw material costs are to some extent dependent on global petrochemical prices, which in turn often track global oil prices.This is because our API and enzyme production processes involve the use of many petrochemicals, especially solvents suchas ethyl acetate, methanol and acetone. As global petrochemical prices increase, our petrochemical input costs also increase.

Our fuel costs relate principally to the purchase of diesel and super kerosene oil, which are used in our power generators.Our fuel costs are linked to global oil prices. As global oil prices increase, our fuel costs increase.

Further adverse movements in global petrochemical or oil prices would further increase our raw materials and/or fuel costs,which may have a material adverse effect on our profitability. The movements of commodity prices are outside our control.

The location of our facilities is concentrated and disruption affecting our sites could have a material adverse effect on ourbusiness, financial position and results of operations.

Substantially all of our manufacturing and research facilities and our corporate offices are located on our 20th K.M. HosurRoad site in the greater Bangalore area. In addition, we are planning to develop our future facilities on another siteapproximately 5 km away. A significant disruption at 20th K.M. Hosur Road site or in the greater Bangalore area, even on ashort-term basis, could impair our ability to produce and ship products on a timely basis and continue our research projects,which could have a material adverse effect on our business, financial position and results of operations. In addition, ourproduction processes require significant amounts of water. Droughts or other factors that may impact our ability to accesswater from pipelines or groundwater sources could have a material adverse effect on our business operations.

Our clinical trials may be disrupted by controversies involving human rights groups and social activists.

The use of patients in developing countries such as India to conduct clinical trials for pharmaceuticals developed for sale toforeign countries has become subject to controversy. Such activities have been and may continue to be targeted by humanrights groups and social activists in and outside India, which could disrupt our clinical trial business.

We are subject to risks arising from exchange rate fluctuations.

The exchange rate between the Rupee and the U.S. Dollar has changed substantially in recent years and may continue tofluctuate substantially in the future. From December 31, 1999 to May 31, 2002, the value of the Rupee declined by 12.8%.From May 31, 2002 to December 31, 2003, the value of the Rupee against the U.S. Dollar rose by approximately 7.7%. Weexpect that a majority of our revenues will continue to be generated in U.S. Dollars for the foreseeable future and that asignificant portion of our expenses, including personnel costs as well as capital and operating expenditures, will continue tobe denominated in Rupees. While we enter into forward contracts to minimize the impact of fluctuating exchange rates, wecannot assure you that we will be able to effectively mitigate the adverse impact of currency fluctuations on our results ofoperations.

Terrorist attacks and other acts of violence or war involving India, the United States, and other countries could adverselyaffect the financial markets, result in a loss of business confidence and adversely affect our business, results of operationsand financial condition.

Terrorist attacks, such as the ones that occurred in New York and Washington, D.C., on September 11, 2001 and New Delhi

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on December 13, 2001, and other acts of violence or war, including those involving India, the United States or other countries,may adversely affect Indian and worldwide financial markets. These acts may also result in a loss of business confidence andhave other consequences that could adversely affect our business, results of operations and financial condition. Travelrestrictions as a result of such attacks may have an adverse impact on our ability to operate effectively. Increased volatility inthe financial markets can have an adverse impact on the economies of India and other countries, including economic recession.

Regional conflicts in South Asia could adversely affect the Indian economy, disrupt our operations and cause our businessto suffer.

South Asia has from time to time experienced instances of civil unrest and hostilities among neighbouring countries, such asbetween India and Pakistan. In recent years there have been military confrontations along the India-Pakistan border. Militaryactivity or terrorist attacks in the future could influence the Indian economy by disrupting communications and making traveland transportation more difficult. Such political tensions could create a greater perception that investments in Indian companiesinvolve a higher degree of risk. This, in turn, could have a material adverse effect on the market for securities of Indiancompanies, including our Equity Shares and on the market for our services.

Our performance is linked to the stability of policies and the political situation in India.

The role of the Indian central and state governments in the Indian economy on producers, consumers and regulators hasremained significant over the years. Since 1991, the Government of India has pursued policies of economic liberalization,including significantly relaxing restrictions on the private sector. The Indian parliament was recently dissolved and generalelections are expected in the next few months. The most recent Government of India, which was formed in October 1999,adopted policies and took initiatives that supported the continued economic liberalization policies that had been pursued bythe previous governments. We cannot assure you that these liberalization policies will continue in the future. Protests againstprivatisation could slowdown the pace of liberalization and deregulation. The rate of economic liberalization could change,and specific laws and policies affecting technology companies, foreign investment, currency exchange rates and other mattersaffecting investment in our securities could change as well. A significant change in India’s economic liberalization andderegulation policies could disrupt business and economic conditions in India and thereby affect our business.

The last Indian government was a coalition of several parties. The withdrawal of one or more of these parties from a coalitiongovernment can result in political instability. Any political instability could delay the reform of the Indian economy and couldhave a material adverse effect on the market for our Equity Shares and on the market for our services.

After this Issue, the price of our Equity Shares may be highly volatile, or an active trading market for our Equity Sharesmay not develop.

The prices of our Equity Shares on the Indian stock exchanges may fluctuate after this Issue as a result of several factors,including:

■ volatility in the Indian and global securities market or in the Rupee’s value relative to the U.S. dollar, the Euro or the Yen;

■ our results of operations and performance;

■ perceptions about our future performance or the performance of Indian biotechnology and pharmaceutical companiesgenerally;

■ performance of our competitors in the Indian biotechnology and pharmaceuticals industries and the perception in themarket about investments in the biotechnology and pharmaceuticals sectors;

■ significant developments in the regulation of pharmaceuticals and biotechnology in our key markets;

■ adverse media reports on the Company or the Indian biotechnology or pharmaceuticals industry;

■ changes in the estimates of our performance or recommendations by financial analysts;

■ significant developments in India’s economic liberalisation and deregulation policies; and

■ significant developments in India’s fiscal and environmental regulations.

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There has been no public market for our Equity Shares and the prices of our Equity Shares may fluctuate after this Issue.There can be no assurance that an active trading market for our Equity Shares will develop or be sustained after this Issue, orthat the prices at which our Equity Shares are initially traded will correspond to the prices at which our Equity Shares willtrade in the market subsequent to this Issue. Our share price is likely to be volatile and may decline.

Note to Risk Factors

■ On November 11, 2003 the Company’s Board of Directors approved a sub division of equity shares of Rs. 10/- each into2 equity shares of Rs. 5/- each. Accordingly, earnings per share and weighted average number of shares outstanding arepresented on a pre-split and post-split basis. The NAV and EPS have declined post the subdivision of the equity shares.

■ The shareholders, at the EGM held on November 11, 2003 approved the issue of 86,324,700 Equity shares of Rs. 5 eachas bonus shares in the ratio of approximately 23.5 Equity shares for every Equity share held in the Company. Theseshares were allotted on November 28, 2003. All numbers presented have been adjusted on a post-bonus basis. Thebonus had been fixed to (i) capitalise the reserves of the Company (ii) to meet the issuance and listing guidelines and (iii)to encourage retail participation in the Issue.

■ The book value per Equity Share of Rs. 5 each was Rs. 13.9 and Rs. 23.6 as at March 31, 2003 and as at December 31,2003, respectively, as per our restated unconsolidated financial statements under Indian GAAP.

■ The net worth of our Company was Rs. 1,247.3 million and Rs. 2,120.0 million as at March 31, 2003 and as at December31, 2003, respectively, as per our restated unconsolidated financial statements under Indian GAAP.

■ Public issue of 10,000,000 Equity Shares of Rs. 5/- each, all of which is a fresh Issue, at a price of Rs. 315 for cashaggregating Rs. 3,150 million.

■ The average cost of acquisition of our Equity Shares by our promoters, Ms. Kiran Mazumdar-Shaw, Mr. John Shaw andGlentec International is Re. 0.55, Rs. 9.65 and Rs. 8.89, respectively.

■ For related party transactions, please refer to the section entitled “Related Party Transactions” on page 84 of thisProspectus.

■ Investors may note that in case of over-subscription in the Issue, allotment to Non Institutional Bidders and RetailBidders shall be on a proportionate basis. For more information, please refer to the section entitled “Basis of Allotment”on page 162 of this Prospectus.

■ For any clarification or information relating to the Issue, investors are free to contact the BRLMs, who will be obliged toprovide the same to the investors.

■ Investors may contact the BRLMs, CBRLM and the Syndicate Members for any complaints pertaining to the Issue.

■ Investors are advised to refer to the section entitled “Basis for Issue Price” on page 159 of this Prospectus.

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Biocon

SUMMARYOverview

Over the past 25 years, Biocon has emerged as an integrated biotechnology enterprise with presence in biopharmaceuticals,enzymes, custom research and clinical research. Biocon was India’s largest biotechnology company in terms of fiscal 2003revenues, according to India’s Association of Biotechnology Led Enterprises. Our core expertise lies in fermentation, and asubstantial majority of our current biopharmaceutical and enzyme products are produced through fermentation techniques.Fermentation is the breakdown of complex molecules in a natural process which may be employed as a manufacturing process.A number of our current products are also manufactured using synthetic chemistry techniques either entirely or in combinationwith fermentation techniques. Our growth strategy has been and continues to be driven by innovation in both ourbiopharmaceutical business, where we develop non-infringing processes for the manufacture of our focus products, and ourenzymes business, where we develop novel enzymes and customised applications.

Biocon was established in 1978 to form a joint venture with Biocon Biochemicals Limited, a company based in Ireland, tomanufacture and export certain enzymes for the brewing industry. Unilever eventually acquired our joint venture partner. Thejoint venture terminated in 1999 when our promoters exercised their right of first refusal to purchase Unilever’s 23.1% interestin us, after Unilever agreed to sell its speciality chemicals business, including its interest in us, to Imperial Chemical Industries,or ICI. Currently, our promoters own 68.4% of our Equity Shares (on a fully diluted basis) and after giving effect to the Issue,they will own 61.5% of our Equity Shares (on a fully diluted basis).

Our headquarters and production facilities are located in the greater Bangalore area, enabling us to access that city’s highlyskilled human resource base and technology infrastructure. Our total consolidated operating income and net profit wereRs. 2,819.9 million and Rs. 422.3 million, respectively, in fiscal 2003. In the first nine months of fiscal 2004, our total consolidatedoperating income and net profit were Rs. 3,977.4 million and Rs. 949.4 million, respectively.

The following shows the income from operations of Biocon, Syngene and Clinigene and their percentages of total operatingincome of those companies from fiscal 2001 through the first nine months of fiscal 2004:

Fiscal Period

2001 2002 2003 First Nine Months 2004

Revenue Revenue Revenue Revenue(Rs. in millions) % (Rs. in millions) % (Rs. in millions) % (Rs. in millions) %

Biopharmaceuticals (Biocon) Rs. 817.8 60.7% Rs. 1,142.9 63.9% Rs. 2,010.0 71.3% Rs. 3,228.3 81.1%

Enzymes (Biocon) 405.3 30.1 463.3 25.9 532.4 18.9 484.0 12.2

Research Services

Custom Research (Syngene) 109.0 8.1 147.0 8.2 261.2 9.3 258.0 6.6

Custom Research (Biocon) 10.7 0.8 9.8 0.5 5.2 0.1 5.7 0.1

Clinical Research (Clinigene) 3.5 0.3 26.7 1.5 11.1 0.4 1.4 0.0

Total Operating Income(1) Rs. 1,346.3 100.0% Rs. 1,789.7 100.0% Rs. 2,819.9 100.0% Rs. 3,977.4 100.0%

Biopharmaceuticals and

Enzyme Sales

Exports Rs. 268.0 19.9% Rs. 465.7 26.0% Rs. 1,100.8 39.0% Rs. 2,083.6 52.4%Domestic 955.1 70.9 1,140.5 63.7 1,441.6 51.1 1,628.7 40.9

(1) This number does not represent a consolidated or combined figure under Indian or US GAAP, but rather is the sum of the operating income of Biocon, Syngene

and Clinigene. There were no intercompany operating income items during any of the periods presented.

Biopharmaceuticals. In biopharmaceuticals, we focus on the manufacture and marketing of APIs that require advancedfermentation and other skills and that offer large market potential in the regulated markets once the products are off patent.APIs are the core materials in the formulation of final dosage form drugs. Our largest and fastest growing products arestatins, a group of popular cholesterol-lowering drugs, including lovastatin, simvastatin, pravastatin and atorvastatin. Wehave patented processes relating to the manufacture of lovastatin and simvastatin, our principal statin products. We havealso applied for process patents in respect of our other statin products, pravastatin and atorvastatin.

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We currently export lovastatin to the United States and lovastatin and simvastatin to key European markets. We are in theprocess of qualifying our simvastatin and pravastatin production processes and facilities with the US FDA, so that we cansell into the United States when those products go off patent there (expected to be 2006), and are also seeking US FDAapproval for an additional lovastatin production process/facility. We recently received a Certificate of Suitability from theEDQM for our pravastatin production, to enable us to sell pravastatin in key European markets when it goes off patent(expected to be 2004-2006), and also one for the additional lovastatin production process/facility.

Our other biopharmaceutical products include APIs for immunosuppressants and anti-diabetic drugs, including mycophenolatemofetil, or MMF, tacrolimus, pioglitazone, repaglinide and nateglinide.

Our internally developed recombinant human insulin is currently undergoing clinical trials in India, and we plan to introducethis product as a formulation under the brand name “Insugen”TM in the Indian market in the first half of calendar year 2004,subject to receiving all regulatory approvals. This would be our first pharmaceutical product sold as a branded formulation.We also seek to export recombinant human insulin in bulk form. Biocon and Bristol-Myers Squibb Company signed a letter ofintent in September 2003 under which the two parties are to negotiate an agreement for supply by Biocon of recombinanthuman insulin to Bristol-Myers Squibb. The letter of intent contemplates supply at established prices of quantities of productto be agreed upon by the parties from time to time. Export of our recombinant human insulin would be subject to regulatoryapproval in the target markets.

Through our newly formed joint venture company, Biocon Biopharmaceuticals, we plan to manufacture and sell into theIndian market the biologicals erythropoetin, or EPO, and granulocite colony stimulating factor, or GCSF, and plan to manufactureand sell into India and other South Asian countries a new monoclonal antibody currently undergoing Phase II clinical trialsin Canada, if and when it is approved for use in the treatment of head and neck cancers.

Having begun sales in fiscal 1998, our biopharmaceuticals business has since grown to constitute 71.3% and 81.1% of ourtotal operating income in fiscal 2003 and in the first nine months of fiscal 2004, respectively. From fiscal 2001 to 2003, thecompound annual growth rate of biopharmaceuticals sales was 72.4%. Biopharmaceuticals sales in the first nine months offiscal 2004 were 160.6% of fiscal 2003’s whole-year biopharmaceuticals sales.

Enzymes. In enzymes, we focus on the production of speciality enzymes and the development of new enzyme applicationsfor different industries, including food and beverages, animal feed, starch processing, textiles, pulp and paper and leather.Sales of enzymes constituted 18.9% and 12.2% of our total operating income in fiscal 2003 and in the first nine months offiscal 2004, respectively. From fiscal 2001 to 2003, the compound annual growth rate of enzymes sales was 16.7%. Enzymessales in the first nine months of fiscal 2004 were 90.9% of fiscal 2003’s whole-year enzymes sales.

Research Services. We provide custom and clinical research services principally through our subsidiaries Syngene andClinigene.

Custom Research. We provide custom research services principally through Syngene, our 99.99%-owned subsidiary.Established in 1994, Syngene designs and manages research projects typically for overseas pharmaceutical and biotechnologycompanies pursuing pre-clinical research for new drug discovery. Syngene’s principal areas of research are:

■ Synthetic chemistry;

■ Molecular biology; and

■ Custom synthesis.

As an experienced custom research services provider in a low-cost environment, Syngene, we believe, is well placed toprovide its services to innovator companies in developed markets that seek to bring out new proprietary products whilereducing research and development costs. In fiscal 2003 and in the first nine months of fiscal 2004, income from customresearch constituted 9.3% and 6.6% of our total operating income, respectively. From fiscal 2001 to 2003, the compoundannual growth rate of custom research income was 56.3%. Custom research income in the first nine months of fiscal 2004 was99.0% of fiscal 2003’s whole-year custom research income.

Clinical Research. We provide clinical research services through Clinigene, a wholly owned subsidiary. Clinigene wasestablished in 2000 to undertake:

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■ Phase I to Phase III clinical trials for new drug molecules (please refer to the section entitled “Biopharmaceuticals” onpage 118 of this Prospectus for an explanation of these phases);

■ Clinical studies, including bio-equivalence and bio-availability, or BE/BA, studies;

■ Clinical research aimed at identifying new biomarkers for diseases, including Type II diabetes;

■ Clinical research aimed at discovering new indications for existing drugs; and

■ Clinical laboratory tests for other pharmaceutical companies and contract research organisations, or CROs.

We believe Clinigene’s laboratory was the first and remains one of the few labs in India to have received certification fromthe College of American Pathologists, or CAP, which is required by many large pharmaceutical companies to provide clinicalresearch services to them. In both fiscal 2003 and in the first nine months of fiscal 2004, revenue from clinical researchconstituted less than 1.0% of our total operating income.

Competitive Strengths

The following are our key strengths that enable us to compete in our principal markets:

Competencies and Skills

■ R&D Focus.

■ Proven Fermentation Skills.

■ Synthetic Chemistry Skills.

■ Diverse and Growing Capabilities.

■■■■■ Biodiversity Collection.

Manufacturing

■ Scale-up Skills and Yield Improvement.

■ Flexible Manufacturing Infrastructure.

■ High Quality Manufacturing Processes and Facilities.

Marketing

■ Strong Customer Relationships.

Organisation

■ Strong Management; Continuity of Management.

■ Ability to Attract Talent.

Our Strategy

We seek to further expand and integrate our operations across biopharmaceuticals, enzymes, custom research and clinicalresearch to become an integrated biotechnology enterprise with increasing emphasis on biopharmaceuticals and discoveryof new drug molecules.

The following are the key elements of our strategy:

■ Continue to Target APIs for High-Value Drugs.

■ Realize Synergies Through Integration of Different Businesses.

■ Significantly Expand Capacity.

■ Develop Biologicals Business.

■ Expand Capabilities in Drug Discovery and Develop Proprietary Technologies and Products.

■ Leverage Our Position in Export Markets.

■ Launch Branded Formulations in the Domestic Market.

■ Grow Our Business Through Strategic Partnerships and Mergers and Acquisitions.

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THE ISSUE

Equity Shares offered

Fresh Issue 10,000,000 Equity Shares, constituting 10% of the fully diluted post Issuepaid-up capital of the Company

Of which:

Qualified Institutional Buyers portion 6,000,000 Equity Shares, constituting 60% of the Issue

(Allocation on a discretionary basis)

Non Institutional portion At least 1,500,000 Equity Shares, constituting 15% of the Issue

(Allocation on a proportionate basis)

Retail portion At least 2,500,000 Equity Shares, constituting 25% of the Issue

(Allocation on a proportionate basis)

Equity Shares outstanding prior to the Issue 90,000,000 Equity Shares

Equity Shares outstanding after the Issue 100,000,000 Equity Shares

Objects of the Issue The proceeds of the Issue would be used for setting up new facilities toaugment our submerged fermentation and chemical synthesis operations.For more information, please refer to the section entitled “Objects of theIssue” on page 30 of this Prospectus.

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SUMMARY FINANCIAL DATA

The statutory financial statements of the Company prepared in accordance with Indian GAAP for the years ended March 31,2002 and 2001 were audited by Arthur Andersen & Associates, Chartered Accountants, (a member firm of AndersenWorldwide, a affiliation of accounting firms which has ceased operations) and those for the years ended March 31, 2000 and1999 were audited by M/s. S. Madhavan & Co., Chartered Accountants, who resigned in the normal course. S.R. Batliboi &Associates are our current auditors and have audited our statutory financial statements for the year ended March 31, 2003and the financial statements for the period ended December 31, 2003.

Summary Unconsolidated Financial Data Under Indian GAAP

The following summary unconsolidated financial data has been extracted from our audited unconsolidated financial statementsprepared in accordance with Indian GAAP, the Companies Act and SEBI Guidelines, and restated as described in the AuditorsReport of S.R. Batliboi & Associates dated 17 January 2004 in the section entitled “Unconsolidated Financial Statementsunder Indian GAAP (including Subsidiaries)”. You should read this summary unconsolidated data in conjunction with ouraudited unconsolidated financial statements for the years ended March 31, 1999, March 31, 2000, March 31, 2001, March 31,2002 and March 31, 2003 and for the nine months ended December 31, 2003, including the significant accounting policies andnotes thereto and the reports thereon and the section entitled “Management’s Discussion and Analysis of Financial Conditionand Results of Operations (as per Unconsolidated Financial Statements under Indian GAAP)” included in this Prospectus.Unconsolidated financial statements prepared in accordance with Indian GAAP differ in certain significant respects fromconsolidated financial statements prepared under Indian GAAP and financial statements prepared under U.S. GAAP.

Biocon

Summary of Profits and Losses, as Restated

(Rs. in million)

Year ended Year ended Year ended Year ended Year ended Nine monthsMarch 31, March 31, March 31, March 31, March 31, period ended

1999 2000 2001 2002 2003 Dec. 31, 2003

Total Income 316.6 742.0 1,235.9 1,649.3 2,552.2 3,724.5

Net Profit, as restated 13.2 55.3 145.2 214.9 353.1 861.1

The increases in the total income as well as the net profits of the Company can largely be attributed to increase in exportsand growth in sales of biopharmaceuticals, particularly statins. Please refer to the section entitled “Management’s Discussionand Analysis of Financial Condition and Results of Operations” beginning on page 92 of this Prospectus for more details.

Summary of Assets and Liabilities, as Restated

(Rs. in million)

As at March As at March As at March As at March As at March As at Dec.31, 1999 31, 2000 31, 2001 31, 2002 31, 2003 31, 2003

Fixed assets 54.5 565.7 627.8 1,040.5 1,266.2 1,712.7

Investments 80.9 0.1 0.6 84.8 84.8 84.9

Current assets, loans and advances 149.2 457.0 669.3 960.9 1,372.3 2,238.6

Total Assets 284.6 1,022.8 1,297.7 2,086.2 2,723.3 4,036.2

Loan funds 75.4 320.0 381.9 665.3 685.6 650.3

Deferred tax liability 4.4 34.4 70.8 93.0 140.0 153.8

Current liabilities and provisions 109.7 253.5 284.9 467.8 650.4 1,112.1

Total liabilities and provisions 189.5 607.9 737.6 1,226.1 1,476.0 1,916.2

Net worth 95.1 414.9 560.1 860.1 1,247.3 2,120.0

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Accounting RatiosYear ended Year ended Year ended Year ended Year ended Nine months

March 31, March 31, March 31, March 31, March 31, period ended1999 2000 2001 2002 2003 Dec. 31, 2003

Earnings per Share (Rs.) (1)

Pre Split 0.9 3.2 4.0 5.6 7.8 19.1

Post Split 0.5 1.6 2.0 2.8 3.9 9.6

Return on Net Worth

Pre Split 14% 13% 26% 25% 28% 41%

Post Split 14% 13% 26% 25% 28% 41%

Net Asset Value per Equity Share

Pre Split 6.7 11.3 15.3 19.3 27.7 47.1

Post Split 3.3 5.7 7.6 9.6 13.9 23.6

Weighted average number of equityshares outstanding during the year/period

Pre Split 14,251,898 17,073,354 36,662,328 38,110,196 44,958,476 45,000,000

Post Split 28,503,796 34,146,707 73,324,656 76,220,392 89,916,952 90,000,000

Total number of shares outstanding atthe end of the year/period

Pre Split 14,251,898 36,648,927 36,669,741 44,611,379 45,000,000 45,000,000

Post Split 28,503,796 73,297,853 73,339,482 89,222,757 90,000,000 90,000,000

(1) On November 11, 2003 the Company’s Board of Directors approved a sub division of equity shares of Rs. 10/- each into 2 equity shares of Rs. 5/- each. Accordingly,earnings per share and weighted average number of shares outstanding are presented on a pre-split and post-split basis.

(2) The shareholders, at the EGM held on November 11, 2003 approved the issue of 86,324,700 Equity shares of Rs. 5 each as bonus shares in the ratio ofapproximately 23.5 Equity shares for every Equity share held in the Company. These shares were allotted on November 28, 2003. All numbers presented above

have been adjusted on a post-bonus basis.

Syngene

The restated unconsolidated operating results of Syngene Limited for the financial years 1999, 2000, 2001, 2002, 2003 and thenine months ended December 31, 2003 under Indian GAAP are set forth below:

Summary of Profits and Losses, as Restated

(Rs. in million)

Year ended Year ended Year ended Year ended Year ended Nine monthsMarch 31, March 31, March 31, March 31, March 31, period ended

1999 2000 2001 2002 2003 Dec. 31, 2003

Total income 30.1 59.9 111.0 153.0 261.8 261.8

Net Profit, as restated 9.0 13.0 33.4 28.2 74.8 108.1

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Biocon

Summary of Assets and Liabilities, as Restated

(Rs. in million)

As at March As at March As at March As at March As at March As at Dec.

31, 1999 31, 2000 31, 2001 31, 2002 31, 2003 31, 2003

Fixed assets 24.4 65.0 70.6 88.0 131.0 164.3

Investments 0.1 0.1 0.1 - 50.0 142.1

Current assets, loans and advances 14.0 12.6 48.9 47.6 43.1 50.8

Total Assets 38.5 77.7 119.6 135.6 224.1 357.2

Loan funds 3.0 7.7 4.8 2.8 - -

Current liabilities and provisions 14.4 34.5 33.3 46.5 62.7 87.4

Deferred tax (asset)/liability (0.6) (0.8) 1.0 0.6 0.3 -

Total liabilities and provisions 16.8 41.4 39.1 49.9 63.0 87.4

Net worth 21.7 36.3 80.5 85.7 161.1 269.8

Earnings per Equity Share (Rs.) 18.0 21.0 11.6 9.8 26.0 37.6

Book Value per Equity Share (Rs.) 37.7 12.7 28.0 29.8 56.0 93.8

Clinigene

The restated unconsolidated operating results of Clinigene Limited for the financial years 2001, 2002 and 2003 and the ninemonths ended December 31, 2003 under Indian GAAP are set forth below:

Summary of Profits and Losses, as Restated

(Rs. in million)

Nine monthsAugust 4, 2000 to Year ended March Year ended March period ended

March 31, 2001 31, 2002 31, 2003 Dec. 31, 2003

Total income 3.7 26.7 11.1 1.4

Net Profit/(Loss), as restated (0.2) 8.4 (5.6) (19.0)

Summary of Assets and Liabilities, as Restated

(Rs. in million)

As at As at As at As atMarch 31, 2001 March 31, 2002 March 31, 2003 Dec. 31, 2003

Fixed assets 6.4 5.9 7.8 17.6

Current assets, loans and advances 1.2 9.0 7.3 3.3

Total Assets 7.6 14.9 15.1 20.9

Current liabilities and provisions 7.4 11.2 17.4 42.3

Deferred tax liability/(asset) (0.1) 0.5 - -

Total Liabilities 7.3 11.7 17.4 42.3

Net worth 0.3 3.2 (2.3) (21.4)

Earnings/(Loss) per Equity Share (Rs.) (460.3) 168.1 (111.3) (380.2)

Book Value per Equity Share (Rs.) 6.2 64.1 (47.2) (427.5)

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BBPL

The restated unconsolidated operating results of BBPL for the financial year 2003 and the nine months ended December 31,2003 under Indian GAAP are set forth below:

(Rs. in million)

June 17, 2002 to Nine months endedMarch 31, 2003 Dec. 31, 2003

Total income - -

Net Profit/(Loss), as restated (1.6) (1.6)

Equity capital (par value Rs. 10/- per share) 0.1 0.2

Reserves and Surplus (1.6) (3.2)

Earning/(Loss) per Equity Share (Rs.) (163.0) (83.4)

Book Value per Equity Share (Rs.) (153.0) (152.2)

Summary Consolidated Financial Data Under Indian GAAP

The following summary consolidated financial data has been extracted from our audited consolidated financial statementsprepared in accordance with Indian GAAP and SEBI Guidelines, and restated as described in the Auditors Report of S.R.Batliboi & Associates dated 17 January, 2004 in the section “Consolidated Financial Statements under Indian GAAP (includingSubsidiaries)”. You should read this summary consolidated data in conjunction with our audited consolidated financialstatements for the year ended March 31, 2003 and for the nine months ended December 31, 2003, including the significantaccounting policies and notes thereto and the reports thereon. Consolidated financial statements prepared in accordancewith Indian GAAP differ in certain significant respects from consolidated financial statements prepared under Indian GAAPand financial statements prepared under U.S. GAAP.

Summary Consolidated Profits and Losses, as Restated

(Rs. in million)

Year ended Nine months endedMarch 31, 2003 Dec. 31, 2003

Income

Sales 2,542.4 3,712.3

Contract Research Fees 277.5 265.1

Other income 6.2 9.2

Total Income 2,826.1 3,986.6

Manufacturing, research, selling and administrative expenses 2,076.5 2,692.6

Interest 49.9 12.4

Depreciation 133.3 114.3

Total Expenditure 2,259.7 2,819.3

Profit before taxation 566.4 1,167.3

Provision for current tax 97.0 203.8

Provision for deferred tax/ (deferred tax credit) 47.1 14.1

Profit for the year 422.3 949.4

Minority Interest 0.004 0.006

Net profit for the year, as restated 422.3 949.4

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Summary Consolidated Assets and Liabilities, as Restated(Rs. in million)

As at As atMarch 31, 2003 Dec. 31, 2003

Fixed assets 1,405.0 1,895.4

Investments 50.0 142.1

Current assets, loans and advances 1,410.5 2,256.6

Total Assets 2,865.5 4,294.1

Loan funds 685.7 650.3

Current liabilities and provisions 719.7 1,209.3

Deferred tax liability 140.4 153.9

Total liabilities and provisions 1,545.8 2,013.5

Net worth 1,319.7 2,280.6

Accounting Ratios

Year ended Nine months period endedMarch 31, 2003 Dec. 31, 2003

Earnings per Share (Rs.) (1)

Basic

Pre Split 10.1 22.7

Post Split 5.0 11.3

Diluted

Pre Split 9.8 22.0

Post Split 4.9 11.0

Return on Net Worth

Pre Split 32.0% 42.0%

Post Split 32.0% 42.0%

Net Asset Value per Equity Share

Pre Split 29.4 50.7

Post Split 14.7 25.4

Weighted average number of equity shares outstanding during the year/period

Basic

Pre Split 41,987,463 41,909,407

Post Split 83,974,925 83,818,814

Diluted

Pre Split 41,300,792 43,176,830

Post Split 86,601,584 86,353,660

Total number of shares outstanding at the end of the year/period

Pre Split 45,000,000 45,000,000

Post Split 90,000,000 90,000,000

(1) On November 11, 2003 the Company’s Board of Directors approved a sub division of equity shares of Rs. 10/- each into 2 equity shares of Rs. 5/- each. Accordingly,earnings per share and weighted average number of shares outstanding are presented on a pre-split and post-split basis.

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Summary Consolidated Financial Data Under U.S. GAAP

You should read the following summary consolidated financial data in conjunction with our consolidated financial statementsprepared under U.S. GAAP and the related notes included elsewhere in this Prospectus.

The summary consolidated financial data as at, and for the year ended March 31, 2003 and for the nine month period endedDecember 31, 2003 are derived from our audited consolidated financial statements under U.S. GAAP included elsewhere inthis Prospectus.

Summary Consolidated Statements of Income

Year ended Nine Months ended Nine Months endedMarch 31, 2003 Dec. 31, 2003 Dec. 31, 2003(in Rs. million) (in Rs. million) (in US$ million)

Revenue

Sale of products 2,542.4 3,712.3 81.5

Contract research services 277.5 265.0 5.8

Total revenues 2,819.9 3,977.3 87.3

Cost of revenues (excluding depreciationshown separately below) 1,662.0 2,315.5 50.8

Gross profit 1,157.9 1,661.8 36.5

Operating expenses 412.9 365.8 8.1

Depreciation 134.0 115.0 2.5

Income from operations 611.0 1,181.0 25.9

Interest expense 50.7 12.4 0.3

Interest income (2.8) (0.9) (0.0)

Other (income) / expense, net (4.3) (10.4) (0.2)

Share of losses in joint venture - 1.7 -

Income before income taxes and minority interest 567.4 1,178.2 25.8

Income taxes expense, net 123.1 248.0 5.4

Net income before minority interest 444.3 930.2 20.4

Minority interest - - -

Net income 444.3 930.2 20.4

Summary Consolidated Balance Sheet

As at March 31, 2003 As at Dec. 31, 2003 As at Dec. 31, 2003(in Rs. million) (in Rs. million) (in US$ million)

Assets

Current Assets 1,438.6 2.391.8 52.5

Non-Current Assets 1,442.5 1,922.1 42.2

Total Assets 2,881.1 4,313.9 94.7

Liabilities and Stockholders’ Equity

Current Liabilities 1,145.4 1,620.9 35.6

Non-Current Liabilities 413.6 429.0 9.4

Total Liabilities 1,559.0 2,049.9 45.0

Total Shareholders’ Equity 1,322.1 2,264.0 49.7

Total Liabilities and Stockholders’ Equity 2,881.1 4,313.9 94.7

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GENERAL INFORMATION

Authority for the Issue

The Issue has been authorized by a special resolution adopted pursuant to Section 81(1A) of the Companies Act, at theextraordinary general meeting of the shareholders of our Company held on December 24, 2003. The Board of Directors haspursuant to a resolution dated October 18, 2003 authorized a committee of its Directors referred to as the IPO Committee totake decisions on behalf of the Board in relation to the Issue. The IPO Committee pursuant to its resolution dated November28, 2003 has authorized the Issue.

Prohibition by SEBI

Our Company, our Directors, our Promoters, the directors and persons in control of our Promoters, our subsidiaries, ourgroup companies, other companies promoted by our Promoters and companies with which our Company’s Directors areassociated as directors have not been prohibited from accessing or operating in the capital markets or restrained from buying,selling or dealing in securities under any order or direction passed by SEBI.

Eligibility for the Issue

Our Company is eligible for the Issue in accordance with Clause 2.2.1 of the SEBI Guidelines as explained under, with theeligibility criteria calculated in accordance with unconsolidated financial statements under Indian GAAP:

■ Our Company has net tangible assets of at least Rs. 30 million in each of the preceding three full years of which not morethan 50% is held in monetary assets and is compliant with Clause 2.2.1(a) of the SEBI Guidelines;

■ Our Company has a track record of distributable profits in accordance with Section 205 of Companies Act, for at leastthree of the immediately preceding five years and is compliant with Clause 2.2.1(b) of the SEBI Guidelines;

■ Our Company has a net worth of at least Rs. 10 million in each of the three preceding full years and is compliant withClause 2.2.1(c) of the SEBI Guidelines;

■ Though our Company changed its name within the last one year (from Biocon India Limited to Biocon Limited on November17, 2003) more than 50% of the revenue for the preceding full year is earned from the activity suggested by our newname, which is compliant with Clause 2.2.1(d) of the SEBI Guidelines; and

■ The aggregate of the proposed Issue size and all previous issues made in the same financial year in terms of size (i.e.offer through the offer document + firm allotment + promoter’s contribution through the offer document) is not expectedto exceed five times the pre-Issue net worth of our Company as per the audited balance sheet of the last financial yearand is compliant with Clause 2.2.1(e) of the SEBI Guidelines.

Our net profit, dividend, net worth, net tangible assets and monetary assets derived from the auditor’s report included in thisProspectus under the section “Summary Unconsolidated Financial Data under Indian GAAP”, as at, and for the last fiveyears ended March 31, 2003 and the nine months ended December 31, 2003, is set forth below:

(Rs. in million)

Year ended Year ended Year ended Year ended Year ended Nine monthsMarch 31, March 31, March 31, March 31, March 31, ended

1999 2000 2001 2002 2003 Dec. 31, 2003

Net tangible assets(1) 174.9 769.3 1,012.9 1,618.4 2,073.0 2,924.1

Monetary assets(2) 0.7 9.7 0.1 1.0 10.2 11.4

Net profits, as restated 13.2 55.3 145.2 214.9 353.1 861.1

Net worth, as restated 95.1 414.9 560.1 860.1 1,247.3 2,120.0

(1) Net tangible assets is defined as the sum of fixed assets (including capital work in progress and excluding revaluation reserves), trade investments, current assets(excluding deferred tax assets) less current liabilities (excluding deferred tax liabilities and long term liabilities)

(2) Monetary assets include cash on hand and bank and quoted investments

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For a complete explanation of the above figures please refer to the section entitled “Selected Financial Data (as perUnconsolidated Financial Statements under Indian GAAP)” on page 86 of this Prospectus.

Further, the Issue is subject to the fulfilment of the following conditions as required by the SCRR:

■ A minimum 2,000,000 equity shares (excluding reservations, firm allotments and promoters contribution) are offered tothe public;

■ The Issue size, which is the Issue Price multiplied by the number of equity shares offered to the public, is a minimum ofRs. 1,000 million; and

■ The Issue is made through the book building method with allocation of 60% of the Issue size to QIBs as specified bySEBI.

Disclaimer Clause

AS REQUIRED, A COPY OF THE PROSPECTUS HAS BEEN SUBMITTED TO SEBI. IT IS TO BE DISTINCTLYUNDERSTOOD THAT SUBMISSION OF THE PROSPECTUS TO SEBI SHOULD NOT, IN ANY WAY, BE DEEMED ORCONSTRUED TO MEAN THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKEANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FORWHICH THE ISSUE IS PROPOSED TO BE MADE OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OROPINIONS EXPRESSED IN THE PROSPECTUS. THE BOOK RUNNING LEAD MANAGERS, DSP MERRILL LYNCHLIMITED AND KOTAK MAHINDRA CAPITAL COMPANY LIMITED, AND THE CO-BOOK RUNNING LEAD MANAGERHSBC SECURITIES AND CAPITAL MARKETS (INDIA) PRIVATE LIMITED HAVE CERTIFIED THAT THE DISCLOSURESMADE IN THE PROSPECTUS ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI (DISCLOSUREAND INVESTOR PROTECTION) GUIDELINES AS FOR THE TIME BEING IN FORCE. THIS REQUIREMENT IS TOFACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING AN INVESTMENT IN THE PROPOSEDISSUE. IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE COMPANY IS PRIMARILY RESPONSIBLEFOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE PROSPECTUS,THE BOOK RUNNING LEAD MANAGERS ARE EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THEISSUER COMPANY DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THISPURPOSE, BOOK RUNNING LEAD MANAGERS, DSP MERRILL LYNCH LIMITED AND KOTAK MAHINDRA CAPITALCOMPANY LIMITED, AND CO-BOOK RUNNING LEAD MANAGER HSBC SECURITIES AND CAPITAL MARKETS(INDIA) PRIVATE LIMITED HAVE FURNISHED TO SEBI, A DUE DILIGENCE CERTIFICATE DATED JANUARY 23, 2004,FEBRUARY 24, 2004 AND MARCH 23, 2004 IN ACCORDANCE WITH THE SEBI (MERCHANT BANKERS)REGULATIONS, 1992, WHICH READS AS FOLLOWS:

“WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO LITIGATION LIKE COMMERCIALDISPUTES, PATENT DISPUTES, DISPUTES WITH COLLABORATORS, ETC. AND OTHER MATERIALS INCONNECTION WITH THE FINALISATION OF THE PROSPECTUS PERTAINING TO THE SAID ISSUE.

ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE COMPANY, ITS DIRECTORS ANDOTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THEOBJECTS OF THE ISSUE, PROJECTED PROFITABILITY, PRICE JUSTIFICATION AND THE CONTENTS OF THEDOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE COMPANY.

WE CONFIRM THAT:

(A) THE PROSPECTUS FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS ANDPAPERS RELEVANT TO THE ISSUE;

(B) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE GUIDELINES,INSTRUCTIONS, ETC. ISSUED BY SEBI, THE GOVERNMENT AND ANY OTHER COMPETENT AUTHORITY INTHIS BEHALF HAVE BEEN DULY COMPLIED WITH; AND

(C) THE DISCLOSURES MADE IN THE PROSPECTUS ARE TRUE, FAIR AND ADEQUATE TO ENABLE THEINVESTORS TO MAKE A WELL-INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE;

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Biocon

(D) WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE PROSPECTUS AREREGISTERED WITH SEBI AND THAT TILL DATE SUCH REGISTRATIONS ARE VALID; AND

(E) WE HAVE SATISFIED OURSELVES ABOUT THE NET WORTH OF THE UNDERWRITERS TO FULFIL THEIRUNDERWRITING COMMITMENTS.

WE CERTIFY THAT WRITTEN CONSENT FROM PROMOTERS HAS BEEN OBTAINED FOR INCLUSION OF THEIRSECURITIES AS PART OF PROMOTERS’ CONTRIBUTION SUBJECT TO LOCK-IN AND THE SECURITIES PROPOSEDTO FORM PART OF THE PROMOTERS’ CONTRIBUTION SUBJECT TO LOCK-IN, WILL NOT BE DISPOSED/SOLD/TRANSFERRED BY THE PROMOTERS DURING THE PERIOD STARTING FROM THE DATE OF FILING THEPROSPECTUS WITH SEBI TILL THE DATE OF COMMENCEMENT OF LOCK-IN PERIOD AS STATED IN THEPROSPECTUS.

ALL LEGAL REQUIREMENTS PERTAINING TO THE ISSUE WILL BE COMPLIED WITH AT THE TIME OF FILINGOF THE PROSPECTUS WITH THE REGISTRAR OF COMPANIES, BANGALORE, KARNATAKA, IN TERMS OFSECTION 56, SECTION 60 AND SECTION 60B OF THE COMPANIES ACT.

THE FILING OF THE PROSPECTUS DOES NOT, HOWEVER, ABSOLVE THE COMPANY FROM ANY LIABILITIESUNDER SECTION 63 OR SECTION 68 OF THE COMPANIES ACT OR FROM THE REQUIREMENT OF OBTAININGSUCH STATUTORY AND/OR OTHER CLEARANCES AS MAY BE REQUIRED FOR THE PURPOSE OF THE PROPOSEDISSUE. SEBI FURTHER RESERVES THE RIGHT TO TAKE UP AT ANY POINT OF TIME, WITH THE BOOK RUNNINGLEAD MANAGERS, ANY IRREGULARITIES OR LAPSES IN THE PROSPECTUS.”

Caution

Our Company, our Directors, the BRLMs and the CBRLM accept no responsibility for statements made otherwise than in thisProspectus or in the advertisements or any other material issued by or at our instance and anyone placing reliance on anyother source of information, including our web site, www.biocon.com, would be doing so at his or her own risk.

The BRLMs and the CBRLM accept no responsibility, save to the limited extent as provided in the Memorandum ofUnderstanding entered into between the BRLMs, the CBRLM and us and the Underwriting Agreement to be entered intobetween the Underwriters and us.

All information shall be made available by us, the BRLMs and the CBRLM to the public and investors at large and no selectiveor additional information would be available for a section of the investors in any manner whatsoever including at road showpresentations, in research or sales reports, at bidding centers or elsewhere.

Disclaimer in Respect of Jurisdiction

This Issue is being made in India to persons resident in India including Indian nationals resident in India who are not minors,Hindu Undivided Families (HUFs), companies, corporate bodies and societies registered under the applicable laws in Indiaand authorized to invest in shares, Indian mutual funds registered with SEBI, Indian financial institutions, commercial banks,regional rural banks, co-operative banks (subject to RBI permission), Trusts registered under the Societies Registration Act,1860, as amended from time to time, or any other trust law and who are authorized under their constitution to hold and investin shares, permitted insurance companies and pension funds and to non-residents including NRIs and FIIs. This Prospectusdoes not, however, constitute an offer to sell or an invitation to subscribe to Equity Shares offered hereby in any otherjurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction. Any person into whosepossession this Prospectus comes is required to inform himself or herself about, and to observe, any such restrictions. Anydispute arising out of this Issue will be subject to the jurisdiction of appropriate court(s) in Bangalore, India only.

No action has been or will be taken to permit a public offering in any jurisdiction where action would be required for thatpurpose, except that this Prospectus has been submitted to the SEBI. Accordingly, the Equity Shares represented therebymay not be offered or sold, directly or indirectly, and this Prospectus may not be distributed, in any jurisdiction, except inaccordance with the legal requirements applicable in such jurisdiction. Neither the delivery of this Prospectus nor any salehereunder shall, under any circumstances, create any implication that there has been no change in the affairs of our Companysince the date hereof or that the information contained herein is correct as of any time subsequent to this date.

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Disclaimer Clause of the NSE

As required, a copy of this Draft Red Herring Prospectus has been submitted to NSE. NSE has given vide its letter datedFebruary 5, 2004, permission to the Company to use the NSE’s name in this Draft Red Herring Prospectus as one of the stockexchanges on which this Company’s securities are proposed to be listed, subject to the Company fulfilling the various criteriafor listing including the one related to the paid-up capital and market capitalization (i.e. the paid up capital shall not be lessthan Rs. 10 crores and market capitalization shall not be less that Rs. 25 crores at the time of listing). The NSE has scrutinizedthis Draft Red Herring Prospectus for its limited internal purpose of deciding on the matter of granting the aforesaid permissionto this Company. It is to be distinctly understood that the aforesaid permission given by NSE should not in any way bedeemed or construed to mean that this Draft Red Herring Prospectus has been cleared or approved by NSE; nor does it inany manner warrant, certify or endorse the correctness or completeness of any of the contents of this Draft Red HerringProspectus; nor does it warrant that this Company’s securities will be listed or will continue to be listed on the NSE; nor doesit take any responsibility for the financial or other soundness of this Company, its promoters, its management or any schemeor project of this Company.

Every person who desires to apply for or otherwise acquires any securities of the Company may do so pursuant to independentinquiry, investigation and analysis and shall not have any claim against the NSE whatsoever by reason of any loss whichmay be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason ofanything stated or omitted to be stated herein or any other reason whatsoever.

Disclaimer Clause of BSE

As required, a copy of this Draft Red Herring Prospectus has been submitted to BSE. BSE has given vide its letter datedFebruary 5, 2004, permission to this Company to use BSE’s name in this Draft Red Herring Prospectus as one of the stockexchanges on which this Company’s securities are proposed to be listed. BSE has scrutinized this Draft Red Herring Prospectusfor its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Company.

BSE does not in any manner:

■ warrant, certify or endorse the correctness or completeness of any of the contents of this Draft Red Herring Prospectus;or

■ warrant that this Company’s securities will be listed or will continue to be listed on BSE; or

■ take any responsibility for the financial or other soundness of this Company, its promoters, its management or any schemeor project of this Company;

and it should not for any reason be deemed or construed to mean that this Draft Red Herring Prospectus has been cleared orapproved by BSE. Every person who desires to apply for or otherwise acquires any securities of this Company may do sopursuant to independent inquiry, investigation and analysis and shall not have any claim against BSE whatsoever by reasonof any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whetherby reason of anything stated or omitted to be stated herein or for any other reason whatsoever.

Filing

A copy of the Prospectus, along with the documents required to be filed under Section 60B of the Companies Act, would bedelivered for registration to the RoC. A copy of this Prospectus has been filed with the Corporate Finance Department ofSEBI at Ground Floor, Mittal Court, “A” Wing, Nariman Point, Mumbai 400 021.

Listing

Applications have been made to the NSE and BSE for permission to deal in and for an official quotation of our Equity Shares.NSE will be the Designated Stock Exchange.

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Biocon

If the permissions to deal in and for an official quotation of our Equity Shares are not granted by any of the Stock Exchangesmentioned above, our Company will forthwith repay, without interest, all moneys received from the applicants in pursuanceof this Prospectus. If such money is not repaid within 8 days after our Company become liable to repay it, i.e. from the date ofrefusal or within 70 days from the Bid/Issue Closing Date, whichever is earlier, then the Company, and every Director of theCompany who is an officer in default shall, on and from such expiry of 8 days, be liable to repay the money, with interest atthe rate of 15% per annum on application money, as prescribed under Section 73 of the Companies Act.

Our Company shall ensure that all steps for the completion of the necessary formalities for listing and commencement oftrading at all the Stock Exchanges mentioned above are taken within 7 working days of finalization of the Basis of Allotmentfor the Issue.

Impersonation

Attention of the applicants is specifically drawn to the provisions of sub-section (1) of Section 68A of the Companies Act,which is reproduced below:

“Any person who:

(a) makes in a fictitious name, an application to a company for acquiring or subscribing for, any shares therein, or

(b) otherwise induces a company to allot, or register any transfer of shares, therein to him, or any other person in afictitious name,

shall be punishable with imprisonment for a term which may extend to five years.”

Minimum Subscription

If our Company does not receive the minimum subscription of 90% of the net offer to public, including devolvement ofunderwriters within 60 days from the Bid/Issue Closing Date, our Company shall forthwith refund the entire subscriptionamount received. If there is a delay beyond 8 days after our Company becomes liable to pay the amount, our Company shallpay interest prescribed under Section 73 of the Companies Act.

Withdrawal of the Issue

Our Company, in consultation with the BRLMs and the CBRLM, reserves the right not to proceed with the Issue anytimeafter the Bid/Issue Opening Date without assigning any reason therefore.

Letters of Allotment or Refund Orders

We shall give credit to the beneficiary account with depository participants within 2 working days of finalization of the basisof allotment of Equity Shares. We shall dispatch refund orders, if any, of value up to Rs. 1,500, by “Under Certificate ofPosting”, and will dispatch refund orders above Rs. 1,500, if any, by registered post or speed post at the sole or first Bidder’ssole risk within 15 days of the Bid/Issue Closing Date.

In accordance with the Companies Act, the requirements of the Stock Exchanges and the SEBI Guidelines, we further undertakethat:

l Allotment of Equity Shares will be made only in dematerialized form within 15 days from the Bid/Issue Closing Date;

l Dispatch of refund orders will be done within 15 days from the Bid/Issue Closing Date; and

l We shall pay interest at 15% per annum (for any delay beyond the 15 day time period as mentioned above), if allotmentis not made, refund orders are not dispatched and/or demat credits are not made to investors within the 15 day timeprescribed above.

We will provide adequate funds required for dispatch of refund orders or allotment advice to the Registrar to the Issue.

Refunds will be made by cheques, pay-orders or demand drafts drawn on a bank appointed by us, as an Escrow CollectionBank and payable at par at places where Bids are received. Bank charges, if any, for encashing such cheques, pay orders ordemand drafts at other centers will be payable by the Bidders.

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Issue Program

BID/ISSUE OPENS ON : MARCH 11, 2004

BID/ISSUE CLOSES ON : MARCH 18, 2004

Bids and any revision in Bids shall be accepted only between 10 a.m. and 3 p.m. (Indian Standard Time) during the BiddingPeriod as mentioned above at the bidding centres mentioned on the Bid cum Application Form except that on the Bid/IssueClosing Date, the Bids shall be accepted only between 10 a.m. and 1 p.m. (Indian Standard Time) or uploaded till such timeas may be permitted by the NSE and BSE on the Bid/Issue Closing Date.

In case of revision in the Price Band, the Bidding/Issue Period will be extended for three additional days after revision ofPrice Band. Any revision in the Price Band and the revised Bid/Issue Period, if applicable, will be widely disseminated bynotification to the NSE and BSE, by issuing a press release, and also by indicating the change on the web site of the BRLMsand the CBRLM and at the terminals of the Syndicate.

Book Running Lead Managers

DSP Merrill Lynch Limited Kotak Mahindra Capital Company Limited

Mafatlal Centre, 10th Floor Bakhtawar, 3rd FloorNariman Point 229, Nariman PointMumbai 400 021 Mumbai 400 021Tel: +91 22 5632 8000 Tel: +91 22 5634 1100Fax:+91 22 2204 8518 Fax: +91 222284 0492Email: biocon_ipo@ml.com Email: biocon.ipo@kotak.com

Co Book Running Lead Manager

HSBC Securities and Capital Markets (India) Private Limited

52/60 Mahatma Gandhi Road,Fort, Mumbai 400 001IndiaTel: +91 22 2268 1284/5Fax: +91 222263 1984Email: biocon_ipo@hsbc.co.in

Syndicate Members

Kotak Securities Limited Karvy Stock Broking Limited

Bakhtawar, 1st Floor 529, Road No. 4,229, Nariman Point Banjara HillsMumbai 400 021 Hyderabad 500 034Tel: +91 22 5634 1100 Tel: +91 40 2331 2454Fax: +91 225630 3927 Fax: +91 402331 1968Email: biocon.ipo@kotak.com Email: biocon@karvy.com

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Statement of Inter-Se Allocation of Responsibility

The responsibilities and co-ordination for various activities in this Issue have been distributed between the BRLMs and theCBRLM as under:

Sr. No. Activities Responsibil ity Co-ordinator

1. Capital structuring with the relative components and formalities DSPML, KMCC KMCCsuch as type of instruments etc. HSBC

2. Due diligence of our Company’s operations/ management/ business plans/ legal etc. DSPML, KMCCDSPMLDrafting and design of the Red Herring Prospectus and of statutory advertisement HSBCincluding memorandum containing salient features of the Prospectus.The BRLM shall ensure compliance with stipulated requirements and completionof prescribed formalities with the Stock Exchanges, RoC and SEBI includingfinalization of Prospectus and RoC filing of the same.

3. Drafting and approval of all publicity material other than statutory advertisement DSPML, KMCC KMCCas mentioned in (2) above including corporate advertisement, brochure, roadshow HSBCpresentations, FAQs, corporate films etc.

4. Appointment of other intermediaries viz. Registrar, Printers, Advertising Agency DSPML, KMCC KMCCand Bankers to the Issue. HSBC

5. Institutional Marketing of the Issue, which will cover, inter alia, DSPML, KMCC DSPMLFinalize the list and division of investors for one to one meetings; and HSBCFinalize roadshow schedule and investor meeting schedules.

6. Non-Institutional and Retail Marketing of the Issue, which will cover, inter alia, DSPML, KMCC KMCCFormulating marketing strategies, preparation of publicity budget; HSBCFinalise Media & PR strategy;Finalise centers for holding conferences for brokers etc.;Finalise collection centers; and Follow-up on distribution of publicity and issuematerial including form, prospectus and deciding on the quantum of the Issue material.

7. Deciding pricing and institutional allocation in consultation with the Company. DSPML, KMCC DSPMLHSBC

8. The post bidding activities including management of escrow accounts, coordinate DSPML, KMCC DSPMLnon-institutional allocation, intimation of allocation and dispatch of refunds to HSBCBidders etc. The post issue activities will involve essential follow-up steps,which include the finalisation of listing of instruments and dispatch of certificatesand demat delivery of shares, with the various agencies connected with the worksuch as the Registrar to the Issue and Bankers to the Issue and the bankhandling refund business. The merchant banker shall be responsible forensuring that these agencies fulfil their functions and enable it to dischargethis responsibility through suitable agreements with the Company.

The Selection of various agencies like Registrars to the Issue, Bankers to the Issue, Bank Collection Centres, Legal Advisorsto the Issue, Underwriters to the Issue, Advertising Agencies, Public Relations Agencies etc. has been finalised by theCompany in consultation with the BRLMs and CBRLM.

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Registered Office and Corporate Office of the Company20th K.M. Hosur Road, Electronic City P.O.Bangalore 560 100Tel: +91 80 2852 3434Fax: +91 802852 3423

Company SecretaryMr. Ashok Bhandarkar20th K.M. Hosur Road, Electronic City P.O.Bangalore 560 100Tel: +91 80 2852 3434Fax: +91 802852 3423Email: ashok.bhandarkar@biocon.com

Compliance OfficerMr. Murali Krishnan K.N.President-Group Finance20th K.M. Hosur RoadElectronic City P.O.Bangalore 560 100Tel: +91 80 2852 3434Fax: +91 802852 3423Email: murali.krishnan@biocon.com

Financial Advisors to the CompanyAllegro Capital Advisors Pvt. Ltd.‘C’ Block, Silicon Terraces, 30/1 Hosur Main Road,Koramangala, Bangalore 560 030Tel: +91 80 5667 0201Fax: +91 805667 0215

Registrar to the IssueKarvy Consultants LimitedKarvy House, 46, Avenue 4, Street No. 1, Banjara Hills,Hyderabad 500 034Tel: +91 40 2331 2454Fax: +91 402331 1968Email: biocon@karvy.com

Investors can contact the Compliance Officer or the Registrar to the Issue in case of any pre-Issue or post-Issue relatedproblems such as non-receipt of letters of allotment, credit of allotted shares in the respective beneficiary accounts, refundorders etc.

Legal Counsel to the UnderwritersDomestic CounselAmarchand & Mangaldas & Suresh A. Shroff & Co.201, Midford House,Midford Garden, M.G. Road,Bangalore 560 001Tel: +91 80 2558 4870Fax: +91 802558 4266

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Biocon

International CounselSkadden, Arps, Slate, Meagher & Flom (International)Suntec Tower TwoSuite #29-019 Temasek BoulevardSingapore 038989Tel: +65 6434 2900Fax: +656434 2988

Legal Counsel to the CompanyCrawford Bayley & Co.State Bank Building, 4th Floor,N.G.N.Vaidya Marg,Mumbai 400 023Tel: +91 22 2266 0277/ 3713Fax: +91 222266 0355

Auditors to the CompanyS.R. Batliboi & Associates‘Divyasree Chambers’,A Wing, 2nd Floor,Langford Road,Bangalore 560 025Tel: +91 80 2224 5646Fax: +91 802224 0695

U.S. GAAP AuditorsErnst & YoungErnst & Young Towers,B-26, Qutub Institutional Area,New Delhi 110 016Tel: +91 11 2661 1004Fax: +91 112661 1012

Bankers to the Issue and Escrow Collection Banks

ABN Amro Bank NVSakhar Bhavan, 4th Floor,Nariman Point,Mumbai 400 021Tel : + 9122 5637 2500Fax : + 91225637 2403

Kotak Mahindra Bank Limited2nd Floor, Bakhtawar,Nariman Point,Mumbai 400 021Tel : + 9122 5698 6022Fax : + 91222281 7527

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Biocon

The Hongkong and Shanghai Banking Corporation Limited52/60, Mahatma Gandhi Road,Mumbai 400 021Tel : + 9122 2267 4921Fax : + 91222262 3890

HDFC Bank LimitedTrade WorldNew Building2nd Floor, Kamala Mills,Senapati Bapat Marg,Lower Parel,Mumbai 400 013Tel : + 91 22 2498 8484Fax : + 91 22 2496 3871

Canara BankOverseas BranchCentenary Building28, M. G. RoadBangalore 560 001Tel : +91 80 2559 1979Fax: +91 80 2558 7143

Bankers to the IssuerThe Hongkong and Shanghai Banking Corporation Limited7, M.G. Road,Bangalore 560001Tel: +91 80 2558 5444Fax: +91 802558 4411

State Bank of India(Overseas Branch)87, M.G. Road,Bangalore 560 001Tel: +91 80 2558 8000Fax: +91 802558 8348

Canara BankOverseas Branch28, M.G. RoadBangalore 560001Tel: +91 80 2558 4340Fax: +91 80 2558 7143

Credit Rating

As this is an issue of Equity Shares, there is no credit rating for this Issue.

Trustees

As this is an issue of Equity Shares, the appointment of Trustees is not required.

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Book Building Process

Book building refers to the collection of Bids from investors, which is based on the Price Band, with the Issue Price beingfinalized after the Bid/Issue Closing Date. The principal parties involved in the Book Building Process are:

1. The Company;

2. Book Running Lead Managers;

3. Co Book Running Lead Manager; and

4. Syndicate Members who are intermediaries registered with SEBI or registered as brokers with the Stock Exchange(s) andeligible to act as underwriters. The BRLMs and the CBRLM to appoint Syndicate Members.

The SEBI Guidelines has permitted an issue of securities to the public through the 100% Book Building Process, wherein60% of the Issue shall be allocated on a discretionary basis to QIBs. Further, not less than 15% of the Issue shall be availablefor allotment on a proportionate basis to Non Institutional Bidders and not less than 25% of the Issue shall be available forallotment on a proportionate basis to Retail Bidders, subject to valid Bids being received at or above the Issue Price. We willcomply with the SEBI Guidelines for this Issue. In this regard, we have appointed the BRLMs and the CBRLM to procuresubscriptions to the Issue.

The process of book building, under SEBI Guidelines, is relatively new and the investors are advised to make their ownjudgment about investment through this process prior to making a Bid in the Issue. Pursuant to recent amendments to SEBIGuidelines, QIBs are not allowed to withdraw their Bid after the Bid/Issue Closing Date. Please refer to the section entitled“Terms of the Issue” on page 141 of this Prospectus for more details.

Steps to be taken by the Bidders for bidding:

l Check whether he/she is eligible for bidding;

l Bidder necessarily needs to have a demat account; and

l Ensure that the Bid cum Application Form is duly completed as per instructions given in this Prospectus and in the Bidcum Application Form.

Underwriting Agreement

After the determination of the Issue Price and prior to filing of the Prospectus with RoC, we will enter into an UnderwritingAgreement with the Underwriters for the Equity Shares proposed to be offered through the Issue. It is proposed that pursuantto the terms of the Underwriting Agreement, the BRLMs and the CBRLM shall be responsible for bringing in the amountdevolved in the event that the Syndicate Members do not fulfill their underwriting obligations.

The Underwriters have indicated their intention to underwrite the following number of Equity Shares:

Name and Address of the Underwriters Indicated Number of Equity Amount UnderwrittenShares to be Underwritten (Rs. in million)

DSP MERRILL LYNCH LIMITED 3,999,920 1,260.0Mafatlal Centre, 10th Floor, Nariman Point, Mumbai 400 021

KOTAK MAHINDRA CAPITAL COMPANY LIMITED 3,999,920 1,260.0Bakhtawar, 3rd Floor, 229 Nariman Point, Mumbai 400 021

HSBC SECURITIES AND CAPITAL MARKETS (INDIA) 1,999,960 630.0PRIVATE LIMITED52/60 Mahatma Gandhi Road, Fort, Mumbai 400 001

KOTAK SECURITIES LIMITED 100 0.0Bakhtawar, 1st Floor, 229 Nariman Point, Mumbai 400 021

KARVY STOCK BROKING LIMITED 100 0.0

529, Road no. 4, Banjara Hills, Hyderabad - 500 034.

The above Underwriting Agreement is dated March 20, 2004.

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In the opinion of our Board of Directors (based on a certificate given by the Underwriters), the resources of all the abovementioned Underwriters are sufficient to enable them to discharge their respective underwriting obligations in full. All theabove-mentioned Underwriters are registered with SEBI under Section 12(1) of the SEBI Act or registered as brokers with theStock Exchange(s). Our IPO Committee, at their meeting held on March 20, 2004, have accepted and entered into theUnderwriting Agreement mentioned above on behalf of our Company.

Allocation among Underwriters may not necessarily be in proportion to their underwriting commitments. Notwithstandingthe above table, the BRLMs, the CBRLM and the Syndicate Members shall be responsible for ensuring payment with respectto Equity Shares allocated to investors procured by them. In the event of any default in payment, the respective Underwriter,in addition to other obligations defined in the Underwriting Agreement, will also be required to procure/subscribe to theextent of the defaulted amount. In terms of Rule 19(2)(b) of the SCRR, this being an Issue for less than 25% of the post issuecapital, the Issue is being made through the 100% book building process with an allocation of minimum 60% of the Issue sizeto Qualified Institutional Buyers, with a minimum of two million securities being offered to the Retail Bidder and the minimumIssue size being Rs. 1000 million. Allotment to QIBs is discretionary as per the terms of this Prospectus and may not beproportionate in any way and the patterns of allotment to the QIBs could be different for the various Underwriters. Theallocation to the QIBs shall be determined by the Bookrunners based on prior commitment, investor quality, price aggression,earliness of bids, etc.

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CAPITAL STRUCTURE

Financial data presented in this Section is derived from our Unconsolidated Financial Statements prepared in accordancewith Indian GAAP.

Share capital as at the date of filing of Prospectus with SEBI (before and after the Issue) is set forth below:

(Rs. in million, except share data)

Aggregate Aggregate valuenominal value at Issue Price

A. Authorised Capital

120,000,000 Equity Shares of Rs. 5/- each 600.0

B. Issued, Subscribed and Paid-up Capital before the Issue

90,000,000 Equity Shares of Rs. 5/- each fully paid-up 450.0

C . Net Public Offer in terms of this Prospectus

10,000,000 Equity Shares of Rs. 5/- each fully paid-up 50.0 3,150.0

D. Equity Capital after the Issue

100,000,000 Equity Shares of Rs. 5/- each fully paid-up 500.0

E. Share Premium Account

- Before the Issue 339.9

- After the Issue 3,439.9

a) A share split was approved at the extra ordinary general meeting held on February 25, 2002 resulting in each equityshare of Rs. 100 each being subdivided into 10 equity shares of Rs. 10 each.

b) A share split was approved at the extra ordinary general meeting held on November 11, 2003 resulting in each equityshare of Rs. 10 being subdivided into 2 equity shares of Rs. 5 each.

c) The authorised share capital of our Company was increased from Rs. 20,000,000 divided into 4,000,000 equity shares ofRs. 5/- each to Rs. 600,000,000 divided into 120,000,000 equity shares of Rs. 5 each through special resolution passed atits extra ordinary general meeting held on November 11, 2003.

d) The shareholders, at the EGM held on November 11, 2003 approved the issue of 86,324,700 Equity Shares of Rs. 5 eachas bonus shares in the ratio of approximately 23.5 Equity Shares for every Equity Share held in the Company. Theseshares were allotted on November 28, 2003. The bonus had been fixed to (i) capitalise the reserves of the Company (ii) tomeet the issuance and listing guidelines and (iii) to encourage retail participation in the Issue.

Notes to the Capital Structure

1. Share Capital History of our Company:Cumulative

Nature of Paid-up CumulativeDate of Number of Face Value Issue Price payment of Reasons for Capital Share Premium

Allotment (1) Equity Shares (Rs.) (Rs.) Consideration Allotment (Rs.) (Rs. in million)

29.11.1978 50 100 100 Cash Subscription to Memorandum 5,000 Nilof Association

01.04.1979 650 100 100 Cash Further issue of shares 70,000 Nil26.12.1979 800 100 100 Cash Further issue of shares 150,000 Nil26.11.1980 500 100 100 Cash Further issue of shares 200,000 Nil07.11.1981 1,000 100 100 Cash Further issue of shares 300,000 Nil22.07.1982 2,000 100 100 Cash Further issue of shares 500,000 Nil27.11.1982 2,000 100 100 Cash Further issue of shares 700,000 Nil18.02.1983 1,500 100 100 Cash Further issue of shares 850,000 Nil19.12.1983 700 100 100 Cash Further issue of shares 920,000 Nil05.08.1985 3,500 100 100 Cash Further issue of shares 1,270,000 Nil21.02.1986 2,300 100 100 Cash Further issue of shares 1,500,000 Nil04.12.1989 300 100 100 Cash Further issue of shares 1,530,000 Nil

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CumulativeNature of Paid -up Cumulative

Date of Number of Face Value Issue Price payment of Reasons for Capital Share PremiumAllotment (1) Equity Shares (Rs.) (Rs.) Consideration Allotment (Rs.) (Rs. in million)

27.07.1994 100 100 100 Cash Further issue of shares 1,540,000 Nil19.12.1996 30,800 100 Nil Bonus shares Bonus share in the ratio of 2 equity 4,620,000 Nil

shares for every 1 equity shareheld in Biocon

28.09.1998 12,000 100 100 Cash Conversion of FCD to Equity Shares 5,820,000 Nil03.01.2000 45,000 100 100 Cash Further issue of shares 10,320,000 Nil24.03.2000 23,471 100 4,782.0 Consideration Consideration for acquisition of equity 12,667,100 109.9

other than cash shares of BCZ, HLX and BQIL(2)

30.03.2000 22,991 100 6,524.3 Cash Allotment to ICICI Structured Products14,966,200 257.6Fund, TCW/ICICI Private Equity AMPFund LLC, TCW/ICICI PrivateEquity Fund LLCI

08.08.2000 85 100 5000 Cash Further issue of shares 14,974,700 258.008.10.2001 12,153 100 100 Cash Further issue of shares 16,190,000 258.030.03.2002 Sub-division in to Rs. 10/- per share30.03.2002 202,780 10 413.8 Consideration Consideration for swapping equity 18,217,800 339.9

other than cash shares of Syngene for equity sharesof Biocon(3)

09.05.2002 15,870 10 10 Cash Further issue of shares 18,376,500 339.928.11.2003 Sub-division in to Rs. 5/- per share28.11.2003 86,324,700 5 Nil Bonus shares Bonus shares in the ratio of 450,000,000 339.9

approximately 23.5 Equity Shares forevery 1 Equity Share of Biocon

(1) All allotted shares have been fully paid up from the date of allotment, i.e. the date of allotment and the date on which the equity shares were fully paid up are thesame.

(2) Our Company acquired the entire shareholding of BCZ, BQIL and HLX from Glentec International, Ms. Kiran Mazumdar Shaw and others in exchange for issueof shares by our Company. The shareholders to whom consideration other than cash has been paid for acquisition of equity shares of BCZ, HLX and BQIL areMs. Kiran Mazumdar Shaw, Mr. Murali Krishnan K N, Mr. Ajay Bhardwaj, Mr. Shrikumar Suryanarayan, Dr. Arun Chandavarkar, Dr. Goutam Das, Mr. SunilKumar Alagh, Mrs. Maya Alagh, Ms. Sanvari Alagh, Ms. Anjori Alagh, Mr. Siraj & Ms. Renu Hasan, Ms. Nilima Rovshen, Mr. R. Gopala Krishnan, Ms. MonicaMakan, Mrs. Tania Sant, Mr. S.N. Talwar, Mr. Ravi Mazumdar, Mrs. Catherine P Rosenberg, Mr. S M A Lecchini, Dr. Neville C Bain & Mrs. Bain, Prof. CharlesCooney, Mr. Declan Mcfadden, Mr. J M M Shaw and M/s. Glentec International.

(3) Our Company acquired 99.99% of Syngene from its other shareholders, including ICICI Venture and its affiliate funds, which divested their entire stake in Syngenein exchange for issue of shares by our Company. The shareholders to whom consideration other than cash has been paid for acquisition of equity shares of Syngeneare Ms. Kiran Mazumdar-Shaw, Ms. Kumud Sampath, Dr, Arun Chandavarkar, Mr. Shrikumar Suryanarayan, Mr. Ajay Bhardwaj, Mr. Murali Krishnan K.N.,Dr. Goutam Das, Dr. K Prasad, Mr. N. Rajagopal, Prof. J. Ramachandran, Mr. Parag Saxena, Prof. Ravi Mazumdar, Dr. Anand Kumar, Prof. Suresh Subramani,Mr. Dev Mazumdar, Prof. Sune Rosell, Prof. Catherine Rosenberg, Mr. L. Auchincloss, Mr. Fredric Rosenberg, Dr. Joseph Dunne, Mr. Declan Mcfadden,Prof. Charles Cooney, Mr. Shashidhar, Dr. S. Ganesh, Ms. Nilima Rovshen, Dr. M. C. Srinivasan, Mr. Sunil Kumar Alagh, Ms. Maya Alagh, Mr. J.M.M. Shaw, GlentecInternational, Dr. Nita Roy, ICICI Trusteeship Services Ltd, (ICICI Equity Fund), TCW/ICIC India Pvt. Equity AMP Fund, L.L.C, TCW/ICICI India Pvt. Equity Fund,Mrs. Joan E. Schouten

2. Promoters Contribution and Lock-in: Details of Promoters Contribution locked in for 3 yearsNumber of

Equity Shares Date ofsubject to Allotment Percentage Percentage of

Total lock-in for of shares subject of Pre Issue Post IssueName of Number of Face value Issue Price 3 years to lock-in paid-up paid-up Lock-inPromoter shares held (Rs.) (Rs.) (of Rs. 5 each) for 3 years(1) Consideration Capital (%) Capital (%) period

Ms Kiran 39,643,782 5 Nil 12,884,000 28.11.2003 Bonus Shares 14.32% 12.88% 3 yearsMazumdarShaw

Mr John Shaw 703,779 5 Nil 229,000 28.11.2003 Bonus Shares 0.25% 0.23% 3 years

GlentecInternational 21,192,718 5 Nil 6,887,000 28.11.2003 Bonus Shares 7.65% 6.89% 3 years

Total 61,540,279 20,000,000 Bonus Shares 22.22% 20.00%

(1) All allotted shares have been fully paid up from the date of allotment, i.e. the date of allotment and the date on which the equity shares were fully paid up are thesame.

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Other than the above shares which are locked in for three years, the Equity Shares held by venture capital funds and foreignventure capital investors registered with SEBI, Equity Shares held by employees other than promoter and Equity Shares heldby the ESOP Trust (only to the extent of allotment/transfer of such Equity Shares to employees in respect of options alreadygranted) and issued under the SEBI compliant ESOP scheme which are exempt from lock in, our entire pre-Issue share capital,shall be locked in for the period of one year from the date of allotment of this Issue including the following shares held bythe Promoters

Details of Promoters Contribution locked in for 1 year:Number of Equity Shares

Total Number subject to lock-in for 1 Percentage of Percentage of PostName of of shares Face value year Pre Issue paid- Issue paid-up Lock-in

Promoter held (Rs.) (of Rs. 5 each) up Capital (%) Capital (%) period

Ms KiranMazumdar Shaw 39,643,782 5 26,759,782 29.73% 26.76% 1 year

Mr John Shaw 703,779 5 474,779 0.53% 0.47% 1 year

GlentecInternational 21,192,718 5 14,305,718 15.90% 14.31% 1 year

Total 61,540,279 41,540,279 46.16% 41.54%

3. Shareholding pattern of our Company before and after the Issue:

Pre-Issue (as on March 19, 2004) Post-Issue

Number of Number ofShareholder(s) Equity Shares Equity Shares

(Rs. 5/- each) Percentage (Rs. 5/- each) Percentage

PromotersMs. Kiran Mazumdar-Shaw 39,643,782 44.05 39,643,782 39.64Mr. John Shaw 703,779 0.78 703,779 0.70Glentec International 21,192,718 23.55 21,192,718 21.19Total holding of Promoter 61,540,279 68.38 61,540,279 61.53Relatives of the Promoters(i) Prof. Ravi Mazumdar 594,074 0.66 594,074 0.60(ii) Mr. Dev Mazumdar 25,957 0.03 25,957 0.03(iii) Ms. Yamini Mazumdar 97,951 0.11 97,951 0.10Total holding of relatives of the Promoters 717,982 0.80 717,982 0.72OthersAIG AOF, a wholly owned subsidiary ofAIG Asian Opportunity Fund L.P. 9,000,000 10.00 9,000,000 9.00India Value Fund Trustee Co. Pvt. Ltd. 2,112,268 2.35 2,112,268 2.11Held by Trustees of the ESOP Trust 6,181,186 6.87 6,181,186 6.18Held by Trustees of the Welfare Trust 1,022,727 1.14 1,022,727 1.02Employees 7,031,453 7.81 7,031,453 7.03Mr. Suresh Talwar, Director 4,898 0.01 4,898 0.01Dr. Neville Bain, Director 48,976 0.05 48,976 0.05Prof. Charles Cooney, Director 212,835 0.24 212,835 0.21Prof. Catherine Rosenberg, Director 34,283 0.04 34,283 0.03Total holding of Directors 300,992 0.33 300,992 0.30Resident Individuals 528,010 0.59 528,010 0.53NRIs 342,120 0.38 342,120 0.34Foreign Individuals 522,632 0.58 522,632 0.52Trustees of the Neville Bain Trust 700,351 0.78 700,351 0.70Equity Shares allotted pursuant to the Issue - - 10,000,000 10.00

Total 90,000,000 100.00 100,000,000 100.00

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4. Our top ten shareholders and the number of Equity Shares of Rs. 5 each held by them 10 days prior to date of filing andon the date of filing this Prospectus with SEBI is as follows:

Sl. No. Name of Shareholders As at date of filing Percentage 10 days prior to Percentagewith the SEBI shareholding date of filing shareholding

1. Ms. Kiran Mazumdar-Shaw 39,643,782 44.05 39,643,782 44.05

2. Glentec International 21,192,718 23.55 21,192,718 23.55

3. AIG AOF Mauritius Ltd., a whollyowned subsidiary of AIG AsianOpportunity Fund L.P. 9,000,000 10.00 9,000,000 10.00

4. Trustees of the ESOP Trust 6,181,186 6.87 6,181,186 6.87

5. India Value Fund Trustee Co Pvt Ltd 2,112,268 2.35 2,112,268 2.35

6. Mr. Murali Krishnan K.N 1,095,584 1.22 1,095,584 1.22

7. Mr. Ajay Bhardwaj 1,095,584 1.22 1,095,584 1.22

8. Mr. Shrikumar Suryanarayan 1,095,584 1.22 1,095,584 1.22

9. Dr. Arun Chandavarkar 1,095,584 1.22 1,095,584 1.22

10. Trustees of the Welfare Trust 1,022,727 1.14 1,022,727 1.02

5. Our top ten shareholders and the number of equity shares held by them two years prior to date of filing of this Prospectuswith SEBI is as follows:

Sl. No. Name of Shareholders (a) Number of Equity Shares of PercentageRs. 100/- each shareholding

(as on March 19, 2002) (as on March 19, 2002)

1. Ms. Kiran Mazumdar-Shaw 77,335 47.762. Glentec International 32,692 20.193. Trustees of the ESOP Trust 12,503 7.724. ICICI Ltd- ICICI Structured Products Fund 9,657 5.965. TCW / ICICI Private Equity Fund LLC 8,919 5.506. TCW/ ICICI Private Equity AMP Fund LLC 3,785 2.337. Mr. Murali Krishnan K.N. 1,925 1.188. Mr. Ajay Bhardwaj 1,925 1.189. Mr. Shrikumar Suryanarayan 1,925 1.18

10. Dr Arun Chandavarkar 1,925 1.18

Note: The total number of equity shares of our Company as on December 31, 2001 was 161,900 of Rs. 100 each. The shares were subdivided into the shares of face value

of Rs. 10 each on February 25, 2002 and these were further sub divided into shares of face value of Rs. 5 each on November 11, 2003.

6. There are no outstanding warrants, options or rights to convert debentures, loans or other instruments in our EquityShares.

7. None of our Promoters, members of our promoter group or our Directors have purchased or sold any Equity Shares,during a period of six months preceding the date on which this Prospectus is filed with SEBI, except as stated below:

Number of Equity Number of EquityShares (of Rs. Shares (of Rs. 510 each before each post split

Sl. No. Date of Transfer Transferor Transferee split and bonus) and bonus)

1. July 18, 2003 Glentec International Held by Trustee 4,300 210,595on behalf of NevilleBain Trust

2. September 15, 2003 Mr. B.K.Venkatraj Ms. Yamini Mazumdar 2,000 97,951

Our Company, our Directors, the BRLMs and the CBRLM have not entered into any buy-back and/or standby arrangementsfor purchase of Equity Shares of our Company from any person, save as described in the section entitled “AIG AOFShareholders Agreement” on page 67 and “IVF Shareholders Agreement” on page 69 of this Prospectus.

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8. On September 27, 2001 our shareholders adopted the ESOP Scheme. Under the ESOP Scheme 12,153 Equity Shares ofRs. 100 each representing 7.51% of the issued and paid-up share capital of the Company were issued to the ESOP Trustfor the benefit of eligible employees and Directors of the Company and its subsidiaries. In addition to this, the ESOPTrust also acquired shares from certain other shareholders. The ESOP Trust has on May 9, 2002 granted options inrespect of 69,010 Equity Shares of Rs. 10 each (being the “First Grant (before Equity Share split and bonus)”) representing3.76% of the issued and paid-up share capital of the Company to eligible employees and Directors of the Company andits subsidiaries. On November 11, 2003 each equity share of Rs. 10 each of our Company subdivided into 2 Equity Sharesof Rs. 5 each. On November 28, 2003 our Company granted all its shareholders, bonus shares in the ratio of approximately23.5 Equity Shares of Rs. 5 each for every 1 Equity Share held by them. This grant of shares is referred to in the tablebelow as the “First Grant (Post Equity Share split and bonus)”. As on December 31, 2003, the ESOP Trust holds 6,181,186Equity Shares of Rs. 5 each representing 6.87% of the issued and paid up share capital of the Company. The ESOP Trusthas on January 16, 2004 approved the grant of options in respect of 142,100 Equity Shares of Rs. 5 each (being the“Second Grant (Post Equity Share split and Bonus)”) representing 0.16% of the issued and paid-up share capital of theCompany to eligible employees of the Company. No employee has received more than 5% of the total number of optionsduring the year 2002-2003. The ESOP is administered by our Remuneration Committee, which shall determine the termsand conditions of the stock options granted from time to time. Since the ESOP Trust holds the Equity Shares in respectof the employee stock options, there will be no change in the quantum of the issued and paid-up share capital of theCompany upon exercise of the options by eligible employees or Directors of the Company or its subsidiaries. Pursuantto the initial grant, the ESOP Trust has issued the following options:

Particulars First Grant (before First Grant (Post Second Grant (PostEquity Share split Equity Share split Equity Share Splitand bonus)(1) and bonus)(2) and Bonus)

a. Options Granted (net of options cancelled) 69,010 3,379,821 142,100

b. Exercise price Rs. 10 each Re. 0.2 Rs. 5 each

c. Options vested 17,253 844,975 -

d. Options exercised 17,190 841,914 -

e. The total number of Equity Shares to be transferred bythe ESOP Trust as a result of exercise of options 17,190 841,914 -

f. Options lapsed 63 3,061 -

g. Variation of terms of options None

h. Money realized by exercise of options Rs. 171,900 Rs. 171,900 -

i. Total number of options in force 51,757 2,534,846 142,100

j. Person-wise details of options granted to:

i. Directors and key managerial employees Please see Table (1) below for details regarding options No options have been grantedgranted to Directors and key managerial employees

i i any other employee who received a grant in Nil Nil Nilany one year of options amounting to 5% ormore of option granted during that year

iii. identified employees who are granted Nil Nil Niloptions, during any one year equal to orexceeding 1% of the issued capital(excluding outstanding warrants andconversions) of the Company at the time of grant

k. Diluted Earning Per Share (EPS) pursuant to issue of Not applicable since shares Not applicable since shares Not applicable since sharesshares on exercise of options (for the unconsolidated will be transferred by the ESOP will be transferred by the ESOP will be transferred by the ESOPfinancial statement of the Company) Trust upon exercise of the option Trust upon exercise of the option Trust upon exercise of the

and the Company will not be and the Company will not be option and the Company willrequired to issue any shares required to issue any shares not berequired to issue any

shares

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Particulars First Grant (before First Grant (Post Second Grant (PostEquity Share split Equity Share split Equity Share Splitand bonus)(1) and bonus)(2) and Bonus)

l. Vesting schedule 25% each in April of 2003, 25% each in April of 2003, 25% each in January of 2005,2004, 2005 and 2006. All the 2004, 2005 and 2006. 2006, 2007 and 2008.options as of April 2003 have All the options as ofbeen fully vested. April 2003 have been

fully vested.

m. Lock-in No lock-in, subject to No lock-in, subject to No lock-in, subject to aa minimum vesting period of a minimum vesting period of minimum vesting period of1 year. 1 year. 1 year.

(1) Prior to the subdivision of the Equity Shares and the issue of bonus shares, 1 stock option was equal to 1 equity share of Rs. 10 each.

(2) Subsequent to the subdivision of the Equity Shares and the issue of bonus shares, 1 stock option is now equal to approximately 49 Equity Shares of Rs. 5 each

Table (1) details regarding options granted to Directors and key managerial employees are set forth below:

Sl. No. Name of Director or key Number of Equity Shares Number of Equity Shares ofmanagerial personnel of Rs. 10 each entitled at the Rs. 5 each issuable upon exercise

time of first grant of option of options (post equity Sharesplit and bonus)

Directors

1. Dr. Neville Bain 4,000 195,902

2. Prof. Charles Cooney 4,000 195,902

Key managerial employees

3. Mr. Ajay Bhardwaj 4,000 195,902

4. Dr. Arun Chandavarkar 4,000 195,902

5. Mr. Shrikumar Suryanarayan 4,000 195,902

6. Mr. Murali Krishnan K N 4,000 195,902

7. Dr. Goutam Das 4,000 195,902

9. In addition as on March 19, 2004, 1,022,727 Equity Shares representing 1.14 % of the pre-issued and paid-up share capitalof the Company are held by another trust being the Welfare Trust.

10. We have adopted the Employee Stock Option Plan 2004 (ESOP 2004) after receiving approval of the Board at its meetingheld on January 17, 2004 and approval of the shareholders at the Extra Ordinary General Meeting held on February 19,2004. The remuneration committee on March 18, 2004 approved the grant of 500 options under the Employee StockOption Plan 2004 to eligible employees of the Company at the same price at which the Equity Shares in this Issue arepriced.

11. (a) As on December 31, 2003 there are 87 employees and 2 Directors holding Equity Shares allotted as per the vestingschedule of the ESOP Scheme, arise out of options exercised before and/or after the date of the Issue. None of theholders of shares allotted on exercise of option granted under the ESOP, currently intend to sell any of their shareswithin 3 months from the date of listing of the Equity Shares under the Issue.

(b) Currently none of the Directors, senior managerial personnel and employees hold Equity Shares arising out of theESOP Scheme amounting to more than 1% of the issued capital. There are no other persons who hold Equity Sharesarising out of the ESOP Scheme amounting to more than 1% of the issued capital.

12. Our Company has received approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) of the Foreign Investment PromotionBoard dated January 15, 2004 for the issue of Equity Shares to eligible Non Residents. The allotment of Equity Shares toNon-residents, NRIs and FIIs shall be subject to the conditions as may be prescribed by the FIPB while granting suchapprovals.

13. In this Issue, in case of over-subscription in all categories, 60% of the Net Public Offer shall be allocated on a discretionarybasis to Qualified Institutional Buyers, a minimum of 15% of the Net Public Offer shall be available for allocation on a

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proportionate basis to Non Institutional Bidders and a minimum of 25% of the Net Public Offer shall be available forallocation on a proportionate basis to Retail Bidders, subject to valid Bids being received at or above the Issue Price.Under-subscription, if any, in any category would be met with spill over from other categories at the sole discretion ofour Company in consultation with the BRLMs and the CBRLM.

14. A Bidder cannot make a Bid for more than the number of Equity Shares offered through the Issue, subject to the maximumlimit of investment prescribed under relevant laws applicable to each category of investor.

15. There would be no further issue of capital whether by way of issue of bonus shares, preferential allotment, rights issue,exercise of employee stock options or in any other manner during the period commencing from submission of thisProspectus with SEBI until the Equity Shares issued have been listed.

16. We presently do not intend or propose to alter our capital structure for a period of six months from the date of openingof the Issue, by way of split or consolidation of the denomination of Equity Shares or further issue of Equity Shares(including issue of securities convertible into or exchangeable, directly or indirectly for Equity Shares) whether preferentialor otherwise, except that we may issue options to our employees pursuant to a new employee stock option plan or, if weenter into acquisitions or joint ventures, we may consider raising additional capital to fund such activity or use EquityShares as currency for acquisition or participation in such joint ventures.

17. There shall be only one denomination of the Equity Shares of our Company, unless otherwise permitted by law. We shallcomply with such disclosure and accounting norms as may be specified by SEBI from time to time.

18. We are party to a shareholders agreement with the Promoters and AIG AOF, a wholly owned subsidiary of AIG AsianOpportunity Fund L.P. This agreement relates to the management of our Company and the rights and obligations of thePromoters and AIG AOF including in relation to transfer of shares. We are also party to a shareholders agreement withMs. Kiran Mazumdar-Shaw and IVF. This agreement relates to the rights and obligations of Ms. Kiran Mazumdar-Shawand IVF including in relation to transfer of shares. For details on the agreements mentioned above, please refer to thesection entitled “History and Certain Corporate Matters” on page 64 of this Prospectus.

19. As on December 31, 2003 the total number of holders of Equity Shares in our Company is 148.

20. An over-subscription to the extent of 10% of the Issue can be retained for the purposes of rounding off to the nearestmultiple of 50 Equity Shares while finalising the basis of allotment.

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OBJECTS OF THE ISSUE

The objectives of the Issue are to achieve the benefits of listing and raising capital for financing the Project as referred tobelow. We believe that listing of our Equity Shares will enhance our brand name and provide liquidity to our shareholders.

The proceeds of the Issue will be used for setting up new facilities to augment our capacities for submerged fermentationand chemical synthesis operations (collectively referred to as the “Project”). Enhanced capacities of submerged fermentationand chemical synthesis operations will support our growth objectives and consolidate our position in the markets for theseproducts.

The main objects clause of our Memorandum of Association and the objects incidental or ancillary to the main objects enableus to undertake our existing activities and the activities for which the funds are being raised by us in the Issue.

The total estimated funds requirement for our Project through March 31, 2006 is Rs. 4,134 million. The means of financing thefund requirements is as follows:

Sr. No. Particulars Amount of Funding Required(in Rs. Millions)

1. Proceeds of this Issue 3,150.0

2. Internal Accruals 984.0

Total 4,134.0

Project Description

Fermentation and Synthesis Facility

We propose to set up a new fermentation and chemical synthesis facility, or new facility, initially for manufacture of statins,our key API product in the biopharmaceuticals segment, at our new site at Plot No. 2 & 3, IV Phase, Bommasandra-JiganiLink Road, Bangalore, which is at a distance of approximately 5 kilometres from our existing facility at 20th KM Hosur Road,Bangalore.

The significant growth in sales between fiscal year 2003 and first half of fiscal 2004 has resulted in full utilization of capacityin the existing manufacturing facilities. A number of generic companies who are in the process of registering their formulationswith regulatory authorities in US and Europe for sale (upon expiry of patents) have expressed interest to use our statins. Wehave filed 9 DMFs with US FDA for our various products and 7 DMFs in Europe for our various products in this regard. Tocater to the anticipated increased demand for our statins post product patent expiry and owing to the lack of sufficientcapacity in our existing manufacturing facility (which includes 30x4 kl submerged fermentation facility), we are setting up thenew facility (which includes 4x100 kl submerged fermentation facility) at a total cost of Rs. 4,134.0 million.

In addition to the production of statins, the new facility is capable of manufacturing other products involving fermentationand synthetic conversion processes, including products such as mycophenolate mofetil, human insulin, pioglitazone, serratiopeptidase and enzymes. The new facility has a modular design and contains provision for adding further capacity whenrequired.

Description of new facility

The estimated funds requirement to set up this new facility is set forth below:

Sr. No. Particulars Amount of Funding Required(in Rs. Millions)

1. Land 184.0

2. Buildings 1,200.0

3. Plant and Machinery (including machinery and equipment under erection) 2,600.0

4. Other Assets 150.0

Total 4,134.0

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We estimate our funds requirement in a phased manner to be as follows:

Sr. No. Fiscal year ended Amount of Funding Required(in Rs. Millions)

1. Up to March 31, 2004(1) 564.0

2. March 31, 2005 3,170.0

3. March 31, 2006 400.0

Total 4,134.0

(1) This includes an amount of Rs. 64.2 million spent in fiscal year ended March 31, 2003

Out of this, we have already incurred expenditure of Rs. 217.7 million for the new facility as of January 15, 2004 as certified byour auditors S. R. Batliboi & Associates.

The project conceptualisation and pre-engineering for the new facility was completed in June 2003 and detailed engineeringwas initiated from July 2003. Construction commenced from August 2003 and the project is scheduled for completion inDecember 2004. We intend to place orders in respect of key equipment by the end of January 2004. The building is scheduledto be completed in stages commencing with the fermentation block in April 2004. Delivery of the main equipment is expectedto be completed by September 2004 and commissioning is scheduled to be completed by December 2004. We estimate trialproduction to commence from January 2005 and commercialisation to commence from April 2005.

We have planned that the facility, which will have a built-up area of approximately 500,000 square feet, will comprise offermentation blocks, primary extraction facility, chemical synthesis facility, warehousing and other utilities for power andwater. The architects and project consultants for the project are Venkatraman and Associates. We have already entered intocontracts with BL Kashyap & Co and Gina Engineering Company Ltd for construction of the new facility. The design of thenew facility provides for installing additional capacity when required and also flexibility to use it for manufacture of productsother than statins that involve a fermentation process and/or synthetic conversion processes.

We propose to house process equipment in the facility such as (i) production fermenters (4x100 kl) along with seed fermenters,media vessel and other related instrumentation and controls, (ii) extraction equipment such as broth separation centrifugesupported by vessels and control systems and (iii) chemical synthesis equipment such as reactor assembly and filtrationequipment. We propose to source the principal equipment from domestic suppliers such as Alfa Laval India Limited, IDMC,GMM Foulder and international suppliers such as Alfa Laval Sweden, Krausmaffei, Henkel, Chemineer and Lightnin. For thestatus of contracts in relation to principal suppliers, please refer to the section entitled “Status of new facility” on page 32 ofthis Prospectus.

Our plan for the new facility includes utilities for power, water and steam. We propose to set up a captive power plant with acapacity of 8 MW, with dual fuel capabilities of gas and diesel. In addition, we are proposing to obtain stand-by power of 4MW from KPTCL. The water requirement of 3,300 CMD (cubic metre per day) is proposed to be met through different sourcessuch as recycled water, our own ground water resources being tube wells and through river water supply obtained from theBWSSB. We propose to request the BWSSB to extend the river water pipeline from our existing facility at 20th KM, HosurRoad, Bangalore to our new facility. In addition to these utilities, we intend to set up facilities for co-generation of steam, forobtaining chilled water and for compressed air, all of which are required for the proper functioning of the facility. The facilitywill have an effluent treatment plant and a scrap yard. The effluent treatment plant will have a capacity to process 2000 metriccubes per day, and will also house incinerators having capacities of 60 tons per hour. The consultants for the utility area,effluent treatment plant, solvent storage and recovery and piping are Tata Consulting Engineers.

In addition to the above, we plan to have a storage for bulk raw materials with a capacity of 30,000 square feet, solvent andfuel storage tanks with a capacity of 3,150 cubic metres, material handling equipment, weighing scales and other relatedequipment.

The key raw materials required in the new facility include base level fermentation media and nutrients such as sugar likedextrose mono hydrate, flour, caustic, hydrochloric acid and solvents required for downstream processing and chemicalsynthesis like acetone, ethyl acetate, methanol, iso propyl alcohol, pyrollidine and n-butyl lithium. These raw materials arecommonly available and we do not depend on any single supplier for any such raw material.

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Status of new facility

Our new facility will be located on the land situated at Plot No. 2 & 3, IV phase, Bommasandra-Jigani Link Road, Bangalore.We have entered into an agreement with KIADB to purchase 68.0 acres of land at a price of Rs. 2,400,000 per acre. The detailsof the land acquisition is provided below:

Sl. No. Land Area Status

1. 26.75 acres Allotted by KIADB to our Company. Lease agreement executed and possession obtained. This land shallbe sold by KIADB to our Company upon the satisfaction of certain conditions set forth in the leaseagreement. Purchase consideration of Rs. 64.2 million paid to KIADB in December 2002

2. 20.00 acres Land allotted by KIADB to our Company. Lease agreement yet to be executed. Purchase Considerationof Rs. 48.2 million paid to KIADB in July 2003

3. 21.25 acres As per the agreed schedule with KIADB, our Company is to exercise the option to purchase the land by30th April, 2004 failing which the Company will have to pay cancellation charges of Rs. 12.8 million,

equivalent to 25% of the land value.

Total 68.0 acres

As per the terms of allotment, the land is allotted to us by KIADB on a lease cum sale basis on payment of the initial deposit/premium. At the end of 6 years, subject to the satisfaction of certain conditions, KIADB would sell the land to us at a valuethat may be fixed by KIADB and communicated to us. Any amount we have paid towards the premium and earnest moneydeposit shall be adjusted towards the balance of the value of the property as fixed by KIADB, and all costs in connectionwith the sale shall be borne by us. The land allotted to us by KIADB is free from all encumbrances.

KIADB has specified that this land be used only for the purpose of research and development and to set up a fermentationfacility. Accordingly, we intend to use this land to set up our new facility. In order to retain the land, our existing shareholdersmust continue to hold at least 51% of the shareholding in our Company. We have been permitted to mortgage the premisesonly in favour of select government/financial institutions.

Out of the 46.75 acres of land that has already been made available, we have earmarked 36.75 acres of land for the new facilityand other related plants. We have also obtained permission for leasing 5.0 acres to Syngene and the balance 5.0 acres toBBPL for establishment of their facilities. The balance land of 21.25 acres, upon completion of the acquisition, is available forfuture expansion needs.

The entities from which the aforesaid land has been acquired are not related to our Promoters and/or Directors.

The new facility will be set up as a 100% EOU and will thereby enjoy certain customs duty and income tax benefits. Fordetails regarding tax benefits, please refer to the section entitled “Statement of possible tax benefits available to BioconLimited, its subsidiaries and its shareholders” on page 264 of this Prospectus. Necessary approval from CSEZ for setting upthe unit has been received. We have applied to the State Level Single Window Agency of the Government of Karnataka inrelation to the new facility. Our application is pending consideration by the Government of Karnataka.

The principal products proposed to be commercialised in the new facility are already being produced at our existing facility at20th KM Hosur Road, Bangalore and for some products we have received US FDA acceptance/ CoS for manufacture at itscurrent facilities.

We have already entered into firm arrangements of Rs. 898.4 million for acquisition of land, construction of buildings and forprocurement of some of the plant and machinery in relation to our new facility. The arrangements finalised where values arein excess of Rs. 50 million as of December 31, 2003 are set forth below:

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Particulars Cost Name of suppliers/ Date of order Scope Date/ expected(Rs. million) contractors date of supply

Buildings 144.7 B.L. Kashyap & Sons Ltd. September to Civil Construction April 2004

October, 2003

Plant & machinery 107.0 Alfa Laval India Limited August to Supply of Fermenter Starting February

December, 2003 Vessels 2004

Plant & machinery 61.6 Krauss Maffei Process December, 2003 Supply of Centrifuge Starting June 2004Technology AG, Germany

Plant & machinery 50.4 Heinkel AG, Germany December, 2003 Supply of Centrifuge Starting May 2004

Orders have not been placed for 83.5% of the total estimated plant and machinery cost of Rs. 2,600.0 million and for 75.9% ofthe estimated building cost of Rs. 1,200.0 million. For the estimates of plant & machinery costs, where the orders are yet to beplaced we have relied on quotations received over the past six months and on our past experience.

Total Funds Requirement and Funds Deployed

Total Funds Requirement

The total funds requirement for our Project through March 31, 2006 is Rs. 4,134.0 million.

We plan to fund the Project through a combination of Issue proceeds and internal accruals. In the event of the internalaccruals being inadequate, we have received revocable sanctions from the banks, which we can accept and fund the Project.Please refer to section entitled “New Term Loans” on page 114 of this Prospectus. In view of this, 75% of the estimated fundrequirements, after excluding the Issue proceeds has been tied up in compliance with Clause 2.8 of the SEBI Guidelines. Wehave made firm arrangements to meet the entire estimated fund requirements, excluding the Issue proceeds though acombination of internal accruals and debt.

Total Funds Deployed

The expenditure incurred by us up to January 15, 2004, as certified by our auditors S.R. Batliboi & Associates, in their certificatesdated January 17, 2004 was approximately Rs. 217.7 million.

We have financed these funds through internal accruals. To the extent of these amounts which have already been spent inrelation to the Project, the proceeds of this Issue will be utilised to first replenish the spend from internal accruals and thereafterfor future deployment in relation to the Project.

No part of the proceeds of the Issue is to be paid as consideration to our promoters, Directors, key managerial personnel,associate and/or group companies.

Working Capital

The proceeds of the Issue will not be used to meet our working capital requirements as we expect sufficient internal accrualsto meet our existing working capital requirements. The details of our net working capital for fiscal 2001, 2002 and 2003 and asat the end of the nine month period ended December 31, 2003 as per our audited restated unconsolidated financial statementsare as follows:

(in Rs. Million)

As at March As at March As at March As at31, 2001 31, 2002 31, 2003 December 31, 2003

Current Assets 669.3 960.9 1,372.3 2,238.6

Current Liabilities and Provisions 284.9 467.8 650.4 1,112.1

Net working capital (excess of current assets 384.4 493.1 721.9 1,126.5over current liabilities and provisions)

We enjoy lines of credit with The Hongkong and Shanghai Banking Corporation Limited, Canara Bank and Exim Bank for anamount of Rs. 841.7 million and we are currently negotiating an increase in such limits. In addition, we would retain approximatelyRs. 200.0 million towards performance obligation of suppliers to the new facility, which would be available for a period of 1year from date of commissioning.

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Interim Use of Proceeds

The management, in accordance with the policies set up by the Board, will have flexibility in deploying the proceeds receivedby us from the Issue. Pending utilisation for the purposes described above, we intend to temporarily invest the funds in highquality, interest/dividend bearing liquid instruments including money market mutual funds, deposits with banks for thenecessary duration. Such investments would be in accordance with investment policies approved by the Board from time totime. We also intend to apply part of the proceeds of the Issue, pending utilisation for the purposes described above, totemporarily reduce our working capital borrowings from banks and financial institutions.

Issue Related Expenses

The total expenses of the Issue is estimated to be approximately Rs. 165.0 million. The Issue related expenses include, amongothers, underwriting and issue management fees, selling commission, printing and distribution expenses, legal fees,advertisement expenses, registrar and depository fees and listing fees. All expenses with respect to the Issue will be borneby our Company out of its internal accruals.

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INDUSTRY OVERVIEW

Biotechnology is technology that utilizes biological processes and/or biological materials. Over the past few decades, scientificand technological advances have enabled biotechnology to use of some of the smallest parts of organisms, including theircells and genetic material, for a number of commercial and scientific applications. Nevertheless, biotechnology is still consideredto be in its infancy, and many companies remain at a development stage. Biocon was India’s largest biotechnology companyin terms of fiscal 2003 revenue, according to India’s Association of Biotechnology Led Enterprises.

We have leveraged our biotechnology expertise to operate in biopharmaceutical, enzyme and research services industries.Biopharmaceuticals are pharmaceuticals produced through biotechnology. Fermentation technologies are employed to producemany of the top selling pharmaceuticals worldwide.

Global Pharmaceuticals Industry

According to data from IMS Health Incorporated, or IMS, total global audited pharmaceutical sales in calendar 2002 wereUS$400.6 billion, reflecting a 10.0% increase over sales of US$364.2 billion in 2001.

The following table sets forth the global audited pharmaceutical sales by region:

(US$ in billion)

Calendar Year

Region 2000 2001 2002 CAGR 2000-2002

North America US$152.8 US$181.8 US$203.6 15.4%

Europe 75.8 88.0 101.9 15.9

Japan 51.5 47.6 46.9 (4.6)

Rest of World 37.6 46.8 48.1 27.9

Total US$317.2 US$364.2 US$400.6 12.4%

Source: IMS World Review 2000, 2001 and 2002

Note: Sales cover direct and indirect pharmaceutical channel purchases in US dollars from pharmaceutical wholesalers and manufacturers.

The figures above represent 52 weeks of sales data, and include prescription and certain OTC data and represent manufacturer prices.

North America accounted for 50.8% of the audited worldwide pharmaceutical sales in 2002 and grew at the fastest rate of12.0% at constant dollar rate compared to 2001. Ageing populations and ongoing demand for innovative therapies are expectedto effectively sustain pharmaceutical growth in 2003 and beyond. The United States, which is the world’s largestpharmaceuticals market, accounts for a substantial majority of North America’s sales.

The global pharmaceuticals market can also be broadly divided into the regulated and unregulated/semi-regulated markets.The regulated markets have more intellectual property protection, including product patent recognition. As a result, theregulated markets offer a premium for intellectual property protection, quality and regulatory compliance, along with greaterstability for both volumes and prices. The United States is a highly regulated market and only products manufactured tostringent quality standards may be sold there. The US FDA also requires that a company’s manufacturing methods conformto cGMP.

On account of the higher prices for patented drugs in the regulated markets and the larger overall size of these markets interms of revenue, the top selling drugs globally are generally patented pharmaceuticals sold in regulated markets. The best-selling drugs generally reflect the demographics and, consumer preferences and needs of the regulated markets, the mostimportant of which are all developed countries that have relatively older and more urban/suburban populations. For exampletwo of the top five selling drugs in 2002, namely Lipitor (atorvastatin) and Zocor (simvastatin), address the cholesterol andtriglyceride reducing segment.

The unregulated/semi-regulated markets, which include many developing countries such as India, have minimal entry barriersin terms of regulatory requirements with respect to the qualification process and intellectual property rights. These marketsgenerally do not recognise product patents and are often highly competitive, resulting in much lower prices and profit marginsfor producers.

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Generic Pharmaceuticals Industry

The generic drugs market refers to regulated markets for drugs whose patents have expired or been invalidated. The expirationor invalidation of product patents typically leads to the entry of generic, or non-branded, formulations in the regulated markets,resulting in increased competition and leading to a decline in price and margin of drugs. According IMS data, the globalgenerics market was estimated to be US$ 38 billion in calendar 2000, with the United States, the world’s largest generic market,accounting for an estimated US$ 9-10 billion.

The generics industry has witnessed growth in recent years, and is expected to grow significantly in the near-to-mediumterm. Patents on a number of significant pharmaceutical products are expected to expire in the next several years. In addition,governments, insurers and healthcare organizations in developed countries are increasingly promoting generics to reducepublic expenditure on healthcare. Also, according to IMS, stringent new drug approval regimes in developed countries haveeroded the effective patent life of many new products, as a larger portion of a drug’s patent life expires during the approvalprocess. Another key factor in the development of the generics industry is the increased sourcing of drugs from lower costproducers like India and China.

Indian Pharmaceuticals Industry

India is a net exporter of pharmaceuticals. Pharmaceuticals exports touched Rs. 97.5 billion in fiscal 2002, according to anICRA report published in June 2003. The industry posted a CAGR of 22.5% from 1992 to 2002, with export growth outpacingthe growth of domestic sales. India’s exports are sold in more than 200 countries, including the regulated markets of UnitedStates, Europe and Japan. Indian companies are targeting sales in the lucrative regulated markets. Of the 180 DMFs filed withthe US FDA in the period between April 1, 2003 and December 15, 2003, Indian companies filed 33, or 18.3%. DMFs are filedby manufacturers of APIs to qualify their facilities and processes so that drug formulators selling into the United States canpurchase from them.

We believe export-led growth of the Indian pharmaceuticals industry is largely attributable to the following factors:

■ Growth of the global generics market;

■ Ability to develop efficient non-infringing processes for drugs which are under patent protection in key regulated markets;

■ Availability of scientists, engineers and medical professionals at relatively low costs; and

■ Indian governmental policies favouring liberalisation and globalisation.

Our Focus Products

We target APIs for drugs that have large markets and strong pricing and margin characteristics while on patent and whichrequire sophisticated production techniques. We believe that these products, once off patent in regulated markets, continueto offer attractive pricing and margins for some time, as the entry of competitors is often delayed by the difficulties in developingnon-infringing production processes. In line with this strategy we have commercialised the production of the top four statins(for treatment of cardiovascular disease, which is the second largest therapeutic category for drugs globally) and havecommercialised or are developing certain immunosuppressants and anti-diabetics. We are also developing recombinant humaninsulin. All of these products require sophisticated fermentation and synthetic chemistry technologies. Please refer to thesection entitled “Business-Competition” beginning on page 54 of this Prospectus for an overview of the key players.

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The following table sets forth the global pharmaceutical sales of drugs that we are currently focussed on:

(US$in million)

Period

Focus Drugs Year ended Sept. Year ended Sept.30, 2002 30, 2003 Percentage growth

Category: Cardiovascular disease

Lovastatin US$329.6 US$411.1 24.7%

Simvastatin 6,233.8 7,024.0 12.7

Pravastatin 3,513.0 4,091.3 16.5

Atorvastatin 8,403.8 9,985.5 18.8

Category: Immunosuppressants

Mycophenolate Mofetil US$634.3 US$818.1 29.0%

Tacrolimus 731.6 962.8 31.6

Sirolimus 102.1 151.7 48.5

Category: Anti-diabetes

Recombinant Human Insulin US$3,948.1 US$4,876.5 23.5%

Pioglitazone 1,464.2 1,798.9 22.9

Repaglinide 196.1 231.7 18.2

Nateglinide 141.2 186.5 32.1

Source: IMS

Statins

The following table sets forth the geographical sales of statins that we sell in generic markets:

(US$ in million)

Period

Product Year ended Year endedSept. 30, 2002 Sept. 30, 2003

Expected Patent Expiry (1)

LovastatinNorth America US$206.6 US$278.9 US - Expired 2001Western Europe 67.0 67.5 UK - Expired 2000; France - No Patent; Germany - Expired 2003Rest of the World 56.0 64.6Total US$329.6 US$411.1

SimvastatinNorth America US$4,098.3 US$4,322.0 US - 2006Western Europe 1,265.9 1,713.7 UK and Germany – Expired 2003; France - 2005Rest of the World 869.4 988.4Total US$6,233.8 US$7,024.0

PravastatinNorth America US$1,742.2 US$1,991.4 US - 2006Western Europe 802.2 1,072.0 UK - 2004; Germany – 2004; France – 2006Rest of the World 968.5 1,027.8Total US$3,513.0 US$4,091.3

AtorvastatinNorth America US$6,112.3 US$6,865.0 US - 2011Western Europe 1,404.2 1,942.8 UK and Germany – 2010Rest of the World 887.1 1,177.7Total US$8,403.8 US$9,985.5

Source: IMS

(1) Expiry date refers to the patents that cover the active pharmaceutical ingredient or the process for making the active pharmaceutical ingredient. There are additionalpatents that cover formulations and methods of treatment using active ingredients that are not being referred to in this chart.

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Insulin

The World Health Organisation, or WHO, has estimated that by 2025 there will be 324 million diabetics worldwide. Currently,India is believed to have the world’s largest population of diabetics. Type I diabetics suffer from insufficient production bythe body of insulin, which is required by the human body for cellular absorption of glucose. Treatment of Type I diabetestypically requires the administration of doses of insulin from an outside source to the patient. Type II diabetics suffer insulinresistance rather than a true deficiency of insulin. In this case, the levels of insulin in the blood are similar or even a littlehigher than in normal, non-diabetic individuals. However, many cells of Type II diabetics respond sluggishly to the insulinthey make and therefore their cells cannot absorb the sugar molecules well. This leads to blood sugar levels, which runhigher than normal. Occasionally Type II diabetics will need insulin shots but most of the time other methods of treatment,including other anti-diabetics, are employed.

The insulin market began in the 1950s with the introduction of porcine and bovine insulin. In the 1980s and 1990s, recombinanthuman insulin began to replace animal insulin products. Recently, innovations in the insulin market have included insulinanalogues and novel delivery systems to replace syringe delivery, including less painful pen devices which now dominatethe European market. Some major pharmaceutical companies are developing oral insulin, to do away with the need of anydelivery devices.

Although insulin is a biological and not a patentable product, only three significant producers of human insulin, Novo NordiskA/S, Eli Lilly and Company and Aventis S.A., have emerged globally. In India, Wockhardt Limited recently launched its ownbranded recombinant human insulin.

Enzymes

Enzymes are proteins produced by living organisms, which are used as biocatalysts in chemical processes. Enzymes can begrouped into three functional categories: Enzymes that break down protein, enzymes that break down starch and enzymesthat break down cellulose. Enzymes are generally marketed to industrial, consumer and agricultural markets. Researchers arecurrently working to develop new enzymes and enzyme applications for use in alternative fuels, bioplastics and waste treatment,among other areas.

Many enzymes are commodity products that are manufactured in large-scale production facilities. Production of these enzymesis dominated by a small number of large companies, including Novozymes A/S, Genencor International, Inc., AB EnzymesGmbH, DSM Group and Danisco A/S. We are focused on producing niche enzyme products, often with enhanced or uniquecharacteristics. Other niche manufacturers in the international markets include Amano Enzyme Inc., Shin Nihon ChemicalCompany, Ltd. and LYVEN.

The Indian enzyme market has a small number of players including some of the global enzyme companies, such as NovozymesA/S, Burns Philip Food Inc. and Danisco A/S, as well as some small domestic manufacturers such as Advanced BiochemicalsLimited and Maps India Limited.

Research Services

Globally, innovator companies are under pressure to reduce research and development costs. As per a report published byPharmaceutical Research and Manufacturers of America in 2003, out of every 5,000 to 10,000 screened compounds, only 250enter pre-clinical testing, five enter clinical testing and only one is approved by the US FDA. Also, due to larger clinical trialsrequired by the US FDA, researching, developing and introducing a new drug now costs three and a half times more than itdid 15 years ago. Because of this large and increasing cost of bringing a new drug to market, full commercial success isbecoming possible for fewer products.

Increasing commercial compulsions for drug developers to reduce R&D costs while shortening product evaluation times areproviding opportunities for outsourcing of research services. Typically, contract research organisations (CROs) are contractedfor their ability to specialize in certain aspects of drug evaluation and add scientific and technological expertise that drugdevelopers do not possess internally, at a lower cost. Traditionally, the research outsourcing companies were based out ofthe United States and Europe, in proximity to research oriented clients. In recent times, the research outsourcing businessopportunity has been migrating to lower cost research areas such as India, Eastern Europe, Latin America and China.

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Clinical trials represent one of the expensive and time consuming parts of the development process. The information generatedduring these trials is critical for gaining marketing approval from the US FDA and other regulatory agencies and marketacceptance by clinicians and patients. Requirement of larger clinical trials (at higher costs) in developed countries has provideda market opportunity for outsourcing of clinical trial work. These firms typically provide clinical trial design, investigatorrecruitment, patient enrolment, study monitoring, data collection and data management services. They also monitor clinicaltrials for adherence to good clinical practices, or GCP.

Clinical trials, the bulk of whose cost is related to patient compensation, have grown more expensive in North America andWestern Europe. This is pushing clinical development that would otherwise be conducted in North America and WesternEurope into India, China, Eastern Europe and Asia. Indian firms are currently focussing on providing bio-equivalence andbio-availability, or BE/BA, studies, although some are beginning to offer services in clinical trials.

India’s competitive strengths in research services include English-language competency, availability of low cost skilled doctorsand scientists, large patient population with diverse disease characteristics (for clinical trials) and the existence of companiesthat follow international quality standards.

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BUSINESS

Overview

Over the past 25 years, Biocon has emerged as an integrated biotechnology enterprise with presence in biopharmaceuticals,enzymes, custom research and clinical research. Biocon was India’s largest biotechnology company in terms of fiscal 2003revenues, according to India’s Association of Biotechnology Led Enterprises. Our core expertise lies in fermentation, and asubstantial majority of our current biopharmaceutical and enzyme products are produced through fermentation techniques.A number of our current products are also manufactured using synthetic chemistry techniques either entirely or in combinationwith fermentation techniques. Our growth strategy has been and continues to be driven by innovation in both ourbiopharmaceutical business, where we develop non-infringing processes for the manufacture of our focus products, and ourenzymes business, where we develop novel enzymes and customised applications.

Biocon was established in 1978 to form a joint venture with Biocon Biochemicals Limited, a company based in Ireland, tomanufacture and export certain enzymes for the brewing industry. Unilever eventually acquired our joint venture partner. Thejoint venture terminated in 1999 when our promoters exercised their right of first refusal to purchase Unilever’s 23.1% interestin us, after Unilever agreed to sell its speciality chemicals business, including its interest in us, to Imperial Chemical Industries,or ICI. Currently, our promoters own 68.4% of our Equity Shares (on a fully diluted basis) and after giving effect to the Issue,they will own 61.5% of our Equity Shares (on a fully diluted basis).

Our headquarters and production facilities are located in the greater Bangalore area, enabling us to access that city’s highlyskilled human resource base and technology infrastructure. Our total consolidated operating income and net profit wereRs. 2,819.9 million and Rs. 422.3 million, respectively, in fiscal 2003. In the first nine months of fiscal 2004, our total consolidatedoperating income and net profit were Rs. 3,977.4 million and Rs. 949.4 million, respectively.

The following shows the income from operations of Biocon, Syngene and Clinigene and their percentages of total operatingincome of those companies from fiscal 2001 through the first nine months of fiscal 2004:

Fiscal Period

2001 2002 2003 First Nine Months 2004

Revenue Revenue Revenue Revenue(Rs. in % (Rs. in % (Rs. in % (Rs. in %

mi l l ions) mi l l ions) mi l l ions) mi l l ions)

Biopharmaceuticals (Biocon) Rs. 817.8 60.7% Rs. 1,142.9 63.9% Rs. 2,010.0 71.3% Rs. 3,228.3 81.1%

Enzymes (Biocon) 405.3 30.1 463.3 25.9 532.4 18.9 484.0 12.2

Research Services

Custom Research (Syngene) 109.0 8.1 147.0 8.2 261.2 9.3 258.0 6.6

Custom Research (Biocon) 10.7 0.8 9.8 0.5 5.2 0.1 5.7 0.1

Clinical Research (Clinigene) 3.5 0.3 26.7 1.5 11.1 0.4 1.4 0.0

Total Operating Income(1) Rs. 1,346.3 100.0% Rs. 1,789.7 100.0% Rs. 2,819.9 100.0% Rs. 3,977.4 100.0%

Biopharmaceuticals and

Enzyme Sales

Exports Rs. 268.0 19.9% Rs. 465.7 26.0% Rs. 1,100.8 39.0% Rs. 2,083.6 52.4%

Domestic 955.1 70.9 1,140.5 63.7 1,441.6 51.1 1,628.7 40.9

(1) This number does not represent a consolidated or combined figure under Indian or US GAAP, but rather is the sum of the operating

income of Biocon, Syngene and Clinigene. There were no intercompany operating income items during any of the periods presented.

Biopharmaceuticals. In biopharmaceuticals, we focus on the manufacture and marketing of APIs that require advancedfermentation and other skills and that offer large market potential in the regulated markets once the products are off patent.Our largest and fastest growing products are statins, a group of popular cholesterol-lowering drugs, including lovastatin,simvastatin, pravastatin and atorvastatin. We have patented processes relating to the manufacture of lovastatin and simvastatin,our principal statin products. We have also applied for process patents in respect of our other statin products, pravastatinand atorvastatin.

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We currently export lovastatin to the United States and lovastatin and simvastatin to key European markets. We are in theprocess of qualifying our simvastatin and pravastatin production processes and facilities with the US FDA, so that we cansell into the United States when those products go off patent there (expected to be 2006), and are also seeking US FDAapproval for an additional lovastatin production process/facility. We recently received a Certificate of Suitability from theEDQM for our pravastatin production, to enable us to sell pravastatin in key European markets when it goes off patent(expected to be 2004-2006), and also one for the additional lovastatin production process/facility.

Our other biopharmaceutical products include APIs for immunosuppressants and anti-diabetic drugs, including mycophenolatemofetil, or MMF, tacrolimus, pioglitazone, repaglinide and nateglinide.

Our internally developed recombinant human insulin is currently undergoing clinical trials in India, and we plan to introducethis product as a formulation under the brand name “Insugen”TM in the Indian market in the first half of calendar year 2004.This would be our first pharmaceutical product sold as a branded formulation. We also seek to export recombinant humaninsulin in bulk form. Biocon and Bristol-Myers Squibb Company signed a letter of intent in September 2003 under which thetwo parties are to negotiate an agreement for supply by Biocon of recombinant human insulin to Bristol-Myers Squibb. Theletter of intent contemplates supply at established prices of quantities of product to be agreed upon by the parties from timeto time. Export of our recombinant human insulin would be subject to regulatory approval in the target markets.

Through our newly formed joint venture company, Biocon Biopharmaceuticals, we plan to manufacture and sell into theIndian market the biologicals erythropoietin, or EPO, and granulocite colony stimulating factor, or GCSF, and plan tomanufacture and sell into India and other South Asian countries a new monoclonal antibody currently undergoing Phase IIclinical trials in Canada, if and when it is approved for use in the treatment of head and neck cancers.

Having begun sales in fiscal 1998, our biopharmaceuticals business has since grown to constitute 71.3% and 81.1% of ourtotal operating income in fiscal 2003 and in the first nine months of fiscal 2004, respectively. From fiscal 2001 to 2003, thecompound annual growth rate of biopharmaceuticals sales was 72.4%. Biopharmaceuticals sales in the first nine months offiscal 2004 were 160.6% of fiscal 2003’s whole-year biopharmaceuticals sales.

Enzymes. In enzymes, we focus on the production of speciality enzymes and the development of new enzyme applicationsfor different industries, including food and beverages, animal feed, starch processing, textiles, pulp and paper and leather.Sales of enzymes constituted 18.9% and 12.2% of our total operating income in fiscal 2003 and in the first nine months offiscal 2004, respectively. From fiscal 2001 to 2003, the compound annual growth rate of enzymes sales was 16.7%. Enzymessales in the first nine months of fiscal 2004 were 90.9% of fiscal 2003’s whole-year enzymes sales.

Research Services. We provide custom and clinical research services principally through our subsidiaries Syngene andClinigene.

Custom Research. We provide custom research services principally through Syngene, our 99.99%-owned subsidiary.Established in 1994, Syngene designs and manages research projects typically for overseas pharmaceutical and biotechnologycompanies pursuing pre-clinical research for new drug discovery. Syngene’s principal areas of research are:

l Synthetic chemistry;

l Molecular biology; and

l Custom synthesis.

As an experienced custom research services provider in a low-cost environment, Syngene, we believe, is well placed toprovide its services to innovator companies in developed markets that seek to bring out new proprietary products whilereducing research and development costs. In fiscal 2003 and in the first nine months of fiscal 2004, income from customresearch constituted 9.3% and 6.6% of our total operating income, respectively. From fiscal 2001 to 2003, the compoundannual growth rate of custom research income was 56.3%. Custom research income in the first nine months of fiscal 2004 was99.0% of fiscal 2003’s whole-year custom research income.

Clinical Research. We provide clinical research services through Clinigene, a wholly owned subsidiary. Clinigene wasestablished in 2000 to undertake:

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l Phase I to Phase III clinical trials for new drug molecules (please refer to the section entitled “Biopharmaceuticals” onpage 118 of this Prospectus for an explanation of these phases);

l Clinical studies, including bio-equivalence and bio-availability, or BE/BA, studies;

l Clinical research aimed at identifying new biomarkers for diseases, including Type II diabetes;

l Clinical research aimed at discovering new indications for existing drugs; and

l Clinical laboratory tests for other pharmaceutical companies and contract research organisations, or CROs.

We believe Clinigene’s laboratory was the first and remains one of the few labs in India to have received certification fromthe College of American Pathologists, or CAP, which is required by many large pharmaceutical companies to provide clinicalresearch services to them. In both fiscal 2003 and in the first nine months of fiscal 2004, revenue from clinical researchconstituted less than 1.0% of our total operating income.

Competitive Strengths

The following are our key strengths that enable us to compete in our principal markets:

Competencies and Skills

R&D Focus. Our emphasis on research and development has enabled us to devise our own process technologies and expandour scientific and engineering capabilities. We believe that continued focus on R&D will enable us to further develop newprocesses and products and novel applications for existing products, possibly enter new lines of business and deepen ourintellectual property base. Also, by developing our own technologies instead of licensing or entering into technology-sharingarrangements, we are able to reduce our costs and avoid restrictions on technology usage. In addition to our R&D team, wehave a Scientific Advisory Board of biotechnology experts, biotechnology entrepreneurs and innovators which assists us inevaluating scientific and technical opportunities and issues. Since 1999, we have filed 117 patent applications. To date, wehave been granted a total of 14 patents in various jurisdictions, and 25 of our PCT applications have been published.

Proven Fermentation Skills. Fermentation is recognized as one of the key enabling technologies in the manufacture ofpharmaceutical products. We have advanced capabilities in microbial (i.e., bacteria, yeast and fungus) fermentation utilisingboth submerged and solid state fermentation technologies. We have also developed a patented hybrid fermentation processthat we have named PlaFractorTM. The PlaFractor technology can be used to manufacture drugs like immunosuppressantsthat require contained and highly controlled conditions. Our fermentation skills have enabled us to develop novel processesfor several of our principal biopharmaceutical products, including lovastatin and pravastatin, as well as for many of ourenzyme products.

Synthetic Chemistry Skills. In addition to fermentation, several of our biopharmaceutical products require strong syntheticchemistry skills. Our synthetic chemistry skills enabled us to develop our own processes for simvastatin, atorvastatin andpioglitazone, among other products.

Diverse and Growing Capabilities. Our Syngene and Clinigene businesses, in addition to their role as independent revenuegenerators, have significantly increased our overall capabilities. We believe that our growing capabilities in custom and clinicalresearch will continue to offer important synergies as we increase the complexity and scope of our own R&D and manufacturingoperations, especially as they pertain to new product discovery and development.

We are building capabilities in recombinant technologies to develop new products. Recombinant human insulin, our firstrecombinant product, is currently undergoing clinical trials in India and is a result of our integrated skills across fermentation,synthetic chemistry and clinical research. Other target recombinant products include streptokinase and reteplase and, throughour Biocon Biopharmaceuticals joint venture, GCSF and EPO. In addition, Biocon Biopharmaceuticals intends to manufacturea new monoclonal antibody developed by our joint venture partner CIMAB, if and when it is approved for the treatment ofhead and neck cancers. Through Biocon Biopharmaceuticals, we intend to gain expertise in fermentation involving mammaliancell culture.

Biodiversity Collection. We launched our biodiversity program in 1995. Our biodiversity program encompasses the collection,cataloguing and conservation of indigenously available rare and diverse species of bacteria, yeast and fungi, including

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myxobacteria and marine fungi. New organisms discovered through our biodiversity collection help us to develop novelenzymes, as well as new processes for our target APIs and enzymatic conversions, or bioconversions, to substitute forsynthetic conversion processes. To date, we have identified and characterised over 3,000 unique microorganisms, several ofwhich have demonstrated novel traits. We believe that our biodiversity collection will be a valuable tool in aid of new productdiscovery.

Manufacturing

Scale-up Skills and Yield Improvement. We have significant process expertise in scaling up production levels from lab scalequantities to large fermentation batches at commercially viable yield levels. This enables us to increase production quantitiesand productivity and reduce time to market. In addition, we seek to continue to improve production yields in our fermentationprocesses even after scale-up, to allow us to improve margins or preserve margin while prices decline. For example, fromApril 2002 to December 2003, we were able to improve the yield in our solid state fermentation process for lovastatin productionby 44.1% and in our submerged fermentation process for lovastatin production by 10.9%.

Flexible Manufacturing Infrastructure. Our fermentation and synthetic conversion facilities is not product specific and canbe used to manufacture a range of biopharmaceutical and enzyme products. Flexible manufacturing infrastructure helps us tochange our product mix in response to changes in customer demand with less new facility investment. For example, we areable to produce lovastatin, pravastatin, compactin, human insulin, mycophenolate mofetil and enzymes in the same submergedfermentation facility.

High Quality Manufacturing Processes and Facilities. Currently, several of our manufacturing facilities satisfy the cGMPrequirements for product sales to regulated markets. Our process and facilities for solid state fermentation production oflovastatin have been approved by the US FDA and have received a Certificate of Suitability from the EDQM for sale into theEuropean Union. Our process and facility for synthetic conversion for simvastatin and our submerged fermentation processesand facilities for pravastatin and lovastatin have received Certificates of Suitability from the EDQM. Our simvastatin productionwas also inspected by the US FDA in December 2003, along with the submerged fermentation processes and facilities forlovastatin and pravastatin production and a synthesis facility for the production of pioglitazone. We intend to continue toseek US FDA approval and Certificates of Suitability from the EDQM for our manufacturing processes/facilities to enable usto sell our products into the U.S. and European markets.

Marketing

Strong Customer Relationships. We have built significant relationships with several large generic players in developed countrymarkets. This has enabled us to be the primary or secondary supplier for certain APIs to several generic players, many ofwhom have filed their Abbreviated New Drug Applications, or ANDAs, with our DMFs for products like lovastatin andsimvastatin. We aim to extend these relationships across product categories. We believe that the fact that we do not makegeneric formulations makes us a valued partner of major generic companies, as we are not perceived as a competitor. Inaddition, over the years we have built valuable relationships with major enzyme customers, including many of the largemultinational enzyme manufacturers.

Organisation

Strong Management; Continuity of Management. Our senior management team consists of experienced individuals withdiverse skills in manufacturing, research and development, custom research, international business and finance. A majorityof our senior management team has been with us for a period of 10 to 15 years and lends stability and continuity to ouroperations.

Ability to Attract Talent. As India’s largest biotechnology company in terms of fiscal 2003 revenues and with strengths infermentation, synthetic chemistry, custom research and clinical research, we have been able to attract talent from reputededucational institutes worldwide, including the Massachussetts Institute of Technology (MIT) and the Indian Institute ofTechnology (IIT).

Our Strategy

We seek to further expand and integrate our operations across biopharmaceuticals, enzymes, custom research and clinical

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BioconBiocon

ClinigeneClinigeneSyngeneSyngene

Discov

ery

Comm

ercialization

Development

Microbial TechnologiesPharmaceutical Manufacturing

Marketing

Clinical ResearchClinical Development

Clinical Trials

Molecular BiologySynthetic Chemistry

Research & Development

research to become an integrated biotechnology enterprise with increasing emphasis on biopharmaceuticals and discoveryof new drug molecules.

Our business strategy to emerge as a leading biopharmaceuticals enterprise is depicted below:

The following are the key elements of our strategy:

Continue to Target APIs for High-Value Drugs. We intend to continue to focus on the development of APIs that requireadvanced fermentation and synthetic chemistry skills and that offer large market potential in the regulated markets once theproducts are off patent. While fermentation skills will continue to be central to our future development and manufacturingplans, we also seek to broaden our skills and expertise into other sophisticated biotechnology and synthetic chemical processes.

Realize Synergies Through Integration of Different Businesses. As we deepen our expertise in custom and clinical researchand in manufacturing processes, we intend to leverage expertise gained in one area to benefit our other R&D and businessinitiatives. For example, our own R&D teams have and will continue to leverage our growing expertise in custom researchinvolving molecular biology and synthetic chemistry for their own projects. Such synergies have enabled us to develop andcommercialise our own formulation in human insulin, which we plan to launch in India in 2004, subject to receiving all regulatoryapprovals. We will endeavour to realise similar synergies in other product areas.

Significantly Expand Capacity. Our capital expenditure plans include significant planned expenditures on capacity expansionaimed at increasing our production capacity with respect to our statins and other existing pharmaceutical products, developingproduction capacity for new pharmaceuticals and expanding laboratory facilities for Syngene. The capacity expansion instatins, we believe, will enable us to meet expected rapid growth in demand for these products in the regulated markets asmore statins come off patent there.

Develop Biologicals Business. We are currently developing for commercial production several biologicals (pharmaceuticalsderived from proteins, hormones and other substances produced naturally in humans or animals), including recombinanthuman insulin, GCSF and EPO. Our Biocon Biopharmaceuticals joint venture is enabling us to gain fermentation technologies,including mammalian cell expression, that are critical to the development of many biologicals. In addition, BioconBiopharmaceuticals intends to manufacture a new monoclonal antibody developed by our joint venture partner CIMAB, ifand when it is approved for the treatment of head and neck cancers. We believe biologicals will become an increasinglyimportant source of therapeutics as biotechnology advances and intend to continue to develop our capabilities in this area.

Expand Capabilities in Drug Discovery and Develop Proprietary Technologies and Products. Through our manufacturingand R&D skills, combined with skills developed in our custom research and clinical research businesses, we are beginning toexpand our capabilities in drug discovery with a view towards developing our own proprietary products in the future. Webelieve that we are well placed to enter new drug discovery, especially with respect to drugs requiring advanced fermentationprocesses. In addition, we have and intend to continue to emphasize in-house development of novel and proprietary productionprocesses.

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Leverage Our Position in Export Markets. Since inception, we have had a strong export orientation and seek to furtherdevelop our export sales, particularly to developed country markets, which generally offer higher profit margins than domesticmarkets, and we seek to further develop our sales to developed country and other profitable export markets. Our marketingteam maintains direct contact with our principal foreign customers from our headquarters in Bangalore, as well as our overseassales office located in the United States.

Launch Branded Formulations in the Domestic Market. We seek to introduce into the domestic market our own brandedformulations, including recombinant human insulin in the first half of calendar 2004, subject to receiving all regulatoryapprovals. We are in the process of developing a sales and marketing infrastructure for the domestic market to sell ourbranded formulations.

Grow Our Business Through Strategic Partnerships and Mergers and Acquisitions. We may enter into strategic partnershipswith leading global and domestic players in sales and marketing and joint discovery of new drug molecules. In addition, weevaluate on a case-by-case basis potential acquisition targets that offer an opportunity to grow our business and/or expandour capabilities or geographical reach. We would likely pursue only those transactions that are related to our key strengthsand have manageable integration risks.

Biopharmaceuticals

In biopharmaceuticals, we continue to target the development of APIs that require advanced fermentation and other skillsand that offer large market potential in the regulated markets once the products are off patent. Our principal products inbiopharmaceuticals are currently statins (therapeutic category: cardiovascular drugs) and immunosuppressants (therapeuticcategory: transplantation). During fiscal 2003 and the first nine months of fiscal 2004, our total revenue from biopharmaceuticalswas Rs. 2,010.0 million and Rs. 3,228.3 million, respectively.

Statins

Statins are cholesterol-lowering agents used to treat and prevent coronary disease and are among the largest selling drugsworldwide. We sell statins in several countries, including the United States, EU countries and Japan. The following showsour revenues and percentage of total biopharmaceuticals sales for our statins from fiscal 2001 through the first nine monthsof fiscal 2004.

Fiscal Period

2001 2002 2003 First Nine Months 2004

Revenue Revenue Revenue Revenue(Rs. in % (Rs. in % (Rs. in % (Rs. in %

mi l l ions) mi l l ions) mi l l ions) mi l l ions)

Lovastatin Rs. 69.5 8.5% Rs. 127.3 11.2% Rs. 306.2 15.2% Rs. 509.0 15.8%

Simvastatin 197.5 24.1 150.0 13.1 681.4 33.9 1,467.7 45.5

Atorvastatin 64.7 8.0 117.8 10.3 159.5 7.9 99.5 3.0

Pravastatin 10.9 1.3 112.5 9.8 55.7 2.8 91.5 2.8

Total Rs. 342.6 41.9% Rs. 507.6 44.4% Rs. 1,202.8 59.8% Rs. 2,167.7 67.1%

Domestic Rs. 264.8 32.4% Rs. 270.5 23.7% Rs. 391.8 19.5% Rs. 382.8 11.9

Exports 77.8 9.5 237.1 20.7 811.0 40.3 1,784.9 55.2

Our statins currently consist of lovastatin, simvastatin, pravastatin and atorvastatin. Our strategy for statins has been todevelop non-infringing manufacturing processes that would enable sale of our products in regulated markets on expiry ofproduct patents in those markets. The following table provides the product patent expiry dates in the United States and keymarkets in Europe for our statins:

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Stat in Expected Patent Expiry – Expected Patent Expiry – Key First year of commercialUnited States(1) Markets in Europe(1)(2) production by Biocon

Lovastatin Expired 2001 Expired 2000-2003 1998

Simvastatin 2006 2003-2005 1999

Pravastatin 2006 2004-2006 2001

Atorvastatin 2011 Beyond 2010 2000

Source: IMS Health Incorporated

(1) Expiry date refers to the patents that cover the active pharmaceutical ingredient or the process for making the active pharmaceutical ingredient. There are additionalpatents that cover formulations and methods of treatment using active pharmaceutical ingredients that are not being referred to in the chart.

(2) Key markets in Europe are the United Kingdom, France and Germany.

Currently, demand for our statins exceeds our production capacity. In addition, we expect demand for statins coming offpatent in the regulated markets to increase significantly. To increase our production volumes prior to capacity expansion, wehave increased our use of outsourced intermediates in our production processes. As the purchase cost of outsourcedintermediates is generally significantly higher than our own cost of producing them, outsourcing of intermediates has theeffect of reducing our margins in the relevant products. To meet our current demand and expected growth in demand and toreduce our reliance on outsourced intermediates, we have initiated a Rs. 4,134.0 million capacity expansion plan to significantlyincrease our lovastatin, simvastatin, pravastatin and atorvastatin production. We expect this capacity to be available in thefirst quarter of 2005. Until then, we intend to increase production volumes through outsourced intermediates but believe thatimpact on overall margins will be offset by increased regulated market sales of pravastatin and simvastatin, which are comingoff-patent in key European markets.

Lovastatin

Lovastatin has come off product patent in the United States and European Union, and we are currently selling into each ofthese markets, among others. Lovastatin is manufactured through fermentation. Lovastatin is sold independently as well as akey intermediate for the manufacture of simvastatin. We commenced supply of lovastatin to the United States following USFDA approval of one of our solid state fermentation facilities for the production of lovastatin in 2001. This process for themanufacture of lovastatin includes patented solid state fermentation process technology. In addition, we recently received aCertificate of Suitability from the EDQM for our submerged fermentation facility and an extraction facility for the productionof lovastatin, and the US FDA inspected these facilities in December 2003.

During the first nine months of fiscal 2004, our lovastatin sales were Rs. 509.0 million as compared to Rs. 306.2 million in fiscal2003. Growth in lovastatin sales has primarily been due to exports to regulated markets, especially the United States and keyEU markets. In addition to exports to regulated markets, we supply lovastatin to unregulated export markets including SouthAmerica, Poland, Syria, Thailand as well as the domestic market.

Simvastatin

Simvastatin is manufactured through synthetic chemistry techniques using lovastatin as a key intermediate. Our process forthe manufacture of simvastatin includes patented process technology.

During the first nine months of fiscal 2004, our simvastatin sales were Rs. 1,467.7 million as compared to Rs. 681.4 million infiscal year 2003. Recent growth in simvastatin sales has primarily been due to the commencement of supply to Germany, theUnited Kingdom and Canada, following the expiration of the product patents there at the beginning of 2003. We also sellsimvastatin into the Japanese market, as well as several unregulated markets, including the domestic market. We expect thatthe French market will come off patent in 2005. Our process and facilities for synthetic conversion for simvastatin productionhave received a Certificate of Suitability from the EDQM.

We plan to sell simvastatin into the U.S. market after the expected expiry of the product patent there in 2006. To prepare forsales to the United States, we have filed a simvastatin DMF with the US FDA, and in connection with that DMF, the US FDAinspected our synthetic conversion facility for production of simvastatin in December 2003. In addition, our solid stateproduction process for lovastatin, a key intermediate of simvastatin, was approved by the US FDA in 2001 and our submergedlovastatin process was inspected by the US FDA in December 2003. To date we have issued five letters of access to generic

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drug manufacturers to enable them to refer our DMF for the simvastatin API in their ANDAs filed in the United States forgeneric simvastatin.

Pravastatin

Pravastatin requires highly developed fermentation skills as it is manufactured through a double fermentation process inwhich the key intermediate, compactin, and the final product are produced through fermentation. We believe that we havedeveloped a non-infringing process to manufacture pravastatin and have filed PCT applications to protect certain aspects ofour process.

Currently, we supply pravastatin to unregulated export markets of South America as well as the domestic market. We aim tosell pravastatin to the U.S. and European markets following the expiry of the patents there. To prepare for sales to the UnitedStates, we have filed a pravastatin DMF with the US FDA, and in connection with that DMF, our submerged fermentationfacility was inspected by the US FDA in December 2003 for production of pravastatin. To date we have issued two letters ofaccess to generic drug manufacturers to enable them to refer our DMF for the pravastatin API in their ANDAs filed in theUnited States for generic pravastatin. We have also received a Certificate of Suitability from the EDQM in respect of oursubmerged fermentation process/facility for the production of pravastatin and have received approval of our EDMF (undermutual recognition procedures applicable to 12 countries) in respect of our pravastatin production.

Atorvastatin

Atorvastatin is the largest selling drug in the world according to IMS data. Atorvastatin is manufactured using chemicalsynthesis processes. Chemical synthesis is a manufacturing process involving a series of chemical reactions to produce thefinal product. We believe that we have developed a non-infringing process to manufacture atorvastatin and have filed PCTapplications to protect certain aspects of our process.

Currently, we supply atorvastatin to unregulated export markets and the domestic market. Our new fermentation and synthesisfacility is intended to augment our capacities for atorvastatin.

Immunosuppressants

Immunosuppressants are used in organ transplant therapies to prevent organ and tissue rejection. Manufacture ofimmunosuppressants requires high-quality production facilities, process containment and a high degree of process controlbecause even low levels of contamination of these products cannot be tolerated.

Our current immunosuppressants are mycophenolate mofetil, or MMF and tacrolimus. We also received approval from theDCGI to manufacture and market mycophenolic acid sodium, or MPA sodium. We employ fermentation processes in theproduction of each of these APIs. Our production process for MMF and MPA sodium includes patented process technologybased on our PlaFractorTM fermentation platform which is well suited for the manufacture of immunosuppressants givenPlaFactor’s unique containment features. We commenced commercial production of MMF in 2000 and tacrolimus in 2003. Weare also developing processes for the production of other immunosuppressants.

MMF, MPA sodium and tacrolimus are expected to remain under patent protection in the key regulated markets for sometime. We are therefore currently selling MMF and tacrolimus to the domestic market and the unregulated export markets. Todate we have issued one letter of access to a generic drug manufacturer to enable it to refer to our DMF for the MPA API inits ANDA filed in the United States for generic MPA.

We are in the process of setting up a new immunosuppressants facility to augment our immunosuppressants productioncapacity.

The following table shows our immunosuppressant sales in domestic and export markets and as a percentage of totalbiopharmaceutical sales for the last three fiscal years and the first nine months of fiscal 2004.

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Fiscal Period

2001 2002 2003 First Nine Months 2004

Revenue Revenue Revenue Revenue(Rs. in % (Rs. in % (Rs. in % (Rs. in %

mi l l ions) mi l l ions) mi l l ions) mi l l ions)

Domestic Rs. 1.4 0.2% Rs. 28.2 2.5% Rs. 35.2 1.8% Rs. 99.6 3.1%

Exports - - 1.1 0.1 2.1 0.1 9.6 0.3

Total Rs. 1.4 0.2% Rs. 29.3 2.6% Rs. 37.3 1.9% Rs.109.2 3.4%

Others

We also produce several other biopharmaceuticals, including serratio peptidase, an anti-inflammatory product; iron polymaltosecomplex, or IPC, an iron supplement; and compactin, an intermediate in the production of pravastatin. Both these productsare over-the-counter, or OTC, products. Serratio peptidase is manufactured using fermentation technology while ironpolymaltose complex is a synthetic chemistry product. Before we began manufacturing this product ourselves, serratiopeptidase was sold by us as a blended bulk formulation.

We outsource production of certain bulk formulations for sales principally into the domestic market, either as blends withone or more of our own products or as a purely traded product. Some of the products that are currently in this categoryinclude anti-diabetics, neutraceuticals, gynaecological products, anti-osteoporosis products, anti-arthritics, animal healthproducts and digestive aids. A break up of bulk formulation revenues during fiscal 2003 and the first nine months of fiscal2004 is given below:

Fiscal 2003 First Nine Months 2004Revenue (Rs. in millions) Revenue (Rs. in millions)

Anti Diabetics Rs. 87.4 Rs. 171.2

Neutraceuticals 36.4 74.5

Gynaecological Products 56.1 77.1

Anti-osteoporosis Products 43.6 46.7

Animal Health Products 93.5 85.1

Digestive Aids 70.1 66.4

Others 257.8 293.7

Total Rs. 644.9 Rs. 814.7

The following table shows sales of all the other products in domestic and export markets and as a percentage of totalbiopharmaceutical sales for the last three fiscal years and the first nine months of fiscal 2004:

Fiscal Period

2001 2002 2003 First Nine Months 2004

Revenue Revenue Revenue Revenue(Rs. in % (Rs. in % (Rs. in % (Rs. in %

mi l l ions) mi l l ions) mi l l ions) mi l l ions)

Domestic Rs. 466.6 57.1% Rs. 572.9 50.1% Rs. 689.6 34.3% Rs. 859.7 26.6%

Exports 7.2 0.9 33.2 2.9 80.2 4.0 91.7 2.6

Total Rs. 473.8 58.0% Rs. 606.1 53.0% Rs. 769.8 38.3% Rs. 951.4 29.2%

Upcoming Biopharmaceutical Products

Recombinant Human Insulin. Our recombinant human insulin, which is produced from a Pichia pastoris yeast expressionsystem in a submerged fermentation process, is currently undergoing clinical trials in India (through Clinigene), and we planto begin sale of recombinant human insulin in the Indian market under our own “Insugen”TM brand name in the first half ofcalendar 2004, subject to receiving all regulatory approvals. We have already developed a commercial-scale production processfor this product and are completing a new Rs. 305.0 million dedicated production facility.

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We also seek to export recombinant human insulin in bulk form to regulated markets, including the United States and Europe.Biocon and Bristol-Myers Squibb Company signed a letter of intent in September 2003 under which the two parties are tonegotiate an agreement for supply by Biocon of recombinant human insulin to Bristol-Myers Squibb. The letter of intentcontemplates supply at established prices of quantities of product to be agreed upon by the parties from time to time. Exportof our recombinant human insulin would be subject to regulatory approval in the target markets. Please refer to the sectionentitled “Regulation” on page 118 of this Prospectus.

Other Anti-Diabetics. Our other principal target products in the anti-diabetes market are pioglitazone, repaglinide, nateglinideand roziglitazone. We began commercial production of pioglitazone and repaglinide in 2001 and have been selling smallquantities of these APIs into the domestic market and unregulated export markets. We have developed what we believe arenon-infringing processes for the manufacture of pioglitazone, nateglinide, and repaglinide, and have filed PCT applications inrespect of certain aspects of these processes. We are pursuing several opportunities for sales of our anti-diabetics. The USFDA inspected one of our synthetic chemistry facilities for pioglitazone production in December 2003. To date we haveissued one letter of access to a generic drug manufacturer to enable it to refer to our DMF for the pioglitazone API in itsANDA filed in the United States for generic pioglitazone.

Immunosuppressants. We intend to continue to develop and commercialise new immunosuppressants, including sirolimus.Sirolimus has application in medical devices (stents) for prevention of restinosis. We believe sirolimus will complement ourcurrent portfolio of immunosuppressants.

Orlistat. We are currently in the process of developing orlistat, an anti-obesity drug which is currently under product patentprotection in the US and European markets. Orlistat is manufactured using a combination of fermentation and syntheticchemistry techniques.

Products to be Introduced by Our New Biologicals Joint Venture. As discussed under the section entitled “—Joint Venturefor Biologicals” on page 52 of this Prospectus, we aim to produce for the domestic Indian market certain new biologicalsthrough our new joint venture with CIMAB S.A. of Cuba. We currently intend to produce EPO and GCSF. We also intend toproduce a new monoclonal antibody currently undergoing Phase II clinical trials in Canada, if and when it is approved foruse in the treatment of head and neck cancers. Our joint venture partner CIMAB developed this monoclonal antibody. BioconBiopharmaceuticals has marketing rights with respect to this product in India and elsewhere in South Asia.

Enzymes

We commenced our enzymes business as a producer of papain for export. Currently, we develop, manufacture and market avariety of industrial and speciality enzymes for a broad range of industries, including food and beverages, animal feed, starchprocessing, textiles, pulp and paper, and leather. We have a number of proprietary fermentation techniques for the productionof our enzymes, and we focus on the manufacturing and marketing of high value, low volume enzymes which serve tocomplement the existing product portfolio of large global enzyme manufacturers.

In enzymes, our focus is on the development of customised enzyme products and enzyme applications, which helps us toreduce our dependence on any particular industry application. Our customised enzyme products and applications often playa crucial role in the manufacturing of several products in our target industry segments, principally in the brewery, distilleryand food industries where the appearance and taste specifications of the final product are highly specific. We work closelywith key players in these industry segments to create new and customised enzymes that meet their specific requirements.Our close interaction and co-development approach with customers has resulted in long-standing business relationships.

We manufacture enzymes in our solid state and submerged state fermentation facilities. We have also entered into strategictie-ups to source industrial enzymes for customisation. These customized industrial enzymes are sold in the domestic marketand certain nearby export markets like South East Asia and the Middle East.

The following table shows the principal industry segments that we service, and the key enzymes supplied to our customersin these industry segments.

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Industry Category Enzymes Supplied

Beverage production Pectinase, amylase, hemicellulase, tannase, isinglass, papain, cellulase, glucanase, protease

Industrial (incl. textiles, pulp and Cellulase, xylanase, amylase, pectinase, proteasepaper, and leather)

Food processing Protease, amylase, hemicellulase, xylanase,

Grain processing Amylase, amyloglucosidase

The following table provides a revenue breakdown of our enzyme sales for the last three fiscal years and the first ninemonths of fiscal 2004, by the industry category of our end use customers:

Fiscal Period

2001 2002 2003 First Nine Months 2004

Revenue Revenue Revenue Revenue(Rs. in % (Rs. in % (Rs. in % (Rs. in %

mi l l ions) mi l l ions) mi l l ions) mi l l ions)

Beverages Rs. 168.5 41.6% Rs. 197.7 42.7% Rs. 213.3 40.1% Rs. 195.4 40.4%

Industrial Enzymes 120.2 29.6 130.0 28.0 154.4 29.0 128.2 26.5

Food Ingredients 82.1 20.3 85.6 18.5 102.4 19.2 86.9 18.0

Grain Processing 34.5 8.5 50.0 10.8 62.3 11.7 73.5 15.1

Total Rs. 405.3 100.0% Rs. 463.3 100.0% Rs. 532.4 100.0% Rs. 484.0 100.0%

Domestic Rs. 222.2 54.8% Rs. 269.0 58.1% Rs. 324.9 61.0% Rs. 286.6 59.2%

Exports 183.1 45.2 194.3 41.9 207.5 39.0 197.4 40.8

Pectinase is our largest enzyme product, contributing 20.9% and 24.4% of total enzyme sales in fiscal 2003 and the first ninemonths of fiscal 2004.

New Enzyme Products

We continue to work on developing novel enzymes or enzyme applications for various industries. We are developing thefollowing new enzyme products:

■ Fermzyme: An enzyme used in the production of ethanol, targeted at the distilling industry;

■ Cellulase: An enzyme with applications in the brewing and baking industries, targeted at the export market;

■ Phytase: An enzyme with applications in the animal feeds industry; and

■ Dextranase: An enzyme used in the extraction of sugar from cane.

Research Services

Our custom research and clinical research businesses are primarily conducted through our subsidiaries Syngene and Clinigene,respectively, with some enzyme-related custom research being performed by Biocon Limited itself.

Custom Research

Syngene, which became our subsidiary with effect from March 31, 2002, designs and manages research projects mainly formultinational pharmaceutical and biotechnology companies engaged in pre-clinical research in the area of new drug discovery.Syngene works in three main research areas: synthetic chemistry, molecular biology and custom synthesis. The company hasdeveloped skills and expertise in organometalics, boron chemistry, peptide synthesis and heterologus protein production.

We believe demand for custom research services is increasing as large pharmaceutical companies face growing pressure tointroduce new drugs into the market rapidly and at lower development costs. Syngene’s solution is to provide these companieswith efficient, high-quality, cost-effective R&D services focussed on niche research strengths. We believe that Syngene’ssuccess and growing expertise yield additional benefits to our other businesses, as we are able to increasingly rely uponSyngene to undertake sophisticated in-house research projects, including development of new biopharmaceuticals and enzymes.

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The following table shows the contribution of each of Syngene’s lines of business to the overall operating income of Syngene:

Fiscal Period

2001 2002 2003 First Nine Months 2004

Revenue Revenue Revenue Revenue(Rs. in % (Rs. in % (Rs. in % (Rs. in %

mi l l ions) mi l l ions) mi l l ions) mi l l ions)

Synthetic Chemistry Rs. 82.7 75.9% Rs. 109.8 74.6% Rs. 200.6 76.8% Rs. 196.4 76.1%

Molecular Biology 21.1 19.4 25.7 17.5 22.2 8.5 16.4 6.4

Custom Synthesis 2.9 2.7 10.5 7.1 36.8 14.1 45.2 17.5

Others 2.1 2.0 1.0 0.8 1.6 0.6 — —

Total Operating Income Rs. 109.0 100.0% Rs. 147.0 100.0% Rs. 261.2 100.0% Rs. 258.0 100.0%

Synthetic Chemistry

The synthetic organic chemistry group of Syngene has developed from producing custom synthesised building blocks(peptides or small molecules) for the construction of combinatorial libraries to developing and scaling up complex chemicaland biochemical processes for the synthesis of organic molecules, typically in support of drug discovery efforts. The syntheticchemistry group is principally engaged in developing novel processes for the synthesis of APIs and their intermediates. Asof December 31, 2003, Syngene’s synthetic chemistry group had 186 scientists, of whom 17 held PhDs.

Syngene’s synthetic chemistry services include:

■ Novel process development for APIs and intermediates;

■ Synthesis and characterisation of impurities and reference compounds;

■ Production of pharmaceutical molecules for biostudies; and

■ Development of analogues and polymorphs of pharmaceutical molecules.

Molecular Biology

Syngene has expertise in providing a variety of molecular biology services to meet diverse project requirements. Syngene’smolecular biology activities include:

■ Identification and validation of microbial drug targets using molecular genetics;

■ Development of clones to express protein families involving a proteomics platform; and

■ Construction of DNA libraries of bacteria, yeasts and fungi.

The molecular biology group is currently focusing on building capabilities in production of biopharmaceuticals using rDNAtechnologies including microbial, yeast and mammalian host systems. Recombinant DNA technology is a technique wherebygenetic material of an organism is modified to create a similar non-natural entity, which may be used to produce usefulbiotechnology products. As of December 31, 2003, Syngene’s molecular biology group had 20 scientists, of whom three heldPhDs.

Custom Synthesis

Our custom synthesis business involves the development of chemical compounds in accordance with customer specifications.Compounds developed by Syngene include boronic acids, hetrocycles and amino acid derivatives. The development processesinvolved in our custom synthesis business are at a pilot plant scale and the product quantities are generally relatively small.

Billing

In synthetic chemistry and molecular biology, Syngene generally charges its clients on a full time equivalent, or FTE, basis.Under this system, clients are billed on the basis of an agreed researcher utilisation level, typically measured in man-years,regardless of progress achieved on the project. We seek to transition some of Syngene’s work from the FTE system to amilestone-based system where clients are charged on achieving specific milestones in the contracted research activities. We

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believe this system may be more lucrative and may offer greater flexibility in terms of personnel utilisation. In custom synthesis,we generally bill on successful development and supply of synthesised compounds.

Clinical Research

Clinigene was established in 2000 to develop outsourcing capabilities for clinical research and related activities. We believeClinigene’s laboratory was the first and remains one of the few labs in India to have received certification from the College ofAmerican Pathologists, or CAP, which is required by many large pharmaceutical companies to provide clinical research servicesto them. Clinigene’s laboratory is a reference lab for several large pharmaceutical and clinical research companies. Thislaboratory is dedicated exclusively to supporting clinical trials and meets international standards for clinical chemistry, clinicalpathology, hematology, microbiology and histology.

Clinigene is currently building its capabilities in Phase I-III clinical trials and is setting up a 26-bed human pharmacology unitwith Sagar Apollo Hospital in Bangalore to conduct Phase I trials and bio-equivalence and bio-availability, or BE/BA studies.Bio-equivalence refers to pharmaceutically equivalent drug products where the rates/extents of bio-availability of the activeconstituents are not significantly different under suitable test conditions. In other words, this is a comparison of two or moreproducts with respect to their bio-availability. Bio-availability refers to the extent to which a drug reaches its site of action ora biological fluid such as blood that has access to its site of action. Bio-availability and bio-equivalence are assessed whenapproval for new versions of existing drug products is sought. Biocon is currently using Clinigene to conduct its clinicaltrials for recombinant human insulin and intends to use it for future trials, including planned trials for biologicals to be producedby the Biocon Biopharmaceuticals joint venture. Clinigene adheres to International Conference on Harmonisation, or ICH,standards for good clinical practice, or GCP. Clinigene is collaborating with the Curie Centre of Oncology at St. John’s MedicalCollege and Hospital (Bangalore) to create a cancer patient registry to facilitate the establishment of future clinical trials.

In 2000 Clinigene and Surromed Corporation of the United States launched an extensive longitudinal study of Type II diabetespatients in India in an effort to identify new disease biomarkers. Biomarkers are statistically significant physical indicatorsidentifiable in laboratory tests that signal the onset or an aspect of a disease. Biomarkers are useful in the development ofdiagnostic techniques and identifying new targets for drug discovery in a particular disease segment. The Type II diabetesstudy currently involves over 400 patients on whom 70 laboratory tests are conducted every three months. Clinigene iscurrently conducting this study on its own, although it is in discussions with Surromed regarding Surromed’s return to thestudy. Clinigene is currently collaborating with Strand Genomics of Bangalore and the Indian Institute of Science on theanalysis and processing of the data obtained from this longitudinal study.

Clinigene’s operating revenues were Rs. 3.5 million, Rs. 26.7 million, Rs. 11.1 million and Rs. 1.4 million in fiscal 2001, fiscal2002, fiscal 2003 and the first nine months of fiscal 2004, respectively.

Joint Venture for Biologicals

In 2002 we established a joint venture company, Biocon Biopharmaceuticals Private Limited, with CIMAB S.A., a Cubanbiotechnology company, to produce and sell certain biologicals developed by CIMAB, including EPO and GCSF, into theIndian market. EPO is a hormone produced by the kidneys to stimulate red blood cell production. EPO is used to treat anaemia,including anaemia induced by kidney failure, cancer or chemotherapy. GCSF is used to stimulate the production of neutrophilsfrom bone marrow, which improves the body’s ability to fight infection. The joint venture also intends to produce a newmonoclonal antibody developed by CIMAB, if and when it is approved for use in the treatment of head and neck cancers.This product is currently undergoing Phase II trials in Canada, and we plan to initiate (through Clinigene) Phase II trials onthis product in India in the first half of calendar year 2004. Biocon Biopharmaceuticals has the right to market this monoclonalantibody in India, Sri Lanka, Pakistan, Bangladesh, Nepal, Bhutan.

The joint venture allows us to utilize CIMAB’s experience and expertise in developing and manufacturing these products,which to date are largely imported into India. In addition to sales of these products into India, our agreement with CIMABalso contemplates that through Biocon Biopharmaceuticals, we will collaborate with CIMAB in research and developmentactivities.

Biocon Biopharmaceuticals is in development stage. We are in the process of planning production facilities for the JV at ournew site at Bommasandra in greater Bangalore, approximately 5 km from our 20th K.M. Hosur Road site. Please refer to the

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section entitled “—Manufacturing and Facilities – Future Facilities” on page 60 of this Prospectus. We seek to commencecommercial production during fiscal 2006. Biocon Biopharmaceuticals may import EPO and GCSF from CIMAB for sale intoIndia prior to the commencement of production at the new JV production facilities.

We have a 51% interest in Biocon Biopharmaceuticals, while CIMAB owns the remaining 49%. Biocon and CIMAB eachhave the same number of nominees on Biocon Biopharmaceuticals’ board of directors, and in important decisions regardingthe joint venture, we share control with CIMAB. To date, our investment in this joint venture has been nominal. BioconLimited is responsible for the financing of Biocon Biopharmaceuticals’ proposed production facilities. In this regard, BioconLimited is required to make a US$5.1 million equity investment in Biocon Biopharmaceuticals and arrange or guarantee debtfinancing for Biocon Biopharmaceuticals for the balance of the investment. We have not yet determined the capital expenditurerequirements of this company, although Biocon’s board of directors has given preliminary approval for financing capitalexpenditures of up to Rs. 850.0 million for the joint venture.

Sales and Marketing

Our sales are through a combination of direct selling and channel sales. In our direct sales, orders are sourced by us orthrough commission agents. Our channel sales are made directly to selling agents on a non-returnable basis. In fiscal 2003and the first nine months of fiscal 2004, direct sales in which commissions were paid accounted for 19.3% and 17.0%,respectively, of our total biopharmaceuticals and enzymes sales. Typically, such sales commissions range from 0.5% to 12%.

We maintain a marketing office in New Jersey to support our U.S. sales. In the domestic market, we have regional marketingoffices in Mumbai, Delhi and Kolkata. As of December 31, 2003, we had 56 employees in our marketing team.

Biopharmaceuticals

Currently, we supply our biopharmaceutical products to many of the largest pharmaceutical companies in the world, includingseveral of the largest generic formulators. We generally establish relationships with our customers at several levels, includingmanufacturing, quality control, R&D and senior management.

In biopharmaceuticals, our top 10 customers accounted for approximately 49.8%, 43.4%, 47.4% and 56.5% of totalbiopharmaceuticals revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Ourlargest single biopharmaceuticals customer accounted for approximately 14.6%, 8.7%, 17.1% and 16.5% of totalbiopharmaceuticals revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Oursecond largest biopharmaceuticals customer accounted for approximately 7.1%, 6.3%, 8.5% and 12.7% of totalbiopharmaceuticals revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively.

We are in the process of establishing a marketing infrastructure to sell our “Insugen”TM brand recombinant human insulin inIndia. Our goal is to eventually utilize this marketing infrastructure to sell additional formulations, including other anti-diabetics,under our brand names. We plan to initially target the cities of South, West and North India through a distribution policy anda group of marketing employees in the field. We expect that our initial marketing infrastructure for recombinant human insulinwill require an additional 70 employees in our marketing department.

Enzymes

In enzymes, other large enzyme companies purchase much of our exported product. In the domestic market, large food/beveragecompanies , breweries, distilleries and textile manufacturers are among our largest customers.

In enzymes, our top 10 customers accounted for approximately 52.5%, 46.7%, 43.9% and 42.9% of total enzyme revenue infiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Our largest single enzymes customeraccounted for approximately 26.9%, 20.3%, 12.5% and 14.1% of total biopharmaceuticals revenue in fiscal 2001, fiscal 2002,fiscal 2003 and the first nine months of fiscal 2004, respectively. Until March 2001, we were required to export food andbeverages enzymes exclusively to our former Unilever group joint venture partner, Quest International, until 1999, under anexclusive marketing arrangement. That joint venture partner remained our largest single enzymes customer from fiscal 2001through fiscal 2003.

Custom & Clinical Research

Syngene and Clinigene rely largely upon direct marketing by our marketing team, their senior scientists and client referencesto generate new project work.

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Syngene’s clients include a number of pharmaceutical and biotechnology companies in the United States and the EuropeanUnion. Syngene’s top 10 clients accounted for approximately 82.8%, 84.9%, 79.4% and 76.5% of total custom research revenuein fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Our largest single custom researchclient accounted for approximately 24.3%, 17.6%, 13.0% and 13.1% of total custom research revenue in fiscal 2001, fiscal 2002,fiscal 2003 and the first nine months of fiscal 2004, respectively.

Competition

In view of the fact that we are unable to rely on any factual data which may be considered as authentic and that is independentlyverifiable, it has not been possible for us to accurately represent our market share in this discussion.

Biopharmaceuticals

Our biopharmaceutical products currently compete in the global API market. The global pharmaceuticals market can broadlybe divided into the regulated and unregulated/semi-regulated markets. The unregulated/semi-regulated markets, which includemany developing countries such as India, have minimal entry barriers in terms of regulatory requirements with respect to thequalification process and intellectual property rights. These markets are often highly competitive. The regulated markets,including the United States, the European Union and Japan, on the other hand, have more intellectual property protection,including product patent recognition, and generally higher regulatory entry barriers in terms of cGMP and US FDA approvedfacilities. As a result, there is a premium for intellectual property protection and quality and regulatory compliance along withgreater stability for both volumes and prices. The main competitors in the API export market are Teva Pharmaceutical IndustriesLimited, Ranbaxy Laboratories Limited and Zhejiang Hisun Pharmaceutical Co., Ltd.

The API business in India is a mature business and hence intensely competitive. The business is highly fragmented withnumerous small players. We compete with a number of large and medium size manufacturers. Our main competitors in Indiaare Lupin Limited, Krebs Biochemicals & Industries Limited, Ind-Swift Laboratories Limited, Zydus Cadila Limited, GlenmarkPharmaceuticals, Wockhardt Limited and Dr. Reddy’s Laboratories Limited.

We have chosen to limit our participation in the API markets in India and other semi/ unregulated markets by developingonly high-demand biopharmaceutical products that:

■ utilize our experience and expertise in fermentation;

■ provide an opportunity to enter regulated markets at a time when pricing is still relatively firm; and

■ are relatively more difficult to manufacture or scale up in a cost-effective manner.

As a result, we often experience relatively lower levels of competition in our API product markets. Our strategy is to focus onAPI markets that offer attractive profit margins and opportunities for rapid growth in sales.

Enzymes

We are a relatively small enzyme manufacturer in the global market. The largest companies in this segment, includingNovozymes A/S, Genencor International, Inc., AB Enzymes GmbH, DSM Group and Danisco A/S all have significantly strongermarket positions and greater financial resources than we do. We differentiate ourselves by seeking to develop niche enzymeproducts and products with enhanced or unique characteristics to differentiate our products from those of our competitors.Other niche manufacturers in the international markets include Amano Enzyme Inc., Shin Nihon Chemical Company, Ltd. andLYVEN.

The domestic enzyme market is characterized by limited competition, principally from some of the global enzyme companies,such as Novozymes A/S, Burns Philip Food Inc. and Danisco A/S, as well as some small domestic manufacturers such asAdvanced Biochemicals Limited and Maps India Limited. Our competition with the small domestic companies is based largelyon product quality and differentiation.

Custom Research

The drug-related research outsourcing industry consists of numerous other small, limited-service providers and a number offull-service global drug development companies. The industry continues to experience consolidation and, in recent years, agroup of large, full-service competitors has emerged. These larger competitors have a much broader portfolio of business,

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greater resources and more experience than companies such as Syngene. In addition to competing with a number of global,full-service companies and smaller providers, we also face competition from in-house research and development departmentsof pharmaceutical and biotechnology companies, as well as universities and teaching hospitals. Newer, smaller entities withspecialty focuses, such as those aligned to a specific disease or therapeutic area, compete aggressively for clients.

In India, Syngene faces competition from several laboratories including Aurigene Discovery Technologies (a subsidiary ofDr. Reddy’s Laboratories Limited), Sanmar Speciality Chemicals Limited, Chembiotek Research International and others.

Syngene has chosen to focus on its key strengths in the areas of molecular biology and synthetic chemistry custom research.Syngene believes it competes with other companies operating in these areas on, among other bases, the following:

■ Reputation for on-time quality performance;

■ Expertise and experience in niche areas;

■ Ability to execute more complex or otherwise difficult projects;

■ Low cost environment; and

■ High-quality facilities and advanced information technology.

Clinical Research

Clinigene benefits not only from India’s relatively low cost pool of highly talented medical and scientific personnel, whichallows us to provide high-quality clinical research services at very attractive prices, but also from the country’s largepopulation, which facilitates rapid establishment of trial groups. In addition, India’s large range of diseases and diversepopulation offer opportunities to establish unique and potentially valuable databases to facilitate the discovery of newbiomarkers, among other things. We believe that Clinigene’s ability to make use of these factors will enable it to competefavourably on the basis of quality, timeliness, scale/complexity, price and unique knowledge/expertise. Further, we believeClinigene’s CAP accreditation will enable it to effectively market its clinical research services to international pharmaceuticalcompanies.

Research and Development

In-house research and development activity is central to our business. Through our research and development initiatives, weproduce new products, innovate and enhance fermentation and other manufacturing techniques and continually expand ourgeneral scientific and engineering capabilities. Our aggregate in-house research and development expenditures were Rs. 38.7million, Rs. 75.5 million, Rs. 114.2 million and Rs. 126.7 million, in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine monthsof fiscal 2004. As of December 31, 2003, our dedicated in-house R&D team consisted of 98 employees, of whom 17 haddoctorates and 61 were postgraduates, in each case, in science or engineering. We have filed 28 patent applications in fiscal2003 and 50 more since then.

We established our R&D division in 1984. Our initial R&D efforts were focused on the development of solid-state fermentationtechnology to develop new enzymes, which was commercialised in 1992 through our first solid-state fermentation plant.Subsequent research efforts focused on the development of submerged fermentation technology resulting in thecommercialisation of our submerged fermentation plant in 2000.

We combined our skills in solid state and submerged state fermentation technologies to create a unique bioreactor forfermentation, which we named PlaFractorTM. The PlaFractor platform enables solid state fermentation and extraction in thesame vessel resulting in a unique containment feature that can be effectively utilised for the manufacture of highlycontamination-sensitive products like immunosuppressants. Our PlaFractor technology received a U.S. patent in 2001. Wehave set up a facility based on PlaFractor technology for the manufacture of MMF.

Our R&D capabilities now cover many important areas, including:

■ Enzymology, protein purification and application studies;

■ Microbiology and strain improvement;

■ Fermentation development – solid state, submerged and PlaFractorTM;

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■ Microbial biotransformations;

■ Synthetic organic chemistry;

■ Process scale-up;

■ Downstream process development – enzymes, biologicals and small molecules;

■ Biodiversity and natural product chemistry;

■ Biochemical engineering;

■ Gene cloning and expression; and

■ Informatics.

In developing biopharmaceutical and enzyme manufacturing processes, our R&D team works closely with the manufacturingteam to scale up production processes to achieve commercially viable yields and further enhance those yields to improveprofit margins. In addition, our R&D team works to achieve further and continuous yield improvement even after commercialscale production has been achieved.

The research and development group has developed a formal electronic documentation and communication system that isaccessible by all R&D employees. This interactive software system allows for free communication among our innovators andidea generation at any level of seniority.

Biodiversity Program

We launched our biodiversity program in 1995. Our biodiversity program encompasses the collection, cataloguing andconservation of indigenously available rare and diverse species of bacteria, yeast and fungi, including myxobacteria andmarine fungi. New organisms discovered through our biodiversity collection help us to develop novel enzymes, new processesfor our target APIs and enzymatic conversions, or bioconversions, to substitute for synthetic conversion processes. Todate, we have identified and characterised over 3,000 unique microorganisms, several of which have demonstrated noveltraits. We believe that our biodiversity collection will be a valuable tool in aid of new product discovery.

In our enzymes business, our biodiversity program has enabled us to identify and isolate enzymes from micro-organisms anddevelop novel applications of these enzymes. Our biodiversity program also assists us in identifying microorganisms forenzymatic bioconversions, aimed at substituting synthetic conversions with novel enzymatic routes.

Intellectual Property

We have sought to develop and protect significant intellectual property, principally patents and trade secrets (confidentialbusiness information), with respect to both our manufacturing processes as well as certain of our products, principally enzymes.

Prior to the termination of our joint venture with the Unilever group in 1999, we were not permitted to file patent applicationsindependently. Since 1999, we have filed 117 patent applications. We have filed for patents in various jurisdictions includingIndia, the United States, Western Europe, Canada, Japan, Australia, the Czech Republic, Mexico, Brazil, the Russian Federationand have pending patent applications.

We filed 28 patent applications in fiscal 2003 and 50 since then. To date we have been granted a total of 14 patents in variousjurisdictions, and 25 of our PCT applications have been published. Many of our process patents relate to biopharmaceuticaland enzyme production technologies.

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The following table shows our patents and patent filings by jurisdiction:

Fermentation process Enzymes Synthetic chemistry process

India filed 9 8 14

India granted 2 1 5

United States filed 2 1 7

United States granted — — 6

EP filed(1) 2 — 3

EP granted(1) — — —

PCT filed(2) 12 4 46

PCT published(2) 4 3 15

ROW filed 4 — 9

ROW granted — — —

(1) “EP” means European Patent.

(2) “PCT” means the Patent Cooperation Treaty, an international treaty that facilitates foreign patent filings for residents of member countries

when obtaining patents in other member countries.

We also rely on trade secrets, non-patented proprietary know-how and continuing technological innovation that we seek toprotect, in part, by confidentiality agreements with licensees, suppliers, employees and consultants.

To date we have not encountered significant difficulties protecting our intellectual property and have not initiated or beennamed as a defendant in any patent-related litigation anywhere.

Custom Research

In custom research projects, we typically agree to transfer all intellectual property developed in connection with the projectto the client and to maintain the confidentiality of all proprietary information relating to or arising out of the project. We alsomaintain strict internal separation between our own in-house research activities and those of our custom research clients.

Clinical Research

As part of this relatively new business line, we are seeking to develop proprietary databases of India’s population, includinglongitudinal studies, disease demographics and seek to discover novel biomarkers to enhance disease detection, especiallyat earlier stages. We seek to protect much of this work as proprietary information principally through our confidentiality andnon-compete arrangements with clients, employees, consultants and others.

TRIPs Agreement

In accordance with the Trade-related Aspects of Intellectual Property Rights, or TRIPs, agreement, World Trade Organization(WTO)-member states, including India, are expected to recognize pharmaceutical product patents effective January 1, 2005.This is expected to lead to increased worldwide convergence of patent law regarding pharmaceutical products and an erosionof the distinction between regulated markets and unregulated/semi-regulated markets. In addition, as a result of the introductionof pharmaceutical product patents in India, the advantage we and other Indian pharmaceutical companies currently enjoy indeveloping processes for pharmaceutical products patented in the United States and the European Union will begin to wane,as we will no longer be able to develop and sell, in India or elsewhere, pharmaceutical products under patent protection inthe United States or the European Union, if they also have patent protection in India. From that time, we will not be able tosell in India or elsewhere pharmaceuticals whose patents are recognized in India, unless and until these patents expire or areinvalidated. If we choose to develop these pharmaceuticals for the generics markets, our development costs in respect ofthese products will be higher and our time to market will likely be longer. In addition, in 1998 India created a “black box” forpatent applications to be filed for recognition beginning 2005, until their normal date of expiration, which under current Indianlaw is 20 years from filing.

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Manufacturing and Facilities

Properties and Facilities

Our first solid state fermentation facility was set up in 1984. Since then, our manufacturing facilities have grown significantlyto accommodate with growth in our businesses. With the exception of one synthesis plant located on a 0.7-acre plot nearbyin Bommasandra, all our facilities are currently located on a 25-acre site at 20th K. M. Hosur Road, near Electronic City in thegreater Bangalore area.

The following table describes Biocon’s principal manufacturing facilities:

Manufacturing Facility Principal Products Manufactured Date of commissioning Size (square feet)

Solid Substrate Fermentation – I Enzymes for food and beverage 1992 7,205

Solid Substrate Fermentation – II Enzymes for food and beverages, lovastatin 1996 13,044

Submerged Fermentation – II Compactin, pravastatin, lovastatin, 1999(1) 31,581

(incl. four 30 kl fermenters) serratio peptidase, neutral protease

Synthetic Conversion – I Pioglitazone and other anti-diabetic products, 1998 2,657

atorvastatin

Extraction – I Lovastatin 2000 1,991

Extraction – II, Simvastatin, pravastatin, mycophenolate 2002 16,847

Synthetic Conversion – II, mofetil

PlaFractorTM Mycophenolate mofetil, tacrolimus 2001 2,864

Bulk Formulation Various blended products 2002 14,271

(1) In 2002, two of this facility’s four 30 kl fermenters were commissioned.

Among the more important equipment in our facilities are fermenters (tanks used in submerged fermentation), extraction vessels,cookers, fermentation chambers, seed fermenters, purification equipment, filtration equipment, reactors and vacuum dryers.We source these items largely from Indian and European manufacturers.

Our 20th K.M. Hosur Road site also houses the corporate offices of the Biocon Group, the R&D labs of Biocon and theresearch labs of Syngene and Clinigene. As of December 31, 2003, Syngene’s facilities covered 23,600 square feet. We havemodern, well equipped laboratories which features sophisticated research and instrumentation equipment including two nuclearmagnetic resonance spectrometers (300 MHz and 400 MHz), two liquid chromatograph mass spectrometers (including onequadrupole), one high-throughput liquid handling system, one oligonucleotide synthesiser, two DNA sequencers, two proteinpurification platforms, fluorimeters, ELISA readers, haemotology analyser and lab fermeters, which are largely sourced fromEurope and the United States.

We own each of the 20th K.M. Hosur Road site and the developed Bommasandra site and the facilities located thereon. Inaddition to the two developed sites, we are in the process of completing the purchase of 46.75 acres at a new site inBommasandra, approximately 5 km from 20th K. M. Hosur Road, to accommodate our planned future growth. Please refer tothe section entitled “—Future Facilities” on page 60 of this Prospectus and the section entitled “Objects of the Issue” onpage 30 of this Prospectus.

Raw Materials

Substantially all of our manufacturing processes currently centre on submerged, solid state and PlaFractorTM fermentationsystems and synthetic conversion facilities. The principal inputs into our fermentation processes are carbohydrate sources,water, solvents and certain other chemicals. Several microorganisms used in our fermentation processes, including microbialstrains, are developed through our own biodiversity program. We use solvents such as ethyl acetate, methanol and acetone,which are used in the separation of the desired enzymes or other products from fermented batches. Other important chemicalsinclude n-butyl lithium, used in the production of simvastatin and atorvastatin; pyrollidine, used in the production ofsimvastatin; and methyl iodide, used in the production of simvastatin. To increase our production volumes prior to capacityexpansion, we have increased our use of outsourced intermediates – including lovastatin for the production of simvastatinand compactin for the production of pravastatin – in our production processes. Please refer to the section entitled “-Biopharmaceuticals - Statins” on page 45 of this Prospectus. For blended products, we also use enzymes and other additivessourced from third parties for blending with one or more of our products.

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Utilities and Others

Utilities. We have captive power generation facilities – diesel generator sets with a current aggregate capacity of 4 MW –which are adequate to meet our current power requirements. We currently use diesel fuel and super kerosene oil in thesegenerator sets. We will continue to augment our captive power generation capacities as and when required. We also receivepower from the Karnataka state electricity board (connected load: 800kVA), which we use to power non-production facilitiesand which also serves as a back-up power supply.

Our fermentation processes are water intensive. Water required for our fermentation processes is sourced from the stateowned water utility through a pipeline and from tube wells on our properties. Our water supplies are adequate to meet currentusage requirements and planned expansion.

Effluent Treatment. We aim to create a production system that minimises effluents and reuses synthetic chemicals and solventsand much of our water. All of our used water is treated, with much of it returned to our manufacturing process and theremainder used as garden and lawn water on our premises. The unusable portion of our fermentation batches and otherbiomass are converted to compost, which is either used in our own gardens or lawns or sold as fertilizer to farmers in theregion. Certain by products of our manufacturing processes and research and development activities that cannot be reusedor reformulated are incinerated.

Certain Certifications and Approvals

The table below describes some of the important approvals and certifications that our manufacturing facilities and productionprocesses have received:

Approval/Certification Purpose From Year

US FDA approval Quality of production of lovastatin at Solid State Fermentation Facility – II and 2001Extraction Facility – I

EDQM Certificate of Suitability Quality of production of lovastatin at Solid State Fermentation Facility – II and 2003Extraction Facility – I

EDQM Certificate of Suitability Quality of production of simvastatin at Synthetic Conversion Facility – II 2003EDQM Certificate of Suitability Quality of production of lovastatin at Submerged Fermentation Facility – I 2004

and Extraction Facility - IIEDQM Certificate of Suitability Quality of production of pravastatin at Submerged Fermentation Facility – I 2004

and Extraction Facility – IIApproval of EDMF under mutual Quality of production of simvastatin at Synthetic Conversion Facility – II 2002recognition procedures (applicableto 10 countries in Europe)Approval of EDMF under mutual Quality of production of lovastatin at Solid State Fermentation Facility – II and 2003recognition procedures (applicable Extraction Facility – Ito two countries in Europe)Approval of EDMF under mutual Quality of production of pravastatin at Submerged Fermentation Facility – I and 2003recognition procedures (applicable Extraction Facility – IIto two countries in Europe)Canadian Health Authorities Quality of production of lovastatin at Solid State Fermentation Facility – II and 2001

Extraction Facility – ICanadian Health Authorities Quality of production of simvastatin at Synthetic Conversion Facility – II 2003RWTUV ISO 9001 for Biocon 1993

ISO 9001 – 2000 for Biocon 2003ISO 9001 – 2000 for Syngene 2003

DCGI WHO-cGMP certification for manufacturing facilities 2003DCGI Laboratory accreditation for the Quality Assurance Testing Laboratory 2001DCGI Certificate of pharmaceutical product (WHO cGMP certificates) for 33 products 2003CAP (College of American CAP certification for Clinigene laboratory 2002Pathologists)NABL (National Accreditation For Clinigene pathology, haematology and biochemistry laboratories 2003board for testing and calibrationlaboratories)Export Inspection Council of India For processing of dried fish maws for export to all countries, including EU countries 2003Manchester Beth Din Kosher certificate for certain enzymes 1994

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During December 2003, our submerged fermentation facility and our second extraction/synthetic conversion facility wereinspected by the US FDA for production of lovastatin, simvastatin and pravastatin. At that time, our first synthetic conversionfacility was also inspected by the US FDA for production of pioglitazone. The following additional approvals/certificationsare also currently in process:

Approval/Certification Purpose

ISO 14001 Environment Management System

ISO 18001 Occupational Health and Safety

Future Facilities

We have begun developing several new facilities that we plan to complete over the next three years. Some of the new facilitiesare being built at our new Bommasandra site, approximately 5 km from our existing complex at 20th K.M. Hosur Road.

The figures for planned capital expenditures are based on management estimates and have not been appraised by anindependent organisation. In addition, our capital expenditure plans are subject to a number of variables, including possiblecost overruns; construction/development delays or defects; receipt of critical governmental approvals including approvalsof drug regulators in our target markets; availability of financing on acceptable terms; and changes in management’s views ofthe desirability of current plans, among others.

New Submerged Fermentation and Synthesis Facilities, Principally for Statins Production

In order to meet the growing demand for statins, we are augmenting our fermentation, extraction and synthetic conversioncapacities. These new facilities are being designed to house four 100 kl fermenters and synthetic conversion and extractionunits. We have commenced construction of this facility and expect to commence commercial production by the first quarterof 2005.

This facility is being built with a significantly higher level of automation as compared to our existing facilities. We intend toseek US FDA approval for the manufacture of lovastatin, simvastatin and pravastatin at this facility. The facility has beendesigned to house captive power generation units and effluent treatment plants.

We plan to spend Rs. 499.8 million, Rs. 3,170.0 million and Rs. 400.0 million to develop this facility in fiscal 2004, fiscal 2005and fiscal 2006, respectively. Prior to fiscal 2004, we spent a total of Rs. 64.2 million on this project.

New Purification Facility for Recombinant Human Insulin Production

Manufacture of recombinant human insulin requires upstream investments in fermentation capacity and downstreaminvestments in a purification facility. We plan to dedicate one of our existing 30 kl fermenters at our 20th K.M. Hosur Roadcomplex for the manufacture of recombinant human insulin and are developing a new facility for the downstream purification.As of December 31, 2003, we had completed Rs. 282.6 million of our planned Rs. 305.0 million investment in the new downstreamfacility. Our recombinant human insulin is currently undergoing clinical trials in India, and we plan to introduce this productin the domestic markets as a branded formulation in the first half of calendar 2004, subject to receiving all regulatory approvals.

New Facility for Immunosuppressants

In order to meet the growing demand for immunosuppressants, we are augmenting our fermentation facilities. The new facilitywill have fermentation capacity of 30 kl and will be supported by necessary utility and downstream equipment. We havecommenced construction of this facility and expect to commence commercial production by October 2004.

This facility will be designed to process about 1.5 tonnes of finished product, which may vary based on the product mix.

We plan to spend Rs. 40.0 million and Rs. 160.0 million to develop this facility in fiscal 2004 and 2005 respectively.

Custom Research Facility

We have commenced work on a new 65,000-square foot Syngene laboratory to meet anticipated growth in demand for itscustom research services. We expect to complete construction by mid-2004.

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We plan to spend Rs. 90.0 million in fiscal 2004 and Rs. 210.0 million in fiscal 2005 to develop this new facility. We plan toutilize Syngene’s own internal accruals to finance this project.

New Facility for Biologicals Joint Venture

We are in the process of planning production facilities for Biocon Biopharmaceuticals. Please refer to the section entitled “-Joint Venture for Biologicals” on page 52 of this Prospectus. We seek to commence commercial production of biologicals atthese facilities during fiscal 2006.

Insurance

We maintain property insurance with Royal Sundaram Alliance Insurance Company Limited, National Insurance CompanyLimited and United India Insurance Company Limited to cover our assets, stocks (i.e., raw materials, finished goods, semi-finished goods, packaging material) at locations within our premises as well as outside as specified in the insurance policy.Our property insurance covers accidental physical loss, destruction or damage up to a sum insured of Rs. 2,365.1 million on areplacement value basis.

We maintain transit insurance policies with United India Insurance Company Limited to cover our imports, inland purchaseand sales and exports. Our transit insurance covers safety of our goods in transit.

Our insurance policies are for one year, and we intend to renew these policies upon expiration.

We currently do not have business interruption, products liability, directors and officers’ liability or key personnel insurance.

Quality Division

Quality control, quality assurance and regulatory compliance are central to our success as a biotechnology company. Our 67-member Quality Division has primary responsibility for these areas.

Quality Control. Under the quality control function, the Quality Division is engaged in comprehensive sampling, testing andinvestigation of the quality of our products, prior to dispatch to our customers. The division also provides customer support.The Quality Division is also engaged in the qualification and calibration of testing equipment and the development of analyticalmethods for the testing of our products.

Quality Assurance. Under quality assurance, the division’s main areas of activity include annual product reviews, validationof processes, investigation of deviations and batch failures, internal audits with respect to cGMP and quality systems, externalaudits with respect to regulators and customers and documentation and data control. The division notifies and co-ordinateswith senior management on regulatory inspections as well as cGMP compliance.

Regulatory Compliance. The Quality Division has the overall responsibility for our compliance with domestic and internationalregulatory requirements, submission of DMFs and technical dossiers and licensing from drug authorities. The division isalso involved in technical interactions with international customers with respect to regulatory filings and registrations.

Human Resources

As of December 31, 2003, we had 854 full-time employees, of whom 31 were members of management. Of these employees, 98were engaged in in-house research and development activities and 242 were engaged in custom research and clinical researchactivities. As of December 31, 2003, 50 of our employees held doctorates and 326 were postgraduates, in each case, typicallyin science, medicine, engineering or business/finance. The total number of our full-time employees has grown from 468 at theend of fiscal 2001, to 596 at the end of fiscal 2002 and to 730 at the end of fiscal 2003.

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The table below breaks down our full-time employees as of December 31, 2003 by qualification and company:

Doctorate(1) Post Graduates(2) Graduates(3) Others(4) Total

Biocon 23 155 232 200 610

Syngene 21 164 25 10 220

Clinigene 6 6 4 6 22

Biocon Biopharmaceuticals - 1 1 - 2

Total 50 326 262 216 854

1) Ph.D. and M.D.2) M. Sc., M.Phil., M.B.B.S., M.B.A, M.Tech, M.C.A., L.L.B. and C.A.3) B.Sc, B.Com and B.A.

4) Includes Diploma holders

To date, we have not experienced difficulty filling vacancies with qualified personnel. In fiscal 2001, fiscal 2002, fiscal 2003and the first nine months of fiscal 2004, our attrition rates – calculated as the number of employee departures in a perioddivided by the average of the period-beginning number of employees and the period-end number of employees – were 14.5%,7.9%, 8.9% and 5.4%, respectively. None of our workforce is currently unionised, there have been no strikes, lockouts orother general employee unrest, and we believe our relations with our employees are good.

We seek to adopt a very open culture and a participative management style, to enable us to benefit most from the knowledgeand skills of our management and research/technical professionals. We have also linked remuneration to performance, withabout a third of the total salary of management and research/technical professionals being earned as variable pay.

In addition to our full-time employees, as of December 31, 2003, we had 195 temporary staff members, who are hired asindependent contractors, not employees and three full-time consultants. We also maintain an internship program that hasattracted students from leading universities, including the Massachusetts Institute of Technology, the Indian Institutes ofTechnology and Harvard University.

Regulation

Our products, facilities, manufacturing, research, preclinical testing, clinical trials, labelling, pricing, and sales and marketingare all subject to extensive regulation by numerous governmental authorities, including authorities in India and the EuropeanUnion, as well as governmental authorities in the United States, such as the US FDA. To date we have not encountered anymaterial compliance issues and believe that our operations, facilities and products are all materially compliant with applicableregulations.

We are required to obtain and maintain regulatory approval to market pharmaceutical products for approved indications inIndia, the United States, the European Union, Japan and other markets. For example, we can sell our APIs in the UnitedStates only after submission of a drug master file, or DMF. In the United States, any drug for which an Abbreviated NewDrug Application, or ANDA, is being filed (a category which includes generic drugs sold into the United States) must have aDMF in place with respect to a particular supplier supplying the underlying active pharmaceutical ingredient. For Europeanmarkets, we obtain a European DMF, or EDMF, and/or a Certificate of Suitability, or CoS. We currently have nine DMFs onfile in the United States, including DMFs for lovastatin, simvastatin, pravastatin, recombinant human insulin and pioglitazone.For each of these, we are either already supplying the product in the United States or are waiting to supply the product whenit comes off patent.

With respect to our facilities and manufacturing, the regulatory requirements in the international markets demand currentGood Manufacturing Practices, or cGMP, from early stages of technology development. Our facilities have been approved bythe Drugs Controller General of India, or DCGI. In addition, certain of our facilities have been approved by the US FDA andEuropean regulators for the manufacture of certain products for sale into their markets. The DCGI and US FDA conduct siteinspections as part of their approval processes. As we seek to sell new products and existing products through new productionprocesses, we will need to obtain additional approvals with respect to our facilities and processes.

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With respect to our enzymes business, our products are generally subject to regulation under food and drug and productsafety laws of India and the countries to which we export those products.

We are required to obtain annual environmental clearances with respect air and water pollution from the pollution controlboard of Karnataka, the state in which all of our facilities are located, and have obtained all such certificates. We are alsocommitted to maintaining high standards in the areas of environment and health and safety.

After we obtain regulatory approval for our products, both our manufacturing processes and our marketed products aresubject to continued review and approvals can be revoked if regulators believe standards have not been maintained.

Our research and development activities are subject to Indian laws regulating such things as laboratory practices and theuse and disposal of potentially hazardous materials. Our clinical laboratory testing activities are subject to Indian laws relatingto human trials, animal welfare and bioethics. Furthermore, to the extent that we are contracting with drug manufacturers toperform clinical trials on drugs that require approval in a particular country, our trials must conform to the specificationsestablished by that country. For example, to meet US FDA requirements, clinical trials must include a placebo or other controlgroup and must be conducted in accordance with “good clinical practice”, or GCP. Our clinical research activities complywith ICH GCP.

If and when we decide to enter foreign markets with our own generic formulations of existing drugs, our products would besubject to additional drug safety and related laws and regulations in the countries where we produce, market, sell and performclinical research in respect of such products. For example, generic drug companies must file an ANDA to apply for approvalto market a generic version of a drug in the United States. An ANDA applicant must undertake a patent review with respectto its proposed generic and may end up challenging any then-claimed patents, in order to sell its generic version. Suchchallenges may result in litigation with a party claiming to hold patents that would be infringed by the ANDA applicant.

If and when we decide to enter the drug discovery business and market and sell novel products, we will be subject tosignificantly more stringent drug safety regulation. For example, novel drug formulations in the United States must undergopre-clinical trials involving animals and three phases of clinical trials before approval can be granted by the US FDA. Thisprocess is expensive and lengthy and can range from three to 10 years or more, depending on the nature of trials required,and there can be no assurance that the data collected will be in compliance with GCP regulations, will demonstrate that theproduct is safe or effective, or, in the case of a biological, pure and potent, or will provide sufficient data to support US FDAapproval of the product. The US FDA may place clinical trials on hold at any point in this process if, among other reasons, itconcludes that clinical subjects are being exposed to an unacceptable health risk. Trials may also be terminated by institutionalreview boards, which must review and approve all research involving human subjects. Side effects or adverse events that arereported during clinical trials can delay, impede, or prevent marketing authorization.

We intend to produce and market a branded formulation of human insulin in the Indian market in the first half of calendar2004, subject to receiving all regulatory approvals. We are currently performing a single set of clinical trials in India on thisproduct in accordance with the specifications of the DCGI. We also seek to export recombinant human insulin in bulk form toregulated markets, including the United States and Europe. American and European regulators have not established astreamlined process for approval of existing biologicals developed by new producers. We believe that the US FDA and EUregulators may consider developing such a streamlined process – similar to that developed for generics – for products suchas recombinant human insulin that have already been introduced into the market. One of the difficulties in establishing aprocess for biologicals that is similar to that for generics is that biologicals are generally much more complicated substancesin respect of which bio-equivalence is difficult to establish. In the absence of a streamlined approval process, our recombinanthuman insulin might have to undergo the same process that drug innovators must undergo to introduce new drug moleculesinto the market. If recombinant human insulin is treated as a newly discovered drug requiring a full set of clinical trials, then itwill more difficult and costly and take substantially longer to seek approval, and we may therefore choose not to seek approvalsto enter those markets.

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HISTORY AND CERTAIN CORPORATE MATTERS

Our Company was incorporated as Biocon India Private Limited on November 29, 1978 under the Companies Act. The word‘Private’ was deleted from our name under the provisions of Section 43A(2) of the Companies Act with effect from July 1,1995. Thereafter our Company was converted to a private limited company under the provisions of Section 43(2A) of theCompanies Act with effect from December 21, 2000. It was reconverted into a public limited company on June 18, 2001. Thename of our Company was changed from Biocon India Limited to Biocon Limited and a fresh certificate of incorporationconsequent on change of name was issued by the RoC on November 19, 2003.

Our Corporate Structure

Our existing corporate structure is as under:

Main Objects of the Company

Our main objects as contained in our Memorandum of Association are:

■ To carry on the business of manufacturing, processing, distilling, compounding, formulating, acquiring, buying, selling,importing, exporting and dealing in all enzyme products from animal, microbial, plant sources, products from fish sources,vegetable and herb extracts, agricultural products including cattle feed, and all chemicals heavy or fine, organic, inorganic,biological or any other formulations, derivatives and compounds thereof from mineral origin or from other chemicals orfrom by-products or waste products of other trades and industries and other branded preparations and compounds,derivatives and formulations thereof and consumers products based thereon, pharmaceutical specialities, surgicalspecialities, cosmetics, germicides, detergents and acids.

■ To establish and run an extraction plant for the extraction of oils, colouring matters, crude drugs and other extracts fromseeds, barks, cakes, flowers, plants in all forms for the production of natural colourants, alkaloids, steroids, other drugsand medicines and other products.

■ To cultivate, crush, utilise, buy sell and deal in seeds, substances, and plants of every description.

The main objects clause and the objects incidental or ancillary to the main objects of the Memorandum of Association of ourCompany enable us to undertake our existing activities and the activities for which the funds are being raised through thisIssue.

Biocon Limited

Clinigene International PrivateLimited (100.00%)

Biocon Biopharmaceuticals PrivateLimited (51.00%)

Syngene International PrivateLimited (99.99%)

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Changes in Memorandum of Association

Since our incorporation, the following changes have been made to our Memorandum of Association:

Date of shareholder approval Changes

October 23, 1980 Increase of authorised share capital from Rs. 500,000 to Rs. 1,000,000 by creation of 5000 furtherequity shares of Rs. 100 each.

February 11, 1985 Increase of authorised share capital from Rs. 1,000,000 to Rs. 2,000,000.

September 17, 1996 Increase of authorised share capital from Rs. 2,000,000 divided into 20,000 equity shares ofRs. 100 each to Rs. 5,000,000 divided into 50,000 equity shares of Rs. 100 each.

June 9, 1997 Increase of authorised share capital from Rs. 5,000,000 to Rs. 7,500,000.

December 24, 1999 Increase of authorised share capital from Rs. 7,500,000 divided into 75,000 equity shares ofRs. 100 each to Rs. 15,000,000 divided into 150,000 equity shares of Rs. 100 each.

December 30, 2000 Increase of authorised share capital from Rs. 15,000,000 divided into 150,000 equity shares ofRs. 100 each to Rs. 20,000,000 divided into 200,000 equity shares of Rs. 100 each.

February 25, 2002 Sub division of every existing equity share of face value Rs. 100 into 10 equity shares ofRs. 10 each. The authorised share capital altered to Rs. 20,000,000 divided into 200,000 equityshares of Rs. 10 each.

November 11, 2003 Sub division of every existing equity share of face value of Rs. 10 each into 2 equity shares ofRs. 5 each. from Rs. 10/- each to Rs. 5/- each

Increase of authorised share capital from Rs. 20,000,000 divided into 4,000,000 equity sharesof Rs. 5 each to Rs. 600,000,000 divided into 120,000,000 equity shares of Rs. 5 each.

The details of the capital raised by our Company are given in the section entitled “Capital Structure” on page 23 of thisProspectus.

History and Major Events

The chronology of events since our Company was incorporated in 1978 is as follows:

Year Key Events, Milestones and Achievements

November 1978 Our Company commenced operations as a joint venture between our promoter Ms. KiranMazumdar-Shaw and Biocon Biochemicals Limited, an Ireland based multinational. Our Companybegan the manufacture and export of Papain, a plant enzyme, and Isinglass, a marinehydrocolloid, which are key products for the brewing industry

July 1982 BCZ was incorporated to focus on research and development in relation to enzymes.

1984 Our Company began focussing on research and development, to develop novel enzymes forthe Biocon group worldwide through solid-state fermentation process technology referred toas “koji technology”.

April 1989 HLX was incorporated as a pharmaceutical biotechnology company, which later diversifiedinto pharmaceutical bulk activities.

July 1989 Our Company along with Unit Trust of India/Technology Development and InvestmentCorporation of India (UTI/TDICI), Biocon Biochemicals Limited, Ireland and others investedin BCZ.

November 1992 UTI/TDICI transferred their entire shareholding in BCZ to Biocon Limited, Ireland. BCZcommenced operations.

January 1993 Our Company received ISO 9001 accreditation from RWTUV, Germany

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November 1993 Syngene was incorporated as a CRO to conduct research for third party clients in the area ofdrug discovery and development. Syngene’s skill set in the areas of molecular biology andsynthetic chemistry are complementary to our expertise in the areas of fermentation andmicrobial genetics.

February 1995 Unilever acquired 50% of the shares in BCZ by acquiring the entire shareholding of BioconBiochemicals Limited, Ireland and Biocon Limited, Ireland.

Unilever also acquired shares in Biocon from Biocon Biochemicals Limited, Ireland and BioconLimited, Ireland and others

December 1995 BQIL was established with our Company and Unilever acquiring around 50% stake each. BQILcommenced manufacturing operations from August 1996

February 1998 HLX commenced manufacturing operations

June 1999 Glentec International acquired the entire shareholding of Unilever in BCZ, BQIL and ourCompany.

March 2000 Our Company acquired the entire shareholding of BCZ, BQIL & HLX from Glentec International,Ms. Kiran Mazumdar-Shaw and others in exchange for issue of shares by our Company.

Glentec International acquired a majority stake (approx 64%) in Syngene as part of a freshissue of shares.

March 2000 ICICI Ventures and its affiliate funds were inducted as shareholders of our Company by wayof subscription to 15.35% of the share capital of our Company.

May 2000 ICICI Ventures, and its affiliate funds also acquired 10% in Syngene from Glentec International.

May 2000 Our proprietary bioreactor christened PlafractorTM based on solid matrix fermentation receiveda U.S. patent

December 2000 Clinigene was incorporated to conduct longitudinal clinical studies in select disease segmentsas a wholly owned subsidiary of our Company.

January 2001 As part of a court based restructuring, BCZ, BQIL and HLX were amalgamated into ourCompany, with effect from April 1, 1999.

Our Lovastatin facility was approved by the US FDA

March 2002 Our Company acquired 99.99% of Syngene from its other shareholders, including ICICI Ventureand its affiliate funds, which divested their entire stake in Syngene in exchange for issue ofshares by our Company. Syngene was made a 99.99% subsidiary of Biocon Limited.

June 2002 BBPL was incorporated to manufacture and market a select range of biotechnology based lifesaving drugs as a 51:49 joint venture with CIMAB and our Company

May-September 2003 ICICI Ventures along with its affiliate funds divested its shareholder interests in our Companyin favour of other private equity funds, being AIG AOF, a wholly owned subsidiary of AIGAsian Opportunity Fund L.P. and IVF and also to the Welfare Trust.

Credit Rating

On March 12, 2003, our Company received a credit rating of P1+ from CRISIL for its short-term debt program of Rs. 200million. The rating is valid for a period of one year from the date of issue. CRISIL has reviewed the rating in December 2003and has reaffirmed its rating of P1+ through its letter dated December 22, 2003. The rating is subject to certain conditionsspecified by CRISIL.

Shareholder Agreements

Two of our shareholders, AIG AOF, a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. and IVF have enteredinto separate Shareholders Agreement with our Company and the Promoters.

Year Key Events, Milestones and Achievements

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AIG AOF Shareholders Agreement

AIG AOF, a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. entered into a Shareholders Agreement with ourCompany and its Promoters on April 30, 2003 (the “AIG AOF SHA”). The AIG AOF SHA is valid until the earlier of (i) thedate on which the shares held by AIG AOF is less than 2% of the total number of shares of our Company, and (ii) the datewhich is 3 years after the date of the IPO. The principal provisions of the AIG AOF SHA that apply after an initial publicoffering of Equity Shares are as follows:

Board of Directors and Management

■ Ms. Kiran Mazumdar-Shaw is entitled to nominate the majority of Directors of the Board. AIG AOF is entitled to nominateone Director. The Board is required to appoint such number of independent Directors as it deems fit within the maximumpermissible number of Directors specified under the applicable law and the Articles. AIG AOF also has the right tonominate one director of each of the subsidiaries in which our Company owns or controls 75% or more of the votingrights attaching to the shares in such subsidiary.

■ Ms. Kiran Mazumdar-Shaw shall be the Chairman of our Company.

■ The quorum for any Board meeting shall comprise of the Director nominated by AIG AOF and such other number ofDirectors as is required to form a quorum under the Companies Act. The AIG AOF SHA contains detailed provisionsdealing with the process to be followed in case of lack of quorum at any Board meeting.

■ Our Company and each of the Promoters and AIG AOF shall exercise all rights and powers available to it to, procure thatnone of the Reserve Board Matters (listed below) shall occur with respect to our Company or with respect to anysubsidiary, unless it has first been approved by Super-Majority Resolution, which is a resolution passed at a dulyconvened and quorate meeting of the Board approved by: (i) a majority of the Directors present at such meeting; and(ii) the Director nominated by AIG AOF:

A. Any of the following matters with respect to our Company or any 75% Subsidiary:

1. Material acquisition, development or expansion of, or other investment in, any companies, businesses, plantsor facilities outside the ordinary course of our business. Sale or disposal of assets outside the ordinary courseof our business.

2. Any issuance of new equity or equity-linked securities either as a public offering or as a private sale or issue orany action which would alter or change the rights or privileges or obligations or liabilities of any IdentifiedShareholder with respect to its Shares or dilute the respective percentage of ownership of any IdentifiedShareholder except as specifically provided under the AIG AOF SHA.

3. Any merger, amalgamation, demerger or reorganisation of our Company or any subsidiary.

4. In the case of our Company, any sale, transfer, lease, licence or disposal of the shares in any of the other groupcompanies or, in the case of our Company or any subsidiary, the sale of any material part of the assets andundertaking of our Company or that subsidiary other than in the ordinary course of business.

5. Any material change in the nature, activities or scope of the business.

6. Any amendment of the Memorandum and Articles of Association of our Company or the memorandum and/orarticles of association of any other subsidiary.

7. Winding up or liquidation or the appointment of receivers or administrators over any of the Company’s assetsor undertaking.

B. Any of the following matters with respect to any companies in which our Company owns, directly or indirectly, lessthan 75% of the issued and paid up equity share capital or the voting rights attached to the shares in such company:

1. Any matters requiring Shareholders approval where such matter falls within the items 1 to 7 enumerated in Aabove.

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2. Any action which may result in the dilution of our Company’s direct or indirect shareholding or control in suchcompany.

3. Items 3 to 7 enumerated in A above.

■ If at any time after 18 months after completion of the acquisition of shares by AIG AOF, the Board is unable to arrive at adecision on any Reserved Board Matter which has been submitted to Super-Majority Resolution at not less than 2 dulyconvened meetings, the same shall constitute a deadlock. If, after reasonable efforts to resolve such deadlock betweensenior executives of AIG AOF and the Promoters, the deadlock cannot be resolved within 21 days, then any or all thePromoters can require AIG AOF to transfer all of the shares held by it to the Promoters at the higher of a fair valuationdetermined by an investment banker and an IRR on the total cost of acquisition of 25% per annum.

Transfer of Shares

■ The AIG AOF SHA contains certain restrictions regarding transfer of shares. Any transfer of shares by a Promoter orAIG AOF, or the granting of any encumbrance, in breach of the AIG AOF SHA shall be null and void ab initio subject toapplicable laws. The transfer restrictions are as follows:

● The Promoters shall not dilute their shareholding in our Company below 51% except in certain other circumstancesspecified in the AIG AOF SHA;

● The Promoters or AIG AOF are permitted to transfer shares to its affiliates provided that such Promoters or AIGAOF is jointly and severally liable with the affiliate for performance of obligations under the AIG AOF SHA, that theaffiliate continues to be affiliated to the selling shareholder and the affiliate executes a deed of accession prior totransfer of shares;

● AIG AOF has tag-along rights whereby in case the Promoter wishes to transfer shares in the Company, then AIGAOF has the option to require the Promoter to include in the sale a proportionate number of shares held by AIGAOF in such sale at the same price that the Promoter is selling shares;

● AIG AOF may transfer shares to any other person provided that it has served a written notice on the Promotersgranting them the right of first refusal to purchase such shares. The AIG AOF SHA contains the detailed terms andconditions regarding the manner in which such right of first refusal may be exercised by the Promoters and theconsequences of non-exercise thereof.

Certain other Covenants

■ Under the AIG AOF SHA, where AIG AOF sells its shares and realises proceeds equivalent to a minimum IRR (whichrepresents the total cost of acquisition of such shares plus an IRR of 25% per annum in US Dollar terms), then AIG AOFis required to either transfer 50% of the balance shares (i.e. over and above the shares required to achieve the minimumIRR) to Glentec International, or alternatively, to pay 50% of the net sales proceeds realised by AIG AOF on any subsequentsale of shares after having achieved the minimum IRR.

■ The AIG AOF SHA contains detailed provisions regarding information, accounting records, audit, access, tax status anddividend policy.

Non-Compete by Promoters

■ The Promoters have provided a non-compete covenant to AIG AOF in the areas of research and development into andmanufacture and marketing of products, processes and services across the entire biotechnology spectrum and morespecifically in fermentation, industrial and healthcare applications for the time being and including but not limited to:(i) development of novel processes and applications relating to, and manufacturing and marketing of, enzymes;(ii) development, manufacturing and marketing of pharmaceutical and bio-pharmaceutical APIs and formulations;(iii) contract research and custom synthesis; (iv) contract manufacturing; (v) clinical research and clinical trials; and(vi) bio-informatics.

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IVF Shareholders Agreement

IVF entered into a Shareholders Agreement with our Company and Ms. Kiran Mazumdar-Shaw on March 15, 2003 (the “IVFSHA”). The principal provisions of the IVF SHA are as follows:

■ Our Company shall not transfer or create any encumbrance on any of the shares held by it in the subsidiaries withoutthe prior written consent of IVF, except in relation to the borrowings of our Company and our subsidiaries

■ Under the IVF SHA, where IVF sells its shares and realises proceeds equivalent to a minimum IRR (which represents thetotal cost of acquisition of such shares plus an IRR of 27.5% per annum in rupee terms), then Ms. Kiran Mazumdar-Shawshall have the option to either require IVF to transfer 57.5% of the balance shares (i.e. over and above the shares requiredto achieve the minimum IRR) to her, or alternatively, to require IVF to pay Ms. Kiran Mazumdar-Shaw for 57.5% of thenet sales proceeds realised by IVF on any subsequent sale of shares after having achieved the minimum IRR in rupeeterms.

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MANAGEMENT

Board of Directors

Our Chairman and Managing Director, Ms. Kiran Mazumdar-Shaw manages our day-to-day operations under the overallsupervision, direction and control of our Board of Directors. As per our Articles of Association, we cannot have less than3 nor more than 12 Directors. We currently have 7 Directors.

The following table sets forth details regarding our Board of Directors as at the date of this Prospectus:

Name, Designation, Father’s Name, National of Age Other Directorships in Indian companiesAddress, Occupation and Term (years)

Ms. Kiran Mazumdar-Shaw India 50 Syngene International Pvt Ltd.Chairman & Managing Director Clinigene International Pvt. Ltd.(Daughter of late Mr. R.I. Mazumdar) Biocon Biopharmaceuticals Pvt. Ltd.“Glenmore” Hoskur Gate,20th K.M. Hosur Road,Bangalore 560 100

BusinessWhole time retiringLiable to retire by rotation

Mr. John Shaw United Kingdom 54 Syngene International Pvt. Ltd.Vice Chairman Clinigene International Pvt. Ltd.(Son of Mr. Shaw Sr.) Biocon Biopharmaceuticals Pvt. Ltd.“Glenmore” Hoskur Gate,20th K.M. Hosur Road,Bangalore 560 100

BusinessWhole time retiringLiable to retire by rotation

Dr. Neville Bain United Kingdom 63 United Breweries LimitedIndependent Director Mcdowell Alcobev Ltd.(Son of late Mr. C.A. Bain) Syngene International Pvt. Ltd.High Trees, Cavendish Road,Weybridge, Surrey KT 13 OJX,United Kingdom

BusinessPart time retiringLiable to retire by rotation

Prof. Charles L. Cooney United States 59 Syngene International Pvt. Ltd.Independent Director of America(Son of late Mr. Leland E. Cooney)No. 35, Chestnut Place,Brookline MA, USA

Professor of Chemical & Biochemical EngineeringPart time retiringLiable to retire by rotation

Mr. Suresh Talwar India 65 20th Century Fox Corporation India Pvt. Ltd.Independent Director (Chairman) AC Neilson ORG Marg Pvt. Ltd(Son of late Mr. Narsappa Talwar) Albright & Wilson Chemicals India LtdCrawford Bayley & Co., Aon Global Insurance Services Pvt Ltd4th Floor, State Bank Building, Armstrong World Industries (India) Pvt. LtdN.G.N. Vaidya Marg, (Chairman & Alternate Director)Mumbai 400 020 Beck India Ltd.

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Name, Designation, Father’s Name, National of Age Other Directorships in Indian companiesAddress, Occupation and Term (years)

Legal Counsel Birla Sun Life Insurance Co. Ltd.Part time retiring Blue Star Ltd.Liable to retire by rotation Bluestar Infotech Ltd.

BPL Communications Ltd.Burroughs Wellcome (India) Ltd.Cadbury India Ltd.Carborandum Universal Ltd.Cholamandalam MS General Insurance Co. Ltd.Chowgule & Co. Ltd.Decagon Investments Pvt. Ltd.Emerson Process Management (India) Pvt. Ltd.FCI OEN Connectors Ltd. (Chairman and AlternateDirector)Garware Walropes Ltd.Greaves Morganite Crucible Ltd.HGC Foundation Ltd.India Value Fund Trustee Company Pvt. Ltd.J M Morgan Stanley Retail Services Pvt. Ltd.J M Morgan Stanley Securities Pvt. Ltd.John Fowler (India) Ltd.Johnson & Johnson Ltd.Madura Coats Ltd.Merck Ltd. ChairmanMoly Colloids Pvt. Ltd. (Chairman)PZ Cussons India Pvt. Ltd. (Chairman and AlternateDirector)RCI India Pvt. Ltd.Redifussion Dentsu, Young & Rubicam Pvt. Ltd.Refco (India) Pvt. Ltd.Renfro India Pvt. Ltd.Reva Electric Car Co. Pvt. Ltd.Rishabh Instruments Pvt. Ltd.Romil Finance & Investment Pvt. Ltd. (Chairman)S&M Logistics Pvt. Ltd. (Chairman)Sandvik Asia Ltd.Schenectady (India) Holdings Pvt. Ltd.Schenectady Herdillia Ltd.Shrenuj & Co. Ltd.Sidham Finance & Investments Pvt. Ltd. (Chairman)Solvay Pharma India Ltd.Sonata Software Ltd.Swiss Re Shared Services (India) Pvt. Ltd.Timbron India Pvt. Ltd.Trans Warranty Finance Ltd. (Chairman and AlternateDirector)Uhde India Ltd.Wyeth Limited

Prof. Ravi Mazumdar Canada 48 Syngene International Pvt. Ltd. (Alternate Director)Director(Son of late Mr. R.I. Mazumdar)706, Carlton Boulevard,West Lafayette,IN 47907, USA

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Name, Designation, Father’s Name, National of Age Other Directorships in Indian companiesAddress, Occupation and Term (years)

Professor of Electrical & Computer EngineeringPart time retiringLiable to retire by rotation

Ms. Ada K. H. Tse United Kingdom 37 Amalgamated Bean Coffee Trading Company LimitedDirector Ambuja Cement India Limited(Daughter of Mr. Tse Edmund Szewing)AIG Global Investment GroupSuite 3601, One Pacific Place88 QueenswayHong Kong

Investment ManagerPart time non-retiring

Brief Biography of our Directors

Ms. Kiran Mazumdar-Shaw, 50 years, Chairman and Managing Director, is a first generation entrepreneur with more than 25years’ experience in the field of biotechnology. After graduating in B.Sc. (Zoology Hons.) from Bangalore University in 1973,she completed her post-graduate degree in malting and brewing from Ballarat College, Melbourne University in 1975. She is afounder promoter and has led our Company since its inception in 1978. She is currently the Chairman and Director of Syngeneand Clinigene and Director of BBPL. She was previously a consultant with Jupiter Breweries Limited. She is the wife of Mr.John Shaw. She is the recipient of several awards, the most noteworthy being the ‘Padmashri’ Award (one of the highestcivilian awards in India) in 1989 conferred by the President of India, the Ernst & Young Entrepreneur of the Year Award in2002 for the Healthcare & Lifesciences category and more recently in 2003 the BioSpectrum Person of the Year Award. Sheheads several biotechnology task forces including the Karnataka Vision Group on Biotechnology, an initiative by theGovernment of Karnataka and the National Taskforce on Biotechnology for the Confederation of Indian Industry (CII). Herremuneration for the year ended March 31, 2003 was Rs. 10,186,766.

Mr. John Shaw, 54 years, Vice Chairman and an Executive Director, is the controlling shareholder and director of GlentecInternational, one of the substantial shareholders of our Company. He is the husband of Ms. Kiran Mazumdar-Shaw. Hecompleted his M.A. (Economic Hons.) in History and Political Economy from Glasgow University, U.K. in 1970. He has 32years’ experience with Coats Viyella plc. in various capacities including finance and general administration before he came onthe Board of our Company in 1999. He has served as Finance Director of Coats Viyella group companies in various locationsaround the world. His remuneration for the year ended March 31, 2003 was Rs. 9,216,800.

Dr. Neville Bain, 63 years, has vast experience in the field of finance and general management. He graduated from OtagoUniversity, New Zealand, with a Master of Commerce (Hons) degree and a double Bachelor degrees in Accounting andEconomics. He has also been awarded the degree of Doctor of Law, is a Fellow Chartered Accountant, a Fellow Cost andManagement Accountant, a Fellow Chartered Secretary and a Fellow of the Institute of Directors. He spent 27 years with theCadbury Schweppes group, having responsibility for the world-wide confectionery business and then as Deputy Chief Executiveand Finance Director. This was followed by a six-year term as Chief Executive Officer of Coats Viyella plc, and then as Chairmanand Director of various organisations. He is the Chairman of Hogg Robinson plc and also a board member of Scottish Newcastleplc. He has published books on Corporate Governance, Strategy, and the effective utilisation of people in organisations.

Prof. Charles L. Cooney, 59 years, is the Professor of Chemical & Biochemical Engineering, Faculty Director of the DeshpandeCenter for Technological Innovation and Co-Director of the Program on the Pharmaceutical Industry at the MassachusettsInstitute of Technology (MIT), Cambridge, U.S.A. He obtained his Bachelor’s degree in Chemical Engineering from theUniversity of Pennsylvania in 1966, his Master’s degree and his Ph.D in Biochemical Engineering are from MIT in 1967 and1970 respectively. His research interests span topics in biochemical engineering and pharmaceutical manufacturing. He is arecipient of several prestigious awards, including Gold Medal of the Institute of Biotechnology Studies (London), the Food,Pharmaceutical and Bioengineering Award from the American Institute of Chemical Engineers and the James Van LanenDistinguished Service Award from the American Chemical Society and elected to the American Institute of Medical and

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Biochemical Engineers. He serves as a consultant to and/or director of a number of biotech and pharmaceutical companiesglobally and is on the editorial boards of several professional journals.

Mr. Suresh Talwar, 65 years, is a partner of Crawford Bayley & Co., an Indian law firm of repute. He completed his B.Comfrom the University of Bombay in 1959, his LL.B. from the Government Law College, Bombay in 1961 and a solicitor of theIncorporated Law Society, Mumbai in 1966. His area of professional specialisation is in corporate law and other related matters.He has been the legal counsel to numerous Indian companies, multinational corporations as well as Indian and foreign banks.He is also a director of several leading companies in India.

Prof. Ravi Mazumdar, 48 years, completed his Ph.D from the University of California, Los Angeles, USA in 1983. Prior tothis, he obtained his Masters in Science from the Imperial College of Science, London in 1978 and his B.Tech from the IndianInstitute of Technology, Bombay in 1977. He has been a professor in several prestigious universities including PurdueUniversity, U.S.A, Columbia University, U.S.A., University of Essex, U.K., Mc Gill University, Canada and the Indian Instituteof Science, Bangalore. He has over 100 refereed publications in international journals in the area of applied probability andstochastic processes, non-linear dynamical systems, statistical signal processing, queuing theory and in the control anddesign of high-speed networks. He has been a member of several advisory committees and working groups, including the USCongress Sub-Committee on Science and Technology. He is a Fellow of the Royal Statistical Society and a senior member ofthe Institute of Electrical and Electronics Engineers, Inc. He is the younger brother of Ms. Kiran Mazumdar-Shaw.

Ms. Ada K.H. Tse, 37 years, has a BA in Applied Mathematics from Harvard University, a JD from Harvard Law School and isan alumna of the Stanford Business School Executive Program. She is presently Managing Director, Direct Investment at AIGGlobal Investment Corporation (Asia) Limited. She previously worked with Morgan Stanley in New York and Hong Kong infinancial advisory services and equity capital markets, and before that, was an attorney with Sullivan & Cromwell in NewYork. She has been nominated by AIG AOF as a Director pursuant to the provisions of the AIG AOF SHA.

In accordance with our Articles of Association, the Board can appoint an alternate Director pursuant to the provisions of theCompanies Act. Prof. Catherine Rosenberg is presently the alternate Director to Prof. Ravi Mazumdar and Mr. Santosh Senapatiis presently the alternate Director to Ms. Ada K.H. Tse.

Compensation of Our Directors

For details of compensation of Ms. Kiran Mazumdar-Shaw, our Chairman and Managing Director and Mr. John Shaw, ourVice Chairman, please refer to the section entitled “Statutory and Other Information” on page 162 of this Prospectus.

Shareholding of Our Directors in our Company

Our Articles of Association do not require our Directors to hold any Equity Shares in our Company. The following tabledetails the shareholding of our Directors in their personal capacity and either as sole or first holder, as at the date of thisProspectus.

Name of Directors Number of Equity Shares Number of Equity Shares(Pre-Issue) (Post-Issue)

Ms. Kiran Mazumdar-Shaw 39,643,782 39,643,782

Mr. John Shaw 703,779 703,779

Dr. Neville Bain 48,976 48,976

Prof. Ravi Mazumdar 594,074 594,074

Prof. Charles Cooney 212,835 212,835

Prof. Catherine Rosenberg 34,283 34,283

Mr. Suresh Talwar 4,898 4,898

Term of Office

In accordance with the Companies Act and our Articles of Association, all our Directors except Ms. Ada K.H. Tse, nomineeDirector of AIG AOF are required to retire by rotation. For details of the terms of appointment of the above Directors, pleaserefer to the section entitled “Statutory and Other Information” on page 162 of this Prospectus.

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Changes in Our Board of Directors during the last three years

Changes to our Board of Directors during the last 3 years are as follows:

Name Date of Date of ReasonAppointment Cessat ion

Mr. Nitin Deshmukh 24.03.2000 29.05.01 Withdrawal of nomination from ICICI Venture CapitalManagement Co. Ltd.

Prof. Charles Cooney 19.01.2001 - -

Dr. Neville Bain 08.08.2000 - -

Prof. Ravi Mazumdar 08.08.2000 - -

Ms. Renuka Ramnath 27.07.2001 12.08.2003 Withdrawal of nomination from ICICI Venture CapitalManagement Co. Ltd.

Mr. Suresh N Talwar 17.05.2003 - -

Mr. Santosh Senapati 12.08.2003 18.10.2003 -

Ms. Ada K.H.Tse 18.10.2003 - -

Mr. Santosh Senapati 19.10.2003 17.01.2004 Appointed as Alternate Director for Ms. Ada K.H.Tse

Prof. Catherine Rosenberg 19.10.2003 17.01.2004 Appointed as Alternate Director for Prof. Ravi Mazumdar

Mr. Santosh Senapati 19.01.2004 - Appointed as Alternate Director for Ms. Ada K.H.Tse

Prof. Catherine Rosenberg 19.01.2004 - Appointed as Alternate Director for Prof. Ravi Mazumdar

Corporate Governance

The provisions of the listing agreement to be entered into with the Stock Exchanges with respect to corporate governancewill be applicable to us immediately upon the listing of our Equity Shares on the Stock Exchanges. We intend to comply withsuch provisions, including with respect to the appointment of independent Directors to our Board and the constitution ofthe Investor Grievances Committee. We undertake to adopt the Corporate Governance Code in accordance with Clause 49 ofthe listing agreement to be entered into with the Stock Exchanges prior to listing.

Audit Committee

The terms of the Audit Committee comply with the requirements of Clause 49 of the listing agreement to be entered into withthe Stock Exchanges. The committee consists of only non-executive Directors, with the majority being independent Directors.The committee currently comprises Dr. Neville Bain, Prof. Charles Cooney and Mr. Suresh Talwar, with the Chairman of thecommittee being Dr. Neville Bain.

The principal functions of the committee are to:

■ review our Company’s financial statements, before submission to, and approval by, the Board;

■ review our Company’s procedures for detecting fraud and whistle blowing and ensure that arrangements are in place bywhich staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting, financialcontrol or other matters;

■ review management’s and the internal auditor’s reports on the effectiveness of the systems for internal financial control,financial reporting and risk management;

■ monitor the integrity of our Company’s internal financial controls;

■ assess the scope and effectiveness of the systems established by management to identify, assess, manage and monitorfinancial and non-financial risks;

■ review the internal audit program and ensure that the internal audit function is adequately resourced and has appropriatestanding within our Company;

■ receive a report on the results of the internal auditor’s work on a periodic basis;

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■ review and monitor management’s responsiveness to the internal auditor’s findings and recommendations; and

■ monitor and assess the role and effectiveness of the internal audit function in the overall context of our Company’s riskmanagement system.

Remuneration CommitteeThe Remuneration Committee (earlier known as the Compensation Committee) constituted on April 16, 2001 consists of non-executive Directors, with the Chairman being an independent Director. The Committee currently comprises Prof. Charles Cooneyand Dr. Neville Bain, with the Chairman of the Committee being Prof. Charles Cooney. The Committee determines the grant ofstock option and also reviews the overall compensation structure including managerial remuneration and related policiesaimed at attracting, motivating and retaining personnel. The Committee has the authority to determine the compensationpackages of executive Directors and senior management and determine the parameters and supervise the operation of thebonus schemes of our Company. The Committee will review recommendations made to it by our Company and others and isauthorized to investigate any activity within its terms of reference, seek any information from any employee of our Companyand obtain independent professional advice. The Committee has been empowered to do so on its own or through directsuperintendence of the committees appointed under the Employee Trust.

Investors Grievances CommitteeThe Investor Grievances Committee constituted by our Board on January 17, 2004 comprises Dr. Neville Bain as its chairmanand Ms. Kiran Mazumdar Shaw and Mr. John Shaw as members. The Investor Grievances Committee will look into redressalof shareholder and investor complaints, issue of duplicate/ consolidated share certificates, allotment and listing of sharesand review of cases for refusal of transfer/ transmission of shares and debentures and reference to statutory and regulatoryauthorities.

Scientific Advisory BoardThe main objectives of our Scientific Advisory Board are to review and advise on various research programs, to evaluate theintellectual property generated and to identify and encourage research partnerships with other organisations in relation tothe Biocon Group.

The Scientific Advisory Board currently comprises of the following persons:Name Background

Prof. Charles L. Cooney, Chairman Professor of Chemical & Biochemical Engineering, MIT, USA

Prof. C. N. R. Rao Linus Pauling Research Professor

Honorary President, Jawaharlal Nehru Centre for Advanced Scientific Research, India

Dr. Sam Pasternack PhD in Aeronautics from Stanford University, USA

Partner, Choate, Hall & Stewart – Patent Attorneys, USA

Dr. Bala Manian Chairman and Co-Founder, Reametrix, Inc.

Chairman, Entigen

Co-Founder, Quantum Dot Corporation and Surromed Corporation, USA

Dr. Ashok Ganguly Director, ICICI Knowledge Park, Hyderabad, India

Director, Wipro, India

Retired Worldwide Director of R&D, Unilever plc.

Dr. Anthony Allison Distinguished Scientist at Surromed Corporation, USA

Former Vice President Research, Syntex Corporation

Co-inventor of Morpholinoethylesters of Mycophenolic Acid and pharmaceutical compositions

Ms. Kiran Mazumdar-Shaw Chairman & Managing Director, Biocon Limited

Board Member of Science Foundation, Ireland

The terms of the members of the Scientific Advisory Board is for a period of three years, renewable thereafter.

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Key Managerial Personnel

The details of our key managerial personnel are as follows:

Ms. Kiran Mazumdar-Shaw, the Chairman & Managing Director promoted our Company on December 1, 1978, please referto the section entitled “Brief Biography of the Directors” on page 72 of the Prospectus.

Mr. John Shaw, the Vice Chairman joined our Company on April 1, 1999, please refer to the section entitled “Brief Biographyof the Directors” on page 72 of the Prospectus.

Mr. Ajay Bhardwaj, 43 years, is the President (Group Marketing) for our Group. He has completed his B.Tech. in ChemicalEngineering from Indian Institute of Technology, Delhi in 1983 and his M.S. in Chemical Engineering from University ofLouisiana in 1984. He has nearly 20 years of experience in direct marketing, sales and strategy. Prior to joining us, he servedas Project Engineer at Max India Limited, New Delhi. He joined us on January 1, 1986 and has been responsible for ourmarketing functions. His remuneration for the year ended March 31, 2003 was Rs. 10,009,270.

Dr. Arun Chandavarkar, 42 years, is the President (Group Manufacturing) for our Group. He has completed his B.Tech. inChemical Engineering from Indian Institute of Technology, Bombay in 1984, his M.S. and his Ph.D. in Chemical Engineeringfrom the Massachusetts Institute of Technology in 1986 and 1990 respectively. He has also done a Program in Finance fromthe Sloan School of Management, USA. He has won several awards, including the P.C. Ray Award from the Indian Instituteof Chemical Engineers for the best bachelor’s thesis in chemical engineering in 1984 and the W.H. Peterson Award for beststudent presentation at the 198th National Meeting of the American Chemical Society (MBTD Division), USA in 1989. Hejoined us on November 8, 1990 and has over 13 years of experience in the manufacture and scale up of fermentation processes,projects, maintenance and quality assurance. His remuneration for the year ended March 31, 2003 was Rs. 9,637,973.

Mr. Shrikumar Suryanarayan, 43 years, is the President (Research and Development) for our Group. He has completed hisB-Tech Chemical Engineering from the Indian Institute of Technology, Madras in 1982 and his M.Tech. in Bio-chemicalEngineering from the Indian Institute of Technology, Delhi in 1984. He began his career with us on May 2, 1984 and hasnearly 20 years of experience in research of fermentation based manufacturing techniques. He is responsible for our researchand development functions. His remuneration for the year ended March 31, 2003 was Rs. 9,312,529.

Mr. Murali Krishnan K.N., 47 years, is the President (Group Finance) for our Group. He completed his Bachelor’s degree inCommerce from Bangalore University with top ranks in 1975. He began his career with us on November 9, 1981 and has over22 years experience in planning, finance, cost accounting, MIS and taxation related issues. His remuneration for the yearended March 31, 2003 was Rs. 9,367,377.

Key Managerial Personnel for our subsidiary Syngene

Dr. Goutam Das, 48 years, is the Chief Operating Officer of Syngene. He did his Ph.D. in Biophysics from the Indian Instituteof Chemical Biology, India in 1982 and later completed his Post Doctoral fellowship at the University of Rochester, USA in1988. He has won several honours, including the R.D. Birla Memorial Fellowship and the Lady Tata Memorial Fellowship. Hehas more than 20 publications and 4 patents to his name. He has 15 years experience in research and development. Prior tojoining us, he served as Senior Scientist and Project Leader at the Astra Research Centre, India. He joined Syngene onAugust 1, 1994 and has been with us since its inception. He has been responsible for the operations of Syngene. Hisremuneration for the year ended March 31, 2003 was Rs. 7,222,760.

All the abovementioned key managerial personnel are permanent employees of our Company, except Dr. Goutam Das who isa permanent employee of Syngene. The remuneration of each of our key personnel is as per the statement pursuant to Section217(2A) of the Companies Act, 1956 and the Companies (Particulars of Employees) Rules, 1975.

The organisation structure of the senior management in the various departments of Biocon, including the Presidents/VicePresidents, Senior Managers, Managers, Deputy Managers, Executives and Junior Executives is:

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Interest of Promoters, Directors and Key Managerial Personnel

Except as stated in “Related Party Transactions” on page 84 of this Prospectus, and to the extent of shareholding in ourCompany, the Promoters do not have any other interest in our business.

Our Promoters have significant rights in our Company under the terms of our Articles of Association. For additional information,please refer to the section entitled “Main Provisions of Articles of Association of Biocon Limited” on page 168 of thisProspectus.

Except to the extent of their compensation and to the extent of ESOP, if any, as mentioned on page 165 of this Prospectus,and their shareholding or shareholding of companies they represent, the Directors, other than Promoter Directors, do nothave any other interest in our Company. Our Director, Mr. John Shaw is the husband of our Chairman & Managing Director,Ms. Kiran Mazumdar-Shaw. Our Director, Prof. Ravi Mazumdar is the brother of our Chairman & Managing Director, Ms.Kiran Mazumdar-Shaw. Our alternate Director, Prof. Catherine Rosenberg is the sister-in-law of our Chairman & ManagingDirector, Ms. Kiran Mazumdar-Shaw.

The key managerial personnel of our Company do not have any interest in our Company other than to the extent of theremuneration or benefits to which they are entitled to as per their terms of appointment and reimbursement of expensesincurred by them during the ordinary course of business and to the extent of the Equity Shares held by them in the Company,if any, and options granted to them under the ESOP.

Board of Directors

Kiran Mazumdar ShawChairman & Managing Director

John ShawDirector

Shrikumar SPresident - R&D

Dr. KedarnathR&D Enzymes

Dr. GururajR&D Healthcare

Dr. Anuj GoelProcess Development

Harish IyerBiologicals

Ajay BhardwajPresident - Group Mktg

Rakesh BamzaiMarketing - Phama

Malay BaruaMarketing - Enzymes

Anusuya Y MSales

Rajul VermaSafety Health & Envn

Murali Krishnan K NPresident - Finance

Chinappa M BFinance & MIS

Ashok BhandarkarCompany Secretary

Dinesh CharakLegal

Radhakrishnan GInformation Systems

Shailaja / RupeshPurchase & Sourcing

Dr. Anandiya SircarPatents & IPR

Dr. Nirupa BarejaHuman Resources

Dr. ChandravarkarPresident - Technical

Harish VProduction Enzymes

Ravindra CProduction Healthcare

Dr. Tara JayaramQuality Systems

Lourd Raj JosephMaintenance & Engg

Madhava Raj SirsiProjects

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For the year 2002-2003, we granted options to our Directors and senior management as follows:

Number of Equity SharesNo. of shares entitled vested and exercised

Name No. of options (as on Dec. 31, 2003) (as on Dec. 31, 2003)

Dr. Neville Bain 4,000 195,902 48,976

Prof. Charles Cooney 4,000 195,902 48,976

Mr. Ajay Bhardwaj 4,000 195,902 48,976

Dr. Arun Chandavarkar 4,000 195,902 48,976

Mr. Shrikumar Suryanarayan 4,000 195,902 48,976

Mr. Murali Krishnan K.N. 4,000 195,902 48,976

Dr. Goutam Das 4,000 195,902 48,976

Except as stated otherwise in this Prospectus, we have not entered into any contract, agreement or arrangement during thepreceding 2 years from the date of this Prospectus in which the Directors are interested directly or indirectly and no paymentshave been made to them in respect of these contracts, agreements or arrangements or are proposed to be made to them.

Our Articles provide that our Directors and officers shall be indemnified by our Company against loss in defending anyproceeding brought against Directors and officers in their capacity as such, if the indemnified Director or officer receivesjudgement in his favour or is acquitted in such proceeding. We currently do not have any directors’ and officers’ insurancepolicy.

Changes in our Key Managerial Employees during the last three years

There have been no changes in our key managerial personnel during the last 3 years.

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PROMOTERS

The Promoters of the Company are Ms. Kiran Mazumdar-Shaw, Mr. John Shaw and Glentec International.

Ms. Kiran Mazumdar-Shaw, a national of India, 50 years, Chairman and Managing Director, is a first generationentrepreneur with more than 25 years’ experience in the field of biotechnology. After graduating in B.Sc.(Zoology Hons.) from Bangalore University in 1973, she completed her postgraduate degree in malting andbrewing from Melbourne University, Australia in 1975. She is a founder Promoter and has led our Companysince its inception in 1978. She is currently the Chairman and Director of Syngene, Clinigene and BBPL. Shewas previously a consultant with Jupiter Breweries Limited. She is the wife of Mr. John Shaw. She is therecipient of several awards, the most noteworthy being the ‘Padmashri’ Award (one of the highest civilianawards in India) in 1989 conferred by the President of India, the Ernst & Young Entrepreneur of the YearAward in 2002 for the Healthcare & Lifesciences category and more recently in 2003 the BioSpectrum Personof the Year Award. She heads several biotechnology task forces including the Karnataka Vision Group onBiotechnology, an initiative by the Government of Karnataka and the National Taskforce on Biotechnologyfor the Confederation of Indian Industry (CII). She is also a Board member of the Science foundation, Ireland.She currently does not possess a voter ID or driving licence.

Mr. John Shaw, a national of the United Kingdom, 54 years, Vice Chairman and an Executive Director, is thecontrolling shareholder and director of Glentec International, one of the substantial shareholders of ourCompany. He is the husband of Ms. Kiran Mazumdar-Shaw. He completed his M.A. (Economic Hons.) inHistory and Political Economy from Glasgow University, U.K. in 1970. He has 32 years’ experience with CoatsViyella plc. Before he came on the Board of our Company in 1999. He has served as Finance Director ofCoats Viyella group companies in various locations around the world. He currently does not possess anIndian voter ID or driving licence.

We confirm that the Permanent Account Number, Bank Account Number and Passport Number of the Promoters have beensubmitted to NSE and BSE at the time of filing the Red Herring Prospectus with them.

Glentec International

Glentec International (previously known as Rosemonts Investments Ltd), a company incorporated in Mauritius on June 29,1998, is an investment company owned 99% by Mr. John Shaw and 1% by Prof. Ravi Mazumdar. The principal activity of theCompany is to hold investments in biotechnology and other high-technology driven companies and property in India, Europeand North America. The company is also engaged in consultancy in finance and biotechnology areas. The share capital ofGlentec International comprises 100 shares of US$ 1 each.

Board of Directors

The board of directors of Glentec International comprises Prof. Ravi Mazumdar, Mr. John Shaw, Mr. Louis Emmanuel NgCheong Tin and Mr. Uday Kumar Gujadhur.

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Financial Performance

The operating results of Glentec International for 2000, 2001 and 2002 as per International Accounting Standards are set forthbelow:

Balance Sheet

(in US$)

Year ended Year ended Year endedDecember 2000 December 2001 December 2002

Assets

Non-current assets

Property, plant and equipment 944,034 958,146 937,913

Investments in subsidiary 358,033 358,033

Investments in associated company 3,195,046 3,195,046 4,087,994

Current assets

Trade and other receivables - 55,000

Cash at bank 16,506 21,172 17,358

Total assets 4,513,619 4,587,397 5,043,265

Equity and Liabilities

Capital and reserves

Share capital 100 100 100

Retained earnings 2,124,171 2,162,144 2,751,222

Non-current liabilitiesBorrowings 2,304,168 2,338,513 2,283,513

Current liabilities

Current tax liabilities

Trade and other payables 85,180 86,640 8,430

Total equity and liabilities 4,513,619 4,587,397 5,043,265

Income Statement

(in US$)

Year ended Year ended Year endedDecember 2000 December 2001 December 2002

Income 4,264 65,295 16

Expenses 21,899 27,322 25,823

Gain on disposal of investments 2,163,282 - 614,885

Taxation - - -

Profit for the year 2,145,647 37,973 589,078

Group Companies

Our Promoters do not have any group companies in terms of the SEBI Guidelines. Our Company does not have any groupcompanies other than Syngene, Clinigene and BBPL.

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Biocon

SUBSIDIARIES

The Company currently has two subsidiaries, comprising Syngene, Clinigene and a joint venture (in which our Company hasa 51% shareholding). In this section, financial data for the subsidiaries has been derived from their financial statementsprepared in accordance with Indian GAAP.

The details of our subsidiaries are set forth below:

Syngene International Private Limited

Syngene is a 99.99% owned subsidiary of Biocon Limited. Syngene was incorporated on November 18, 1993 with an authorisedshare capital of Rs. 5,000,000. Syngene designs and manages research projects mainly for multinational pharmaceutical andbiotechnology companies engaged in pre-clinical research in the area of new drug discovery. Syngene works in two mainresearch areas: synthetic chemistry and molecular biology. The synthetic chemistry group is principally engaged in developingnovel processes for the synthesis of APIs and their intermediates. Syngene is also involved in custom chemical synthesis.The company has developed skills and expertise in organometalics, boron chemistry, peptide synthesis and heterologusprotein production. Syngene was granted 100% Export Oriented Unit, or EOU, status by the Government of India in 1998.

The shareholding in Syngene was initially held by a group of persons comprising Ms. Kiran Mazumdar and a few otherscientists. In 2000, ICICI Ventures and its affiliate funds acquired 10% in Syngene from Glentec International. By way of arestructuring, 99.9% of the shares in Syngene were transferred to our Company in consideration for the issue of shares byour Company to the shareholders of Syngene. This restructuring was made effective on March 31, 2002.

Board of Directors

The directors on the board of Syngene as on December 31, 2003 are:

1. Ms. Kiran Mazumdar-Shaw

2. Mr. John Shaw

3. Dr. Neville Bain

4. Prof. Charles Cooney

5. Prof. Catherine Rosenberg

The board of directors of Syngene has appointed Prof Ravi Mazumdar as alternate director to Prof. Catherine Rosenberg.AIG AOF has a right to appoint a nominee director on the Board of Syngene pursuant to the provisions of the AIG AOFSHA. They have not yet exercised this right.

Financial Performance

The restated operating results of Syngene Limited for the years ended March 31, 1999, 2000, 2001, 2002 and 2003 and the ninemonths ended December 31, 2003, as per Indian GAAP, are set forth below:

(Rs. in million)

Year ended Year ended Year ended Year ended Year ended Nine monthsMarch 31, March 31, March 31, March 31, March 31, period ended

1999 2000 2001 2002 2003 Dec. 31, 2003

Sales and other income 30.1 59.9 111.0 153.0 261.8 261.8

Profit after tax (after adjustments) 9.0 13.0 33.4 28.2 74.8 108.1

Equity capital (par value Rs. 10/- per share) 5.8 8.0 28.8 28.8 28.8 28.8

Reserves and Surplus 15.9 28.0 51.7 56.9 132.3 241.0

Earnings per Equity Share (Rs.) 18.3 21.0 11.6 9.8 26.0 37.6

Book Value per Equity Share (Rs.) 37.7 12.7 28.0 29.8 56.0 93.8

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Clinigene International Private Limited

Clinigene is a 100% owned subsidiary of Biocon Limited. Clinigene was incorporated on August 4, 2000 with an authorisedshare capital of Rs. 5,000,000. Clinigene was established to undertake clinical and other trials and validation for drugs andpharmaceuticals and to conduct research in the area of medical sciences for development of new and improve upon existingmedical diagnostic, surgical and therapeutic techniques in general and specifically for diagnosis, treatment and prevention ofdiseases, using all available techniques including recombinant Deoxyribose Nucleic Acid technology, genetic microbiologyand all other related techniques and disciplines. As of December 31, 2003, our subsidiary, Clinigene, had accumulated lossesof Rs. 22.9 million and a negative net worth of Rs. 21.4 million. This is because Clinigene is in the process of developing itsclinical research capabilities, including the establishment of a human pharmacology unit in association with a leading hospitalin India and the hiring of employees. Clinigene may require additional funds from our other businesses or external sources todevelop its businesses and may not become profitable. Until Clinigene becomes profitable, it will continue to adversely affectour consolidated results of operations and financial condition. To the extent Biocon Limited is not able to recoup theseinvestments in and advances to Clinigene, Biocon Limited will have losses.

Board of Directors

The directors on the board of Clinigene as on December 31, 2003 are:

1. Ms. Kiran Mazumdar-Shaw

2. Mr. John Shaw

AIG AOF has a right to appoint a nominee director on the Board of Clinigene pursuant to the provisions of the AIG AOFSHA. They have not yet exercised this right.

Financial Performance

The restated operating results of Clinigene Limited for the years ended March 31, 2001, 2002 and 2003 and the nine monthsended December 31, 2003, as per Indian GAAP, are set forth below:

(Rs. million)

August 4, 2000 Year ended Year ended Nine monthsto March 31, March 31, March 31, period ended

2001 2002 2003 Dec. , 2003

Sales and other income 3.7 26.7 11.1 1.4

Profit after tax (after adjustments) (0.2) 8.4 (5.6) (19.0)

Equity capital (par value Rs. 10/- per share) 0.5 0.5 0.5 0.5

Reserves and Surplus (0.2) 2.7 (2.8) (21.9)

Earnings per Equity Share (Rs.) (460.3) 168.1 (111.3) (380.2)

Book Value per Equity Share (Rs.) 6.2 64.1 (47.2) (427.5)

The net worth of Clinigene has been entirely eroded. As of December 31, 2003, Clinigene, had accumulated losses of Rs. 22.9million and a negative net worth of Rs. 21.4 million. However, the board of directors of Clinigene are not required to make areference to the BIFR as the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 are not applicable toit. Further, our Company intends to infuse further funds or to grant other forms of financial assistance to Clinigene as may berequired.

Biocon Biopharmaceutical Private Limited

BBPL is a joint venture company and currently 51% of its shares are held by our Company and the balance 49% by ourpartner CIMAB. BBPL was incorporated on June 17, 2002 with an authorised share capital of Rs. 500,000. BBPL has beenestablished to produce and sell certain biologicals developed by CIMAB, including EPO and GCSF, into the Indian market.

BBPL proposes to develop (i) TheraCIM hR3 humanised Monoclonal Antibody for the treatment of head and neck cancers,(ii) Granulocite Colony Stimulating Factor for treating blood disorder most commonly associated with cancer patientsundergoing chemotherapy, and (iii) Human Recombinant Erythropoietin for stimulating production of red blood corpuscles.

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Biocon

Board of Directors

The directors on the board of BBPL as on December 31, 2003 are:

1. Ms. Kiran Mazumdar-Shaw

2. Mr. John Shaw

3. Ms. Patricia DeLa Asuncion Sierra Blazquze

4. Dr. Joaquin Manuel Villan Guerra

Financial Performance

The restated operating results of BBPL for FY03 and the nine months ended December 31, 2003, as per Indian GAAP, are setforth below:

(Rs. in million)

June 17, 2002 to Nine months endedMarch 31, 2003 Dec. 31, 2003

Sales and other income 0 0

Profit after tax (after adjustments) (1.6) (1.6)

Equity capital (par value Rs. 10/- per share) 0.1 0.2

Reserves and Surplus (1.6) (3.2)

Loss per Equity Share (Rs.) 163 83.4

Book Value per Equity Share (Rs.) (153) (152.2)

As of December 31, 2003, BBPL had accumulated losses of Rs. 3.2 million and a negative net worth of Rs. 3.0 million.

Joint Venture Agreement

Our Company has entered into a joint venture agreement dated February 22, 2002 in relation to BBPL. The agreement envisagesthat BBPL will be the joint venture company for the manufacture and marketing of certain bio-pharmaceutical and biotechnologyproducts. The agreement governs matters pertaining to funding of BBPL, restrictions on transfer of shares, management andother related aspects. The board of directors of BBPL shall have equal number of directors nominated by our Company andCIMAB. Currently, out of a board strength of 4 directors, our Company has nominated 2 directors and CIMAB has nominatedthe other 2 directors. The agreement contemplates that CIMAB will transfer specific technology to BBPL and also supervisethe engineering and construction of the biotechnology plant. The joint venture agreement has a term of 25 years unlessterminated earlier in accordance with its terms.

Our joint venture company, Biocon Biopharmaceuticals, is in its development stage and has not yet commenced revenuegenerating operations. As of December 31, 2003, Biocon Biopharmaceuticals had accumulated losses of Rs. 3.2 million and anegative net worth of Rs. 3.0 million. Biocon Biopharmaceuticals is in the process of setting up its facilities. Biocon Limited isrequired to make a US$5.1 million equity investment and provide or guarantee the remaining debt financing for the full capitalexpenditure requirements of Biocon Biopharmaceuticals. We have not yet determined the capital expenditure requirements ofthis company, although Biocon’s board of directors has given preliminary approval for financing capital expenditures of upto Rs. 850.0 million for the joint venture. To the extent Biocon Limited is not able to recoup these investments in and advancesto Biocon Biopharmaceuticals, Biocon Limited will have losses.

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Biocon

RELATED PARTY TRANSACTIONS

Our Company has various transactions with related parties, including the following:

■ Our subsidiaries Syngene and Clinigene and joint venture BBPL;

■ Our shareholders; and

■ Our Promoters, Directors and employees, including their relatives.

The related party transactions over the last 3 years are set forth below:

Ms. Kiran Mazumdar-Shaw

As per our Company policies, Ms. Kiran Mazumdar-Shaw is entitled to receive compensation for her services as the Chairmanand Managing Director of our Company. Her remuneration for the year ended March 31, 2003 was Rs. 10,186,766. In addition,we had leased immovable property of an area of 11.8 acres at our site at 20th KM Hosur Road, Electronic City P.O., Bangalore560 100 from Ms. Kiran Mazumdar-Shaw who is the owner of the property. Under the lease, we have paid a lease deposit ofRs. 9,600,000 which was fully repaid during the year. We were required to pay a monthly rent of Rs. 80,000. The lease wasvalid till 2011. We have, on December 23, 2003, acquired the above-mentioned land of 11.8 acres of land located at 20th KMHosur Road, Electronic City P. O., Bangalore 560 100 from Ms. Kiran Mazumdar-Shaw at a price of Rs. 2,200,000 per acre andat an aggregate price of Rs. 24,926,000. This price is lower than the price of Rs. 2,400,000 per acre that our Company hascontracted with KIADB for the acquisition of the land, at a site that is at Plot No.113 C2, Bommasandra Industrial Areas,Bangalore, as described in the section entitled “Objects of the Issue” on page 30 of this Prospectus. We do not intend topurchase any more land from Ms. Kiran Mazumdar Shaw.

Mr. John Shaw

As per our Company policies, Mr. John Shaw is entitled to receive compensation for his services as the Vice-Chairman of ourCompany. His remuneration for the year ended March 31, 2003 was Rs. 9,216,800.

Syngene

Syngene was an associate company of our Company until March 31, 2002 after which it became a subsidiary of our Company.We have leased land and building to Syngene, the details of which are set out below. Our Company charges Syngene forpower based on actual units consumed at year-end. Our Company has given guarantees to customs and excise departmenton behalf of Syngene to the extent of Rs. 80,000,000 as on December 31, 2003. Similarly, Syngene has given guarantees tocustoms and excise department on behalf of our Company to the extent of Rs. 165,000,000. Also, Syngene receives assistancefrom Biocon in the areas of general administration, accounting and senior management assistance in respect of which nocharges have been levied.

Property Area Lease Period Deposit Renta l

Building 3,856.5 sq.ft. 31st March 2003 to 30th March 2013 - Rs. 50,000/ p.m.

Land 21,208 sq.ft. 1st April 1999 to 31st March 2010 Rs. 600,000/- Rs. 20,000/- p.m.

Building 3,500 sq.ft. 1st April 2001 to 31st March 2011 - Rs. 25,000/- p.m.

Clinigene

Our Company has leased building to Clinigene of an area of 3,200 square feet. The lease is valid till March 31, 2008. Under thelease, our Company is entitled to a monthly lease rental of Rs. 20,000. Our Company also charges Clinigene for power basedon actual units consumed at year-end.

As at December 31, 2003, Clinigene owes Biocon Rs. 32,616,803 on current account for which Biocon has levied no interest.Also, Clinigene receives assistance from Biocon in the areas of general administration, accounting and senior managementassistance in respect of which no charges have been levied. Clinigene has provided assistance to our Company in some oftheir projects in respect of which no charges have been levied.

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Biocon

BBPL

Our Company entered into a collaboration agreement with CIMAB SA, Cuba on February 22, 2002 to set up a joint venturecompany to carry on the business of research, development, manufacturing and marketing of biopharmaceuticals. The equityparticipation by the Company and CIMAB is 51 per cent and 49 per cent respectively. BBPL is in the development stage andis yet to enter into any financing arrangements with banks or other financial institutions. It is supported in its financing byus as agreed upon in the joint venture agreement up to setting up the plant and commencement of operations.

ESOP Trust

The administration of the ESOP Trust is undertaken by the trustees, being Ms. Kiran Mazumdar-Shaw, Mr. John Shaw,Dr. Arun Chandavarkar and Mr. Murali Krishnan K.N. who are key managerial personnel of our Company. In addition, wehave provided a loan to the ESOP Trust on which an amount of Rs. 1,258,700 is currently outstanding as on December 31,2003.

Our Shareholders

We have entered into Shareholders Agreements with our Promoters and AIG AOF and IVF pursuant to which certain significantrights have been granted to them. For details of the Shareholders Agreements please refer to the section entitled “Historyand Certain Corporate Matters” on page 64 of this Prospectus.

Apart from the above, our Company renders administrative and management assistance to its subsidiaries Syngene andClinigene in respect of which no charges are being made by our Company.

Our Company has incurred Rs. 14.2 million towards employee compensation cost for stock options granted to employees ofSyngene. The corresponding compensation cost amortized between April 1, 2002 and December 31, 2003 is Rs. 10.3 million.Our Company has not charged this amortization to Syngene.

For more detailed information on our related party transactions, please refer to note 21 to our audited unconsolidated financialstatements under Indian GAAP on page 199 of this Prospectus.

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Biocon

SELECTED FINANCIAL DATA (AS PER UNCONSOLIDATED FINANCIAL STATEMENTSUNDER INDIAN GAAP, AS RESTATED)

The statutory financial statements of the Company prepared in accordance with Indian GAAP for the years ended March 31,2002 and 2001 were audited by Arthur Andersen & Associates, Chartered Accountants, (a member firm of AndersenWorldwide, an affiliation of accounting firms which has ceased operations) and those for the years ended March 31, 2000and 1999 were audited by M/s. S. Madhavan & Co., Chartered Accountants, who resigned in the normal course. S.R. Batliboi& Associates are our current auditors and have audited our statutory financial statements for the year ended March 31, 2003and the financial statements for the period ended December 31, 2003.

Biocon

Statement of Profits and Losses, as Restated

(Rs. in million)

Year ended Year ended Year ended Year ended Year ended Nine monthsMarch 31, March 31, March 31, March 31, March 31, period ended

1999 2000 2001 2002 2003 Dec. 31, 2003

Income

Sales

- Of products manufactured 284.2 698.8 1,199.4 1,587.0 2,529.4 3,708.8

- Of products traded 18.6 27.9 23.7 19.2 13.0 3.4

Contract Research Fees 5.0 11.0 10.7 9.8 5.2 5.7

Other income 8.8 4.3 2.1 33.3 7.6 6.6

Total income 316.6 742.0 1,235.9 1,649.3 2,555.2 3,724.5

Expenditure

Production costs 200.5 391.4 586.9 828.2 1,202.3 1,896.1

Other Manufacturing costs 5.5 43.4 112.0 111.4 177.5 176.1

Employee costs 25.7 84.5 126.2 196.5 297.0 257.5

Research, Selling & Administrative Expenses 46.0 89.6 85.9 113.0 223.1 208.0

Interest 11.7 32.0 45.6 46.9 49.0 12.1

Depreciation 8.3 31.9 62.0 75.9 117.1 98.1

Total expenditure 297.7 672.8 1,018.6 1,371.9 2,066.0 2,647.9

Net profit before taxation 18.9 69.2 217.3 277.4 489.2 1,076.6

Current tax 4.7 (3.2) 35.6 40.4 89.0 201.7

Deferred tax 1.0 17.1 36.5 22.1 47.1 13.8

Net Profit after Tax 13.2 55.3 145.2 214.9 353.1 861.1

Profit and loss account, beginning of the year (6.6) (5.1) (7.3) (62.1) 152.8 505.9

Balance available for appropriation, as restated 6.6 50.2 137.9 152.8 505.9 1,367.0

Appropriations

Transfer to general reserve 11.7 57.5 200.0 - - -

Issue on bonus shares - - - - - 431.6

Balance carried forward as restated (5.1) (7.3) (62.1) 152.8 505.9 935.4

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Biocon

Statement of Assets and Liabilities, as Restated(Rs. in million)

As at March As at March As at March As at March As at March As at Dec.31, 1999 31, 2000 31, 2001 31, 2002 31, 2003 31, 2003

Application Of Funds

Fixed Assets 118.1 677.2 786.7 1,262.8 1,561.9 1,789.4Less : Accumulated depreciation 39.4 109.5 164.1 240.6 358.9 452.9Net Block 78.7 567.7 622.6 1,022.2 1,203.0 1,336.5Less: Revaluation Reserve 26.2 21.2 20.0 18.8 16.6 14.8Net block after adjustment forRevaluation Reserve 52.5 546.5 602.6 1,003.4 1,186.4 1,321.7Capital work in progress 2.0 19.2 25.2 37.1 79.8 391.0Total 54.5 565.7 627.8 1,040.5 1,266.2 1,712.7Investments 80.9 0.1 0.6 84.8 84.8 84.9Current AssetsInventories 53.5 134.3 217.6 233.3 466.6 689.0Sundry debtors 73.3 242.2 391.7 624.7 737.8 1,370.1Cash and bank balances 0.7 9.7 0.1 1.0 10.2 11.4Loans and advances 21.7 70.8 59.9 101.9 157.7 168.1Total 149.2 457.0 669.3 960.9 1,372.3 2,238.6Liabilities and ProvisionsSecured loans 58.2 320.0 343.0 559.3 582.1 487.0Unsecured loans 17.2 - 38.9 106.0 103.5 163.3Current liabilities and provisions 109.7 253.5 284.9 467.8 650.4 1,112.1Deferred tax liability 4.4 34.4 70.8 93.0 140.0 153.8Total 189.5 607.9 737.6 1,226.1 1,476.0 1,916.2Networth 95.1 414.9 560.1 860.1 1,247.3 2,120.0Represented byShare capital 5.8 15.0 15.0 18.2 18.4 450.0Advance share application money - 0.4 - - - -

Reserves and Surplus 115.5 420.7 565.1 860.7 1,245.5 1,684.8Less: Revaluation reserve 26.2 21.2 20.0 18.8 16.6 14.8

Reserves (Net of Revaluation Reserves) 89.3 399.5 545.1 841.9 1,228.9 1,670.0Net worth 95.1 414.9 560.1 860.1 1,247.3 2,120.0

Accounting RatiosYear ended Year ended Year ended Year ended Year ended Nine months March 31, March 31, March 31, March 31, March 31, period ended

1999 2000 2001 2002 2003 Dec. 31, 2003

Earnings per Share (Rs.) (1)

Pre Split 0.9 3.2 4.0 5.6 7.9 19.1Post Split 0.5 1.6 2.0 2.8 3.9 9.6

Return on Net WorthPre Split 14% 13% 26% 25% 28% 41%Post Split 14% 13% 26% 25% 28% 41%

Net Asset Value per Equity SharePre Split 6.7 11.3 15.3 19.3 27.7 47.1Post Split 3.3 5.7 7.7 9.6 13.9 23.6

Weighted average number of equity shares outstanding during the year/period

Pre Split 14,251,898 17,073,354 36,662,328 38,110,196 44,958,476 45,000,000Post Split 28,503,796 34,146,707 73,324,656 76,220,392 89,916,952 90,000,000

Total number of share outstandingat the end of the year/.period

Pre Split 14,251,898 36,648,927 36,669,741 44,611,379 45.000.000 45,000,000Post Split 28,503,796 73,297,853 73,339,482 89,222,757 90,000,000 90,000,000

(1) On November 11, 2003, our shareholders approved a sub division of one equity share of Rs. 10/- each into two equity shares of Rs. 5/- each. Accordingly, earnings

per share and weighted average number of shares outstanding are presented on a pre-split and post-split basis.

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Biocon

Syngene

Statement of Profits and Losses, as Restated

(Rs. in million)

Year ended Year ended Year ended Year ended Year ended Nine months March 31, March 31, March 31, March 31, March 31, period ended

1999 2000 2001 2002 2003 Dec. 31, 2003

Income

Contract research fees 29.7 56.3 106.0 136.6 225.2 213.7

Sale of compounds 0.3 2.5 2.9 10.5 36.1 44.2

Other Income 0.1 1.1 2.1 5.9 0.5 3.9

Total Income 30.1 59.9 111.0 153.0 261.8 261.8

Expenditure

Chemicals and reagents 8.1 21.5 28.0 41.9 67.5 52.7

Staff cost 6.2 13.3 26.5 48.4 71.8 66.6

Other contract research and operating expenses 3.7 7.6 15.4 21.1 22.6 16.7

Interest 0.5 0.4 0.8 0.9 1.3 0.3

Depreciation 1.9 3.3 7.8 10.2 15.4 14.9

Total Expenditure 20.4 46.1 78.5 122.5 178.6 151.2

Net profit before taxation 9.7 13.8 32.5 30.5 83.2 110.6

Current tax charge/(credit) 0.6 0.5 0.9 2.0 8.0 2.2

Deferred tax charge/(credit) 0.1 0.3 (1.8) 0.3 0.4 0.3

Net profit after tax 9.0 13.0 33.4 28.2 74.8 108.1

Profit and loss account, beginning of the year/period 7.6 14.4 7.0 9.0 10.5 85.3

Profit available for appropriation 16.6 27.4 40.4 37.2 85.3 193.4

Transfer to general reserve (0.9) (18.9) (25.0) (2.2) - -

Dividend (1.2) (1.2) (5.8) (21.6) - -

Corporate tax on proposed dividend (0.1) (0.3) (0.6) (2.9) - -

Balance carried forward, as restated 14.4 7.0 9.0 10.5 85.3 193.4

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Statement of Assets and Liabilities, as Restated(Rs. in million)

As at March As at March As at March As at March As at March As at Dec.31, 1999 31, 2000 31, 2001 31, 2002 31, 2003 31, 2003

Application Of FundsFixed assets 26.4 72.3 86.3 102.4 171.1 190.6Less : Accumulated depreciation 4.4 7.8 15.7 25.7 40.1 55.1Net Block 22.0 64.5 70.6 76.7 131.0 135.5Capital work in progress 2.4 0.5 - 11.3 0.0 28.8Total 24.4 65.0 70.6 88.0 131.0 164.3Investments 0.1 0.1 0.1 0.0 50.0 142.1Current assetsInventories 5.9 5.0 6.6 8.1 12.1 12.2Sundry debtors 1.2 4.3 15.7 15.6 10.7 24.8Cash and bank balances 0.0 0.0 0.8 17.7 16.1 9.8Loans and advances 6.9 3.3 25.8 6.2 4.2 4.0Total 14.0 12.6 48.9 47.6 43.1 50.8Liabilities and provisionsSecured loans 3.0 4.1 4.8 2.8 - -Unsecured loans - 3.6 - - - -Deferred tax liability/(asset) (0.6) (0.8) 1.0 0.6 0.3 0.0Current liabilities and provisions 14.4 34.5 33.3 46.5 62.7 87.4Total 16.8 41.4 39.1 49.9 63.0 87.4Net worth 21.7 36.3 80.5 85.7 161.1 269.8Represented byShare capital 5.8 8.0 28.8 28.8 28.8 28.8Advance share application money - 0.3 - - - -Reserves and surplus 15.9 28.0 51.7 56.9 132.3 241.0Net worth 21.7 36.3 80.5 85.7 161.1 269.8

ClinigeneStatement of Profits and Losses, as Restated

(Rs. in million)

August 4, 2000 to Year ended Year ended Nine months periodMarch 31, 2001 March 31, 2002 March 31, 2003 ended Dec. 31, 2003

Net Sales 3.5 26.7 11.1 1.4Other Income 0.2 - - 0.0Total Income 3.7 26.7 11.1 1.4ExpenditureResearch material costs 0.6 3.5 2.5 3.2Staff cost 0.2 0.7 3.0 6.7Other contract research expenses 1.6 6.3 7.6 6.1Other expenses 1.4 1.4 2.7 3.3Interest 0.0 0.4 0.4 0.0Depreciation 0.2 0.9 0.9 1.1Total Expenditure 4.0 13.2 17.1 20.4Net profit before taxation (0.3) 13.5 (6.1) (19.0)Current tax charge/(credit) - 4.5 - -Deferred tax charge/(credit) (0.1) 0.6 (0.5) -Net Profit as per audited statement of accounts (0.2) 8.4 (5.6) (19.0)Appropriations - - - -Transfer to general reserve - 0.9 - -Dividend - 5.0 - -Corporate tax on proposed dividend - 0.5 - -Balance carried forward, as restated (0.2) 2.0 (5.6) (19.0)

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Statement of Assets and Liabilities, as Restated

(Rs. in million)

As at March 31, As at March 31, As at March 31, As at Dec. 31,2001 2002 2003 2003

Application Of Funds

Fixed assets 5.8 6.9 9.6 11.8

Less : Accumulated depreciation 0.1 1.0 1.8 3.0

Net block 5.7 5.9 7.8 8.8

Capital work in progress 0.7 - - 8.8

Total 6.4 5.9 7.8 17.6

Current assets

Inventories - 0.7 - -

Sundry debtors - 8.3 5.1 1.5

Cash and bank balances 0.0 0.0 0.0 0.0

Loans and advances 1.2 0.0 2.2 1.8

Total 1.2 9.0 7.3 3.3

Current liabilities and provisions

Current liabilities and provisions 7.4 11.2 17.4 42.3

Deferred tax liability (0.1) 0.5 - -

Total 7.3 11.7 17.4 42.3

Net worth 0.3 3.2 (2.3) (21.4)

Represented by - - - -

Share capital 0.5 0.5 0.5 0.5

Accumulated losses (0.2) 2.7 (2.8) (21.9)

Biocon Biopharmaceuticals

Statement of Profits and Losses, as Restated

(Rs. in million)

June 17, 2002 to Nine months periodMarch 31, 2003 ended Dec. 31, 2003

Net Sales - -

Other Income - -

Total Income - -

Expenditure

Staff cost - 0.5

Other expenses 1.6 1.0

Interest - 0.1

Depreciation - -

Total Expenditure 1.6 1.6

Loss for the period 1.6 1.6

Loss beginning of the period - 1.6

Loss end of the period 1.6 3.2

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Statement of Assets and Liabilities, as Restated

(Rs. in million)

As at March 31, 2003 As at Dec. 31, 2003

Application Of Funds

Fixed assets - 0.1

Less : Accumulated depreciation - -

Net block - 0.1

Capital advances - 1.5

Total - 1.6

Current assets

Cash balances 0.1 -

Total 0.1 -

Liabilities and provision

Current Liabilities and provision 1.6 4.6

Total 1.6 4.6

Net worth (1.5) (3.0)

Represented by

Share capital 0.1 0.2

Reserves & surplus (1.6) (3.2)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations together with our audited/examined unconsolidated and consolidated financial statements under Indian GAAP including the schedules, annexureand notes thereto and the reports thereon, which appear elsewhere in this Prospectus beginning on page 180. We havealso prepared audited financial statements under US GAAP, which, together with the notes thereto and the report thereon,appear elsewhere in this Prospectus beginning on page 306. Indian GAAP and US GAAP differ in certain material respects.For more information on these differences, please refer to the section entitled “Financial Information – Summary ofSignificant Differences Between Indian GAAP and US GAAP” beginning on page 345 of this Prospectus. Unless otherwisestated, the financial information used in this section is derived from our audited unconsolidated financial statements underIndian GAAP, as restated.

Our fiscal year ends on March 31 of each year, so all references to a particular fiscal year are to the 12-month periodended March 31 of that year. In this section, references to the Biocon Group, we, us or our refer to Biocon, Syngene,Clinigene and Biocon Biopharmaceuticals Private Limited and references to Biocon or the Company are to Biocon Limitedon an unconsolidated basis.

OVERVIEW

Over the past 25 years, we have emerged as an integrated biotechnology enterprise with presence in biopharmaceuticals,enzymes, custom research and clinical research. We were India’s largest biotechnology company in terms of fiscal 2003 revenues,according to India’s Association of Biotechnology Led Enterprises. Our core expertise lies in our fermentation and we havepatented a novel technology, PlaFractorTM, for developing some of the products in our portfolio requiring highly controlledproduction conditions. We develop what we believe to be non-infringing processes for the manufacture of products targetedat the therapeutic categories of cardiovascular, immunosuppressants, anti-diabetics and oncology.

Our total operating income from fiscal year 2001 through the first nine months of fiscal 2004 has grown from Rs. 1,346.3million to Rs. 3,977.4 million. In the first nine months of fiscal 2004, our total consolidated net profit was Rs. 949.4 million,compared with fiscal 2003’s whole-year total of Rs. 422.3 million. From fiscal year 2001 through the first nine months of fiscal2004, our revenue from biopharmaceuticals has grown from 60.7% to 81.1% of our total operating income. Revenues fromexports of biopharmaceuticals and enzymes have increased from 19.9% of total operating income in fiscal year 2001 to 52.4%in the first nine months of 2004.

Several factors have affected our results of operations, financial condition and cash flow significantly over the past threeyears. These factors include:

■ Introduction of our APIs into regulated markets upon expiration or invalidity of API product patents there – significantly,introduction of our lovastatin API into key regulated markets, including the United States upon patent expiry in 2001,the United Kingdom upon patent expiry in 2000 and Germany upon patent expiry in 2003, and introduction of oursimvastatin in the United Kingdom and Germany upon patent expiry in 2003;

■ Strong worldwide demand for statins – statins are among the best selling drugs in the global markets;

■ The increasing share of exports to regulated markets in our sales mix;

■ Capital expenditures, including for capacity expansion;

■ Yield improvement in our fermentation processes;

■ Improved utilization of our manufacturing facilities;

■ Growing demand for production and research outsourcing in the global pharmaceuticals industry;

■ Capacity constraints principally affecting API production;

■ Competition from Indian and non-Indian biopharmaceuticals producers, especially the effect of such competition onpricing of our products and services;

■ Availability of tax exemptions;

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■ Increasing employee compensation in India;

■ Changes in market prices for petroleum and petrochemical products;

■ Reduction in interest rates; and

■ Foreign exchange rate fluctuations.

These factors and a number of future developments may affect our results of operations, financial condition and cash flow infuture periods. We believe that the following future developments may affect our future results of operations, financial conditionand cash flow:

■ Additional capital expenditures and related financings, if any, including for capacity expansion;

■ Introduction into regulated markets, principally the United States and Europe, of existing products, such as simvastatinand pravastatin, once those products are off-patent and permitted to be sold by us under applicable laws and regulations– significantly, planned introduction of pravastatin in key European markets upon expiry of API patents there beginningin 2004 and planned introduction of simvastatin and pravastatin in the United States upon expiry of API patents therebeginning in 2006;

■ Introduction of new products, such as recombinant human insulin, in the domestic and international markets;

■ Commencement of operation of the new joint venture, Biocon Biopharmaceuticals, and the expected launch of newbiologicals into the Indian market through this joint venture;

■ Changes in global demand for key products, including statins;

■ Gain or loss of significant customers or clients;

■ Recognition in the key unregulated markets, including India, of pharmaceutical product patents from the beginning of2005;

■ Adoption of or changes in price controls in major drug markets;

■ Changes in the levels of government economic assistance with respect to pharmaceutical purchases in major drug markets;

■ Increase in emphasis on new drug discovery and commercialisation of proprietary products;

■ New strategic partnerships or mergers/acquisitions;

■ Adoption of milestone-based pricing in our custom research business; and

■ Changes in the strategic plans of our current and potential customers and clients regarding outsourcing.

For more information on these and other factors/developments which have or may affect us financially, please refer to theother parts of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, aswell as the section entitled “Risk Factors” section beginning on page xi and the section entitled “Business” section beginningon page 40 of this Prospectus.

SIGNIFICANT ACCOUNTING POLICIES

Preparation of financial statements in accordance with Indian generally accepted accounting principles, the applicableaccounting standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the CompaniesAct, 1956, require our management to make judgments, estimates and assumptions regarding uncertainties that affect thereported amounts of our assets and liabilities, disclosures of contingent liabilities and the reported amounts of revenues andexpenses. These judgments, assumptions and estimates are reflected in our accounting policies, which are more fully describedin the auditor’s report appearing elsewhere in this prospectus.

Certain of our accounting policies are particularly important to the portrayal of our financial position and results of operationsand require the application of significant assumptions and estimates of our management. We refer to these accounting policiesas our “significant accounting policies”. Our management uses its historical experience and analyses, the terms of existingcontracts, historical cost convention, industry trends, information provided by our agents and information available from

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other outside sources, as appropriate, when forming its assumptions and estimates. However, this task is inexact because ourmanagement is making assumptions and providing estimates on matters that are inherently uncertain.

While we believe that all aspects of our financial statements should be studied and understood in assessing our current andexpected financial condition and results, we believe that the following critical accounting policies warrant additional attention:

Fixed Assets and Depreciation

Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at estimated replacementcost as determined by valuers, less accumulated depreciation. We capitalise all costs relating to the acquisition and installationof fixed assets.

Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period of use, on thestraight line method based on the estimated useful lives.

Rate

Buildings 4.00%

Plant and machinery 9.09 - 33.33

Research and development equipment 11.11

Furniture and fixtures 16.67

Vehicles 16.67

Goodwill is amortised over a period of five years and assessed for impairment at each balance sheet date.

Leasehold land, other that those on a lease-cum-sale basis, is depreciated over the lease period. Leasehold land on a lease-cum-sale basis is capitalised at the allotment rates currently charged by the Municipal Authorities.

The depreciation charge over and above the depreciation calculation on the original cost of the revalued assets is transferredfrom the revaluation reserve to the profit and loss account.

Assets costing less than Rs. 5,000 are fully depreciated in the year of purchase.

Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basis and includesall applicable overheads in bringing the inventories to their present location and condition. Excise duty arising on finishedgoods and customs duty on imported raw materials in stock (excluding stocks in the bonded warehouse) are treated as partof the cost of inventories.

Revenue Recognition

With respect to sales of pharmaceuticals, enzymes and compounds, sales are recognised on despatch of goods to customersand are recorded net of excise duty, sales tax and other levies. For the purpose of disclosure sales are reflected gross and netof excise duty in the consolidated profit and loss account.

With respect to contract/clinical research agreements, the Group enters into two basic types of contract research agreements,and the revenues therefrom are recognised on the following basis:

■ For contracts based on time and material management, revenues are recognised as services are rendered, in accordancewith contractual agreements; and

■ For fixed price arrangements, revenues are recognised based on the percentage of completion method.

Investments

Long term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other than temporary,in the value of investments. Current investments are stated at the lower of cost and fair market value.

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Retirement Benefits

We have schemes of retirement benefits for provident fund, gratuity and superannuation, in respect of which, our contributionsare charged to the statement of profit and loss. The contributions towards provident fund are made to statutory authorities.The gratuity and superannuation fund benefits are administered by a trust formed for this purpose through the group gratuityand superannuation scheme with Birla Sun Life Insurance Company Limited. In respect of gratuity and superannuation, theadequacy of the accumulated fund available with Birla Sun Life has been confirmed on the basis of an actuarial valuationmade at period end.

Leave Encashment

Liability for leave encashment is in accordance with the rules of the Group and is provided on the basis of an actuarialvaluation performed by an independent actuary.

Foreign Currency Transactions

Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction.Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on thedate of the balance sheet. Where we have entered into foreign exchange contracts, the difference between the forward ratesand the spot rates at the date of the transaction is recognised in the statement of profit and loss over the life of the contract.All exchange differences are dealt with in the statement of profit and loss, except those relating to the acquisition of fixedassets, which are adjusted to the cost of the assets.

Research and Development Costs

Research and development costs, including technical know-how fees, incurred for development of products are expensed asincurred, except for development costs which relate to the design and testing of new or improved materials, products orprocesses which are recognised as an asset to the extent that it is expected that such assets will generate future economicbenefits. Research and development expenditure of a capital nature is added to fixed assets.

Income Tax

Provision for tax is made for both current and deferred taxes. Provision for current income tax is made on the current tax ratesbased on assessable income. We provide for deferred tax based on the tax effect of timing differences resulting from therecognition of items in the financial statements and in estimating its current tax provision. Deferred tax assets are recognisedand carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be availableagainst which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised inincome in the period in which the change is substantially enacted.

The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003, and our actualtax liability will be determined on the basis of the earnings for the period from April 1, 2003 to March 31, 2004.

Borrowing Costs

Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as a part of thecost of the asset. Other borrowing costs are recognised as an expense in the period in which they are incurred.

Deferred Employee Stock Compensation Costs

Deferred employee stock compensation costs for stock options are recognised on the basis of generally accepted accountingprinciples and are measured as the excess of the fair value of Biocon’s stock on the stock options grant date over the amountan employee must pay to acquire Biocon’s Equity Shares and recognised in a graded manner on the basis of weighted periodof services over the vesting period of Equity Shares. The fair value of the options is currently measured on the basis of anindependent valuation performed in respect of stock options granted. In fiscal 2002, the last time options were valued foraccounting purposes, option value was based on a valuation of Biocon of Rs. 1.7 billion. Following the Issue, the fair valueof the options will be measured on the basis of the market price of the Equity Shares.

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Earnings Per ShareNet profit after tax in a particular reporting period is used as the earnings figure for the purposes of calculating earnings pershare. The number of shares used in computing the basic earnings per share is the weighted average number of sharesoutstanding during the period. The number of shares used in computing diluted earnings per share comprises the weightedaverage number of shares considered for deriving basic earnings per share, and also the weighted average number of shares,if any which would have been issued on the conversion of all dilutive potential equity shares. The number of shares andpotentially dilutive equity shares are adjusted for the bonus shares and sub-division of shares.

For the purposes of consolidated reporting, the shares issued to the ESOP Trust have been considered as outstanding forbasic earnings per share purposes, to the extent these shares have been allocated to the employees’ pursuant to the ESOPscheme and are eligible for exercise. For dilutive EPS purpose, the shares, which are not yet eligible for exercise, have beenconsidered as dilutive potential equity shares.

Operating Lease

As Lessee: Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor areclassified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basisover the lease term.

As Lessor: Assets subject to operating leases are included in fixed assets. Lease income is recognised on a straight linebasis over the lease term. Costs, including depreciation, are recognised as an expense. Initial direct costs such as legal costs,brokerage costs, etc. are recognised immediately.

BIOCON RESULTS OF OPERATIONS

Income

Biocon’s total income has four components:■ Sales of products manufactured by Biocon;■ Sales of products traded by Biocon;■ Research and development fees; and■ Other income.

The following table sets out the contribution of each of these components of Biocon’s income expressed as a percentage ofBiocon’s total income for fiscal years 2001, 2002 and 2003, and the first nine months of fiscal 2004:

Fiscal Year First Nine Monthsof Fiscal Year

2001 2002 2003 2004

Sales

Products Manufactured by BioconBiopharmaceuticals(1) 64.7% 68.4% 78.3% 86.7%Enzymes(1) 32.3 27.9 20.7 12.9

Products Traded by BioconBiopharmaceuticals (1) 1.5 0.9 0.3 0.0Enzymes(1) 0.4 0.2 0.2 0.1

Research and Development Fees 0.9 0.6 0.2 0.1Other Income 0.2 2.0 0.3 0.2

Total Income 100.0% 100.0% 100.0% 100.0%

(1) Net of inter-segment sales

Products Manufactured by BioconIncome from sales of products manufactured by Biocon comprises sales of biopharmaceuticals and enzymes. Biocon’s salesof biopharmaceuticals, in particular statins, have been increasing significantly from the beginning of fiscal 2001 through thefirst nine months of fiscal 2004, both in absolute terms and as a percentage of total income. Sales of statins contributed27.7%, 30.8%, 47.1% and 58.2% of Biocon’s total income for the fiscal years ended 2001, 2002, 2003 and the first nine monthsof fiscal 2004, respectively.

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Throughout the period from the beginning of fiscal 2001 through the first nine months of fiscal 2004, the contribution ofexports in the total sales mix has also been increasing as a percentage of total income. The following table sets out domesticand export sales of biopharmaceuticals and enzymes as a percentage of Biocon’s total income:

Fiscal Year First Nine Monthsof Fiscal Year

2001 2002 2003 2004

Products Manufactured by Biocon

Biopharmaceuticals

Domestic(1) 57.8% 52.8% 43.4% 36.0%

Exports 6.9 16.5 35.0 50.7

Subtotal 64.7% 69.3% 78.4% 86.7%

Enzymes

Domestic(1) 17.6% 16.3% 12.5% 7.6%

Exports 14.8 11.8 8.1 5.3

Subtotal 32.4% 28.1% 20.6% 12.9%

Total

Domestic(1) 75.4% 69.1% 55.9% 43.6%

Exports 21.7 28.3 43.1 56.0

Total Sales 97.1% 97.4% 99.0% 99.6%

(1) Net of inter-segment sales

Statins constitute the largest component of our biopharmaceuticals sales. The following table sets out domestic and exportsales of Biocon’s statins as a percentage of Biocon’s total income:

Fiscal Year First Nine Monthsof Fiscal Year

2001 2002 2003 2004

Statin Sales – Domestic(1)

Lovastatin 1.5% 1.3% 3.2% 6.2%

Simvastatin 14.6 7.3 5.5 1.4

Pravastatin 0.1 0.9 1.0 0.9

Atorvastatin 5.2 6.9 5.6 1.8

Total Statins Domestic 21.4% 16.4% 15.3% 10.3%

Statin Sales – Exports

Lovastatin 4.1% 6.4% 8.8% 7.5%

Simvastatin 1.4 1.8 21.2 38.0

Pravastatin 0.8 5.9 1.2 1.5

Atorvastatin 0.0 0.3 0.6 0.9

Total Statins Export 6.3% 14.4% 31.8% 47.9%

Statin Sales – Total

Lovastatin 5.6% 7.7% 12.0% 13.7%

Simvastatin 16.0 9.1 26.7 39.4

Pravastatin 0.9 6.8 2.2 2.4

Atorvastatin 5.2 7.2 6.2 2.7

Total Statins Sales 27.7% 30.8% 47.1% 58.2%

(1) Net of inter-segment sales

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Export sales are generally more profitable than domestic sales. With respect to biopharmaceuticals, this is primarily the resultof generally better pricing in the regulated markets, sales to which are growing as a percentage of total API export sales. Withrespect to enzyme sales, this is the result of generally stronger pricing in our major export markets.

Generally, after we develop an API, we introduce it into the unregulated markets first, and sell into regulated markets once theproduct goes off patent. Because unregulated markets are generally the most competitive, Biocon’s average price of a productincreases once it is able introduce it into regulated markets. However, regulated market product prices tend to declinesignificantly and often rapidly following expiry or invalidation of patent. In addition, prices of our APIs can fluctuatedramatically, depending on, among other factors, the number of producers and their production volumes and changes indemand in the principal drug markets. Because APIs have become the most significant component of our consolidated totalincome and may continue to grow as a percentage of our consolidated total income, our revenue is significantly and increasinglydependent upon factors affecting API prices – factors that we cannot control.

As exports are principally denominated in U.S. dollars, our income from export sales is subject to changes in the Rupee/U.S.dollar exchange rate. If the Rupee appreciates against the U.S. dollar between the time a sale is booked and the time paymentis received, the Company will recognize a foreign exchange loss. If, on the other hand, the Rupee depreciates against the U.S.dollar between the time a sale is booked and the time payment is received, the Company will recognize a foreign exchangegain. Generally, payment terms on the Company’s products sale range from 30 to 120 days. From May 2, 2002 to December 31,2003, the Rupee has appreciated 7.7% against the U.S. dollar, while prior to that period the Rupee had generally been decliningagainst the U.S. dollar. For more information on the Company’s exchange rate risks and hedging policies, please refer to thesection entitled “Quantitative and Qualitative Disclosure About Market Risk” below on page 115 of this Prospectus.

Sales of Products Traded by Biocon

Sales of traded products comprise income from biopharmaceuticals and enzymes, which are sourced from third-party suppliersand then resold to our customers without alteration of the product.

Research and Development Fees

Research and development fees comprise fees received from clients and customers for research activities on enzymes. Researchactivities are based on contracts that specify the nature of the activity to be carried out, basis of billing, manner of paymentsand are typically in the nature of time and material contracts. Research and development fees are recognised on a monthlybasis as services are rendered in accordance with the terms of the applicable contracts.

Other Income

Other income consists primarily of interest income, dividend income, gain on fixed assets sold or discarded, miscellaneousincome. Other income as a percentage of total income was 0.2%, 2.0%, 0.3% and 0.2% in fiscal 2001, fiscal 2002, fiscal 2003and the first nine months of fiscal 2004, respectively. The increase in fiscal 2002 was the result of a Rs. 26.6 million dividendpaid by Syngene to Biocon.

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Expenses

The following table sets out Biocon’s expenses as a percentage of its total income for the fiscal years ended March 31, 2001,2002 and 2003 and the nine months ended December 31, 2003:

Fiscal Year First NineMonths of Fiscal

2001 2002 2003 2004

Production Cost

Consumption of Raw Materials and Traded Goods 50.9% 50.9% 51.0% 50.6%

Increase (Decrease) in Stocks (3.4) (0.7) (4.0) 0.4%

Sub Total 47.5% 50.2% 47.1% 51.0%

Other Manufacturing Expenses

Power and Fuel 6.0% 5.5% 5.0% 3.3%

Repairs and Maintenance

Plant and Machinery 2.3 1.2 1.6 1.1

Buildings 0.7 0.1 0.4 0.4

Sub Total 9.0% 6.8% 7.0% 4.8%

Staff Cost

Salaries, Wages, Allowances and Bonus 8.0% 9.7% 8.1% 5.1%

Contribution to Provident Fund 0.4 0.4 0.3 0.2

Contribution to Superannuation, Gratuity, Leave Encashment 1.0 1.0 1.1 0.8

Welfare Expenses 0.8 0.8 0.8 0.5

Directors Sitting Fees 0.0 0.0 0.0 0.0

ESOP cost 0.0 0.0 1.3 0.3

Sub Total 10.2% 11.9% 11.6% 6.9%

R&D, Selling and Distribution Expenses 7.0% 6.9% 8.7% 5.6%

Depreciation 5.0 4.6 4.6 2.6

Interest and Finance Charges

Interest Charges 3.2 2.6 1.6 0.1

Bank Charges 0.4 0.3 0.3 0.2

Sub Total 3.6% 2.9% 1.9% 0.3%

Taxes

Provision for Current Tax 2.9% 2.4% 3.5% 5.4%

Provision for Deferred Tax 3.0 1.3 1.8 0.4

Sub Total 5.9% 3.7% 5.3% 5.8%

Total Expenses 88.4% 87.0% 86.2% 77.0%

Increases in statins sales and growth in the share of exports in Biocon’s total sales mix has resulted in higher margins andprofitability. This has reduced the proportion of many expense items relative to total income.

On account of the strong growth in demand for our statins, since January 2003 Biocon faced growing capacity constraints,which have resulted in increased outsourcing of intermediates in the production of biopharmaceuticals. As a result, rawmaterials costs with respect to these products have increased over the corresponding period. Our capital expenditure plansare aimed at expansion of our fermentation and synthetic conversion capacities, principally for statins. However, due to thegrowing demand for statins, planned capacity expansion may not enable us to reduce the outsourcing of intermediates inAPI production and thereby reduce our raw materials costs. We expect that capacity expansion that supplants use of outsourced

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intermediates in our production will lead to increases in both the absolute level of many of our expense line items and theirpercentages of total income, other than raw material costs (which are explained below under the section entitled “—ProductionCosts”). In addition, we expect that depreciation costs will rise significantly with the completion of the new facilitiescontemplated in our capital expenditure plan.

Production Costs

Production costs includes Biocon’s consumption of raw materials and traded goods and increases or decreases in stock.

Because of the strong growth in demand for statins, Biocon has faced growing capacity constraints since the beginning ofthis fiscal year, which have resulted in the Company’s increasing reliance on outsourced intermediates in the production ofstatins and other biopharmaceuticals. As a result, raw materials costs with respect to these products have increased over thecorresponding period. However, the raw materials costs as a percentage of total income over this period has not increaseddue to the growing share of higher margin biopharmaceuticals (especially statins) and exports in Biocon’s sales mix. If, as aresult of capacity expansion, Biocon is able to reduce reliance on outsourced intermediates in biopharmaceutical production,then we expect Biocon’s per unit raw material costs in biopharmaceuticals to decrease.

Raw material costs are to a lesser extent dependent on global petrochemical prices, which in turn often track global oil prices.This is because our biopharmaceutical and enzyme production processes involve the use of many petrochemicals, especiallysolvents such as ethyl acetate, methyl iodide and acetone.

Other Manufacturing Expenses

Other manufacturing expenses comprise power and fuel costs and repairs and maintenance to plant, machinery and buildings.Biocon’s fuel costs relate principally to the purchase of diesel, super kerosene oil and furnace oil, which are used for powerand steam generation. Fuel costs are linked to global oil prices. The effect of oil price increases has been somewhat offset bychanges in the mix of the type of fuel used. However, on account of increased power usage in line with increases in productionour power and fuel costs increased significantly over that period as well, from Rs. 74.8 million in fiscal 2001 to Rs. 128.0million in fiscal 2003. For the first nine months of fiscal 2004, our power and fuel costs were Rs. 121.6 million.

Staff Cost

Staff cost comprises:

■ salaries, wages, allowances and bonuses;

■ contributions to provident fund;

■ contributions to superannuation, gratuity and leave encashment;

■ welfare expenses (including employee insurance schemes, school tuition program and other miscellaneous employeebenefits); and

■ directors sitting fees.

Employee compensation in India has historically been significantly lower than employee compensation in the United Statesand Europe for comparably skilled professionals. However, compensation in India is increasing rapidly, which has resulted inincreased costs for scientists and engineers, managers and other mid-level professionals. Staff costs were Rs. 126.2 million,Rs. 196.5 million, Rs. 297.0 million and Rs. 257.6 million for the fiscal years ended 2001, 2002, 2003 and the first nine months offiscal 2004, respectively. The number of our full-time employees grew from 322 at the beginning of fiscal 2001 to 610 at December31, 2003. We may need to continue to increase the levels of our employee compensation to remain competitive and manageattrition. Please refer to the section entitled “Risk Factors – External Risk Factors” on page xviii of this Prospectus.

Research and Development, Selling and General Expenses

Research and development, selling and general expenses comprise: Royalty and technical know-how fees; rent; travellingand conveyance; communication; professional charges; patent fees; consumables; repairs and maintenance; general expenses;freight outwards; sales promotion; commissions; bad debts write off; provisions for bad and doubtful debts; printing andstationary; insurance; rates, taxes and fees; and losses on sales of assets.

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Depreciation

For more information on our depreciation policies, please refer to the section entitled “Significant Accounting Policies” aboveon page 93 of this Prospectus. Generally, depreciation costs increase when new facilities are added. We expect our depreciationcosts to rise significantly with the completion of the new facilities contemplated in our capital expenditure plan. Please referto the section entitled “Capital Expenditure” below on page 113 of this Prospectus.

Interest and Finance Charges

Our borrowing costs have generally been declining since the beginning of fiscal 2001. Interest and finance charges in fiscal2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004 were Rs. 45.6 million, Rs. 46.9 million, Rs. 49.0 million, andRs. 12.1 million while total debt at the end of those fiscal periods was Rs. 381.8 million, Rs. 665.3 million, Rs. 685.7 million andRs. 650.3 million, respectively.

Taxes

We have been and continue to be eligible for several important tax benefits, including:

■ Under Section 10B of the Indian Income Tax Act, 1961, we are eligible for 100% deduction of profits earned from 100%Export Oriented Units, EOUs; we have enjoyed this benefit for one of our enzyme units from fiscal year 2002 and one ourstatins manufacturing facilities since August 2003, and we expect this benefit to expire in fiscal year 2009; and

■ Partial deduction of profits earned from non-EOU exports and 150% weighted deduction on R&D expenditure undersection 80HHC and Section 35 (2AB) of the Indian Income Tax Act, 1961, respectively. We expect to enjoy benefitsunder section 80HHC up to fiscal year 2004 and benefits under section 35 (2AB) up to fiscal year 2005.

While the statutory tax rates applicable in each fiscal year from 2001 to 2003 and the first nine months of fiscal 2004 were39.6%, 35.7%, 36.8% and 35.9%, respectively, our effective tax rates in those periods were 33.2%, 22.5%, 27.8% and 20.0%,respectively.

Please refer to the section entitled “Statement of Possible Benefits Available to Biocon Limited, Its Subsidiaries and ItsShareholders” beginning on page 264 of this Prospectus for more details on tax benefits.

Net Profit, As Restated

Net profit, as restated, consists of the profit after tax as per the audited statements, adjusted to reflect any extraordinaryitems and adjusted on account of (1) changes in accounting policies and (2) the impact of material adjustments and priorperiod items. Adjustments are mainly on account of change in depreciation policy and leave encashment and accounting ofdeferred tax with effect from fiscal 2002. Expense items discussed below and elsewhere in this section reflect the restatementitems.

Biocon Results of Operations – First Nine Months of Fiscal Year 2004

Income

Biocon’s total income in the first nine months of fiscal 2004 was Rs. 3,724.5 million, 45.8% higher than fiscal 2003’s whole-year total income of Rs. 2,555.2 million. Growth in sales was led by an increase in sales of biopharmaceuticals, in particularstatins. Sales of statins contributed Rs. 2,167.7 million, or 58.2%, of total income in the first nine months of fiscal 2004, comparedwith Rs. 1,202.8 million, or 47.1%, in fiscal 2003. Biopharmaceuticals and enzyme exports contributed Rs. 1,886.2 million, or50.7%, and Rs. 197.4 million, or 5.3%, respectively of total income in the first nine months of fiscal 2004, compared withRs. 893.3 million, or 35.0%, and Rs. 207.5 million, or 8.1%, in fiscal 2003. The growth in volumes and the improved sales mixwere partially offset by the reduction in selling prices of key products.

Expenses

Expenses in the first nine months of fiscal 2004 were Rs. 2,863.5 million, or 76.9%, of total income, compared with 86.2% oftotal income in fiscal 2003.

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Production Cost

Production costs in the first nine months of fiscal 2004 were Rs. 1,896.1 million, or 51.0% of total income, from 47.1% in thefiscal ended March 31, 2003, primarily due to our increasing use of outsourced intermediates in our statin and other APIproduction processes in light of capacity constraints and the reduction in average selling price of key products, offset partiallyby improved sales mix and reduction in average purchase price of certain raw materials.

Other Manufacturing Expenses

Other manufacturing expenses in the first nine months of fiscal 2004 amounted to Rs. 176.1 million, or 4.8% of total income,compared with 7.0% of total income in fiscal 2003. Power and fuel costs in the first nine months of fiscal 2004 amounted toRs. 121.6 million, or 3.3% of total income, compared with 5.0% of total income in fiscal 2003. The fuel cost in absolute termshas been increasing, principally on account of increased usage, partially set off by lower costs per unit of fuel due to changesin the mix of fuel inputs. Repairs and maintenance costs amounted to Rs. 54.6 million, or 1.5% of the total income, comparedto 2.0% in fiscal 2003.

Staff Cost

Staff cost in the first nine months of fiscal 2004 amounted to Rs. 257.6 million, or 6.9% of total income, compared with 11.6%of total income in fiscal 2003. Staff cost as a percentage of total income declined mainly due to growth in sales withoutcorresponding facilities expansion. The number of employees increased from 468 at the beginning of fiscal 2003 to 538 at theend of fiscal 2003 and 610 at the end of the first nine months of fiscal 2004. Staff cost per employee did not change significantly,as increments in salaries were offset by lower incidence of ESOP costs.

Research and Development, Selling and General Expenses

Research and development, selling and general expenditures in the first nine months of fiscal 2004 were Rs. 208.1 million, or5.6% of total income, compared with 8.7% of total income in fiscal 2003. While R&D and selling and general expenses continueto rise, these costs as a percentage of total income declined mainly due to the growth of sales.

Interest and Finance Charges

Interest and finance charges in the first nine months of fiscal 2004 were Rs. 12.1 million, or 0.3% of total income 1.9% for thefiscal 2003. Our interest cost declined mainly due to reduced borrowings and lower borrowing costs.

Depreciation

Depreciation in the first nine months of fiscal 2004 was Rs. 98.1 million, or 2.6% of total income, compared with 4.6% of totalincome in fiscal 2003. While absolute depreciation has been increasing, this cost as a percentage of total income declinedmainly due to growth in sales without corresponding facilities expansion.

Provision for Taxes

Provision for current and deferred taxes in the nine months ended December 31, 2003 was Rs. 215.4 million, or 5.8% of totalincome, compared with 5.3% of total income in fiscal 2003. The reduction in the effective rate from 27.8% of profit before taxin fiscal 2003 to 20.0% of profit before tax in the nine months ended December 31, 2003 is on account of increased effect oftax benefits received on account of export income and R&D expenditure.

Net Profit, As Restated

Net profit, as restated, in the first nine months of fiscal 2004 was Rs. 861.1 million, or 23.1% of total income, compared with13.8% of total income in fiscal 2003.

Biocon Results of Operations – Fiscal Year 2003 Compared to Fiscal Year 2002

Income

Biocon’s total income increased by 54.9% to Rs. 2,555.2 million in fiscal 2003 from Rs. 1,649.3 million in fiscal 2002. Sales ofproducts manufactured and traded by Biocon increased by 58.3% to Rs. 2,542.4 million in fiscal 2003 from Rs. 1,606.2 millionin fiscal 2002. This increase was due primarily to:

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■ a 75.9% increase in income from biopharmaceuticals sales from Rs. 1,142.9 million in fiscal 2002 to Rs. 2,010.0 million infiscal 2003; and

■ a 14.9% increase in income from enzyme sales from Rs. 463.3 million in fiscal 2002 to Rs. 532.4 million in fiscal 2003.

Export sales increased 136.4% from Rs. 465.7 million in fiscal 2002 to Rs. 1,100.8 million in fiscal 2003. This increase resultedmostly from a 246.0% increase in export of statins from Rs. 237.1 million in fiscal 2002 to Rs. 811.0 million in fiscal 2003. Thegrowth in statin sales was led by the commencement of sale of simvastatin in key European markets following the expirationof the simvastatin patent there in the middle of 2003. Exports of simvastatin grew from Rs. 29.3 million in fiscal 2002 toRs. 541.8 million in fiscal 2003. The overall growth in volumes and the improved sales mix offset the reduction in selling pricesof key products.

Other income decreased by 77.2% to Rs. 7.6 million in fiscal 2003 from Rs. 33.3 million in fiscal 2002 primarily because Biocondid not receive any dividend income in fiscal 2003 from Syngene and Clinigene.

Expenses

Production Cost

Production cost increased by 45.2% to Rs. 1,202.3 million in fiscal 2003 from Rs. 828.2 million in fiscal 2002 mainly on accountof increase in production volumes. As a percentage of total income, production cost decreased from 50.2% in fiscal 2002 to47.1% in fiscal 2003. The reduction in production cost as a percentage to total income was primarily on account of improvedsales mix, yield improvement and lower raw material prices.

Other Manufacturing Expenses

Biocon’s other manufacturing expenses increased 59.2% to Rs. 177.4 million in fiscal 2003 from Rs. 111.4 million in fiscal 2002.This increase reflected increased power and fuel costs as well as increase in repairs and maintenance of plant, machinery andbuildings. Higher power and fuel costs were largely due to increased power usage and higher diesel and SKO prices, partiallyoffset by increased use of cheaper SKO.

Staff Cost

Biocon’s staff cost increased by 51.1% to Rs. 297.0 million in fiscal 2003 from Rs. 196.5 million in fiscal 2002. This increasewas largely due to an increase in the number of employees, increase in provision for employee retirement benefits, generalincrease in wages and benefits and amortisation of the employee stock option cost. The amortisation cost amounted toRs. 33.9 million in fiscal 2003 compared to Rs. 0.0 million in fiscal 2002. The number of employees increased from 365 at thebeginning of fiscal 2002 to 468 at the end of fiscal 2002 and 538 at the end of fiscal 2003.

Research and Development, Selling and General Expenses

Research and development, selling and general expenses increased by 97.4% to Rs. 223.1 million in fiscal 2003 from Rs. 113.0million in fiscal 2002 mainly due to the following:

■ a Rs. 37.4 million increase in royalty and technical know how fees primarily due to the Company expensing off certainbought-out technology were there was uncertainty regarding the feasibility of such technology for future use;

■ a Rs. 12.1 million increase in sales promotion expenses resulting primarily from increased vendor discounts;

■ a Rs. 12.8 million increase in general expenses due primarily due to increase in R&D related expenses and social welfareexpenses;

■ a Rs. 8.0 million increase in travelling and conveyance cost, resulting primarily from an increase in marketing efforts ininternational markets;

■ a Rs. 7.2 million increase in commissions corresponding to the increase in sales; and

■ a Rs. 7.3 million increase in lab consumables on account of increase in research activities.

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Interest and Finance Charges

Interest and finance charges increased by 4.5% to Rs. 49.0 million in fiscal 2003 from Rs. 46.9 million in the prior fiscal. Thisincrease reflected an increase in Biocon’s borrowings and higher bank charges partially offset by lower borrowing costs.

Depreciation

Depreciation increased by 54.3% to Rs. 117.1 million in fiscal 2003 from Rs. 75.9 million in fiscal 2002. The increase indepreciation was primarily due to the effect of full-year depreciation in fiscal year 2003 on the new capacities commissionedin January 2002.

Provision for Taxes

Provision for taxes increased by 117.8% to Rs. 136.1 million in fiscal 2003 from Rs. 62.5 million in fiscal 2002, reflecting higherprovisions for both current and deferred taxes. This increase was due principally to an increase in assessable income. Theeffective rate of tax also increased from 22.5% of profits before tax to 27.8% primarily on account of the tax free dividendincome in fiscal 2002 and increase in the statutory corporate income tax rate.

Net Profit, As Restated

Net profit, as restated, increased by 64.3% to Rs. 353.1 million, or 13.8% of total income, in fiscal 2003, from Rs. 214.9 million,or 13.0% of total income, in fiscal 2002.

Biocon Results of Operations – Fiscal Year 2002 Compared to Fiscal Year 2001

Income

Biocon’s total income increased by 33.4% to Rs. 1,649.3 million in fiscal 2002 from Rs. 1,236.0 million in fiscal 2001. Sales ofproducts manufactured and traded by Biocon increased by 31.3% to Rs. 1,606.2 million in fiscal 2002 from Rs. 1,223.1 millionin fiscal 2001. This increase was due primarily to:

■ a 39.7% increase in income from biopharmaceutical sales from Rs. 817.8 million in fiscal 2001 to Rs. 1,142.9 million in fiscal2002; and

■ a 14.3% increase in income from enzyme sales from Rs. 405.3 million in fiscal 2001 to Rs. 463.3 million in fiscal 2002.

Export sales increased 73.8% from Rs. 268.0 million in fiscal 2001 to Rs. 465.7 million in fiscal 2002. This increase resultedmostly from a 204.8% increase in statins exports from Rs. 77.8 million in fiscal 2001 to Rs. 237.1 million in fiscal 2002. Much ofthis growth in statins exports is attributable to increase in sales of lovastatin to the regulated markets, particularly the UnitedStates, following the expiration of the product patents there and, to a lesser extent, sales of pravastatin to unregulated markets.

Other Income

Other income increased by more than 1,485.7% to Rs. 33.3 million in fiscal 2002 from Rs. 2.1 million in fiscal 2001 primarilybecause Biocon received a Rs. 26.6 million dividend payment in fiscal 2002 from Syngene and Clinigene.

Expenses

Production Cost

Production costs increased by 41.1% to Rs. 828.2 million in fiscal 2002 from Rs. 586.9 million in fiscal 2001 primarily due to anincrease in consumption of raw materials and traded goods, as well as a decrease in stocks. As a percentage of total income,production costs increased from 47.5% to 50.2%. This is primarily on account of decreases in selling price, partially offset bydecreased raw material prices, the Syngene dividend payment, improved yields and improved sales mix.

Other Manufacturing Expenses

Biocon’s other manufacturing expenses decreased by 0.5% to Rs. 111.4 million in fiscal 2002 from Rs. 112.0 million in fiscal2001. This decrease reflected decreases in repairs and maintenance of plant, machinery and buildings partially offset byincrease in power and fuel costs from Rs. 74.8 million to Rs. 91.1 million.

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Staff Cost

Biocon’s staff cost increased by 55.7% to Rs. 196.5 million in the fiscal 2002 from Rs. 126.2 million in fiscal 2001. This increasewas largely due to a significant increase in wages and benefits and an increase in the number of employees from 322 at thebeginning of fiscal 2001 to 365 at the end of fiscal 2001 and 468 at the end of fiscal 2002.

Research and Development, Selling and General Expenses

Research and development, selling and general expenses increased by 31.4% to Rs. 113.0 million in fiscal 2002 from Rs. 86.0million in fiscal 2001 due principally to the following:

■ a Rs. 9.3 million increase in travel and conveyance expense, resulting from increased marketing efforts in internationalmarkets;

■ a Rs. 6.3 million increase in freight outwards, sales promotion expenses ad commission charges on account of increasedsales; and

■ a Rs. 1.3 million increase in lab consumables on account of an increase in research activities.

Interest and Finance Charges

Interest and finance charges increased by 2.9% to Rs. 46.9 million in fiscal 2002 from Rs. 45.6 million in fiscal 2001. Thisincrease reflected lower borrowing costs offsetting a significant increase in Biocon’s borrowings.

Depreciation

Depreciation increased by 22.4% to Rs. 75.9 million in fiscal 2002 from Rs. 62.0 million in fiscal 2001. The increase in depreciationwas primarily due to depreciation on new assets capitalised in fiscal year 2002 and the full-year effect of depreciation onassets capitalised in fiscal 2001.

Provision for Taxes

Provisions for taxes decreased by 13.3% from Rs. 72.1 million in fiscal 2001 to Rs. 62.5 million in fiscal 2002. The effective taxrate decreased from 33.2% of profit before tax to 22.5% of profit before tax, primarily on account of the tax free dividendincome in fiscal 2002 and reduction in the statutory corporate income tax rate.

Net Profit, As Restated

Net profit, as restated, increased by 48.0% to Rs. 214.9 million, or 13.0% of total income, in fiscal 2002 from Rs. 145.2, or 11.8%of total income, in fiscal 2001.

SYNGENE RESULTS OF OPERATIONS

Total Income

The following table sets forth the contribution of each component of Syngene’s income expressed as a percentage of Syngene’stotal income for fiscal years 2001, 2002 and 2003 and the first nine months of fiscal 2004:

Fiscal Year First Nine Monthsof Fiscal Year

2001 2002 2003 2004

Net Sales

Contract Research Services 95.4% 89.3% 86.0% 81.6%

Sales of Compounds 2.6 6.8 13.8 16.9

Other Income 2.0 3.9 0.2 1.5

Total Income 100.0% 100.0% 100.0% 100.0%

The substantial majority of Syngene’s total income consists of net sales from contract research services, with the remainderconsisting largely of net sales of compounds developed in synthetic chemistry processes in accordance with customerspecifications. Substantially all of Syngene’s contracts are based on time and material management. Revenue from these

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contracts is recognized as services are rendered, in accordance with the terms of the contracts. Average FTE rates haveincreased steadily from fiscal 2001 through the first nine months of fiscal 2004, with aggregate growth over that period of38.4% (in U.S. dollar terms). Growth in Syngene’s sales has also been the result of growth in the number of Syngene’s volumeof business as measured in the number of billable man-years.

Substantially all of Syngene’s research services and compound sales are priced in U.S. dollars and are therefore subject tochanges in the Rupee/U.S. dollar exchange rate. If the Rupee appreciates against the U.S. dollar between the time a revenueis booked and the time payment is received, Syngene will recognize a foreign exchange loss. If, on the other hand, the Rupeedepreciates against the U.S. dollar between the time revenue is booked and the time payment is received, Syngene will recognizea foreign exchange gain. From May 31, 2002 to December 31, 2003, the Rupee has appreciated 7.7% against the U.S. dollar,while prior to that period the Rupee had generally been declining against the U.S. dollar.

Expenses

The following table sets out Syngene’s expenses as a percentage of its total income for the fiscal years 2002, 2001 and 2003and the first nine months of fiscal 2004:

Fiscal Year First Nine Monthsof Fiscal Year

2001 2002 2003 2004

Contract Research Cost

Raw Material Consumed 25.2% 27.4% 25.8% 20.1%

Increase/Decrease in Stocks 0.0 0.0 0.0 0.0

Sub Total 25.2% 27.4% 25.8% 20.1%

Staff Cost

Salaries, Wages, Allowances and Bonus 20.3% 27.0% 22.8% 21.8%

Contribution to Provident Fund 1.0 1.3 1.0 0.9

Contribution to Superannuation, Gratuity, 1.6 2.3 2.9 1.9Leave Encashment

Welfare Expenses 1.0 0.9 0.7 0.8

Directors Sitting Fees 0.0 0.0 0.0 0.0

Sub Total 23.9% 31.5% 27.4% 25.4%

Other Contract Research Expenses 2.8% 6.5% 3.5% 2.4%

Other Selling and General Expenses

Rent 0.8% 0.6% 0.3% 0.3%

Travelling and Conveyance 2.6 1.9 1.8 1.3

Communication 1.7 1.3 0.4 0.3

Professional Charges 0.5 0.4 0.3 0.2

Repairs and Maintenance 2.7 1.3 1.0 0.9

Others 2.8 1.8 1.3 1.0

Sub Total 11.1% 7.3% 5.1% 4.0%

Depreciation 7.1% 6.6% 5.9% 5.7%

Interest and Finance Charges

Interest Charges 0.4% 0.2% 0.2% 0.0%

Bank Charges 0.3 0.4 0.2 0.1

Sub Total 0.7% 0.6% 0.4% 0.1%

Taxes

Provision for Current Tax 0.8% 1.3% 3.1% 0.8%

Provision for Deferred Tax (Credit) (1.6) 0.2 0.1 0.1

Sub Total (0.8)% 1.5% 3.2% 0.9%

Total Expenses 70.0% 81.4% 71.3% 58.6%

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Most of Syngene’s expenses are comprised of raw materials costs and staff costs. Raw material costs consist of lab consumablesused for research. Syngene’s staff costs increase in direct proportion to billings adjusted for increase/decrease in averagebillings per employee and increase in staff cost per employee for the same reasons that Biocon’s are. Please refer to thesection entitled “Biocon Results of Operations – Expenses – Staff Costs” above on page 102 of this Prospectus.

Other contract research expenses are largely power costs billed by Biocon to Syngene and repairs and maintenance.

Net Profit, As Restated

Net profit, as restated, consists of the profit after tax as per the audited statements, adjusted to reflect any extraordinaryitems and adjusted on account of (1) changes in accounting policies and (2) the impact of material adjustments and priorperiod items. These restatement items mainly pertain to depreciation and staff costs. Expense items discussed below andelsewhere reflect the restatement items.

Syngene Results of Operations – First Nine Months of Fiscal Year 2004

Total Income

Syngene’s total income in the nine months ended December 31, 2003 was Rs. 261.8 million. Sales of contract research servicestotalled Rs. 213.8 million, or 81.6% of total income, and sales of compounds totalled Rs. 44.2 million, or 16.9% of total income,in the first nine months of fiscal 2004, compared with 86.0% and 13.8%, respectively, in fiscal 2003.

Expenses

Consumption of Raw Materials

Consumption of raw materials in the first nine months of fiscal 2004 was Rs. 52.7 million, or 20.1% of total income, comparedwith 25.8% of total income in fiscal 2003. This percentage decrease was primarily due to higher income realisation on a perscientist basis and better project management.

Staff Cost

In the first nine months of fiscal 2004, staff cost amounted to Rs. 66.6 million, or 25.4% of Syngene’s total income, comparedwith 27.4% of total income in fiscal 2003. This percentage decrease was primarily due to higher realisation per scientist. Thenumber of employees increased from 124 at the beginning of fiscal 2003 to 182 at the end of fiscal 2003 to 220 at the end ofthe first nine months of fiscal 2004.

Other Contract Research Expenses

In the first nine months of fiscal 2004, other contract research expenses amounted to Rs. 6.3 million, or 2.4% of Syngene’stotal income, compared with 3.5% of total income in fiscal 2003. This cost as a percentage of total income declined due to adisproportionate increase in revenues.

Other Selling and General Expenses

Other selling and general expenses in the first nine months of fiscal 2004 was Rs. 10.3 million, or 4.0% of Syngene’s totalincome, compared with 5.1% of total income in fiscal 2003. This percentage decrease was primarily due to lower:

■ travelling and conveyance costs;

■ repairs and maintenance;

■ communications expenses; and

■ miscellaneous expenses;

which were slightly offset by higher insurance costs and rates, taxes and fees.

Interest and Finance Charges

Interest and finance charges in the first nine months of fiscal 2004 were Rs. 0.3 million, or 0.1% of Syngene’s total income,compared to 0.5% of total income in fiscal 2003. This decrease is on account of lower borrowings and the decline in interestrates.

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Depreciation

Depreciation in the first nine months of fiscal 2004 was Rs. 15.0 million, or 5.7% of Syngene’s total income, compared to 5.9%of total income in fiscal 2003.

Provision for Taxes

Provision for current and deferred taxes in the first nine months of fiscal 2004 was Rs. 2.4 million. As a percentage of totalincome, these provisions decreased to 0.9% in the first nine months of fiscal 2004 from 3.2% for fiscal 2003, primarily becauseof higher sales to the domestic tariff area in fiscal 2003, on which tax is applicable.

Net Profit, As Restated

Net profit, as restated, in the first nine months of fiscal 2004 was Rs. 108.1 million. This figure as a percentage of total incomeincreased to 41.3% in the first nine months of fiscal 2004 from 28.6% in fiscal 2003.

Syngene Results of Operations – Fiscal Year 2003 Compared to Fiscal Year 2002

Income

Syngene’s total income in fiscal 2003 increased by 71.1% to Rs. 261.8 million from Rs. 153.0 million in fiscal 2002, primarily dueto a Rs. 88.6 million increase in net sales from contract research activities and a Rs. 25.6 million increase in net sales ofcompounds. At the same time, other income declined from Rs. 5.9 million to Rs. 0.6 million primarily due to lower interestincome. During this period Syngene established a new facility, increased the number of its clients, the number of its researchersand its average realisation per researcher.

Expenses

Consumption of Raw Materials

Consumption of raw materials increased by 61.0% from Rs. 41.9 million in fiscal 2002 to Rs. 67.5 million in fiscal 2003, primarilydue to the increase in sales. Consumption of raw materials, however, declined as a percentage of revenues from 27.4% oftotal income in fiscal 2002 to 25.8% in fiscal 2003 primarily due to higher income realisation on a per researcher basis andbetter project management.

Staff Cost

Staff cost increased by 48.3% to Rs. 71.8 million in fiscal 2003 from Rs. 48.4 million in fiscal 2002, largely due to an increase inthe number of employees from 101 at the beginning of fiscal 2002 to 124 at the end of fiscal 2002 to 182 at the end of fiscal2003, increase in provision for employee retirement benefits and general increases in wages and benefits. However, staff costas a percentage of total income declined from 31.6% in fiscal 2002 to 27.4% in fiscal 2003. This percentage decrease wasprimarily due to the increase in realisation per researcher.

Other Contract Research Expenses

Other contract research expenses decreased by 7.0% to Rs. 9.2 million in fiscal 2003 from Rs. 9.9 million in fiscal 2002 primarilydue to a decrease in maintenance costs of plant, machinery and, to a lesser extent, buildings, which offset an increase inpower and fuel costs.

Other Selling and General Expenses

Other selling and general expenses increased by 19.6% to Rs. 13.4 million in fiscal 2003 from Rs. 11.2 million in fiscal 2002,primarily due to higher:

■ travelling and conveyance expense;

■ repairs and maintenance; and

■ freight outwards

which were partially offset by lower communication expense.

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Interest and Finance Charges

Interest and finance charges in fiscal 2003 increased by 44.4% to Rs. 1.3 million from Rs. 0.9 million in fiscal 2002 largely as aresult of an increase in bank charges.

Depreciation

Depreciation in fiscal 2003 increased by 52.5% to Rs. 15.4 million from Rs. 10.1 million in fiscal 2002, primarily due to depreciationfor full year on additions of Rs. 16.4 million to gross block in 2002 and part year depreciation on additions of Rs. 71.3 millionin fiscal 2003.

Provision for Taxes

Provision for current and deferred taxes in fiscal 2003 increased to Rs. 8.4 million from Rs. 2.3 million in fiscal 2002, primarilyon account of higher sales to the domestic tariff area in fiscal 2003, on which tax is applicable.

Net Profit, As Restated

Net profit, as restated, in fiscal 2003 increased by 165.2% to Rs. 74.8 million from Rs. 28.2 million in fiscal 2002. This figure asa percentage of total income increased to 28.6% in fiscal 2003 from 18.4% in fiscal 2002.

Syngene Results of Operations – Fiscal Year 2002 Compared to Fiscal Year 2001

Income

Syngene’s total income in fiscal 2002 increased by 37.7% to Rs. 153.0 million from Rs. 111.1 million in fiscal 2001, due to aRs. 30.6 million increase in net sales from contract research activities, a Rs. 7.5 million increase in net sales of compounds anda Rs. 3.8 million increase in interest and other income.

Expenses

Consumption of Raw Materials

Consumption of raw materials increased by 49.6% to Rs. 41.9 million in fiscal 2002 from Rs. 28.0 million in fiscal 2001 primarilydue to the increase in sales. In addition, consumption of raw materials as a percentage of net revenues increased from 25.2%to 27.4% mainly on account of expansion of operations and the establishment of a new laboratory resulting in increasedexpenditure on consumables.

Staff Cost

Staff cost increased by 82.6% to Rs. 48.4 million in fiscal 2002 from Rs. 26.5 million in fiscal 2001, largely due to an increase inthe number of employees from 63 at the beginning of fiscal 2001 to 101 at the end of fiscal 2001 to 124 at the end of fiscal 2002and a significant increase in wages and benefits.

Other Contract Research Expenses

Other contract research expenses increased by 219.4% to Rs. 9.9 million in fiscal 2002 from Rs. 3.1 million in fiscal 2001primarily due to increase in power and fuel costs. Power and fuel had earlier been charged on an ad hoc basis but began tobe charged on the basis of actual consumption of units from fiscal 2002 resulting in a Rs. 3 million increase in power and fuelcosts in fiscal 2002 over fiscal 2001. Maintenance costs of plant and machinery increased from Rs. 1.2 million in fiscal 2001 toRs. 5.4 million in fiscal 2002.

Other Selling and General Expenses

Other selling and general expenses decreased by 8.9% to Rs. 11.2 million in fiscal 2002 from Rs. 12.3 million in fiscal 2001,primarily due to lower:

■ repairs and maintenance - others; and

■ miscellaneous expenses

which were offset by smaller increases in a number of other selling and general expenses.

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Interest and Finance Charges

Interest and finance charges in fiscal 2002 increased slightly to Rs. 0.9 million from Rs. 0.8 million in fiscal 2001, primarily onaccount of an increase in bank charges in line with the growth of the business.

Depreciation

Depreciation in fiscal 2002 increased by 27.8% to Rs. 10.1 million from Rs. 7.9 million in fiscal 2001, primarily due to depreciationof Rs. 1.4 million on additional gross block of Rs. 16.4 million during fiscal 2002.

Provision for Taxes

Provision for current and deferred taxes in fiscal 2002 increased to Rs. 2.3 million from negative Rs. 0.9 million in fiscal 2001,primarily on account of the tax impact of higher other income in fiscal 2002.

Net Profit, As Restated

Profit after tax in fiscal 2002 decreased by 15.6% to Rs. 28.2 million from Rs. 33.4 million in fiscal 2001. Profit after tax as apercentage of total income decreased to 18.4% in fiscal 2002 from 30.0% in fiscal 2001.

CLINIGENE RESULTS OF OPERATIONS

Income

Clinigene’s total income principally consists of net sales from clinical research fees. Clinigene enters into either time andmaterial management contract arrangements and/or fixed price arrangements. Revenues from time and material managementtype contracts are recognized on a monthly basis as services are rendered in accordance with the terms of the applicablecontracts. Revenues from fixed price contracts are recognized based on the percentage completion method. Until August2002, most of Clinigene’s revenue came from its contract with Surromed Corporation of the United States to conduct anextensive longitudinal study of Type II diabetes patients in India in an effort to identify new disease biomarkers. This contractwas terminated in August 2002.

Expenses

Clinigene’s expenses comprise: Research material costs; staff cost; other contract research expenses; other expenses; interest;depreciation; and provisions for current and deferred taxes.

Clinigene Results of Operations – First Nine Months of Fiscal Year 2004

Income

Income from contract research fees recorded as net sales in the nine months ended December 31, 2003 was Rs. 1.4 million andaccounted for over 99.6% of Clinigene’s total income.

Expenses

For the nine months ended December 31, 2003, Clinigene’s total expenses (including interest, depreciation and tax provisions)amounted to Rs. 20.4 million. The two largest components of Clinigene’s expenses were:

■ Staff cost, which accounted for 32.8% of total expenses in this period, up from 17.9% in fiscal 2003, reflecting an increasein the number of employees from 4 at the beginning of fiscal 2003 to 10 at the end of fiscal 2003 to 22 at the end of thefirst nine months of fiscal 2004; and

■ Other contract research expenses (primarily consultancy fees), which accounted for 29.7% of total expenses in the firstnine months of fiscal 2004 as compared to 45.8% of expenses in fiscal 2003.

Loss After Tax

Loss after tax in the first nine months of fiscal 2004 was Rs. 19.0 million.

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Clinigene Results of Operations – Fiscal Year 2003 Compared to Fiscal Year 2002

Income

Clinigene’s total income in fiscal 2003 declined by 58.4% to Rs. 11.1 million from Rs. 26.7 million in fiscal 2002, primarily due tothe termination of the Surromed contract in August 2002.

Expenses

Clinigene’s total expenses decreased by 9.3% to Rs. 16.6 million in fiscal 2003 from 18.3 million in fiscal 2002, primarily due todecreases in research material costs and provision for current taxes, which were only partially offset by increased consultancyfees and staff costs.

Loss After Tax

Loss after tax in fiscal 2003 was Rs. 5.6 million as compared to an after tax profit of Rs. 8.4 million in fiscal 2002.

Clinigene Results of Operations – Fiscal Year 2002 Compared to Fiscal Year 2001 (From Commencement of Reporting onAugust 4, 2001)

Income

Clinigene’s total income in fiscal 2002 increased by 621.6% to Rs. 26.7 million from Rs. 3.7 million during the period August 4,2000 to March 31, 2001, primarily because of the full year effect of billing in fiscal 2002 as against fiscal 2001 and increase inthe fees from the Surromed contract in fiscal 2002.

Expenses

Clinigene’s total expenses increased by 357.5% to Rs. 18.3 million in fiscal 2002 from 3.8 million during the period August 4,2000 to March 31, 2001, primarily because of increases in research material costs, consultancy fees, staff costs and variousother expenses (including professional charges and repairs and maintenance), which were partially offset by decreases intravel and other miscellaneous expenses. Also, fiscal 2002 reflected full year operations.

Profit After Tax

In fiscal 2002, Clinigene recorded a profit after tax of Rs. 8.4 million as compared to a loss after tax of Rs. 0.2 million for theperiod August 4, 2000 to March 31, 2001.

BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED

Biocon Pharmaceuticals Private Limited was incorporated in India on June 17, 2002 by Biocon and its joint venture partner,CIMAB S.A., a Cuban biotechnology company, to develop, produce and sell into the Indian market certain biologicals, includingerythropoietin, granulocite colony stimulating factor and a monoclonal antibody for the treatment of head and neck cancers,and to conduct research and development activities. Biocon owns a 51% interest in Biocon Biopharmaceuticals, while CIMABowns the remaining 49%.

To date, Biocon Pharmaceuticals remains in a development stage, and is currently in the process of establishing productionfacilities in Bommasandra, Bangalore. Biocon has acquired land at Bommasandra, part of which may be used by BioconPharmaceuticals. Biocon Pharmaceuticals seeks to commence production during fiscal 2006. Please refer to the section entitled“Capital Expenditure” below on page 113 and the section entitled “Business – Manufacturing and Facilities – Future Facilities”on page 60 of this Prospectus. To date, our investment in this joint venture has been nominal. Biocon Limited is responsiblefor the full financing of Biocon Biopharmaceuticals’ proposed production facilities. In this regard, Biocon Limited is requiredto make a US$5.1 million equity investment in Biocon Biopharmaceuticals and arrange or guarantee debt financing for BioconBiopharmaceuticals for the balance of the investment. We have not yet determined the capital expenditure requirements ofthis company, although Biocon’s board of directors has given preliminary approval for financing capital expenditures of upto Rs. 850.0 million for the joint venture.

In our consolidated financial statements under Indian GAAP, Biocon Biopharmaceuticals is consolidated using theproportionate consolidation method, while in our consolidated financial statements under US GAAP, Biocon Biopharmaceuticalsis accounted for using the equity method.

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SEASONALITY, INFLATION AND INTERCOMPANY ITEMS

Seasonality has not had a significant impact on the results of operations of any of Biocon, Syngene or Clinigene. Duringfiscal years 2002, 2003 and from the period March 31, 2003 to July 31, 2003, the All India Wholesale Price Index (all commodities)increased by 3.6%, 3.4% and 4.0% respectively. Inflation has not had a significant effect on our results of operations to date.

During the period from the beginning of fiscal 2001 through the first nine months of fiscal 2004, other than the Rs. 26.6 milliondividend paid by Syngene to Biocon in 2002, intercompany items involving Biocon, Syngene, Clinigene and/or BioconBiopharmaceuticals which would be eliminated in a consolidation of the companies were not significant.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs have been to finance our working capital requirements and our capital expenditures. To fundthese costs, we have relied principally on cash flows from operations and short-term and long-term borrowings.

Net Working Capital

As of March 31, 2003 and December 31, 2003, our consolidated restated net working capital, defined as the difference betweencurrent assets and current liabilities, under Indian GAAP was Rs. 690.8 million and Rs. 1,047.3, respectively.

Cash Flows

The table below summarizes our consolidated cash flows under Indian GAAP for fiscal 2002 and 2003 and the first ninemonths of fiscal 2004:

Fiscal Year First Nine Months of Fiscal Year

2003 (Rs. million) 2004 (Rs. million)

Net Cash Generated from Operating Activities Rs. 495.7 Rs. 774.2

Net Cash Used for Investing Activities (453.4) (718.4)

Net Cash Generated from (Used in) Financing Activities (34.6) (61.0)

Net Increase/(Decrease) in Cash and Cash Equivalents Rs. 7.7 Rs. (5.2)

As of December 31, 2003, consolidated cash and cash equivalents amounted to Rs. 21.2 million. The principal sources ofconsolidated cash and cash equivalents in the first nine months of fiscal 2004 were cash flows from operations amounting toRs. 774.2 million and drawings under short term borrowings from banks of Rs. 113.4 million and deferred sales tax credit ofRs. 59.8 million. These funds were used principally for purchases of fixed assets of Rs. 640.2 million, repayments of secureddebt of Rs. 208.6 million and net purchases of investments of Rs. 92.1 million.

As of March 31, 2003, consolidated cash and cash equivalents amounted to Rs. 26.3 million. The principal sources ofconsolidated cash and cash equivalents in fiscal 2003 were cash flows from operations amounting to Rs. 495.7 million, drawingsunder secured loans of Rs. 52.6 million and deferred sales tax credits of Rs. 47.5 million. These funds were used principally forpurchases of fixed assets of Rs. 407.6 million, purchases of investments of Rs. 50 million, repayment of unsecured debt ofRs. 50 million and payments of interest of Rs. 50.2 million.

Operating Activities

On a consolidated basis under Indian GAAP, net cash flows from operating activities for the nine months ended December31, 2003 exceeded net cash flows from operating activities for the whole of fiscal 2003 by Rs. 278.5 million, or 56.2%. Ourincreasing consolidated cash flows from operations largely reflect the strong growth in sales of our highly profitablebiopharmaceuticals, especially statins, the growing share of exports, which are generally more profitable, in Biocon’s salesmix.

Investing Activities

On a consolidated basis under Indian GAAP, during the first nine months of fiscal 2004, consolidated net cash used ininvesting activities amounted to Rs. 718.4 million, as compared to Rs. 453.4 million for the fiscal 2003. During the first ninemonths of fiscal 2004, consolidated cash used in investing activities was used primarily for Biocon’s purchase of Rs. 570.5million of fixed assets and Syngene’s net purchase of Rs. 92.1 million of investments. Similarly, during fiscal 2003, consolidatedcash flows used in investing activities were used primarily to fund Biocon purchases of fixed assets and Syngene investmentpurchases.

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Financing Activities

On a consolidated basis under Indian GAAP, during the first nine months of fiscal 2004, we used net cash of Rs. 61.0 millionfor financing activities, primarily by Biocon. During this period Biocon used net cash of Rs. 60.8 million for financing activities,reflecting repayments of Rs. 208.6 million of higher cost long-term secured debt and interest payments of Rs. 25.4 million thatwere partially offset by drawings of Rs. 113.4 million of short-term debt and Rs. 59.8 million of deferred sales tax credit.

During fiscal 2003, net cash used for financing activities on a consolidated basis under Indian GAAP amounted to Rs. 34.6million, reflecting repayment of significant amounts of long and short-term borrowings facilitated by increased cash flowfrom operations.

Capital Expenditure

Our operations, especially Biocon’s biopharmaceuticals and enzymes businesses, require significant capital expenditures tomaintain and increase capacity. Our consolidated capital expenditures for fiscal 2003 and the first nine months of fiscal 2004were Rs. 403.3 million and Rs. 606.0 million, respectively. These expenditure were in line with our plans for those periods. Inconnection with the planned facilities expansions described under “Business – Manufacturing and Facilities – Future Facilities”as well as other planned expenditures, Biocon’s board of directors has approved Group capital expenditures totallingRs. 1,200.0 million in fiscal 2004, Rs. 4,200.0 million in fiscal 2005 and Rs. 1,100.0 million in fiscal 2006.

As of December 31, 2003, we had already spent Rs. 202.5 million on the new facilities for statins production and Rs. 282.6million on the new purification facility for human recombinant insulin. We intend to fund our capital expenditures in the nextthree years from a combination of our existing cash, cash flows from operations, proceeds from the Issue, drawings underour new term loans and, possibly, other debt.

The figures in our capital expenditure plans are based on management estimates and have not been appraised by anindependent organisation. In addition, our capital expenditure plans are subject to a number of variables, including possiblecost overruns; construction/development delays or defects; receipt of critical governmental approvals including approvalsof drug regulators in our target markets; availability of financing on acceptable terms; and changes in management’s views ofthe desirability of current plans, among others. We cannot assure you that we will be able to execute our capital expenditureplans as contemplated.

Contractual Obligations, Including Long-term Debt

The following table discloses our contractual and other obligations that were outstanding as of December 31, 2003:

Payments Due By Period (Rs. millions)

Total Within 1 year 2-3 years 4-5 years After 5 years

Long-term Debt Obligations 260.3 21.6 43.2 32.2 163.3

Capital Lease Obligations

Operating Lease Obligations 3.7 1.1 2.2 0.4

Purchase Obligations Not Recorded as Liabilities(1) 1,424.8 1,424.8

Other Long-term Liabilities(2) 32.4 32.4

Total Rs. 1,721.2 Rs. 1,448.1 Rs. 46.6 Rs. 30.8 Rs. 195.7

(1) These purchase obligations relate to purchases of raw materials, consumables and capital goods, for items not yet received.

(2) Excludes deferred income tax

Debt Obligations and Facilities

Key terms of our outstanding indebtedness facilities are as follows:

Secured Loans – Short-Term and Working Capital Loan Facilities

On January 16, 2002, Biocon renewed Rs. 130,000,000 of rupee and foreign currency denominated fund based working capitalfacilities with State Bank of India. These facilities are repayable on demand, secured by the hypothecation of inventories andreceivables and carry an interest rate of 2.1% p.a. for foreign currency denominated loans and 7.5% p.a. to 12.25% p.a. forrupee loans. There were no amounts outstanding under these facilities as of December 31, 2003. This facility is pending ofrenewal.

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On January 21, 2004, Biocon renewed its total rupee and foreign currency denominated working capital facilities with HSBCfor Rs. 395,000,000. These facilities are repayable on demand, secured by the hypothecation of inventories and book debtand carry an interest rate of 2% p.a. for foreign currency denominated loans and 6% p.a. to 15% p.a. for rupee loans. Bioconhad utilised Rs 171.2 million as of December 31, 2003, inclusive of foreign currency denominated loans of Rs. 100.3 million(US$ 2.2 million).

On February 25, 2003, Biocon renewed a Rs. 130,000,000 working capital facility with Canara Bank. Foreign currency denominatedloans under this facility carry an interest rate of LIBOR plus 0.75% per annum and Rupee loans carry and interest rate of 8%to 11.75%. The interest rate payable on amounts drawn is fixed on the date of drawdown and are subject to reset on rollover/renewal dates. Amounts outstanding under this facility are repayable on demand and are secured by the hypothecation ofBiocon’s inventories, book debt. As of December 31, 2003 Rs. 127.7 million was outstanding under this facility, of whichRs. 127.6 million was denominated in US Dollars. This facility falls due for renewal in February 2004.

On June 30, 2003, Biocon entered into a US$ 2.0 million revolving working capital facility with Exim Import Bank of India(“EXIM Bank”). Amounts drawn under this facility carry an interest rate of LIBOR plus 0.75% or plus 1.00% and are repayableon demand. This facility is secured by a hypothecation of all of Biocon’s present and future current assets. As of December31, 2003, US$ 2.0 million was outstanding under this facility. This facility falls due for renewal in June 2004. On January 30,2004, Biocon has also accepted an additional revolving working capital facility for US$ 5.0 million with EXIM Bank, securedby hypothecation of all of Biocon’s present and future current assets.

Secured Loans – Long-Term Loan Facilities

On July 3, 2002, Biocon entered into a Rs. 100,000,000 term loan facility with the Technology Development Board to fundBiocon’s acquisition of the PlaFractorTM plant. Loans drawn under this facility are repayable in nine equal instalmentscommencing from February 2004. These loans carry an interest rate of 5% per annum and are secured by a first priority paripassu charge on all of Biocon’s fixed assets and a personal guarantee of Biocon’s Managing Director. As of December 31,2003, Biocon had drawn Rs. 97.0 million under the above facility.

Unsecured Loans and Liabilities for Deferred Payments

On November 18, 2000 Biocon obtained an order from Karnataka Sales Tax Authority under the Agro Food Processing IndustrialPolicy of the Government of Karnataka allowing it to defer payment of sales tax (including turnover tax) for a period of up to12 years from February 9, 2000 without interest with respect to sales from its Hebbagodi manufacturing facility. Under theOrder, the amount of sales tax that may be deferred is not to exceed Rs. 648,938,000. As of December 31, 2003, Biocon hadutilized Rs. 162.4 million of this amount.

On November 18, 2000, Biocon obtained an order from Karnataka Sales Tax Authority under the Industrial Policy of theGovernment of Karnataka allowing it to defer payment of sales tax (including turnover tax) for a period of up to eight yearsfrom February 4, 1998 without interest with respect to sales from its Bommasandra manufacturing facility. Under the Order,the amount of sales tax that may be deferred is not to exceed Rs. 24,375,000. As of December 31, 2003 Biocon had utilisedRs. 0.9 million of this amount.

On May 29, 2003 Biocon entered into a Rs. 50,000,000 Project Agreement financed by ICICI Bank Limited under the SponsoredResearch and Development Program to fund Biocon’s research into the production of recombinant human insulin on acommercial scale. Amounts drawn under the facility carry an interest rate of 6% and are repayable in 10 semi-annual instalmentsbeginning April 1, 2004. As of December 31, 2003, we had not yet drawn down on this facility.

New Term Loans

We have received a revocable sanction from ABN AMRO Bank N.V., The Hong Kong and Shanghai Banking CorporationLimited and Rabo India for a new 4-1/2-year US$ 20,000,000 term loan within the next two months. The loan, which we mayuse for capital expenditure, would be repayable in seven equal semi-annual instalments beginning 18 months from the datethe loan is funded. The loan would bear interest at LIBOR plus 1.40% and contain covenants, including, financial covenants.This loan would be secured by a first priority pari passu mortgage and charge on all of Biocon’s fixed assets. This loanwould constitute an External Commercial Borrowing, or ECB, for RBI purposes.

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We have received a revocable sanction from Canara Bank for a Rs. 500,000,000 five-year term loan. If we decided to take thisloan, we could use the funds for capital expenditure for capacity expansion. The loan would bear interest at applicable sixmonth LIBOR plus 2.25%. We expect that there would be a payment moratorium on the loan for the first 18 months, afterwhich quarterly payments would be required. This loan would be secured by a first priority pari passu mortgage and chargeon all of Biocon’s fixed assets.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2003, we were not a financial guarantor of obligations of any unconsolidated entity, and we were not aparty to any similar off-balance sheet obligation or arrangement.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to market risk from changes in foreign exchange rates, interest rates and certain commodity prices. Thefollowing discussion is based on our consolidated financial statements under Indian GAAP.

Exchange Rate Risk

We face exchange rate risk to the extent that our income and expenses are denominated in currencies other than Indianrupees. In the first nine months of fiscal 2004 and in fiscal 2003 we had foreign exchange income equivalent to Rs. 2,303.2million and Rs. 1,354.9 million, respectively, and foreign exchange expenditure equivalent to Rs. 1,557.9 million and Rs. 876.4million, respectively. Substantially all of our export sales, as well as Syngene’s and Clinigene’s income, are denominated inU.S. dollars, while a substantial portion of our capital expenditures, raw material, and fuel costs and certain of our indebtednessare denominated in US dollars. Some of our raw materials and capital expenditures are also priced in Euro. We also typicallyhave borrowings denominated in US dollars. As of December 31, 2003 and March 31, 2003, our consolidated US dollar-denominated debt was US$ 7.0 million and US$ 6.7 million, respectively.

Appreciation or depreciation of the Indian rupee relative to the U.S. dollar can cause us to recognize foreign exchange losses.As exports are principally denominated in U.S. dollars, our income from export sales is subject to changes in the Rupee/U.S.dollar exchange rate. From May 31, 2002 to December 31, 2003, the Rupee has appreciated 7.7% against the U.S. dollars, whileprior to that period the Rupee had been declining against the U.S. dollar. If the Rupee appreciates against the U.S. dollarbetween the time a sale is booked and the time payment is received, we will recognize a foreign exchange loss.

In accordance with our exchange rate hedging policy, which permits us to maintain up to US$20 million of unhedged exposureto US dollars, we enter into Rupee forward purchase contracts to mitigate the risk of changes in foreign exchange rates onaccounts receivable. Generally, the counterparty to these contracts is a bank. As of December 31, 2003, we had entered intoRupee forward purchase contracts (sell U.S. dollars) aggregating Rs. 589.3 million at an average rate of Rs. 45.69 per U.S.dollar. All of these contracts mature before March 2004.

Interest Rate Risk

We bear interest rate risk to the extent our indebtedness accrues interest at fluctuating rates. As of December 31, 2003, wehad no floating rate long-term debt outstanding.

Commodity Price Risk

We are subject to market risk with respect to commodity prices because prices of our biopharmaceuticals – largely commodityproducts – can fluctuate dramatically, depending on, among other factors, the number of producers and their productionvolumes and changes in demand in the principal drug markets. In addition, our biopharmaceuticals sales into the regulatedmarkets occur typically after the expiration or invalidation of product patents related to those products. During this timeprices typically decline significantly and often rapidly, resulting in lower profit margins over time. Because biopharmaceuticalshave become the most significant component of our consolidated total income and continue to grow as a percentage of ourconsolidated total income, our revenue is significantly and increasingly dependent upon factors affecting biopharmaceuticalprices. We also purchase biopharmaceuticals and certain intermediates as inputs in our biopharmaceutical production processes.Prices of these biopharmaceuticals and intermediates are also subject to commodity price risk.

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In addition, our raw material costs are to a certain extent dependent on global petrochemical prices, which in turn often trackglobal oil prices. Our biopharmaceutical and enzyme production processes involve the use of many petrochemicals, especiallysolvents such as ethyl acetate, methanol and acetone. As global petrochemical prices increase, our petrochemical input costsalso increase.

Our fuel costs, which relate principally to the purchase of diesel and super kerosene oil for use in our power generators, arelinked to global oil prices. As global oil prices increase, our fuel costs increase.

In the normal course of business, we purchase these petrochemical and oil products under spot supply contracts based onprevailing market conditions.

Certain of our other raw materials and other costs are subject to fluctuation based on commodity prices. We do not use anyderivative financial instruments or futures contracts to hedge our exposure to fluctuations in commodities prices.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

Annexure III to our restated unconsolidated and restated consolidated financial statements under Indian GAAP describerecent accounting pronouncements that have already had a significant effect on our financial reporting.

The following are accounting pronouncements that are yet to take effect:

Accounting for Impairment of Assets

On May 30, 2002, the Institute of Chartered Accountants of India (the “ICAI”) issued Accounting Standard 28, on “Impairmentof Assets” (”AS 28”) which prescribes the procedures that an enterprise should apply to ensure that its assets, other thaninventories, assets arising from construction contracts, financial assets and deferred tax assets, which are dealt in separateaccounting standards, are carried at no more than their recoverable amount. An asset is carried at more than its recoverableamount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, theasset is described as impaired and this Standard requires the enterprise to recognise an impairment loss. This Standard alsospecifies when an enterprise should reverse an impairment loss/under statement.

AS 28 comes into effect for various different categories of enterprises on a staggered basis effective from the fiscal yearbeginning from April 1, 2004 through to April 1, 2008 and is mandatory in nature from the effective date. AS 28 shall be effectivefor the Biocon Group from the fiscal year beginning April 1, 2004. Based on our assets as of December 31, 2003, we do notbelieve that this accounting standard would have a material impact on our financial statements.

Accounting for the Effects of Changes in Foreign Exchange Rates

On February 21, 2003, the ICAI revised its existing standard on accounting for effects of changes in foreign exchange ratesby issuance of Accounting Standard 11 (Revised 2003), on “The Effects of Changes in Foreign Exchange Rates” (“AS-11Revised”). AS-11 Revised prescribes accounting for transactions in foreign currency and translating the financial statementsof foreign operations. The standard also deals with the accounting for foreign currency transactions and foreign operationsand to determine the exchange rate to be used and the recognition of such effect of changes in exchange rates in the financialstatements. One of the key revisions based on the AS-11 Revised is to carry on non monetary assets at the exchange rate asof the transaction date, thus no capitalisation of exchange difference on account of purchase of non monetary assets.

AS-11 Revised comes into effect from the fiscal year beginning from April 1, 2004 and shall be mandatory for the Companyfrom the effective date. This change in accounting standard would not have a material impact on our December 31, 2003financial statements.

Accounting for Provisions, Contingent Liabilities and Contingent Assets

On November 6, 2003, the ICAI issued Accounting Standard 29, on “Provisions, Contingent Liabilities and Contingent Assets”(“AS 29”) which prescribes appropriate recognition criteria and measurement bases to be applied for provisions and contingentliabilities. AS 29 requires that an enterprise should disclose sufficient information to enable users to understand their nature,timing and amount.

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AS 29 comes into effect from the fiscal year beginning from April 1, 2004 and shall be mandatory for the Company from theeffective date. Effective April 1, 2004, the standard included in Accounting Standard (‘AS’) 4, Contingencies and EventsOccurring After the Balance Sheet Date, that deal with contingencies stand withdrawn.

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND US GAAP

We prepare our financial statements in accordance with Indian GAAP and US GAAP, which differ in certain significant respects.For more information on these differences, please refer to the section entitled “Financial Information – Summary of SignificantDifferences Between Indian GAAP and US GAAP” beginning on page 345 of this Prospectus.

SIGNIFICANT DEVELOPMENTS AFTER DECEMBER 31, 2003 THAT MAY AFFECT THE FUTURE OF OUR OPERATIONS

Except as stated elsewhere in this Prospectus and in compliance with AS4, to our knowledge no circumstances have arisensince the date of the last financial statements as disclosed in the Prospectus which materially and adversely affect or arelikely to affect, the trading and profitability of the Company and its subsidiaries (taken as a whole), or the value of theconsolidated assets or their ability to pay their material liabilities within the next 12 months.

Except as stated elsewhere in this Prospectus, there are no subsequent developments after the date of the Auditors reportdated January 17, 2004 which we believe are expected to have material impact on the reserves, profits, earnings per share orbook value of the Company and its subsidiaries (taken as a whole).

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REGULATIONS AND POLICIES

The research and development, testing, manufacture and marketing of biotechnology and biopharmaceutical products isgoverned by various regulatory authorities and requires compliance with several legislations, established standards andguidelines.

Regulatory Regime

India

In India, the biotechnology and biopharmaceutical industry is regulated by various authorities/bodies that have been set upunder different ministries of the Government of India, as illustrated below:

The regulations, guidelines and standards applicable to the biotechnology and biopharmaceutical industry address aspectspertaining to the manufacture, storage and marketing of biopharmaceuticals enzymes and research services including clinicalresearch.

Biopharmaceuticals

Matters pertaining to drug formulations, biologicals and APIs are governed by the Drugs and Cosmetics Act, 1940 and rulesmade thereunder, which regulate the import, manufacture, distribution and sale of drugs and APIs as well as aspects relatingto labeling, packing and testing.. The Drug Controller General of India, or DCGI, is responsible for the implementation of thisAct. The Central Drugs Standard Control Organization, or CDSCO, is responsible for testing and approving APIs andformulations in consultation with the DCGI.

Before commercial manufacture, all drugs have to first undergo the process of clinical trials. Human clinical trials are typicallyconducted in four sequential phases that may overlap under some circumstances:

Government of India

Ministry ofScience &

Technology

Ministry ofHealth & Family

Welfare

Ministry ofChemicals &

Fertilizers

Ministry ofEnvironment &

Forest

Department ofBiotechnology

Department ofHealth

DirectorateGeneral of Health

Services

Department ofChemicals &

Petro-chemicals

NPPA

DCGI

CDSCO

RCGM

ICMR GEAC

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■ Phase I: The drug or treatment is introduced into a small group of healthy human beings (20-80 persons) to evaluate itssafety, determine a safe dosage range and identify its side effects.

■ Phase II: This phase involves studies on a selected group of patients (100-300 persons) to identify possible adverseeffects and risks, to determine the efficacy of the product for specific targeted diseases and to further evaluate its safety.

■ Phase III: Upon Phase II evaluations demonstrating that a dosage range of the product is effective and has an acceptablesafety profile, Phase III trials are undertaken on larger groups of patients (1000-3000 persons) to confirm its effectiveness,monitor side effects, compare it to commonly used treatments and collect information that will allow the drug or treatmentto be used safely.

■ Phase IV: In this phase a study of post marketing information with regard to the drug’s risks, benefits and optimal use iscarried out.

The approval process for conducting clinical trials, manufacturing and marketing of a drug depends on whether the drug is anew chemical entity or an rDNA product. In the case of new chemical entities, the DCGI is the approving authority. For rDNAproducts, the application is required to be submitted to the Department of Biotechnology, or DBT, after which it is processedand examined for scientific, safety and efficacy issues by an Advisory Committee comprising of the DBT, Chairman of ReviewCommittee on Genetic Manipulation, DCGI, Ministry of Health and Family Welfare, and 3-4 other area experts. If the AdvisoryCommittee is satisfied, it recommends the proposal to DCGI who then clears the proposal for Phase I clinical trials. The DCGIreviews the clinical data after every phase based on which he grants approval for entering into the next phase. The Phase IIIclinical data is examined by the DCGI in consultation with the Genetic Engineering Advisory Committee, or GEAC. Thereafter,the DCGI grants the final approval for manufacturing and marketing the product.

The pricing of certain bulk drugs and formulations is controlled by the Drugs (Price Control) Order, 1995, or DPCO, promulgatedunder the Essential Commodities Act, 1955. The National Pharmaceutical Pricing Authority, or NPPA, established under theDPCO, is responsible for this pricing structure.

Enzymes

Within the biotechnology industry, the production of enzymes which are used as components in foods is regulated by thePrevention of Food Adulteration Act, 1954 which prohibits a person from manufacturing for sale, or storing, any adulteratedor misbranded food.

Additionally, the food components that are exported are required to comply with international standards as contained in theJoint FAO/WHO Food Standards Program issued by the Codex Alimentarius Commission.

Clinical Research

Clinical trials are required to comply with the Guidelines on Clinical Trials for Import and Manufacture of New Drug as containedin Schedule Y of the Drugs and Cosmetics Rules as well as the guidelines for good clinical practices for clinical research inIndia issued by the Ministry of Health and Family Welfare. Additionally, the guidelines on Generating Pre-clinical and ClinicalData for rDNA based vaccines, diagnostics and other biologicals have been prescribed by the Department of Biotechnology.For details on the different phases of clinical trials and the regulations governing these, please refer to the section entitled“Biopharmaceuticals” on page 118 of the Prospectus.

Ethical issues arising from the conduct of clinical trials on human subjects including obtaining the informed consent of thesubjects and safeguarding the rights, safety, and well-being of the subjects is governed by the Ethical Guidelines for BiomedicalResearch on Human Subjects, 2000 prescribed by the ICMR. These guidelines are based on the internationally recognised“Good Clinical Practices” of the International Conference on Harmonisation of Technical Requirements for Registration ofPharmaceuticals for Human Use. The ICMR Guidelines propose the setting up of an Institutional Ethics Committee within theestablishment to ensure that standard operating procedures such as those relating to obtaining informed consent are compliedwith.

For bio-medical wastes produced from research activities or from the testing of biologicals, the Biomedical Waste (Managementand Handling) Rules, 1998 requires the setting up of requisite bio-medical waste treatment facilities and adherence with certainprocedures for the disposal of this waste.

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United States

In the United States, the USFDA, established under the Department of Health and Human Services, regulates medicinesthrough its Center for Drug Evaluation and Research. For biological products, the Center for Biologics Evaluation and Research,also under the USFDA, is responsible for ensuring the safety and efficacy of such products.

The USFDA has issued guidelines relating to good clinical practice and clinical trials that are to be followed even bymanufacturers of APIs outside the US. The USFDA mandates drugs to be manufactured in conformity with the cGMP. Thefacilities, within or outside US, in which the APIs or drugs are manufactured require USFDA approval. USFDA approval isalso required for the manufacture and marketing of new drug compounds, new formulations for existing drug compounds andgeneric drugs.

To obtain USFDA approval for a new drug to be used in a clinical investigation, an Investigational New Drug Application, orINDA, has to be filed along with data and information relating to pre-clinical laboratory and animal toxicology tests, methodsof manufacture of the product, quality control testing, etc. Thereafter, for the sale and marketing of a new pharmaceuticalproduct or new formulations for existing drug compounds in the US, a New Drug Application, or NDA, has to be made.

As regards a generic drug manufacturer, the relevant application for approval is the Abbreviated New Drug Application, orANDA. This application has its basis in the Hatch-Waxman Act, 1984, which permits generic versions of previously, approvedinnovator drugs to be approved by submission of bioequivalency data without the need for complete reports of pre-clinicaland clinical studies.

An ANDA is required to include certifications of invalidity or non-infringement of any patents relating to certain listed drugs,by the generic drug applied for (paragraph IV certification). The Hatch-Waxman Act provides an incentive of 180 days ofmarket exclusivity to the first generic applicant who challenges a patented drug by filing a paragraph IV certification.

For a bulk supplier of APIs to a US Company, the Drug Master Files, or DMF, assumes importance. The DMF containsconfidential, detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging,and storing of the APIs. This DMF supports the INDA, NDA or ANDA, as the case may be, and is submitted by the supplierof the API. Upon submission of an INDA, NDA or ANDA by the US Company for the finished product, the USFDA examinesthe DMF in the course of reviewing the INDA, NDA or ANDA. Increasingly, the USFDA is adopting the format contained inthe Common Technical Document for submission of technical data to regulatory authorities.

Europe

In Europe, EDQM grants the Certificate of Suitability of the Monographs of the European Pharmacopoeia, which certifiesthat the quality of the pharmaceutical product for which it is granted is in compliance with the European Pharmacopoeia.

Further, the marketing authorisations for pharmaceutical products in Europe are obtained by submitting the marketingauthorisation applications to either the centralized European Agency for the Evaluation of Medicinal Products, the EMEA, orto national authorities. The EMEA/national authorities while considering the applications for marketing authorisation reviewEuropean DMFs submitted by API suppliers.

Patent regime

India

The Patents Act, 1970, governs the patent regime in India. Historically, India granted patents only for processes and notproducts. However, as a signatory to the Trade Related Agreement on Intellectual Property Rights, or TRIPs, India is requiredto ensure that its patent laws are in compliance with the TRIPs by January 1, 2005. By virtue of this requirement, India wouldhave to grant patents for products as well as processes.

Presently, the Patent Act provides that a product patent cannot be granted for:

■ inventions claiming substances intended for use, or capable of being used, as food or as medicine or drug, or

■ substances prepared or produced by chemical processes, where chemical process includes biochemical, biotechnologicaland microbiological processes.

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Also, from the perspective of a biotechnology and biopharmaceutical industry, it is relevant to note that the Patents Actexcludes the following inventions from patentability:

■ discovery of any living thing or non-living substance occurring in nature,

■ any process for the medicinal, surgical, curative, prophylactic, diagnostic, or therapeutic or other treatment of humanbeings to render them free from disease,

■ plants and animals in whole or any part thereof other than micro-organisms,

■ an invention which, in effect, is traditional knowledge or which is an aggregation or duplication of known properties ofrationally known component or components.

Pursuant to the TRIPs, during the transitional phase until products patents are recognised in India, India has in place amailbox facility, which allows the filing of product patent claims on or after January 1, 1995. The mailbox shall be “opened” onJanuary 1, 2005 and all the applications contained therein shall be reviewed for the purpose of grant of a patent retrospectivelyfrom the date of filing of the patent application.

Exclusive marketing rights may be granted for a maximum period of five years for mailbox applications based on whether theinvention is patentable and subject to satisfaction of certain conditions relating to the date of filing of the application andthe grant of marketing approval.

United States

The US patent regime provides that a person who “invents or discovers any new and useful process, machine, manufacture,or composition of matter, or any new and useful improvement thereof, may obtain a patent”.

The US patent regime follows the “first to invent” as opposed to the “first to file” followed in other jurisdictions andconsequently, the patent could be granted to the inventor who proves priority of invention, regardless of him filing thepatent application.

The patent application must be filed in the US Patent and Trademark Office within one year of any public disclosure. Anyinventor, regardless of citizenship, may apply for a patent on the same basis as a US citizen. All US patent applications mustbe made, or authorised to be made, by the inventor. This differs from the practice in most countries where application isusually filed in the name of the owner of the patent.

European Community

The European Patent Convention, administered by the European Patent Office, creates a single European procedure for thegrant of patent, which is recognised in all the member countries. Moreover, European patents can be granted on the basis ofan international application filed in accordance with the Patent Co-operation Treaty, as outlined below, for all member countriesof the European Patent Convention.

International treaties

Since the rights granted by a national patent are recognised only in that country, an inventor who desires patent protectionin other countries must apply for a patent in each of the other countries. To avoid the filing of a multiplicity of patentsapplications, international patent treaties are often resorted to.

Once such treaty which enables patent protection simultaneously in many countries by filing a single international patentapplication, is the Patent Co-operation Treaty, 1970, or PCT. The advantage of the PCT process is that the filing of a singleapplication is treated as the effective filing of a separate application in each designated PCT country. The procedure for aninternational application under the PCT is briefly set out below:

1. The application may be filed by one who is a national or resident of a contracting state at the patent office of thecontracting state, the Receiving Office, or with the International Bureau of WIPO in Geneva. At this stage, the applicantindicates those contracting states in which he wishes his application to have effect.

2. The application undergoes an “international search” carried out by a major patent office of the applicant’s choice. Thisgenerates an international search report, which contains a listing of citations of such published documents that mightaffect the patentability of the invention.

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3. The international search report along with a written opinion, known as the International Preliminary Report on Patentability,or IPRP, is communicated to the applicant who has the option to withdraw his application. If the application is notwithdrawn, it is published in the International Bureau along with the international search report and communicated tothe patent office in each designated country.

4. The applicant is permitted to wait until the end of the 30th month from the priority date (except when the application willbe eventually filed in Brazil, Switzerland, Finland, Luxembourg, Norway, Sweden, Singapore, Tanzania, Uganda, Serbiaand Montenegro or Zambia), to commence the national phase before each designated office which entails payment ofthe requisite fees depending on the national law of the country.

5. Where the applicant wishes to follow the procedure under Chapter II of the PCT, before entering the national phase, theapplicant may request for an international preliminary examination which generates an IPRP setting forth the examiner’sposition regarding the patentability of the claimed invention. This report aids the designated offices during the nationalphase.

6. The application enters the national phase wherein the claimed invention is examined by the national patent offices of thedesignated countries for grant of the patent.

Another international treaty governing patent protection is the Paris Convention for the Protection of Industrial Property,1883 that requires member countries to guarantee to the citizens of the other countries the same rights in patent and trademarkmatters that it gives to its own citizens. Further, this treaty grants a right of priority to the applicant which means that theapplicant who has filed an application in any contracting states, may apply for protection in any other contracting stateswithin 12 months and claim priority over other applications which have been filed by other applicants during the said 12month period.

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GOVERNMENT APPROVALS

In view of the approvals listed below, we can undertake this Issue and our current business activities and no further majorapprovals from any Government authority/ RBI are required to continue those activities.

Biocon

RBI/FIPB

1. Approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004 from FIPB to our Company approving(i) the transfer of 6,000 equity shares of Rs. 5 each of our Company from Welfare Trust to specified non-resident individualssubject to certain conditions, (ii) the manufacture of chemicals and chemical products in the field of biotechnology andmanufacture of human insulin using recombinant DNA technology (iii) foreign equity participation (in foreign exchange)upto 60% of the paid up capital of Biocon and (iv) noting the change in the name of the Company from M/s. BioconIndia Limited to M/s. Biocon Limited.

2. Approval (Ref. No. FC.II.121(2000)/93(2000)) dated March 10, 2000 issued by the Department of Industrial Policy andPromotion for foreign equity investment of 43.60% amounting to Rs. 2,214,200 in the paid up capital of our Company inthe manner specified by way of acquisition of the shareholding of Glentec International, Mauritius in BBPL, BCZ andHLX.

3. Approval (Ref. No. FC.II.121(2000)/93(2000)-Amend No. 2) dated March 21, 2002 issued by the Department of IndustrialPolicy and Promotion to our Company to acquire 73.64% (representing 2,117,170 equity shares) of the shareholding inSyngene from non-resident shareholders for a consideration of Rs. 61,778,170 which will be discharged by Biocon on aswap basis by issuing 14,930 shares of Rs. 100 each to the non-resident shareholders of Syngene.

4. Approval (Ref. No. FC.II.121(2000)/93(2000)-Amend No. 3) dated March 11, 2003 from FIPB to our Company permittingthe Neville Bain Trust to acquire 4300 equity shares of Rs. 10 each (representing 0.23% of the equity capital) of ourCompany from Glentec International, Mauritius.

5. Approval (Ref. No. FC.II.121(2000)/93(2000)-Amend) dated June 11, 2003 from FIPB to our Company permitting AlbacoreInvestments Ltd., Mauritius to acquire shares in our Company from TCW/ICICI Private Equity Fund LLC Mauritius,TCW/ ICICI Private Equity AMP Fund LLC Mauritius and ICICI Trusteeship Services Limited, A/C ICICI Emerging SectorsFund.

6. Letter (Ref. No. FC.II.121(2000)/93(2000)-Amend No. 4) dated July 8, 2003 from FIPB to our Company noting the changein name of Albacore Investments Ltd, Mauritius to AOF HS Mauritius Ltd.

7. Approval (Ref. No. EC.CO.FID(I)4793/10.1.07.02.200(3)VOL XIII/98-99 dated May 5, 1999 from RBI under Section 29(1)(b)of FERA for transfer of equity shares of our Company, BQIL and BCZ from Unilever Overseas Holdings BV to GlentecInternational, Mauritius for acquiring equity shares as provided.

8. Approval (Ref. No. CO.FID(I) /10.1.07.02.200(385)/99-2000) dated February 4, 2000 from RBI under Section 19(5) of FERAto Glentec International, Mauritius for transferring their holding of 2,000,000 equity shares of Rs. 10 each and 35,000equity shares of Rs. 100 each in BBPL and BCZ in favour of our Company for a total consideration of Rs. 70,410,000 andRs. 25,457,000 respectively. Approval also granted for Mr. John Shaw, UK transferring his entire holding of 651,000 equityshares of Rs. 10 each of HLX in favour of our Company for a total consideration of Rs. 6,234,026.

9. Approval (Ref. No. CO.FID(I)2414/10.1.07.02.200(385)/99-2000) dated February 21, 2000 from RBI under Section 19(5)ofFERA to the specified non-residents (being Mr. Ravi Mazumdar, Ms. Catherine Rosenberg, Mr. Charles Cooney,Dr. Neville Bain and Mrs. Bain, Mr. Declan Mcfadden and Mr. SMA Lecchini) to transfer their entire shareholding of394,000 equity shares of Rs. 10 each in HLX in favour of our Company at a price of Rs. 9.57 per share.

10. Letter (Ref. No. EC.BG.FID No. 7633/21.03.184/2000-01) dated March 14, 2001 from RBI confirming that it has taken onrecord the issue of 34931 equity shares to foreign companies/national/non-resident Indian by allotting Registration No.FC-2001 BGR-0045 in terms of FEMA Notification No. 20/RB-2000 dated May 3, 2000.

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11. Approval (Ref. No. EC.BG.FID No.480HD/13.01.09/2001-2002) dated March 27, 2002 from RBI to our Company to acquire2,117,170 equity shares of Rs. 10 each held by non-resident shareholders in Syngene for a consideration of Rs. 61,778,170which is to be discharged by our Company on a swap basis by issuing 14,930 shares as per Government of India letterNo. FC II.121(2000)/93 (2000) - Amend dated March 21, 2002.

12. Approval (Ref. No. EC.CO.FID (I) 1843/10.1.02.07.200(616)/2003-2004) dated August 29, 2003 from RBI to AOF HS MauritiusLtd under Regulation 10A(b) Notification No. FEMA 20/2000-R dated May 3, 2000 permitting ICICI Trusteeship ServicesLtd to transfer 48,669 equity shares of our Company to AOF HS Mauritius Ltd at a price of Rs. 2002.56 per share and forAOF HS Mauritius Ltd to acquire the same.

13. Approval (Ref. No. FC.II.121(2000)/93(2000)-Amend) dated November 18, 2003 from FIPB to our Company for the transfer4000 equity shares of Rs. 10 each of our Company by Biocon India Limited Employees Welfare Trust to each of our non-resident directors, being Prof. Charles L. Cooney and Dr. Neville Bain.

Regulatory

14. Form 25 License (license no. NB-135/82) issued by the Drugs Controller, Karnataka to manufacture, for sale or distributionof certain drugs at our premises located at 20 KM Hosur Road, valid till December 31, 2007.

15. Form 28 license (license no. KTK/28/320/2001) issued by Drugs Control, Karnataka for the manufacture for sale of certaindrugs at our premises located at 20 KM Hosur Road, valid from January 1, 2003 till December 31, 2007.

16. Form 20-B and 21-B license (license no. KA/BNG/R/20B/21 and KA/BNG/R/21B/15) granted to our Company on November13, 1996 by Assistant Drugs Controller and Licensing Authority, Bangalore Division to sell, stock or exhibit for sale ordistribute by wholesale all drugs other than certain scheduled drugs at Sy. No. 44/4B, Shop No. G1, 20 KM, Hosur Road,Hebbagodi, Bangalore renewed till December 31, 2006.

17. Form 20-B and 21-B license (license no. KA/BNG/R/20B/68 and. KA/BNG/R/21B/58) granted to our Company on February28, 2000 by Assistant Drugs Controller and Licensing Authority, Bangalore Division to sell, stock or exhibit for sale ordistribute by wholesale all drugs other than certain scheduled drugs at Sy No. 44/4B, Shop No. 3, Hosur Road, Hebbagodi,Bangalore renewed till December 31, 2007.

18. Free Sale Certificates (Ref. No.DCD/CR/43/SP-CL/2000-2001 dated May 21, 2001, DCD/CR/76/SP-CL/2000-2001 dated July6, 2000, DCD/CR/387/SP-CL/2001-2002 dated February 18, 2002, DCD/CR/66/SP-CL/2001-2002 dated June 6, 2001, DCD/CR/400/SP-CL/2002-2003 dated April 25, 2003, DCD/CR/402/SP-CL/2001-2002 dated February 15, 2002 and DCD/CR/362/SP-CL/2002-2003 dated April 4, 2003) issued by the Drugs Controller, Karnataka certifying that our Company is permittedto export the products as therein provided, subject to the laws of the importing country.

19. Form 29 License (Ref. No. KTK/29/738/2003) dated August 26, 2003 issued by the Licensing Authority, Karnataka tomanufacture Human Insulin (Recombinant) for purposes of examination, test or analysis at our premises, valid for oneyear from the date of issue.

20. Essentiality Certificate (Ref. No. DCD/EPS/13/2003-04) dated September 6, 2003 issued by the Drugs Controller, Karnatakacertifying that ethanol (15,000 litres) is essential for the manufacture of the formulation being human insulin.

21. Essentiality Certificate (Ref. No. DCD/EPS/14/2003-04) dated September 15, 2003 issued by the Drugs Controller, Karnatakacertifying that ethanol (20,000 litres) is essential for the manufacture of bulk drug being Pravastatin Sodium.

22. Approval (Ref. No. F. No. 12-52/2001) dated September 2, 2003 granted by the DCGI to our Company for conductingclinical trials for indigenously developed r-human insulin injection, subject to approval from RCGM.

23. Office Memorandum (Ref. No. BT/17/12/98-PID) dated December 12, 2003 received from RCGM by our Company, permittingthe Company to approach competent authority, for conducting human clinical trials on r-human insulin.

24. Approval (Ref. No. 10/44/2000-CS) dated March 20, 2003 granted by GEAC to our Company for conducting large scaleprocess optimization studies of r-human insulin for R&D purpose only.

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25. DMFs for various products of ours such as Human Insulin Bulk rDNA Origin, Compactin, Mycophenolate Mofetil,Mycophenolic acid, Pravastatin Sodium, Pioglitazone Hydrocloride, Simvastatin, Simvastatin USP, Lovastatin, LovastatinUSP, Atorvastatin calcium, Iron (III) Hydroxide Polymaltose complex, Drotaverine Hydrochloride, have been submittedto the relevant authorities in Canada, Sweden, Norway, Switzerland, Ireland, Spain, United Kingdom, New Zealand, Greece,Belgium, Finland, Australia, Denmark, Germany, United States, The Netherlands.

Taxes

26. Certificate of Registration (No. 1005013.9) bearing KST No. 1000013.6 dated April 27, 2001 issued to our Company andgodown and branch certifying that it has been registered under Section 10(1) of the Karnataka Sales Tax Act, 1957 validfrom December 2, 1978 until cancelled.

27. Central Excise Registration Certificates (Regn.No.AAACB7461R XD 001, Regn.No.AAACB7461R XM 001 andRegn.No.AAACB7461R XM 002) dated December 3, 2001 issued by the Superintendent of Central Excise, HebbagodiRange, Bangalore III Division, Bangalore I Commissionerate, Bangalore for dealing and manufacturing of enzymes,pharmaceuticals ingredients respectively.

28. Certificate of registration Form ST-2 (under Section 69 of the Finance Act, 1994) (Regn. No. S&T/BG-I/41/BIOCON/2002)dated December 31, 2002 issued by the Superintendent of Central Excise, Service Tax Cell, B-I Commissionerate for paymentof service tax on the services of scientific and technical consultancy, technical testing and analysis, technical inspection.

EOU

29. Green Card No. 515 dated December 26, 2003 for 100% Export Oriented Unit / issued by the Assistant DevelopmentCommissioner, Cochin Special Economic Zone (CSEZ), valid up to August 3, 2004 for the manufacture of Neopectinase,Pectinases, Glucoamylase, Ark Con, Gammapect, Industrial Enzymes, etc.

30. Green Card No. 709 dated December 26, 2003 for 100% Export Oriented Unit issued by the Assistant DevelopmentCommissioner, Cochin Special Economic Zone (CSEZ), valid up to July 29, 2006 for the manufacture of all types of Statinsincluding Lovastatin, Pravastatin, Simvastatin and Atorvastatin and other enzymes.

Corporate

31. Public records filing for new business entity in the State of New Jersey in the name of our Company with its registeredoffice in 50 Hwy 9N, Suite #108, Morganville, NJ 07751 to promote sales and presence in USA from June 21, 2001 perpetualwith the registered agent being Kumar Majmudar.

32. Fax message dated October 3, 2001 from the Department of Treasury, Internal Revenue Service, Philadelphia ServiceCenter addressed to Kumar Majmudar containing the employer identification number 98-0357084.

Labour

33. License Form VI (license no. ALCB4/CLA/C-161/2000-2001 and ALCB-4/CLA/C-209/2000-2001) under Section 12(1) ofthe Contract Labour (Regulation and Abolition) Act, 1970 dated January 6, 1999 and March 13, 2001 issued by the AssistantLabor Commissioner, Bangalore Division III and IV, Bangalore to R. Narasimha Reddy and Captain S. Ravi for doing thework of security, gardening, housekeeping, loading and unloading at our premises, valid till January 5, 2005 and March12, 2005 respectively.

34. Certificate of Registration Form II (Regn. No. ALCB-4/CLA/P44/2000-2001) under Section 7 (2), Contract Labor (Registrationand Abolition) Act, 1970 dated June 6, 1999 issued by the Assistant Labor Commissioner, Bangalore Division III, Bangaloreto R. Narasimha Reddy for doing security service, gardening, housekeeping, loading and unloading at our premises.

Environment

35. Form XV consent (No. 14/KSPCB/EO/BNG (S)/IND/AEO-2/WPC/2003-2004/991) for existing discharge of sewage and/ortrade effluents under Section 25/26 of the Water (Prevention and Control of Pollution) Act, 1974 dated August 11, 2003issued by the Environmental Officer, Bangalore (South), Region –II, Karnataka State Pollution Control Board authorizingus to continue discharge of sewage and trade effluents from our premises located at Plot. No. 113 C2, BommasandraIndustrial Area, Bangalore, subject to the consent order No. 548/KSPCB/WPC/IND/B-S/DEO TC/AEO-2/2002-03/1082,valid till June 30, 2004.

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36. Form XV consent (No. KSPCB/SEO-4/DEO/AEO/WPC/2003-04/244) for existing discharge of sewage and trade effluentsForm XV under Section 25/26 of the Water (Prevention and Control of Pollution) Act, 1974 dated November 19, 2003issued by the Karnataka State Pollution Control Board authorizing us to continue discharge of sewage and trade effluentsfrom our premises located at 20 KM, Hosur Road, subject to the consent order No. 588/KSPCB/WPC/TC/DEO/AEO/2002-03, valid till June 30, 2004.

37. Consent for operation of the plant under Section 21 of the Air (Prevention and Control of Pollution) Act, 1981 (No. 16/KSPCB/EO/BNG (S)/IND/AEO-2/APC/2003-2004/992) dated August 11, 2003 issued by the Environmental Officer, Bangalore(South), Region – II, Karnataka State Pollution Control Board authorizing us to operate our industrial plant located atPlot. No. 113 C2, Bommasandra Industrial Area, Bangalore, and to continue to make existing discharge of emissions fromthe chimneys subject to the consent order No. 517/KSPCB/BNG/IND/ DEO-TC/AEO-2/2002-03/1050, valid till June 30,2004.

38. Consent for operation of the plant under Section 21 of the Air (Prevention and Control of Pollution) Act, 1981 (No.KSPCB/APC/SEO-4/DEO/AEO/2002-03/243) dated November 19, 2003 issued by the Karnataka State Pollution ControlBoard authorizing us to operate our industrial plant located at 20 KM, Hosur Road subject to the consent order No. 586/KSPCB/ TC/APC/DEO/AEO/ 2002-03/1176, valid till June 30, 2004.

39. Form 2 for grant of authorization for occupier handling hazardous wastes (Ref. No. KSPCB/HWM/AEO-1/DFO-3/SEO-1/2000-2001/306) dated May 31, 2001 issued by the Member Secretary, Karnataka State Pollution Control Board to operateour facility located at 20 KM, Hosur Road for generation, collection, storage and disposal of specified hazardous wasteunder the Hazardous Waste (Management and Handling) Amendment Rules, 2000, valid for 5 years from date of issue.

40. Form 2 for grant of authorisation for occupier handling hazardous wastes (Ref. No. KSPCB/HWMC/AEO-1/DEO-3/SEO-1/2000-2001/767) dated August 16, 2001 issued by the Member Secretary, Karnataka State Pollution Control Board tooperate our facility located at Plot. No. 113 C2, Bommasandra Industrial Area, Bangalore for generation, collection, storageand disposal of specified hazardous waste under the Hazardous Waste (Management and Handling) Amendment Rules,2000, valid for 5 years from date of issue.

41. Consent (Ref. No. KSPCB/BO/CFE-CELL/DEO/AEO-2/A-2/2002-03) dated April 23, 2002 issued by Member Secretary,Karnataka State Pollution Control Board for expansion/diversification of industry for enhancement of production of certainproducts without water and air pollution.

Miscellaneous

42. Factory licence (No. MYB 6083) granted for our facility located at 20th KM, Hosur Road valid upto December 31, 2004.

43. Factory licence (No. MYB10506) for our facility located at Plot. No. 113 C2, Bommasandra Industrial Area, Bangalorevalid upto December 31, 2004.

44. Approval (Ref. No. IADB/DO-2/14518/B-J Link Road/2003-04/1741) dated September 23, 2003 issued by the DevelopmentOfficer II, Karnataka Industrial Areas Development Board of drawings of proposed factory building to be constructed atour premises, valid till August 15, 2005.

45. Approval (Ref. No. EIB/DEI(S)/AEI(3)/411-13/96-97) dated June 13, 1996 issued by the Electrical Inspector, BangaloreDivision to run 2 * 320 KVA generator resets and connected equipment.

46. License to import and store petroleum in installation Form XIII (P-12 (22) 1580/ MYS 4303 dated January 6, 1998) underthe Petroleum Act, 1934 issued by Joint Chief Controller of Explosives, Chennai for importing 327.815 kl of petroleum andstorage at designated place, valid till December 31, 2004.

47. Lift operating license Form C (license no. M. V. P10812-13, ref. no. 4545/04/02) dated August 28, 2002 issued by the ChiefPower Inspector, Energy Department, Karnataka to our Company to operate the lifts installed, subject to the conditionsin the Karnataka Lifts Rules, 1976.

48. Approval (Ref. No. EIB/AEI (0)/3768-70/2002-2003/) under Rule 47-A of the Indian Electricity Rules, 1956 dated November30, 2002 issued by Electrical Inspectorate, Government of Karnataka in respect of our premises to commission 1*320KVA additional generator set and connected equipment.

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49. Certificate for use of Boiler (Ref. Nos. IBB/BLR/KTK 2232/CFN-77/03-04 dated August 11, 2003, IBB/BLR/KTK 2263/CFN-75/03-04 dated August 18, 2003 and IBB/BLR/KTK 2447/CFN-35/03-04 dated June 6, 2003) under Sections 7/8 of theIndian Boiler Act, 1923 issued by Inspector of Boilers, Bangalore certifying that the boilers described are permitted to beworked at a maximum pressure of 10.54 kg to the square cm., and valid for a year from the date of issue.

50. Letter (Ref. No. ID.HLC.10.E3.BIOCON.03-04) dated February 19, 2004 issued by the Department of Industries andCommerce, Government of Karnataka approving Biocon’s proposal to set up an expansion project for manufacturingspeciality enzymes for food and pharmaceutical industry pursuant to the decision of the 93rd High Level Committee onJanuary 24, 2004. Formal government order in this regard to be issued shortly.

Syngene

Environment

51. Consent (Ref. No. 12KSPCB/BNG(S)/EO/AEO-2/IND/CFE/2003-2004/990) dated August 11, 2003 issued by theEnvironmental Officer, Karnataka State Pollution Control Board to Syngene for setting up a new industry at our premises,valid for a period of two years from date of receipt of the order.

52. Consent for establishment (Ref. Nos. 12KSPCB/BNG(S)/EO/AEO-2/IND/CFE/2003-2004/990) dated August 11, 2003 issuedby the Environmental Officer, Karnataka State Pollution Control Board to Syngene for setting up a new research anddevelopment laboratory, valid for a period of two years from date of receipt of the order.

53. Form XV Consent (No. 65/KSPCB/EO/BNG (S)/IND/AEO-2/WPC/2003-2004/993) dated August 11, 2003 under Section 21of the Water (Prevention and Control of Pollution) Act, 1974 issued by the Environmental Officer, Karnataka State PollutionControl Board to Syngene authorizing it to continue discharge of sewage and trade effluents into our common effluenttreatment of our Company subject to the consent order No. 439/KSPCB/DEO TC/WPC/AEO-4/2002-03/868 dated November20, 2002, valid till September 30, 2004.

EOU

54. Green Card No. 541 and 516 dated December 11, 2000 valid till December 10, 2004 and September 5, 2001 valid till August23, 2004 respectively, issued by the Assistant Development Commissioner, Ministry of Commerce and Industry,Government of India, Bangalore to Syngene as a 100% Export Oriented Unit doing research and development inbiotechnology projects for novel compounds for new drugs and fine organic compounds.

Taxes

55. Registration Certificate (Reg. Nos. 11874405 dated June 27, 1994 and 11824402 dated June 14, 1994) issued by the AssistantCommissioner of Commercial Taxes, District IV Circle, Bangalore to Syngene under Section 7(1) 7(2) of the Central SalesTax Act, 1956, classes specified for the purpose of Section 8(1) and (3) of the Central Sales Tax Act and Section 10(1) ofthe Karnataka Sales Tax Act, 1957 respectively, valid till cancelled. The branch at Plot No.113 C2, Bommasandra IndustrialAreas, Bangalore has been recorded as an extra place of business with effect from March 28, 2002.

56. Branch Certificate Form 2 (Reg. No. 11824402 dated June 27, 1994) issued by the Assistant Commissioner of CommercialTaxes, Bangalore Division, Bangalore to Syngene under Section 10(1) of the Karnataka Sales Tax Act, 1957, valid tillcancelled. The branch at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore has been recorded as an extra placeof business with effect from March 28, 2002.

Clinigene

Environment

57. Consent for establishment (13KSPCB/BNG(S)/EO/AEO-2/IND/CFE/2003-2004/989) dated August 11, 2003 issued by theEnvironmental Officer, Karnataka State Pollution Control Board to Clinigene for setting up a new research and developmentlaboratory, valid for a period of two years from date of receipt of the order.

Tax

58. Registration Certificate Form 2 (Reg. No. 11825510 and 11875513) dated December 18, 2000 issued by the AssistantCommissioner of Commercial Taxes, Bangalore Division, Bangalore to Clinigene under Section 10(1) of the KarnatakaSales Tax Act, 1957 and Section 7(1) 7(2) of the Central Sales Tax Act, 1956 and classes specified for the purpose ofSection 8(1) and (3) of the Central Sales Tax Act respectively, valid till cancelled.

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59. Letter (Ref. No. KN/BN/CIRCLE9/SAOBMS/ENF42/2003; Code No. KN/34346) dated May 26, 2003 from AssistantProvident Fund Commissioner, Sub Accounts Officer, Bangalore to Clinigene confirming the applicability of the Employees’Provident Fund & Miscellaneous Provisions Act, 1952 and the Scheme framed thereunder with effect from April 1, 2003.

60. Registration Certificate of Establishment Form C (Reg. No. KA/VA.SUM/8574/2003) dated May 30, 2003 issued to Clinigenecertifying that it has been registered as a commercial establishment under the Karnataka Shops and CommercialEstablishments Act, 1961 on the date of issue.

Biocon Biopharmaceuticals

RBI/FIPB

61. Approval (No. FC.II.:35(2003)/501(2002)) dated February 26, 2003 from the FIPB granted to BBPL for foreign collaboration,in relation to SIA Regn. No. FC.I.501 dated December 4, 2002 to collaborate with M/s Cimab S.A., Cuba to manufacturecertain products at Bommasandra Industrial Area, IV Phase, Bangalore (Urban) for 49% amounting to Rs. 245 million inlieu of technology transferred, in the paid up capital of Rs. 500 million.

Regulatory

62. Form 20-B and 21-B license (license no. KA/BNG-IV/R/20B/101 and KA/BNG-IV/R/21B/86) granted to BBPL on October10, 2002 by the Assistant Drugs Controller and Licensing Authority, Bangalore Division to sell, stock or exhibit for saleor distribute by wholesale all drugs other than certain scheduled drugs at Shop No. 2, House list No. 308, S-No 44-4B,Hosur Road, Bangalore valid till October 9, 2007.

Miscellaneous

63. Letter (Ref. No. ID.HLC.09.E3.BIOpharma.03-04) dated February 19, 2004 issued by the Department of Industries andCommerce, Government of Karnataka approving BBPL’s proposal to set up a biopharma manufacturing unit pursuant tothe decision of the 93rd High Level Committee on January 24, 2004. Formal government order in this regard to be issuedshortly.

We have made applications for renewal of the following approvals:

1. Application for renewal of Form 37 approval No. KTK/37/8/97 (Ref: QA/DRUG/BIL/00/139) dated December 30, 2002submitted by us to the Drug Controller, Karnataka for our premises at Plot No.113 C2, Bommasandra Industrial Areas,Bangalore.

2. Application for renewal of drug license Form 25 No. KTK/25/407/98 (Ref: QA/DRUG/BIL/00/138) dated December 30,2002 submitted by us to the Drug Controller, Karnataka for our premises at Plot No.113 C2, Bommasandra IndustrialAreas, Bangalore.

3. Application for renewal of license to import and store petroleum in installation Form XIII (Licence No. P-12 (SC) MYS4320) dated December 9, 2003 submitted by us to the Joint Chief Controller of Explosives, Chennai.

4. Application for renewal of factory license No: MYB: 11742 (Ref.ADMIN/INSP/BIL/2003-04) dated October 31, 2003 forSyngene submitted by us to the Inspector of Factories, Bangalore.

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OUTSTANDING LITIGATION

Except as stated herein there is no outstanding or pending litigation, suit, criminal or civil prosecution, proceeding initiatedfor offence (irrespective of whether specified in paragraph (I) of Part 1 of Schedule XIII of the Companies Act) or litigationfor tax liabilities against the Company, its Subsidiaries, Promoters or Directors and there are no defaults, non payment oroverdues of statutory dues, institutional or bank dues or dues towards holders of debentures, bonds and fixed deposits andarrears of preference shares, other than unclaimed liabilities of the Company or its Subsidiaries and no disciplinary action hasbeen taken by SEBI or any stock exchanges against the Company, its Subsidiaries, Promoters or Directors.

Claims against our Company

1. Civil disputes

(i) Societatea Commerciala M.I.B.-TH, or SCMIB, has filed a suit (O.S. No. 784/2003) on December 12, 2003 in the courtof the Civil Judge (Senior Division), Bangalore Rural District, Bangalore against our Company claiming that atechnology transfer agreement was concluded between the parties, although not signed by our Company, consequentto which SCMIB transferred strains/technology to Biocon for the manufacture of Lovastatin. Based on this allegedagreement, SCMIB contends that Biocon is liable to pay it a consideration of US$ 50,000 (along with interest @ 9%p.a.). SCMIB has prayed for an order of temporary and permanent injunction restraining Biocon from manufacturingLovastatin using the strains/technology transferred or acquired by it from SCMIB, along with a prayer for an ad-interim order of temporary injunction restraining Biocon from alienating its premises at 20 KM, Hosur Road, Bangalore,and its plant and machinery and other assets. An application for attachment before judgment of the above mentionedproperties has also been made. Our Company maintains that since the technology proposed to be transferred wascommercially unviable, we did not sign the technology transfer agreement and consequently, the technology wasnever and is not being used by us. However, our Company has disclosed the same as contingent liability of US$50,000 in its books of account. The case is posted for hearing on February 23, 2004.

(ii) Biocon (amongst others) has been named as a garnishee in suit (O.S No. 16294/2003) filed in the court of the AdditionalCity Civil Judge, Bangalore by Fresh and Honest Café Ltd against Lakshmi Brooke and others. Fresh and HonestCafé claimed an amount of Rs. 2,661,646.37 from Lakshmi Brooke on account of dealings between the parties. Bioconowes Lakshmi Brooke a sum of Rs. 87,030. Fresh and Honest Café has filed an application on November 16, 2003 forgrant of an order of temporary injunction restraining the garnishees (including Biocon) from paying any monies duefrom them to Lakshmi Brooke pending disposal of the suit. No order restraining our Company from making paymentsto Lakshmi Brooke has been passed as yet. The case is posted for April 6, 2004.

(iii) A suit (O. S. No. 935/2002) for mandatory injunction has been filed Mr. V. Munireddy in the court of the Civil Judge(Senior Division), Bangalore, claiming that the compound wall built by our Company encroaches on his adjoiningproperty being Sy. No. 45/1A Hebbagodi, Anekal Taluk. Our Company contests the claim on the ground that it hasnot encroached on the said property and has merely extended the height of an existing compound wall. The case isposted for hearing on May 26, 2004.

(iv) A suit (Special Civil Suit No. 78/2002) has been filed in the court of the Civil Judge (Senior Division), Thane byM/s. Advanced Biochemicals Ltd against both our Company and Mr. Rajkamal Gyanprakash Varshney, an employeeof our Company, claiming that our Company is liable to pay an amount of Rs. 50,000 plus interest for causing loss tothe petitioner by allegedly inducing Mr. Varshney to terminate his employment with the petitioner and join the servicesof our Company (so as to benefit from the know-how which Mr. Varshney had access to in the course of hisemployment with Advanced Biochemicals) in breach of the confidentiality and non-compete undertakings containedin the employment contract between the petitioner and Mr. Varshney. Our Company has denied the claims of thepetitioner. The case has been posted for hearing on March 17, 2004.

(v) Our Company has learnt that a suit (No. MS 11/2003) has been filed before the Civil Judge Senior Division, Morigaonby M/s. Hindustan Paper Corporation Ltd. against M/s. L. M. Marketing and our Company. Our Company has beengiven to understand that Hindustan Paper Corporation Ltd. is suing L. M. Marketing on the grounds that L. M.

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Marketing, who was awarded a tender to supply certain enzymes to Hindustan Paper Corporation Ltd. supplied thesame at price which was much higher than the price at which the said enzymes were sold to L. M. Marketing by ourCompany. Our Company has initiated steps to defend the suit.

(vi) A Civil Writ Petition (No. 91 of 2004) with an Interlocutory Application (No. 1 of 2004) has been filed on February17, 2004 against the Company and other respondents in the Supreme Court of India by Aadar Destitute and OldPeople Home. The other respondents are Union of India, DBT, RCGM, GEAC and Shantha Biotechnics Private Limited.The petitioner has alleged that the Company in violation of the Rules for Manufacture, Use, Import, Export andStorage of Hazardous Micro-organisms Genetically Engineered Organisms or Cells, 1989 as well as the RCGM directive(to approach the GEAC for obtaining clearance for conducting trials on human subjects), has been conducting humanclinical trials of its r-human insulin since November 2003. The petitioner has alleged that the Union of India, DBT,RCGM and GEAC have failed and/or neglected to take any steps or actions to stop these dangerous clinical trialson human subjects and have purportedly condoned the regulatory lapse. The petitioner has inter-alia sought a writof mandamus to prevent the Company from conducting any human clinical trials with its product r-human insulin.The Supreme Court has till date refused to grant any interim relief to the petitioner. The Company has been asked toenter appearance on the matter. The petition has not yet been posted for hearing in the Supreme Court.

2. Labour disputes

(i) A complaint (WCA 80/2000) has been filed by a contract labourer, Mr. R. Saji, in the court of the Commissioner forWorkmen Compensation, Bangalore under Section 22 of the Workmen’s Compensation Act for allegedly sufferingburns and 20% permanent physical disability in the course of carrying out electrical work on the premises of ourCompany which injury is alleged to be attributable to the negligent upkeep of the electrical lines by our Company.The complainant has claimed a compensation of Rs. 800,000 payable, jointly and severally, by our Company,Mr. Saji’s principal contractors and sub-contractors. Our company has contested this claim on the grounds that theinjury was caused due to the negligence of the complainant. Our Company has retained Rs. 1,000,000 from the moneypayable to the concerned contractor towards indemnity against any decree being passed against the Company. Thecase has been reserved for orders.

(ii) A claim statement (Ref. No. 118/1996) has been filed by Mrs. Marie T. Fernandes (and referred by the Government ofIndia) before the Presiding Officer, II Additional Labour Court, contesting alleged termination of her services, withoutcause, from April 9, 1996, as secretary to the Managing Director and seeking reinstatement and back wages ongrounds of violation of Section 25F and Chapter VA and B of the Industrial Disputes Act, 1947 by our Company.The case is posted for February 23, 2004. A writ petition (No. 39347/2000) has also been filed by Mrs. Fernandes inthe High Court of Karnataka against the Regional Provident Fund Commissioner and our Company seeking closureof her provident fund account and release of amount of provident fund owed to her pursuant to her alleged illegaltermination of employment by our Company. Our Company has been included as a party pursuant to its refusal toattest the petitioner’s form for provident fund claims due to certain alleged untruths being contained therein. Thecase is to come up for hearing in due course.

(iii) A claim statement application (ID 25/2002) has been filed by Ms. C. Mary before the II Additional Labour Court,Bangalore under the Industrial Disputes Act on ground of termination of her employment without sufficient causefor which she has sought reinstatement and full back wages. Biocon has contended that the applicant is an employeeof a contractor engaged by Biocon and not an employee of Biocon. The case has been posted forApril 15, 2004.

(iv) A claim application (I.D.No.122/2001) has been filed by Mr. Nagaraja Shetty before the II Additional Labour Court,Bangalore under Section 10 (4-A) of the Industrial Disputes (Karnataka Amendment) Act, 1987 for termination of hisservices without cause by our Company. The applicant, claiming to be a workman (and not a contract labourer) ofour Company, has alleged violation of Section 25F and 25N, Industrial Disputes Act for which he has sought re-instatement with full back wages and an entitlement to benefits such as provident fund accruing to such a workman.The matter has been reserved for orders.

(v) A claim petition (No. WCA/NFC/CR 47/2002) has been filed before the Labour Officer and Commissioner underWorkmen Compensation Division, Bangalore by a former employee, Mr. Sudhakaru under Section 23 of the Workmen’s

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Compensation Act claiming compensation for alleged total permanent disablement caused to him in the course ofhis work. Our company has denied such a payment to the applicant on the ground that the provisions of theEmployees State Insurance Act, 1948, cover the applicant. The case is scheduled for hearing on March 5, 2004.

3. Excise, customs and service tax disputes

(i) Our Company’s refund application dated September 13, 1993 for an amount of Rs. 30,528.36 claiming MODVAT crediton certain rejected goods on grounds that the duty has been paid twice was rejected by the Commissioner of CentralExcise, Bangalore (order No. 110/97 dated April 9, 1997). On appeal to the CEGAT, the matter was remanded to theDeputy Commissioner (Order No. 1540/2001 dated September 20, 2001). Presently, the matter is pending before theDeputy Commissioner.

(ii) Our Company has been directed to pay an amount of Rs. 9,725 by the Superintendent of Central Excise, Bangalorevide letter dated November 21, 2003 on the ground that while reversing an amount equal to 8% on the sale price ofexempted goods, Biocon has not considered the amount of freight and insurance which allegedly forms part of thesale price of exempted goods. It is claimed that this non-inclusion has resulted in short reversal of Rs. 9,725 duringthe period from March 6, 2003 to September 30, 2003 which Biocon is liable to pay. Our Company is contesting thisclaim.

(iii) A demand has been raised on our Company by the Assistant Commissioner of Central Excise for Rs. 17,000 asdifferential duty arising as a consequence of reclassification of a certain goods, on the basis of a show cause noticedated March 15, 1996 that was confirmed by an order (Order No. 180/97) of the Assistant Commissioner. On appealfiled by our Company, the Commissioner of Appeals remanded the case to the Assistant Commissioner. The AssistantCommissioner, in Order No. 23/2001 dated June 12, 2001 decided to drop the proceedings against our Company.Subsequently, a refund application dated November 22, 2001 was filed by our Company for refund of an amount ofRs. 55,250 (representing Rs. 17,000 plus Rs. 38,250 being the additional duty paid under protest in respect of goodsconsequent to Order No. 180/97). The Deputy Commissioner of Central Excise rejected this refund application oncertain procedural grounds including non-furnishing of certain materials evidencing payment and issued a showcause notice dated January 24, 2002 to which our Company has filed its reply on February 5, 2002. The matter ispending adjudication.

(iv) A demand on December 17, 2002 was made on our Company from the Superintendent of Central Excise for thereserve credit of the amount of Rs. 722,311 that our Company had availed on certain capital goods. After a series ofcorrespondence, on April 30, 2003 our Company reversed the CENVAT credit of Rs. 261,172 under protest, as directedby the Superintendent.

(v) Our Company has filed an appeal to the CEGAT against the order (Order No. C3/338/D/2000 dated August 25, 2000)granted by the Commissioner of Customs (Appeals) relating to the demand of additional duty of Rs. 131,801 claimedby the Custom House, Chennai on account of re-classification of certain imported goods. The goods were originallyclassified under heading 3003.90 of Customs Tariff Act, 1975 with ‘Nil’ C.V.D. but were subsequently re-classifiedunder heading 29.42 of Customs Tariff Act, which attracted an additional CVD @16%. In accordance with the stayorder (Stay Order No. 286/2001) passed by the CEGAT, Biocon made a pre-deposit of the aforesaid amount withCommissioner of Customs. The matter is pending final adjudication.

(vi) Our Company received a letter dated February 19, 2002 from the Superintendent of Central Excise, Bangalore statingthat for the period from October 2000 to January 2001, insurance charges amounting to Rs. 24,915 paid fortransportation of the goods had not been included in the assessable value of the goods in terms of Section 4,Central Excise Act. Thus, a demand of Rs. 3,986 was made on our Company. Our Company has contested this demandvide letter dated March 4, 2002.

(vii) Our Company was served a show cause notice dated December 19, 1994 from the Assistant Collector of CentralExcise wherein our Company was directed to change the classification of certain products and consequently to paya differential duty of Rs. 580,793. The Assistant Collector in his order (Order No 134/95 dated November 30, 1995)ordered the Company to pay a sum of Rs. 633,417. Our Company appealed this order before the Commissioner ofAppeals who upheld the same (in his Order No. 514/97 dated December 9, 1997). The appeal before the CEGAT thatwas subsequently filed by our Company was disposed of (vide Order No. 1059 and 1060 dated June 12, 2001) andthe matter was remanded to the Assistant Collector of Central Excise for de novo adjudication to re-determine the

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classification. The matter is pending final adjudication.

(viii) The Superintendent of Service Tax Range III, Bangalore – I has issued a letter dated December 2, 2003 to Bioconinforming it that it was liable to pay service tax from July 7, 1997 for the technical know-how services that it hasavailed from Heber Biotec and SCMIB. Biocon is required to provide the relevant agreements and details of lumpsum and royalty payments made by it to the foreign companies. Our Company intends to contest this demand.

4. Income tax cases

Our Company has income tax cases relating to the assessment years, as detailed below. These cases involve issues relatingto our Company’s claims for deduction for research and development fees under Section 80 HHC, I. T. Act amortization ofexpenditure incurred on leasehold property and deduction of research and development fees on gross receipts under Section80-O, I.T. Act.

Sr. No. Assessment year Total amount Amount provided Status of casedemanded in our books

(Rs.) (Rs.)

1. 1994-95 3,776,607 3,011,000 Order has been passed by the ITAT.

Our Company is in the process of filing a miscellaneouspetition seeking rectification of certain errors in the order.

2. 1995-96 6,934,354 5,581,000 Order has been passed by the ITAT.

Our Company is in the process of filing a miscellaneouspetition seeking rectification of certain errors in the order.

3. 1996-97 7,951,633 6,948,000 Order has been passed by the ITAT.

Our Company is in the process of filing a miscellaneouspetition seeking rectification of certain errors in the order.

4. 1997-98 7,278,830 5,399,000 Case referred by CIT (Appeals) to assessing officer forre computing the tax payable.

5. 1998-99 14,724,518 12,096,000 Case referred by CIT (Appeals) to assessing officer forre computing the tax payable.

6. 2000-01 Nil (1) Nil Case pending before the CIT (Appeals).

7. 2001-02 Not yet determined. Nil Assessment order of the assessment officer is pending.

(1) No amount is demanded as our Company has filed a returned loss for this assessment year.

Claims made by our Company

1. Civil disputes

(i) A suit (O.S. No. 5058/2001) has been filed by our Company in the court of the City Civil Judge, Bangalore against sixof our former employees and Transcorp Technologies Ltd., whose employment the said employees have joined afterresigning from our Company. Our Company has alleged that Transcorp induced these employees, who had accessto our Company’s proprietary knowledge, to join the employment of Transcorp. Our Company has further contendedthat these employees have disclosed this proprietary confidential information during the discharge of their duties atTranscorp and in doing so have violated their obligations of non-disclosure, as undertaken in their appointmentletters and separation undertakings. Our Company has prayed for an injunction against Transcorp restraining itfrom inducing employees of our Company from breaching obligations owed to our Company. Our Company hasbeen granted an ex-parte temporary injunction in its favour. The next hearing is scheduled for March 4, 2004.

(ii) A suit (O.S. No. 1183/2000) has been filed by our Company in the court of the City Civil Judge, Bangalore againstAdvanced Biochemicals Ltd under Section 106 of the Trade and Merchandise Marks Act alleging infringement of itsmark SPEEDO X used for a certain enzyme. Our Company has alleged that usage of the deceptively similar markSPEEDOX by Advanced Biochemicals for a similar product amounts to an action of passing off for which it hasprayed for a permanent injunction restraining Advanced Biochemicals from using the mark SPEEDOX in relation toany of its products, and for damages to the tune of Rs. 10,000. On 11 January, 2000, a temporary injunction waspassed by the VIII Additional City Civil and Sessions Judge, Bangalore restraining Advanced Biochemicals from

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using the abovementioned mark in relation to any of its products. Further, in an application filed by our Companyfor disobedience/breach of injunction by Advanced Biochemicals on the ground that Advanced Biochemicals hascontinued to advertise their products under the name SPEEDOX on their web site. The hearing has been posted forFebruary 28, 2004.

(iii) Our Company has filed a suit (C.S. 662/2003) filed in the High Court of Madras against Basarass Biocon India PrivateLtd under Section 106 of the Trade and Merchandise Marks Act for permanent injunction restraining Basarass fromusing the name ‘Biocon’ as part of its corporate name or on any of its products as this allegedly results in aninfringement of our Company’s rights in the said name and moreover, amounts to an act of passing off by Basarass.An order dated October 7, 2003 of interim injunction has been passed restraining Basarass from (a) using the tradename and mark ‘Biocon’ in connection with the label on any of its products so as to pass them off as those of ourCompany, (b) using the trade name ‘Biocon’ as part of its corporate name, and (c) infringing our Company’s copyrightin the name ‘Biocon’. The case isposted for March 12, 2004.

(iv) Our Company has filed a suit (O.S. No 6786/2001) in the court of the City Civil Judge, Bangalore against GreenwaysShipping Agencies Pvt. Ltd., Evergreen Belgium Shipping Agency, Bhavishyath Forwarders and Cargill B V.Subsequent to the filing of the suit, our Company made an application for deletion of Cargill B.V as a party to thesuit. Our Company has claimed refund of the sum of Rs. 239,618.50 paid by it towards demurrage and other charges.The next hearing is scheduled for July 1 , 2004.

(v) Our Company has filed a suit (O. S. No. 6/2001B) filed in the court of the XII Additional District Judge, Indore forrecovery of Rs. 2,333,488.50 (plus interest at 18% p.a.) which M/s. Kedia Distilleries Limited owes our Company forsupplies made by our Company. The case is still pending.

2. Winding up cases

Our Company has initiated winding up proceedings against several companies. The details of such proceedings initiatedby our Company are set forth below:

Sr. No. Party involved Details of case Amount claimed Status

1. M/s. Bredfoods CP 204/2001 in the Rs. 140,020, + interestAdvertisement of petition for winding upPrivate Limited High Court of Karnataka @ 24% p.a. appeared in the newspapers on August 5, 2002.

Bredfoods has made a payment of Rs. 60,000in instalments but has defaulted in makingpayments thereafter. Consequently, theoutstanding balance owed by Bredfoods isRs. 80,020.

2. M/s. Deccan CP 62/2003 in the Rs. 248,470 + interest Advertisement of petition for winding upHealthcare Limited High Court of @ 24% p.a. appeared in the newspapers on September 20,

Andhra Pradesh 2003.

Deccan Healthcare has agreed to repay theprincipal sum along with interest, in instalments.

3. M/s. Apple CP 63/2003 in the Rs. 184,749 + interest Advertisement of petition for winding upLaboratories Limited High Court of @ 24% p.a. appeared in the newspapers on September 20,

Andhra Pradesh 2003.

Apple Laboratories has agreed to repay theprincipal sum along with interest, in instalments.

4. M/s. Kedia Liquor In the High Court of Rs. 40,660 This case is pending.Limited Madhya Pradesh

5. M/s. Associated In the High Court of Rs. 249,485 This case is pending.Alcohols and Madhya PradeshBreweries Ltd

6. M/s. Kedia Great In the High Court of Rs. 2,215,822.50 This case is pending.Galeon Limited Madhya Pradesh

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3. Criminal cases

Several suits for dishonour of cheques under Section 138 of the Negotiable Instruments Act have been filed by ourCompany.

Sr. No. Party involved Details of the case Details of dishonoured StatusCheque

1. M/s. Crips Laboratories Ltd,PCR 2590/2000 in the court Cheque No. 478892 The case is posted forits MD and chairman of the XIV Additional dated November 2, 1999 February 18, 2004.

Metropolitan Magistrate, drawn on State Bank of India,Bangalore Overseas Branch, Visakhapatnam

for Rs. 40,000.

2. M/s. GranHeal Pharma Ltd CC 26681/2001 in the court Cheque No. 027984 The case has been posted forand its director of the XIV Additional dated June 23, 2000 February 21, 2004.

Metropolitan Magistrate drawn on Development CreditBank Limited, Mumbaifor Rs. 50,819.

3. M/s. Ontime Pharma Ltd PCR 1597/2001 in the courtCheque bearing No. 847794 Summons has been servedand its managing director of the XIV Additional dated November 25, 2000 and the next hearing has

Metropolitan Magistrate, drawn on Andhra Bank, been posted for March 8,Bangalore Hyderabad for Rs. 332,440 2004.

4. M/s. Morepen CC 2989/1/2003 in the court Cheque bearing No. 211702 Summons has been issued forLaboratories Ltd, of the Additional Chief dated July 31, 2003 drawn hearing on February 21,and its directors Metropolitan Magistrate, on Punjab National Bank 2004.

New Delhi. for Rs. 2,500,000

5. M/s. Morepen CC 1853/1/03 in the court Cheque bearing No. 211703 Summons has been issued forLaboratories Ltd, of the Additional Chief dated August 31, 2003 drawn hearing scheduled onand its directors Metropolitan Magistrate, on Punjab National Bank for November 25, 2004.

New Delhi. Rs. 3,000,000

6. M/s. Morepen CC 2184/01/2911/2003 in Cheque bearing No. 211704 Summons has been issued forLaboratories Ltd., the court of the Additional dated September 30, 2003 hearing scheduled on Januaryand its directors Chief Metropolitan drawn on Punjab National 7, 2005.

Magistrate, New Delhi. Bank for Rs. 4,000,000

4. Excise claims

(i) Our Company has submitted an application dated November 2, 1999 to the Assistant Commissioner of Central Excisefor refund of excise duty of Rs. 6,720 due to return of part of the goods of value Rs. 42,000 by the customer, GujaratAmbuja Exports Ltd.

(ii) Our company has submitted an application dated September 17, 1999 to the Assistant Commissioner of CentralExcise for refund of excise duty for sum of Rs. 8,100 due to return of the goods by the customer, M/s. Niche Marketing,New Delhi.

Claims involving amounts owed to small-scale undertakings

The details of the small-scale undertakings to whom our Company owes a sum exceeding Rs. 100,000 and which has beenoutstanding for more than 30 days, as on March 31, 2003, are as follows:

Sr. No. Name of small scale undertaking Amount owed (in Rs.)1 Acme Synthetic Chemicals 486,720

2. Anil Agro Products Private Limited 1,296,920

3. Avani Enterprise 505,440

4. Bangalore Genei Private Limited 318,567

5. Eskay Fine Chemicals 3,525,704

6. Gorwara Chemical Industries 150,016

7. Millenium Chem Pharma Private Limited 117,088

8. Quantum Drugs & Chemicals 464,456

9. Senthil Papai and Food Products Limited 769,600

Total 7,634,511

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Potential Disputes or Claims

A. Potential disputes or claims against the Company

1. Civil claims

(i) In October 2001, Ranbaxy made allegations that our Company’s process for manufacture of Simvastatin and Lovastatinand the intermediates produced during the process likely infringes certain patents owned by Ranbaxy being USpatent No. 5,763,646, US Patent No. 5,763,653, European Patent Nos. EP 864569 B1 and European Patent No. EP864560 A1. Ranbaxy called upon our Company to stop practising this process in US and Europe and to stop sellingproducts manufactured using such processes in the US or Europe. Upon our Company’s denial of these allegations,on March 18, 2003 Ranbaxy requested settlement of the dispute between the parties through mediation within onemonth, which period was extended to a date no later than June 15, 2003 by Ranbaxy. No further action has beentaken by Ranbaxy in this regard. Meanwhile, our Company has obtained three process patents in the United Statesfor the alleged infringing processes related to manufacture of simvastatin and novel intermediaries (being PatentNo. 6,573,392 B1 granted on June 3, 2003, Patent No. 6,573,385 B1 granted on June 3, 2003 and Patent No. 6,603,022B1 granted on August 5, 2003).

(ii) Our Company and Shantha Biotechnics Pvt Ltd, or Shantha, entered into a joint venture agreement on October 31,2001 for forming a joint venture company for manufacturing and marketing human insulin. Execution of the jointventure company was based on certain mutual understandings. Since substantial deviations from the originalunderstanding became necessary, the joint venture company was not incorporated. The parties are currentlynegotiating to finalise a supply agreement.

(iii) Geomans Limited claims to own land adjacent to our Company’s premises at 20 KM Hosur Road, Hebbagodi, andhas alleged that the compound wall constructed by our Company encroaches upon the land owned by GeomansLtd. Geomans Ltd is also claiming alleged damages of Rs. 2,831,400. Our Company has contested these claims asbeing baseless.

(iv) A notification (No. BDA/COMMR/LAO/60/2003-2004) dated August 11, 2003 was issued by the BangaloreDevelopment Authority to our Company for acquisition of certain lands owned by our Company located at SurveyNo. 89 at Dokkakanelli village, Varthur Hobli along with other properties in the area. Our Company has filed itsobjections to the notice for acquisition and was granted a personal hearing on October 22, 2003.The property underreference is situated within a fully developed residential enclave with sanctioned facilities for water and electricitysupply. The decision of the Bangalore Development Authority on the acquisition of the said property is pending.

2. Statutory claims

(i) Legal Notice dated October 23, 2003 on behalf of Sri. N. Mohan, residing in the area neighbouring our Company’spremises, has been issued against our Company under Section 43(1)(b) Air (Prevention and Control of Pollution)Act, 1981 complaining of a foul smell in the air in the locality and alleging the causing of pollution of air andunderground water in violation of the Air (Prevention and Control of Pollution) Act, 1981 and the Chapter X (B) ofthe Criminal Procedure Code. It has been herein threatened that further action may be taken by way of proceedingsbefore the court or the Pollution Control Board. Our Company has replied to the said notice and has denied theseallegations against it.

(ii) Summons (No.T-3/Exp/207/BZ/03(AD-KP)/M9/4087) dated November 4, 2003 were issued to the Managing Directorof our Company by the Directorate of Enforcement in connection with proceedings under the Foreign ExchangeManagement Act, 1999 whereby our Company was required to furnish information relating to inter alia export billspending realisation for more than six months. Pursuant to this, the Company has furnished certificates from bankscertifying that there are no export bills outstanding for more than 6 months apart from an amount of US$ 9000 fromGoldshield Plc. and an amount of US$ 3775 from Hayat Pharmaceutical Industries Co. Ltd. It is relevant to note thatthe aforesaid amount of US$ 9000 from Goldshield Plc. was given as a discount by Biocon by way of a credit notedated July 10, 2003 due to delay in shipments of supply, and this change was not reflected in the bank account ofthe concerned bank. Our Company has since received (on December 4, 2003) the outstanding payment of US$ 3775from Hayat Pharmaceuticals. Further, as required by the enforcement officer, our Company has verified receipt ofpayments on export bills contained in the list provided by the Enforcement Officer, which is based on informationreceived from the RBI.

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3. Others

(i) Our Company has purchased stamp paper from a M/s. Sri. Sai Agencies, an ‘A’ class stamp vendor. Subsequently,pursuant to the police investigation of the fake stamp paper scam involving Mr. Abdul Karim Telgi, it was allegedthat this agency was dealing with fake stamp paper. Statements of our Company’s personnel were recorded and wewere given to understand that these personnel may be called upon to give evidence in ensuing legal proceedings.However, currently no charges have been initiated against our Company or its personnel

(ii) A legal notice dated September 13, 2003 has been issued on behalf of M/s. Textan Chemicals (P) Ltd stating that in a“Certificate of analysis” prepared by one of our Company’s Senior Manager - Quality Assurance, damaging statementshad been against Textan’s product. Wockhardt has vide letter dated October 20, 2003, in its capacity as the marketersand owners of the trademark ‘CAPLIX-L’ of the said product which is manufactured by Textan, raised a similar claim.Our Company has suitably replied to both the abovementioned letters.

B. Potential disputes or claims by the Company

1. Civil claims

(i) Our Company entered into a technology transfer agreement dated June 3, 2002 with SCMIB, for transfer by SCMIBof technology for manufacturing the product, tetrahydrolipstatin which was to manufactured and marketed by ourCompany on a commercial scale. In this agreement, SCMIB guaranteed that use of the technology by our Companywill not infringe any patent and further, SCMIB agreed to indemnify our Company against third party intellectualproperty infringement claims filed against our Company. Subsequently, patents bearing Nos. EP 0 803 576 B1 and US2002/0110873 A1 were granted to Hoffmann La Roche Inc. for the process for production of Lipstatin andTetrahydrolipstatin which, as claimed by our Company, covers the technology transferred by SCMIB. Legal noticedated April 11, 2003 was sent on behalf of our Company to SCMIB alleging violation of the technology transferagreement by SCMIB and demanding that, in light of possible third party intellectual property infringement claims,unless SCMIB provided evidence to our Company that the transferred technology would not constitute an infringementon third party’s intellectual property rights, our Company would stop further payment to SCMIB under the agreement.SCMIB has replied in legal notice dated November 10, 2003 inter alia denying that its technology infringes uponany patent rights of third parties and stating that, SCMIB is not responsible for any loss, damage or cost arising outof its technology infringing upon third party technology. Our Company has issued a suitable reply.

(ii) Our Company has issued a legal notice dated July 11, 2003 to Atul Agro Care for recovery of a sum of Rs. 325,668along with interest @ 18% p.a for supplies made.

(iii) Our Company has sent a letter dated December 24, 2003 to M/s. Hima Food Additives and its proprietor claiming asum of Rs. 527,201 from them. Biocon has threatened to take legal action against Hima Food Additives if it does notfurnish the amount owed by it to Biocon (along with interest @12% p.a.). Hima Food Additives has since made apart payment of Rs. 150,000.

2. Winding up cases

Our Company has issued notices against certain entities for non-payment of certain amounts (owed to our Company,wherein it has threatened to initiate winding up proceedings against these entities on their failure to furnish the amountsowed by them:

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Sr. No. Party involved Amount Date Of Notice And Remarks

1. M/s. Dolphin Laboratories Ltd Rs. 330,049 + interest @ 24% p.a May 17, 2003

2. M/s. Drakt Pharmaceutical Pvt Ltd Rs. 60,322 + interest @ 18% p.a. September 11, 2003

Drakt has agreed to pay the amount in letterdated September 24, 2003.

3. M/s. Empee Distilleries Limited Rs. 885,072 + interest @ 24% p.a.April 26, 2003Out of this, a sum of Rs. 180,000 hasEmpee vide letter dated May 19, 2003 hasalready been paid in instalments. agreed to pay the amount in instalments.

4. M/s. Gayatri Starchkem Ltd Rs. 1,251,441 + interest @ 24% p.a. July 4, 2003

Gayatri Starchkem has claimed that they oweonly Rs. 73,326 as they have already paid ourCompany Rs. 1,178,115. It further claimsthat the company has been referred to theBIFR. Our Company has responded statingthat they have not received monies alleged to

have been paid to them.

Claims involving the Company’s subsidiaries

There are no contingent liabilities which require provisioning in the books, outstanding litigation, disputes, non payment ofstatutory dues, overdues to banks/financial institutions, defaults against banks/financial institutions, defaults in dues towardsinstrument holders like debenture holders, fixed deposits and arrears on cumulative preference shares issued by the company,defaults in creation of full security as per terms of issue/other liabilities, proceedings initiated for any economic/civil/ anyother offences against our Subsidiaries.

Claims against our Directors and Promoters

There are no contingent liabilities which require provisioning in the accounts, outstanding litigation, disputes, non-paymentof statutory dues, overdues to banks/financial institutions or proceedings initiated for any economic/civil/criminal/any otheroffences against any of our Directors or Promoters, other than the following suits for dishonour of cheques filed underSection 138 and 141 of the Negotiable Instruments Act:

■ Case (CC 1157/02) filed by M/s. Electronica Leasing and Finance Co. against Jog Engineering Ltd and others includingone of our Directors, Mr. Suresh Talwar, in his capacity as director of Jog Engineering Ltd at the time of issue of thecheque by Jog Engineering. The suit has been filed in the court of the Judicial Magistrate First Class (A.C. Court) Puneon June 24, 2002. The last hearing of the case took place on January 31, 2004.

■ Case (CC 1524/02) filed by M/s. Pam-Pac Machines Pvt. Ltd. against Jog Engineering Ltd and others including Mr. SureshTalwar, in his capacity as director of Jog Engineering Ltd. at the time of issue of the cheque by Jog Engineering. The suithas been filed in the court of the Judicial Magistrate First Class at Vadgaon Maval, District Pune on August 20, 2002.The last hearing of the case took place on January 27, 2004.

Claims involving group companies

There are no claims involving any of the group companies of our Company, i.e. Syngene, Clinigene and BBPL. Our Promotersdo not have any group companies.

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MATERIAL DEVELOPMENTS

To the knowledge of the Board of Directors of our Company, there have not arisen, since the date of the last financialstatements disclosed in this Prospectus, any circumstances that materially or adversely affect or are likely to affect theprofitability of the Company or the value of its assets or its ability to pay its liabilities within the next twelve months.

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DIVIDEND POLICY

The declaration and payment of dividends will be recommended by our Board of Directors and our shareholders, in theirdiscretion, and will depend on a number of factors, including but not limited to our earnings, capital requirements and overallfinancial condition. The dividends paid by our Company during the last five fiscal years are presented below:

Class of shares Face Value Year ended Year ended Year ended Year ended Year ended Nine monthsMarch 31, March 31, March 31, March 31, March 31, period ended

1999 2000 2001 2002 2003 Dec. 31, 2003

Equity Shares Nil Nil Nil Nil Nil Nil

- Interim Nil Nil Nil Nil Nil Nil

- Final Nil Nil Nil Nil Nil Nil

Total Ni l N i l N i l N i l N i l N i l

On November 11, 2003, an issue of 86,324,700 Equity Shares was approved by our Company to its shareholders by way ofbonus in the ratio of 23.5 Equity Shares for every 1 Equity Share held by way of capitalisation of our profits and reserves.

The amounts paid as dividend or bonus in the past is not indicative of our dividend policy in the future.

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OTHER REGULATORY DISCLOSURES

Stock Market Data for our Equity Shares

This being an initial public issue of our Company, the Equity Shares of our Company are not listed on any stock exchange.

Particulars Regarding Public Issues during the Last Five Years

We have not made any public issues during the last five years.

Companies Under the Same Management

There are no companies under the same management within the meaning of erstwhile Section 370(1B) of the Companies Act,other than the subsidiaries and group companies, details of which are provided in the section entitled “Subsidiaries” on page81 of this Prospectus.

Mechanism for Redressal of Investor Grievances

The agreement between the Registrar to the Issue and us will provide for retention of records with the Registrar to the Issuefor a period of at least one year from the last date of despatch of the letters of allotment, demat credit and refund orders toenable the investors to approach the Registrar to the Issue for redressal of their grievances.

All grievances relating to the Issue may be addressed to the Registrar to the Issue, giving full details such as name, addressof the applicant, number of Equity Shares applied for, amount paid on application and the bank branch or collection centerwhere the application was submitted.

We estimate that the average time required by us or the Registrar to the Issue for the redressal of routine investor grievanceswill be seven business days from the date of receipt of the complaint. In case of non-routine complaints and complaintswhere external agencies are involved, we will seek to redress these complaints as expeditiously as possible.

We have appointed an Investor Grievance Committee on January 17, 2004 chaired by Dr. Neville Bain and with Ms. KiranMazumdar-Shaw and Mr. John Shaw as members. We are also appointing Mr. Murali Krishnan K.N. as the Compliance Officerfor this Issue.

Details of borrowings in our Company

Please refer to the section entitled “Debt Obligations”on page 113 of this Prospectus for details of borrowings in our Companyas specified in Annexure XII to the report on our unconsolidated financial statements under Indian GAAP.

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TERMS OF THE ISSUE

The Equity Shares being issued are subject to the provisions of the Companies Act, our Memorandum and Articles, conditionsof the FIPB approval as may be applicable, the terms of this Prospectus, Bid cum Application Form, the Revision Form, theCAN and other terms and conditions as may be incorporated in the allotment advices and other documents/ certificates thatmay be executed in respect of the Issue. The Equity Shares shall also be subject to laws, guidelines, notifications andregulations relating to the issue of capital and listing of securities issued from time to time by SEBI, Government of India,Stock Exchanges, RBI, Registrar of Companies and/or other authorities, as in force on the date of the Issue and to the extentapplicable.

Authority for the Issue

The Issue has been authorised by a special resolution adopted pursuant to Section 81(1A) of the Companies Act, at theextraordinary general meeting of the shareholders of the Company held on December 24, 2003. The Board of Directors haspursuant to a resolution dated October 18, 2003 authorized the IPO Committee to take decisions on behalf of the Board inrelation to the Issue. The IPO Committee pursuant to its resolution dated November 28, 2003 has authorized the Issue.

Ranking of Equity Shares

The Equity Shares being issued shall be subject to the provisions of our Memorandum and Articles and shall rank pari-passu with the existing Equity Shares of our Company. Shareholders subscribing to our Equity Shares under this Issue willbe entitled to dividends and other corporate benefits, if any, declared by our Company after the date of allotment.

Face Value and Issue Price

The Equity Shares with a face value of Rs. 5 each are being sold in the Issue at a total price of Rs. 315 per share. At anygiven point of time there shall be only one denomination for the Equity Shares.

Rights of the Equity Shareholder

Subject to applicable laws, the equity shareholders shall have the following rights:

■ Right to receive dividend, if declared;

■ Right to attend general meetings and exercise voting powers, unless prohibited by law;

■ Right to vote on a poll either in person or by proxy;

■ Right to receive offers for rights shares and be allotted bonus shares, if announced;

■ Right to receive surplus on liquidation;

■ Right of free transferability; and

■ Such other rights, as may be available to a shareholder of a listed public company under the Companies Act and theCompany’s Memorandum and Articles.

For a detailed description of the main provisions of our Articles relating to voting rights, dividend, forfeiture and lien and/orconsolidation/splitting, please refer to the section entitled “Main Provisions of Articles of Association of the Company” onpage 168 in this Prospectus.

Market Lot

In terms of Section 68B of the Companies Act, the Equity Shares of our Company shall be allotted only in dematerialisedform. As per existing SEBI Guidelines, the trading of our Equity Shares shall only be in dematerialised form.

Since trading of our Equity Shares is in dematerialised form, the tradable lot is one Equity Share. Transfer of the EquityShares upon allocation will be done only in electronic form in lots of 50 Equity Shares.

Jurisdiction

Exclusive jurisdiction for the purpose of this Issue is with the competent courts/authorities in Bangalore, India.

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Nomination Facility to Investor

In accordance with Section 109A of the Companies Act, the sole or first Bidder, along with other joint Bidders, may nominateany one person in whom, in the event of the death of sole Bidder or in case of joint Bidders, death of all the Bidders, as thecase may be, the Equity Shares allotted, if any, shall vest. A person, being a nominee, entitled to the Equity Shares by reasonof the death of the original holder(s), shall in accordance with Section 109A of the Companies Act, be entitled to the sameadvantages to which he or she would be entitled if he or she were the registered holder of the equity share(s). Where thenominee is a minor, the holder(s) may make a nomination to appoint, in the prescribed manner, any person to become entitledto equity share(s) in the event of his or her death during the minority. A nomination shall stand rescinded upon a sale ofequity share(s) by the person nominating. A buyer will be entitled to make a fresh nomination in the manner prescribed.Fresh nomination can be made only on the prescribed form available on request at the Registered Office of our Company orto the Registrar and Transfer Agents of our Company.

In accordance with Section 109B of the Companies Act, any person who becomes a nominee by virtue of the provisions ofSection 109A of the Companies Act, shall upon the production of such evidence as may be required by the Board, electeither:

■ to register himself or herself as the holder of the Equity Shares; or

■ to make such transfer of the Equity Shares, as the deceased holder could have made.

Further, the Board may at any time give notice requiring any nominee to choose either to be registered himself or herself or totransfer the Equity Shares, and if the notice is not complied with within a period of ninety days, the Board may thereafterwithhold payment of all dividends, bonuses or other moneys payable in respect of the Equity Shares, until the requirementsof the notice have been complied with.

Since the allotment of Equity Shares in the Issue will be made only in dematerialised form, there is no need to make a separatenomination with us. Nominations registered with respective depository participant of the applicant would prevail. If the investorsrequire to change the nomination, they are requested to inform their respective depository participant.

Application by Non Residents/NRIs/FIIs

Our Company has received approval from the Government of India, Ministry of Finance and Company Affairs (Department ofEconomic Affairs) pursuant to its Approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004 for the issueof Equity Shares in this Issue to eligible Non Residents, NRIs, FIIs and Foreign Venture Capital Funds with repatriationbenefits. However it is to be distinctly understood that there is no reservation for Non Residents, NRIs, FIIs and ForeignVenture Capital Funds and all Non Residents, NRI, FII and Foreign Venture Capital Fund applicants will be treated on thesame basis with other categories for the purpose of allocation. The allotment of Equity Shares to Non-residents shall besubject to the conditions as may be prescribed by the Government of India, Ministry of Finance and Company Affairs(Department of Economic Affairs) while granting such permissions.

As per the policy of the RBI, Overseas Corporate Bodies cannot participate in this Issue.

The Equity Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “SecuritiesAct”) or any state securities laws in the United States and may not be offered or sold within the United States or to, or forthe account or benefit of, “U.S. persons” (as defined in Regulation S of the Securities Act), except pursuant to an exemptionfrom, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Equity Shareswill be offered and sold only (i) in the United States to “qualified institutional buyers”, as defined in Rule 144A of the SecuritiesAct, and (ii) outside the United States in compliance with Regulation S and the applicable laws of the jurisdiction wherethose offers and sales occur.

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ISSUE STRUCTURE

The present issue of 10,000,000 Equity Shares of Rs. 5 each for cash at a premium of Rs. 310 per Equity Share aggregatingtotal consideration of Rs. 3,150 million is being made through a 100% book building process.

QIBs Non Institutional Bidders Reta i l

Number of Equity Shares(1) 6,000,000 1,500,000 2,500,000

Percentage of Issue size available Higher of 60% or Issue size less Minimum 15% or Issue size Minimum 25% or Issue size lessfor allocation allocation to Non Institutional less allocation to QIBs and allocation to QIBs and Non

Portion and Retail Portion Retail Portion Institutional Portion

Basis of Allocation or Allotment Discretionary Proportionate Proportionateif respective category isoversubscribed

Minimum Bid Such number of Equity Shares Such number of Equity Shares Such number of Equity Shares and inand in multiples of 50 Equity and in multiples of 50 Equity multiples of 50 Equity SharesShares thereafter, that the Shares thereafter, that the thereafterBid Amount exceeds Rs. 50,000 Bid Amount exceeds

Rs. 50,000

Maximum Bid Not exceeding the size of the Not exceeding the size of Such number of Equity SharesIssue subject to applicable limits the Issue whereby the Bid Amount does not

exceed Rs. 50,000

Allotment Mode Compulsory in Dematerialised Compulsory in Compulsory in Dematerialised formform Dematerialised form

Trading Lot 1 Equity Share 1 Equity Share 1 Equity Share

Market lot/Bidding lot 50 Equity Shares 50 Equity Shares 50 Equity Shares

Who can Apply Public financial institutions as Resident Indian individuals,Individuals (including NRIs andspecified in Section 4A of the HUF (in the name of Karta), HUFs) applying for an amount upCompanies Act, FIIs registered companies, corporate bodies, to Rs. 50,000with SEBI, scheduled commercialNRIs, scientific institutions,banks, mutual funds registered societies and trusts.with SEBI, multilateral andbilateral development financialinstitutions, venture capitalfunds registered with SEBI,foreign venture capitalinvestors registered with SEBI,state industrial developmentcorporations, insurancecompanies registered withInsurance Regulatory andDevelopment Authority,provident funds with minimumcorpus of Rs. 250 million andpension funds with minimumcorpus of Rs. 250 million.

Terms of Payment Margin Amount applicable to Margin Amount applicable to Margin Amount applicable to RetailQIB Bidders at the time of Non Institutional Bidders atBidders at the time of submission ofsubmission of Bid cum the time of submission of BidBid cum Application Form to theApplication Form to the cum Application Form to themembers of the Syndicatemembers of the Syndicate members of the Syndicate

(1) Subject to valid Bids being received at or above the Issue Price. Under subscription, if any, in any of the categories, would be allowed to be met with spill overfrom any of the other categories, at the discretion of the Company, in consultation with the BRLMs.

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ISSUE PROCEDURE

Book Building Procedure

The Issue is being made through the 100% book-building scheme wherein 60% of the Issue shall be allocated on a discretionarybasis to Qualified Institutional Buyers. Further, not less than 15% of the Issue shall be available for allocation on aproportionate basis to Non Institutional Bidders and not less than 25% of the Issue shall be available for allocation on aproportionate basis to Retail Bidders, subject to valid Bids being received at or above the Issue Price.

Bidders are required to submit their Bids through the Syndicate. Our Company, in consultation with the BRLMs and theCBRLM, reserves the right to reject any Bid procured by any or all members of the Syndicate without assigning any reasonstherefore in case of QIBs. In case of Non Institutional Bidders and Retail Bidders, our Company would have a right to rejectthe Bids only on technical grounds.

Investors should note that Equity Shares would be allotted to all successful Bidders only in dematerialised form.

Bid cum Application Form

Bidders shall only use the Bid cum Application Form bearing the stamp of a member of the Syndicate for the purpose ofmaking a Bid in terms of this Prospectus. The Bidder shall have the option to make a maximum of three Bids in the Bid cumApplication Form and such options shall not be considered as multiple Bids. Upon the allocation of Equity Shares, dispatchof the CAN and filing of the Prospectus with the RoC, the Bid cum Application Form shall be considered as the ApplicationForm. Upon completing and submitting the Bid cum Application Form to a member of the Syndicate, the Bidder is deemed tohave authorised our Company to make the necessary changes in this Prospectus and the Bid cum Application Form aswould be required for filing the Prospectus with the RoC and as would be required by the RoC after such filing, without prioror subsequent notice of such changes to the Bidder.

The prescribed colour of the Bid cum Application Form for various categories, is as follows:

Category Colour of Bid cum Application Form

Indian Public or NRIs applying on a non-repatriation basis White

Non-residents including NRIs or FIIs applying on a repatriation basis Blue

Who Can Bid?

n Indian nationals resident in India who are majors, in single or joint names (not more than three);

n Hindu undivided families or HUFs, in the individual name of the Karta. The Bidder should specify that the Bid is beingmade in the name of the HUF in the Bid cum Application Form as follows: “Name of Sole or First Bidder: XYZ HinduUndivided Family applying through XYZ, where XYZ is the name of the Karta”. Bids by HUFs would be considered atpar with those from individuals;

n Companies, corporate bodies and societies registered under the applicable laws in India and authorised to invest inEquity Shares;

n Indian mutual funds registered with SEBI;

n Indian financial institutions, commercial banks, regional rural banks, co-operative banks (subject to RBI permission, asapplicable);

n Venture capital funds registered with SEBI;

n Foreign venture capital investors registered with SEBI;

n State Industrial Development Corporations;

n Insurance companies registered with Insurance Regulatory and Development Authority;

n Provident funds with minimum corpus of Rs. 250 million and who are authorised under their constitution to invest inEquity Shares;

n Pension funds with minimum corpus of Rs. 250 million and who are authorised under their constitution to invest inEquity Shares;

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n Multilateral and bilateral development financial institutions;

n Trusts registered under the Societies Registration Act, 1860, as amended, or under any other law relating to Trusts andwho are authorised under their constitution to hold and invest in Equity Shares;

n Eligible Non-residents including NRIs and FIIs on a repatriation basis or a non-repatriation basis subject to applicablelaws; and

n Scientific and/or industrial research organisations authorised under their constitution to invest in Equity Shares.

Note: The members of the Syndicate and any associate of the members of the Syndicate (except asset management companieson behalf of mutual funds, Indian financial institutions and public sector banks) cannot participate in that portion of theIssue where allocation is discretionary. Further, the BRLMs, the CBRLM and the Syndicate Members shall not be entitled tosubscribe to this Issue in any manner except towards fulfilling their underwriting obligation.

Bidders are advised to ensure that any single Bid from them does not exceed the investment limits or maximum number ofEquity Shares that can be held by them under applicable law.

In accordance with the current regulations, the following restrictions are applicable for investments by mutual funds:

No mutual fund scheme shall invest more than 10% of its net asset value in the Equity Shares or equity related instrumentsof any company provided that the limit of 10% shall not be applicable for investments by index funds or sector or industryspecific funds. No mutual fund under all its schemes should own more than 10% of any company’s paid-up capital carryingvoting rights.

In accordance with the current regulations, the following restrictions are applicable for investments by FIIs:

The issue of Equity Shares to a single FII should not exceed 10% of the post-Issue issued capital of the Company (i.e. 10%of 100,000,000 Equity Shares). In respect of an FII investing in our Equity Shares on behalf of its sub-accounts, the investmenton behalf of each sub-account shall not exceed 10% of our total issued capital or 5% of our total issued capital in case suchsub-account is a foreign corporate or an individual. As of now, the aggregate FII holding in the Company cannot exceed 24%of our total issued capital. With the approval of the Board and the shareholders by way of a special resolution and as specifiedin the FIPB approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004, the aggregate FII holding can go upto 60%; however, till date, no such resolution has been recommended for adoption.

In accordance with the current regulations, the following restrictions are applicable for investments by SEBI registered VCFsand FVCIs:

The SEBI (Venture Capital) Regulations, 1996 and the SEBI (Foreign Venture Capital Investor) Regulations, 2000 prescribeinvestment restrictions on venture capital funds and foreign venture capital investors registered with SEBI. Accordingly, theholding by any VCF or FVCI should not exceed 25% of the Company’s paid-up capital. The aggregate holdings of VCFs andFVCIs could, however as specified in the FIPB approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004,go up to 60% of the Company’s paid-up equity capital.

The above information is given for the benefit of the Bidders. Our Company and the BRLMs and the CBRLM are not liablefor any amendments or modification or changes in applicable laws or regulations, which may occur after the date of thisProspectus. Bidders are advised to make their independent investigations and ensure that their number of Equity Shares Bidfor do not exceed the applicable limits under laws or regulations.

Maximum and Minimum Bid Size

For Retail Bidders

The Bid must be for such number of Equity Shares and in multiples of 50 Equity Shares thereafter, that the Bid Amount is notless than Rs. 2,000. In case of revision of Bids, the Retail Bidders have to ensure that the Bid Amount does not exceedRs. 50,000. In case the Bid Amount is over Rs. 50,000 due to revision or on exercise of Cut-off option, the Bid would beconsidered for allocation under the Non Institutional Bidders category. The Cut-off option is an option given only to theRetail Bidders indicating their agreement to bid and purchase at the final Issue Price as determined at the end of the BookBuilding Process.

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For Non Institutional and QIB Bidders

The Bid must be for a minimum of such number of Equity Shares and in multiples of 50 Equity Shares thereafter, that the BidAmount exceeds Rs. 50,000. A Bid cannot be submitted for more than the size of the Issue. However, the maximum Bid by aQIB investor should not exceed the investment limits prescribed for them by applicable laws. Under existing SEBI guidelines,a QIB Bidder cannot withdraw its Bid after the Bid/Issue Closing Date.

In case of revision in Bids, the Non Institutional Bidders who are individuals have to ensure that the Bid Amount is greaterthan Rs. 50,000. In case the Bid Amount reduces to Rs. 50,000 or less due to a revision in Bids, the same would be consideredfor allocation under the Retail Portion.

Information for the Bidders

1. Our Company has filed the Prospectus with the RoC.

2. The Syndicate will circulate copies of the Prospectus along with the Bid cum Application Form to potential investors.

3. Any investor who would like to obtain the Prospectus along with the Bid cum Application Form can obtain the samefrom our corporate office or from any of the members of the Syndicate.

4. The Bids should be submitted on the prescribed Bid cum Application Form only. Bid cum Application Forms should bearthe stamp of the members of the Syndicate. Bid cum Application Forms that do not bear the stamp of the members of theSyndicate will be rejected.

Method and Process of bidding

1. Our Company and the BRLMs and the CBRLM shall declare the Bid/Issue Opening Date, Bid/Issue Closing Date andPrice Band in the Prospectus filed with RoC and publish the same in two national newspapers (one each in English andHindi) and a regional newspaper (Kannada). This advertisement shall contain the salient features of the Prospectus asspecified under Form 2A of the Companies Act, the method and process of bidding and the names and addresses of themembers of the Syndicate. The members of the Syndicate shall accept Bids from the Bidders during the Issue Period.

2. Investors who are interested in subscribing for our Company’s Equity Shares should approach any of the members ofthe Syndicate or their authorised agent(s) to register their Bid.

3. The Bidding Period shall be open for at least 5 days and not more than 10 days. In case the Price Band is revised, therevised Price Band and the Bidding Period will be published in two national newspapers (one each in English and Hindi)and one regional newspaper (Kannada) and the Bidding Period shall be extended for a further period of three days,subject to the total Bidding Period not exceeding thirteen days.

4. During the Bidding Period, the Bidders may approach the Syndicate to submit their Bid. Every member of the Syndicateshall accept Bids from all clients/investors who place orders through them and shall have the right to vet the Bids.

5. Each Bid cum Application Form will give the Bidder the choice to bid for up to three optional prices (for details refer tothe paragraph entitled “Bids at Different Price Levels” on page 147 of this Prospectus) within the Price Band and specifythe demand (i.e., the number of Equity Shares bid for). The price and demand options submitted by the Bidder in the Bidcum Application Form will be treated as optional demands from the Bidder and will not be cumulated. After determinationof the Issue Price, the maximum number of Equity Shares bid for by a Bidder at or above the Issue Price will be consideredfor allocation and the rest of the Bid(s), irrespective of the Bid price, will become automatically invalid.

6. The Bidder cannot bid on another Bid cum Application Form after Bids on one Bid cum Application Form have beensubmitted to any member of the Syndicate. Submission of a second Bid cum Application Form to either the same or toanother member of the Syndicate will be treated as multiple bidding and is liable to be rejected either before entering theBid into the electronic bidding system, or at any point of time prior to the allotment of Equity Shares in this Issue.However, the Bidder can revise the Bid through the Revision Form, the procedure for which is detailed in the paragraph

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“Build up of the Book and Revision of Bids” on page 149 of this Prospectus.

7. The members of the Syndicate will enter each option into the electronic bidding system as a separate Bid and generate aTransaction Registration Slip (TRS), for each price and demand option and give the same to the Bidder. Therefore, aBidder can receive up to three TRSs for each Bid cum Application Form.

8. Along with the Bid cum Application Form, all Bidders will make payment in the manner described under the paragraph“Terms of Payment and Payment into Escrow Account” on page 148 of the Prospectus.

Bids at Different Price Levels

1. The Price Band has been fixed at Rs. 270 to Rs. 315 per Equity Share, Rs. 270 being the floor of the Price Band andRs. 315 being the cap of the Price Band. The Bidders can bid at any price within the Price Band, in multiples of Re. l.

2. Our Company, in consultation with the BRLMs and the CBRLM, can revise the Price Band during the Bidding Period, inwhich case the Bidding Period shall be extended further for a period of three days, subject to the total Bidding Periodnot exceeding thirteen days. The cap on the Price Band should not be more than 20% of the floor of the Price Band.Subject to compliance with the immediately preceding sentence, the floor of Price Band can move up or down to theextent of 20% of the floor of the Price Band disclosed in this Prospectus.

3. Any revision in the Price Band will be widely disseminated by informing the stock exchanges, by issuing a public noticein two national newspapers (one each in English and Hindi), and one regional newspaper (Kannada) and also indicatingthe change on the web site of the BRLMs and the CBRLM and at the terminals of the Syndicate.

4 Our Company, in consultation with the BRLMs and the CBRLM, can finalise the Issue Price within the Price Band withoutthe prior approval of, or intimation, to the Bidders.

5. The Bidder can bid at any price within the Price Band. The Bidder has to bid for the desired number of Equity Shares at aspecific price. Retail Bidders may bid at “Cut-off ”. However, bidding at “Cut-off ” is prohibited for QIB or Non InstitutionalBidders and such Bids from QIBs and Non Institutional Bidders shall be rejected.

6. Retail Bidders who bid at the Cut-Off agree that they shall purchase the Equity Shares at the Issue Price, as finallydetermined which will be a price within the Price Band. Retail Bidders bidding at Cut-Off shall deposit in the EscrowAccount the Bid Amount based on cap of the Price Band. In the event the Bid Amount is higher than the AllocationAmount payable by the Retail Bidders (i.e., the total number of Equity Shares allocated in the Issue multiplied by theIssue Price), Retail Bidders shall receive the refund of the excess amounts from the Escrow Account.

7. In case of an upward revision in the Price Band announced as above, Retail Bidders who had bid at Cut-Off could either(i) revise their Bid or (ii) make additional payment based on the Cap of the Revised Price Band, with the member of theSyndicate to whom the original Bid was submitted. In case the total amount (i.e. original Bid Amount plus additionalpayment) exceeds Rs. 50,000, the Bid will be considered for allocation under the Non Institutional category in terms ofthis Prospectus. If, however, the Bidder does not either revise the Bid or make additional payment and the Issue Price ishigher than the Cap of the Price Band prior to revision, the number of Equity Shares bid for shall be adjusted for thepurpose of allocation, such that the no additional payment would be required from the Bidder.

8. In case of a downward revision in the Price Band, announced as above, Retail Bidders who have bid at Cut-off couldeither revise their Bid or the excess amount paid at the time of bidding would be refunded from the Escrow Account.

Escrow Mechanism

Our Company and the Syndicate shall open Escrow Accounts with one or more Escrow Collection Banks in whose favourthe Bidders shall make out the cheque or demand draft in respect of his or her Bid and/or revision of the Bid. Cheques ordemand drafts received for the full Bid amount from Bidders in a certain category would be deposited in the Escrow Accountfor the Issue. The Escrow Collection Banks will act in terms of the Prospectus and an Escrow Agreement. The monies inthe Escrow Account for the Issue shall be maintained by the Escrow Collection Bank(s) for and on behalf of the Bidders.The Escrow Collection Bank(s) shall not exercise any lien whatsoever over the monies deposited therein and shall holdthe monies therein in trust for the Bidders. On the Designated Date, the Escrow Collection Banks shall transfer the moniesfrom the Escrow Account to the Public Issue Account as per the terms of the Escrow Agreement with the Company.

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Payments of refund to the Bidders shall also be made from the Escrow Collection Banks as per the terms of the EscrowAgreement and this Prospectus.

The Bidders should note that the escrow mechanism is not prescribed by SEBI and has been established as an arrangementbetween our Company, the Syndicate, the Escrow Collection Bank(s) and the Registrar to the Issue to facilitate collectionsfrom the Bidders.

Terms of Payment and Payment into the Escrow Account

Each Bidder shall, with the submission of the Bid cum Application Form draw a cheque or demand draft for the maximumamount of the Bid in favour of the Escrow Account of the Escrow Collection Bank (for details refer to the paragraph “PaymentInstructions” on page 154 of this Prospectus) and submit the same to the member of the Syndicate with whom the Bid isbeing deposited. Bid cum Application Forms accompanied by cash shall not be accepted. The maximum Bid price has to bepaid at the time of submission of the Bid cum Application Form based on the highest bidding option of the Bidder.

The members of the Syndicate shall deposit the cheque or, demand draft with the Escrow Collection Bank. The Escrow CollectionBank will hold all monies collected for the benefit of the Bidders until the Designated Date. On the Designated Date, theEscrow Collection Bank shall transfer the funds in respect of those Bidders whose Bids have been accessed from the EscrowAccount, as per the terms of the Escrow Agreement, into the Public Issue Account. The balance amounts after the transferto the Public Issue Account, lying credited with the Escrow Collection Banks shall be held for the benefit of the Bidders whoare entitled to a refund. No later than 15 days from the Bid/Issue Closing Date, the Escrow Collection Bank shall also refundall amounts payable to unsuccessful Bidders and also the excess amount paid on bidding, if any, after adjustment for allocation,to the Bidders.

Each category of Bidders (i.e., QIBs, Non Institutional Bidders and Retail Bidders) would be required to pay their applicableMargin Amount at the time of the submission of the Bid-cum-Application Form. The details of the Margin Amount payableis mentioned under the section entitled “Issue Structure” on page 143 of this Prospectus and will be available with theSyndicate and will be as per the Syndicate Agreement. Where the Margin Amount applicable to the Bidder is less than 100%of the Bid Amount, any difference between the amount payable by the Bidder for Equity Shares allocated at the Issue Priceand the Margin Amount paid at the time of Bidding, shall be payable by the Bidder no later than the Pay-in-Date, which shallbe a minimum period of 2 days from the date of communication of the allocation list to the Syndicate Members by the BRLMsand the CBRLM. If the payment is not made favouring the Escrow Account within the time stipulated above, the Bid of theBidder is liable to be cancelled. However, if the applicable Margin Rate for Bidders is 100%, the full amount of payment has tobe made at the time of submission of the Bid Form.

Where the Bidder has been allocated lesser number of Equity Shares than they had bid for, the excess amount paid onbidding, if any, after adjustment for allocation, will be refunded to such Bidder within 15 days from the Bid/Issue ClosingDate.

Electronic Registration of Bids

1. The members of the Syndicate will register the Bids using the on-line facilities of NSE and BSE. There will be at least oneon-line connectivity in each city where a stock exchange centre is located in India, and where Bids are accepted.

2. NSE and BSE will offer a screen-based facility for registering Bids for the Issue. This facility will be available on theterminals of the members of the Syndicate and their authorised agents during the Bidding Period. Members of theSyndicate can also set up facilities for off-line electronic registration of Bids subject to the condition that they willsubsequently upload the off-line data file into the on-line facilities for book building on a half hourly basis. On the BidClosing Date, the members of the Syndicate will upload the Bids until such time as permitted by the Stock Exchanges.

3. The aggregate demand and price for Bids registered on each of the electronic facilities of NSE and BSE will be uploadedon an hourly basis and consolidated. A graphical representation of consolidated demand and price would be madeavailable at the bidding centres during the Bidding Period.

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4. At the time of registering each Bid, the members of the Syndicate shall enter the following details of the investor in theon-line system:

n Name of the investor;n Investor Category — Individual, Corporate, NRI, FII, or Mutual Funds, etc.;n Numbers of Equity Shares bid for;n Bid price;n Bid cum Application Form number;n Whether payment is made upon submission of Bid cum Application Form; andn Depository participant Identification number and Client Identification number of the demat account of the Bidder.

5. A system generated TRS will be given to the Bidder as a proof of the registration of each of the bidding options. It is theBidder’s responsibility to obtain the TRS from the members of the Syndicate. The registration of the Bid by the memberof the Syndicate does not guarantee that the Equity Shares shall be allocated either by the members of the Syndicate orthe Company.

6. Such TRS will be non-negotiable and by itself will not create any obligation of any kind. Consequently, a member of theSyndicate also has the right to accept or reject a Bid without assigning any reasons in case of QIBs. In case of NonInstitutional Bidders and Retail Bidders, their Bids shall not be rejected except on the technical grounds listed elsewherein this Prospectus.

7. It is to be distinctly understood that the permission given by NSE and BSE to use their network and software of theonline IPO system should not in any way be deemed or construed that the compliance with various statutory and otherrequirements by our Company or the BRLMs or the CBRLM are cleared or approved by NSE or BSE; nor does it in anymanner warrant, certify or endorse the correctness or completeness of any of the compliance with the statutory andother requirements nor does it take any responsibility for the financial or other soundness of our Company, Promoters,management or any scheme or our project.

8. It is also to be distinctly understood that the approval given by NSE and BSE should not in any way be deemed orconstrued that this Prospectus has been cleared or approved by NSE or BSE; nor does it in any manner warrant, certifyor endorse the correctness or completeness of any of the contents of this Prospectus; nor does it warrant that theEquity Shares will be listed or will continue to be listed on the NSE and BSE.

Build Up of the Book and Revision of Bids1. Bids registered by various Bidders through the members of the Syndicate shall be electronically transmitted to the NSE

or BSE mainframe on an on-line basis. Data would be uploaded on a half hourly basis.2. The Price Band can be revised during the Bidding Period, in which case the Bidding Period shall be extended further for

a period of three days, subject to the total Bidding Period not exceeding thirteen days. The cap on the Price Band shouldnot be more than 20% of the floor of the Price Band. Subject to compliance with the immediately preceding sentence, thefloor of Price Band can move up or down to the extent of 20% of the floor of the Price Band disclosed in this Prospectus.

3. Any revision in the Price Band will be widely disseminated by informing the stock exchanges, by issuing a public noticein two national newspapers (one each in English and Hindi) and one regional newspaper (Kannada) and also indicatingthe change on the web site of the BRLMs and the CBRLM and at the terminals of the members of the Syndicate.

4. During the Bidding Period, any Bidder who has registered an interest in the Equity Shares at a particular price level isfree to revise the Bid within the Price Band using the printed Revision Form that is a part of the Bid cum ApplicationForm.

5. Revisions can be made in both the desired number of Equity Shares and the Bid price by using the Revision Form. TheBidder must complete the details of all the options in the Bid cum Application Form or earlier Revision Form and revisionsfor all the options as per the Bid cum Application Form or earlier Revision Form. For example, if a Bidder has bid for threeoptions in the Bid cum Application Form or the earlier Revision Form and is changing only one of the options in theRevision Form, the Bidder must still complete the details of the other two options that are not being revised in theRevision Form. Incomplete or inaccurate Revision Forms will not be accepted by the members of the Syndicate.

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6. The Bidder can make this revision any number of times during the Bidding Period. However, for any revision(s) in theearlier Bid, the Bidders will have to use the services of the same member of the Syndicate through whom the original Bidwas placed. Bidders are advised to retain copies of the blank Revision Form and the revised Bid must only be made onthat Revision Form.

7. Any revision of the Bid shall be accompanied by payment in the form of cheque or demand draft for the incrementalamount, if any, to be paid on account of the upward revision of the Bid. The excess amount, if any, resulting fromdownward revision of the Bid would be returned to the Bidder at the time of refund in accordance with the terms of thisProspectus. In case of QIBs, the members of the Syndicate may at their sole discretion waive the payment requirement atthe time of one or more revisions by the QIB Bidder.

8. When a Bidder revises a Bid, the Bidder shall surrender the earlier TRS and get a revised TRS from the member of theSyndicate. It is the responsibility of the Bidder to request for and obtain the revised TRS, which will act as proof ofhaving revised the Bid.

9. In case of discrepancy of data between the electronic book and the physical book, the decision of the BRLMs and theCBRLM shall be final and binding on all concerned.

Price Discovery and Allocation

1. After the Bid/Issue Closing Date, the BRLMs and the CBRLM shall analyse the demand generated at various pricelevels and discuss pricing strategy with our Company.

2. Our Company, in consultation with the BRLMs and the CBRLM, shall finalize the “Issue Price” and the number of EquityShares to be allotted and the allocation to successful QIB Bidders. The allocation to QIBs will be decided based on thequality of the QIB Bidder determined broadly by the size, price and date of the Bid.

3. The allocation to QIBs of 60% of the Issue Size would be discretionary. The allocation to Non Institutional Bidders andRetail Bidders of not less than 15% and not less than 25% of the Issue Size, respectively, would be on a proportionatebasis, in consultation with the Designated Stock Exchange and subject to valid Bids being received at or above theIssue Price.

4. Under subscription, if any, in any category other than in the QIB category, would be allowed to be met with spill overfrom any of the other categories, at the sole discretion of our Company, in consultation with the BRLMs and the CBRLM.

5. Allocation to eligible Non Residents, NRIs, FIIs or Foreign Venture Capital Funds registered with SEBI applying onrepatriation basis will be subject to the terms and conditions stipulated by the FIPB while granting permission for Issueof Equity Shares to them.

6. The BRLMs, the CBRLM and our Company, shall notify the members of the Syndicate of the Issue Price and allocationsto their respective Bidders where the full Bid Amount has not been collected from the Bidders.

7. Our Company reserves the right to cancel the Issue any time after the Bid/Issue Opening Date without assigning anyreason therefore, but before allotment.

8. QIB Bidders shall not be allowed to withdraw their Bid after Bid/Issue Closing Date.

Signing of Underwriting Agreement and RoC Filing

1. Our Company, the BRLMs, CBRLM and the other members of the Syndicate shall enter into an Underwriting Agreementon reaching agreement upon the Issue Price and allocation(s) to the Bidders.

2. After the Underwriting Agreement is signed among our Company, the BRLMs, CBRLM and the other members of theSyndicate, we will file the Prospectus with RoC, which then would be termed ‘Prospectus’. The Prospectus would havedetails of the Issue Price, size of the Issue, underwriting arrangements and would be complete in all material respects.

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Advertisement regarding Issue Price and Prospectus

A statutory advertisement will be issued by us after the filing of the Prospectus with the RoC. This advertisement, in additionto the information that has to be set out in the statutory advertisement, shall indicate the Issue Price. Any material updatesbetween the Red Herring Prospectus and the Prospectus will be included in such statutory advertisement.

Issuance of Confirmation of Allocation Note

1. The BRLMs, the CBRLM or Registrar to the Issue shall send to the members of the Syndicate a list of their Bidders whohave been allocated Equity Shares in the Issue.

2. The Members of the Syndicate would then send the CAN to their Bidders who have been allocated Equity Shares in theIssue. The despatch of a CAN shall be deemed a valid, binding and irrevocable contract for the Bidder to pay the entireIssue Price for all the Equity Shares allocated to such Bidder. Those Bidders who have not paid the full Bid Amount intothe Escrow Account on or prior to the time of bidding shall pay the full amount into the Escrow Account on or prior tothe Pay-in Date specified in the CAN.

3. Bidders who have been allocated Equity Shares and who have already paid the full Bid Amount into the Escrow Accountat the time of bidding shall directly receive the CAN from the Registrar to the Issue subject, however, to realisation oftheir cheque or demand draft paid into the Escrow Account. The despatch of a CAN shall be deemed to be a valid,binding and irrevocable contract for the Bidder to pay the entire Issue Price for all the Equity Shares allotted to suchBidder.

Designated Date and Transfer of Funds to Public Issue Account

Successful Bidders will receive credit for the Equity Shares directly in their depository account. Equity shares will be allottedonly in the dematerialised form to the allottees. Successful Bidders will have the option to re-materialise the Equity Sharesso allotted, if they so desire, as per the provisions of the Companies Act and the Depositories Act.

Our Company will ensure the allotment of Equity Shares within 15 days of the Bid/Issue Closing Date. After the funds aretransferred from the Escrow Account to the Public Issue Account on the Designated Date, our Company would ensure thatcredit is given to the successful Bidders’ depository accounts within two working days from the date of allotment.

General Instructions

Dos:

n Check if you are eligible to apply;

n Read all the instructions carefully and complete the Resident Bid cum Application Form (white in colour) or Non-ResidentBid cum Application Form (blue in colour), as the case may be;

n Ensure that you Bid only in the Price Band;

n Ensure that the details about depository participant and beneficiary account are correct as there will be no allotment ofEquity Shares in physical form;

n Ensure that the Bids are submitted at the bidding centres only on forms bearing the stamp of a member of the Syndicate;

n Ensure that you have collected a TRS for all your Bid options; and

n Submit Revised Bids to the same member of the Syndicate through whom the original Bid was placed and obtain arevised TRS.

Don’ts:

n Do not Bid for lower than the minimum Bid size;

n Do not Bid/ revise the Bid to a price that is less than the floor of the Price Band or higher than the cap of the Price Band;

n Do not Bid on another Bid cum Application Form after you have submitted the Bid to the members of the Syndicate;

n Do not pay the Bid Amount in cash;

n Do not send Bid cum Application Forms by post; instead hand them over to a member of the Syndicate only;

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n Do not Bid at Cut-off price (for Non Institutional and QIB Bidders);

n Do not fill up the Bid cum Application Form for an amount that exceeds the investment limit or maximum number ofEquity Shares that can be held by a Bidder under applicable law.

Instructions for Completing the Bid cum Application Form

Bidders can obtain Bid cum Application Forms and / or Revision Forms from the members of the Syndicate.

Bids and Revision of Bids

Bids and revision of Bids must be:

1. Made only in the prescribed Bid cum Application Form or Revision Form, as applicable (white colour for Resident Indiansand NRIs applying on non-repatriation basis and blue colour for NRIs or FIIs applying on repatriation basis).

2. Completed in full, in BLOCK LETTERS in ENGLISH and in accordance with the instructions contained herein, in the Bidcum Application Form or in the Revision Form. Incomplete Bid cum Application Forms or Revision Forms are liable to berejected.

3. For Retail Bidders, the Bids must be for a minimum of 50 Equity Shares and in multiples of 50 thereafter subject to amaximum Bid Amount of Rs. 50,000.

4. For Non Institutional and QIB Bidders, Bids must be for a minimum of such number of Equity Shares that the Bid Amountexceeds Rs. 50,000 and in multiples of 50 Equity Shares thereafter. Bids cannot be made for more than the size of theIssue. Bidders are advised to ensure that a single Bid from them should not exceed the investment limits or maximumnumber of Equity Shares that can be held by them under applicable laws.

5. In single name or in joint names (not more than three).

6. Thumb impressions and signatures other than in the languages specified in the Eight Schedule of the Constitution ofIndia must be attested by a Magistrate or a Notary Public or a Special Executive Magistrate under official seal.

Bidder’s Bank Details

The name of the sole or first Bidder’s bank, branch, type of account and account numbers must be mandatorily completed inthe Bid cum Application Form. This is required for the Bidder’s own safety so that these details can be printed on the refundorders. Refund orders will either be printed with these bank account details or as per the bank account details mentioned asper the bidder’s depository account. Bid cum Application Forms without these details are liable to be rejected.

Bidders Depository Account Details

Equity Shares shall be allotted only in dematerialised form. All Bidders should mention their depository participant’s name,depository participant-identification number and beneficiary account number in the Bid cum Application Form. Please ensurethat in case of joint names, the names stated in the Bid cum Application Form should be the same and in the same order asthe names stated in the Bidders’ depository account. It is the Bidder’s responsibility to ensure that the details of the Bidder’sdepository account are correct.

Bids under Power of Attorney

In case of Bids made pursuant to a Power of Attorney or by limited companies, corporate bodies, registered societies, acertified copy of the Power of Attorney or the relevant resolution or authority, as the case may be, along with a certified copyof the Memorandum and Articles of Association and/or bye laws must be submitted with the Bid cum Application Form.Failing this, we reserve the right to accept or reject any Bid in whole or in part, in either case, without assigning any reasontherefor.

In case of Bids made pursuant to a Power of Attorney by FIIs, a certified copy of the Power of Attorney or the relevantresolution or authority, as the case may be, along with a certified copy of their SEBI registration certificate must be submittedwith the Bid cum Application Form. Failing this, our Company reserves the right to accept or reject any Bid in whole or inpart, in either case, without assigning any reason therefor.

In case of Bids made by Insurance Companies registered with the Insurance Regulatory and Development Authority, a certified

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copy of certificate of registration issued by Insurance Regulatory and Development Authority must be lodged along with theBid-cum-Application Form. Failing this, our Company reserves the right to accept or reject any Bid in whole or in part, ineither case without assigning any reason therefor.

In case of Bids made by provident funds with minimum corpus of Rs. 250 million and pension funds with minimum corpus ofRs. 250 million, a certified copy of certificate from a chartered accountant certifying the corpus of the provident fund/pensionfund must be lodged along with the Bid-cum-Application Form. Failing this, our Company reserves the right to accept orreject any Bid in whole or in part, in either case, without assigning any reason therefor.

We, in our absolute discretion, reserve the right to relax the above condition of simultaneous lodging of the Power of Attorneyalong with the Bid cum Application form, subject to such terms and conditions as we may deem fit.

Bids by NRIs

NRI Bidders to comply with the following:

1. Individual NRI Bidders can obtain the Bid cum Application Forms from our registered office at 20th K.M. Hosur Road,Electronic City P.O., Bangalore 560 100, the BRLMs, the CBRLM, members of the Syndicate or the Registrar to the Issue.

2. NRI Bidders may please note that only such Bids as are accompanied by payment in free foreign exchange shall beconsidered for allotment. NRIs who intend to make payment through Non-Resident Ordinary (NRO) accounts shall usethe Bid Cum Application form meant for Resident Indians (white in colour).

Bids by Non Residents, NRIs, FIIs and Foreign Venture Capital Funds registered with SEBI on a repatriation basis

Bids and revision to Bids must be made:

1. On the Bid cum Application Form or the Revision Form, as applicable (blue in colour), and completed in full in BLOCKLETTERS in ENGLISH in accordance with the instructions contained therein.

2. In a single name or joint names (not more than three).

3. By NRIs - Bids for a Bid Amount of up to Rs. 50,000 would be considered under the Retail Bidders Portion for thepurposes of allocation and Bids for a Bid Amount of more than Rs. 50,000 would be considered under Non InstitutionalBidder Portion for the purposes of allocation; By FIIs — for a minimum of such number of Equity Shares and in multiplesof 50 thereafter that the Bid Amount exceeds Rs. 50,000. For further details please refer to the section entitled “IssueProcedure - Maximum and Minimum Bid Size” on page 145 of this Prospectus.

4. In the names of individuals, or in the names of FIIs but not in the names of minors, OCBs, firms or partnerships, foreignnationals or their nominees.

Refunds, dividends and other distributions, if any, will be payable in Indian Rupees only and net of bank charges and / orcommission. In case of Bidders who remit money through Indian Rupee drafts purchased abroad, such payments in IndianRupees will be converted into U.S. Dollars or any other freely convertible currency as may be permitted by the RBI at the rateof exchange prevailing at the time of remittance and will be dispatched by registered post or if the Bidders so desire, will becredited to their NRE accounts, details of which should be furnished in the space provided for this purpose in the Bid cumApplication Form. We will not be responsible for loss, if any, incurred by the Bidder on account of conversion of foreigncurrency.

Our Company has received approval from the Government of India, Ministry of Finance and Company Affairs (Department ofEconomic Affairs) pursuant to its Approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004 for the issueof Equity Shares in this Issue to eligible Non Residents, NRIs, FIIs and Foreign Venture Capital Funds with repatriationbenefits. However it is to be distinctly understood that there is no reservation for Non Residents, NRIs, FIIs and ForeignVenture Capital Funds and all Non Residents, NRI, FII and Foreign Venture Capital Funds applicants will be treated on thesame basis with other categories for the purpose of allocation. The allotment of Equity Shares to Non-residents shall besubject to the conditions as may be prescribed by the Government of India, Ministry of Finance and Company Affairs(Department of Economic Affairs) while granting such permissions.

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Payment Instructions

Our Company and members of the Syndicate shall open Escrow Account(s) with the Escrow Collection Banks for the collectionof the Bid Amounts payable upon submission of the Bid cum Application Form pursuant to allocation in the Issue.

Each Bidder shall draw a cheque or demand draft for the amount payable on the Bid and/or on allocation as per the followingterms:

Payment into Escrow Account to the Issue:

1. The Bidders who have paid the Bid Amount on application shall draw a payment instrument for the Bid Amount infavour of the Escrow Account and submit the same to the members of the Syndicate along with the Bid cum ApplicationForm.

2. In case the above margin amount paid by the Bidders during the Bidding Period is less than the Issue Price multiplied bythe Equity Shares allocated to the Bidder, the balance amount shall be paid by the Bidders into the Escrow Accountwithin the period specified in the CAN which shall be subject to a minimum period of two days from the date ofcommunication of the allocation list to the members of the Syndicate by the BRLMs and the CBRLM.

3. In case the payment of the Bid Amount has been waived by a member of the Syndicate during the Bidding Period, onreceipt of the CAN, an amount equal to the Issue Price multiplied by the Equity Shares allocated to the Bidder, shall bepaid by the Bidders into the Escrow Account within the period specified in the CAN which shall be a minimum period oftwo days from the date of communications of the allocation list to the members of the Syndicate by the BRLMs and theCBRLM.

4. The payment instruments for payment into the Escrow Account should be drawn in favour of:

(a) In case of Resident Bidders: “Escrow Account — Biocon Public Issue”

(b) In case of Non Resident Bidders: “Escrow Account — Biocon Public Issue - NR”

n In case of Bids by NRIs applying on repatriation basis, the payments must be made through Indian RupeeDrafts purchased abroad or cheques or bank drafts, for the amount payable on application remitted throughnormal banking channels or out of funds held in Non-Resident External (NRE) Accounts or Foreign CurrencyNon-Resident (FCNR) Accounts, maintained with banks authorised to deal in foreign exchange in India, alongwith documentary evidence in support of the remittance. Payment will not be accepted out of a Non-ResidentOrdinary (NRO) Account of a Non-Resident Bidder bidding on a repatriation basis. Payment by drafts shouldbe accompanied by a bank certificate confirming that the draft has been issued by debiting an NRE or FCNRAccount.

n In case of Bids by FIIs, the payment should be made out of funds held in a Special Rupee Account along withdocumentary evidence in support of the remittance. Payment by drafts should be accompanied by a bankcertificate confirming that the draft has been issued by debiting the Special Rupee Account.

5. Where a Bidder has been allocated a lesser number of Equity Shares than the Bidder has Bid for, the excess amount, ifany, paid on bidding, after adjustment towards the balance amount payable on the Equity Shares allocated, will be refundedto the Bidder from the Escrow Account.

6. The monies deposited in the Escrow Account will be held for the benefit of the Bidders till the Designated Date.

7. On the Designated Date, the Escrow Collection Banks shall transfer the funds from the Escrow Account as per the termsof the Escrow Agreement into the Public Issue Account with the Bankers to the Issue.

8. No later than 15 days from the Bid/Issue Closing Date, the Escrow Collection Bank shall refund all amounts payable tounsuccessful Bidders and also the excess amount paid on Bidding, if any, after adjusting for allocation to the Bidders.

Payment by Stockinvest

In terms of RBI Circular DBOD No. FSC BC 42/24.47.00/2003-04 dated November 5, 2003, the Stockinvest Scheme has beenwithdrawn with immediate effect. Hence, payment through stockinvest would not be accepted in this Issue.

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Submission of Bid cum Application Form

All Bid cum Application Forms or Revision Forms duly completed and accompanied by account payee cheques or draftsshall be submitted to the members of the Syndicate at the time of submission of the Bid cum Application Form unless waivedby a member of the Syndicate at its sole discretion.

The collection center of the members of the Syndicate will acknowledge the receipt of the Bid cum Application Forms orRevision Forms by stamping and returning to the Bidder the acknowledgement slip. This acknowledgement slip will serve asthe duplicate of the Bid cum Application Form for the records of the Bidder. No separate receipts shall be issued for themoney paid on the submission of Bid cum Application Form or Revision Form.

Other Instructions

Joint Bids in the case of Individuals

Individuals may make bids in single or joint names (not more than three). In the case of joint Bids, all refund amounts will bemade only in favour of the Bidder whose name appears first in the Bid cum Application Form or Revision Form (“First Bidder”).All communications will be addressed to the First Bidder and will be despatched to his or her address.

Multiple Bids

A Bidder should submit only one Bid (and not more than one) for the total number of Equity Shares required. Two or moreBids will be deemed to be multiple Bids if the sole or First Bidder is one and the same.

In case of a mutual fund, a separate Bid can be made in respect of each scheme of the mutual fund registered with SEBI andsuch Bids in respect of more than one scheme of the mutual fund will not be treated as multiple Bids provided that the Bidsclearly indicate the scheme concerned for which the Bid has been made.

We reserve the right to reject, in our absolute discretion, all or any multiple Bids in all or any categories.

‘PAN’ or ‘GIR’ Number

Where the maximum Bid for Equity Shares by a Bidder is for a total value of Rs. 50,000 or more, i.e., the actual numbers ofEquity Shares Bid for multiplied by the Bid Amount is Rs. 50,000 or more, the Bidder or, in the case of a Bid in joint names,each of the Bidders should mention his or her Permanent Account Number (PAN) allotted under the Income Tax Act, 1961, asamended or where the same has not been allotted, the General Index Register (GIR) Number and the Income-Tax Circle, Wardor District. In case neither the PAN nor the GIR number has been allotted, the Bidders must mention “Not allotted” in theappropriate place. Bid cum Application Forms without this information will be considered incomplete and are liable to berejected.

Our Right to Reject Bids

Our Company and the members of the Syndicate reserve the right to reject any Bid without assigning any reason therefore incase of QIBs. In case of Non Institutional Bidders and Retail Bidders, our Company would have the right to reject Bids onlyon technical grounds. Consequent refunds shall be made by cheque or pay order or draft and will be sent to the Bidder’saddress at the Bidder’s risk.

Grounds for Technical Rejections

Bidders are advised to note that Bids are liable to be rejected on technical grounds, including the following:

1. Amount paid does not tally with the amount payable for the highest value of Equity Shares bid for;

2. Bank account details (for refund) are not given;

3. Age of First Bidder not given;

4. Bids by minors;

5. PAN or GIR Number not given if Bid is for Rs. 50,000 or more;

6. Bids for lower number of Equity Shares than specified for that category of investor;

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7. Bids at a price less than the floor of the Price Band and higher than the cap of the Price Band;

8. Bids at cut-off price by a QIB or a Non Institutional Bidder;

9. Bids for number of Equity Shares, which are not multiples of 50;

10. Category not ticked;

11. Multiple Bids;

12. In case of Bid under power of attorney or by limited companies, corporate, trust, etc., relevant documents are not submitted;

13. Bid cum Application Form does not have the stamp of a member of the Syndicate;

14. Bid cum Application Form does not have the Bidder’s depository account details, including as specified below;

15. Bid cum Application Forms are not submitted by the Bidders within the time prescribed as per the Bid cum ApplicationForm, Bid/Issue Opening Date advertisement and this Prospectus and as per the instructions in this Prospectus and theBid cum Application Form;

16. Bids for amounts greater than the maximum permissible amounts prescribed by the regulations please refer to the detailsregarding the same at page 145 of this Prospectus;

17. Bids not duly signed by the sole/joint Bidders;

18. Bids by OCBs; or

19. Bids accompanied by stockinvest.

Equity Shares in Dematerialized Form with NSDL or CDSL

In terms of Section 68B of the Companies Act, the Equity Shares in this Issue shall be allotted only in dematerialised form(i.e., not in the form of physical certificates but be fungible and be represented by the statement issued through electronicmode).

In this context, two tripartite agreement have been signed between the Registrar to the Issue, the Depositories and theCompany:

1. An agreement dated February 12, 2004 among NSDL, the Company and Registrar to the Issue; and

2. An agreement dated February 13, 2004 between CDSL, the Company and Registrar to the Issue.

Bids from any Bidder without the following details of his or her depository account are liable to be rejected.

1. A Bidder applying for Equity Shares must have at least one beneficiary account with either of the depository participantsof NSDL or CDSL prior to making the Bid.

2. The Bidder must necessarily fill in the details (including the beneficiary account number and depository participant’sidentification number) appearing in the Bid cum Application Form or Revision Form.

3. Equity Shares allotted to a Bidder will be credited in electronic form directly to the beneficiary account (with the depositoryparticipant) of the Bidder.

4. Names in the Bid cum Application Form or Revision Form should be identical to those appearing in the account detailsin the depository. In case of joint holders, the names should necessarily be in the same sequence as they appear in thedepository account of the Bidder(s).

5. If incomplete or incorrect details are given under the heading ‘Bidders Depository Account Details’ in the Bid cumApplication Form or Revision Form.

6. The Bidder is responsible for the correctness of his or her demographic details given in the Bid cum Application Formvis-à-vis those with his or her depository participant.

7. It may be noted that Equity Shares in electronic form can be traded only on the stock exchanges having electronicconnectivity with NSDL or CDSL. All the stock exchanges where our Equity Shares are proposed to be listed are connectedto NSDL and CDSL.

8. The trading of our Equity Shares would only be in dematerialised form for all investors.

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Communications

All future communications in connection with Bids made in the Issue should be addressed to the Registrar to the Issuequoting the full name of the sole or First Bidder, Bid cum Application Form number, number of Equity Shares applied for, dateof Bid form, name and address of the member of the Syndicate where the Bid was submitted and cheque or draft number andissuing bank thereof.

Undertaking by our Company

The Company undertakes as follows:

n that the complaints received in respect of this Issue shall be attended to by us expeditiously;

n that we shall take all steps for the completion of the necessary formalities for listing and commencement of trading at allthe stock exchanges where the Equity Shares are to be listed within seven working days of finalisation of the basis ofallotment;

n that the funds required for despatch of refund orders or allotment advice by registered post or speed post shall be madeavailable to the Registrar to the Issue by us;

n that the refund orders and/or allotment advice to NRIs or FIIs shall be dispatched within specified time; and

n that no further offer of Equity Shares shall be made until the Equity Shares offered through this Prospectus are listed oruntil the Bid moneys are refunded on account of non-listing, under-subscription, etc.

Utilization of Issue Proceeds

The Board of Directors of the Company certify that

n all monies received out of the Issue shall be transferred to a separate bank account other than the bank account referredto in sub-section (3) of Section 73 of the Companies Act;

n details of all monies utilised out of Issue referred above shall be disclosed under an appropriate separate head in thebalance sheet of the Company indicating the purpose for which such monies have been utilised; and

n details of all unutilised monies out of the Issue, if any shall be disclosed under the appropriate separate head in thebalance sheet of the Company indicating the form in which such unutilised monies have been invested.

Procedure and Time Schedule for Allotment of Equity Shares

Our Company reserves, at our absolute and uncontrolled discretion and without assigning any reason thereof, the right toaccept or reject any Bid in whole or in part. In the case of Retail and Non-Institutional Bidders, the rejection of any Bid isonly on grounds of technical non-compliance with the specified procedure. In case a Bid is rejected in full, the whole of theBid Amount will be refunded to the Bidder within 15 days of the Bid/Issue Closing Date. In case a Bid is rejected in part, theexcess Bid Amount will be refunded to the Bidder within 15 days of the Bid/Issue Closing Date. We will ensure the allotmentof the Equity Shares within 15 days from the Bid/Issue Closing Date. Our Company shall pay interest at the rate of 15% perannum (for any delay beyond the periods as mentioned above), if allotment is not made, refund orders are not dispatchedand or demat credits are not made to investors within two working days from the date of allotment.

Disposal of Applications and Application Money

We shall ensure dispatch of allotment advice or refund orders and giving of benefit to the beneficiary account with depositoryparticipants and submission of the allotment and listing documents to the Stock Exchanges within two working days offinalisation of the basis of allotment of Equity Shares. Our Company shall ensure the dispatch of refund orders, if any, ofvalue up to Rs. 1,500, “Under Certificate of Posting”, and dispatch of refund orders above Rs. 1,500, if any, by RegisteredPost or Speed Post at the sole or First Bidder’s sole risk.

We shall use best efforts to ensure that all steps for completion of the necessary formalities for listing and commencement oftrading at all the Stock Exchanges where the Equity Shares are proposed to be listed are taken within seven working days offinalisation of the basis of allotment.

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In accordance with the Companies Act, the requirements of the stock exchanges and SEBI Guidelines, the Company, furtherundertakes that:

n Allotment of Equity Shares shall be made only in dematerialised form within 15 days of the Bid/Issue Closing Date;

n Our Company would ensure despatch of refund orders within 15 days of the Bid/Issue Closing Date; and

n Our Company shall pay interest at 15% per annum (for any delay beyond the 15 day time period as mentioned above), ifallotment is not made, refund orders are not dispatched and/or demat credits are not made to investors within the 15 daytime prescribed above.

Our Company will provide adequate funds required to the Registrar to the Issue for dispatch of refund orders or allotmentadvice.

Refunds will be made by cheques, pay orders or demand drafts drawn on a bank appointed by us as a refund banker andpayable at par at places where Bids are received. Bank charges, if any, for cashing such cheques, pay orders or demanddrafts at other centres will be payable by the Bidders.

Interest on Refund of excess Bid Amount

Our Company shall pay interest at the rate of 15% per annum on the excess Bid Amount received by us if refund orders arenot dispatched within 15 days from the Bid/Issue Closing Date as per the Guidelines issued by the GoI, Ministry of Financepursuant to their letter no. F-8/6/SE/79 dated July 21, 1983, as amended by their letter no. F/14/SE/85 dated September 27,1985, addressed to the stock exchanges, and as further modified by SEBI’s Clarification XXI dated October 27, 1997, withrespect to the SEBI Guidelines.

Restrictions on Foreign Ownership of Indian Securities

Foreign investment in Indian securities is regulated through the Industrial Policy, 1991 of the GoI and FEMA. While theIndustrial Policy, 1991 prescribes the limits and the conditions subject to which foreign investment can be made in differentsectors of the Indian economy, FEMA regulates the precise manner in which such investment may be made. Under the IndustrialPolicy, unless specifically restricted, foreign investment is freely permitted in all sectors of Indian economy up to any extentand without any prior approvals, but the foreign investor is required to follow certain prescribed procedures for making suchinvestment. As per current foreign investment policies, foreign investment in the drugs and pharmaceuticals industry ispermitted up to 100% under the automatic route. However, foreign investment in relation to industries involving (i) manufactureof drugs and pharmaceuticals that attract compulsory licensing, (ii) bulk drugs produced by recombinant DNA technologyand (iii) specific cell/tissue targeted formulations, the automatic route is not available and prior Government/FIPB approvalwill be required.

By way of Circular No. 53 dated December 17, 2003, the RBI has permitted FIIs to subscribe to shares of an Indian companyin a public offer without prior RBI approval, so long as the price of equity shares to be issued is not less than the price atwhich equity shares are issued to residents. Further, the RBI has clarified in its Press Release dated February 4, 1998 thatIndian companies that have obtained approval of the FIPB need not obtain RBI approval for issue of equity shares to foreigninvestors.

Our Company has received approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) of the Foreign Investment Promotion Boarddated January 15, 2004 to issue shares to nonresidents under this Issue.

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BASIS FOR ISSUE PRICE

Qualitative Factors

R&D Focus. Our emphasis on research and development has enabled us to devise our own process technologies and expandour scientific and engineering capabilities. We believe that continued focus on R&D will enable us to further develop newprocesses and products and novel applications for existing products, possibly enter new lines of business and deepen ourintellectual property base. Since 1999, we have filed 117 patent applications. To date, we have been granted a total of 14patents in various jurisdictions, and 25 of our PCT applications have been published.

Proven Fermentation Skills. Fermentation is recognized as one of the key enabling technologies in the manufacture ofpharmaceutical products. We have advanced capabilities in microbial (i.e., bacteria, yeast and fungus) fermentation utilisingboth submerged and solid-state fermentation technologies. We have also developed a patented hybrid fermentation processthat we have named PlaFractorTM.

Synthetic Chemistry Skills. In addition to fermentation, several of our biopharmaceutical products require strong syntheticchemistry skills. Our synthetic chemistry skills enabled us to develop our own processes for simvastatin, atorvastatin andpioglitazone, among other products.

Biodiversity Collection. We launched our biodiversity program in 1995. We believe that our biodiversity collection will be avaluable tool in aid of new product discovery.

Diverse and Growing Capabilities. Our Syngene and Clinigene businesses, in addition to their role as independent revenuegenerators, have significantly increased our overall capabilities in biotechnology. We believe that our growing capabilities incustom and clinical research will continue to offer important synergies as we increase the complexity and scope of our ownR&D and manufacturing operations, especially as they pertain to new product discovery and development. We are buildingcapabilities in recombinant technologies to develop new products.

Scale-up Skills. We have significant process expertise in scaling up production levels from lab scale quantities to largefermentation batches at commercially viable yield levels. This enables us to increase production quantities and productivityand reduce time to market. For example, from April 2002 to December 2003, we were able to improve the yield in our solid statefermentation process for lovastatin production by 44.1% and in our submerged fermentation process for lovastatin productinby 10.9%.

Flexible Manufacturing Infrastructure. Our fermentation and synthetic conversion facilities is not product specific and canbe used to manufacture a range of biopharmaceutical and enzyme products. Flexible manufacturing infrastructure helps us tochange our product mix in response to changes in customer demand with less new facility investment. For example, we areable to produce lovastatin, pravastatin, compactin, human insulin, mycophenolate mofetil and enzymes in the same submergedfermentation facility.

High Quality Manufacturing Processes. Currently, several of our manufacturing facilities satisfy the cGMP requirements forproduct sales to regulated markets.

Strong Customer Relationships. We have built significant relationships with several large generic players in developed countrymarkets. This has enabled us to be the primary or secondary supplier for certain APIs to several generic players, many ofwhom have filed their Abbreviated New Drug Applications, or ANDAs, with our DMFs for products like lovastatin andsimvastatin.

Strong Management; Continuity of Management. Our senior management team consists of experienced individuals withdiverse skills in manufacturing, research and development, custom research, international business and finance.

Ability to Attract and Retain Talent. As India’s largest biotechnology company in terms of revenues and with strengths infermentation, synthetic chemistry, custom research and clinical research, we have been able to attract and retain talent fromreputed educational institutes worldwide, including the Massachussetts Institute of Technology (MIT) and the Indian Instituteof Technology (IIT).

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Quantitative Factors

Information presented in this section is derived from our unconsolidated financial statements prepared in accordance withIndian GAAP.

1. Adjusted earning per share (EPS)

Pre-Split Post-Split

Rupees Weigh t Rupees Weigh t

Year ended March 31, 2001 4.0 1 2.0 1

Year ended March 31, 2002 5.6 2 2.8 2

Year ended March 31, 2003 7.9 3 3.9 3

Nine months ended Dec. 31, 2003 (annualised) 25.5 4 12.8 4

Weighted Average 14.1 7.0

(1) The earning per share has been computed on the basis of adjusted profits & losses for the respective years/ periods after considering the impact of accountingpolicy changes and prior period adjustments/ regroupings pertaining to earlier years.

(2) The denominator considered for the purpose of calculating earning per share is the weighted average number of Equity Shares outstanding during the

period.

2. Price/Earning (P/E) ratio in relation to Issue Price of Rs. 315 per share

a. Based on nine months ended December 31, 2003 EPS (post-split, annualised) is Rs. 12.8

b. P/E based on EPS for nine months ended December 31, 2003 (annualised) is 24.7

c. Industry P/E(1)

i) Highest 27.2

ii) Lowest 3.9

iii) Industry Composite 14.3

(1) Compiled from “Capital Market” data; for companies with year ending on March 31, 9 months ended December 31, 2003, EPS data has been annualised;

for companies with year ending December 31, 2003, full year EPS has been used

3. Average Return on Net Worth

Sr. No. % Weight

1. Year ended March 31, 2001 25.6 1

2. Year ended March 31, 2002 24.8 2

3. Year ended March 31, 2003 27.9 3

4. Nine months ended December 31, 2003 (annualised) 53.9 4

Weighted Average 37.5

(1) The average return on net worth has been computed on the basis of adjusted profits & losses for the respective year/ period after considering the impact of

accounting policy changes and prior period adjustments/ regroupings pertaining to earlier years.

4. Minimum Return on Increased Net Worth Required to Maintain Pre-Issue EPS

The minimum return on increased net worth required to maintain pre-Issue EPS is 24.2%(1)

(1) Increased networth is computed as restated networth of the Company as at December 31, 2003 increased by expected proceeds from the current Issue of 10

million equity shares of Rs. 5 each at price of Rs. 315 per equity share.

5. Net Asset Value per Equity Share as at December 31, 2003 - Pre Split Rs. 47.1, Post Split Rs. 23.6

Net Asset Value per Equity Share (post-split) represents shareholders’ equity less miscellaneous expenses as divided byweighted average number of Equity Shares.

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6. Net Asset Value per Equity Share after Issue

The net asset value per Equity Share after the Issue is Rs. 52.7(1)

Issue Price per Equity Share: Rs. 315(1) The ‘net asset value after the Issue’ is computed on the basis of net asset value as of December 31, 2003 of the Company, together with the proceeds from the

Issue of 10 million equity shares of Rs. 5 each at a price of Rs. 315 per equity share, divided by the total number of equity shares after the Issue.

7. Comparison of Accounting Ratios

EPS(1) P/E(1) RONW (2) NAV (2)

Biocon 12.8 24.7 27.9% Rs. 13.9

Industry Data (3)

Category: Pharmaceutical – Indian Bulk Drugs and Formulations’ 14.3

Peer Group

Ranbaxy 42.2 27.2 35.9% 101.0

Dr Reddy 47.5 26.6 24.0% 236.1

Wockhardt 36.8 21.8 31.5% 101.9

Cipla 47.1 24.9 25.6% 176.7

Peer Group Average 25.1 29.3%

(1) Compiled from “Capital Market” data; For companies with year ending on March 31, 9 months ended December 31, 2003, EPS data has been annualised;for companies with year ending December 31 2003, full year EPS has been used

(2) For the year ended March 31, 2003; Source for other companies: “Capital Market” Volume XVIII/22 dated January 5, 2004 to January 18, 2004 for theCategory: Pharmaceutical - Indian Bulk Drugs & Formulations.

(3) Compiled from “Capital Market” data; For companies with year ending on March 31, 9 months ended December 31 2003, EPS data has been annualised;for companies with year ending December 31, 2003, full year EPS has been used

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STATUTORY AND OTHER INFORMATION

Consents

Consents in writing of: (a) the Directors, the Company Secretary and Compliance Officer, the Auditors, Legal Advisors, Bankersto the Company and Bankers to the Issue; and (b) Book Running Lead Managers to the Issue, Co Book Running LeadManager to the Issue and Syndicate Members, Escrow Collection Bankers, Registrar to the Issue and Legal Advisors to theUnderwriters, to act in their respective capacities, have been obtained and filed along with a copy of the Prospectus with theRegistrar of Companies, Karnataka located at Bangalore, as required under Sections 60 and 60B of the Companies Act andsuch consents have not been withdrawn up to the time of delivery of this Prospectus for registration with the RoC.

S. R. Batliboi & Associates, chartered accountants, and our statutory auditors have given their written consent to the inclusionof their report in the form and context in which it appears in this Prospectus and such consent and report has not beenwithdrawn up to the time of delivery of this Prospectus for registration with the RoC.

Ernst and Young, our U.S. GAAP auditors, have given their written consent to the inclusion of their report in the form andcontext in which it appears in this Prospectus and such consent and report has not been withdrawn up to the time of deliveryof this Prospectus for registration with the RoC.

S. R. Batliboi & Associates, chartered accountants, have given their written consent to the tax benefits accruing to ourCompany and its members in the form and context in which it appears in this Prospectus and has not withdrawn such consentup to the time of delivery of this Prospectus for registration with the RoC.

Minimum Subscription

If the Company does not receive the minimum subscription of 90% of the Issue amount including devolvement of the membersof the Syndicate, if any, within 60 days from the Bid Closing Date, the Company shall forthwith refund the entire subscriptionamount received. If there is a delay beyond 8 days after the Company becomes liable to pay the amount, the Company shallpay interest as per Section 73 of the Companies Act.

Expert Opinion

Except as stated elsewhere in this Prospectus, we have not obtained any expert opinions.

There have been no changes of the auditors in the last three years except as detailed below:

Name of Auditor Date of Appointment Date of resignation Reasons for change

S.R. Batliboi & Associates June 27, 2002 Current

Arthur Andersen & Associates September 27, 2001 June 27, 2002 Resigned as statutory auditors

Arthur Andersen & Associates July 27, 2000 September 27, 2001 Resigned as statutory auditors, reappointed

Basis of Allotment

A. For Retail Bidders

n Bids received from the Retail Bidders at or above the Issue Price shall be grouped together to determine the totaldemand under this category. The allotment to all the successful Retail Bidders will be made at the Issue Price.

n The Issue size less allotment to Non Institutional and QIB Bidders shall be available for allotment to Retail Bidderswho have bid in the Issue at a price that is equal to or greater than the Issue Price.

n If the aggregate demand in this category is less than or equal to 2,500,000 Equity Shares at or above the Issue Price,full allotment shall be made to the Retail Bidders to the extent of their demand.

n If the aggregate demand in this category is greater than 2,500,000 Equity Shares at or above the Issue Price, theallotment shall be made on a proportionate basis up to a minimum of 50 Equity Shares. For the method of proportionatebasis of allotment, refer below.

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B. For Non Institutional Bidders

n Bids received from Non Institutional Bidders at or above the Issue Price shall be grouped together to determine thetotal demand under this category. The allotment to all successful Non Institutional Bidders will be made at the IssuePrice.

n The Issue size less allotment to QIBs and Retail Portion shall be available for allotment to Non Institutional Bidderswho have bid in the Issue at a price that is equal to or greater than the Issue Price.

n If the aggregate demand in this category is less than or equal to 1,500,000 Equity Shares at or above the Issue Price,full allotment shall be made to Non Institutional Bidders to the extent of their demand.

n In case the aggregate demand in this category is greater than 1,500,000 Equity Shares at or above the Issue Price,allotment shall be made on a proportionate basis up to a minimum of 50 Equity Shares. For the method of proportionatebasis of allotment refer below.

The aggregate allotment to Retail and Non Institutional Bidders shall not exceed 4,000,000 Equity Shares.

C. For QIBs

n Bids received from the QIB Bidders at or above the Issue Price shall be grouped together to determine the totaldemand under this category. The allotment to all the QIBs will be made at the Issue Price.

n The Issue size less allotment to Non Institutional Portion and Retail Portion shall be available for allotment to QIBswho have bid in the Issue at a price that is equal to or greater than the Issue Price.

n The allotment would be decided by the Company in consultation with the BRLMs and the CBRLM and would be attheir sole discretion, based on various factors, such as quality of the Bidder, size, price and date of the Bid.

The aggregate allotment to QIB Bidders shall not be less than 6,000,000 Equity Shares.

Method of Proportionate Basis of Allotment

In the event of the Issue being over-subscribed, the basis of allotment to Retail and Non Institutional Bidders shall be finalizedby us in consultation with the Designated Stock Exchange. The Executive Director or Managing Director (or any other seniorofficial nominated by them) of the Designated Stock Exchange along with the BRLMs and CBRLM and the Registrar to theIssue shall be responsible for ensuring that the basis of allotment is finalized in a fair and proper manner.

The allotment shall be made in marketable lots, on a proportionate basis as explained below:

a) Bidders will be categorized according to the number of Equity Shares applied for.

b) The total number of Equity Shares to be allotted to each category as a whole shall be arrived at on a proportionate basis,which is the total number of Equity Shares applied for in that category (number of Bidders in the category multiplied bythe number of Equity Shares applied for) multiplied by the inverse of the over-subscription ratio.

c) Number of Equity Shares to be allotted to the successful Bidders will be arrived at on a proportionate basis, which istotal number of Equity Shares applied for by each Bidder in that category multiplied by the inverse of the over-subscriptionratio.

d) In all Bids where the proportionate allotment is less than 50 Equity Shares per Bidder, the allotment shall be made asfollows:

n Each successful Bidder shall be allotted a minimum of 50 Equity Shares; and

n The successful Bidders out of the total Bidders for a category shall be determined by draw of lots in a manner suchthat the total number of Equity Shares allotted in that category is equal to the number of Equity Shares calculated inaccordance with (b) above.

e) If the proportionate allotment to a Bidder is a number that is more than 25 but is not a multiple of 50 (which is themarketable lot), the number in excess of the multiple of 50 would be rounded off to the higher multiple of 50 if thatnumber is 25 or higher. If that number is lower than 25 it would be rounded off to the lower multiple of 50. All Bidders insuch categories would be allotted Equity Shares arrived at after such rounding off.

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f) If the Equity Shares allocated on a proportionate basis to any category are more than the Equity Shares allotted to theBidders in that category, the remaining Equity Shares available for allotment shall be first adjusted against any othercategory, where the allotted shares are not sufficient for proportionate allotment to the successful Bidders in that category.The balance Equity Shares, if any, remaining after such adjustment will be added to the category comprising Biddersapplying for minimum number of Equity Shares.

Expenses of the Issue

The estimated Issue expenses are as under:(in Rs. million)

Sl. No. Expenses Approx. cost

1. Marketing costs (Advertising expenses, roadshows) 24.2

2. Printing, Registrar costs, stamp duty, listing and Depository costs 27.7

3. Fees payable to BRLMs, CBRLM, domestic and international legal 113.1counsel to the underwriters and domestic legal counsel to the Company,

auditors and financial advisors

The total expenses of the Issue is estimated to be approximately Rs. 165.0 million. The expenses of this Issue include, amongothers, underwriting and management fees, selling commission, printing and distribution expenses, legal fees, statutoryadvertisement expenses and listing fees. All expenses with respect to the Issue would be borne by the Company.

Fees Payable to the BRLMs and the CBRLM

The total fees payable to the Book Running Lead Managers and Co-Book Running Lead Managers will be as per the letter ofappointment dated January 12, 2004 issued by our Company, a copy of which is available for inspection at our corporateoffice.

Fees Payable to the Registrar to the Issue

The fees payable to the Registrar to the Issue will be as per the letter of appointment dated January 16, 2004, a copy of whichis available for inspection at our corporate office.

Adequate funds will be provided to the Registrar to the Issue to enable them to send refund orders or allotment advice byregistered post.

Fees Payable to Financial Advisors to the Company

The total fees payable to the Financial Advisors to the Company will be as per the letter of appointment dated May 27, 2003issued by our Company, a copy of which is available for inspection at our corporate office.

Commission and Brokerage on Previous Issues

No sum has been paid or is payable as commission or brokerage for subscribing to or procuring or agreeing to procuresubscription for any of our Equity Shares since our inception.

Previous Rights and Public Issues

We have not made any previous rights and public issues except as stated in the section entitled “Capital Structure” on page23 of this Prospectus.

Outstanding Debentures or Bond Issues or Preference Shares

We have no outstanding debentures or bond issues.

Capitalization of Reserves or Profits

We have not capitalized our reserves or profits at any time, except as stated in the section entitled “Capital Structure” onpage 23 of this Prospectus.

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Issues otherwise than for Cash

Except as stated in the section entitled “Capital Structure” on page 23 of this Prospectus, we have not issued any EquityShares for consideration otherwise than for cash.

Application in Issue

Equity Shares being issued through this Prospectus can be applied for in the dematerialized form only.

Purchase of Property

Except as stated in the section entitled “Status of New Facility” on page 32 of this Prospectus, there is no property which wehave purchased or acquired or propose to purchase or acquire which is to be paid for wholly, or in part, from the proceeds ofthe present Issue or the purchase or acquisition of which has not been completed on the date of this Prospectus, other thanproperty in respect of which:

n the contracts for the purchase or acquisition were entered into in the ordinary course of the business, and the contractswere not entered into in contemplation of the Issue nor is the Issue contemplated in consequence of the contracts; or

n the amount of the purchase money is not material; or

n disclosure has been made earlier in this Prospectus

Except as stated in the section entitled “Related Party Transactions” on page 84 of this Prospectus, we have not purchasedany property in which any of our Promoters and Directors, have any direct or indirect interest in any payment made thereof.

Remuneration of CEO/Executive Directors

Ms Kiran Mazumdar-Shaw, Chairman & Managing Director

Ms. Kiran Mazumdar-Shaw is entitled to receive compensation for her services as the Chairman and Managing Director ofour Company. Her remuneration for the year ended March 31, 2003 was Rs. 10,186,766. The present terms of employment ofMs. Kiran Mazumdar-Shaw with effect from April 1, 2003 until March 31, 2004 have been fixed at the meeting of the Board ofDirectors of our Company held on May 17, 2003, pursuant to the provisions of Sections 198, 269, 309, 310 and other applicableprovisions of the Companies Act and is subject to the approval of the shareholders at the general meeting and the CentralGovernment (if required). The terms of employment are as follows:

Salary

n Basic Salary : Rs. 2,57,000 per month

n House Rent Allowance : Rs. 1,02,800 per month

n Flexi Allowance : Rs. 1,02,800 per month

n Leave Travel Allowance : Rs. 25,700 per month

n Medical Reimbursement : Rs. 25,700 per month

Payment towards perquisites (evaluated as per Income Tax Rules, wherever applicable and actual cost to our Company inother cases) include the following:

n Electricity and water charges

n Club fees

n Medical reimbursement

n Use of car and telephone

n 26 days leave with pay for every year of service

n Contribution to Provident fund, Superannuation fund and Gratuity fund in accordance with the Act(s)/Scheme(s), asapplicable to the other employees of our Company, from time to time.

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n Encashment of leave is permissible, as applicable to the other employees of our Company, from time to time and the samewill not be included in the computation of the ceiling of perquisites.

n Group Medical Insurance and Personal Accident Insurance coverage as applicable to the other employees of our Company,from time to time.

Performance bonus shall be as per the Performance Bonus Scheme applicable to the other employees of our Company orsuch percentage of net profits of our Company as determined by our Board of Directors, subject to the condition that thetotal remuneration does not exceed 5% of the net profits of our Company computed as per the provisions of Section 349 and350 of the Companies Act.

In the event of absence or inadequacy of net profits in any financial year, the salary and perquisites referred above shall betreated as the minimum remuneration payable to Ms. Kiran Mazumdar-Shaw.

Mr. John Shaw, Vice Chairman

Mr. John Shaw is entitled to receive compensation for his services as the Vice Chairman of our Company. His remunerationfor the year ended March 31, 2003 was Rs. 9,216,800. The present terms of employment of Mr. John Shaw with effect fromApril 1, 2003 until March 31, 2004 have been fixed at the meeting of the Board of Directors of our Company held on May 17,2003, pursuant to the provisions of Section 198, 269, 309, 310 and other applicable provisions of the Companies Act and issubject to the approval of the shareholders at the general meeting and the Central Government (if required). The terms ofemployment are as follows:

Salary

n Basic Salary : Rs. 2,57,000 per month

n House Rent Allowance : Rs. 1,02,800 per month

n Flexi Allowance : Rs. 1,02,800 per month

n Leave Travel Allowance : Rs. 25,700 per month

n Medical Reimbursement : Rs. 25,700 per month

Payment towards perquisites (evaluated as per Income Tax Rules, wherever applicable and actual cost to our Company inother cases) include the following:

n Electricity and water charges

n Club fees

n Medical reimbursement

n Use of car and telephone

n 26 days leave with pay for every year of service

n Contribution to Provident fund, Superannuation fund and Gratuity fund in accordance with the Act(s)/Scheme(s), asapplicable to the other employees of our Company, from time to time.

n Encashment of leave is permissible, as applicable to the other employees of our Company, from time to time and the samewill not be included in the computation of the ceiling of perquisites.

n Group Medical Insurance and Personal Accident Insurance coverage as applicable to the other employees of our Company,from time to time.

Performance bonus shall be as per the Performance Bonus Scheme applicable to the other employees of our Company orsuch percentage of net profits of our Company as determined by our Board of Directors, subject to the condition that thetotal remuneration does not exceed 5% of the net profits of our Company computed as per the provisions of Section 349 and350 of the Companies Act.

In the event of absence or inadequacy of net profits in any financial year, the salary and perquisites referred above shall betreated as the minimum remuneration payable to Mr. John Shaw.

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Remuneration of other Directors

Apart from Ms. Kiran Mazumdar Shaw and Mr. John Shaw, the other directors of our Company are entitled to sitting fees ofRs. 3,000.0 for every meeting that they attend. With effect from January 17, 2004 the sitting fees for the Directors has beenenhanced to Rs. 20,000.0 for every meeting that they attend. In addition, the non-executive directors of our Company areentitled to employee stock options under the ESOP Scheme.

Revaluation of Assets

We have revalued some of our assets in 1994. The total revaluation reserve of Rs. 17.0 million as at December 31, 2003 hasbeen adjusted and the reserve as reflected in the restated financial statements is net of the adjustment for revaluation.

Classes of Shares

Our authorized capital is Rs. 600 million, which is divided into 120 million Equity Shares of Rs. 5 each.

Payment or Benefit to Promoters or Officers of our Company

Except as stated otherwise in this Prospectus, no amount or benefit has been paid or given within the two preceding years oris intended to be paid or given to any of our Promoters or officers except the normal remuneration for services rendered asDirectors, officers or employees.

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MAIN PROVISIONS OF ARTICLES OF ASSOCIATION OF BIOCON LIMITED

Capitalized terms used in this section have the meaning that has been given to such terms in the Articles of Association ofthe Company.

The regulations contained in Table ‘A’ of Schedule I to the Companies Act (Act I of 1956) shall apply only in so far as thesame are not provided for or are not inconsistent with these Articles and the regulations for the management of the Companyand for observance of the members thereof and their representatives shall, subject to any exercise of the statutory powers ofthe Company with reference to repeal or alteration of or addition to, its regulations by Special Resolution, as prescribed bythe Companies Act, 1956, be such as are contained in these Articles.

Pursuant to Schedule II of the Companies Act and the SEBI Guidelines, the main provisions of the Articles of Association ofBiocon are detailed below:

Article 4: Company not to give financial assistance to purchase its own Shares: Save as permitted by section 77 of theAct, the Company shall not give, whether directly or indirectly, any financial assistance, whether by way ofloan, guarantee, the provision of security or otherwise for the purpose of or in connection with any purchaseof or subscription for Shares in the Company.

Article 5: Power of Company to Purchase its own Shares: Subject to the provisions of section 77A and 77B of the Act,the Company may purchase its own Shares (hereinafter referred to as “buy back”) out of:-

(i) its free reserves; or

(ii) the Share premium account; or

(iii) the proceeds of any Shares

Provided that no buy back of any kind of Shares shall be made out of the proceeds of an earlier issue of thesame kind of Shares.

Article 6: Power to Issue Sweat Equity Shares: The Company may issue Equity Shares to employees or directors at aprice as approved by the Shareholders subject to the conditions specified in section 79A of the Act.

Increase, Reduction And Alteration Of Capital

Article 20: Power to increase capital: The Board may with the sanction of the Company in General Meeting by way of aspecial resolution increase the Share capital by such sum, to be divided into Shares of such amount, as theresolution shall prescribe.

Article 21: On what condition new Shares may be issued: New Shares shall be issued upon such terms and conditionsand with such rights and privileges annexed thereto as the General Meeting may resolve by a special resolutionupon the creation thereof shall direct and if no direction be given as the Board shall determine.

Article 22: How far new Shares to rank with existing Shares: Except so far as otherwise provided by the conditions ofissue or by these Articles, any capital raised by the creation of new Shares shall be considered part of theoriginal capital and shall be subject to the provisions herein contained with reference to the payment of callsand instalments, transfer and transmission, forfeiture, lien and otherwise.

Article 23: Reduction of Capital: Subject to the provisions of Section 100 to 105 of the Act, the Company may, from timeto time by special resolution reduce its capital by paying off capital or cancelling capital which has been lostor is un-represented by available assets or is superfluous or by reducing the liability on the Shares or otherwiseas may seem expedient, and capital may be paid off upon the footing that it may be called up again or otherwiseand the Directors may subject to the provisions of the Act, accept surrender of Shares.

Article 24: Sub-division, consolidation and cancellation of Shares: The Company may, by ordinary resolution:

a) consolidate and divide all or any of its Share capital into Shares of larger amount than its existing Shares;

b) sub-divide its existing Shares or any of them into Shares of smaller amount than is fixed by theMemorandum of Association, subject, nevertheless, to the provisions of clause (d) of sub-section (1) ofsection 94 of the Act;

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c) cancel any Shares which, at the date of the passing of the resolution in that behalf, have not been takenor agreed to be taken by any Person, and diminish the amount of its Share capital by the amount of theShares so cancelled.

Article 25: Modification of Rights: If at any time, the capital of the Company, by reason of the issue of Preference Sharesor otherwise, is divided into different classes of Shares, all or any of the rights and privileges attached to eachclass may subject to the provisions of Sections 106 and 107 of the Act be modified, abrogated or dealt with byagreement between the Company and any Person purporting to contract on behalf of that class, providedsuch agreement is (a) ratified in writing by the holders of at least three-fourths of the nominal value of theissued Shares of that class or (b) confirmed by special resolution passed at a separate General Meeting of theholders of Shares of that class.

Dematerialisation Of Securities

Article 26: Notwithstanding anything contained in these Articles, the Company shall be entitled to dematerialise its existingShares, debentures and other securities, rematerialise its Shares, debentures and other securities held in thedepositories and/or offer its fresh Shares, debentures and securities in a dematerialised form pursuant to theDepositories Act 1996 and the Securities and Exchange Board of India (Depositories and Participants)Regulations, 1996. The provisions in relation to transfer of shares and stated in these Articles and as permittedunder law to the extent permissible shall apply to Shares in dematerialised form.

Transfer Of Shares

Article 27: Powers of the Board on Transfer of Securities: Subject to the provisions of Sections 111 and 111-A of theAct and Section 22A of the Securities Contracts (Regulation) Act, 1956, the Directors may, at their own absoluteand uncontrolled discretion and by giving reasons, decline to register or acknowledge any transfer of Shares/Debentures which is not in accordance with these Articles, whether fully paid or not and the right of refusal,shall not be affected by the circumstances that the proposed transferee is already a Member but in suchcases, the Directors shall within two months from the date on which the instrument of transfer was lodgedwith the Company, send to the transferee and transferor notice of the refusal to register such transfer providedthat registration of transfer shall not be refused on the ground of the transferor being either alone or jointlywithin any other Person or Persons indebted to the Company on any account whatsoever except when theCompany has a lien on the Shares/debentures. Transfer of Shares / Debentures in whatever lot shall not berefused.

Article 33: No Pledging of Investor’s Shares: The Investor shall not be required to nor shall, on its own, pledge orotherwise encumber its Shares in favour of, or provide any other support to, any third party dealing with theCompany or any other Group Company including, without limitation, lenders to the Company or any otherGroup Company.

Article 34: Non-disposal by Sponsors:

a) Subject to the provisions of these Articles and so long as the aggregate number of Shares owned bythe Investor and it’s Affiliates is not less than 2% of the total number of issued Shares in the capital ofthe Company or the date which is three years after the date of the IPO, whichever is earlier, and exceptas otherwise expressly agreed in writing by the Investor, there shall be no Dilution either (includingDilution by any of the Sponsors of any Shares which it owns from time to time) except that a Sponsormay dispose of its Shares subject to the Sponsors at all times continuing to own legally and beneficiallynot less than fifty-one percent (51%) of the total number of Shares, provided that the provisions ofArticle 36 shall apply to any sale of Shares by the Sponsors.

b) Subject to Article 34 (d), the Sponsors may transfer any or all of their Shares to a Sponsor Affiliate ifand only if the Investor has given its prior written consent to such transfer, in which case Article 35shall apply. Provided that the Sponsors shall not be required to obtain the prior written consent of theInvestor in respect of any transfer of Shares which does not result in the aggregate Shareholding

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Percentage of all the Sponsors falling to less than 51%, of the total number of Shares and provided thatneither the Company or any Sponsor is in breach of any material provision of these Articles.

c) In the case of any permitted disposal under Article 34 (a) or where the Investor has given its prior writtenapproval for any Sponsor to dispose of all or part of its Shares, Article 36 shall apply unless such disposalis to a Sponsor Affiliate, in which case Article 35 shall apply.

Article 35: Transfers to Affiliates: Subject to Article 34, an Identified Shareholder may transfer Shares to any of itsAffiliates provided that:

a) the Identified Shareholder shall be jointly and severally liable with any such Affiliate for the performanceby that Affiliate of its obligations under these Articles and in respect of any breach thereof by thatAffiliate and in the case of any subsequent transfer of Shares by any Affiliate to any other Affiliate, theIdentified Shareholder shall be liable for the performance by each Affiliate which holds Shares of itsobligations under these Articles. All rights under these Articles shall be exercised jointly by the IdentifiedShareholder and its Affiliate(s) holding Shares;

b) the Identified Shareholder shall procure that, for so long as any Affiliate holds any Shares, it shall notcease to be an Affiliate of that Identified Shareholder; and

c) each of the Identified Shareholders shall procure that the Affiliate executes a Deed of Accession prior toany such transfer of Shares

Article 36: Tag-along rights: Any transfer of Shares by a Sponsor to a Person other than a Sponsor Affiliate which isexpressly permitted under these Articles or made with the prior written approval of the Investor shall complywith the following:

a) before transferring or disposing of any of its Shares to any Person, the Sponsor which owns Shares (a“Seller”) shall give a written notice (a “Transfer Notice”) to the Investor which specifies:

(i) the number of Shares (the “Sale Shares”) which it wishes to transfer; and

(ii) details of the offer to purchase the Sale Shares received from such Person (the “Purchaser”)including the name of the Purchaser, the price per Share offered by the Purchaser for the SaleShares (including, where such price comprises non-cash consideration, the Seller’s certification ofthe cash value thereof) (the “Purchase Price”) and the other terms of the transfer (includingpayment terms);

b) the Seller shall not be entitled to transfer the Sale Shares to the Purchaser unless the Seller complieswith, and procures that the Purchaser complies with, the following provisions:

(i) the Investor shall have the option, exercisable by notice in writing to the Seller within twenty-eight (28) days of the date of receipt of the Transfer Notice to require that the Seller includes inthe sale to the Purchaser, at the Purchase Price, a specified number of the Investor’s Shares (whichmay include Shares owned by the Investor’s Affiliates) not in excess of the Threshold Amount;and

(ii) if the Investor delivers a notice under paragraph (i) above, the Seller shall not be entitled to completethe transfer of the Sale Shares to the Purchaser unless the Purchaser also concurrently completesthe purchase from the Investor (or its Affiliates, if relevant) of such number of Shares as wererequired to be included in the sale of the Sale Shares to the Purchaser in accordance with paragraph(i); and

c) for the purpose of this Article 36, “Threshold Amount” is the aggregate number of Shares owned by theInvestor and its Affiliates multiplied by a fraction with a numerator comprising the number of Sale Sharesand a denominator comprising the total number of Shares owned by all of the Sponsors and any SponsorAffiliates:

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(i) the Shares to be transferred by the Sellers are less than 1% of the total issued share capital of theCompany at the time of the proposed transfer; and

(ii) the total number of Shares already transferred by the Sellers in the relevant calendar year togetherwith the number of Shares to be transferred in (i) above is less than 3% of the total issued sharecapital of the Company.

Article 37: Survival: Notwithstanding any other provision of these Articles, Articles 34 to 36 shall remain in force untilthe earlier of the date on which the Investor and its Affiliates have ceased to own any Shares and the datewhich is three (3) years after the date of the IPO.

Article 38: Share transfers by Investor: The following provisions shall apply to transfers of Shares by the Investor orany of its Affiliates:

a) subject to the provisions under this Article 38, the Investor may transfer any of its Shares to any otherPerson after the first IPO by the Company, if the Investor proposes to transfer Shares (“Negotiated SaleShares”) to a Person (other than to its Affiliates)

(i) pursuant to a negotiated sale; and

(ii) where the proposed sale price (“Negotiated Sale Offer Price”) is lower than 95% of the marketlisted price for the Negotiated Sale Shares at the time of the proposed transfer, then the Sponsorsmay, within two (2) days of the Investor informing the Sponsors of such a proposed transfer, indicatewhether they wish to purchase all (but not some) of the Negotiated Sale Shares at a price no lowerthan the Negotiated Sale Offer Price, in which case the Sponsors shall make payment for theNegotiated Sale Shares within the timing provided for by the stock exchange where the Shares arelisted.

b) For the purposes of this Article any change of control, or proposed change of control, of the Investoror any of its Affiliates which owns Shares shall be deemed to be a transfer or proposed transfer (as thecase may be) of such number of Shares as is owned by the Investor or that Affiliate and the provisionsof this Article shall apply thereto mutatis mutandis. For the purposes of this Article 39(b), “control” hasthe meaning given to it in sub-paragraph (a) of the definition of “Affiliate”.

General Meetings

Article 45: Reserved Board Matters: Each of the Identified Shareholders shall exercise all rights and powers available toit, including the exercise of voting rights, to ensure that the necessary general meeting resolutions of theCompany or any Subsidiary are passed to give effect to any Reserved Board Matter which has been approvedby Super-Majority Resolution with respect to the Company or that Subsidiary (as the case may be). It is furtheragreed that in the case of the Company and any Subsidiary, no general meeting resolution shall be passedwith respect to any Reserved Board Matter unless that Reserved Board Matter has first been approved bySuper-Majority Resolution.

Proceedings At General Meetings

Article 50: Chairman of General Meeting: The Chairman of the Board for the time being shall be entitled to take theChair at every General Meeting. If there be no such Chairman, or if at any meeting he shall not be presentwithin fifteen minutes after the time appointed for holding such meeting or is unwilling to act, the Memberspresent shall choose another Director as Chairman, and if no Director be present, or if all the Directors presentdecline to take the chair, then the Members present shall on a show of hands or on a poll if properly demanded,elect one of their number to be the Chairman.

Votes Of Members

Article 59: Votes of Members: Upon a show of hands every Member present in Person or by proxy or by duly authorisedrepresentative shall have one vote, and upon a poll, every Member present in Person or by proxy or by dulyauthorised representative, shall have one vote for every Share held by him.

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Board Of Directors

Article 72: Number of Directors: The Company shall not have less than three and more than twelve Directors on theBoard.

Article 73: Qualification Shares: The Directors are not required to hold any qualification Shares.

Article 74: Composition of the Board of Directors:

a) Notwithstanding anything contained in these Articles including clause (b) hereof, so long as the Sponsorsholds 26 % or more of the total issued and paid up capital of the Company, Ms. Kiran Mazumdar-Shawshall have the right to nominate for appointment the majority of Directors of the Board;

b) So long as the aggregate number of Shares owned by the Investor and it’s Affiliates is not less than 2%of the total issued and paid up capital of the Company or the date which is three years after the date ofthe IPO, whichever is earlier, the Investor shall have the right to nominate for appointment one Directorwho shall not be liable to retire by rotation (hereinafter called the “Investor Director”), and the Investorshall be entitled to remove the Investor Director so nominated on the Board of the Company and toappoint any other individual in his/her place.

c) The Board shall appoint such number of independent Directors as it deems fit within the maximumpermissible number of Directors specified under the applicable law and these Articles.

d) The Board may appoint an Alternate Director to act for a non-resident Director or for a Director(hereinafter called “the Original Director”) during his absence for a period of three months from the statein which the meetings of the Board are ordinarily held. An Alternate Director appointed under this Articleshall be a Person recommended for such appointment by the Original Director. An Alternate Directorappointed shall not hold office for a period longer than that permissible to the Original Director in whoseplace he has been appointed and shall vacate office if and when the Original Director returns to theState. If the term of office of the Original Director ends before he so returns to that State, any provisionfor the automatic re-appointment of retiring Directors in default of another appointment shall apply tothe Original Director and not to the Alternate Director;

e) So long as the aggregate number of Shares owned by the Investor and it’s Affiliates is not less than 2%of the total number of issued shares in the capital of the Company or the date which is three years afterthe date of the initial public offering, whichever is earlier, the Investor shall have the right, but not theobligation, to nominate one (1) director of each of the 75% Subsidiaries.

Proceedings Of The Board

Article 77: Chairman: Notwithstanding anything contained in these Articles, so long as the Sponsors holds 26% ormore of the total issued and paid up equity capital of the Company, Kiran Mazumdar-Shaw shall be the Chairman.Where the Chairman is not present at any meeting of the Board, the Directors nominated by Kiran Mazumdar-Shaw present at that meeting shall appoint a chairman for that meeting which chairman shall hold office forthat meeting alone.

Article 78: Board meetings:

a) Board meetings shall be held at least once in every three months and at least four times every year. Themeetings shall ordinarily be held in India. However, Board meetings may be held at any place other thanin India as may be agreed in writing by all the Directors. For the avoidance of doubt, subject to compliancewith the notice procedures specified in these Articles Board meetings may take place on a Saturday orSunday;

b) The date for Board meetings shall normally be fixed at the preceding Board meeting. Where such date ofthe Board Meeting has not been fixed, notice in writing of every meeting of the Board shall be given toevery Director for the time being in India, and at his usual address in India to every other Director.However, not less than 21 days prior written notice of each meeting (or such shorter period as may beagreed in writing by all the Directors) shall be given to each Director of each meeting setting out the

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agenda for the meeting in reasonable detail and attaching all reasonably available data and informationrelating to matters to be discussed at the meeting except as otherwise agreed in writing by all of theDirectors whether resident in India or outside India;

c) Subject to sub clause (e) and (j) of this Article, the quorum for any meeting shall be the Director nominatedby the Investor and such other numbers of Directors as is required to form a quorum under the Act;

d) Each Director is entitled to cast one (1) vote;

e) Except for any decisions which require a Super-Majority Resolution under these Articles and subject toapplicable provisions of the Act, decisions of the Board shall be made on the basis of a simple majorityvote. Provided that where, despite due notice of the meeting being provided to the Investor Director, ifthe Investor Director is not present at the Board meeting at the appointed time specified in the notice, alldecisions (other than those relating to any matter which requires approval by Super-Majority Resolution)shall be valid if passed by a simple majority of the Board provided that no other items may be consideredat such meeting which were not on the agenda for such meeting;

f) When permitted under applicable laws, any Director may participate in and vote at a meeting of theBoard by means of a telephone, video conferencing or similar communications equipment which allowsall Persons participating in the meeting to hear each other and record the deliberations. Where anyDirector participates in a meeting of the Board by any of the means described hereinabove, the Companyshall ensure that that Director is provided with a copy of all documents referred to during such Boardmeeting before the Board meeting commences;

g) A circular resolution in writing, signed by all of the Directors, shall, subject to the Act, constitute a validdecision of the Board provided that a draft of such resolution was sent to all of the Directors then inIndia and to all other Directors at their usual address together with a copy of all supporting papers andprovided further that resolutions concerning any Reserved Board Matters may be passed by a circularresolution if all the Directors so consent in writing.

h) Directors are not entitled to be paid for acting as Directors, other than sitting fees as prescribed by theAct, but they are entitled to be paid by the Company for all reasonable traveling, hotel and other expensesproperly incurred by them in attending meetings and discharging their duties; and

i) In any case where the resolutions being considered at any meeting of the Board include any ReservedBoard Matters, if no quorum is present within thirty (30) minutes from the appointed time for any meetingof the Board, the meeting shall stand adjourned to the same day in the next week (or such other laterdate as the Chairman may decide) at the same time and place and the Directors present at such adjournedmeeting shall constitute a quorum provided that:

(i) written notice of the adjournment was given to each Director at his usual address for service ofnotices of Board meetings not less than five (5) days before the date of the adjourned meeting;and

(ii) no agenda items may be considered at the adjourned meeting which were not on the agenda forthe meeting which was adjourned and any decision made in relation to any such Reserved BoardMatter strictly in accordance with this Article 78 (j) shall be deemed to have been made by Super-Majority Resolution.

Article 79: Board Committees: Subject to the provisions of the Act, these Articles, the Board may delegate any of itspowers to committees consisting of such Member or Members of its body as it thinks fit provided that:

a) any committee so formed shall, in exercise of the powers so delegated conform to any regulations thatmay be imposed on it by the Board; and

b) the Investor shall have the right to nominate a representative (who shall be the Director or the AlternateDirector nominated by the Investor) on any such committees of the Board.

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For the avoidance of doubt, notwithstanding anything that may be contained in these Articles, any decisiontaken at any such committee (or at any other management committee of the Company), which relates to aReserved Board Matter shall not be valid unless it is ratified and approved by a Super-Majority Resolution.

The meeting and proceedings of any such Committee shall be governed by the provisions herein containedfor regulating the meeting and proceedings of the Board so far as the same are applicable thereto, and are notsuperseded by any regulations made by the Board under this Article.

Article 80: Senior Management: The appointment of any senior management of the Company shall require the priorapproval of the Board. For the purpose of this Article, any Person occupying a position in the Company whoreports directly to the Chief Executive Officer or the Board shall be deemed senior management.

Article 81: Managing Director: Subject to the provisions of the Act and these Articles the Board may from time to timeappoint one or more of their body to the office of ‘Managing Director’ for such period and on such terms asthey think fit and subject to the terms of any agreement entered into in any particular case may revoke suchappointment.

Subject to the provisions of the Act and these Articles the Managing Director shall receive such remuneration(whether by way of salary, commission or participation in profits or partly in one and partly in another) as theBoard may determine from time to time.

Subject to the provisions of the Act and these Articles the Board may entrust to or confer upon the ManagingDirector any of the powers excisable by the Board upon such terms and conditions and with such restrictionsas the Board may think fit, either collaterally with or to the exclusion of its own powers, and may from time totime revoke, withdraw, alter or vary any such powers.

Powers Of The Board

Article 85: General powers of the Board:

(1) Subject to the provision of the Act, the Board shall be entitled to exercise all such powers, and to do allsuch acts and things, as the Company is authorised to exercise and do

Provided that the Board shall not exercise any powers or do any act or thing which is directed or requiredby any law for the time being in force or by the Memorandum of Association of the Company or otherwise,to be exercised or done by the Company in General Meeting.

Provided further that in exercising any such power or doing any such act or thing the Board shall besubject to the provisions contained in that behalf in the Act, or in any regulation not inconsistent therewithand duly made thereunder, including regulations made by the Company in General Meeting.

(2) No regulation made by the Company in General Meeting shall invalidate any prior act of the Board whichwould have been valid if that regulation had not been made.

Article 87: Annual Business Plan and others: So long as the aggregate number of Shares owned by the Investor and it’sAffiliates is not less than 2% of the issued and paid-up capital of the Company or the date which is threeyears after the date of the IPO, whichever is earlier, the following shall be complied with:

(a) Subject to Article 88, the Annual Business Plan for, and certain items listed in Article 87(c) below relatingto, the Company and the 75% Subsidiaries shall be tabled to the Board and approved by a majority ofthe Board. Provided always that, if the Investor so requests within fourteen days after the receipt of theagenda which either (i) attaches the draft Annual Business Plan and/or (ii) includes such item, suchAnnual Business Plan or item will require the approval of a majority of the Board including, at least halfof the total number of independent Directors present and voting. If the Investor has not requested forthe Annual Business Plan to be approved by the independent Directors as aforesaid, the Annual BusinessPlan may be approved by a simple majority of the Board.

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(b) Any:

(i) material change or deviation to the Annual Business Plan; or

(ii) items in the Annual Business Plan specified in Article 87 (c) below which was not included in theoriginal Annual Business Plan previously approved,

shall also be tabled to the Board and approved in the same manner as stated in Article 87 (a) above.

(c) The items to be approved as provided in Article 87 (a) above shall be:

(i) the Annual Business Plan, which shall include but not be limited to:

(aa) capital expenditure;

(bb) long term borrowing;

(cc) the making of any loans to wholly owned Subsidiaries and related guarantees or security;

(dd) any guarantees or indemnities;

(ee) debt-equity ratio; and

(ff) Research and Development Expenditure,

(ii) entry into, amendment or termination of any contract of the Company which is material to theBusiness. Without prejudice to the generality of the foregoing, a contract shall be deemed to bematerial if it has a value of 10% or greater of the annual operating revenue in the then currentAnnual Business Plan of the Company; and

(iii) granting of, amendment or termination of any license of Intellectual Property Rights of any of theGroup Companies which are material to the Business. The Company shall, and each of the Sponsorsshall exercise all rights and powers available to it to procure that the Company shall, notify theBoard of any grant, amendment or termination of any license of Intellectual Property Rights whichare not material to the Business.

Article 88: Super-Majority Resolutions:

(a) The Company shall exercise all rights and powers available to it, to procure that none of the ReservedBoard Matters shall occur with respect to the Company or with respect to any Subsidiary, unless it hasfirst been approved by a Super-Majority Resolution.

(b) In the case of any Company or other Person in which the Company has any direct or indirect ownershipinterest which is not a Subsidiary, the Company shall not, exercise any rights or powers which theCompany may have with respect to that Company or Person to approve, or withhold approval for, anymatter which would constitute a Reserved Board Matter as per sub clause B herein, in relation to thatCompany or Person without the prior approval of the Board by Super-Majority Resolution:

A. Any of the following matters with respect to the Company or any 75% Subsidiary:

1. Material acquisition, development or expansion of, or other investment in, any companies,businesses, plants or facilities outside the ordinary course of its business. Sale or disposalof assets outside the ordinary course of its business.

2. Any issuance of new equity or equity-linked securities either as a public offering or as aprivate sale or issue or any action which would alter or change the rights or privileges orobligations or liabilities of Sponsors or Investor with respect to its Shares or dilute therespective percentage of ownership of any of the above except as specifically provided underthese Articles.

3. Any merger, amalgamation, demerger or reorganisation of the Company or any Subsidiary.

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4. In the case of the Company, any sale, transfer, lease, licence or disposal of the Shares in anyof the other Group Companies or, in the case of the Company or any Subsidiary, the sale ofany material part of the assets and undertaking of the Company or that Subsidiary otherthan in the ordinary course of business.

5. Any material change in the nature, activities or scope of the Business.

6. Any amendment of the Memorandum of Association of the Company or these Articles orthe memorandum and/or articles of association of any other Subsidiary.

7. Winding up or liquidation or the appointment of receivers or administrators over any of itsassets or undertaking.

B. Any of the following matters with respect to any companies in which the Company owns, directlyor indirectly, less than 75% of the issued and paid up capital or the voting rights attached to theShares in such Company:

1. Any matters requiring Shareholders approval where such matter falls within the itemsenumerated in 1 to 7 of sub clause (b) A of this Article.

2. Any action which may result in the dilution of the Company’s direct or indirect shareholdingor control in such Company.

3. Items 3 to 7 enumerated in sub clause (b) A of this Article.

Article 89: Estoppel: For the avoidance of doubt, the Investor shall not be entitled to challenge any actions or seek anyremedies in respect of actions taken by the Company or any Subsidiary to implement any matter which hasbeen approved by, or deemed to have been approved by, Super-Majority Resolution provided that theimplementation of such matters is done in accordance with such Super-Majority Resolution.

Dividends And Reserve

Article 99: Dividends: The profits of the Company available for payment of dividend subject to any special rights relatingthereto created or authorised to be created by these presents and subject to the provisions of these presentsas to the reserve fund, shall be divisible amongst the Members in proportion to the amount of capital held bythem respectively provided always that (subject as aforesaid) any capital paid upon a Share during the periodin respect of which a dividend is declared shall only entitle the holder of such Share to an apportioned amountof such dividend as from the date of payment.

Article 114: Powers of Directors to create reserve fund: Subject to the provisions of the Act Directors may, beforerecommending any dividend, set aside out of the profits of the Company, such sums as they think proper as areserve fund, to meet contingencies or for equalizing dividends or for special dividends, or for repairing,improving and maintaining any of the property of the Company and for such other purpose as Directors shallin their absolute discretion think conducive to the interest of the Company, and may invest the several sumsso set aside upon such investment (other than Shares of the Company) as they may think fit from time to time,deal with and vary such investments, and dispose of all or any part thereof for the benefit of the Company,and may divide the reserve funds into such special funds as they think fit and employ the reserve funds orany part thereof in the business of the Company and that without being bound to keep the same separatefrom the other assets.

Article 136: The Seal: The Seal of the Company shall not be affixed to any instrument except by the authority of a resolutionof the Board and except in the presence of at least one Director or such other Person as the Board may appointfor the purpose; and the said Director or the Person aforesaid shall sign every instrument to which the seal ofthe Company is so affixed in his presence.

Article 137: Secrecy:

(a) Every Director, manager, Auditor, trustee, Member of a committee, officer, servant, agent, accountant, or

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other Person employed in the business of the Company shall, if so required by the Board before enteringupon his duties, sign a declaration pledging himself to observe strict secrecy respecting all transactionsof the Company with its customers and the state of accounts with individuals and not to reveal any ofthe matter which may come to his knowledge in the discharge of his duties except when required to doso by the Board or by any meeting or by a court of law and except so far as may be necessary in orderto comply with any of the provisions in these presents contained.

(b) No Member or other Person (unless he is a Director or other Person in management of the affairs of theCompany or the authorized representative of such Director / Person) shall be entitled to enter the premisesof the Company or to inspect or examine the Company’s premises without the permission of the Boardor officers authorized by the Board for the time being, or to require discovery of or any informationrespecting any details, of the Company’s trading or any matter which is or may be in the nature of atrade secret, mystery of trade or secret process or of any matter whatsoever which may relate to theconduct of the business of the Company and which in the opinion of the Board or officers authorizedby the Board it will be inexpedient in the interest of the Members of the Company to communicate.

Article 138: Winding Up:

(a) Subject to the provisions of the Act and these Articles if the Company shall be wound up, the liquidator,may, with the sanction of a special resolution of the Company and any other sanction required by theAct, divide amongst the Members in specie or kind the whole or any part of the assets of the Companywhether they shall consist of property of the same kind or not.

(b) Subject to the provisions of the Act and these Articles the liquidator may set value as he deems fairupon any property to be divided as aforesaid and may determine how such division shall be called outas between the Members or different classes of Members.

(c) Subject to the provisions of the Act and these Articles the liquidator may with the like sanction vest thewhole or any part of such assets in trust for the benefit of the contributors as the liquidators think fit,but no Member shall be compelled to accept any Shares or other securities whereon there is any liability.

Article 139: Indemnity and Responsibility:

(a) Subject to the provisions of Section 201 of the Act and these Articles, every Director or manager,Company Secretary and other officer or employee of the Company shall be indemnified by the Companyagainst costs, losses and expenses (including travelling expenses) which any such Director, manager,Company Secretary, officer or employee may incur on becoming liable by reason of any contract enteredinto or act or deed done by him as such Director, manager, Company Secretary, officer or employee or inany way in the discharge of his duties.

(b) Subject to the provisions of the Act and these Articles, no Director, manager, Company Secretary orother officer of the Company shall be liable for acts, receipts, neglect or defaults of any other Director,manager, Company Secretary, or other officer, or for other acts of nonconformity, or for any loss orexpenses happening to the Company through insufficiency or deficiency of title to any property acquiredby order of the Directors for or on behalf of the Company or for the insufficiency or deficiency of anysecurity in or upon which any of the moneys of the Company shall be invested or for any loss or damagearising from the bankruptcy, insolvency or tortuous act of any Person with whom any moneys or securitiesshall be entrusted or deposited or for any loss occasioned by any error of judgement or oversight onhis part, or any other loss, or damage or misfortune in the execution of the duties of his office or inrelation thereto unless any of the aforesaid should happen through his own fraud, negligence ordishonesty.

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MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTIONS

The following Contracts (not being contracts entered into in the ordinary course of business carried on by our Company orentered into more than two years before the date of this Prospectus) which are or may be deemed material have been enteredor to be entered into by our Company. These Contracts, copies of which have been attached to the copy of this Prospectus,delivered to the Registrar of Companies, Karnataka at Bangalore for registration and also the documents for inspection referredto hereunder, may be inspected at the corporate office of our Company situated at 20th KM Hosur Road, Electronic City P.O.,Bangalore 560 100 from 10.00 am to 4.00 pm on working days from the date of the Red Herring Prospectus until the Bid/IssueClosing Date.

Material Contracts

1. Letter of appointment dated January 12, 2004 to DSP Merrill Lynch Limited, Kotak Mahindra Capital Company Limitedfrom Biocon appointing them as BRLMs and letter of appointment dated January 12, 2004 to HSBC Securities and CapitalMarkets (India) Private Limited from Biocon appointing them as the CBRLM.

2. Memorandum of Understanding amongst our Company, BRLMs and CBRLM.

3. Memorandum of Understanding/ Agreements executed by our Company with Bankers to the Issue, Registrar to theIssue, etc.

4. Escrow Agreement dated March 8, 2004 between the Company, the BRLMs, the CBRLM, ABN Amro Bank N.V., KotakMahindra Bank Limited, The Hongkong and Shanghai Banking Corporation Limited, HDFC Bank Limited, Canara Bank,Kotak Securities Limited, Karvy Stock Broking Limited and the Registrar to the Issue.

5. Syndicate Agreement dated March 8, 2004 between the Company, the BRLMs, the CBRLM and Syndicate Members.

6. Underwriting Agreement dated March 20, 2004 between the Company, the BRLMs, the CBRLM and Syndicate Members.

Material Documents

1. Our Memorandum and Articles of Association as amended from time to time

2. Our certification of incorporation dated November 29, 1978, June 18, 2001 and November 19, 2003 (consequent on changeof name)

3. Our certificates in relation to change of names dated July 1, 1995, December 21, 2000 and November 19, 2003

4. Shareholders Agreement dated April 30, 2003 amongst our Company, the Promoters and AIG AOF

5. Shareholders Agreement dated March 15, 2003 amongst our Company, Ms. Kiran Mazumdar-Shaw and IVF

6. Shareholders’ resolutions in relation to this Issue and other related matters such as appointment of auditors, formationand revision of Audit, Remuneration and other committees

7. Resolutions of the IPO Committee

8. Data obtained from IMS Health Incorporated

9. Present terms of employment between our Company and Ms. Kiran Mazumdar-Shaw fixed by way of board meeting ofBiocon Limited dated May 17, 2003

10. Present terms of employment fixed between our Company and Mr. John Shaw by way of board meeting of Biocon Limiteddated May 17, 2003

11. Report of the statutory auditors, S.R. Batliboi & Associates dated January 17, 2004 prepared as per Indian GAAP andmentioned in the Prospectus

12. Report of the auditors Ernst & Young dated January 17, 2004 prepared as per US GAAP and mentioned in the Prospectus

13. Copies of annual reports of our Company, Syngene and Clinigene for the years ended March 31, 1999, 2000, 2001, 2002and 2003, as applicable and for BBPL for the year ended March 31, 2003

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14. Consent of the Auditors being S.R.Batliboi & Associates and Ernst & Young for inclusion of their report on accounts inthe form and context in which they appear in the Prospectus

15. General Power of Attorney executed by the Directors of our Company in favour of person(s) for signing and makingnecessary changes to the Prospectus and other related documents

16. Consents of Auditors, Bankers to the Company, BRLMs, CBRLM, Syndicate Members, Registrar to the Issue, EscrowCollection Bank(s), Banker to the Issue, domestic legal counsel to the Managers/Underwriters, US legal counsel to theManagers/Underwriters, Legal Counsel to the Company, Directors of the Company, Company Secretary and ComplianceOfficer, as referred to, in their respective capacities

17. Initial listing applications dated January 23, 2004 and January 23, 2004 filed with NSE and BSE respectively

18. In-principle listing approval dated February 5, 2004 and February 5, 2004 from NSE and BSE respectively

19. Approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) of the Foreign Investment Promotion Board dated January 15, 2004

20. Tripartite Agreement between NSDL, our Company and the Registrar to the Issue dated February 12, 2004

21. Tripartite Agreement between CDSL, our Company and the Registrar to the Issue dated February 13, 2004

22. Due diligence certificate dated January 23, 2004 to SEBI from DSP Merrill Lynch Limited, Kotak Mahindra Capital CompanyLimited and HSBC Securities and Capital Markets (India) Private Limited

23. SEBI observation letter No. CFD/DIL/UR/3493/2004 dated February 19, 2004, letter No. CFD/DIL/UR/4376/2004 datedMarch 3, 2004, letter No. CFD/DIL/UR/4697/2004 dated March 8, 2004 and letter No. CFD/DIL/UR/4904/2004 dated March10, 2004

24. Approval (Ref. No. F. No. 12-52/2001) dated September 2, 2003 granted by DCGI

25. Office Memorandum (Ref. No. BT/17/12/98-PID) dated December 12, 2003 received from RCGM

26. Approval (Ref. No. 10/44/2000-CS) dated March 20, 2003 granted by GEAC

Any of the contracts or documents mentioned in this Prospectus may be amended or modified at any time if so required inthe interest of the Company or if required by the other parties, without reference to the shareholders subject to compliance ofthe provisions contained in the Companies Act and other relevant statutes.

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FINANCIAL INFORMATION

1. Unconsolidated Financial Statements of Biocon Limited as at and for the months ended December 31, 2003

2. Unconsolidated Financial Statements of Syngene as at and for the months ended December 31, 2003

3. Unconsolidated Financial Statements of Clinigene as at and for the months ended December 31, 2003

4. Unconsolidated Financial Statements of BBPL as at and for the nine months ended December 31, 2003

5. Unconsolidated Statements of Assets and Liabilities and Profits and Losses, as Restated, under Indian GAAP for theyears ended March 31, 1999, 2000, 2001, 2002 and 2003 and for the nine months ended December 31, 2003 for BioconLimited, Syngene, Clinigene and BBPL.

6. Consolidated financial statements (as per Indian GAAP) for the year ended March 31, 2003 and nine months endedDecember 31, 2003.

7. Consolidated financial statements (as per US GAAP) for the year ended March 31, 2003 and the nine months endedDecember 31, 2003.

8. Consolidated restated financial statements (as per Indian GAAP) for the year ended March 31, 2003 and the nine monthsended December 31, 2003

9. Statement of Differences between Indian GAAP and US GAAP

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

FINANCIAL STATEMENTS – DECEMBER 31, 2003 TOGETHER WITH AUDITORS’ REPORT

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Auditors’ Report

To the Board of Directors ofBiocon Limited (formerly Biocon India Limited);

1. We have examined the accompanying Balance Sheet of BIOCON LIMITED (formerly Biocon India Limited) as at December31, 2003, the Profit and Loss account and Statement of Cash Flows for the nine-month period then ended annexed thereto,prepared in accordance with accounting principles generally accepted in India.

2. These financial statements are the responsibility of the BIOCON LIMITED’s management. Our responsibility is to expressan opinion on these financial statements based on our audit. We conducted our audit in accordance with auditingstandards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. The accompanying financial statements have been prepared by the Company in accordance with the requirements ofAccounting Standard (AS) 25, Interim Financial Reporting, issued by the Institute of Chartered Accountants of India.

4. On the basis of the information and explanations given to us, we are of the opinion that these financial statements give atrue and fair view in conformity with the accounting principles generally accepted in India:

i) in the case of the Balance Sheet, of the state of affairs of BIOCON LIMITED as at December 31, 2003;

ii) in the case of the Profit and Loss account of the results of operations of BIOCON LIMITED for the nine-monthperiod then ended; and

iii) in the case of the Cash Flow Statement, of the cash flows of BIOCON LIMITED for the nine month period thenended.

For S.R. BATLIBOI & ASSOCIATESChartered Accountants

per Prashant SinghalPartnerMembership No: 93283

BangaloreJanuary 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

BALANCE SHEET — DECEMBER 31, 2003(All amounts in Indian Rupees)

Notes December 31, 2003 March 31, 2003

(Note 26)

SOURCES OF FUNDS

SHAREHOLDERS’ FUNDS

Share capital 3 450,000,000 18,376,500

Reserves and surplus 2(k) & 4 1,692,360,063 1,248,721,368

2,142,360,063 1,267,097,868

LOAN FUNDS

Secured loans 5 487,019,313 582,108,708

Unsecured loans 6 163,329,812 103,545,391

650,349,125 685,654,099

DEFERRED TAX LIABILITY 2(i) & 7 159,510,941 143,056,613

2,952,220,129 2,095,808,580

APPLICATION OF FUNDS

FIXED ASSETS 2(a), 2(h), 2(j),8 & 17

Cost 1,787,435,239 1,555,461,850

Less: Accumulated depreciation 437,657,791 335,563,459

Net book value 1,349,777,448 1,219,898,391

Capital work-in-progress [including capital advancesof Rs. 103,747,834 (March 31, 2003 — Rs. 12,798,834)] 391,007,957 79,843,625

1,740,785,405 1,299,742,016

LONG TERM INVESTMENTS 2(d) & 9 84,936,081 84,829,081

CURRENT ASSETS, LOANS AND ADVANCES

Inventories 2(b) & 10 688,990,632 466,961,589

Sundry debtors 11 1,370,061,974 737,466,588

Cash and bank balances 12 11,382,222 10,217,256

Loans and advances 13 168,060,174 156,837,932

2,238,495,002 1,371,483,365

LESS: CURRENT LIABILITIES AND PROVISIONS 2(e), 2(f), 2(i)

& 14 1,111,996,359 660,245,882

NET CURRENT ASSETS 1,126,498,643 711,237,483

2,952,220,129 2,095,808,580

The accompanying notes 1 to 26 form an integral part of this balance sheet.

As per our report of even date

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Managing Director Director Membership No: 93283

Bangalore BangaloreJanuary 17, 2004 January 17, 2004

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BIOCON LIMITED

(formerly BIOCON INDIA LIMITED)PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

April 1, 2003 to April 1, 2002 toNotes December 31, 2003 March 31, 2003

(Note 26)

INCOME

Gross sales 3,945,346,984 2,750,614,744

Less: Excise duty 233,069,444 208,215,613

Net sales 2(c), 2(g) & 22 3,712,277,540 2,542,399,131

Contract research fees 2(c), 2(g) & 22 5,681,716 5,192,833

Other income 15 6,940,165 8,422,573

3,724,899,421 2,556,014,537

EXPENDITURE

Manufacturing and other expenses 2(e), 2(f), 2(h) 2,527,398,110 1,909,657,794

2(k), 16 & 22

Interest and finance charges 2(j) & 18 12,086,343 48,919,767

2,539,484,453 1,958,577,561

PROFIT BEFORE DEPRECIATION AND TAXES 1, 185,414,968 597,436,976

Depreciation 2(a) & 8 102,700,873 121,838,008

Less: Amount transferred from revaluation reserve 2(a) & 4 1,255,967 1,667,011

101,444,906 120,170,997

PROFIT BEFORE TAXES 1,083,970,062 477,265,979

Provision for income-tax

Current taxes 2(i) & 20 201,640,234 75,806,254

Deferred taxes 2(i) & 7 16,454,328 42,726,157

NET PROFIT FOR THE PERIOD/YEAR 865,875,500 358,733,568

Earnings per share

Basic and diluted (in Rs.) 2(l) 9.62 3.99

Weighted average number of shares used in computing earnings per share

Basic and diluted 90,000,000 89,916,952

The accompanying notes 1 to 26 form an integral part of this account.

As per our report of even date

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Managing Director Director Membership No: 93283

Bangalore Bangalore

January 17, 2004 January 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 2003(All amounts in Indian Rupees)

April 1, 2003 to April 1, 2002 toDecember 31, 2003 March 31, 2003

(Note 26)I CASH FLOWS FROM OPERATING ACTIVITIES :

Net profit before tax 1,083,970,062 477,265,979Adjustments for -Less: Non cash item/items required to be disclosed separately:Depreciation 101,444,906 120,170,997Amortisation of employee compensation cost 11,520,137 33,863,779Provision for bad and doubtful debts 5,390,875 4,609,125Interest expense 18,114,888 52,161,331Interest income (gross) (6,428,288) (4,534,810)Gain on sale of investment - (6,987)Loss/(gain) on assets sold etc. 368,674 (1,704,985)

130,411,192 204,558,450Changes in working capital and other provisionsInventories (222,029,043) (233,118,718)Sundry debtors (637,986,261) (118,567,220)Loans and advances (12,817,032) (55,124,768)Current liabilities and provisions 432,843,844 198,111,226

(439,988,492) (208,699,480)(309,577,290) (4,141,030)

Cash generated from operations 774,392,762 473,124,949Tax paid (net of refunds) (148,902,396) (91,621,751)

Net cash provided by operating activities 625,490,366 381,503,198II CASH FLOWS FROM INVESTING ACTIVITIES :

Fixed assetsPurchase (570,544,244) (348,408,965)Sale 91,351 2,067,750

Interest received 7,009,532 2,286,881Sale of investment - 12,968Purchase of investment (107,000) - Net cash (used) for investing activities (563,550,361) (344,041,366)

III CASH FLOWS FROM FINANCING ACTIVITIES :Proceeds from issuance of share capital - 158,700Short term borrowings from banks, net 113,483,227 (29,118,220)Repayment of secured loans (240,572,622) (403,945,610)Receipt of secured loans 32,000,000 456,542,326Deferred sales tax credit 59,784,421 47,512,013Repayment of unsecured loans - (50,000,000)Interest paid (25,470,065) (49,346,662)

Net cash provided/(used) for financing activities (60,775,039) (28,197,453)IV NET CHANGE IN CASH AND CASH EQUIVALENTS

( I+II+III) 1,164,966 9,264,379V CASH AND CASH EQUIVALENTS AT THE BEGINNING

OF THE PERIOD/YEAR 10,217,256 952,877VI CASH AND CASH EQUIVALENTS AT THE END OF

THE PERIOD/YEAR (IV + V) 11,382,222 10,217,256

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Managing Director Director Membership No: 93283

Bangalore BangaloreJanuary 17, 2004 January 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

NOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

1. Background

Biocon Limited (formerly Biocon India Limited) (‘Biocon’), promoted by Ms Kiran Mazumdar Shaw (‘KMZ’), wasincorporated at Bangalore in 1978 for manufacture of biotechnology products. On November 17, 2003, the name of theCompany was changed from Biocon India Limited to Biocon Limited. As at December 31, 2003, 69.2 per cent of theshareholding of Biocon was held by KMZ and Glentec International, Mauritius together with associated persons, 10 percent by AOF HS Mauritius Limited (pursuant to a share transfer agreement with ICICI Ventures, promoters and theCompany dated April 30, 2003), 6.9 per cent by Biocon India Limited Employees Welfare Trust (‘the ESOP Trust’), 1.2 percent by the Biocon India Welfare Trust, 2.4 per cent by India Value Fund Trustee Company Private Limited and thebalance by employees and others.

The Company has its facilities at Hebbagodi and Bommasandra, Bangalore district, Karnataka and is engaged inmanufacturing biotechnological products in the pharmaceutical and enzyme sectors through fermentation basedtechnology.

Further, in March 2002, the Company acquired 99.99 per cent of the share capital of Syngene International Private Limited(‘Syngene’), a contract research company. Syngene was also promoted and controlled by Ms Kiran Mazumdar Shaw andthe consideration for such acquisition was the issue of 202,780 equity shares of Biocon of Rs. 10 each, determined onthe basis of fair values as approved by the statutory authorities.

Also, the Company has another 100 per cent subsidiary, Clinigene International Private Limited (‘Clinigene’), which wasacquired by the Company on March 31, 2001 and undertakes clinical research activities.

Biocon entered into an Agreement on February 22, 2002 to set up a Joint Venture Company, with CIMAB SA (‘CIMAB’),a company organised and existing under the laws of Cuba and engaged in research, development, manufacturing andmarketing of Biopharmaceuticals, to manufacture and market products using technology and to carry out research activities.Accordingly, Biocon Biopharmaceuticals Private Limited (‘BBPL’) was set up on June 17, 2002 and, on April 18, 2003,Biocon acquired a 51 per cent shareholding in BBPL.

2. Summary of significant accounting policies

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and tocomply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountantsof India. Further, the financial statements are presented in the general format specified in Schedule VI to the CompaniesAct, 1956 (‘the Act’). However, as these financial statements are not statutory financial statements, full compliance withthe above Act is not required and so they do not reflect all the disclosure requirements of the Act. The significantaccounting policies are as follows:

a. Fixed assets and depreciation

Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at, estimatedreplacement cost as determined by valuers, less accumulated depreciation. The Company capitalises all costs relatingto the acquisition and installation of fixed assets.

Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period ofuse, on the straight line method at the annual rates based on the estimated useful lives.

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Per cent

Buildings 4.00

Plant and machinery 9.09 - 33.33

Research and development equipment 11.11

Furniture and fixtures 16.67

Vehicles 16.67

Leasehold land, other than those on a lease-cum-sale basis, are depreciated over the lease period. Leasehold landon a lease-cum-sale basis are capitalised at the allotment rates currently charged by the Municipal Authorities.

The depreciation charge over and above the depreciation calculation on the original cost of the revalued assets istransferred from the revaluation reserve to the profit and loss account.

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

b. Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basisand includes all applicable overheads in bringing the inventories to their present location and condition. Exciseduty arising on finished goods and customs duty on imported raw materials in stock (excluding stocks in the bondedwarehouse) are treated as part of the cost of inventories.

c. Revenue recognition

(i) Sales are recognised on despatch of goods to customers and are recorded net of excise duty, sales tax andother levies. For the purposes of disclosure in these financial statements, sales is reflected gross and net ofexcise duty in the profit and loss account.

(ii) Contract research fees are recognised as services are rendered, in accordance with the terms of the contracts.

d. Investments

Long term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other thantemporary, in the value of investments.

e. Retirement benefits

The Company has schemes of retirement benefits for provident fund, gratuity and superannuation, in respect ofwhich, the Company’s contributions are charged to the profit and loss account. The contributions towards providentfund are made to statutory authorities. The gratuity and superannuation fund benefits of the Company areadministered by a trust formed for this purpose through the group gratuity and superannuation scheme with BirlaSun Life Insurance Company Limited (‘Birla Sunlife’). In respect of gratuity, the Company has accrued for the liabilitybased on an independent actuarial valuation at the period-end. In respect of superannuation, the Company hasaccrued for the liability based on the schemes of the Company.

f. Leave encashment

Liability for leave encashment is in accordance with the rules of the Company and is provided on the basis of anactuarial valuation performed by an independent actuary. Upto March 31, 2003, the Company provided for leaveencashment on a full liability basis. Had the Company followed its earlier accounting policy, the profit before tax forthe period would have been lower by Rs. 617,340.

g. Foreign currency transactions

Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of thetransaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchangerate prevailing on the date of the balance sheet. Where the Company has entered into foreign exchange contracts,

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the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profitand loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account,except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets.

h. Research and development costs

Research and development costs, including technical know-how fees, incurred for development of products areexpensed as incurred, except for development costs which relate to the design and testing of new or improvedmaterials, products or processes which are recognised as an asset to the extent that it is expected that such assetswill generate future economic benefits. Research and development expenditure of a capital nature is added to fixedassets.

i. Income tax

Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the currenttax rates based on assessable income. The Company provides for deferred tax based on the tax effect of timingdifferences resulting from the recognition of items in the financial statements and in estimating its current tax provision.Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty thatsufficient future taxable income will be available against which such deferred tax assets can be realised. The effecton deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantiallyenacted.

The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003 and theactual tax liability of the Company will be determined on the basis of the earnings for the period from April 1, 2003 toMarch 31, 2004.

j. Borrowing costs

Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as apart of the cost of the asset. Other borrowing costs are recognised as an expense in the period in which they areincurred.

k. Deferred employee stock compensation costs

Deferred employee stock compensation costs for stock options are recognised on the basis of generally acceptedaccounting principles and are measured as the excess of the fair value of the Company’s stock on the stock optionsgrant date over the amount an employee must pay to acquire the stock and recognised in a graded manner on thebasis of weighted period of services over the vesting period of equity shares. The fair value of the options is measuredon the basis of an independent valuation performed in respect of stock options granted.

l. Earnings per share

The earnings considered in ascertaining the Company’s earnings per share comprise of the net profit after tax. Thenumber of shares used in computing the basic earnings per share is the weighted average number of sharesoutstanding during the period and are adjusted for bonus shares and sub-division of shares for all periods/yearspresented in these financial statements. The number of shares used in computing diluted earnings per share comprisesthe weighted average share considered for deriving basic earnings per share, and also the weighted average numberof shares, if any which would have been issued on the conversion of all dilutive potential equity shares.

m. Operating lease

Where the Company is a Lessee:

Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classifiedas operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basisover the lease term.

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Where the Company is a Lessor:

Assets subject to operating leases are included in fixed assets. Lease income are recognised on a straight line basisover the lease term. Costs, including depreciation are recognised as an expense. Initial direct costs such as legalcosts, brokerage costs, etc. are recognised immediately.

n. Finance lease

The cash value of fixed assets acquired on finance lease contracts is capitalised and depreciated in accordance withthe fixed assets and depreciation policy of the Company. Interest payable under finance lease contracts, is chargedon the diminishing balance method to the profit and loss account over the period of the finance lease contracts.

3. Share capital

December 31, 2003 March 31, 2003

Authorised:

120,000,000 (March 31, 2003 — 2,000,000 equity shares of Rs. 10 each) 600,000,000 20,000,000equity shares of Rs. 5 each

Issued, subscribed and paid-up:

90,000,000 (March 31, 2003 — 1,837,650 equity shares of Rs. 10 each, fully paid) 450,000,000 18,376,500

equity shares of Rs. 5 each, fully paid

(a) Of the above equity shares:

i) 30,800 equity shares of Rs. 100 each were allotted as fully paid bonus shares by capitalisation of general reserve in the year endedMarch 31, 1997.

ii) 23,471 equity shares of Rs. 100 each were allotted as fully paid-up shares in the year ended March 31, 2000 pursuant to a contractfor consideration other than cash.

iii) On October 8, 2001, the Company issued 12,153 equity shares of Rs. 100 each to the ESOP Trust under an Employee Stock OptionPlan (‘ESOP Plan’) and the Trust acquired 350 equity shares of Rs. 100 each from certain individuals.

iv) On March 30, 2002, the Company acquired 99.9 per cent equity in Syngene through the issue of 202,780 equity shares of Rs. 10each. The consideration was determined on the basis of a fair valuation, as approved by the statutory authorities in India. Therelated share premium at Rs. 403.8 per equity share has been credited to share premium account.

v) On May 9, 2002 the Company has further issued 15,870 equity shares of Rs. 10 each to the Trust under the ESOP Plan. The Truston October 20, 2003 acquired 2,500 equity shares of Rs. 10 each from certain individuals. The Trust at December 31, 2003 holds7,023,100 equity shares of Rs. 5 each of which grants have been made for 3,511,020 equity shares of the Company under the ESOPPlan.

(b) The shareholders at the Extraordinary General Meeting (‘EGM’) of the Company held on February 25, 2002, approved the sub-divisionof equity shares of face value of Rs. 100 each into ten equity shares of face value of Rs. 10 each. The Board of Directors in their meetingheld on March 30, 2002 passed a resolution for effecting the sub-division. Subsequent to this sub-division, the authorised equity sharecapital of Rs. 20,000,000 has been divided into 2,000,000 equity shares of Rs. 10 each and the then issued, subscribed and paid-up capitalof Rs. 18,217,800 as at March 31, 2002 was divided into 1,821,780 equity shares of Rs. 10 each.

(c) The shareholders at the EGM of the Company held on November 11, 2003, approved the sub-division of equity shares of face value ofRs. 10 each into 2 equity shares of Rs. 5 each and increase the authorised capital from Rs. 20,000,000 toRs. 600,000,000. Subsequent to this sub-division, the authorised equity share capital of Rs. 20,000,000 has been divided into 4,000,000equity shares of Rs. 5 each and the issued, subscribed and paid-up capital of Rs. 18,376,500 has been divided into 3,675,300 shares of Rs.5 each.

(d) Further, the shareholders at the EGM of the Company held on November 11, 2003 approved the allotment of 86,324,700 equity sharesof Rs. 5 each as bonus shares in the ratio of 1 : 23.4877958 to the shareholders existing as on November 11, 2003, which was the

approved record date for this purpose, by capitalisation of the balance in the profit and loss account of Rs. 431,623,500.

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4. Reserves and surplus

December 31, 2003 March 31, 2003

Revaluation reserveBalance, beginning of the period/year 19,127,038 21,809,784

Less: Transfer on sale and disposal of land 877,475 1,015,735

Less: Transfer to profit and loss account 1,255,967 1,667,011

16,993,596 19,127,038

Share premium 339,889,570 339,889,570

General reserve 265,059,851 265,059,851

Stock compensation adjustment [see Note 2(k) & 19]Stock options outstanding 65,291,222 -

Additions during the period/year - 65,291,222

Deletions during the period/year (2,602,648) -

62,688,574 65,291,222

Less: Deferred employee stock compensation expense (17,304,658) (31,427,443)

45,383,916 33,863,779

Opening balance in profit and loss account 590,781,130 232,047,562

Less: Issue of bonus shares (431,623,500) -

Add: Profit for the period/year 865,875,500 358,733,568

1,025,033,130 590,781,130

1,692,360,063 1,248,721,368

(i) Share premium includes an amount of Rs. 81,880,535 received on the allotment of 202,780 equity shares of Rs. 10 each on March 30,2002 at a premium of Rs. 403.8 per equity share.

December 31, 2003 March 31, 2003

(ii) Deferred employee stock compensation expense (see Note 19):

Stock compensation expense outstanding 31,427,443 65,291,222

Stock options forfeited during the year (2,602,648) -

Stock compensation expense amortised during the period/year (11,520,137) (33,863,779)

Closing balance of deferred employee stock compensation expense 17,304,658 (31,427,443)

(iii) The Company issued 86,324,700 bonus shares of Rs. 5 each through capitalisation of the balance in the profit and loss account to the

extent of Rs. 431,623,500. [See note 3(d)]

December 31, 2003 March 31, 2003

5. Secured loans

From banks

Cash credit, packing credit, etc. 390,019,313 276,536,086

Term loans

Payable within one year 21,600,000 139,233,867

Others 75,400,000 166,338,755

487,019,313 582,108,708

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(a) Cash credit, packing credit, etc

(i) On January 16, 2002, the Company renewed its total rupee and foreign currency denominated fund based working capitalfacilities with State Bank of India (‘SBI’) of Rs. 130,000,000 (March 31, 2003 — Rs. 130,000,000). These facilities arerepayable on demand, secured by the hypothecation of inventories and book debts and carry an interest rate of 2.1 percent per annum for foreign currency denominated loans and 7.5 to 12.25 per cent per annum for rupee loans. The amountoutstanding as on December 31, 2003 is Rs. Nil (March 31, 2003 – Rs. 39,650,178) inclusive of foreign currency denominatedloans of Rs. Nil [March 31, 2003 — Rs. 39,596,571 (US$ 834,051)].

(ii) On February 7, 2003, the Company renewed its total rupee and foreign currency denominated working capital facilitieswith Hongkong and Shanghai Banking Corporation (‘HSBC’) for Rs. 175,000,000 (March 31, 2003 — Rs. 175,000,000).These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry aninterest rate of 2 per cent per annum for foreign currency denominated loans and 6 to 15 per cent per annum for rupeeloans. The Company has utilised Rs. 171,223,491 (March 31, 2003 — Rs. 115,580,186) as of December 31, 2003 inclusiveof foreign currency denominated loans of Rs. 100,319,990 (US$ 2,200,000) [March 31, 2003 — Rs. 90,255,512 (US$ 1,902,387)].

(iii) On February 25, 2003, the Company renewed its working capital facilities with Canara Bank (‘CB’) for Rs. 130,000,000(March 31, 2003 — Rs. 130,000,000). These facilities are repayable on demand, secured by the hypothecation of inventoriesand book debt and carry an interest rate of 2.1 per cent for foreign currency denominated loans and 8 to 11.75 per centper annum for rupee loans. The Company has utilised Rs. 127,692,147 (March 31, 2003 — Rs. 121,305,722) as of December31, 2003 inclusive of foreign currency denominated loans of Rs. 127,626,362 (US$ 2,798,824) [March 31, 2003 — Rs.117,435,931 (US$ 2,473,637)].

The above working capital loans, are further secured by the personal guarantee of the managing director.

(iv) On June 30, 2003, the Company entered into a working capital facility with Export Import Bank (‘ EXIM Bank’) for Rs.92,860,000 (US$ 2,000,000 ) (March 31, 2003 — Rs. Nil). These facilities are repayable on demand, secured by thehypothecation of inventories and book debt and carry an interest rate of 2.2 per cent. The Company has utilised Rs.91,103,675 (US$ 1,997,888) (March 31, 2003 — Rs. Nil) as of December 31, 2003.

(b) Term loans

(i) On April 9, 1999, the Company entered into a term loan facility with EXIM bank for Rs. 126,001,000 for funding its fixedasset acquisitions of the Submerged Fermentation Plant. These loans are repayable in 9 equal half yearly instalmentscommencing from December 10, 2000, and are secured by a first pari passu mortgage and charge on the fixed assets ofthe Company and carry an interest rate of 10.5 per cent per annum. The Company had a balance of Rs. 42,001,000 drawnbut not due as of March 31, 2003, which was paid off in full as of December 31, 2003.

(ii) On November 5, 1999, the Company entered into a term loan facility with EXIM bank of India for Rs. 46,730,706 forfunding its fixed assets acquisitions of the Plafractor Plant. These loans are repayable in 10 equal half yearly instalmentscommencing from December 10, 2000, secured by a charge on the fixed assets of the Company and carry an interest rateof 7 per cent per annum. The Company had a balance of Rs. 22,737,706 drawn but not due as of March 31, 2003, whichwas paid off in full as of December 31, 2003.

(iii) On May 5, 1999, the Company entered into a term loan facility with SBI for Rs. 50,000,000 for funding its fixed assetacquisitions of the Submerged Fermentation Plant. These loans are repayable in 60 equal monthly instalments commencingfrom December 2000, are secured by a first pari passu mortgage and charge on the fixed assets of the Company and carryan interest rate of 2.99 per cent per annum for foreign currency denominated loan and 13 per cent per annum for therupee loan. The Company had a balance of Rs. 26,667,250 drawn but not due as of March 31, 2003, which was paid off infull as of December 31, 2003.

(iv) On February 7, 2003, the Company renewed its rupee and foreign currency denominated term loan facility with HSBC forRs. 170,000,000 (March 31, 2003 – Rs. 170,000,000) for funding its fixed asset acquisitions during the year and fullyutilised this facility. The instalments commencing from November 2002, are secured by a pari passu charge over the fixedassets of the Company and loan is repayable in 44 monthly carry an interest rate of 2.77 per cent per annum for foreign

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currency denominated loans and 6.6 per cent per annum for rupee loans. The Company had a balance of Rs. 149,166,666drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003.

(v) On July 3, 2002, the Company entered into a term loan facility with Technology Development Board (‘TDB’) forRs.. 100,000,000 for funding its fixed asset acquisitions of the PlaFractor plant. These loans are repayable in half yearlyinstalments commencing from February 2004, are secured by a first pari passu mortgage and charge on the fixed assetsof the Company and carry an interest rate of 5 per cent per annum. At December 31, 2003, the Company had drawnRs. 97,000,000 (March 31, 2003 — Rs. 65,000,000) from the above facility.

The above term loans are further secured by the personal guarantee of the Managing Director.

6. Unsecured loans

December 31, 2003 March 31, 2003

Deferred payment liability 163,329,812 103,545,391

(i) Under the Industrial Policy of the Government of Karnataka, the Company on November 18, 2000 obtained an order fromKarnataka Sales Tax Authority for allowing deferment of sales tax (including turnover tax) for a period upto 8 years withrespect to sales from its Bommasandra manufacturing facility of the Company. Under the Order, the deferment amountshould not exceed Rs 24,375,000, of which at December 31, 2003, the Company had utilised Rs 872,329 (March 31, 2003— Rs 863,624).

(ii) Under the Agro Food Processing Industrial Policy of the Government of Karnataka, the Company on November 18, 2000obtained an order from Karnataka Sales Tax Authority for allowing deferment of sales tax (including turnover tax) for aperiod upto 12 years with respect to sales from Hebbagodi manufacturing facility of the Company. Under the order, thedeferment amount should not exceed Rs. 648,938,000 of which at December 31, 2003, the Company had utilisedRs. 162,457,483 (March 31, 2003 — Rs. 102,681,767).

7. Deferred tax liability

Deferred tax (asset)/ Current period Deferred tax (asset) /liability as at charge / (credit) liability as atApril 1, 2003 December 31, 2003

Depreciation 155,944,370 18,112,500 174,056,870

Employee retirement benefits (5,989,536) (718,392) (6,707,928)

Disallowance under section 43B (5,509,541) 131,180 (5,378,361)

Others (1,388,680) (1,070,960) (2,459,640)

143,056,613 16,454,328 159,510,941

The Company effective August 26, 2003 received approval from the Cochin Special Economic Zone for the setting up of a100 per cent Export Oriented Unit for the manufacture and export of all types of statins on which, the Company claims exemptionunder section 10B of the Income-tax Act, 1961 (‘IT Act’).

In accordance with the provisions of section 10B of the IT Act, effective August 26, 2003, the Company can avail of a taxdeduction in respect of 100 per cent of all export income derived from the export sales arising out from that unit. Accordingly,the Company, has not recognised any additional deferred tax liability for this EOU as it expects the timing differences originatingin this period to reverse out during the tax holiday period.

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8. Fixed assets

Balance, Additions/charge (Deletion / Balance, end ofbeginning of the period Adjustments) the period

Cost/Valuation

Land

Freehold (revalued) 9,843,735 - 877,475 8,966,260

Freehold (others) 13,700,842 27,404,993 460,025 40,645,810

Leasehold 66,723,443 54,397,270 - 121,120,713

Buildings (revalued) 17,575,359 - - 17,575,359

Buildings (others) 288,064,668 33,985,887 - 322,050,555

Plant and machinery 1,004,867,084 66,775,389 - 1,071,642,473

Research and development equipment 133,102,901 42,721,705 - 175,824,606

Furniture and fixtures 14,759,682 8,632,186 - 23,391,868

Vehicles 6,824,136 - 606,541 6,217,595

1,555,461,850 233,917,430 1,944,041 1,787,435,239

Accumulated depreciation

Leasehold land 2,384,950 - - 2,384,950

Buildings (revalued) 8,292,056 1,255,967 - 9,548,023

Buildings (others) 34,585,116 9,500,575 - 44,085,691

Plant and machinery 248,525,024 77,071,490 - 325,596,514

Research and development equipment 33,376,592 12,105,500 - 45,482,092

Furniture and fixtures 6,086,058 1,975,166 - 8,061,224

Vehicles 2,313,663 792,175 606,541 2,499,297

335,563,459 102,700,873 606,541 437,657,791

Net book value

Land

Freehold (revalued) 9,843,735 8,966,260

Freehold (others) 13,700,842 40,645,810

Leasehold 64,338,493 118,735,763

Buildings (revalued) 9,283,303 8,027,336

Buildings (others) 253,479,552 277,964,864

Plant and machinery 756,342,060 746,045,959

Research and development equipment 99,726,309 130,342,514

Furniture and fixtures 8,673,624 15,330,644

Vehicles 4,510,473 3,718,298

1,219,898,391 1,349,777,448

Notes :

(a) Certain freehold land and buildings were revalued on November 1, 1994, based on the estimated replacement cost after consideringdepreciation upto that date, as per valuers reports and the resultant surplus of Rs. 34,528,673 was credited to revaluation reserve. Of thisreserve, Rs. 17,535,077 (March 31, 2003 — Rs. 15,401,635) has been transferred to the profit and loss account for depreciation onthese assets or adjusted on the sale of these assets.

(b) The Company has capitalised net foreign exchange losses of Rs. 538,060 (March 31, 2003 — Rs. 102,010) during the period/year andadjusted net foreign exchange gain amount to Rs. 1,698,739 (March 31, 2003 — Rs. Nil) in capital work-in-progress.

(c) During the period, the Company has capitalised borrowing costs identifiable to qualifying assets of Rs. 5,996,000 (March 31, 2003 –Rs. 1,664,479), currently reflected as capital work-in-progress.

(d) On December 5, 2002, Karnataka Industrial Areas Development Board (‘KIADB’) allotted land aggregating 26.75 acres to the Companyfor Rs. 64,200,000 on a lease-cum sale basis for a period of 6 years. Further, during the period the Company has acquired an additional20 acres of land for Rs. 48,202,350 from KIADB. The same is reflected at the current allotment rate, the final amount to be determined

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by KIADB on the completion of six years on fulfilment of certain conditions. One of the key conditions include commencement ofcommercial operations by the Company within 24 months of possession i.e. December 2002. The Company is confident of fulfilling thiscondition.

(e) As per the Retirement Benefit Scheme framed by the Company for senior executives, certain employees completing 12 years of servicehave an option to buy the Company’s apartments for a consideration to be fixed by the Company. During the period, the Company hasnot transferred any of the Company apartment to any of the employees.

(f) During the period, the Company has acquired 11.8 acres of freehold land from Kiran Mazumdar Shaw, the Managing Director, which was

earlier leased to the Company, at an aggregate cost of Rs. 26,749,888.

December 31, 2003 March 31, 2003

9. Long term investments (At cost)

Long term Investments

Non trade:

Unquoted

1,000 (March 31, 2003 — 1000) equity shares of Rs. 100 each 100,000 100,000of Xcyton Diagnostics Limited, fully paid up

Less: Provision for other than temporary diminution 99,999 99,999in value

1 1

National savings certificates 6,200 1,200

6,201 1,201

In subsidiary companies:

Unquoted and fully paid up

50,000 (March 31, 2003 — 50,000) equity shares of Rs. 10 each of Clinigene 500,000 500,000

2,874,830 (March 31, 2003 — 2,874,830) equity shares of Rs. 10 each of Syngene 84,327,880 84,327,880

In Joint Venture Company:

Unquoted and fully paid up

10,200 (March 31, 2003 — Nil) equity shares of Rs. 10 each of 102,000 -

Biocon Biopharmaceuticals Private Limited

84,929,880 84,827,880

84,936,081 84,829,081

(i) Clinigene, incorporated on August 4, 2000, is engaged in undertaking clinical research activities and has entered into contracts withdomestic and international companies to undertake research activities with respect to chronic diseases such as diabetes, osteoporosis,asthma etc and became a 100 per cent subsidiary of the Company on March 31, 2001. In the current period, Clinigene has incurredsignificant losses of Rs. 19,011,111 resulting in a negative net worth of Rs. 21,372,552 and a working capital deficiency of Rs. 38,966,834at December 31, 2003. The management of Clinigene is making aggressive marketing efforts to sell clinical research and is in the processof setting up a human pharmacology unit in association with a leading hospital in India to expand its clinical research activities and hashired certain employees in this connection, and is confident of generating profits in its immediate future. The Company, therefore,believes that this diminution in the value of its investment is only temporary and, accordingly, no provision is made in these financialstatements.

(ii) BBPL is a joint venture between the Company and CIMAB SA, engaged in research, development, manufacturing and marketing ofBiopharmaceuticals. The aggregate amount of Biocon’s interest in the assets and liabilities of BBPL is Rs. 788,072 and Rs. 2,335,338respectively. Biocon’s share in the accumulated loss of BBPL aggregates Rs. 1,654,300. During the period, Biocon has funded the operationsof BBPL and charged interest on all such funding. (See Note 21)

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December 31, 2003 March 31, 2003

10. InventoriesRaw materials 471,546,012 238,010,561Goods-in-transit 15,556,434 16,803,012Packing materials 2,241,293 1,446,064Work-in-progress 188,931,141 198,608,203Finished goods 10,715,752 12,093,749

688,990,632 466,961,58911. Sundry debtors (unsecured)

Debts outstanding for a period exceeding six-monthsConsidered good 19,731,261 32,639,883Considered doubtful 10,000,000 4,609,125

Other debtsConsidered good 1,350,330,713 704,826,705

1,380,061,974 742,075,713Less: Provision for doubtful debts 10,000,000 4,609,125

1,370,061,974 737,466,58812. Cash and bank balances

Cash on hand 292,214 179,149Balances with scheduled banks:

In current accounts 1,089,971 28,051In exchange earners foreign currency account 37 10,056In deposit accounts 10,000,000 10,000,000

11,382,222 10,217,25613.Loans and advances (Unsecured and considered good)

Advances recoverable in cash or in kind or for value to be received 85,214,287 57,264,400Deposits 13,929,020 18,650,152Balances with Customs and Excise Authorities 67,658,167 78,496,135Loan to Biocon India Limited Employee Welfare Trust 1,258,700 1,413,700Advance income-tax, net of provision - 1,013,545

168,060,174 156,837,932

(a) Included under advances recoverable in cash or in kind or for value to be received are amounts due from:(i) Subsidiary company

Clinigene 32,616,803 9,793,779(ii) Joint Venture Company

Biocon Biopharmaceuticals Private Limited 4,248,244 1,557,319

(iii) Ms Kiran Mazumdar Shaw (Managing Director) - 9,600,000

14.Current liabilities and provisionsSundry creditors 879,901,778 534,034,198Advances from customers 6,185,212 9,650,699Interest accrued but not due 4,908,995 6,268,172Other liabilities 124,705,961 84,572,854

1,015,701,946 634,525,923Provision for employee retirement benefits 17,002,017 1,151,856Provision for leave encashment 27,568,103 24,568,103Provision for taxation, net of advance tax 51,724,293 -

1,111,996,359 660,245,882

Other liabilities include Rs. 573,161 (March 31, 2003 —Rs. 970,443) due to Ms Kiran Mazumdar Shaw, Managing Director and Rs. Nil (March31, 2003 — Rs. 686,836) to JMM Shaw, Director and deposits from Syngene of Rs. 600,000 (March 31, 2003 — Rs. 600,000) towards the

security deposit for the use of land.

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April 1, 2003 to April 1, 2002 to

December 31, 2003 March 31, 2003

15. Other IncomeInterest income from investments [Gross of tax deductedat source Rs. 100,886 (March 31, 2003 — Rs. 237,069)] 399,743 2,957,725

Gain on fixed assets sold, net - 1,704,985

Miscellaneous income 6,540,422 3,759,863

6,940,165 8,422,573

16. Manufacturing and other expensesRaw materials consumed, net of duty drawback of Rs. 37,493,940

(March 31, 2003 — Rs. 18,199,657) 1,880,655,075 1,291,347,931

Purchase of goods for resale 3,973,149 11,266,792

Employee costs

Salaries, wages, bonus, etc 192,190,315 206,474,301

Contribution to provident fund 7,854,237 8,613,456

Gratuity, superannuation, leave encashment 18,850,161 36,994,775

Employee stock compensation expense (See Note 4 & 19) 11,520,137 33,863,779

Directors sitting fees 21,000 24,000

Welfare expenses 17,116,546 20,988,810

247,552,396 306,959,121

Operating and other expenses:

Royalty and technical know-how fees - 38,458,273

Rent 1,958,627 2,610,264

Communication 12,039,235 12,762,000

Travelling and conveyance 27,055,215 33,241,628

Professional charges 19,485,440 14,364,140

Power and fuel, net of recoveries of Rs. 3,960,000

(March 31, 2003 — Rs. 5,580,924) 121,557,143 128,007,141

Insurance 12,472,804 8,564,661

Rates, taxes and fees 7,518,140 3,090,781

Lab consumables 18,504,745 10,869,176

Repairs and maintenance

Plant and machinery 41,078,550 40,192,458

Buildings 13,479,696 9,185,990

Others 18,157,811 16,381,765

Selling expenses

Freight outwards and clearing charges 18,280,419 14,850,093

Sales promotion 16,489,248 16,894,662

Commission 19,913,656 17,917,825

Bad debts written off 197,085 -

Provision for bad and doubtful debts 5,390,875 4,609,125

Loss on disposal of asset, net 368,674 -

Printing and stationery 5,886,542 7,491,507

Miscellaneous expenses 24,328,526 21,794,347

384,162,431 401,285,836

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(Increase)/decrease in inventories of finished goods and work-in-progress:

Opening inventories:

Finished goods 12,093,749 9,293,945

Work-in-progress 198,608,203 100,206,121

210,701,952 109,500,066

Closing inventories:

Finished goods 10,715,752 12,093,749

Work-in-progress 188,931,141 198,608,203

199,646,893 210,701,952

11,055,059 (101,201,886)

2,527,398,110 1,909,657,794

17. Research and development expenses

Research and development expenses aggregating Rs. 126,715,434 (March 31, 2003 — Rs. 114,241,332) includingRs. 42,721,705 (March 31, 2003 — Rs. 34,282,059) on capital account have been incurred by the Company which have beendisclosed under the appropriate account heads.

April 1, 2003 to April 1, 2002 toDecember 31, 2003 March 31, 2003

18. Interest and finance charges

Interest paid on :

Term loans 11,668,160 26,701,866

Others 5,742,004 19,044,187

17,410,164 45,746,053

Less : Interest received from suppliers (6,028,545) (1,577,085)

Less : Interest Capitalised [See Note 2 (j) & 8(c)] (5,996,000) (1,664,479)

5,385,619 42,504,489

Bank charges 6,700,724 6,415,278

12,086,343 48,919,767

19. Employee stock compensation

On September 27, 2001, the Board of Directors approved the Biocon Employee Stock Option Plan (‘ESOP Plan 2000’) for thegrant of stock options to the employees of the Company. A compensation committee has been constituted to administer theplan through the ESOP Trust.

The Trust purchases equity shares of Biocon using the proceeds from the loan obtained from Biocon and will subscribe tosuch number of shares as is necessary for transferring to the employees. The total number of equity shares transferred to theTrust shall not exceed 250,000 equity shares (pre-bonus and pre-split) of Rs. 10 each and shares transferred to each employeewill not exceed 10,000 equity shares (pre-bonus and pre-split) of Rs. 10 each. The Compensation Committee shall determinethe exercise price which will not be less than the face value of the shares. The Compensation Committee has granted 71,510options under the ESOP Plan 2000 to be exercised at a grant price of Rs. 10 (pre-bonus and pre-split). The options will vestwith the employees equally over a four year period from the grant date. In case the employee resigns from employment, therights relating to shares, which are eligible for exercise, may be purchased by payment of the exercise price whereas, thebalance shares shall be forfeited in favour of the ESOP Trust.

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The Trust had 6,181,186 equity shares of Rs. 5 each (March 31, 2003 — 140,900 equity shares of Rs. 10 each) as atDecember 31, 2003 and a summary of the activity of the Trust is as follows:

Particulars April 1, 2003 to Year endedDecember 31, 2003 March 31, 2003

(Equity shares of Rs. 5 (Equity shares ofeach post subdivision Rs. 10 each)

and bonus issue)

Opening balance of equity shares not granted to employees and 3,398,402 125,030available with the Trust

Add: Acquired by the Trust 122,438 15,870

Less: Options granted during the period/year - (71,510)

Add: Options cancelled and lapsed 125,500 -

Closing balance of shares not granted to employees and available with the Trust 3,646,340 69,390

Options granted and exercised at period/year end 841,914 -

Options granted and eligible for exercise at period/year end - 17,878

Options granted but not eligible for exercise at period/year end 2,534,846 53,632

Total employee stock compensation cost as at period/year end 62,688,574 65,291,222

Vesting period of options

— Primarily progressively over four years

Employee stock compensation expense

— Amortised during the period/year 11,520,137 33,863,779

The estimated fair values of the equity shares have been determined by management on the date of the grant (April 1, 2002),based on a valuation by an independent appraiser.

20. Current taxes

The tax charge of Rs. 201,640,234 (March 31, 2003 – Rs. 75,806,254) is based on the earnings for the nine-month period endedDecember 31, 2003.

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21. Related party transactionsSl. No. Name of the related party Relationship Description April 1, 2003 to Balance as at April 1, 2002 Balance as at

December 31, December 31, to March 31, March 31,2003 2003 2003 2003

(Payable)/ (Payable)/receivable receivable

1 Kiran Mazumdar Shaw Managing Director Rent expense 720,000 (240,000) 960,000 -

Lease deposit paid/ (9,600,000) - - 9,600,000(received)

Salary and 8,833,498 (333,161) 10,186,766 (970,443)perquisites

Land purchased 26,749,888 - - -

2 JMM Shaw Director Salary and 8,351,031 - 9,216,800 (686,836)perquisites

3 Syngene International Subsidiary company Interest income on - - 406,412 - Private Limited current account

transactions

Current account:

Due to Syngene - - 425,000 -

Due from Syngene 3,156,459 - 19,057,487 -

Purchase of fixed - - 1,547,751 - assets

Rent income 855,000 - 1,140,000 -

Rent deposit received - (600,000) – (600,000)

Power charges received 3,600,000 - 5,100,924 -

Communication expenses - - 1,000,000 - paid

4 Clinigene International Subsidiary company Power charges 360,000 - 480,000 -

Private Limited Rent income 180,000 - - -

Interest income on - - 350,502 276,896current accounttransactions

Current account:

Due from Clinigene 23,099,920 32,616,803 9,869,346 9,516,883

5 Biocon Biopharmaceuticals Joint venture company Interest income on 103,905 - - - [Joint venture company, current accountfrom April 18, 2003] transactions

Current account:

Due from BBPL 4,144,339 4,248,244 - -

6 Biocon India Limited ESOP Trust Administration of theEmployee Welfare Trust ESOP plan Loan to the

Trust/(repaid) (155,000) 1,258,700 158,700 1,413,700

(a) Apart from the related party transactions disclosed above, the Company renders administrative and management assistance to its subsidiariesSyngene and Clinigene and joint venture BBPL, in respect of which no charges have been made by the Company. Also, during the period/year, certain employees of the Clinigene have provided assistance to the Company in some of their projects in respect of which nocharges have been levied to Biocon.

(b) The total compensation cost as at the end of the period/year include Rs. 14,238,414 (March 31, 2003 — Rs. 14,420,259) incurredtowards employee compensation cost for options granted to employees of Syngene. The corresponding compensation cost amortisedduring the nine months/year is Rs. 2,892,178 (March 31, 2003 — Rs. 7,415,841). The Company has not charged this amortisation toSyngene.

(c) The Company has given corporate guarantees of Rs. 80,000,000 (March 31, 2003 — Rs. 80,000,000) to the Customs and Excisedepartment (‘CED’) on behalf of Syngene and Syngene has furnished a corporate guarantee of Rs. 165,000,000 (March 31, 2003 — Rs.

15,000,000) on behalf of the Company to the CED.

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22. Foreign exchange differences

The Company enters into a significant amount of transactions to export products and for the import of raw materials. Foreignexchange gains of Rs. 33,746,089 (March 31, 2003 — Rs. 8,681,931) included in the net profit is reflected in the respectiveaccount captions in the statement of profit and loss.

December 31, 2003 March 31, 2003

23. Commitments

(a) Capital commitments

Estimated amount of contracts remaining to be executed oncapital account and not provided for, net of advances 869,336,007 257,730,301

(b) Operating lease commitments

Where the Company is a lessee:

(i) Rent

The Company had entered into a lease agreement for land. Gross rental expenses for the period ended December 31,2003 aggregated to Rs. 720,000 (March 31, 2003 — Rs. 960,000). However, the Company has on December 23, 2003acquired the land and there are no committed lease rentals in future towards the lease of such land.

(ii) Vehicles

The Company has taken vehicles for certain employees under operating leases, which expire in August 2007. Grossrental expenses for the period ended December 31, 2003 aggregated to Rs. 928,999 (March 31, 2003 — Rs. 220,060).The committed lease rental in the future are:

Not later than one year 1,097,805 477,911

Later than one year and not later than five years 2,558,695 1,516,986

Where the Company is a Lessor:

(i) Rent

The Company has leased out certain parts of its building on an operating lease, which expire over a period rangingfrom 2004 to 2011. Gross rental income for the period ended December 31, 2003 aggregated to Rs. 1,035,000 (March31, 2003 — Rs. 1,140,000). There are no uncollectible minimum lease payments at the balance sheet date. Futureminimum lease receipts under operating lease is as follows:

December 31, 2003 March 31, 2003

Not later than one year 930,000 1,410,000

Later than one year and not later than five years 2,940,000 3,120,000

Later than five years 975,000 1,380,000

24. Contingent liabilities

(a) Taxation matters under appeal 7,630,942 7,630,942

(b) Corporate guarantee given in favour of the CED in respectof certain performance obligations of Syngene. The Companyis informed that the necessary terms and conditions have beencomplied with and no liability has arisen 80,000,000 80,000,000

(c) Claims against the Company not acknowledged as debts 2,280,000 2,373,750

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25. Segmental Information

Business segments

The primary reporting of the Company has been performed on the basis of business segment. The Company is organisedinto two business segments, enzymes and active pharmaceutical ingredients (‘Pharma’). Segments have been identified andreported based on the nature of the products, the risks and returns, the organisation structure and the internal financialreporting systems.

April 1, 2003 to December 31, 2003

Particulars Enzyme Pharma Unallocated Eliminations Total

Revenues

External sales, net 483,889,561 3,228,387,979 - - 3,712,277,540

Inter-segment transfers 31,709,959 – - (31,709,959) -

Total revenues 515,599,520 3,228,387,979 - (31,709,959) 3,712,277,540

Costs -

Segment costs (305,370,427) (1,856,093,343) - - (2,161,463,770)

Inter-segment transfers - (31,709,959) - 31,709,959 -

Resul t

Segment result 210,229,093 1,340,584,677 - - 1,550,813,771

Corporate expenses - - (365,934,340) - (365,934,340)

Other income - - 12,222,138 - 12,222,138

Interest income - - 399,743 - 399,743

Operating profit 1,197,501,311

Depreciation (13,844,723) (47,121,173) (40,479,010) - (101,444,906)

Interest expense - (3,553,288) (8,533,055) - (12,086,343)

Income taxes - Current and deferred - - (218,094,562) - (218,094,562)

Net profit 865,875,500

Other information

Segment assets 512,771,441 2,943,225,538 - - 3,455,996,979

Unallocated corporate assets - - 608,219,509 - 608,219,509

Total assets 4,064,216,488

Segment liabilities 115,661,598 977,635,887 - - 1,093,297,486

Unallocated corporate liabilities - - 828,558,939 - 828,558,939

Total liabilities 1,921,856,425

Capital expenditure 19,453,388 12,650,709 201,813,333 - 233,917,430

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April 1, 2002 to March 31, 2003

Particulars Enzyme Pharma Unallocated Eliminations Total

Revenues

External sales 532,448,085 2,009,951,046 - - 2,542,399,131

Inter-segment transfers 55,497,389 - - (55,497,389) -

Total revenues 587,945,474 2,009,951,046 - (55,497,389) 2,542,399,131

Costs - - - -

Segment costs (356,377,038) (1,136,887,896) - - (1,493,264,934)

Inter-segment transfers - (55,497,389) - 55,497,389 -

Result

Segment result 231,568,436 817,565,761 - - 1,049,134,197

Corporate expenses - - (416,392,860) - (416,392,860)

Other income - - 10,657,681 - 10,657,681

Interest income - - 2,957,725 - 2,957,725

Operating profit 646,356,743

Depreciation (17,971,112) (59,949,046) (42,250,839) - (120,170,997)

Interest expense - (15,096,700) (33,823,067) - (48,919,767)

Income taxes

- Current and deferred - - (118,532,411) - (118,532,411)

Net profit 358,733,568

Other information

Segment assets 479,692,430 1,827,844,623 - - 2,307,537,053

Unallocated corporate assets - - 448,517,409 - 448,517,409

Total assets 2,756,054,462

Segment liabilities 6,437,726 326,722,194 - - 333,159,920

Unallocated corporate liabilities - - 1,155,796,674 - 1,155,796,674

Total liabilities 1,488,956,594

Capital expenditure 63,719,838 111,552,245 125,160,034 - 300,432,117

Geographical segments

Secondary segmental reporting is performed on the basis of the geographical location of customers. The operations of theCompany comprise exports contributing to approximately 56 percent (March 31, 2003 — 43 per cent). The management viewsthe Indian market and export markets as distinct geographical segments. The following is the distribution of the Company’ssale by geographical markets

Revenues, net April 1, 2003 to April 1, 2002 toDecember 31, 2003 March 31, 2003

India 1,629,980,964 1,462,327,001

Exports 2,087,978,292 1,085,264,963

Total 3,717,959,256 2,547,591,964

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Assets and additions to fixed assets by geographical area - The following is the carrying amount of segment assets andadditions to fixed assets by geographical area in which the assets are located :

Carrying amount of segment assets

December 31, 2003 March 31, 2003

India 3,512,994,714 2,510,771,545

Outside India 551,221,774 245,282,917

4,064,216,488 2,756,054,462

Carrying amount of segment assets outside India represents receivables from export debtors and export benefits recoverable.

Segment revenue and result

The expenses that are not directly attributable and that cannot be allocated to a business segment on a reasonable basis areshown as unallocated corporate expenses.

Inter-segment transfers

Segment revenue, segment costs and results include transfers between business segments. Such transfers have been madeat cost. The inter-segment transfers have been eliminated on consolidation.

Segment assets and liabilities

Segment assets include all operating assets used by the business segment and consist principally of fixed assets, investments,receivables and inventories. Segment liabilities comprise of long term debts which can be identified directly against the respectsegment assets and liabilities. Assets and liabilities that have not been allocated between segments are shown as part ofunallocated corporate assets and liabilities respectively.

26. Prior period comparatives

This is the first time that the Company has prepared audited financial statements for nine months, accordingly no comparativesare provided for the prior period. The management believes that it is impracticable to generate the financial results of thepreceding period, as the necessary cut-offs were not taken as at December 31, 2002 and for the nine months then ended.However, comparatives for the year ended March 31, 2003 have been provided by the management and have been reclassified,where necessary, to conform to the current period classification.

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SYNGENE INTERNATIONAL PRIVATE LIMITED

FINANCIAL STATEMENTS – DECEMBER 31, 2003

TOGETHER WITH AUDITORS’ REPORT

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Auditors’ Report

To the Board of Directors ofSyngene International Private Limited

1. We have examined the accompanying Balance Sheet of SYNGENE INTERNATIONAL PRIVATE LIMITED as atDecember 31, 2003, the Profit and Loss Account and the Cash Flow Statement for the nine-month period then endedannexed thereto, prepared in accordance with accounting principles generally accepted in India.

2. These financial statements are the responsibility of the SYNGENE INTERNATIONAL PRIVATE LIMITED’s management.Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with auditing standards generally accepted in India. Those Standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.

3. The accompanying financial statements have been prepared by the Company in accordance with the requirements ofAccounting Standard (AS) 25, Interim Financial Reporting, issued by the Institute of Chartered Accountants of India.

4. On the basis of the information and explanations given to us, we are of the opinion that these financial statements give atrue and fair view in conformity with the accounting principles generally accepted in India:

i. in the case of the Balance Sheet, of the state of affairs of SYNGENE INTERNATIONAL PRIVATE LIMITED as atDecember 31, 2003;

ii. in the case of the Profit and Loss account of the results of operations SYNGENE INTERNATIONAL PRIVATELIMITED for the nine-month period then ended; and

iii. in the case of the Cash Flow Statement, of the cash flows of SYNGENE INTERNATIONAL PRIVATE LIMITED forthe nine-month period then ended.

For S.R. BATLIBOI & ASSOCIATESChartered Accountants

per Prashant SinghalPartner

Membership No: 93283

BangaloreJanuary 17, 2004

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SYNGENE INTERNATIONAL PRIVATE LIMITEDBALANCE SHEET - DECEMBER 31, 2003

(All amounts in Indian Rupees)

Notes December 31, 2003 March 31, 2003

(Note 19)

SOURCES OF FUNDS

SHAREHOLDERS’ FUNDS

Share capital 3 28,750,000 28,750,000

Reserves and surplus 4 240,775,366 133,102,440

269,525,366 161,852,440

APPLICATION OF FUNDS

FIXED ASSETS 2(a) & 5

Cost 190,632,843 171,076,087

Accumulated depreciation 55,388,072 39,641,072

Net book value 135,244,771 131,435,015

Capital work-in-progress [including capital advances ofRs. 7,952,129 (March 31, 2003 — Rs. Nil)] 28,820,810 8,833

164,065,581 131,443,848

INVESTMENTS 2(b) & 6 142,056,783 50,000,001

CURRENT ASSETS, LOANS AND ADVANCES

Inventories 2(c) & 7 12,274,865 12,093,433

Sundry debtors 8 24,766,688 10,696,798

Cash and bank balances 9 9,779,332 16,120,180

Loans and advances 10 3,993,944 4,244,649

50,814,829 43,155,060

LESS: CURRENT LIABILITIES AND

PROVISIONS 2(e), 2(f), 2(h) & 11 87,411,827 62,746,469

NET CURRENT LIABILITIES 36,596,998 19,591,409

269,525,366 161,852,440

The accompanying notes 1 to 19 form an integral part of this balance sheet.

As per our report of even date

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director Director Membership No: 93283

Bangalore Bangalore

January 17, 2004 January 17, 2004

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SYNGENE INTERNATIONAL PRIVATE LIMITEDPROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

April 1, 2003 to April 1, 2002 toNotes December 31, 2003 March 31, 2003

(Note 19)INCOME

Contract research fees 2(d)(i) & 2(g) 213,749,063 225,153,306

Sale of compounds 2(d)(ii) & 2(g) 44,224,152 36,093,555

Interest income 585,634 550,667

[gross of tax deducted at source - Rs. 134,937(March 31, 2003 — Rs. 80,675)]

Dividend income 3,229,001 -

261,787,850 261,797,528

EXPENDITURE

Contract research and other operating expenses 2(e), 2(f), 2(j) & 13 135,879,080 161,948,289

Interest and finance charges 14 325,971 1,292,903

136,205,051 163,241,192

PROFIT BEFORE DEPRECIATION AND TAX 125,582,799 98,556,336

Depreciation 2(a) & 5 15,747,000 16,370,757

PROFIT BEFORE TAX 109,835,799 82,185,579

Provision for taxation

Current 2(h) & 12 2,162,872 8,039,454

Deferred 2(h) & 12 - (7,840,795)

NET PROFIT FOR THE PERIOD/YEAR 107,672,927 81,986,920

Balance brought forward from previous year 87,309,086 5,322,166

BALANCE, END OF THE PERIOD/YEAR 194,982,013 87,309,086

Earnings per share (equity shares, par value Rs. 10 each) 2(i)Basic and diluted (in Rs.) 37.45 28.52

Weighted average number of shares used in computingearnings per share, basic and diluted 2,875,000 2,875,000

The accompanying notes 1 to 19 form an integral part of this account.

As per our report of even date

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director Director Membership No: 93283

Bangalore Bangalore

January 17, 2004 January 17, 2004

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SYNGENE INTERNATIONAL PRIVATE LIMITEDSTATEMENT OF CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

April 1, 2003 to April 1, 2002 to

December 31, 2003 March 31, 2003

(Note 19)I CASH FLOWS FROM OPERATING ACTIVITIES :

Net profit before tax 109,835,799 82,185,579Adjustments forLess: Non cash item/items required to bedisclosed separately:Depreciation 15,747,000 16,370,757Interest and finance charges 325,971 1,292,903Interest income (gross) (585,634) (550,667)Gain on sale of investment (9,654) - Dividend income (3,229,001) -

12,248,682 17,112,993Changes in working capital and other provisionsInventories (181,432) (3,972,226)Sundry debtors (14,069,890) 4,936,064Loans and advances (31,458) 996,440Current liabilities and provisions 25,472,723 15,299,187

11,189,943 17,259,465Cash generated from operations 133,274,424 116,558,037Tax paid

Current taxes (656,240) (4,113,596)Net cash provided by operating activities 132,618,184 112,444,441

II CASH FLOWS FROM INVESTING ACTIVITIES :Fixed assets

Purchase (50,682,731) (59,799,494)Sale - 1,547,752

Dividend received 3,229,001Interest received 867,797 550,667Purchase of investments (261,387,740) (50,000,000)Sale of investments 169,340,612 - Net cash (used) for investing activities (138,633,061) (107,701,075)

III CASH FLOWS FROM FINANCING ACTIVITIES :Repayments of secured loans - (2,800,500)Interest paid (325,971) (1,292,903)Corporate tax on dividend - (2,199,313)Net cash (used) for financing activities (325,971) (6,292,716)

IV NET CHANGE IN CASH AND CASH EQUIVALENTS( I+II+III) (6,340,848) (1,549,350)

V CASH AND CASH EQUIVALENTS AT THE BEGINNINGOF THE PERIOD/YEAR 16,120,180 17,669,530

VI CASH AND CASH EQUIVALENTS AT THE END OFTHE PERIOD/YEAR (IV + V) 9,779,332 16,120,180

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director Director Membership No: 93283

Bangalore BangaloreJanuary 17, 2004 January 17, 2004

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SYNGENE INTERNATIONAL PRIVATE LIMITEDNOTES TO THE FINANCIAL ST ATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

1. Background

Syngene International Private Limited (‘Syngene’ or ‘the Company’) was promoted by Ms Kiran Mazumdar Shaw, apromoter of Biocon Limited (formerly Biocon India Limited) (‘Biocon’), and was incorporated at Bangalore in 1993. AtMarch 30, 2002, 99.9 per cent of the equity shares of the Company were transferred to Biocon and, resultantly, the Companybecame the subsidiary of Biocon.

The Company was formed with an objective of providing contract research services to overseas customers in the field ofsynthetic chemistry and molecular biology. The Company sells products arising from research activities carried out onbehalf of its customers.

During the previous year ended March 31, 2003, the Company had expanded its operations by doubling its capacity forundertaking the contract research activities through commercializing its second 100 per cent Export Oriented Unit (approvedby Cochin Export Processing Zone) at Bommasandra, Bangalore, Karnataka.

2. Summary of significant accounting policies

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and tocomply in all material respects with the mandatory accounting standards issued by The Institute of Chartered Accountantsof India. Further, the financial statements are presented in the general format specified in Schedule VI to the CompaniesAct, 1956 (‘the Act’). However, as these financial statements are not statutory financial statements, full compliance withthe above Act is not required and so they do not reflect all the disclosure requirements of the Act. The significantaccounting policies are as follows:

a. Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation. The Company capitalises all costs relating to theacquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period of use, on the straightline method at the annual rates based on the estimated useful lives.

Per cent

Buildings 4.00

Plant and machinery 11.11 - 33.33

Furniture and fixtures 16.67

Vehicles 16.67

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

b. Investments

Investments that are readily realisable and intended to be held for not more than a year are classified as currentinvestments. All other investments are classified as long term investments. Current investments are carried at lowerof cost and fair value and determined on an individual investment basis. Long term investments are carried at cost.However, provision for diminution in value is made to recognise a decline other than temporary in the value of theinvestments.

c. Inventories

Inventories comprise chemicals and reagents, and are valued at the lower of cost and net realisable value, on a firstin first out basis.

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d. Revenue recognition

(i) Contract research fee

Contract research fees are recognized as services are rendered, in accordance with the terms of the contracts.

(ii) Sale of compoundsSales are recognised on dispatch of goods to customers, and comprise amounts invoiced for goods sold.

e. Retirement benefits

The Company has schemes of retirement benefits for gratuity and superannuation, in respect of which, the Company’scontributions are charged to the profit and loss account. The gratuity and superannuation fund benefits of theCompany are administered by a trust formed for this purpose through the group gratuity and superannuation schemewith Birla Sun Life Insurance Company Limited (‘Birla Sunlife’). In respect of gratuity, the Company has accrued forthe liability based on an independent actuarial valuation at the period-end. In respect of superannuation, the Companyhas accrued for the liability based on the schemes of the Company.

f. Leave encashment

Liability for leave encashment is in accordance with the rules of the Company and is provided on the basis of anactuarial valuation performed by an independent actuary. Upto March 31, 2003, the Company provided for leaveencashment on a full liability basis. The impact on net profit before taxes as a result of this change is not material.

g. Foreign currency transactions

Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of thetransaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchangerate prevailing on the date of the balance sheet. Where the Company has entered into foreign exchange contracts,the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profitand loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account,except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets.

h. Income tax

Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the currenttax rates based on assessable income. The Company provides for deferred tax based on the tax effect of timingdifferences resulting from the recognition of items in the financial statements and in estimating its current tax provision.Deferred tax assets are recognised and carried forward only to the extent that there is virtual certainty that sufficientfuture taxable income will be available against which such deferred tax assets can be realised. The effect on deferredtaxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted.

The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003 and theactual tax liability of the Company will be determined on the basis of the earnings for the period from April 1, 2003 toMarch 31, 2004.

i. Earnings per share

The earnings considered in ascertaining the Company’s earnings per share comprise of the net profit after tax. Thenumber of shares used in computing the basic earnings per share is the weighted average number of sharesoutstanding during the period. The number of shares used in computing diluted earnings per share comprises theweighted average share considered for deriving basic earnings per share, and also the weighted average number ofshares, which would have been issued on the conversion of dilutive potential equity shares, if any.

j. Operating lease

Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classifiedas operating leases. Lease payments under operating leases are recognized as an expense on a straight-line basisover the lease term.

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3. Share capital

December 31, 2003 March 31, 2003

Authorised:

3,500,000 (March 31, 2003 — 3,500,000) equity shares

of Rs. 10 each 35,000,000 35,000,000

Issued, subscribed and paid up:

2,875,000 (March 31, 2003 — 2,875,000) equity shares

of Rs. 10 each fully paid 28,750,000 28,750,000

Of the above, 2,874,830 (March 31, 2003 — 2,874,830) equity shares are held by Biocon Limited.

4. Reserves and surplus

General reserve 45,600,304 45,600,304

Share premium account 193,050 193,050

Balance in Profit and loss account 194,982,013 87,309,086

240,775,366 133,102,440

5. Fixed assets

Balance, Balance,beginning of Additions/ end of

the period charge the period

Cost

Buildings 16,556,851 651,996 17,208,847

Plant and machinery 144,092,518 18,579,396 162,671,914

Furniture and fixtures 8,673,954 325,364 8,999,318

Vehicles 1,752,764 - 1,752,764

171,076,087 19,556,756 190,632,843

Accumulated depreciation

Buildings 2,026,650 514,830 2,541,480

Plant and machinery 33,889,385 13,902,668 47,792,053

Furniture and fixtures 2,995,120 1,110,007 4,105,127

Vehicles 729,917 219,495 949,412

39,641,072 15,747,000 55,388,072

Net book value

Buildings 14,530,201 14,667,367

Plant and machinery 110,203,133 114,879,861

Furniture and fixtures 5,678,834 4,894,191

Vehicles 1,022,847 803,352

131,435,015 135,244,771

Note:

The Company has capitalised foreign exchange losses of Rs. 71,282 (March 31, 2003 — Rs. 370,476) during the period/year.

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6. Investments

December 31, 2003 March 31, 2003

Long term and non-trade

Unquoted:

1,000 equity shares (March 31, 2003 — 1,000 equity shares) of Rs. 100each of Xcyton Diagnostics Limited, fully paid 100,000 100,000

Less: Provision for other than temporary dimunition in value 99,999 99,999

1 1

Current and unquoted (at lower of cost and fair market value)Nil units (March 31, 2003 — 5,000,000) of Rs. 10 eachin IL&FS Fixed Maturity Plan - 50,000,000 [Market Value Rs. Nil (March 31, 2003 — Rs. 50,086,986 )

1,462,790.522 units (March 31, 2003 — Nil) of Rs. 10 each in Reliance Mutual Fund 15,105,507 - [Market Value Rs. 15,105,507 (March 31, 2003 — Rs. Nil)]

4,000,000 units (March 31, 2003 — Nil) of Rs. 10 each in Reliance Fixed Term Scheme 40,000,000 - [Market Value Rs. 40,115,600 (March 31, 2003 — Rs. Nil)]

1,882,074.25 units (March 31, 2003 — Nil) of Rs. 10 each in LIC Mutual Fund 20,216,700 - [Market Value Rs. 20,241,143.94 (March 31, 2003 — Rs. Nil)]

3,534,209.399 units (March 31, 2003 — Nil) of Rs. 10 each in JM Mutual Fund 35,417,505 - [Market Value Rs. 34,420,200.02 (March 31, 2003 — Rs. Nil)]

1,358,550.091 units (March 31, 2003 — Nil) of Rs. 10 each in TATA Mutual Fund 15,106,938 - [Market Value Rs. 15,106,938 (March 31, 2003 — Rs. Nil)]

1,591,345.174 units (March 31, 2003 — Nil) of Rs. 10 each in HSBC Mutual Fund 16,210,132 - [Market Value Rs. 16,212,624.63 (March 31, 2003 — Rs. Nil)]

142,056,782 50,000,000

Aggregate amount of unquoted investments 142,056,783 50,000,001

The following investments were purchased and sold during the period from Purchase Sale

April 1, 2003 to December 31, 2003:

7,409,340 units of Rs. 10 each in HSBC - Cash Fund 74,093,400 74,093,312

2,000,000 units of Rs. 10 each in Reliance Mutual Fund 20,000,000 20,000,000

Purchase of 8,142.207 units of Rs. 1,244.429 each in Franklin Templeton

Investment Fund (Sale of 8,142.207 units of Rs. 1,244.3650 each ) 10,132,395 10,131,877

Purchase of 1,402,953.749 units of Rs. 10.7667 each in ING Vysya Mutual Fund(Sale of 1,402,953.749 units of Rs. 10.7740 each in ING Vysya Mutual Fund) 15,105,163 15,115,423

7. InventoriesDecember 31, 2003 March 31, 2003

Chemicals and reagents 12,274,865 12,093,433

8. Sundry debtors (unsecured and considered good)Debts outstanding for a period exceeding six-months - 996,103

Other debts 24,766,688 9,700,695

24,766,688 10,696,798

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9. Cash and bank balancesDecember 31, 2003 March 31, 2003

Cash on hand 19,670 6,991

Balances with scheduled banks in:

Cash credit account 19,077 12,706

Current account - 1,100,483

Deposit account 9,740,585 15,000,000

9,779,332 16,120,180

Deposit account includes a deposit made of Rs. 10,000,000 (March 31, 2003 — Rs. 10,000,000) under the flexi-deposit account allowingthe Company to avail overdraft facility upto Rs. 10,000,000 (March 31, 2003 — Rs. 10,000,000) at an interest rate of 2 per cent abovefixed deposit rate. The Company has drawn Rs. 2,259,415 (March 31, 2003 — Rs. Nil) against this facility as at December 31, 2003.

10. Loans and advances (unsecured and considered good)Advances recoverable in cash or in kind or for value to be received 3,302,444 3,553,149

Deposits 691,500 691,500

3,993,944 4,244,649

11. Current liabilities and provisions

Current liabilities:

Sundry creditors 36,351,461 18,866,371

Advances from customers 17,192,339 18,005,084

Other liabilities 20,391,231 18,922,486

73,935,031 55,793,941

Provisions:

For leave encashment 4,743,174 3,918,174

For retirement benefits 4,192,636 -

Taxation, net of advance tax 4,540,986 3,034,354

13,476,796 6,952,528

87,411,827 62,746,469

12. Taxation

(a) Current tax

The Company claims exemption under section 10B of the Act for a period of ten years from the date of set-up/approvalby Cochin Export Processing Zone of its 100 per cent Export Oriented Units.

(b) Deferred tax

The Company, constituting two 100 per cent Export Oriented Units (approved by the Cochin Export Processing Zone onDecember 14, 1998 and the Cochin Special Economic Zone on August 24, 2001), claims exemption under section 10Bof the Income-Tax Act, 1961 (‘the Act’).

On February 24, 2003, the Company obtained an approval from the Department of Scientific and Industrial Research forexemption of profits under section 80-IB (8A) of the Act. Based on the above, the Company, has not recognised anydeferred tax liability/asset on account of timing differences as the Company expects it to reverse during the tax holiday/tax deduction period.

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13. Contract research and other operating costsApril 1, 2003 to April 1, 2002 to

December 31, 2003 March 31, 2003

Research material costs

Chemicals and reagents consumed 52,658,537 67,514,574

Employee costs

Salaries, wages, bonus and incentives 57,044,739 59,803,612

Contribution to provident fund 2,399,169 2,567,735

Gratuity, superannuation and leave encashment 5,017,636 7,562,397

Welfare expenses 2,084,068 1,846,212

Director’s sitting fees 18,000 24,000

Selling, general and administrative expenses

Rent 855,000 900,000

Communication [net of receipt of Rs. Nil(March 31, 2003 — Rs. 1,000,000) from Biocon] 665,303 1,153,798

Travelling and conveyance 3,480,097 4,793,181

Professional charges 464,150 842,567

Power 3,600,000 5,100,924

Insurance 303,446 253,609

Rates, taxes and fees 74,019 42,067

Repairs and maintenance

Plant and machinery 2,396,798 3,265,479

Buildings 303,939 823,081

Others 2,413,854 2,661,190

Selling expenses

Freight outwards and clearing charges 1,035,252 974,005

Sales promotion 135,447 223,339

Printing and stationery 542,248 600,542

Miscellaneous expenses 387,378 995,977

135,879,080 161,948,289

14. Interest and finance chargesInterest expense 93,629 651,914

Bank charges 232,342 640,989

325,971 1,292,903

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Biocon

15. Related party transactionsSl No Name of the related Relationship Description April 1, 2003 to Balance as at April 1, 2002 Balance as at

party December 31, December 31, to March 31, March 31,2003 2003 2003 2003

(a ) Biocon Limited Holding Company Interest expense on(formerly Biocon current accountIndia Limited) t ransact ions - - 4 0 6 , 4 1 2 -

Current account:

Due from Biocon - - 4 2 5 , 0 0 0 -

Due to Biocon 3 ,156 ,459 - 19 ,057 ,487 -

Rent expense 8 5 5 , 0 0 0 - 1 , 140 ,000 -

Rent deposit paid - 6 0 0 , 0 0 0 - 6 0 0 , 0 0 0

Power charges paid 3 ,600 ,000 - 5 , 100 ,924 -

Communication expensereceived - - 1 , 000 ,000

Sale of fixed assets - - 1 , 547 ,751 -

(b) Clinigene International Associate company Rent income - - 2 4 0 , 0 0 0 -

Private Limited

(c) Apart from the transactions specified above:

(i) The Company receives assistance from its holding company, Biocon in the areas of senior management services in respect ofwhich no charges have been made by Biocon.

(ii) Biocon has given corporate guarantees of Rs. 80,000,000 (March 31, 2003 — Rs. 80,000,000) to the Customs and Excisedepartment (‘CED’) on behalf of the Company and the Company has furnished a corporate guarantee of Rs. 165,000,000(March 31, 2003 — Rs. 15,000,000) on behalf of Biocon to the CED.

(iii) Biocon has given stock options in Biocon to certain employees of the Company in respect of which no charges have beenmade by Biocon. The corresponding compensation cost amortised during the nine months is Rs. 2,892,178 (March 31, 2003

— Rs. 7,415,841), which is recorded in the books of Biocon.

16. CommitmentsDecember 31, 2003 March 31, 2003

(a) Capital commitmentsEstimated amount of contracts remaining to be executed oncapital account and not provided for, net of advances 13,125,310 1,186,065

(b) Operating lease commitments

The Company has entered into a lease agreement which expires over a period ranging from 2004 to 2011. Gross rental expenses for the

period ended December 31, 2003 aggregated to Rs. 855,000 (March 31, 2003 — Rs. 1,140,000). The committed lease rental in the future are:

December 31, 2003 March 31, 2003

Not later than one year 840,000 1,140,000

Later than one year and not later than five years 2,160,000 2,160,000

Later than five years 825,000 1,380,000

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17. Foreign exchange differences

The Company enters into a significant amount of transactions to provide contract research services and for the importof inventory. Foreign exchange gains/(losses) of Rs. 1,648,585 [March 31, 2003 — Rs. (383,605)] included in the net profitis reflected in the respective account captions in the statement of profit and loss.

18. Contingent liabilities

The Company has given two corporate guarantees in favour of the CED in respect of certain performance obligations ofBiocon aggregating to Rs. 165,000,000 (March 31, 2003 — Rs. 15,000,000). The Company is informed that the necessaryterms and conditions have been complied with and no liability has arisen till date (See Note 15).

19. Prior period comparatives

This is the first time that the Company has prepared audited financial statements for nine months, accordingly nocomparatives are provided for prior period. The management believes that it is impracticable to generate the financialresults of the preceding period, as the necessary cut-offs were not taken as at December 31, 2002 and for the nine monthsthen ended. However, comparatives for the year ended March 31, 2003 have been provided by the management and havebeen reclassified, where necessary, to conform to the current period classification.

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Biocon

CLINIGENE INTERNATIONAL PRIVATE LIMITED

FINANCIAL STATEMENTS - DECEMBER 31, 2003

TOGETHER WITH AUDITORS’ REPORT

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Biocon

Auditors’ Report

To the Board of Directors of

Clinigene International Private Limited

1. We have examined the accompanying Balance Sheet of CLINIGENE INTERNATIONAL PRIVATE LIMITED as at December31, 2003, the Profit and Loss Account and the Cash Flow Statement for the nine-month period then ended annexed thereto,prepared in accordance with accounting principles generally accepted in India.

2. These financial statements are the responsibility of the CLINIGENE INTERNATIONAL PRIVATE LIMITED’s management.Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with auditing standards generally accepted in India. Those Standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.

3. The accompanying financial statements have been prepared by the Company in accordance with the requirements ofAccounting Standard (AS) 25, Interim Financial Reporting, issued by the Institute of Chartered Accountants of India.

4. On the basis of the information and explanations given to us, we are of the opinion that these financial statements give atrue and fair view in conformity with the accounting principles generally accepted in India:

i in the case of the Balance Sheet, of the state of affairs of CLINIGENE INTERNATIONAL PRIVATE LIMITED as atDecember 31, 2003;

ii in the case of the Profit and Loss account of the results of operations CLINIGENE INTERNATIONAL PRIVATELIMITED for the nine-month period then ended; and

iii in the case of the Cash Flow Statement, of the cash flows of CLINIGENE INTERNATIONAL PRIVATE LIMITED forthe nine-month period then ended.

For S.R. BATLIBOI & ASSOCIATESChartered Accountants

per Prashant SinghalPartnerMembership No: 93283

BangaloreJanuary 17, 2004

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CLINIGENE INTERNATIONAL PRIVATE LIMITEDBALANCE SHEET — DECEMBER 31, 2003

(All amounts in Indian Rupees)

Notes December 31, 2003 March 31, 2003

(Note 14)

SOURCES OF FUNDS

SHAREHOLDERS’ FUNDS

Share capital 3 (a) 500,000 500,000

Reserves and surplus 3 (b) 1,003,244 1,003,244

1,503,244 1,503,244

APPLICATION OF FUNDS

FIXED ASSETS 2(a) & 4

Cost 11,779,499 9,639,578

Less: Accumulated depreciation 2,997,874 1,844,275

Net book value 8,781,625 7,795,303

Capital work-in-progress [including capital advance

of Rs 760,950 (March 31, 2003 — Rs Nil)] 8,812,657 -

17,594,282 7,795,303

CURRENT ASSETS, LOANS AND ADVANCES

Sundry debtors 5 1,543,090 5,138,679

Cash and bank balances 6 9,094 858

Loans and advances 7 1,771,089 2,147,626

3,323,273 7,287,163

LESS: CURRENT LIABILITIES AND

PROVISIONS 2(d), 2(e) & 8 42,290,107 17,443,907

NET CURRENT LIABILITIES 38,966,834 10,156,744

PROFIT AND LOSS ACCOUNT 22,875,796 3,864,685

1,503,244 1,503,244

The accompanying notes 1 to 14 form an integral part of this balance sheet.

As per our report of even date

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director DirectorMembership No: 93283

Bangalore BangaloreJanuary 17, 2004 January 17, 2004

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CLINIGENE INTERNATIONAL PRIVATE LIMITEDPROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

April 1, 2003 to April 1, 2002 toNotes December 31, 2003 March 31, 2003

(Note 14)

INCOME

Contract research fees 2(c) 1,427,180 11,072,704

Other income 5,729 -

1,432,909 11,072,704

EXPENDITURE

Contract research and other operating expenses 2(d), 2(e), 2(f), 2(i) & 9 19,269,856 15,880,701

Interest and finance charges 10 20,565 355,460

19,290,421 16,236,161

LOSS BEFORE DEPRECIATION AND TAXATION 17,857,512 5,163,457

Depreciation 2(a) & 4 1,153,599 889,472

LOSS FOR THE PERIOD/YEAR 19,011,111 6,052,929

Provision for taxation

Current 2(g) - -

Deferred 2(g) - 487,010

LOSS AFTER TAXES 19,011,111 5,565,919

Balance brought forward from previous year 3,864,685 (1,701,234)

BALANCE, END OF THE PERIOD/YEAR 22,875,796 3,864,685

Loss per share (equity shares, par value Rs. 10 each) 2(h)Basic and diluted (in Rs.) 380.22 111.32

Weighted average number of shares used in computingearnings per share, basic and diluted 50,000 50,000

The accompanying notes 1 to 14 form an integral part of this account.

As per our report of even date

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director DirectorMembership No: 93283

Bangalore Bangalore

January 17, 2004 January 17, 2004

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Biocon

CLINIGENE INTERNATIONAL PRIVATE LIMITEDSTATEMENT OF CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

April 1, 2003 to April 1, 2002 toDecember 31, 2003 March 31, 2003

(Note 14)

I CASH FLOWS FROM OPERATING ACTIVITIES :

Loss before tax 19,011,111 6,052,929

Adjustments for -

Less: Non cash item/items required to bedisclosed separately :

Depreciation 1,153,599 889,472

Interest and finance charges 20,565 355,460

Other income (5,729) -

1,168,435 1,244,932

(Increase)/decrease in working capital and other provisions:

Inventories - 687,155

Sundry debtors 3,595,589 3,155,749

Loans and advances 376,537 (2,103,593)

Current liabilities and provisions 1,835,284 (2,900,615)

5,807,410 (1,161,304)

6,975,845 83,628

Cash (used) in operations (12,035,266) (5,969,301)

Taxes paid (6,483) (2,051,557)

Net cash used in operations (12,041,749) (8,020,858)

II CASH FLOWS FROM INVESTING ACTIVITIES :

Purchase of fixed assets (10,752,474) (909,330)

Net cash used in investing activities (10,752,474) (909,330)

III CASH FLOWS FROM FINANCING ACTIVITIES :

Receipt of Inter-corporate loans, net 22,823,024 9,793,779

Interest paid (20,565) (355,460)

Coporate dividend tax - (510,000)

Net cash provided by financing activities 22,802,459 8,928,319

IV NET INCREASE/(DECREASE) IN CASH AND CASHEQUIVALENTS (I+II+III) 8,236 (1,869)

V CASH AND CASH EQUIVALENTS AT THE BEGINNINGOF THE PERIOD/YEAR 858 2,727

VI CASH AND CASH EQUIVALENTS AT THE END OFTHE PERIOD/YEAR (IV + V) 9,094 858

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director DirectorMembership No: 93283

Bangalore Bangalore

January 17, 2004 January 17, 2004

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Biocon

CLINIGENE INTERNATIONAL PRIVATE LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

1. Background

Clinigene International Private Limited (‘Clinigene or ‘the Company’) was incorporated on August 4, 2000 and became asubsidiary of Biocon Limited (formerly Biocon India Limited) (‘Biocon’), on March 31, 2001. Prior to the acquisition ofthe controlling interest, the entire share capital of the Company was held by Ms Kiran Mazumdar Shaw and Mr JMMShaw, the promoters of Biocon.

The Company was formed to undertake clinical research activities on discovering new biomarkers and is extending itsactivity to discovering new diseases subsets and novel data based on pharmacogenomics. The Company has enteredinto contracts with domestic and international companies to undertake these activities with respect to chronic diseasessuch as diabetes, osteoporosis, asthma etc, and commenced commercial operations effective December 2000.

The Company has incurred a loss of Rs. 19,011,111 (accumulated losses of Rs. 22,875,796) for the nine-month periodended December 31, 2003 resulting in a negative net worth of Rs. 21,372,552 and a working capital deficiency ofRs. 38,966,834 at December 31, 2003. The Company is making aggressive marketing efforts to sell clinical research and isin an advanced stage of setting up a human pharmacology unit in association with a leading hospital in India to expandits clinical research activities, has hired certain employees in this connection and is confident of generating profits in itsimmediate future. Further, the Company is engaged in research activities, the benefit of which is anticipated to be receivedafter a period of two to three years. Biocon, the holding company, has committed to fund capital and operating expenditurerequirements of the Company until the Company achieves its planned growth and is able to fund its own operations.

2. Summary of significant accounting policies

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and tocomply in all material respects with the mandatory accounting standards issued by The Institute of Chartered Accountantsof India. Further, the financial statements are presented in the general format specified in Schedule VI to the CompaniesAct, 1956 (‘the Act’). However, as these financial statements are not statutory financial statements, full compliance withthe above Act is not required and so they do not reflect all the disclosure requirements of the Act. The significantaccounting policies are as follows:

a. Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation. The Company capitalises all costs relating to theacquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period of use, on the straightline method at the annual rates based on the estimated useful lives.

Per cent

Plant and machinery 9.09

Air conditioners 16.67

Furniture and fixtures 16.67

Computers 33.33

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

b. Inventories

Inventories comprise of research material, and are valued at the lower of cost and net realisable value.

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Biocon

c. Revenue Recognition

The Company enters into two types of contract research arrangements and the revenues therefrom are recognisedon the following basis:

(i) Time and material management

Revenues are recognised as services are rendered, in accordance with contractual agreements.

(ii) Fixed price arrangements

Revenues relating to fixed price contracts are recognised based on the percentage of completion method.

d. Retirement benefits

The Company has schemes of retirement benefits for gratuity and superannuation, in respect of which, the Company’scontributions are charged to the profit and loss account. The gratuity and superannuation fund benefits of theCompany are administered by a trust formed for this purpose through the group gratuity and superannuation schemewith Birla Sun Life Insurance Company Limited (‘Birla Sunlife’). In respect of gratuity, the Company has accrued forthe liability based on an independent actuarial valuation at the period-end. In respect of superannuation, the Companyhas accrued for the liability based on the schemes of the Company.

e. Leave encashment

Liability for leave encashment is in accordance with the rules of the Company and is provided on the basis of anactuarial valuation performed by an independent actuary. Upto March 31, 2003, the Company provided for leaveencashment on a full liability basis. The impact on the net loss as a result this of change is not material.

f. Foreign currency transactions

Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of thetransaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchangerate prevailing on the date of the balance sheet. Where the Company has entered into foreign exchange contracts,the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profitand loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account,except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets.

g. Income tax

Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the currenttax rates based on assessable income. The Company provides for deferred tax based on the tax effect of timingdifferences resulting from the recognition of items in the financial statements and in estimating its current tax provision.Deferred tax assets resulting from tax losses carried forward are recognised and carried forward only to the extentthat there is virtual certainty that sufficient future taxable income will be available against which such deferred taxassets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period inwhich the change is substantially enacted.

h. Loss per share

Loss considered in ascertaining the Company’s loss per share comprise of the net loss after tax. The number ofshares used in computing the basic earnings per share is the weighted average number of shares outstanding duringthe period. The number of shares used in computing diluted earnings per share comprises the weighted averageshare considered for deriving basic earnings per share, and also the weighted average number of shares, if anywhich would have been issued on the conversion of dilutive potential equity shares, if any.

i. Operating lease

Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classifiedas operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basisover the lease term.

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3(a)Share capitalDecember 31, 2003 March 31, 2003

Authorised:

500,000 (March 31, 2003 — 500,000) equity shares of Rs. 10 each 5,000,000 5,000,000

Issued, subscribed and paid-’up:

50,000 (March 31, 2003 — 50,000) equity shares of Rs. 10 each, fully paid 500,000 500,000

At December 31, 2003, the entire share capital of the Company was held by Biocon, the holding Company and its nominee.

3(b) Reserves and surplus

General reserve 1,003,244 1,003,244

4. Fixed assets

Balance, beginning of Additions / charge Balance, end ofthe period the period

Cost

Plant and machinery 8,088,871 427,983 8,516,854

Air conditioners 231,570 58,180 289,750

Furniture and fixtures 806,317 225,318 1,031,635

Computers 512,820 1,428,440 1,941,260

9,639,578 2,139,921 11,779,499

Accumulated depreciation

Plant and machinery 1,440,327 732,741 2,173,068

Air conditioners 17,330 34,283 51,613

Furniture and fixtures 55,876 109,907 165,783

Computers 330,742 276,668 607,410

1,844,275 1,153,599 2,997,874

Net book value

Plant and machinery 6,648,544 6,343,786

Air conditioners 214,240 238,137

Furniture and fixtures 750,441 865,852

Computers 182,078 1,333,850

7,795,303 8,781,625

The Company has capitalised foreign exchange losses of Rs. Nil (March 31, 2003 – Rs. 6,316) during the period/year and foreignexchange losses included in Capital work-in-progress amount to Rs. 19,444 (March 31, 2003 – Rs. Nil).

5. Sundry debtors (unsecured, considered good)December 31, 2003 March 31, 2003

Outstanding for more than six months 1,044,240 4,883,119

Others 498,850 255,560

1,543,090 5,138,679

6. Cash and bank balances

Cash on hand 9,094 858

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7. Loans and advances (unsecured, considered good)December 31, 2003 March 31, 2003

Advances recoverable in cash or in kind or for value to be received - 174,302

Prepaid expenses 771,849 901,267

Deposits 999,240 1,072,057

1,771,089 2,147,626

8. Current liabilities and provisionsCurrent liabilities

Sundry creditors 2,601,153 2,601,798Balance due to Biocon 32,616,803 9,793,779Balance in current account with bank represents book overdraft 2,345,623 352,144Other liabilities 1,874,714 2,334,743

39,438,293 15,082,464

ProvisionsFor leave encashment 141,687 75,023For retirement benefits 435,919 - Taxation, net of advance tax 2,274,208 2,286,420

2,851,814 2,361,443

42,290,107 17,443,907

9. Contract research and other operating expensesApril 1, 2003 to April 1, 2002 to

December 31, 2003 March 31, 2003

Research Material CostsChemicals and reagents consumed 3,243,138 2,544,559

Consultancy fees 5,504,757 7,124,440Employee costs

Salaries, wages, bonus, etc 5,635,007 2,717,665Contribution to provident fund 322,933 - Gratuity, superannuation and leave encashment 502,583 227,947

Welfare expenses 241,669 27,728

Power 360,000 480,000

Rent 180,000 300,000

Communication 155,714 224,224

Travelling and conveyance 749,286 453,773

Professional charges 240,348 493,475

Insurance 4,791 9,034

Rates and taxes 28,215 14,004

Lease rentals 158,752 163,400

Exchange differences 96,379 31,242

Repairs and maintenance

Buildings 202,251 19,530

Others 427,087 335,182

Sales promotion 24,582 38,511

Printing and stationery 275,024 94,187

Miscellaneous expenses 917,340 581,800

19,269,856 15,880,701

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10. Interest and finance chargesApril 1, 2003 to April 1, 2002 to

December 31, 2003 March 31, 2003

Interest expense - 350,502

Bank charges 20,565 4,958

20,565 355,460

11. Income taxes

During the nine-month period ended December 31, 2003, the Company has incurred losses of Rs. 19,011,111 resulting ina tax loss carry-forward situation. The Company has not recognized the net deferred tax asset resulting from the tax losscarry forward as at December 31, 2003, as currently, although the management is confident of achieving profitablility,there is no virtual certainty that it would reverse the tax loss carry forwards.

12. Related party transactionsSl No Name of the related party Relationship Description April 1, 2003 to Balance as at April 1, 2002 Balance as at

December 31, December 31, to March 31, March 31,

2003 2003 2003 2003

1 Biocon Limited Holding company Interest expense on - - 350,502 276,896(formerly Biocon current account India Limited) transactions

Current account:

Due to 23,099,920 32,616,803 9,869,346 9,516,883

Rent paid 180,000 - - -

Power charges paid 360,000 - 480,000 -

2 Syngene International Associate Company Rent paid - - 240,000 -

Private Limited

Apart from the transactions specified above, the Company receives assistance from its holding company, Biocon, in the areas of generaladministration, accounting and senior management assistance in respect of which no charges have been levied by Biocon. Also, during theperiod/year, certain employees of the Company in their spare time have provided assistance to Biocon, the holding company in some of their

projects in respect of which no charges have been levied to Biocon.

13. Commitments

December 31, 2003 March 31, 2003

(a) Capital Commitments

Estimated amount of contracts remaining to be executed on capitalaccount and not provided for, net of advances 4,699,814 97,740

(b) Operating lease commitments

(i) Rent

The Company has entered into a lease agreement which expires in 2008. Gross rental expenses for the period ended December 31,

2003 aggregated to Rs. 180,000 (March 31, 2003 — Rs. 300,000). The committed lease rental in the future are:

December 31, 2003 March 31, 2003

Not later than one year 240,000 240,000

Later than one year and not later than five years 780,000 960,000

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(ii) Vehicles

The Company had taken a vehicle for an employee under operating lease, which was to expire in November 2006.Gross rental expenses for the period ended December 31, 2003 aggregated to Rs. 158,752 (March 31, 2003 —Rs. 163,400). There are no future committed lease rental payments at December 31, 2003 on account of foreclosure ofthe arrangement:

December 31, 2003 March 31, 2003

Not later than one year - 238,126

Later than one year and not later than five years - 635,002

14. Prior period comparatives

This is the first time that the Company has prepared audited financial statements for nine months, accordingly nocomparatives are provided for prior period. The management believes that it is impracticable to generate the financialresults of the preceding period, as the necessary cut-offs were not taken as at December 31, 2002 and for the nine monthsthen ended. However, comparatives for the year ended March 31, 2003 have been provided by the management and havebeen reclassified, where necessary, to conform to the current period classification.

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BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED

FINANCIAL STATEMENTS — DECEMBER 31, 2003

TOGETHER WITH AUDITORS’ REPORT

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Auditors’ Report

To the Board of Directors of

Biocon Biopharmaceuticals Private Limited

1. We have examined the accompanying Balance Sheet of BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED as atDecember 31, 2003 and the Profit and Loss account for the nine-month period then ended prepared in accordance withaccounting principles generally accepted in India.

2. These financial statements are the responsibility of the BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED’smanagement. Our responsibility is to express an opinion on these financial statements based on our audit. We conductedour audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.

3. The accompanying financial statements have been prepared by the Company in accordance with the requirements ofAccounting Standard (AS) 25, Interim Financial Reporting, issued by the Institute of Chartered Accountants of India.

4. On the basis of the information and explanations given to us, we are of the opinion that these financial statements give atrue and fair view in conformity with the accounting principles generally accepted in India:

i. in the case of the Balance Sheet, of the state of affairs of BIOCON BIOPHARMACEUTICALS PRIVATE LIMITEDas at December 31, 2003; and

ii. in the case of the Profit and Loss account of the results of operations BIOCON BIOPHARMACEUTICALS PRIVATELIMITED for the nine-month period then ended.

For S.R. BATLIBOI & ASSOCIATESChartered Accountants

per Prashant SinghalPartnerMembership No: 93283

BangaloreJanuary 17, 2004

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BIOCON BIOPHARMACEUTICALS PRIVATE LIMITEDBALANCE SHEET – DECEMBER 31, 2003

(All amounts in Indian Rupees)

Notes December 31, 2003 March 31, 2003

(Note 9)

SOURCES OF FUNDS

SHAREHOLDERS’ FUNDS

Share capital 3 200,000 100,000

200,000 100,000

APPLICATION OF FUNDS

FIXED ASSETS 2(a)&2(d)

Cost 92,500 -

Less: Accumulated depreciation 21,711 -

Net book value 70,789 -

Capital advances 1,464,580 -

1,535,369 -

CURRENT ASSETS, LOANS AND ADVANCES

Cash and bank balances 4 9,870 100,000

9,870 100,000

LESS: CURRENT LIABILITIES AND PROVISIONS 5 4,588,965 1,629,819

NET CURRENT LIABILITIES 4,579,095 1,529,819

EXPENDITURE PENDING ALLOCATION 2(b)&6 - 1,629,819

PROFIT AND LOSS ACCOUNT 3,243,726 -

200,000 100,000

The accompanying notes 1 to 9 form an integral part of this balance sheet.

As per our report of even date

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director DirectorMembership No: 93283

Bangalore Bangalore

January 17, 2004 January 17, 2004

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BIOCON BIOPHARMACEUTICALS PRIVATE LIMITEDPROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

April 1, 2003 to June 17, 2002 toNotes December 31, 2003 March 31, 2003

(Note 9)

INCOME - -

- -

EXPENDITURE 2(b) & 2(c)

Travel and conveyance 455,664 -

Rates and taxes 347,750 -

Audit fees 187,500 -

Employee costs 457,101 -

Directors sitting fees 20,000 -

Stationery charges 27,811 -

Depreciation 2(a) 21,711 -

Interest [net of interest capitalised - Rs. 11,458 2(d) 92,577 - (March 31, 2003 — Nil)]

Miscellaneous expenses 3,793 -

1,613,907 -

Loss for the period 1,613,907 -

Loss, beginning of the period - -

Adjustment for amortisation of expenditure pending allocation 2(b)in accordance with the transitional provisions of AS 26 1,629,819 -

Loss, end of the period 3,243,726 -

Loss per Share (equity shares, par value of Rs. 10 each)

Basic and Diluted (in Rs.) 2(e) 83.43 -

Weighted Average number of shares in computing earnings per shareBasic and Diluted 19,345 10,000

The accompanying notes 1 to 9 form an integral part of this account.

As per our report of even date

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director DirectorMembership No: 93283

Bangalore Bangalore

January 17, 2004 January 17, 2004

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BIOCON BIOPHARMACEUTICALS PRIVATE LIMITEDNOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

1. Background

Biocon Biopharmaceuticals Private Limited (‘the Company’) was incorporated in India on June 17, 2002 primarily to carryon the business of manufacture and marketing a select range of biopharmaceutical and biotechnology products.

Biocon Limited (formerly Biocon India Limited) (‘Biocon’), entered into a collaboration agreement with CIMAB SA, Cuba(‘CIMAB’) on February 22, 2002 to set up a joint venture Company to carry on the business of research, development,manufacturing and marketing of biopharmaceuticals. The equity participation by Biocon and CIMAB was agreed to be51 per cent and 49 per cent respectively.

The Company received the approval from the Foreign Investment Promotion Board (‘FIPB’), Government of India onFebruary 26, 2003 for foreign equity participation of 49 per cent in the paid up capital of the Company in lieu of technologytransferred to the Company. On April 18, 2003, Biocon acquired the shares from the subscribers to the memorandum andthe Company issued further shares to Biocon and CIMAB resulting in equity participation of 51 per cent and 49 percent, respectively.

The Company is in the development stage and, as at December 31, 2003, is in the process of setting up productionfacilities at Bommasandra, Bangalore. Biocon has acquired land at Bommasandra, part of which is proposed to be usedby the Company.

2. Summary of significant accounting policies

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and tocomply in all material respects with the mandatory accounting standards issued by The Institute of Chartered Accountantsof India. Further, the financial statements are presented in the general format specified in Schedule VI to the CompaniesAct, 1956 (‘the Act’). However, as these financial statements are not statutory financial statements, full compliance withthe above Act is not required and so they do not reflect all the disclosure requirements of the Act. The significantaccounting policies are as follows:

a. Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation. The Company capitalises all costs relating to theacquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period of use, on the straightline method at the annual rates based on the estimated useful lives.

Per cent

Computers 33.33

Assets costing less than Rs. 5,000 are fully depreciated in the year of purchase.

b. Expenditure pending allocation

Effective April 1, 2003, the Company has revised its accounting policy and has decided for an early adoption ofAccounting Standard 26 ‘Intangible Assets’ (AS 26) issued by the Institute of Chartered Accountants of India andaccordingly has fully amortised the expenditure pending allocation at March 31, 2003. The change in the accountingpolicy has resulted in the expensing of Rs. 1,629,819 relating to expenditure pending allocation at March 31, 2003and, consequently, in accordance with the transitional provisions of AS 26, adjusted this amount to the accumulatedlosses at April 1, 2003.

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c. Foreign currency transactions

Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of thetransaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchangerate prevailing on the date of the balance sheet. Where the Company has entered into foreign exchange contracts,the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profitand loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account,except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets.

d. Borrowing costs

Borrowing costs that are attributable to the acquisition and construction of a qualifying fixed asset are capitalisedas a part of the cost of the asset.

e. Loss per share

Loss considered in ascertaining the Company’s loss per share comprises of the net loss for the period. The numberof shares used in computing the basic earnings per share is the weighted average number of shares outstandingduring the period. The number of shares used in computing diluted earnings per share comprises the weightedaverage share considered for deriving basic earnings per share, and also the weighted average number of shares, ifany which would have been issued on the conversion of dilutive potential equity shares, if any.

3. Share capital

December 31, 2003 March 31, 2003

Authorised:

50,000 (March 31, 2003 — 50,000) equity shares of Rs. 10 each 500,000 500,000

Issued, subscribed and paid-up:

20,000 (March 31, 2003 — 10,000) equity shares of Rs. 10 each, fully paid 200,000 100,000

Of the above equity shares:

(i) Biocon holds 10,200 equity shares and CIMAB, S.A. holds 9,800 equity shares of Rs. 10 each, respectively.

(ii) On April 18, 2003, Ms. Kiran Mazumdar Shaw and Mr. JMM Shaw, the subscribers to the memorandum, transferred 5,000 equity shares each of Rs. 10 each to

Biocon.

December 31, 2003 March 31, 2003

4. Cash and bank balances

Cash on hand - 100,000

Balance with scheduled bank in:

Current account 9,870 -

9,870 100,000

5. Current liabilities and provisionsAccrued expenses 340,721 52,500

Payable to Biocon 4,248,244 1,577,319

4,588,965 1,629,819

6. Expenditure pending allocation

April 1, 2003 to June 17, 2002 toDecember 31, 2003 March 31, 2003

Travel and conveyance - 1,534,165

Preliminary expenses - 33,520

Audit fees - 52,500

Miscellaneous expenses - 9,634

- 1,629,819

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7. Related party transactionsName of the related party Description April 1, 2003 to Balance as at June 17, 2002 Balance as at

December 31, 2003 December 31, 2003 to March 31, 2003 March 31, 2003

Biocon Limited Interest expense on current account(formerly Biocon India Limited Transactions 103,905 - - - [Holding company, fromApril 18, 2003])

Current account:

Due to Biocon 4,144,339 4,248,244 - -

Apart from the transactions specified above, the Company receives assistance from Biocon, in the areas of general administration, accounting

and senior management assistance in respect of which no charges have been levied by Biocon.

8. Commitments

December 31, 2003 March 31, 2003

Capital Commitments

Estimated amount of contracts remaining to be executed on capital account and

not provided for, net of advances 7,746,878 -

9. Prior-period comparatives

The financial statements as at March 31, 2003, have been reclassified, where necessary, to conform with the currentperiod’s presentation. The financial statements for the prior period are from the date of incorporation (June 17, 2002) toMarch 31, 2003 and are not comparable with the current period.

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BIOCON LIMITED

(formerly BIOCON INDIA LIMITED)

UNCONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES AND PROFITS AND LOSSES, AS RESTATED,

UNDER INDIAN GAAP (INCLUDING SUBSIDIARIES AND JOINT VENTURE) FOR THE YEARS ENDED MARCH 31,

1999, 2000, 2001, 2002 AND 2003 AND FOR THE NINE MONTHS PERIOD ENDED DECEMBER 31, 2003

INCLUDING AUDITORS’ REPORT AS REQUIRED BY PART II OF SCHEDULE II OF THE COMPANIES ACT, 1956

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UNCONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES AND PROFITS AND LOSSES, AS RESTATED,UNDER INDIAN GAAP (INCLUDING SUBSIDIARIES AND JOINT VENTURE) FOR THE YEARS ENDED MARCH 31,

1999, 2000, 2001, 2002 AND 2003 AND FOR THE NINE MONTHS PERIOD ENDED DECEMBER 31, 2003

Auditors’ report as required by Part II of Schedule II to the Companies Act, 1956

January 17, 2004

To

The Board of DirectorsBiocon Limited20th KM, Hosur Road,Electronic City P.O.,Bangalore – 560 100

Dear Sirs,

We have examined the financial information of Biocon Limited (‘Biocon’ or ‘the Company’) (formerly Biocon India Limited)annexed to this report which have been prepared in accordance with the requirements of:

a. paragraph B (1) of Part II of Schedule II to the Companies Act, 1956 (‘the Act’);

b. the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000 (‘the Guidelines’) issuedby the Securities and Exchange Board of India (‘SEBI’) on January 19, 2000 in pursuance of Section 11 of the Securitiesand Exchange Board of India Act, 1992; and

c. the terms of reference received from the Company, requesting us to carry out work, proposed to be included in the Offerdocument of the Company in connection with its proposed Initial Public Offer (‘IPO’).

The IPO will be for a fresh issue by the Company of 10,000,000 equity shares of Rs. 5 each, at such premium, by way of bookbuilding process, as may be decided by the Board of Directors (referred to as ‘the Offer’). The offer is being made throughthe 100 per cent book-building scheme.

Financial information as per audited financial statements

1. We have examined the attached restated summary statement of assets and liabilities of the Company as atDecember 31, 2003, March 31, 2003, 2002, 2001, 2000 and 1999 and the attached restated summary statement of profit andloss for each of the period/years ended on those dates (‘summary statements’) (see Annexure I and II) as prepared bythe Company and approved by the Board of Directors. These profits have been arrived at after making such adjustmentsand regroupings as in our opinion are appropriate and more fully described in the notes appearing in Annexure III to thisreport. The financial statements of the Company for the years ended March 31, 1999 and 2000 have been audited andreported upon by M/s. S. Madhavan & Co., Chartered Accountants and those for the years ended March 31, 2001 and2002 have been audited and reported upon by Arthur Andersen & Associates, Chartered Accountants (a member firm ofAndersen Worldwide, an affiliation of accounting firms which has ceased operations). We have audited the financialstatements of the Company for the year ended March 31, 2003 and for the nine months period ended December 31, 2003.Based on our examination of these summary statements, we confirm that:

n The impact of changes in accounting policies adopted by the Company as at and for the nine months period endedDecember 31, 2003 have been adjusted with retrospective effect in the attached summary statements;

n The prior period items have been adjusted in the summary statements in the years to which they relate;

n The extraordinary items, which need to be disclosed separately in the summary statements, are appropriately disclosed;and

n There are no qualifications in the auditors’ reports, which require any adjustments to the summary statements.

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2. The summary of significant accounting policies adopted by the Company together with the notes pertaining to the auditedfinancial statements for the nine months period ended December 31, 2003 are enclosed as Annexure IV to this report.

3. The financial statements of the Company’s subsidiary, Syngene International Private Limited (‘Syngene’) for the ninemonths period ended December 31, 2003 and years ended March 31, 2003, 2002, 2001, 2000 and 1999 have not beenconsolidated into the attached summary statements. We have audited the financial statements of Syngene for the ninemonths period ended December 31, 2003 and year ended March 31, 2003. The financial statements of Syngene for theyears ended March 31, 1999 and 2000 have been audited and reported by M/s. S. Madhavan & Co., Chartered Accountantsand those for the years ended March 31, 2001 and 2002 have been audited and reported by Arthur Andersen & Associates,Chartered Accountants (a member firm of Andersen Worldwide, an affiliation of accounting firms which has ceasedoperations). The restated summary financial statements of Syngene for the nine months period ended December 31, 2003and for the years ended March 31, 2003, 2002, 2001, 2000 and 1999 are enclosed in Annexure V to this report.

4. The financial statements of the Company’s wholly owned subsidiary, Clinigene International Private Limited (‘Clinigene’)for the period from August 4, 2000 (date of incorporation) to March 31, 2001; years ended March 31, 2002 and 2003 andfor the nine months period ended December 31, 2003 have not been consolidated into the attached summary statements.We have audited the financial statements of Clinigene for the nine months period ended December 31, 2003 and yearended March 31, 2003. The financial statements of Clinigene for the period from August 4, 2000 (date of incorporation)to March 31, 2001 and for the year ended March 31, 2002 have been audited and reported by Arthur Andersen &Associates, Chartered Accountants (a member firm of Andersen Worldwide, an affiliation of accounting firms which hasceased operations). The restated summary financial statements of Clinigene for the nine months period endedDecember 31, 2003 and for the year ended March 31, 2003, 2002 and the period ended March 31, 2001 are enclosed inAnnexure VI to this report.

5. The financial statements of the Company’s joint venture, Biocon Biopharmaceuticals Private Limited (‘BBPL’), in whichthe Company has an equity participation of 51 per cent, which was acquired on April 18, 2003 have not been consolidatedinto the attached summary statements. The financial statements of BBPL are enclosed in Annexure VII to this report.

Other financial information

6. We have examined the following unconsolidated financial information of the Company proposed to be included in theOffer Document as approved by you and annexed to this report:

i. Accounting ratios based on the restated profits relating to earnings per share, net asset value and return on networth is enclosed in Annexure VIII;

ii. Capitalisation statement as at December 31, 2003 is enclosed in Annexure IX;

iii. Statement of tax shelters is enclosed in Annexure X;

iv. Statement of possible tax benefits available to the Company, its subsidiaries and shareholders is enclosed in AnnexureXI;

v. Details of loans as appearing in Annexure XII to the report; and

vi. Details of other income as appearing in Annexure XIII to the report.

The Company has not declared any dividend on equity shares for the period ended December 31, 2003 and years endedMarch 31, 2003, 2002, 2001, 2000 and 1999.

7. In respect of the ‘financial information as per the audited financial statements’ and ‘other financial information’ containedin this report, we have relied upon the audited financial statements for the years ended March 31, 1999, 2000, 2001 and2002 which were audited by a firm of Chartered Accountants other than us, as referred to in paragraph 1, 3 and 4 above.

8. In our view, the ‘financial information as per audited financial statements’ and ‘other financial information’ mentionedabove have been prepared in accordance with Part II of Schedule II of the Act and the Guidelines.

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9. This report is intended solely for your information and for inclusion in the Offer Document in connection with the proposedIPO of the Company and is not to be used, referred to or distributed for any other purpose without our prior writtenconsent.

S.R. Batliboi & AssociatesChartered Accountants

per Prashant SinghalPartnerMembership No: 93283

BangaloreJanuary 17, 2004

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Annexure I: Summary statement of profits and losses, as restated(All amounts in Indian Rupees)

Nine months ended Year ended Year ended Year ended Year ended Year ended December 31, 2003 March 31, 2003 March 31, 2002 March 31, 2001 March 31, 2000 March 31, 1999

IncomeSales

Of products manufactured 3,708,848,336 2,529,353,053 1,587,037,615 1,199,399,694 698,815,701 284,232,733Of products traded 3,429,204 13,046,078 19,167,465 23,701,351 27,860,645 18,563,064

Contract research fees 5,681,716 5,192,833 9,762,624 10,721,148 11,011,287 4,952,338Other income 6,940,165 8,422,573 34,412,243 1,880,029 4,309,286 8,852,367Total Income 3,724,899,421 2,556,014,537 1,650,379,947 1,235,702,222 741,996,919 316,600,502ExpenditureConsumption of raw materials 1,884,628,224 1,302,614,722 839,360,329 629,094,541 401,342,194 200,405,990and traded goodsEmployee costs 247,552,396 306,959,121 196,517,131 126,208,978 84,503,337 25,733,453Manufacturing, research, 384,162,431 401,285,836 226,528,607 204,192,699 138,963,193 54,997,433selling and administrative expensesInterest 12,086,343 48,919,767 46,686,880 45,060,787 31,308,067 11,128,444Depreciation 101,444,906 120,170,997 77,796,594 72,680,126 36,796,566 5,433,443(Increase)/decrease in work-in- 11,055,059 (101,201,886) (10,487,295) (42,189,159) (11,706,803) (180,409) progress and finished goodsTotal Expenditure 2,640,929,359 2,078,748,557 1,376,402,246 1,035,047,972 681,206,554 297,518,354Net profit before taxation and 1,083,970,062 477,265,980 273,977,701 200,654,250 60,790,365 19,082,148effect of changes indepreciation policyCurrent tax 201,640,234 75,806,254 50,000,000 38,000,000 3,056,669 7,506,110Deferred tax 16,454,328 42,726,157 20,882,253 - - - Net profit after tax 865,875,500 358,733,569 203,095,448 162,654,250 57,733,696 11,576,038Effect of changes in depreciation - - - 66,053,563 - - policyNet profit before adjustments 865,875,500 358,733,569 203,095,448 228,707,813 57,733,696 11,576,038AdjustmentsIncrease/(decrease) in net profitsImpact of changes in accountingpolicies:Depreciation (Refer Note 4a on Annexure III) 3,332,881 4,494,441 3,749,652 (53,093,075) 7,914,150 (48,781)Lease assets (Refer Note 4b on Annexure III) - (740,876) 33,737 403,308 551,228 68,270Leave encashment (Refer Note 4c on Annexure III) (9,916,299) 9,916,299 - - - - Duty drawback (Refer Note 4d on Annexure III) (818,001) (1,058,972) (327,836) 74,782 (242,746) (249,415)Deferred tax (Refer Note 4e on Annexure III) - - - (56,001,346) (13,906,833) (1,016,794)Others (Refer Note 4f on Annexure III) 373,889 148,168 1,016,826 897,697 226,394 - Other adjustments:Current tax — (short)/excess provision for tax (Refer Note 5a and 5b on Annexure III) - (13,149,604) 9,624,057 2,391,706 6,276,383 2,806,110Bad debts (Refer Note 5c on Annexure III) (378,070) (827,026) (1,106,327) 2,311,423 - - Total impact of adjustments (7,405,600) (1,217,570) 12,990,109 (103,015,505) 818,576 1,559,390Tax impact of adjustments (Refer Note 6 on Annexure III) 2,656,758 (4,385,022) (1,201,681) 19,540,019 (3,252,875) 80,475Total of adjustments (4,748,842) (5,602,592) 11,788,428 (83,475,486) (2,434,299) 1,639,865 after tax impactNet Profit, as restated 861,126,658 353,130,977 214,883,876 145,232,327 55,299,397 13,215,903Profit and loss account, beginningof the year 505,913,097 152,782,120 (62,101,756) (7,334,083) (5,133,480) (6,649,383)Balance available forappropriation, as restated 1,367,039,755 505,913,097 152,782,120 137,898,244 50,165,917 6,566,520AppropriationsTransfer to general reserve - - - 200,000,000 57,500,000 11,700,000Issue of bonus shares 431,623,500 - - - - - Balance carried forward, as restated 935,416,255 505,913,097 152,782,120 (62,101,756) (7,334,083) (5,133,480)

The above statement should be read with notes to the Summary statement of Profits and losses and Assets and Liabilities, as restated, appearing in Annexure III and thesignificant accounting policies appearing in Annexure IV.

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Annexure II : Summary statement of assets and liabilities, as restated(All amounts in Indian Rupees)

As at As at As at As at As at As atDecember 31, 2003 March 31, 2003 March 31, 2002 March 31, 2001 March 31, 2000 March 31, 1999

Fixed Assets

Gross block 1,789,435,239 1,561,884,067 1,262,830,450 786,691,569 677,220,597 118,066,172

Less : Accumulated depreciation 452,921,202 358,932,501 240,658,130 164,132,024 109,467,997 39,429,584

Net block 1,336,514,037 1,202,951,566 1,022,172,320 622,559,545 567,752,600 78,636,588

Less: Revaluation Reserve[Refer Note 7d on Annexure III] 14,817,070 16,599,979 18,817,472 20,019,230 21,220,988 26,198,006

Net block after adjustment for

Revaluation reserve 1,321,696,967 1,186,351,587 1,003,354,848 602,540,315 546,531,612 52,438,582

Capital work in progress 391,007,958 79,843,625 37,130,787 25,240,051 19,211,490 2,046,634

Total 1,712,704,925 1,266,195,212 1,040,485,635 627,780,366 565,743,102 54,485,216

Investments 84,936,081 84,829,081 84,835,061 607,180 107,180 80,917,980

Current assets

Inventories 688,990,632 466,587,700 233,320,814 217,619,660 134,279,155 53,458,026

Sundry debtors 1,370,061,974 737,844,658 624,713,589 391,717,505 242,182,488 73,349,036

Cash and bank balances 11,382,222 10,217,256 952,877 123,701 9,715,015 654,802

Loans and advances 168,060,173 157,655,933 101,905,745 59,879,023 70,778,655 21,722,559

Total 2,238,495,001 1,372,305,547 960,893,025 669,339,889 456,955,313 149,184,423

Liabilities and provisions

Secured loans 487,019,313 582,108,708 559,285,393 342,973,888 319,972,077 58,219,504

Unsecured loans 163,329,812 103,545,391 106,033,378 38,909,146 - 17,175,325

Current liabilities and provisions 1,111,996,359 650,329,583 467,813,426 284,854,322 253,537,093 109,691,783

Deferred tax liability 153,840,312 140,042,742 92,931,563 70,847,630 34,386,304 4,444,305

Total 1,916,185,796 1,476,026,424 1,226,063,760 737,584,986 607,895,474 189,530,917

Networth 2,119,950,211 1,247,303,416 860,149,961 560,142,449 414,910,121 95,056,702

Represented by

Share capital 450,000,000 18,376,500 18,217,800 14,974,700 14,966,200 5,820,000

Advance share applicationmoney - - - - 425,000 -

Reserves and surplus 1,684,767,281 1,245,526,895 860,749,633 565,186,979 420,739,909 115,434,708

Less: Revaluation reserve[Refer Note 7d on Annexure III] 14,817,070 16,599,979 18,817,472 20,019,230 21,220,988 26,198,006

Reserves (Net of revaluation 1,669,950,211 1,228,926,916 841,932,161 545,167,749 399,518,921 89,236,702reserves)

Net worth 2,119,950,211 1,247,303,416 860,149,961 560,142,449 414,910,121 95,056,702

The above statement should be read with notes to the Summary statement of Profits and Losses and Assets and Liabilities, as restated, appearing in Annexure III and the

significant accounting policies appearing in Annexure IV.

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Annexure III: Notes to the summary statement of profits and losses and assets and liabilities, as restated

1. Background

Biocon Limited (‘Biocon’ or ‘the Company’) (formerly Biocon India Limited), promoted by Ms Kiran Mazumdar Shaw(‘KMZ’), was incorporated at Bangalore in 1978 for manufacture of biotechnology products. Syngene International PrivateLimited (‘Syngene’) promoted by KMZ, was incorporated at Bangalore in 1993. At March 30, 2002, Biocon acquired99.99 per cent of the equity shares of Syngene and, resultantly, the Company became the subsidiary of Biocon. ClinigeneInternational Private Limited (‘Clinigene’) was incorporated on August 4, 2000 and became a wholly owned subsidiary ofBiocon on March 31, 2001.

Biocon entered into an Agreement on February 22, 2002 to set up a Joint Venture Company, Biocon BiopharmaceuticlasPrivate Limited (‘BBPL’) an Indian Company incorporated on June 17, 2002 with CIMAB SA (‘CIMAB’), a companyorganised and existing under the laws of Cuba and engaged in research, development, manufacturing and marketing ofBiopharmaceuticals, to manufacture and market products using technology and to carry out research activities. OnApril 18, 2003, Biocon acquired 10,200 shares for an equity participation of 51 per cent in the BBPL.

2. Amalgamation

Helix Biotech Limited (‘Helix’), Biocon Bioproducts India Limited (‘BBIL’), BioChemizyme India (‘BCZ’) were amalgamatedwith the Company on and from April 1, 1999, pursuant to the scheme of amalgamation approved by the shareholders onMarch 24, 2000 and sanctioned by the Hon’ble High Court of Karnataka under sections 391 and 394 of theCompanies Act, 1956 (‘the Act’) vide order dated January 1, 2001 read with the Order dated January 19, 2001.

Pursuant to this scheme, the assets and liabilities of the Helix, BBIL and BCZ became vested with the Company witheffect from April 1, 1999. The turnover for the year ended March 31, 1999 as per the unaudited proforma informationprovided by the management of Helix, BBIL and BCZ are Rs. 120,902,763, Rs. 56,459,697 and Rs. 41,686,979, respectively;and the net profit Rs. 7,790,385, Rs. 19,829,787 and Rs. 8,997,083, respectively. Consequently, the restated profit of Bioconfor the year ended March 31, 1999, are not comparable with that of the succeeding years.

Prior to the amalgamation with Helix, BBIL and BCZ, the operations of the Company essentially entailed only productionof enzymes. With the amalgamation, the Company continued and expanded the operations in the ‘pharmaceuticalsbusiness’ which was essentially operated by Helix.

3. Summary restated financial statements

Accounting Standard 21, Consolidated Financial Statements (‘AS 21’) issued by the Institute of Chartered Accountantsof India (‘ICAI’) comes into effect in respect of accounting periods commencing on or after April 1, 2001. The ICAI hasalso issued Accounting Standard 23, Accounting for Investments in Associates in Consolidated Financial Statements(‘AS 23’) and Accounting Standard 27, Financial Reporting of Interests in Joint Ventures (‘AS 27’) which are effectivefor accounting periods commencing on or after April 1, 2002. However, AS 21, AS 23 and AS 27 are currently not applicableto the Company since it is not required to prepare consolidated financial statements under any law. Accordingly, theresults of the subsidiaries and joint ventures companies have not been accounted for in these summary restated financialstatements.

4. Adjustments resulting from changes in Accounting Policies

a. Depreciation

For and upto the year ended March 31, 2000, the Company had been providing depreciation on its assets on thewritten down value method based on the rates specified under schedule XIV of the Act. Further, upto March 31, 1999,the Company computed depreciation on additions from the first day of the month of the additions.

Effective April 1, 2000, the Company revised its policy to depreciate assets based on the estimated useful lives of itsassets on the basis of a technical evaluation and also changed the method of providing depreciation to the straight-line method.

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Accordingly, depreciation on fixed assets has been recomputed based on the straight line method at the revisedestimated useful lives for the year ended March 31, 1999 and 2000 for the Company. Also, depreciation on fixedassets has been recomputed based on the straight line method at the revised estimated useful lives for the yearended March 31, 1999 for Helix, BCZ and BBIL and the differential depreciation has resulted in a lower goodwillwhich is adjusted in capital reserve. In addition, depreciation for the nine-month period ended December 31, 2003,and years ended March 31, 2003, 2002 and 2001 have been recomputed by applying the rates based on the revisedestimated useful lives retroactively. Further, reserves as at April 1, 1998 have been adjusted to reflect the impact ofchange pertaining to prior years.

b. Lease assets

Accounting Standard 19, Accounting for Leases (‘AS 19’) issued by the ICAI is mandatory in respect of accountingperiods commencing on or after April 1, 2001. The Company adopted AS 19 for the first time in preparing its financialstatements for the year ended March 31, 2002. Accordingly, for the purpose of this statement, the assets for whichfinance lease rentals were paid during the year ended March 31, 1999, 2000 and 2001 have been capitalized anddepreciated over the economic useful life of the assets in accordance with AS 19.

c. Leave encashment

Hitherto, the Company accrued for the liability for encashment of unavailed leave payable on retirement of employeeson the basis of current employee compensation rates for the entire unavailed leave balance standing to the credit ofthe employees at the year-end. During the period ended December 31, 2003, the Company changed its accountingpolicy in respect of leave encashment and accrued for the liability based on an actuarial valuation for the unavailedleave balance standing to the credit of the employees at period-end. Accordingly, the liability for the year endedMarch 31, 2003 has been recomputed in accordance with the revised accounting policy. During the years endedMarch 31, 1999, 2000, 2001 and 2002 the Company had valued its leave pay liability on actuarial basis, hence it is notrecomputed.

d. Duty drawback

Effective April 1, 2003, the Company changed its policy for recognizing duty drawback income on an accrual basisi.e. as and when the eligible export sales are affected, from it being on filing basis for the years ended March 31, 1999,2000, 2001, 2002 and 2003. During the year ended March 31, 1998, the Company accounted for duty drawbacks on acash basis. Also, during the nine-months period ended December 31, 2003, the Company disclosed raw material costnet of duty drawback, whereas in the earlier years the duty drawback income was disclosed as ‘Other income’.Accordingly, duty drawback income has been recognized on an accrual basis for the years ended March 31, 1999,2000, 2001, 2002 and 2003 and has been adjusted against raw material cost.

e. Deferred tax

The Company adopted Accounting Standard 22, Accounting for taxes on income (‘AS 22’) issued by ICAI for thefirst time in preparing its financial statements for the year ended March 31, 2002. Accordingly, for the purpose ofthis statement, the deferred tax asset/liability has been recognised in the respective years of origination with acorresponding effect to the summary statement of profit and loss, as restated, with a corresponding adjustment togeneral reserve as at March 31, 2002. Also, the deferred tax asset/liability for Helix, BCZ and BBIL as at March 31,1999 has been recognised and adjusted in the computation of capital reserves.

f. Other adjustments

Other adjustments include change in the valuation of work-in-progress, finished goods and loss on sale of assets,for the respective years, arisen consequent to the change in the accounting policy of depreciation, as discussed inparagraph 4(a) above.

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5. Other material adjustments

a. Current tax

During the year ended March 31, 2003, the Company received an approval from the Department of Scientific andIndustrial Research (‘DSIR’) to claim a weighted deduction on the expenditure incurred on scientific research or in-house research and development facility under section 35(2AB) of the Income-tax Act, 1961, retroactively.Consequently, the current tax charge for the year ended March 31, 2003 was after considering a write back of taxrelating to the prior years. Accordingly, for the purpose of this statement the resultantwrite-back of tax has been adjusted in the respective years.

b. Short/excess provision for income tax

Provision for current tax has been restated to the respective year, where there was a shortfall in the provision for tax.

c. Bad debts

The bad debts written off in the earlier years, which have been subsequently recovered have been adjusted in thefinancial statements of such years when these amounts were written off.

6. Tax impact of adjustments

Tax impact of adjustments pertain to tax effect on restatement adjustments, other than adjustments arising for the matterdiscussed in paragraph 4e, 5a and 5b, above, at the tax rates applicable in the respective years.

7. Non Adjustments /Regrouping

a. Manufacturing expenses

‘Consumption of raw material and traded goods’, ‘Employee costs’ and Increase/(Decrease) in work-in-progress andfinished goods have been regrouped and were included as part of ‘Manufacturing and other expenses’ in the auditedfinancial statements for the nine-months period ended December 31, 2003, years ended March 31, 2003, 2002, 2001,2000 and 1999.

b. Duty drawback

The Company has reclassified duty drawback (previously grouped as other income) [Refer Note 4d above], exciseduty expense on certain special sales (previously grouped as ‘Manufacturing and other expenses’) and entry taxexpense on raw material procured (previously grouped as ‘Manufacturing and other expenses’) as a part of rawmaterial consumed for the years ended March 31, 2003, 2002, 2001, 2000 and 1999.

c. Inventory valuation

For and up to the accounting year ended March 31, 1999, the Company had been including interest costs in thevaluation of inventory. The Company adopted the method of valuation prescribed by Accounting Standard 2,Valuation of Inventories (‘AS 2’) issued by ICAI for the year ended March 31, 2000 and consequently excludedinterest costs in the valuation of inventory. No adjustment has been made in the financial statements for the yearended March 31, 1999, resulting in valuation of inventories as at April 1, 1998 and March 31, 1999, in the absence ofavailability of related information.

d. Revaluation reserve

In accordance with clause 6.18.7(b)(v) of the SEBI Guidelines, the statement of assets and liabilities as restated hasbeen prepared after deducting the revaluation reserve balance from both fixed assets and reserves.

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8. Restated profit and loss account

a. Restatement of profit and loss account of Biocon, as at April 1, 1998

Profit and loss account as at April 1, 1998, as per audited financial statements 134,567

Increase/(decrease) in the accumulated profit at April 1, 1998 as a result of:

Depreciation 2,366,165

Leased assets (315,666)

Duty drawback 2,622,188

Deferred tax (1,878,086)

Provision for tax (7,948,652)

Tax effect of adjustments (1,629,900)

Profit and loss account as at April 1, 1998, as restated (6,649,383)

b. The restated net losses carried forward for the years ended March 31, 1999, 2000 and 2001 have been adjusted against the balance

of reserves in the statement of assets and liabilities as at the respective year end.

Annexure IV: Significant accounting policies

1.1 Basis of preparation of financial statements

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and tocomply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountantsof India. As mentioned in Note 7d in Annexure III, the revaluation reserve has been deducted from both fixed assets andreserves, in the statement of assets and liabilities, as restated. The significant accounting policies are as follows:

1.2 Fixed assets and depreciation

Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at, estimated replacementcost as determined by valuers, less accumulated depreciation. The Company capitalises all costs relating to the acquisitionand installation of fixed assets.

Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period of use, onthe straight line method at the annual rates based on the estimated useful lives.

Per cent

Buildings 4.00

Plant and machinery 9.09 - 33.33

Research and development equipment 11.11

Furniture and fixtures 16.67

Vehicles 16.67

Leasehold land, other than those on a lease-cum-sale basis, are depreciated over the lease period. Leasehold land on alease-cum-sale basis are capitalised at the allotment rates currently charged by the Municipal Authorities.

The depreciation charge over and above the depreciation calculation on the original cost of the revalued assets istransferred from the revaluation reserve to the profit and loss account.

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

1.3 Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basis andincludes all applicable overheads in bringing the inventories to their present location and condition. Excise duty arisingon finished goods and customs duty on imported raw materials in stock (excluding stocks in the bonded warehouse) aretreated as part of the cost of inventories.

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1.4 Revenue recognition

(i) Sales are recognised on despatch of goods to customers and are recorded net of excise duty, sales tax and otherlevies. For the purposes of disclosure in the financial statements, sales is reflected gross and net of excise duty inthe profit and loss account.

(ii) Contract research fees are recognised as services are rendered, in accordance with the terms of the contracts.

1.5 Investments

Long term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other than temporary,in the value of investments.

1.6 Retirement benefits

The Company has schemes of retirement benefits for provident fund, gratuity and superannuation, in respect of which,the Company’s contributions are charged to the profit and loss account. The contributions towards provident fund aremade to statutory authorities. The gratuity and superannuation fund benefits of the Company are administered by atrust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life InsuranceCompany Limited (‘Birla Sunlife’). In respect of gratuity, the Company has accrued for the liability based on an independentactuarial valuation at the period-end. In respect of superannuation, the Company has accrued for the liability based onthe schemes of the Company.

1.7 Leave encashment

Liability for leave encashment is in accordance with the rules of the Company and is provided on the basis of an actuarialvaluation performed by an independent actuary. Upto March 31, 2003, the Company provided for leave encashment on afull liability basis. Had the Company followed its earlier accounting policy, the profit before tax for the nine month periodended December 31, 2003 would have been lower by Rs. 617,340.

1.8 Foreign currency transactions

Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction.Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing onthe date of the balance sheet. Where the Company has entered into foreign exchange contracts, the difference betweenthe forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over thelife of the contract. All exchange differences are dealt with in the statement of profit and loss, except those relating to theacquisition of fixed assets, which are adjusted to the cost of the assets.

1.9 Research and development costs

Research and development costs, including technical know-how fees, incurred for development of products are expensedas incurred, except for development costs which relate to the design and testing of new or improved materials, productsor processes which are recognised as an asset to the extent that it is expected that such assets will generate futureeconomic benefits. Research and development expenditure of a capital nature is added to fixed assets.

1.10 Income tax

Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current taxrates based on assessable income. The Company provides for deferred tax based on the tax effect of timing differencesresulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred taxassets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient futuretaxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of achange in tax rates is recognised in income in the period in which the change is substantially enacted.

The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003 and theactual tax liability of the Company will be determined on the basis of the earnings for the period from April 1, 2003 toMarch 31, 2004.

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1.11 Borrowing costs

Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as a partof the cost of the asset. Other borrowing costs are recognised as an expense in the period in which they are incurred.

1.12Deferred employee stock compensation costs

Deferred employee stock compensation costs for stock options are recognised on the basis of generally acceptedaccounting principles and are measured as the excess of the fair value of the Company’s stock on the stock optionsgrant date over the amount an employee must pay to acquire the stock and recognised in a graded manner on the basisof weighted period of services over the vesting period of equity shares. The fair value of the options is measured onthe basis of an independent valuation performed in respect of stock options granted.

1.13Earnings per share

The earnings considered in ascertaining the Company’s earnings per share comprise of the net profit after tax. Thenumber of shares used in computing the basic earnings per share is the weighted average number of shares outstandingduring the period and are adjusted for bonus shares and sub-division of shares for all periods/years presented in thefinancial statements. The number of shares used in computing diluted earnings per share comprises the weighted averageshare considered for deriving basic earnings per share, and also the weighted average number of shares, if any whichwould have been issued on the conversion of all dilutive potential equity shares.

1.14Operating lease

Where the Company is a Lessee:

Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classifiedas operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis overthe lease term.

Where the Company is a Lessor:

Assets subject to operating leases are included in fixed assets. Lease income are recognised on a straight line basisover the lease term. Costs, including depreciation are recognised as an expense. Initial direct costs such as legal costs,brokerage costs, etc. are recognised immediately.

1.15Finance lease

The cash value of fixed assets acquired on finance lease contracts is capitalised and depreciated in accordance with thefixed assets and depreciation policy of the Company. Interest payable under finance lease contracts, is charged on thediminishing balance method to the profit and loss account over the period of the finance lease contracts.

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Annexure V: Syngene International Private Limited

A: Summary statements of profits and losses, as restated(All amounts in Indian Rupees)

Nine months Year ended Year ended Year ended Year ended Year endedended December March 31, March 31, March 31, March 31, March 31,

31, 2003 2003 2002 2001 2000 1999

IncomeContract research fees 213,749,063 225,153,306 136,563,698 106,048,738 56,264,080 29,657,154Sale of compounds 44,224,152 36,093,555 10,464,853 2,920,953 2,516,536 252,581Other Income 3,814,635 550,667 5,936,477 2,148,517 1,148,889 191,865

Total Income 261,787,850 261,797,528 152,965,028 111,118,208 59,929,505 30,101,600

ExpenditureChemicals and reagents consumed 52,658,537 67,514,574 41,928,001 28,048,240 21,457,089 8,144,802Employee cost 66,563,612 71,803,956 48,355,003 26,509,732 13,289,791 6,224,672Other contract research and 16,656,929 22,629,759 21,102,442 15,421,945 7,562,870 3,742,176operating expensesInterest 325,971 1,292,903 943,542 755,522 375,749 499,431Depreciation 15,747,000 16,370,757 11,119,136 9,289,713 4,138,684 2,030,467

Total Expenditure 151,952,049 179,611,949 123,448,124 80,025,152 46,824,183 20,641,548

Net profit before taxation 109,835,801 82,185,579 29,516,904 31,093,056 13,105,322 9,460,052

Current tax charge 2,162,872 8,039,454 1,955,468 850,000 869,094 206,654Deferred tax charge/(credit) - (7,840,795) 387,695 - - - Net profit after tax 107,672,929 81,986,920 27,173,741 30,243,056 12,236,228 9,253,398Effect of changes in depreciation policy - - - 5,868,543 - - Net profit before adjustments 107,672,929 81,986,920 27,173,741 36,111,599 12,236,2289,253,398

AdjustmentsIncrease/(decrease) in Net profitsImpact of changes inaccounting policies:

Depreciation 727,779 970,377 975,827 (4,503,697) 664,614 214,500(Refer Note 1a on Annexure V C)Other adjustments:Deferred tax - (7,840,795) 387,695 - - - (Refer Note 1c on Annexure V C)Current tax - - - - 397,094 (397,094)(Refer Note 2a on Annexure V C)Total impact of adjustments 727,779 (6,870,418) 1,363,522 (4,503,697) 1,061,708 (182,594)Tax impact of adjustments (261,089) (356,614) (348,371) 1,781,211 (255,875) (75,075)Total of adjustments aftertax impact 466,690 (7,227,032) 1,015,151 (2,722,486) 805,833 (257,669)Net Profit, as restated 108,139,619 74,759,888 28,188,892 33,389,113 13,042,061 8,995,729Profit and Loss account,beginning of the year/period 85,474,354 10,714,466 9,187,449 7,134,836 14,395,775 7,602,551Profit available forappropriation, as restated 193,613,973 85,474,354 37,376,341 40,523,949 27,437,836 16,598,280AppropriationsDividends - - (21,562,500) (5,750,000) (1,150,000) (1,150,000)Corporate dividend tax - - (2,900,000) (586,500) (253,000) (126,500)Transfer to general reserve - - (2,199,375) (25,000,000) (18,900,000) (926,005)Balance carried forward, as restated 193,613,973 85,474,354 10,714,466 9,187,449 7,134,836 14,395,775

The above statement should be read with notes to summary statement of Profits and Losses and Assets and Liabilities, as restated andsignificant accounting policies appearing in this Annexure.

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Annexure V: Syngene International Private Limited

B: Summary statements of assets and liabilities, as restated

(All amounts in Indian Rupees)

As at As at As at As at As at As atDecember 31, March 31, March 31, March 31, March 31, March 31,

2003 2003 2002 2001 2000 1999

Fixed assets

Gross Block 190,632,843 171,076,086 102,374,940 86,335,634 72,250,807 26,375,475

Less : Accumulated depreciation 55,114,600 40,095,379 25,701,539 15,757,654 7,832,787 4,373,619

Net Block 135,518,243 130,980,707 76,673,401 70,577,980 64,418,020 22,001,856

Capital work in progress 28,820,812 8,834 11,333,939 - 509,559 2,398,346

Total 164,339,055 130,989,541 88,007,340 70,577,980 64,927,579 24,400,202

Investments 142,056,783 50,000,001 1 100,000 100,000 100,000

Current assets

Inventories 12,274,865 12,093,432 8,121,207 6,607,373 5,028,842 5,900,243

Sundry debtors 24,766,688 10,696,798 15,632,862 15,700,146 4,318,723 1,201,319

Cash and bank balances 9,779,332 16,120,180 17,669,530 769,490 7,960 66,723

Loans and advances 3,993,943 4,244,650 6,132,593 25,804,365 3,341,132 6,918,828

Miscellaneous expenditure - - - - - 15,560

Total 50,814,828 43,155,060 47,556,192 48,881,374 12,696,657 14,102,673

Liabilities and provisions

Secured loans - - 2,800,500 4,769,964 4,092,487 3,042,416

Unsecured loans - - - - 3,571,151 -

Current liabilities and provisions 87,411,827 62,746,469 46,481,402 33,283,147 34,461,921 14,413,603

Deferred tax (asset)/liability 55,762 316,851 673,465 1,021,836 (759,375) (503,500)

Total 87,467,589 63,063,320 49,955,367 39,074,947 41,366,184 16,952,519

Networth 269,743,077 161,081,282 85,608,166 80,484,407 36,358,052 21,650,356

Represented by

Share capital 28,750,000 28,750,000 28,750,000 28,750,000 8,048,000 5,750,000

Advance share application money - - - 258,886 -

Reserves and surplus 240,993,077 132,331,282 56,858,166 51,734,407 28,051,166 15,900,356

Networth 269,743,077 161,081,282 85,608,166 80,484,407 36,358,052 21,650,356

The above statement should be read with notes to summary statement of Profits and Losses and Assets and Liabilities, as restated and significant

accounting policies appearing in this Annexure.

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Annexure V: Syngene International Private Limited

C: Notes to the statement of profits and losses and assets and liabilities, as restated

1. Adjustments resulting from changes in Accounting Policies

a. Depreciation

For and upto the accounting year ended March 31, 2000, Syngene International Private Limited (‘Syngene’) had beenproviding depreciation on its assets on the written down value method based on the rates specified under schedule XIVof the Companies Act, 1956 (‘the Act’). Further, upto March 31, 1999, the Company computed depreciation on additionsfrom the first day of the month of the additions.

Effective April 1, 2000, Syngene revised its policy to depreciate assets based on the estimated useful lives of its assetson the basis of a technical evaluation and also changed the method of providing depreciation to the straight-line method.

Accordingly, depreciation on fixed assets has been recomputed based on the straight line method at the revised estimateduseful lives for the year ended March 31, 1999 and 2000. In addition, depreciation for the nine-month period endedDecember 31, 2003, March 31, 2003, 2002 and 2001 have been recomputed by applying the rates based on the revisedestimated useful lives retroactively. Further, reserves as at April 1, 1998 have been adjusted to reflect the impact of changepertaining to prior years.

b. Leave encashment

Hitherto, Syngene accrued for the liability for encashment of unavailed leave payable on retirement of employees on thebasis of current employee compensation rates for the entire unavailed leave balance standing to the credit of theemployees at the year-end. During the period ended December 31, 2003 Syngene changed its accounting policy in respectof leave encashment and accrued for the liability based on an actuarial valuation for the unavailed leave balance standingto the credit of the employees at period-end. Accordingly, the liability for the year ended March 31, 2003 has beenrecomputed in accordance with the revised accounting policy. During the year ended March 31, 2002, Syngene had valuedits leave pay liability on actuarial basis, hence it is not recomputed.

c. Deferred tax

The Company adopted Accounting Standard 22, Accounting for taxes on income (‘AS 22’) issued by ICAI for the firsttime in preparing its financial statements for the year ended March 31, 2002. Accordingly, for the purpose of this statement,the deferred tax asset/liability has been recognised in the respective years of origination with a corresponding effect tothe statement of profits, as restated, with a corresponding adjustment to general reserve as at March 31, 2002.

Syngene, constituting two 100 per cent Export Oriented Units (approved by the Cochin Export Processing Zone onDecember 14, 1998 and the Cochin Special Economic Zone on August 24, 2001), claims exemption under section 10B ofthe Income-Tax Act, 1961 (‘the Act’). Syngene had created a deferred tax liability as at March 31, 2002, as the timingdifference was expected to reverse after the respective tax holiday periods.

Further, during the year ended March 31, 2003, Syngene received an approval from the Department of Scientific andIndustrial Research (‘DSIR’) for exemption of profits under section 80-IB (8A) of the Income-tax Act, 1961. Consequently,Syngene did not recognize any deferred tax liability/asset on account of timing differences, during the year endedMarch 31, 2003, as Syngene expects it to reverse during the tax holiday/tax deduction period. Accordingly, deferred taxasset/liability pertaining to the earlier years have been retroactively adjusted.

2. Other material adjustments

a. Short/excess provision for income tax

Refunds received for advance tax paid has been adjusted to the respective years to which it pertains. Provision forcurrent tax has been restated to the respective year, where there was a shortfall in the provision for tax.

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3. Tax impact of adjustments

Tax impact of adjustments pertain to tax effect on restatement adjustments other than adjustments arising for the matterdiscussed in paragraph 1(c) and 2(a) above, at the respective tax rates.

4. Non Adjustments /Regrouping

‘Chemicals and reagents consumed’, ‘Employee costs’ and ‘Other contract research and operating expenses’ have beenregrouped and was included as part of ‘Contract research and other operating expenses’ in the financial statements forthe nine-months period ended December 31, 2003 and for the years ended March 31, 2003, 2002, 2001, 2000 and 1999.

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Annexure V: Syngene International Private Limited

D: Significant accounting policies

1.1 Basis of preparation of financial statements

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and tocomply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountantsof India. The significant accounting policies are as follows:

1.2 Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation. Syngene International Private Limited (‘Syngene’) capitalisesall costs relating to the acquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period ofuse, on the straight line method at the annual rates based on the estimated useful lives.

Per cent

Buildings 4.00

Plant and machinery 11.11 - 33.33

Furniture and fixtures 16.67

Vehicles 16.67

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

1.3 Investments

Investments that are readily realisable and intended to be held for not more than a year are classified as currentinvestments. All other investments are classified as long term investments. Current investments are carried at lower ofcost and fair value and determined on an individual investment basis. Long term investments are carried at cost. However,provision for diminution in value is made to recognise a decline other than temporary in the value of the investments.

1.4 Inventories

Inventories comprise chemicals and reagents, and are valued at the lower of cost and net realisable value, on a first infirst out basis.

1.5 Revenue recognition

(i) Contract research fee

Contract research fees are recognized as services are rendered, in accordance with the terms of the contracts.

(ii) Sale of compounds

Sales are recognised on dispatch of goods to customers, and comprise amounts invoiced for goods sold.

1.6 Retirement benefits

Syngene has schemes of retirement benefits for gratuity and superannuation, in respect of which, Syngene’s contributionsare charged to the profit and loss account. The gratuity and superannuation fund benefits of Syngene are administeredby a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life InsuranceCompany Limited (‘Birla Sunlife’). In respect of gratuity the liability is based on an independent actuarial valuation at theperiod-end. In respect of superannuation the liability is based on the schemes of Syngene.

1.7 Leave encashment

Liability for leave encashment is in accordance with the rules of Syngene and is provided on the basis of an actuarialvaluation performed by an independent actuary. Upto March 31, 2003, Syngene provided for leave encashment on a fullliability basis. The impact on net profit before taxes for the nine month period ended December 31, 2003 as a result of thischange is not material.

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1.8 Foreign currency transactions

Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction.Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing onthe date of the balance sheet. Syngene has entered into foreign exchange contracts, the difference between the forwardrates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of thecontract. All exchange differences are dealt with in the statement of profit and loss, except those relating to the acquisitionof fixed assets, which are adjusted to the cost of the assets.

1.9 Income tax

Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current taxrates based on assessable income. Syngene provides for deferred tax based on the tax effect of timing differences resultingfrom the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assetsare recognised and carried forward only to the extent that there is virtual certainty that sufficient future taxable incomewill be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in taxrates is recognised in income in the period in which the change is substantially enacted.

The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003 and theactual tax liability of Syngene will be determined on the basis of the earnings for the period from April 1, 2003 toMarch 31, 2004.

1.10 Earnings per share

The earnings considered in ascertaining Syngene’s earnings per share comprise of the net profit after tax. The number ofshares used in computing the basic earnings per share is the weighted average number of shares outstanding during theperiod. The number of shares used in computing diluted earnings per share comprises the weighted average shareconsidered for deriving basic earnings per share, and also the weighted average number of shares, which would havebeen issued on the conversion of dilutive potential equity shares, if any.

1.11Operating lease

Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classifiedas operating leases. Lease payments under operating leases are recognized as an expense on a straight-line basis overthe lease term.

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Annexure VI: Clinigene International Private Limited

A: Summary statements of profits and losses, as restated

(All amounts in Indian Rupees)

Nine months ended Year ended Year ended August 4, 2000 (theDecember 31, 2003 March 31, 2003 March 31, 2002 date of incor-

poration) toMarch 31, 2001

Income

Contract research fees 1,427,180 11,072,704 26,697,302 3,473,813

Other Income 5,729 - - 177,277

Total 1,432,909 11,072,704 26,697,302 3,651,090

Expenditure

Contract research and other operating expenses 12,567,664 12,907,361 11,259,015 3,647,773

Employee cost 6,702,192 2,973,340 703,098 168,055

Interest 20,565 355,460 400,488 32,729

Depreciation 1,153,599 889,472 840,655 114,148

Total 20,444,020 17,125,633 13,203,256 3,962,705

Net profit/(loss) before taxation and (19,011,111) (6,052,929) 13,494,046 (311,615)extraordinary items

Current tax charge - - 4,480,942 -

Deferred tax charge/(credit) - (487,010) 610,254 -

Net profit/(loss) after tax before adjustments (19,011,111) (5,565,919) 8,402,850 (311,615)

Increase/(decrease) in net profits:

Impact of changes in accounting policies:

Deferred tax - - - 123,245(Refer Note 1a on Annexure VI C)

Total impact of adjustments - - - 123,245

Net profit/(loss), as restated (19,011,111) (5,565,919) 8,402,850 (188,370)

Appropriations

Dividends

- on equity shares, interim - - 5,000,000 -

Corporate dividend tax - - 510,000 -

Transfer to general reserve - - 880,000 -

Balance carried forward, as restated (19,011,111) (5,565,919) 2,012,850 (188,370)

The above statement should be read with notes to summary statement of Profits and Losses and Assets and Liabilities, as restated and significant

accounting policies appearing in this Annexure.

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Annexure VI: Clinigene International Private Limited

B: Summary statements of assets and liabilities, as restated

(All amounts in Indian Rupees)

As at December 31, 2003 March 31, 2003 March 31, 2002 March 31, 2001

Fixed Assets

Gross Block 11,779,499 9,639,578 6,845,751 5,766,899

Less : Accumulated depreciation 2,997,874 1,844,275 954,803 114,148

Net Block 8,781,625 7,795,303 5,890,948 5,652,751

Capital work in progress 8,812,657 - - 719,694

Total 17,594,282 7,795,303 5,890,948 6,372,445

Current Assets

Inventories - - 687,156 -

Sundry debtors 1,543,090 5,138,679 8,294,428 -

Cash and bank balances 9,094 858 2,727 934

Loans and advances 1,771,089 2,147,626 44,033 1,236,651

Total 3,323,273 7,287,163 9,028,344 1,237,585

Liabilities and Provisions

Current liabilities and provisions 42,290,107 17,443,907 11,227,804 7,421,645

Deferred tax liability/(asset) - - 487,010 (123,245)

Total 42,290,107 17,443,907 11,714,814 7,298,400

Networth (21,372,552) (2,361,441) 3,204,478 311,630

Represented by

Share capital 500,000 500,000 500,000 500,000

Reserves and surplus (21,872,552) (2,861,441) 2,704,478 (188,370)

Networth (21,372,552) (2,361,441) 3,204,478 311,630

The above statement should be read with notes to summary statement of Profits and Losses and Assets and Liabilities, as restated and significant

accounting policies appearing in this Annexure.

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Annexure VI: Clinigene International Private Limited

C: Notes to the statement of profits and losses and assets and liabilities, as restated

1. Adjustments resulting from changes in Accounting Policies

a. Deferred tax

Clinigene International Private Limited (‘Clinigene’) adopted Accounting Standard 22, Accounting for taxes on income(‘AS 22’) issued by ICAI for the first time in preparing its financial statements for the year ended March 31, 2002.Accordingly, for the purpose of this statement, the deferred tax asset/liability has been recognised in the respectiveyears of origination with a corresponding effect to the statement of profits, as restated, with a correspondingadjustment to general reserve during the year ended March 31, 2002.

2. Regroupings

‘Employee costs’ have been regrouped and was included as part of ‘Contract research and other operating expenses’and in the financial statements for the nine-months period ended December 31, 2003 and for the years ended March 31, 2003,2002 and 2001.

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Annexure VI: Clinigene International Private Limited

D: Significant accounting policies

1.1 Basis of preparation of financial statements

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and tocomply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountantsof India. The significant accounting policies are as follows:

1.2 Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation. Clinigene International Private Limited (‘Clinigene’)capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets are depreciated pro rata to theperiod of use, on the straight line method at the annual rates based on the estimated useful lives.

Per cent

Plant and machinery 9.09

Air conditioners 16.67

Furniture and fixtures 16.67

Computers 33.33

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

1.3 Inventories

Inventories comprise of research material, and are valued at the lower of cost and net realisable value.

1.4 Revenue recognition

Clinigene enters into two types of contract research arrangements and the revenues therefrom are recognised on thefollowing basis:

(i) Time and material management

Revenues are recognised as services are rendered, in accordance with contractual agreements.

(ii) Fixed price arrangements

Revenues relating to fixed price contracts are recognised based on the percentage of completion method.

1.5 Retirement benefits

Clinigene has schemes of retirement benefits for gratuity and superannuation, in respect of which, Clinigene’s contributionsare charged to the profit and loss account. The gratuity and superannuation fund benefits of Clinigene are administeredby a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life InsuranceCompany Limited (‘Birla Sunlife’). In respect of gratuity, Clinigene has accrued for the liability based on an independentactuarial valuation at the period-end. In respect of superannuation, the liability is based on the schemes of the Clinigene.

1.6 Leave encashment

Liability for leave encashment is in accordance with the rules of Clinigene and is provided on the basis of an actuarialvaluation performed by an independent actuary. Upto March 31, 2003, Clinigene provided for leave encashment on a fullliability basis. The impact on the net loss for the nine month period ended December 31, 2003 as a result this of change isnot material.

1.7 Foreign currency transactions

Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction.Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing onthe date of the balance sheet. Where Clinigene has entered into foreign exchange contracts, the difference between the

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forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life ofthe contract. All exchange differences are dealt with in the statement of profit and loss, except those relating to theacquisition of fixed assets, which are adjusted to the cost of the assets.

1.8 Income tax

Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current taxrates based on assessable income. Clinigene provides for deferred tax based on the tax effect of timing differences resultingfrom the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assetsresulting from tax losses carried forward are recognised and carried forward only to the extent that there is virtual certaintythat sufficient future taxable income will be available against which such deferred tax assets can be realised. The effecton deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantiallyenacted.

1.9 Loss per share

Loss considered in ascertaining the Clinigene’s loss per share comprise of the net loss after tax. The number of sharesused in computing the basic earnings per share is the weighted average number of shares outstanding during the period.The number of shares used in computing diluted earnings per share comprises the weighted average share consideredfor deriving basic earnings per share, and also the weighted average number of shares, if any which would have beenissued on the conversion of dilutive potential equity shares, if any.

1.10 Operating lease

Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classifiedas operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis overthe lease term.

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Annexure VII: Biocon Biopharmaceuticals Private Limited

A: Summary statements of Profits and Losses, as restated

(All amounts in Indian Rupees)

Nine months period ended June 17, 2002 (the date ofDecember 31, 2003 incorporation) to

March 31, 2003

Income - -

Expenditure

Travel and conveyance 455,664 -

Rates and taxes 347,750 -

Audit fees 187,500 -

Employee costs 477,101 -

Depreciation 21,711 -

Interest 92,577 -

Miscellaneous expenses 31,605 -

1,613,908 -

Loss for the period 1,613,908 -

Adjustments

Decrease in Net loss

Impact of changes in accounting policies:

Amortisation of expenditure pending allocation - 1,629,819(Refer Note 1.3 on Annexure VII C)

Total impact of adjustments - 1,629,819

Net loss, as restated 1,613,908 1,629,819

Profit and Loss account, beginning of the year 1,629,819 -

Profit and Loss account, as restated 3,243,727 1,629,819

The above statement should be read with the significant accounting policies attached hereto

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Annexure VII: Biocon Biopharmaceuticals Private Limited

B. Summary statements of assets and liabilities, as restated

(All amounts in Indian Rupees)

As at As at

December 31, 2003 March 31, 2003

Fixed assets

Gross Block 92,500 -

Less : Accumulated depreciation 21,711 -

Net Block 70,789 -

Capital advances 1,464,580

Total 1,535,369 -

Current assets

Cash and bank balances 9,870 100,000

Total 9,870 100,000

Liabilities and provisions

Current liabilities and provisions 4,588,965 1,629,819

Total 4,588,965 1,629,819

Networth (3,043,726) (1,529,819)

Represented by

Share capital 200,000 100,000

Reserves and surplus (3,243,726) (1,629,819)

Networth (3,043,726) (1,529,819)

The above statement should be read with the significant accounting policies attached hereto.

Annexure VII: Biocon Biopharmaceuticals Private Limited

C: Significant accounting policies

1.1 Basis of preparation of financial statements

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and tocomply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountantsof India. The significant accounting policies are as follows:

1.2 Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation. Biocon Biopharmaceuticals Private Limited capitalises allcosts relating to the acquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period ofuse, on the straight line method at the annual rates based on the estimated useful lives.

Per cent

Computers 33.33

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

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1.3 Expenditure pending allocation

Effective April 1, 2003, Biocon Biopharmaceuticals Private Limited has revised its accounting policy and has decided foran early adoption of Accounting Standard 26 ‘Intangible Assets’ (AS 26) issued by the Institute of Chartered Accountantsof India and accordingly has fully amortised the expenditure pending allocation at March 31, 2003. The change in theaccounting policy has resulted in the expensing of Rs. 1,629,819 relating to expenditure pending allocation at March 31, 2003and, consequently, in accordance with the transitional provisions of AS 26 adjusted this amount to the accumulatedlosses at April 1, 2003.

1.4 Foreign currency transactions

Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction.Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing onthe date of the balance sheet. Where Biocon Biopharamceuticals Private Limited has entered into foreign exchangecontracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in theprofit and loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account,except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets.

1.5 Borrowing costs

Borrowing costs that are attributable to the acquisition and construction of a qualifying fixed asset are capitalised as apart of the cost of the asset.

1.6 Loss per share

Loss considered in ascertaining Biocon Biopharmaceuticals Private Limited’s loss per share comprises of the net loss forthe period. The number of shares used in computing the basic earnings per share is the weighted average number ofshares outstanding during the period. The number of shares used in computing diluted earnings per share comprises theweighted average share considered for deriving basic earnings per share, and also the weighted average number ofshares, if any which would have been issued on the conversion of dilutive potential equity shares, if any.

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n

Annexure VIII: Accounting Ratios

Nine months ended Year ended Year ended Year ended Year ended Year endedDecember 31, 2003 March 31, 2003 March 31, 2002 March 31, 2001 March 31, 2000 March 31, 1999

Pre Split * Post Split Pre Split Post Split Pre Split Post Split Pre Split Post Split Pre Split Post Split Pre Split Post Split

Earnings per share (Rs) 19.14 9.57 7.85 3.93 5.64 2.82 3.96 1.98 3.24 1.62 0.93 0.46

Return on net worth % 41% 41% 28% 28% 25% 25% 26% 26% 13% 13% 14% 14%

Net asset value per equity share (Rs.) 47.11 23.56 27.72 13.86 19.28 9.64 15.28 7.64 11.32 5.66 6.67 3.33

Weighted average number of equityshares outstanding during the year/period 45,000,000 90,000,000 44,958,476 89,916,952 38,110,196 76,220,392 36,662,328 73,324,656 17,073,354 34,146,707 14,251,898 28,503,796

Total number of shares outstanding at theend of the year/period 45,000,000 90,000,000 45,000,000 90,000,000 44,611,379 89,222,757 36,669,741 73,339,482 36,648,927 73,297,853 14,251,898 28,503,796

Notes:

1. The ratios have been computed as below:

Earnings per share (Rs.) Net profit, as restated attributable to equity shareholders

Weighted average number of equity shares outstanding during the year/period

Return on net worth (%) Net profit after tax, as restated

Net worth excluding revaluation reserve at the end of the year/period

Net asset value per equity share (Rs.) Net worth excluding revaluation reserve at the end of the year/period

Number of equity shares outstanding at the end of the year/period

2. Net profit, as restated as appearing in the Statement of profits and losses, as restated has been considered for the purpose of computing the above ratios. Theseratios are computed on the basis of the standalone (unconsolidated) restated financial statements.

3. The shareholders at the Extraordinary General Meeting (‘EGM’) of the Company held on November 11, 2003, approved the sub-division of equity shares offace value of Rs. 10 each into 2 equity shares of Rs. 5 each and increase in authorised capital from Rs. 20,000,000 to Rs. 600,000,000. The Board of Directorsin their meeting held on November 28, 2003 passed a resolution for effecting the sub-division. Subsequent to this sub-division, the authorised equity sharecapital of Rs. 20,000,000 has been divided into 4,000,000 equity shares of Rs. 5 each and the issued, subscribed and paid-up capital of Rs. 18,376,500 hasbeen divided into 3,675,300 shares of Rs. 5 each.

4. Further, the shareholders at the EGM of the Company held on November 11, 2003 approved the allotment of 86,324,700 equity shares of Rs. 5 each as bonusshares in the ratio of 1:23.48779580 to the shareholders existing as on November 11, 2003, which was the approved record date for this purpose, by capitalisationof the balance in the profit and loss account of Rs. 431,623,500.

5. Earnings per share calculations are done in accordance with Accounting Standard 20 ‘Earnings Per Share’ issued by the Institute of Chartered Accountants ofIndia, accordingly, share split and bonus shares issued are adjusted and disclosed for all the earlier financial years

6. Earnings per share for nine months period ended December 31, 2003 are not comparable with that of other financial years presented above.

* The stock split was effected before December 31, 2003 and has been included here for comparative purposes.

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Annexure IX: Capitalisation statement as at December 31, 2003Pre issue Post issue *

Short term debt 390,019,313

Long term debt 260,329,812

Total debt 650,349,125

Shareholders’ funds

- Share capital 450,000,000

- Reserves (excluding revaluation reserve), as restated 1,669,950,211

Total shareholders’ funds 2,119,950,211

Long term debt/equity 0.12

Notes:

* Share capital and reserves and surplus post issue can be calculated only on the conclusion of the book building process.

Note:

1. Long term debt includes current portion of long term debt payable over the next twelve months and deferred sales tax payment benefitavailable to the Company.

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Annexure X: Statement of tax shelters(All amounts in Indian Rupees)

Nine months Year ended Year ended Year ended Year ended Year endedended December March 31, March 31, March 31, March 31, March 31,

31, 2003 2003 2002 2001 2000 1999

Profit before current and deferred taxes, 1 ,076,564,463 489,198,015 277,343,754 217,301,948 69,239,391 18,852,223as restated

Tax rate (%) E 35.875% 36 .75% 35 .70% 39 .55% 38 .50% 35 .00%

Tax impact F 386,217,501 179,780,271 99,011,720 85,942,920 26,657,166 6,598,278

Adjustments

Permanent Differences

Impact in respect of units exempt u/s10 B of Income Tax Act, 1961 (366,726,617) (48,305,398) (23,002) - (34,777,275) -(‘the Act’)

Deduction u/s 80 HHC of the Act (75,467,232) (56,170,665) (31,277,486) (26,548,742) - (1,449,964)

Deduction u/s 80 O of the Act - (366,425) (2,106,590) (3,477,808) - (1,876,169)

Deduction u/s 80G of the Act - - - (5,000) - -

Deduction u/s 35 (2AB) of the Act (47,440,589) (49,126,020) - - - -

Expenses disallowed 13,593,462 33,863,779 - - - -

Long-term capital gain charged at - (1,704,985) - - - -lower rate of tax

Dividend exempt u/s 10 (33) of the Act - -(26,562,507) (1,282) (275,782) -

Others - - (80,000) 176,847 3,935,233 -

Total A (476,040,976) (121,809,714) (60,049,585) (29,855,985) (31,117,824) (3,326,133)

Temporary Differences

Difference between book depreciation (59,877,044) (118,462,734) (94,227,842) (110,604,060) (68,400,352) (5,520,472)and tax depreciation

Provision for doubtful debts and advances 5,390,875 4,609,125 - (9,386,868) 4,628,072 -

Provision for retirement benefits 7 ,558,231 (16,017,954) 14,994,890 7,281,298 1,090,902 3,990,601

Unabsorbed depreciation - - - (33,285,893) 29,465,399 -

Technical know how - 12,462,188 - - - -

Others 1,062,215 (313,455) (1,473,421) 2,322,496 3,543,438 (675,234)

Total B (45,865,723) (117,722,830) (80,706,373) (143,673,027) (29,672,541) (2,205,105)

Net Adjustment C=A+B (521,906,699) (239,532,544) (140,755,958) (173,529,012) (60,790,365) (5,531,238)

Tax saving thereon D=C*E (187,234,025) (87,670,163) (50,249,877) (68,630,723) (23,404,291) (1,935,934)

Net impact G=F+D 198,983,476 92,110,107 48,761,843 17,312,197 3,252,875 4,662,344

MAT credit utilised - - - (2,882,780) - -

Interest u/s 234 of the Act - 1 ,230,773 2,439,838 1,281,164 - -

Prior years short/(excess) provision -(13,149,604) - 2,749,400 - (42,819)rectified

Taxable income as per MAT - - - - 7 ,487,740 -

Tax as per MAT - - - - 2 ,882,780 -

Additional MAT provision in - - - - 217,220 -financial statements

Restated tax provision for the year 198,983,476 80,191,276 51,201,681 18,459,981 6,352,875 4,619,525

Tax effect of adjustments (2 ,656,758) 4,385,022 1,201,681 (19,540,019) 3,252,875 (80,475)

Provision for current tax as per the 201,640,234 75,806,254 50,000,000 38,000,000 3,100,000 4,700,000books of accounts

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Annexure XI: STATEMENT OF POSSIBLE BENEFITS AVAILABLE TO BIOCON LIMITED, ITS SUBSIDIARIES AND ITSSHAREHOLDERS

1. Benefits available to the Company

1.1 Under the Income-tax Act, 1961 (“the Act”)

1.1.1 Tax holiday under section 10B of the Act

As per the provisions of section 10B of the Act, the Company is eligible to claim a deduction of the profitsderived by its export oriented undertaking/s from the export of articles or things or computer software for a periodof ten consecutive assessment years, beginning with the assessment year relevant to the previous year in whichthe undertaking/s begin to manufacture or produce such articles or things or computer software. The profitsderived from the export of articles or things or computer software shall be the amount, which bears to the profitsof the undertaking/s the same proportion as the export turnover of the undertaking/s bears to the total turnoverof the undertaking/s. For the assessment year 2003-2004, the tax holiday under section 10B of the Act has beenlimited to 90 percent of the eligible profits instead of 100 percent of such profits.

The benefit is available subject to fulfillment of conditions prescribed by section 10B and no benefit under thissection shall be allowed with respect to any such undertaking for the assessment year beginning on the 1st dayof April 2010 and subsequent years.

1.1.2 Deduction under section 80HHC of the Act

As per the provisions of section 80HHC, an Indian company engaged in the business of export out of India ofany goods or merchandise to which the section applies can claim a deduction under the section. In case of theexport of goods or merchandise manufactured by the Company, the profits eligible for deduction shall be theamount, which bears to the profits of the business the same proportion as the export turnover bears to the totalturnover of the business.

The deduction under this section is gradually being phased out as under:

Relevant Years Deduction as percentage of eligible profits

For the year ended 31 March 2001 80 per cent

For the year ended 31 March 2002 70 per cent

For the year ended 31 March 2003 50 per cent

For the year ended 31 March 2004 30 per cent

No deduction shall be allowed under this section for the year ended March 31, 2005 and onwards.

Once a tax benefit under this section is claimed, no further tax deduction is allowed to be claimed under any otherprovisions of the Act.

In the event, the Company becomes ineligible for claiming the benefits under section 10B in respect of any of itsundertakings due to noncompliance with the conditions of section 10B, it could claim a deduction under section80HHC of the Act up to the financial year 2003-2004, provided the conditions specified in the said section arefulfilled.

1.1.3 Deduction under section 80-O of the Act

As per the provisions of section 80-O of the Act, where an Indian company receives income as a considerationfor the use outside India of any patent, invention, design or registered trademark, it can claim a deduction of theprescribed percentage of the income so received.

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The deduction under this section is gradually being phased out as under:

Relevant Years Deduction as percentage of income so received

For the year ended 31 March 2001 40 per cent

For the year ended 31 March 2002 30 per cent

For the year ended 31 March 2003 20 per cent

For the year ended 31 March 2004 10 per cent

No deduction shall be allowed under this section for the year ended March 31, 2005 and onwards.

1.1.4 Weighted deduction under section 35(2AB) of the Act

As per the provisions of section 35(2AB) of the Act, any company engaged in the business of bio-technology orin the business of manufacture or production of, inter-alia, any drugs or pharmaceuticals can avail a weighteddeduction to the extent of 1.5 times of expenditure on scientific research incurred by it in-house research anddevelopment facility approved by the prescribed authority. The expenditure may be capital or revenue in nature(other than expenditure on the cost of land and building). The authority prescribed for this purpose is theDepartment of Scientific and Industrial Research.

No deduction shall be allowed under this section in respect of expenditure incurred after March 31, 2005 andonwards.

1.1.5 Dividends exempt under section 10(34) of the Act

Dividends received by the Company from its subsidiaries (whether interim or final) which is declared, distributedor paid by the subsidiaries on or after April 1, 2003 would be exempt in the hands of the Company as per theprovisions of section 10(34) of the Act.

1.1.6 Computation of capital gains

Capital assets may be categorised into short term capital assets and long term capital assets based on the periodof holding. All capital assets (except shares held in a Company or any other listed securities or units of UTI orMutual Fund units) are considered to be long term capital assets if they are held for a period in excess of 36months. Shares held in a company, any other listed securities, units of UTI and Mutual Fund units are consideredas long term capital assets if these are held for a period exceeding 12 months. Consequently, capital gains arisingon sale of shares held in a company or any other listed securities or units of UTI or Mutual Fund units held formore than 12 months are considered as “long term capital gains”.

Section 48 of the Act, which prescribes the mode of computation of capital gains, provides for deduction of costof acquisition / improvement and expenses incurred in connection with the transfer of a capital asset, from thesale consideration to arrive at the amount of capital gains. However, in respect of long term capital gains, it offersa benefit by permitting substitution of cost of acquisition / improvement with the indexed cost of acquisition /improvement, which adjusts the cost of acquisition / improvement by a cost inflation index, as prescribed fromtime to time.

As per the provisions of section 112(1)(b) of the Act, long term capital gains as computed above would be subjectto tax at a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section 112(1), if the longterm capital gains resulting on transfer of listed securities or units, calculated at the rate of 20 percent with indexationbenefit exceeds the gains computed at the rate of 10 percent without indexation benefit, then such gains arechargeable to tax at the rate of 10 percent without indexation benefit (plus applicable surcharge).

1.1.7 Exemption of capital gain from income tax

n Long term capital gain arising from transfer of an ‘eligible equity share’ in a company purchased during theperiod March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or moreare exempt from tax under section 10(36) of the Act. ‘Eligible equity share’ means:

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- any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbaias on March 1, 2003 and the transactions of purchase and sale of such equity shares are entered intoon a recognised stock exchange in India; or

- any equity share in a company allotted through a public issue on or after March 1, 2003 and listed ona recognised stock exchange in India before March 1, 2004 and the transaction of sale of such equityshares is entered into on a recognised stock exchange in India.

The Central Board of Direct Taxes (“CBDT”) has clarified vide Circular number 7/2003 dated September 5, 2003,that ‘public issue’ shall include the offer of equity shares in a company to the public through a prospectus,whether by the company or by the existing shareholders of the company.

n As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capitalgains arising to the Company on transfer of a long term capital asset shall not be chargeable to tax to theextent such capital gains are invested in certain notified bonds within six months from the date of transfer.However, if the Company transfers or converts the notified bonds into money within a period of threeyears from the date of their acquisition, the amount of capital gains exempted earlier would become chargeableto tax as long term capital gains in the year in which the bonds are transferred or converted into money.

n As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capitalgains arising from transfer of long term assets, being listed securities or units shall not be chargeable to taxto the extent such gains are invested in acquiring equity shares forming part of an “eligible issue of sharecapital” within six months from the date of transfer of the long term assets. Eligible issue of share capitalhas been defined as an issue of equity shares which satisfies the following conditions –

- the issue is made by a public company formed and registered in India; and

- the shares forming part of the issue are offered for subscription to the public.

1.2 Benefits available under Indirect Tax Laws

1.2.1 Customs duty

Benefits available to Export Oriented Unit

The Company has two units registered as Export Oriented Units (“EOU”). Under the EXIM Policy, specified goodsimported by the EOUs are exempt from customs duty, subject to satisfaction of the specified conditions and theunit(s) meeting the prescribed export obligations.

Other benefits available

The Company is, subject to the satisfaction of the specified conditions, eligible for the benefits under the variousexport promotion schemes such as Advance License, duty drawbacks, Export Promotion Capital Goods (“EPCG”)Scheme, etc. However, these benefits are dependent on meeting the prescribed export obligations and otherconditions prescribed.

1.2.2 Excise duty

Benefits available to the EOUs

Subject to satisfaction of the specified conditions, specified goods procured by the EOUs from local manufacturersare exempt from excise duty. Exports made by the EOU are not liable to Excise duty.

Other benefits available

The Company is not eligible to any other exemptions/concessions under the excise laws for the time being inforce.

1.2.3 Sales tax

Benefits available to the EOUs

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Export sales made by the EOU are not liable to sales tax. The Central sales tax paid by the EOUs on inputs can beclaimed as a reimbursement, subject to fulfillment of the conditions prescribed. Local sales tax exemptions wouldbe available on inputs based on the policies of the applicable Karnataka Sales tax laws from time to time.

Other benefits available

The Company is availing the benefit of deferring its sales tax liability for its manufacturing facilities in Bommasandraand Hebbagodi, in accordance with the Agro Food Processing Industrial Policy of the Government of Karnataka,for a period of 8 years and 12 years respectively.

1.2.4 Service tax

No service tax will be leviable on the taxable services if the proceeds are received in convertible foreign exchangein India and the same are not repatriated outside India.

2. Benefits available to subsidiaries

2.1 Syngene International Private Limited (“Syngene”)

2.1.1 Tax holiday under section 10B of the Act

As per the provisions of section 10B of the Act, Syngene is eligible to claim a deduction of the profits derived byits export oriented undertaking/s from the export of articles or things or computer software for a period of tenconsecutive assessment years, beginning with the assessment year relevant to the previous year in which theundertaking/s begin to manufacture or produce such articles or things or computer software. The profits derivedfrom the export of articles or things or computer software shall be the amount, which bears to the profits of theundertaking/s the same proportion as the export turnover of the undertaking/s bears to the total turnover of theundertaking/s. For the assessment year 2003-2004, the tax holiday under section 10B of the Act has been limitedto 90 percent of the eligible profits instead of 100 percent of such profits.

The benefit is available subject to fulfillment of conditions prescribed by section 10B and no benefit under thissection shall be allowed with respect to any such undertaking for the assessment year beginning on the 1st dayof April 2010 and subsequent years.

2.1.2 Deduction under section 80HHC of the Act

As per the provisions of section 80HHC, an Indian company engaged in the business of export out of India ofany goods or merchandise to which the section applies can claim a deduction under the section. In case of theexport of goods or merchandise manufactured by the Company, the profits eligible for deduction shall be theamount, which bears to the profits of the business the same proportion as the export turnover bears to the totalturnover of the business.

The deduction under this section is gradually being phased out as under:

Relevant Years Deduction as percentage of eligible profits

For the year ended 31 March 2001 80 per cent

For the year ended 31 March 2002 70 per cent

For the year ended 31 March 2003 50 per cent

For the year ended 31 March 2004 30 per cent

No deduction shall be allowed under this section for the year ended March 31, 2005 and onwards.

Once a tax benefit under this section is claimed, no further tax deduction is allowed to be claimed under any otherprovisions of the Act.

In the event, Syngene becomes ineligible for claiming the benefits under section 10B in respect of any of itsundertakings due to non-compliance with the conditions of section 10B, it could claim a deduction under section80HHC of the Act up to the financial year 2003-2004, provided the conditions specified in the said section arefulfilled.

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2.1.3 Deduction under section 80-IB(8-A) of the Act

As per the provision of section 80-IB(8-A) of the Act, an Indian company, whose main object is the carrying onof scientific and industrial research and development can avail of a deduction of 100 percent of the profits andgains of such business for a period of 10 consecutive assessment years. This deduction is available subject tothe satisfaction of the prescribed conditions including obtaining an approval from the prescribed authority, beingthe Department of Scientific and Industrial Research.

2.1.4 Computation of capital gains

Capital assets may be categorised into short term capital assets and long term capital assets based on the periodof holding. All capital assets (except shares held in a Company or any other listed securities or units of UTI orMutual Fund units) are considered to be long term capital assets if they are held for a period in excess of 36months. Shares held in a company, any other listed securities, units of UTI and Mutual Fund units are consideredas long term capital assets if these are held for a period exceeding 12 months. Consequently, capital gains arisingon sale of shares held in a company or any other listed securities or units of UTI or Mutual Fund units held formore than 12 months are considered as “long term capital gains”.

Section 48 of the Act, which prescribes the mode of computation of capital gains, provides for deduction of costof acquisition / improvement and expenses incurred in connection with the transfer of a capital asset, from thesale consideration to arrive at the amount of capital gains. However, in respect of long term capital gains, it offersa benefit by permitting substitution of cost of acquisition / improvement with the indexed cost of acquisition /improvement, which adjusts the cost of acquisition / improvement by a cost inflation index, as prescribed fromtime to time.

As per the provisions of section 112(1)(b) of the Act, long term gains as computed above would be subject to taxat a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section 112(1), if the long termcapital gains resulting on transfer of listed securities or units, calculated at the rate of 20 percent with indexationbenefit exceeds the gains computed at the rate of 10 percent without indexation benefit, then such gains arechargeable to tax at the rate of 10 percent without indexation benefit (plus applicable surcharge).

2.1.5 Exemption of capital gains

n Long term capital gain arising from transfer of an ‘eligible equity share’ in a company purchased during theperiod March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or moreare exempt from tax under section 10(36) of the Act. ‘Eligible equity share’ means:

- any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbaias on 1 March 2003 and the transactions of purchase and sale of such equity share are entered intoon a recognised stock exchange in India; or

- any equity share in a company allotted through a public issue on or after 1 March, 2003 and listed ona recognised stock exchange in India before 1 March, 2004 and the transaction of sale of such equityshare is entered into on a recognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that ‘public issue’ shall include theoffer of equity shares in a company to the public through a prospectus, whether by the company or by theexisting shareholders of the company.

n As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capitalgains arising to the Company on transfer of a long term capital asset shall not be chargeable to tax to theextent such capital gains are invested in certain notified bonds within six months from the date of transfer.However, if the Company transfers or converts the notified bonds into money within a period of threeyears from the date of their acquisition, the amount of capital gains exempted earlier would become chargeableto tax as long term capital gains in the year in which the bonds are transferred or converted into money.

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n As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capitalgains arising from transfer of long term capital assets, being listed securities or units shall not be chargeableto tax to the extent such gains are invested in acquiring equity shares forming part of an “eligible issue ofshare capital” within six months from the date of transfer of the long term capital assets. Eligible issue ofshare capital has been defined as an issue of equity shares which satisfies the following conditions –

- the issue is made by a public company formed and registered in India; and

- the shares forming part of the issue are offered for subscription to the public.

2.1.6 Benefits available under Indirect Tax Laws

Syngene has two units registered as Export Oriented Units (“EOU”). The Key benefits that could be availableunder the indirect tax laws to EOUs, subject to satisfaction of the specified conditions, are as under :

Customs duty

Under the EXIM Policy, specified goods imported by these EOUs are exempt from customs duty, subject tosatisfaction of the specified conditions and the unit(s) meeting the prescribed export obligations.

Excise duty

Subject to satisfaction of the specified conditions, specified goods procured by the EOUs of Syngene from localmanufacturers are exempt from excise duty. Exports made by the EOUs are not liable to Excise duty.

Sales tax

Export sales made by the EOUs are not liable to sales tax. The Central sales tax paid by these units on inputs canbe claimed as a reimbursement subject to fulfillment of the conditions prescribed. Local sales tax exemptions oninputs would be available based on the policies of the applicable Karnataka Sales tax laws from time to time.

Service tax

No service tax will be leviable on the taxable services if the proceeds are received in convertible foreign exchangein India and the same are not repatriated outside India.

2.2 Clinigene International Private Limited (“Clinigene”)

2.2.1 Computation of capital gains

Capital assets may be categorised into short term capital assets and long term capital assets based on the periodof holding. All capital assets (except shares held in a Company or any other listed securities or units of UTI orMutual Fund units) are considered to be long term capital assets if they are held for a period in excess of 36months. Shares held in a Company, any other listed securities, units of UTI and Mutual Fund units are consideredas long term capital assets if these are held for a period exceeding 12 months. Consequently, capital gains arisingon sale of Shares held in a Company or any other listed securities or units of UTI or Mutual Fund units held formore than 12 months are considered as “long term capital gains”.

Section 48 of the Act, which prescribes the mode of computation of capital gains, provides for deduction of costof acquisition / improvement and expenses incurred in connection with the transfer of a capital asset, from thesale consideration to arrive at the amount of capital gains. However, in respect of long term capital gains, it offersa benefit by permitting substitution of cost of acquisition / improvement with the indexed cost of acquisition /improvement, which adjusts the cost of acquisition / improvement by a cost inflation index, as prescribed fromtime to time.

As per the provisions of section 112(1)(b) of the Act, long-term gains as computed above would be subject to taxat a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section 112(1), if the long termcapital gains resulting on transfer of listed securities or units, calculated at the rate of 20 percent with indexationbenefit exceeds the gains computed at the rate of 10 percent without indexation benefit, then such gains arechargeable to tax at the rate of 10 percent without indexation benefit (plus applicable surcharge).

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2.2.2 Exemption of capital gains

n Long term capital gain arising from transfer of an ‘eligible equity share’ in a company purchased during theperiod March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or moreare exempt from tax under section 10(36) of the Act. ‘Eligible equity share’ means:

- any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbaias on March 1, 2003 and the transactions of purchase and sale of such equity share are entered intoon a recognised stock exchange in India; or

- any equity share in a company allotted through a public issue on or after March 1, 2003 and listed ona recognised stock exchange in India before March 1, 2004 and the transaction of sale of such equityshare is entered into on a recognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that ‘public issue’ shall include theoffer of equity shares in a company to the public through a prospectus, whether by the company or by theexisting shareholders of the company.

n As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capitalgains arising to the Company on transfer of a long term capital asset shall not be chargeable to tax to theextent such capital gains are invested in certain notified bonds within six months from the date of transfer.However, if the Company transfers or converts the notified bonds into money within a period of threeyears from the date of their acquisition, the amount of capital gains exempted earlier would become chargeableto tax as long term capital gains in the year in which the bonds are transferred or converted into money.

n As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capitalgains arising from transfer of long term assets, being listed securities or units shall not be chargeable to taxto the extent such gains are invested in acquiring equity shares forming part of an “eligible issue of sharecapital” within six months from the date of transfer of the long term assets. Eligible issue of share capitalhas been defined as an issue of equity shares which satisfies the following conditions –

- the issue is made by a public company formed and registered in India; and

- the shares forming part of the issue are offered for subscription to the public.

2.2.3 Unabsorbed depreciation and business losses

As per the provisions of section 32(2) of the Act, where full allowance cannot be given to the depreciation allowancein any year, the same can be carried forward and claimed in the subsequent years. Further, as per the provisionsof section 72 of the Act, unabsorbed business losses which is not set off in any previous year can be carriedforward and set off against the business profits of the subsequent assessment years, subject to a maximum ofeight assessment years. However, the carry forward and set off of the unabsorbed depreciation and businesslosses are subject to provisions of section 79 of the Act dealing with carry forward and set off of losses in caseof companies in which a change in shareholding has taken place and section 80 of the Act dealing with submissionof returns for losses.

2.2.4 Benefits available under Indirect Tax Laws

Most of the Indirect Tax benefits are available to entities earning export revenues. However, since Clinigene doesnot have any export oriented undertaking nor has substantial export revenues, it is not eligible to any specialbenefits under the indirect tax laws.

3. Benefits available to resident shareholders

3.1 Income of a minor exempt up to certain limit

Under section 10(32) of the Act, any income of minor children clubbed in the total income of the parent under section64(1A) of the Act will be exempt from tax to the extent of Rs. 1,500 per minor child.

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3.2 Dividends exempt under section 10(34) of the Act

Dividends received (whether interim or final) which is declared, distributed or paid by the subsidiaries on or after April 1,2003 would be exempt in the hands of shareholders as per the provisions of section 10(34) of the Act.

3.3 Computation of capital gains

Capital assets may be categorised into short term capital assets and long term capital assets based on the period ofholding. All capital assets (except shares held in a Company or any other listed securities or units of UTI or MutualFund units) are considered to be long term capital assets if they are held for a period in excess of 36 months. Shares heldin a Company, any other listed securities, units of UTI and Mutual Fund units are considered as long term capital assetsif these are held for a period exceeding 12 months. Consequently, capital gains arising on sale of Shares held in a Companyor any other listed securities or units of UTI or Mutual Fund units held for more than 12 months are considered as “longterm capital gains”.

Section 48 of the Act, which prescribes the mode of computation of capital gains, provides for deduction of cost ofacquisition / improvement and expenses incurred in connection with the transfer of a capital asset, from the saleconsideration to arrive at the amount of capital gains. However, in respect of long term capital gains, it offers a benefitby permitting substitution of cost of acquisition / improvement with the indexed cost of acquisition / improvement, whichadjusts the cost of acquisition / improvement by a cost inflation index as prescribed from time to time.

As per the provisions of section 112(1)(b) of the Act, long term capital gains as computed above would be subject to taxat a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section 112(1), if the long term capitalgains resulting on transfer of listed securities or units, calculated at the rate of 20 percent with indexation benefit exceedsthe gains computed at the rate of 10 percent without indexation benefit, then such gains are chargeable to tax at aconcessional rate of 10 percent (plus applicable surcharge).

3.4 Exemption of capital gain from income tax

n Long-term capital gain arising from transfer of an ‘eligible equity share’ in a company, purchased during theperiod March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more, areexempt from tax under section 10(36) of the Act. ‘Eligible equity share’ means:

- any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as onMarch 1, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognisedstock exchange in India; or

- any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on arecognised stock exchange in India before March 1, 2004 and the transaction of sale of such equity share isentered into on a recognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that ‘public issue’ shall include theoffer of equity shares in a company to the public through a prospectus, whether by the company or by theexisting shareholders of the company.

n As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capitalgains arising to an assessee on transfer of a long term capital asset shall not be chargeable to tax to theextent such capital gains are invested in certain notified bonds within six months from the date of transfer.However, if the assessee transfers or converts the notified bonds into money within a period of three yearsfrom the date of their acquisition, the amount of capital gains exempted earlier would become chargeable totax as long term capital gains in the year in which the bonds are transferred or converted into money.

n As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capitalgains arising from transfer of long term assets, being listed securities or units shall not be chargeable to taxto the extent such gains are invested in acquiring equity shares forming part of an “eligible issue of sharecapital” within six months from the date of transfer of the long term assets. Eligible issue of share capitalhas been defined as an issue of equity shares which satisfies the following conditions -

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- the issue is made by a public company formed and registered in India; and

- the shares forming part of the issue are offered for subscription to the public.

n As per the provisions of section 54F of the Act and subject to the conditions specified therein, in the case of anindividual or a Hindu Undivided Family (‘HUF’), gains arising on transfer of a long term capital asset (not being aresidential house) are not chargeable to tax if the entire net consideration received on such transfer is investedwithin the prescribed period in a residential house. If part of such net consideration is invested within theprescribed period in a residential house, then such gains would not be chargeable to tax on a proportionatebasis. For this purpose, net consideration means full value of the consideration received or accrued as a result ofthe transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connectionwith such transfer.

Further, if the residential house in which the investment has been made is transferred within a period of threeyears from the date of its purchase or construction, the amount of capital gains tax exempted earlier would becomechargeable to tax as long term capital gains in the year in which such residential house is transferred.

4. Benefits available to Non-Resident Indian shareholders

4.1 Income of a minor exempt up to certain limit

Under section 10(32) of the Act, any income of minor children clubbed in the total income of the parent under section64(1A) of the Act will be exempt from tax to the extent of Rs. 1,500 per minor child.

4.2 Dividends exempt under section 10(34) of the Act

Dividends received (whether interim or final) which is declared, distributed or paid by the subsidiaries on or after April 1,2003 would be exempt in the hands of the shareholders as per the provisions of section 10(34) of the Act.

4.3 Computation of capital gains

Capital assets may be categorised into short term capital assets and long term capital assets based on the period ofholding. All capital assets (except shares held in a Company or any other listed securities or units of UTI or MutualFund units) are considered to be long term capital assets if they are held for a period in excess of 36 months. Shares heldin a company, any other listed securities, units of UTI and Mutual Fund units are considered as long term capital assetsif these are held for a period exceeding 12 months. Consequently, capital gains arising on sale of shares held in a companyor any other listed securities or units of UTI or Mutual Fund units held for more than 12 months are considered as “longterm capital gains”.

Section 48 of the Act contains special provisions in relation to computation of long term capital gains on transfer of anIndian company’s shares by non-residents. Computation of long-term capital gains arising on transfer of shares in caseof non-residents has to be done in the original foreign currency, which was used to acquire the shares. The capital gain(i.e., sale proceeds less cost of acquisition/ improvement) computed in the original foreign currency is then convertedinto Indian Rupees at the prevailing rate of exchange.

4.4 Capital gains tax - Options available under the Act

(A) Where shares have been subscribed in convertible foreign exchange - Option of taxation under Chapter XII-A ofthe Act.

Non-Resident Indians [as defined in section 115C(e) of the Act], being shareholders of an Indian Company, havethe option of being governed by the provisions of Chapter XII-A of the Act, which inter alia entitles them to thefollowing benefits in respect of income from shares of an Indian company acquired, purchased or subscribed toin convertible foreign exchange:

- As per the provisions of section 115D read with section 115E of the Act and subject to the conditionsspecified therein, long term capital gains arising on transfer of an Indian company’s shares, will be subjectto tax at the rate of 10 percent (plus applicable surcharge), without indexation benefit.

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- As per the provisions of section 115F of the Act and subject to the conditions specified therein, gainsarising on transfer of a long term capital asset being shares in an Indian company shall not be chargeableto tax if the entire net consideration received on such transfer is invested within the prescribed period ofsix months in any specified asset or savings certificates referred to in section 10(4B) of the Act. If part ofsuch net consideration is invested within the prescribed period of six months in any specified asset orsavings certificates referred to in section 10(4B) of the Act then such gains would not be chargeable to taxon a proportionate basis. For this purpose, net consideration means full value of the consideration receivedor accrued as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly andexclusively in connection with such transfer.

- Further, if the specified asset or savings certificates in which the investment has been made is transferredwithin a period of three years from the date of investment, the amount of capital gains tax exempted earlierwould become chargeable to tax as long term capital gains in the year in which such specified asset orsavings certificates are transferred.

- As per the provisions of section 115G of the Act, Non-Resident Indians are not obliged to file a return ofincome under section 139(1) of the Act, if their only source of income is income from investments or longterm capital gains earned on transfer of such investments or both, provided tax has been deducted at sourcefrom such income as per the provisions of Chapter XVII-B of the Act.

- Under section 115H of the Act, where the Non-Resident Indian becomes assessable as a resident in India,he may furnish a declaration in writing to the Assessing Officer, along with his return of income for thatyear under section 139 of the Act to the effect that the provisions of the Chapter XII-A shall continue toapply to him in relation to such investment income derived from the specified assets for that year andsubsequent assessment years until such assets are converted into money.

- As per the provisions of section 115I of the Act, a Non-Resident Indian may elect not to be governed bythe provisions of Chapter XII-A for any assessment year by furnishing his return of income for thatassessment year under section 139 of the Act, declaring therein that the provisions of Chapter XII-A shallnot apply to him for that assessment year and accordingly his total income for that assessment year will becomputed in accordance with the other provisions of the Act.

(B) Where the shares have been subscribed in Indian Rupees

n As per the provisions of section 112(1)(b) of the Act, long term capital gains as computed above would besubject to tax at a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section112(1), if the long term capital gains resulting on transfer of listed securities or units, calculated at the rateof 20 percent with indexation benefit exceeds the gains computed at the rate of 10 percent without indexationbenefit, then such gains are chargeable to tax at a concessional rate of 10 percent (plus applicable surcharge).

4.5 Exemption of capital gain from income taxn Long term capital gain arising from transfer of an ‘eligible equity share’ in a company, purchased during the

period March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more, areexempt from tax under section 10(36) of the Act. ‘Eligible equity share’ means:

n any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as onMarch 1, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognisedstock exchange in India; or

n any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on a recognisedstock exchange in India before March 1, 2004 and the transaction of sale of such equity share is entered into on arecognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that ‘public issue’ shall include the offer ofequity shares in a company to the public through a prospectus, whether by the company or by the existing shareholdersof the company.

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- As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gainsarising to an assessee on transfer of a long term capital asset shall not be chargeable to tax to the extent suchcapital gains are invested in certain notified bonds within six months from the date of transfer. However, if theassessee transfers or converts the notified bonds into money within a period of three years from the date of theiracquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capitalgains in the year in which the bonds are transferred or converted into money.

- As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gainsarising from transfer of long term assets, being listed securities or units shall not be chargeable to tax to theextent such gains are invested in acquiring equity shares forming part of an “eligible issue of share capital”within six months from the date of transfer of the long term assets. Eligible issue of share capital has been definedas an issue of equity shares which satisfies the following conditions –

- the issue is made by a public company formed and registered in India; and

- the shares forming part of the issue are offered for subscription to the public.

- As per the provisions of section 54F of the Act and subject to the conditions specified therein, in the caseof an individual or a HUF, gains arising on transfer of a long term capital asset (not being a residentialhouse) are not chargeable to tax if the entire net consideration received on such transfer is invested withinthe prescribed period in a residential house. If part of such net consideration is invested within the prescribedperiod in a residential house, then such gains would not be chargeable to tax on a proportionate basis. Forthis purpose, net consideration means full value of the consideration received or accrued as a result of thetransfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connectionwith such transfer.

Further, if the residential house in which the investment has been made is transferred within a period of three years fromthe date of its purchase or construction, the amount of capital gains tax exempted earlier would become chargeable to taxas long term capital gains in the year in which such residential house is transferred.

4.6 Provisions of the Act vis-à-vis provisions of the tax treaty

As per section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the tax treaty to theextent they are more beneficial to the non-resident.

5. Benefits available to other Non-Residents

5.1 Income of a minor exempt up to certain limit

Under section 10(32) of the Act, any income of minor children clubbed in the total income of the parent under section64(1A) of the Act will be exempt from tax to the extent of Rs. 1,500 per minor child.

5.2 Dividends exempt under section 10(34) of the Act

Dividends received (whether interim or final) which is declared, distributed or paid by the subsidiaries on or after April 1,2003 would be exempt in the hands of the shareholders as per the provisions of section 10(34) of the Act.

5.3 Computation of capital gains

Capital assets may be categorised into short term capital assets and long term capital assets based on the period ofholding. All capital assets (except shares held in a Company or any other listed securities or units of UTI or MutualFund units) are considered to be long term capital assets if they are held for a period in excess of 36 months. Shares heldin a Company, any other listed securities, units of UTI and Mutual Fund units are considered as long term capital assetsif these are held for a period exceeding 12 months. Consequently, capital gains arising on sale of shares held in a Companyor any other listed securities or units of UTI or Mutual Fund units held for more than 12 months are considered as “longterm capital gains”.

Section 48 of the Act contains special provisions in relation to computation of long term capital gains on transfer of anIndian company’s shares by non-residents. Computation of long-term capital gains arising on transfer of shares in case

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of non-residents has to be done in the original foreign currency, which was used to acquire the shares. The capital gain(i.e., sale proceeds less cost of acquisition/ improvement) computed in the original foreign currency is then convertedinto Indian Rupees at the prevailing rate of exchange.

5.4 Exemption of capital gains from income tax

n Long term capital gain arising from transfer of an ‘eligible equity share’ in a company, purchased during theperiod March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more, areexempt from tax under section 10(36) of the Act. ‘Eligible equity share’ means:

- any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as onMarch 1, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognisedstock exchange in India; or

- any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on arecognised stock exchange in India before March 1, 2004 and the transaction of sale of such equity share isentered into on a recognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that ‘public issue’ shall include theoffer of equity shares in a company to the public through a prospectus, whether by the company or by theexisting shareholders of the company.

n As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gainsarising to an assessee on transfer of a long term capital asset shall not be chargeable to tax to the extent suchcapital gains are invested in certain notified bonds within six months from the date of transfer. However, if theassessee transfers or converts the notified bonds into money within a period of three years from the date of theiracquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capitalgains in the year in which the bonds are transferred or converted into money.

n As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gainsarising from transfer of long term assets, being listed securities or units shall not be chargeable to tax to theextent such gains are invested in acquiring equity shares forming part of an “eligible issue of share capital”within six months from the date of transfer of the long term assets. Eligible issue of share capital has been definedas an issue of equity shares which satisfies the following conditions -

- the issue is made by a public company formed and registered in India; and

- the shares forming part of the issue are offered for subscription to the public.

n As per the provisions of section 54F of the Act and subject to the conditions specified therein, in the case of anindividual or a HUF, gains arising on transfer of a long term capital asset (not being a residential house) are notchargeable to tax if the entire net consideration received on such transfer is invested within the prescribed periodin a residential house. If part of such net consideration is invested within the prescribed period in a residentialhouse, then such gains would not be chargeable to tax on a proportionate basis. For this purpose, netconsideration means full value of the consideration received or accrued as a result of the transfer of the capitalasset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

Further, if the residential house in which the investment has been made is transferred within a period of threeyears from the date of its purchase or construction, the amount of capital gains tax exempted earlier would becomechargeable to tax as long term capital gains in the year in which such residential house is transferred.

5.5 Provisions of the Act vis-à-vis provisions of the treaty

As per section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the tax treaty to theextent they are more beneficial to the non-resident.

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6. Benefits available to Foreign Institutional Investors (“FIIs”)

6.1 Taxability of capital gains

n As per the provisions of section 115AD of the Act, FIIs will be taxed on the capital gains income at the followingrates:

Nature of income Rate of tax

Long term capital gains 10 percent

Short term capital gains 30 percent

The above tax rates would be increased by the applicable surcharge. The benefits of indexation and foreign currencyfluctuation protection as provided by section 48 of the Act are not available to FIIs.

n As per section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the tax treaty tothe extent they are more beneficial to the non-resident.

6.2 Exemption of capital gain from income tax

n Long term capital gain arising from transfer of an ‘eligible equity share’ in a company, purchased during theperiod March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more, areexempt from tax under section 10(36) of the Act. ‘Eligible equity share’ means:

- any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as onMarch 1, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognisedstock exchange in India; or

- any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on arecognised stock exchange in India before March 1, 2004 and the transaction of sale of such equity share isentered into on a recognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that ‘public issue’ shall includethe offer of equity shares in a company to the public through a prospectus, whether by the company or bythe existing shareholders of the company.

n As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gainsarising to an assessee on transfer of a long term capital asset shall not be chargeable to tax to the extent suchcapital gains are invested in certain notified bonds within six months from the date of transfer. However, if theassessee transfers or converts the notified bonds into money within a period of three years from the date of theiracquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capitalgains in the year in which the bonds are transferred or converted into money.

n As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gainsarising from transfer of long term assets, being listed securities or units shall not be chargeable to tax to theextent such gains are invested in acquiring equity shares forming part of an “eligible issue of share capital”within six months from the date of transfer of the long term assets. Eligible issue of share capital has been definedas an issue of equity shares which satisfies the following conditions -

- the issue is made by a public company formed and registered in India; and

- the shares forming part of the issue are offered for subscription to the public.

7. Benefits available to Mutual Funds

As per the provisions of section 10(23D) of the Act, any income of Mutual Funds registered under the Securities andExchange Board of India Act, 1992 or Regulations made thereunder, Mutual Funds set up by public sector banks orpublic financial institutions and Mutual Funds authorised by the Reserve Bank of India would be exempt from incometax, subject to the conditions as the Central Government may by notification in the Official Gazette specify in this behalf.

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8. Benefits available to Venture Capital Companies / Funds

As per the provisions of section 10(23FB) of the Act, any income of Venture Capital Companies / Funds registered withthe Securities and Exchange Board of India, would be exempt from income tax, subject to the conditions specified. However,the income distributed by the Venture Capital Companies / Funds to its investors would be taxable in the hands of therecipients.

9. Benefits available under the Wealth Tax Act, 1957

Asset as defined under section 2(ea) of the Wealth Tax Act, 1957 does not include shares in companies and hence,shares are not liable to wealth tax.

10. Benefits available under the Gift-Tax Act

Gift Tax is not leviable in respect of any gifts made on or after October 1, 1998. Therefore, any gift of shares will notattract gift tax.

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Annexure XII: Secured & Unsecured Loans

As at December 31, 2003March 31, 2003 March 31, 2002 March 31, 2001 March 31, 2000 March 31, 1999

Secured loans

Term loans

Foreign currency term loans

- From Banks - 73,165,425 36,476,200 - - -

Total - 73,165,425 36,476,200 - - -

Other term loans

- From Banks - 102,668,491 100,163,800 59,160,000 66,230,000 -

- From Technology 97,000,000 65,000,000 - - - -development board

- From EXIM Bank - 64,738,706 116,335,906 153,933,106 170,196,000 -

Total 97,000,000 232,407,197 216,499,706 213,093,106 236,426,000 -

Working capital facilities

Cash credit, packing etc 390,019,313 276,536,086 305,654,306 127,009,998 77,560,441 53,873,618

Lease obligation inrelation to vehiclesacquired under finance lease - - 655,181 2,496,324 5,192,814 4,345,886

Total 390,019,313 276,536,086 306,309,487 129,506,322 82,753,255 58,219,504

Interest accrued and due - - - 374,460 792,822 -

Grand Total 487,019,314 582,108,708 559,285,393 342,973,888 319,972,077 58,219,504

Unsecured loans

As at December 31, 2003March 31, 2003 March 31, 2002 March 31, 2001 March 31, 2000 March 31, 1999

Deferred sales tax liability 163,329,812 103,545,391 56,033,378 15,993,805 - -

Short term loan - - 50,000,000 - - 9,341,989

Loans from promoter group: - - - - - -

Subsidiary company - - - 1,194,586 - -

Associate company - - - 21,720,755 - -

Deferred payment liability - - - - - 7,833,336

Total 163,329,812 103,545,391 106,033,378 38,909,146 - 17,175,325

Term loans

a. On April 9, 1999, the Company entered into a term loan facility with EXIM bank for Rs. 126,001,000 for funding its fixedasset acquisitions of the Submerged Fermentation Plant. These loans were repayable in 9 equal half yearly instalmentscommencing from December 10, 2000, and are secured by a first pari passu mortgage and charge on the fixed assets ofthe Company. The interest rate ranges from 7 to 10.5 per cent for the period/year ended December 31, 2003 and 2003 and7 to 14 per cent per annum for the year ended 2002, 2001, 2000 respectively. The Company has repaid the loan in fullduring the nine-month period ended December 31, 2003.

b. On November 5, 1999, the Company entered into a term loan facility with EXIM bank of India for Rs. 46,730,706 forfunding its fixed assets acquisitions of the Plafractor Plant. These loans were repayable in 10 equal half yearly instalments

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commencing from December 10, 2000, secured by a charge on the fixed assets of the Company. The interest rate rangesfrom 7 to 8.5 per annum for the year ended 2001 and 2000. The Company has repaid the loan in full during the nine-month period ended December 31, 2003.

c. On May 5, 1999, the Company entered into a term loan facility with SBI for Rs. 50,000,000 for funding its fixed assetacquisitions of the Submerged Fermentation Plant. These loans were repayable in 60 equal monthly instalmentscommencing from December 2000, are secured by a first pari passu mortgage and charge on the fixed assets of theCompany. The foreign currency denominated loans carry an interest rate ranging from 2.75 to 3.5 per cent for the period/year ended December 31, 2003 and 2003 and 5.75 to 7 per cent for the year ended 2002 and 2001 respectively. The Companyhas repaid the loan in full for the nine month period ended December 31, 2003.

d. On November 26, 2001, the Company entered into a term loan facility with HSBC for Rs. 100,000,000 for funding its fixedasset acquisitions during the year, of which it has utilised Rs. 10,000,000 as of March 31, 2002. The loan is repayable in24 monthly instalments commencing from November 2002, are secured by a pari passu charge over the fixed assets ofthe Company.

On February 7, 2003, the Company renewed its rupee and foreign currency denominated term loan facility with HSBC forRs. 170,000,000 for funding its fixed asset acquisitions during the year, of which it has utilised Rs. 170,000,000 as atMarch 31, 2003. The loan is secured by a pari passu charge over the fixed assets of the Company. The interest payableon rupee loans ranges from 6.6 to 13 per cent for the period/year ended December 31, 2003 and 2003, 9.1 to 13 per centfor the year ended 2002, 12.5 to 13 per cent for the year ended 2001 and 12.5 per cent to 14.26 per cent for the year 2000respectively. The interest payable on foreign currency denominated loans ranges from 2.77 to 2.99 per cent for the period/year ended December 31, 2003 and 2003. As at December 31, 2003 the Company has repaid the entire loan amount.

e. On July 3, 2002, the Company entered into a term loan facility with Technology Development Board (‘TDB’) forRs. 100,000,000 for funding its fixed asset acquisitions of the PlaFractor plant. These loans are repayable in 9 half yearlyinstalments commencing from February 2004, are secured by a first pari passu mortgage and charge on the fixed assetsof the Company and carry an interest rate of 5 per cent per annum.

f. The Company has also obtained a term loan from Canara Bank aggregating Rs. 25,000,000, at an interest rate of 12.5 percent per annum, repayable over 4 half yearly instalments commencing from the month of May 2000 and secured by thehypothecation of plant and machinery, accessories, tools and other fixed assets. The Company has repaid the loan in fullduring the nine month period ended December 31, 2003.

The above term loans were further secured by the personal guarantee of the Managing Director.

Working capital loans

The Company availed open cash credit, packing credit, post shipment credit and other working capital loans from SBI, CanaraBank and HSBC. These facilities are repayable on demand, secured by the hypothecation of inventories and book debts. Theworking capital requirements are availed in foreign currency denominated loans and rupee loans. The interest for the foreigncurrency loans ranges from 2 to 2.2 per cent for the period ended December 31, 2003 and 2 to 2.75 per cent for the year ended2003 respectively. The interest for the rupee loans ranges from 6 to 15 per cent for the period ended December 31, 2003, 7.5 to15 per cent for the year ended 2003, 12.5 to 16.5 per cent for the year ended 2002, 15 to 16.83 per cent for the year ended 2001and 13.5 to 16.83 per cent for the year ended 2000 and 1999 respectively.

Lease obligation in relation to vehicles acquired under finance lease

The Company acquired vehicles under finance lease and paid interest of 10 - 22 per annum on its lease obligations.

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Annexure XIII: Details of other income

Nine months Year ended Year ended Year ended Year ended Year endedended December March March March March March

31, 2003 31, 2003 31, 2002 31, 2001 31, 2000 31, 1999

Other income, as restated 6,562,095 7,595,547 33,305,916 2,148,580 4,309,286 8,852,367

Net profit before tax, as restated 1,076,564,462 489,198,015 277,343,754 217,301,948 69,239,391 18,852,223

Percentage 1% 2% 12% 1% 6% 47%

Nature Nine months Year ended Year ended Year ended Year ended Year endedended December March March March March March

31, 2003 31, 2003 31, 2002 31, 2001 31, 2000 31, 199

Interest received on

- Inter corporate deposits Recurring 1 0 3 , 9 0 5 7 5 6 , 9 1 4 4 2 2 , 6 2 5 3 2 4 , 3 9 0 4 5 9 , 2 5 6 1 , 8 1 6

- Bank deposits Recurring 2 9 5 , 8 3 8 4 5 1 , 8 1 0 4 , 1 4 7 - - -

- Income tax refund Non-recurr ing - 1 ,749 ,001 - - - -

Dividend received on trade investments Recurring - - 1 , 2 8 2 1 , 2 8 2 2 7 5 , 7 8 2 1 4 3 , 4 0 6

Dividend received on non-tradeinvestments Non-recurr ing 7 8 2 , 6 3 0 - - - - -

Dividend received from subsidiaries Non-recurr ing - - 26 ,562 ,506 - - -

Profit on sale of investments Non-recurr ing - 6 , 9 8 7 - - - -

Profit on sale of fixed assets Non-recurr ing 1 ,704 ,985 8 0 , 0 0 0 2 6 8 , 5 5 1 - -

Processing charges Recurring 2 ,782 ,000 2 2 0 , 0 0 0 1 ,244 ,000 - - -

Insurance claims Non-recurr ing 7 3 6 , 4 4 8 1 2 0 , 1 9 1 - 3 8 9 , 6 0 7 2 ,147 ,767 3 9 , 8 9 2

Roya l t y Non-recurr ing - - - - - 6 , 173 ,763

Technical fees Non-recurr ing - - - - - 6 6 4 , 0 0 0

Rent income Recurring 1 ,257 ,700 1 ,816 ,000 1 ,836 ,000 8 8 1 , 5 0 0 6 6 0 , 0 0 0 1 ,300 ,000

Miscellaneous income Non-recurr ing 6 0 3 , 5 7 4 7 6 9 , 6 5 9 3 ,155 ,356 2 8 3 , 2 5 0 7 6 6 , 4 8 1 5 2 9 , 4 9 0

Total 6,562,095 7,595,547 33,305,916 2,148,580 4,309,286 8,852,367

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BIOCON LIMITED

(formerly BIOCON INDIA LIMITED)

CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2003

TOGETHER WITH AUDITORS’ REPORT

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Auditors’ Report

To the Board of Directors of

Biocon Limited (formerly Biocon India Limited)

1. We have audited the attached consolidated balance sheet of Biocon Limited (formerly Biocon India Limited), itssubsidiaries, Syngene International Private Limited and Clinigene International Private Limited and its joint venture, BioconBiopharmaceuticals Private Limited [together referred to as ‘the Group’ as described in Note 2 (a)] as at December 31, 2003,the consolidated profit and loss account and consolidated cash flow statement for the nine months period ended annexedthereto, prepared in accordance with accounting principles generally accepted in India. These consolidated financialstatements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.

2. We conducted our audit in accordance with generally accepted auditing standards in India. These standards require thatwe plan and perform the audit to obtain reasonable assurance whether the financial statements are free of materialmisstatements. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion.

3. We report that the consolidated financial statements have been prepared by the Group’s management in accordance withthe requirements of Accounting Standard (AS) 21, Consolidated Financial Statements, issued by the Institute of CharteredAccountants of India and on the basis of the separate financial statements of Biocon Limited (formerly Biocon IndiaLimited), its aforesaid subsidiaries and joint venture included in the consolidated financial statements.

4. In our opinion and to the best of our information and according to the explanations given to us, the consolidated financialstatements give a true and fair view in conformity with the accounting principles generally accepted in India:

a. the consolidated balance sheet gives a true and fair view of the consolidated state of affairs of the Group as atDecember 31, 2003;

b. the consolidated profit and loss account gives a true and fair view of the consolidated results of operations of theGroup for the period then ended; and

c. the consolidated cash flow statement gives a true and fair view of the consolidated cash flows of the Group for theperiod then ended.

For S.R. BATLIBOI & ASSOCIATESChartered Accountants

per Prashant SinghalPartner

Membership No: 93283

Bangalore

January 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

CONSOLIDATED BALANCE SHEET — DECEMBER 31 , 2003

(All amounts in Indian Rupees)

Notes December 31, 2003 March 31, 2003(Note 29)

SOURCES OF FUNDSSHAREHOLDERS’ FUNDS

Share capital 3 450,000,000 18,376,500Reserves and surplus 2(a), 2(l) & 4 1,854,013,483 1,323,373,636Less : Loan to Biocon India LimitedEmployee Welfare Trust (‘the ESOP Trust’) 20 (1,258,700) (1,413,700)

2,302,754,783 1,340,336,436

MINORITY INTEREST 5 17,214 10,845

LOAN FUNDSSecured loans 6 487,019,313 582,108,709

Unsecured loans 7 163,329,812 103,545,391

650,349,125 685,654,100

DEFERRED TAX LIABILITY 2(j) & 8 159,510,941 143,056,613

3,112,632,063 2,169,057,994

APPLICATION OF FUNDSFIXED ASSETS 2(b), 2(i), 2(k) & 9Cost 1,992,044,114 1,737,495,665Less: Accumulated depreciation 498,204,173 378,366,962Net book value 1,493,839,941 1,359,128,703Capital work-in-progress [including capital advances ofRs. 112,460,913 (March 31, 2003 — Rs. 12,798,834)] 429,388,362 79,852,448

1,923,228,303 1,438,981,151INVESTMENTS 2(e) & 10 142,062,984 50,001,202CURRENT ASSETS, LOANS ANDADVANCESInventories 2(c) & 11 701,265,497 479,055,022Sundry debtors 12 1,396,371,752 753,302,064Cash and bank balances 13 21,175,682 26,338,294Loans and advances 14 137,783,110 151,009,201

2,256,596,041 1,409,704,581LESS: CURRENT LIABILITIES ANDPROVISIONS 2(f), 2(g) & 15 1,209,255,265 729,628,940NET CURRENT ASSETS 1,047,340,776 680,075,641

3,112,632,063 2,169,057,994

The accompanying notes 1 to 29 form an integral part of this account.As per our report of even dateS.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director DirectorMembership No: 93283Bangalore BangaloreJanuary 17, 2004 January 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

April 1, 2003 to April 1, 2002 to

Notes December 31, 2003 March 31, 2003

(Note 29)

INCOME

Gross sales 3,945,346,984 2,750,614,744

Less: Excise duty 233,069,444 208,215,613

Net sales 2(d), 2(h) & 24 3,712,277,540 2,542,399,131

Contract research fees 2(d), 2(h) & 24 264,985,732 277,481,157

Other income 16 9,672,539 7,076,326

3,986,935,811 2,826,956,614

EXPENDITURE

Manufacturing, contract research and other expenses 2(f), 2(g), 2(h), 2(l), 2(n), 17 & 24 2,682,180,471 2,086,315,546

Interest and finance charges 2(k) & 19 12,427,101 49,811,215

2,694,607,572 2,136,126,761

PROFIT BEFORE DEPRECIATION AND TAXES 1,292,328,239 690,829,853

Depreciation 2(b) & 9 120,443,752 139,098,238

Less: Amount transferred from revaluation reserve 2(b) & 4 1,255,967 1,667,011

119,187,785 137,431,227

PROFIT BEFORE TAXES 1,173,140,454 553,398,626

Provision for income-tax

Current taxes 2(j) & 22 203,803,106 83,845,708

Deferred taxes 2(j) & 8 16,454,328 34,398,353

PROFIT FOR THE PERIOD/YEAR 952,883,020 435,154,565

Minority interest 5 6,368 4,848

NET PROFIT FOR THE PERIOD/YEAR 952,876,652 435,149,717

Earnings per share 2(m) & 21

Basic (in Rs.) 11.37 5.18

Diluted (in Rs.) 11.03 5.02

Weighted average number of shares used in computing

Earnings per share – Basic 83,818,814 83,974,925

Earnings per share – Diluted 86,353,660 86,601,584

The accompanying notes 1 to 29 form an integral part of this account.

As per our report of even dateS.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Director DirectorMembership No: 93283

Bangalore BangaloreJanuary 17, 2004 January 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 2003(All amounts in Indian Rupees)

April 1, 2003 to April 1, 2002 toDecember 31, 2003 March 31, 2003

I CASH FLOWS FROM OPERATING ACTIVITIES : (Note 29)

Net profit before tax 1,173,140,454 553,398,626Adjustments forLess: Non cash item/items required to be disclosed separately:Depreciation 120,018,992 137,431,227Amortisation of employee compensation cost 11,520,137 33,863,779Provision for bad and doubtful debts 5,390,875 4,609,125Interest expense 18,455,646 53,052,779Interest income (gross) (6,960,930) (4,328,563)Gain on sale of investment - (1,704,985)Loss/(gain) on assets sold, discarded etc. 368,674 (6,987)

148,793,394 222,916,375Changes in working capital and other provisionsInventories (222,210,475) (236,403,790)Sundry debtors (648,460,563) (110,475,407)Loans and advances 12,362,685 (46,438,160)Current liabilities and provisions 460,172,729 210,509,804

(398,135,624) (182,807,553)(249,342,230) 40,108,822

Cash generated from operations 923,798,223 593,507,448Tax paid (net of refunds) (149,570,849) (97,786,904)Net cash provided by operating activities 774,227,374 495,720,544

II CASH FLOWS FROM INVESTING ACTIVITIES :Fixed assets

Purchase (640,279,095) (407,570,018)Sale 91,351 2,067,750

Interest received 13,852,882 2,080,631Sale of investment 169,330,959 12,967Purchase of investment (261,392,740) (50,000,000)Net cash used for investing activities (718,396,643) (453,408,670)

III CASH FLOWS FROM FINANCING ACTIVITIES :Proceeds from issuance of share capital - 158,700Proceeds from employees for share purchase through ESOP Trust 155,000 - Short term borrowings from banks, net 113,483,226 (31,918,719)Repayment of secured loans (240,572,622) (403,945,610)Receipt of secured loans 32,000,000 456,542,325Deferred sales tax credit 59,784,421 47,512,013Repayment of unsecured loans - (50,000,000)Interest paid (25,843,368) (50,238,110)Corporate dividend tax - (2,709,313)Net cash used for financing activities (60,993,343) (34,598,714)

IV NET CHANGE IN CASH AND CASH EQUIVALENTS (5,162,612) 7,713,160( I+II+III)

V CASH AND CASH EQUIVALENTS AT THE BEGINNING 26,338,294 18,625,134OF THE PERIOD/YEAR

VI CASH AND CASH EQUIVALENTS AT THE END OF 21,175,682 26,338,294THE PERIOD/YEAR (IV + V)

S.R. BATLIBOI & ASSOCIATESChartered Accountants For and on behalf of the Board of DirectorsPrashant Singhal Kiran Mazumdar Shaw JMM ShawPartner Managing Director Director

Membership No: 93283

Bangalore BangaloreJanuary 17, 2004 January 17, 2004

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BIOCON LIMITED

(formerly BIOCON INDIA LIMITED)

NOTES TO THE CONSOLIDATED FINANCIAL ST ATEMENTS

FOR THE PERIOD ENDED DECEMBER 31, 2003

(All amounts in Indian Rupees)

1. Background

a. Incorporation and history

Biocon Limited (formerly Biocon India Limited) (‘Biocon’), promoted by Ms Kiran Mazumdar Shaw (‘KMZ’), wasincorporated at Bangalore in 1978 for manufacture of biotechnology products. On November 17, 2003, the name ofthe Company was changed from Biocon India Limited to Biocon Limited. As at December 31, 2003, 69.2 per cent ofthe shareholding of Biocon was held by KMZ and Glentec International, Mauritius together with associated persons,10 per cent by AOF HS Mauritius Limited, (pursuant to a share transfer agreement with ICICI Ventures, promotersand the Company dated April 30, 2003), 6.9 per cent by Biocon India Limited Employees Welfare Trust (‘the ESOPTrust’), 1.2 per cent by the Biocon India Welfare Trust, 2.4 per cent by India Value Fund Trustee Company PrivateLimited and the balance by employees and others. Syngene International Private Limited (‘Syngene’) promoted byKMZ, was incorporated at Bangalore in 1993. At March 30, 2002, Biocon acquired 99.99 per cent of the equity sharesof Syngene and, resultantly, the Company became the subsidiary of Biocon. Clinigene International Private Limited(‘Clinigene’) was incorporated on August 4, 2000 at Bangalore and became a wholly owned subsidiary of Biocon onMarch 31, 2001.

Biocon entered into an Agreement on February 22, 2002 to set up a Joint Venture Company, with CIMAB SA(‘CIMAB’), a company organised and existing under the laws of Cuba and engaged in research, development,manufacturing and marketing of Biopharmaceuticals, to manufacture and market products using technology and tocarry out research activities. Accordingly, Biocon Biopharmaceuticals Private Limited (‘BBPL’) was set up onJune 17, 2002 and, on April 18, 2003, Biocon acquired a 51 per cent shareholding in BBPL.

Biocon, together with its subsidiaries, Syngene and Clinigene and the joint venture, BBPL hereinafter collectivelyreferred to as ‘the Group’.

b. Operations

Biocon is engaged in the manufacture of biotechnology products in the pharmaceutical and enzyme sectors throughfermentation based technology; Syngene is primarily engaged in providing contract research services to overseascustomers in the field of synthetic chemistry and molecular biology, it also sells products arising from researchactivities carried out on behalf of its customers; and Clinigene undertakes clinical research activities on discoveringnew biomarkers and is extending its activity to discovering new diseases subsets and novel data based onpharmacogenomics. The Group has its facilities located at Hebbagodi and Bommasandra, Bangalore district, Karnataka.

During the year ended March 31, 2003, the Group expanded its operations through Syngene by almost doubling itscapacity for undertaking contract research activities by commercialising its second 100 per cent Export OrientedUnit (approved by Cochin Export Processing Zone) at Bommasandra, Bangalore. The Group is making aggressivemarketing efforts through Clinigene to sell clinical research and is in an advance stage for setting up a humanpharmacology unit in association with a leading hospital in India to expand its clinical research activities.

2. Summary of significant accounting policies

a. Basis of presentation and consolidation

The financial statements are prepared under the historical cost convention, on the accrual basis of accounting andto comply in all material respects with the mandatory accounting standards issued by the Institute of Chartered

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Accountants of India to reflect the financial position and the results of operations of Biocon together with itssubsidiary companies, Syngene and Clinigene and joint venture company, BBPL. Further, the financial statementsare presented in the general format specified in Schedule VI to the Companies Act, 1956 (‘the Act’). However, asthese financial statements are not statutory financial statements, full compliance with the above Act is not requiredand so they do not reflect all the disclosure requirements of the Act.

The consolidated financial statements of the Group have been prepared based on a line-by-line consolidation of thebalance sheet, statement of profit and loss and cash flows of Biocon, Syngene, Clinigene and BBPL as at December31, 2003.

In respect of the joint venture company, the Group applies the proportionate consolidation method. All materialinter-company transactions and balances between the entities included in the consolidated financial statements havebeen eliminated.

In accordance with the “Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 (‘SEBI guidelines’)issued by Securities and Exchange Board of India (‘SEBI’), the Group has also consolidated the ESOP Trust. [Refernote 20].

The significant accounting policies adopted by the Group in respect of the consolidated financial statements aredetailed as follows:

b. Fixed assets and depreciation

Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at, estimatedreplacement cost as determined by valuers, less accumulated depreciation. The Group capitalises all costs relatingto the acquisition and installation of fixed assets.

Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period ofuse, on the straight line method at the annual rates based on the estimated useful lives.

Per cent

Buildings 4.00

Plant and machinery 9.09 - 33.33

Research and development equipment 11.11

Furniture and fixtures 16.67

Vehicles 16.67

Goodwill is amortised over a period of 5 years and assessed for impairment at each balance sheet date.

Leasehold land, other than those on a lease-cum-sale basis, are depreciated over the lease period. Leasehold landon a lease-cum-sale basis are capitalised at the allotment rates currently charged by the Municipal Authorities.

The depreciation charge over-and-above the depreciation calculation on the original cost of the revalued assets istransferred from the revaluation reserve to the consolidated profit and loss account.

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

c. Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basisand includes all applicable overheads in bringing the inventories to their present location and condition. Exciseduty arising on finished goods and customs duty on imported raw materials in stock (excluding stocks in the bondedwarehouse) are treated as part of the cost of inventories.

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d. Revenue recognition

(i) Sale of pharmaceuticals, enzymes and compounds

Sales are recognised on despatch of goods to customers and are recorded net of excise duty, sales tax and otherlevies. For the purpose of disclosure in these consolidated financial statements, sales is reflected gross and net ofexcise duty in the consolidated profit and loss account.

(ii) Contract research agreements

The Group enters into two basic types of contract research agreements and the revenues therefrom are recognisedon the following basis:

(a) Time and material management

Revenues are recognised as services are rendered, in accordance with contractual agreements.

(b) Fixed price arrangements

Revenues relating to fixed price contracts are recognised based on the percentage of completion method.

e. Investments

Long-term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other thantemporary, in the value of investments. Current investments are stated at lower of cost and fair market value.

f. Retirement benefits

The Group has schemes of retirement benefits for provident fund, gratuity and superannuation, in respect of which,the Group’s contributions are charged to the consolidated profit and loss account. The contributions towardsprovident fund are made to statutory authorities. The gratuity and superannuation fund benefits of the Group areadministered by a trust formed for this purpose through the group gratuity and superannuation scheme with BirlaSun Life Insurance Company Limited (‘Birla Sunlife’). In respect of gratuity, the Group has accrued for the liabilitybased on an independent actuarial valuation at the period-end. In respect of superannuation, the Group has accruedfor the liability based on the schemes of the Group.

g. Leave encashment

Liability for leave encashment is in accordance with the rules of the Group and is provided on the basis of anactuarial valuation performed by an independent actuary. Upto March 31, 2003, the Group provided for leaveencashment on a full liability basis. Had the Group followed its earlier accounting policy, the profit before tax for theperiod would have been lower by Rs. 644,243.

h. Foreign currency transactions

Foreign currency transactions during the period/year are recorded at the exchange rate prevailing on the date of thetransaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchangerate prevailing on the date of the balance sheet. Where the Group has entered into foreign exchange contracts, thedifference between the forward rates and the spot rates at the date of the transaction is recognised in the consolidatedprofit and loss account over the life of the contract. All exchange differences are dealt with in the consolidatedprofit and loss account, except those relating to the acquisition of fixed assets, which are adjusted to the cost of theassets.

i. Research and development costs

Research and development costs, including technical know-how fees, incurred for development of products areexpensed as incurred, except for development costs which relate to the design and testing of new or improvedmaterials, products or processes which are recognised as an asset to the extent that it is expected that such assetswill generate future economic benefits. Research and development expenditure of a capital nature is added to fixedassets.

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j. Income tax

Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the currenttax rates based on assessable income. The Group provides for deferred tax based on the tax effect of timing differencesresulting from the recognition of items in the consolidated financial statements and in estimating its current taxprovision. Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certaintythat sufficient future taxable income will be available against which such deferred tax assets can be realised. Theeffect on deferred taxes of a change in tax rates is recognised in income in the period in which the change issubstantially enacted.

The provision for current tax for each company in the Group is based on the earnings for the period from April 1,2003 to December 31, 2003 and the actual tax liability for each company in the Group will be determined on the basisof the earnings for the period from April 1, 2003 to March 31, 2004.

k. Borrowing costs

Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as apart of the cost of the asset. Other borrowing costs are recognised as an expense in the year in which they areincurred.

l. Deferred employee stock compensation costs

Deferred employee stock compensation costs for stock options are recognised on the basis of generally acceptedaccounting principles and are measured as the excess of the fair value of Biocon’s stock on the stock options grantdate over the amount an employee must pay to acquire the stock and recognised in a graded manner on the basis ofweighted period of services over the vesting period of equity shares. The fair value of the options is measured onthe basis of an independent valuation performed in respect of stock options granted.

m. Earnings per share

The earnings considered in ascertaining the Group’s earnings per share comprise of the net profit after tax. Thenumber of shares used in computing the basic earnings per share is the weighted average number of sharesoutstanding during the period/year and are adjusted for bonus shares and sub-division of shares for all periods/years presented in these consolidated financial statements. The number of shares used in computing diluted earningsper share comprises the weighted average share considered for deriving basic earnings per share, and also theweighted average number of shares, if any which would have been issued on the conversion of all dilutive potentialequity shares.

The shares issued to the ESOP Trust have been considered as outstanding for basic earnings per share purposes,to the extent these shares have been allocated to the employees’ pursuant to the ESOP scheme and are eligible forexercise. For dilutive EPS purpose, the shares, which are not yet eligible for exercise, have been considered as dilutivepotential equity shares.

n. Operating lease

Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classifiedas operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basisover the lease term.

o. Finance lease

The cash value of fixed assets acquired on finance lease contracts is capitalised and depreciated in accordance withthe fixed assets and depreciation policy of the Company. Interest payable under finance lease contracts, is chargedon the diminishing balance method to the consolidated profit and loss account over the period of the finance leasecontracts.

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3. Share capitalDecember 31, 2003 March 31, 2003

Authorised:

120,000,000 (March 31, 2003 — 2,000,000 equity shares of Rs. 10 each)equity shares of Rs. 5 each 600,000,000 20,000,000

Issued, subscribed and paid-up:90,000,000 (March 31, 2003 — 1,837,650 equity shares of Rs. 10 each, fully paid)equity shares of Rs. 5 each, fully paid 450,000,000 18,376,500

(a) Of the above equity shares:

(i) 30,800 equity shares of Rs. 100 each were allotted as fully paid bonus shares by capitalisation of general reserve in the year endedMarch 31, 1997.

(ii) 23,471 equity shares of Rs. 100 each were allotted as fully paid-up shares in the year ended March 31, 2000 pursuant to a contractfor consideration other than cash.

(iii) On October 8, 2001, Biocon issued 12,153 equity shares of Rs. 100 each to the ESOP Trust under an Employee Stock Option Plan(‘ESOP Plan’) and the ESOP Trust acquired 350 equity shares of Rs 100 each from certain individuals.

(iv) On March 30, 2002, Biocon acquired 99.9 per cent equity in Syngene through the issue of 202,780 equity shares ofRs. 10 each. The consideration was determined on the basis of a fair valuation, as approved by the statutory authorities in India. Therelated share premium at Rs. 403.8 per equity share has been credited to share premium account.

(v) On May 9, 2002 Biocon has further issued 15,870 equity shares of Rs. 10 each to the ESOP Trust under the ESOP Plan. The ESOPTrust on October 20, 2003 acquired 2,500 equity shares of Rs. 10 each from certain individuals. The ESOP Trust at December 31,2003 holds 7,023,100 equity shares of Rs. 5 each of which grants have been made for 3,511,020 equity shares of Biocon under theESOP Plan (Refer Note 20).

(b) The shareholders at the Extraordinary General Meeting (‘EGM’) of Biocon held on February 25, 2002, approved the sub-division ofequity shares of face value of Rs. 100 each into ten equity shares of face value of Rs. 10 each. The Board of Directors in their meetingheld on March 30, 2002 passed a resolution for effecting the sub-division. Subsequent to this sub-division, the authorised equity sharecapital of Rs. 20,000,000 has been divided into 2,000,000 equity shares ofRs. 10 each and the then issued, subscribed and paid-up capital of Rs. 18,217,800 as at March 31, 2002 was divided into 1,821,780 equityshares of Rs. 10 each.

(c) The shareholders at the EGM of Biocon held on November 11, 2003, approved the sub-division of equity shares of face value of Rs 10each into 2 equity shares of Rs 5 each and increase in authorised capital from Rs. 20,000,000 toRs. 600,000,000. Subsequent to this sub-division, the authorised equity share capital of Rs. 20,000,000 has been divided into 4,000,000equity shares of Rs. 5 each and the issued, subscribed and paid-up capital of Rs. 18,376,500 has been divided into 3,675,300 shares of Rs.5 each.

(d) Further, the shareholders at the EGM of Biocon held on November 11, 2003 approved the allotment of 86,324,700 equity shares of Rs.5 each as bonus shares in the ratio of 1 : 23.4877958 to the shareholders existing as on November 11, 2003, which was the approvedrecord date for this purpose, by capitalisation of the balance in the profit and loss account of Rs. 431,623,500.

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4. Reserves and surplusDecember 31, 2003 March 31, 2003

Capital Reserve 17,094,143 17,094,143

Revaluation Reserve

Balance, beginning of the period / year 19,127,038 21,809,784

Less: Transfer on sale and disposal of land 877,475 1,015,735

Less: Transfer to profit and loss account 1,255,967 1,667,011

16,993,596 19,127,038

Share Premium 339,889,570 339,889,570

General Reserve 266,063,095 266,063,095

Stock compensation adjustment (See note 2(l) & 20)

Stock options outstanding 65,291,222 -

Additions during the period/year (2,602,648) 65,291,222

Less: Deferred employee stock compensation expense (17,304,658) (31,427,443)

45,383,916 33,863,779

Opening balance in profit and loss account 647,336,011 212,186,294

Less: Issue of bonus shares (431,623,500) -

Add: Profit for the period/year 952,876,652 435,149,717

Balance in profit and loss account 1,168,589,163 647,336,011

1,854,013,483 1,323,373,636

(i) Biocon acquired 99.99 per cent in Syngene on March 30, 2002, through the issue of 202,780 equity shares of Rs. 10 each. Biocon’sshares were fair valued at Rs. 907 at the transaction date. Further, as of March 30, 2002 the net assets of Syngene were Rs. 101,422,023resulting in capital reserve of Rs. 17,094,143.

(ii) Share premium includes an amount of Rs. 81,880,535 received on the allotment of 202,780 equity shares of Rs. 10 each on March 30,2002 at a premium of Rs. 403.8 per equity share.

(iii) Deferred employee stock compensation expense (See Note 20):

Stock compensation expense outstanding 65,291,222 65,291,222

Stock options forfeited during the period/year (2,602,648) -

Stock compensation expense amortised during the period/year (45,383,916) (33,863,779)

Closing balance of deferred employee stock compensation expense 17,304,658 31,427,443

(iv) Biocon issued 86,324,700 bonus shares of Rs. 5 each through capitalisation of the balance in the profit and loss account to the extent of

Rs. 431,623,500. [See note 3(d)]

5. Minority interest

Minority interest represents that part of the net results of operations and of the net assets of Syngene to the extent of170 shares (0.01 per cent), which are attributable to interests which are not owned, directly or indirectly by Biocon.

The share of the net results of operations attributable to the minority shareholders is as follows:

December 31, 2003 March 31, 2003

As per last balance sheet 10,846 5,998

Profit for the period/year 6,368 4,848

17,214 10,846

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6. Secured loans

December 31, 2003 March 31, 2003

From banks

Cash credit, packing credit, etc. 390,019,313 276,536,087

Term loans

Payable within one year 21,600,000 139,233,867

Others 75,400,000 166,338,755

487,019,313 582,108,709

(a) Cash credit, packing credit, etc.

(i) On January 16, 2002, Biocon renewed its total rupee and foreign currency denominated fund based working capital facilities withState Bank of India (‘SBI’) of Rs. 130,000,000 (March 31, 2003 — Rs. 130,000,000). These facilities are repayable on demand,secured by the hypothecation of inventories and book debts and carry an interest rate of 2.1 per cent per annum for foreigncurrency denominated loans and 7.5 to 12.25 per cent per annum for rupee loans. The amount outstanding as on December 31,2003 is Rs. Nil (March 31, 2003 — Rs. 39,650,178) inclusive of foreign currency denominated loans of Rs. Nil [March 31, 2003 —Rs. 39,596,571 (US$ 834,051)].

(ii) On February 7, 2003, Biocon renewed its total rupee and foreign currency denominated working capital facilities with Hongkongand Shanghai Banking Corporation (‘HSBC’) for Rs. 175,000,000 (March 31, 2003 — Rs. 175,000,000). These facilities are repayableon demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2 per cent per annum forforeign currency denominated loans and 6 to 15 per cent per annum for rupee loans. Biocon has utilised Rs. 171,223,491 (March31, 2003 — Rs. 115,580,186) as of December 31, 2003 inclusive of foreign currency denominated loans of Rs. 100,319,990 (US$2,200,000) [March 31, 2003 — Rs. 90,255,512 (US$ 1,902,387)].

(iii) On February 25, 2003, Biocon renewed its working capital facilities with Canara Bank (‘CB’) for Rs. 130,000,000 (March 31, 2003— Rs. 130,000,000). These facilities are repayable on demand, secured by the hypothecation of inventories and book debt andcarry an interest rate of 2.1 per cent for foreign currency denominated loans and 8 to 11.75 per cent per annum for rupee loans.Biocon has utilised Rs. 127,692,147 (March 31, 2003 — Rs. 121,305,722) as of December 31, 2003 inclusive of foreign currencydenominated loans of Rs. 127,626,362 (US$ 2,798,824) [March 31, 2003 — Rs. 117,435,931 (US$ 2,473,637)].

The above working capital loans, are further secured by the personal guarantee of the Managing Director.

(iv) On June 30, 2003, Biocon entered into a working capital facility with Export Import Bank (‘ EXIM Bank’) forRs. 92,860,000 (US$ 2,000,000) (March 31, 2003 — Rs. Nil). These facilities are repayable on demand, secured by the hypothecationof inventories and book debt and carry an interest rate of 2.2 per cent. Biocon has utilised Rs. 91,103,675 (US$ 1,997,888) (March31, 2003 — Rs. Nil) as of December 31, 2003.

(b) Term loans

(i) On April 9, 1999, Biocon entered into a term loan facility with EXIM bank for Rs. 126,001,000 for funding its fixed asset acquisitions

of the Submerged Fermentation Plant. These loans are repayable in 9 equal half yearly instalments commencing from December 10,

2000, and are secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 10.5 per

cent per annum. Biocon had a balance of Rs. 42,001,000 drawn but not due as of March 31, 2003, which was paid off in full as of

December 31, 2003.

(ii) On November 5, 1999, Biocon entered into a term loan facility with EXIM bank of India for Rs. 46,730,706 for funding its fixed

assets acquisitions of the Plafractor Plant. These loans are repayable in 10 equal half yearly instalments commencing from December

10, 2000, secured by a charge on the fixed assets of Biocon and carry an interest rate of 7 per cent per annum. Biocon had a balance

of Rs. 22,737,706 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003.

(iii) On May 5, 1999, Biocon entered into a term loan facility with SBI for Rs. 50,000,000 for funding its fixed asset acquisitions of the

Submerged Fermentation Plant. These loans are repayable in 60 equal monthly instalments commencing from December 2000, are

secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 2.99 per cent per annum

for foreign currency denominated loan and 13 per cent per annum for the rupee loan. Biocon had a balance of Rs. 26,667,250

drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003.

(iv) On February 7, 2003, Biocon renewed its rupee and foreign currency denominated term loan facility with HSBC for Rs. 170,000,000(March 31, 2003 – Rs. 170,000,000) for funding its fixed asset acquisitions during the year and fully utilised this facility. Theinstalments commencing from November 2002, are secured by a pari passu charge over the fixed assets of Biocon and loan isrepayable in 44 monthly carry an interest rate of 2.77 per cent per annum for foreign currency denominated loans and 6.6 per centper annum for rupee loans. Biocon had a balance of Rs. 149,166,666 drawn but not due as of March 31, 2003, which was paid off infull as of December 31, 2003.

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(v) On July 3, 2002, Biocon entered into a term loan facility with Technology Development Board (‘TDB’) forRs. 100,000,000 for funding its fixed asset acquisitions of the PlaFractor plant. These loans are repayable in 9 half yearly instalmentscommencing from February 2004, are secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry aninterest rate of 5 per cent per annum. At December 31, 2003, Biocon had drawn Rs. 97,000,000 (March 31, 2003 — Rs. 65,000,000)from the above facility.

The above term loans are further secured by the personal guarantee of the Managing Director.

7. Unsecured loans

December 31, 2003 March 31, 2003

Deferred payment liability 163,329,812 103,545,391

(i) Under the Industrial Policy of the Government of Karnataka, Biocon on November 18, 2000 obtained an order fromKarnataka Sales Tax Authority for allowing deferment of sales tax (including turnover tax) for a period upto 8 yearswith respect to sales from its Bommasandra manufacturing facility of Biocon. Under the Order, the deferment amountshould not exceed Rs. 24,375,000, of which at December 31, 2003, Biocon had utilised Rs. 872,329 (March 31, 2003 —Rs. 863,624).

(ii) Under the Agro Food Processing Industrial Policy of the Government of Karnataka, Biocon onNovember 18, 2000 obtained an order from Karnataka Sales Tax Authority for allowing deferment of sales tax (includingturnover tax) for a period upto 12 years with respect to sales from Hebbagodi manufacturing facility of Biocon.Under the order, the deferment amount should not exceed Rs. 648,938,000 of which at December 31, 2003, Bioconhad utilised Rs. 162,457,483 (March 31, 2003 — 102,681,767).

8. Deferred tax liability

Deferred tax (asset)/liability Current period Deferred tax (asset)/liabilityas at April 1, 2003 charge/(credit) as at December 31, 2003

Depreciation 155,944,370 18,112,500 174,056,870

Employee retirement benefits (5,989,536) (718,392) (6,707,928)

Disallowance under section 43B (5,509,541) 131,180 (5,378,361)

Others (1,388,680) (1,070,960) (2,459,640)

143,056,613 16,454,328 159,510,941

(i) On August 26, 2003 Biocon received approval from the Cochin Special Economic Zone for the setting up of a 100 percent Export Oriented Unit for the manufacture and export of all types of statins on which, Biocon claims exemption undersection 10B of the Income-tax Act, 1961 (‘IT Act’).

In accordance with the provisions of section 10B of the IT Act, Biocon can avail of a tax deduction in respect of 100 percent of all export income derived from the export sales arising out from that unit. Accordingly, Biocon has not recognisedany additional deferred tax liability for this EOU as it expects the timing differences originating in this period to reverseout during the tax holiday period.

(ii) Syngene, constituting two 100 per cent Export Oriented Units (approved by the Cochin Export Processing Zone onDecember 14, 1998 and the Cochin Special Economic Zone on August 24, 2001), claims exemption under section 10B ofthe IT Act. Syngene had created a deferred tax liability in the previous year as the timing difference was expected toreverse after the respective tax holiday periods. On February 24, 2003, Syngene obtained an approval from the Departmentof Scientific and Industrial Research for exemption of profits under section 80-IB (8A) of the IT Act. Based on the above,Syngene has not recognised any deferred tax liability/asset on account of timing differences as Syngene expects it toreverse during the tax holiday/tax deduction period.

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9. Fixed assets

Balance, beginning of Additions/charge Delet ions/ Balance, end ofthe period Adjustments the period

Cost/Valuation

Goodwill 311,615 831,207 - 1,142,822

Land

Freehold (revalued) 9,843,735 - 877,475 8,966,260

Freehold (others) 13,700,842 27,404,993 460,025 40,645,810

Leasehold 66,723,443 54,397,270 - 121,120,713

Buildings (revalued) 17,575,359 - 17,575,359

Buildings (others) 305,317,760 34,637,884 339,955,644

Plant and machinery 1,158,103,159 87,316,563 - 1,245,419,722

Research and development equipment 133,102,901 42,721,706 - 175,824,607

Furniture and fixtures 24,239,953 9,182,867 - 33,422,820

Vehicles 8,576,898 - 606,541 7,970,357

1,737,495,665 256,492,490 1,944,041 1,992,044,114

Accumulated depreciation

Goodwill 311,615 831,207 - 1,142,822

Leasehold land 2,384,950 138,662 - 2,523,612

Buildings (revalued) 8,292,056 1,255,967 - 9,548,023

Buildings (others) 37,308,007 9,876,744 47,184,751

Plant and machinery 284,513,106 92,028,922 376,542,028

Research and development equipment 33,376,592 12,105,500 - 45,482,092

Furniture and fixtures 9,137,055 3,195,080 - 12,332,135

Vehicles 3,043,581 1,011,670 606,541 3,448,710

378,366,962 120,443,752 606,541 498,204,173

Net book value

Goodwill - -

Land

Freehold (revalued) 9,843,735 8,966,260

Freehold (others) 13,700,842 40,645,810

Leasehold 64,338,493 118,597,101

Buildings (revalued) 9,283,303 8,027,336

Buildings (others) 268,009,753 292,770,893

Plant and machinery 873,590,053 868,877,694

Research and development equipment 99,726,309 130,342,515

Furniture and fixtures 15,102,898 21,090,685

Vehicles 5,533,317 4,521,647

1,359,128,703 1,493,839,941

Notes:

(a) Biocon acquired 100 per cent shareholding in Clinigene on March 31, 2001, at a consideration of Rs. 500,000. As of March 31, 2001,the net assets of Clinigene were Rs. 188,385 resulting in a goodwill of Rs. 311,615. The goodwill was fully amortised during the yearended March 31, 2001.

(b) Biocon acquired 51 per cent shareholding in BBPL on April 18, 2003, at a consideration of Rs. 102,000. As ofApril 18, 2003, Biocon’s share of the negative net worth of BBPL was Rs. 729,207 resulting in a goodwill of Rs. 831,207. The goodwillwas fully amortised during the period ended December 31, 2003.

(c) Certain freehold land and buildings were revalued on November 1, 1994, based on the estimated replacement cost after considering

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depreciation upto that date, as per valuers reports and the resultant surplus of Rs. 34,528,673 was credited to revaluation reserve. Of thisreserve, Rs. 17,535,077 (March 31, 2003 — Rs. 15,401,635) has been transferred to the profit and loss account for depreciation onthese assets or adjusted on the sale of these assets.

(d) The Group has capitalised net foreign exchange losses of Rs. 609,342 (March 31, 2003 — Rs. 274,782) during the period/year andadjusted net foreign exchange gain amounting to Rs. 1,718,183 (March 31, 2003 — Rs. Nil) in capital work-in-progress.

(e) During the period, the Group has capitalised borrowing costs identifiable to qualifying assets of Rs. 5,996,000(March 31, 2003 — Rs. 1,664,479), currently reflected as capital work in progress.

(f) On December 5, 2002, Karnataka Industrial Areas Development Board (‘KIADB’) allotted land aggregating 26.75 acres to Biocon forRs. 64,200,000 on a lease-cum-sale basis for a period of 6 years. Further, during the period, Biocon has acquired additional 20 acres ofland for Rs. 48,202,350 from KIADB. The same is reflected at the current allotment rate; the final amount to be determined by KIADBon the completion of six years on fulfillment of certain conditions. One of the key conditions include commencement of commercialoperations by Biocon within 24 months of possession ie December 2002. Biocon is confident of fulfilling this condition.

(g) As per the Retirement Benefit Scheme framed by Biocon for senior executives, certain employees completing 12 years of service havean option to buy Biocon’s apartment for a consideration to be fixed by Biocon. During the period, the Biocon has not transferred any ofthe Biocon apartments to any of the employees.

(h) During the period, Biocon has acquired 11.8 acres of freehold land from Kiran Mazumdar Shaw, the Managing Director, which was earlier

leased to Biocon, at an aggregate cost of Rs. 26,749,888.

10. Investments (At cost)

December 31, 2003 March 31, 2003

Long term investments

Non trade:

Unquoted

2,000 (March 31, 2003 — 2000) equity shares of Rs 100 each of Xcyton Diagnostics 200,000 200,000

Limited, fully paid

Less: Provision for other than temporary dimiunition in value 199,998 199,998

2 2

National Savings Certificates 6,200 1,200

6,202 1,202

Current and unquoted (at lower of cost and fair market value)

5,000,000 units (March 31, 2003 — 5,000,000) of Rs. 10 eachin IL&FS Fixed Maturity Plan - 50,000,000

[Market Value Rs. 50,653,000 (March 31, 2003 — Rs. 50,086,986 )

1,462,790.522 units (March 31, 2003 — Nil) of Rs. 10 each in Reliance Mutual Fund 15,105,507 -[Market Value Rs. 15,105,507 (March 31, 2003 — Rs. Nil)]

4,000,000 units (March 31, 2003 — Nil) of Rs. 10 each in Reliance Fixed Term Scheme[Market Value Rs. 40,115,600 (March 31, 2003 — Rs. Nil)] 40,000,000 -

1,882,074.25 units (March 31, 2003 — Nil) of Rs. 10 each in LIC Mutual Fund[Market Value Rs. 20,241,143.94 (March 31, 2003 — Rs. Nil)] 20,216,700 -

3,534,209.399 units (March 31, 2003 — Nil) of Rs. 10 each in JM Mutual Fund[Market Value Rs. 34,420,200.02 (March 31, 2003 — Rs. Nil)] 35,417,505

1,358,550.091 units (March 31, 2003 — Nil) of Rs. 10 each in TATA Mutual Fund

[Market Value Rs. 15,106,938 (March 31, 2003 — Rs. Nil)] 15,106,938

1,591,345.174 units (March 31, 2003 — Nil) of Rs. 10 each in HSBC Mutual Fund[Market Value Rs. 16,212,624.63 (March 31, 2003 — Rs. Nil)] 16,210,132

142,056,782 50,001,202

Aggregate amount of unquoted investments 142,062,984 50,001,202

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The following investments were purchased and sold during the period from Purchase Sa le

April 1, 2003 to December 31, 2003:

7,409,340 units of Rs. 10 each in HSBC - Cash Fund 74,093,400 74,093,312

2,000,000 units of Rs. 10 each in Reliance Mutual Fund 20,000,000 20,000,000

Purchase of 8,142.207 units of Rs. 1,244.429 each in Franklin Templeton Investment Fund 10,132,395 10,131,877

(Sale of 8,142.207 units of Rs. 1,244.365 each )

Purchase of 1,402,953.749 units of Rs. 10.7667 each in ING Vysya Mutual Fund 15,105,163 15,115,424

(Sale of 1,402,953.749 units of Rs. 10.7740 each in ING Vysya Mutual Fund)

11. InventoriesRaw materials 483,820,877 250,103,994

Goods-in-transit 15,556,434 16,803,012

Packing materials 2,241,293 1,446,064

Work-in-progress 188,931,141 198,608,203

Finished goods 10,715,752 12,093,749

701,265,497 479,055,022

12. Sundry debtors (unsecured)Debts outstanding for a period exceeding six months

Considered good 20,775,501 38,519,105

Considered doubtful 10,000,000 4,609,125

Other debts

Considered good 1,375,596,251 714,782,959

1,406,371,752 757,911,189

Less: Provision for doubtful debts 10,000,000 4,609,125

1,396,371,752 753,302,064

13. Cash and bank balancesCash on hand 320,978 186,998

Balances with scheduled banks:

In current accounts 1,114,082 1,141,240

In exchange earners foreign currency account 37 10,056

In deposit accounts 19,740,585 25,000,000

21,175,682 26,338,294

Syngene has made a deposit of Rs. 10,000,000 (March 31, 2003 — Rs. 10,000,000) under the flexi-deposit account allowing Syngene to availoverdraft facility upto Rs 10,000,000 (March 31, 2003 — Rs. 10,000,000) at an interest rate of 2 per cent above the fixed deposit rate.Syngene has drawn Rs. 2,259,415 (March 31, 2003 — Rs. Nil) against this facility as at December 31, 2003.

14. Loans and advances (Unsecured and considered good)

December 31, 2003 March 31, 2003

Advances recoverable in cash or in kind or for value to be received 54,505,183 52,099,357

Deposits 15,619,760 20,413,709

Balances with Customs and Excise Authorities 67,658,167 78,496,135

137,783,110 151,009,201

Deposits include Rs. Nil (March 31, 2003 — Rs. 9,600,000) paid to Ms Kiran Mazumdar Shaw, Managing Director, towards security deposit

for lease of land (Refer Note 23).

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15. Current Liabilities and ProvisionsDecember 31, 2003 March 31, 2003

Sundry creditors 918,879,768 555,502,372

Advances from customers 23,377,551 27,655,783

Balance in current account with bank represents book overdraft 2,345,623 352,144

Interest accrued but not due 4,908,995 6,268,172

Other liabilities 147,120,305 105,830,083

1,096,632,242 695,608,554

Provision for employee retirement benefits 21,630,572 1,151,856

Provision for leave encashment 32,452,964 28,561,300

Provision for taxation, net of advance tax 58,539,487 4,307,230

112,623,023 34,020,386

1,209,255,265 729,628,940

Other liabilities include Rs. 573,161 (March 31, 2003 —Rs. 970,443) due to Ms Kiran Mazumdar Shaw, Managing Director andRs. Nil (March 31, 2003 — Rs. 686,836) to JMM Shaw, Director (Refer Note 23).

16. Other incomeApril 1, 2003 to April 1, 2002 to

December 31, 2003 March 31, 2003

Interest income from investments (Gross) [tax deducted at source Rs. 235,823 932,385 2,751,478 (March 31, 2003 — Rs. 317,744)]

Gain on fixed assets sold, net - 1,704,985

Miscellaneous income 8,740,154 2,619,863

9,672,539 7,076,326

17. Manufacturing, contract research and other expensesRaw materials consumed, net of duty drawback of Rs. 37,493,940 1,936,556,750 1,361,407,066(March 31, 2003 — Rs. 18,199,657)

Purchase of goods for resale 3,973,149 11,266,792

Employee costs

Salaries, wages, bonus, etc 255,087,242 268,995,579

Company’s contribution to provident fund 10,576,339 11,181,191

Gratuity, superannuation, leave encashment 24,370,380 44,785,119

Employee stock compensation expense (See Note 2(l), 4 & 20) 11,520,137 33,863,779

Directors sitting fees 49,200 48,000

Welfare expenses 19,458,224 22,862,749

321,061,522 381,736,417

Operation and other expenses:

Royalty and technical fees - 38,458,273

Rent 1,958,627 2,670,264

Communication expenses 12,861,338 14,140,021

Travelling and conveyance 31,516,987 38,488,583

Professional charges 25,790,320 22,824,622

Power and fuel 125,517,143 133,588,065

Insurance 12,781,041 8,827,304

Rates, taxes and fees 7,800,011 3,146,852

Lab consumables 18,504,745 10,869,176

Repairs and maintenance Plant and machinery 43,539,658 43,528,030

Buildings 13,985,886 10,028,602

Others 20,934,442 19,308,044

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Selling expenses

Freight outwards and clearing charges 19,315,671 15,824,098

Sales promotion expenses 16,633,247 17,156,511

Commission and brokerage 19,929,686 17,917,825

Bad debts written off 197,085 -

Provision for bad and doubtful debts 5,390,875 4,609,125

Loss on disposal of assets, net 368,674 -

Printing and stationery 6,717,998 8,186,236

Miscellaneous expenses 25,790,557 23,535,526

409,533,991 433,107,157

(Increase)/decrease in inventories of finished goods and work-in-progress:

Opening inventories:

Finished goods 12,093,749 9,293,945

Work-in-progress 198,608,203 100,206,121

210,701,952 109,500,066

Closing inventories:

Finished goods (10,715,752) (12,093,749)

Work-in-progress (188,931,141) (198,608,203)

(199,646,893) (210,701,952)

11,055,059 (101,201,886)

2,682,180,471 2,086,315,546

18. Research and development expenses

Research and development expenses aggregating Rs. 126,715,434 (March 31, 2003 — Rs. 114,241,332) including Rs. 42,721,705(March 31, 2003 — Rs. 34,282,059) on capital account have been incurred by Biocon which have been disclosed under theappropriate account heads.

19. Interest and finance charges

April 1, 2003 to April 1, 2002 toDecember 31, 2003 March 31, 2003

Interest paid on :

Term loans 11,668,160 26,701,866

Others 5,829,789 19,289,689

17,497,949 45,991,555

Less : Interest received from suppliers (6,028,545) (1,577,085)

Less : Interest capitalised [See Note 2(k) & 9(e)] (5,996,000) (1,664,479)

5,473,404 42,749,991

Bank charges 6,953,697 7,061,224

12,427,101 49,811,215

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20. Employee stock compensation

On September 27, 2001, the Board of Directors approved the Biocon Employee Stock Option Plan (‘ESOP Plan 2000’) forthe grant of stock options to the employees of the Group. A compensation committee has been constituted to administerthe plan through the ESOP Trust.

The Trust purchases equity shares of Biocon using the proceeds from the loan obtained from Biocon and will subscribeto such number of shares as is necessary for transferring to the employees. The total number of equity shares transferredto the Trust shall not exceed 250,000 equity shares (pre-bonus and pre-split) of Rs. 10 each and shares transferred toeach employee will not exceed 10,000 equity shares (pre-bonus and pre-split) of Rs. 10 each. The Compensation Committeeshall determine the exercise price which will not be less than the face value of the shares. The Compensation Committeehas granted 71,510 options under the ESOP Plan 2000 to be exercised at a grant price of Rs 10 (pre-bonus and pre-split).The options will vest with the employees equally over a four-year period from the grant date. In case the employeeresigns from employment, the rights relating to shares, which are eligible for exercise, may be purchased by payment ofthe exercise price whereas, the balance shares shall be forfeited in favour of the ESOP Trust.

The Securities and Exchange Board of India (‘SEBI’) has issued the Employee Stock Option Scheme and Stock PurchaseGuidelines, 1999 (‘SEBI guidelines’) which are applicable to stock option schemes for employees of all listed companies.Biocon, though not listed has followed these guidelines for accounting of ESOP costs [Refer Note 2(l)]. In accordancewith these guidelines, the excess of market price of the underlying equity shares on the date of the grant of the stockoptions over the exercise price of the options is to be recognised in the books of account and amortised over the vestingperiod. For basic EPS purposes, the shares outstanding including the options exercised by the employees have beenconsidered [Refer Note 2(m)]. For diluted EPS purpose, the shares, which are not yet eligible for exercise, have also beenconsidered as outstanding to the extent these shares are diluted. The loan granted to the ESOP trust has been presentedas a separate component of shareholders’ funds.

The Trust had 6,181,186 (March 31, 2003 — 140,900 equity shares of Rs. 10 each) equity shares of Rs. 5 each as atDecember 31, 2003 and a summary of the activity of the Trust is as follows:

April 1, 2003 to April 1, 2002 toParticulars December 31, 2003 March 31, 2003

(Equity shares of (Equity sharesRs 5 each post of Rs 10 each)

subdivision andbonus issue)

Opening balance of equity shares not granted to employees and available with the Trust 3,398,402 125,030

Add: Acquired by the Trust 122,438 15,870

Less: Options granted during the period/year - (71,510)

Add: Options cancelled and lapsed 125,500 -

Closing balance of shares not granted to employees and available with the Trust 3,646,340 69,390

Options granted and exercised at period/year end 841,914 -

Options granted and eligible for exercise at period/year end - 17,878

Options granted but not eligible for exercise at period/year end 2,534,846 89,388

Total compensation cost as at period/year end 62,688,574 65,291,222

Vesting period of options

— Primarily progressively over four years

Compensation cost amortised during the period/year 11,520,137 33,863,779

The estimated fair values of the equity shares have been determined by management on the date of the grant (April 1, 2002),based on a valuation by an independent appraiser.

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21. Reconciliation of basic and diluted shares used in computing earning per share

December 31, 2003 March 31, 2003

Basic weighted average shares outstanding 83,818,814 83,974,925

Add: Effect of dilutive shares not eligible for exercise under ESOP 2,534,846 2,626,659

Weighted average shares outstanding and potential shares outstanding 86,353,660 86,601,584

22. Current taxes

The current tax charge of Rs. 203,803,106 (March 31, 2003 — Rs. 83,845,708) is based on the earnings for the nine-monthperiod ended December 31, 2003.

23. Related party transactions

Sl No Name of the Relationship Description April Balance as at April Balance as atrelated party 1, 2003 to December 1, 2002 March 31,

December 31, 2003 to March 200331, 2003 (Payable/ 31, 2003 (Payable/

receivable) receivable)

1 Kiran Mazumdar Shaw Managing Rent expense 720,000 (240,000) 960,000 -Director

Lease deposit paid/ (9,600,000) - - 9,600,000(received)

Salary and perquisites 8,833,498 (333,161) 10,186,766 (970,443)

Land purchased 26,749,888 - - -

2 JMM Shaw Director Salary and perquisites 8,351,031 9,216,800 (686,836)

24. Foreign exchange differences

The Company enters into a significant amount of transactions to export products and for contract research and for theimport of raw materials. Foreign exchange gains of Rs. 32,001,069 (March 31, 2003 — Rs. 9,034,294) included in the netprofit is reflected in the respective account captions in the statement of profit and loss.

25. CommitmentsDecember 31, 2003 March 31, 2003

(a) Capital commitments

Estimated amount of contracts remaining to be executed on capital accountand not provided for, net of advances 891,112,038 259,014,106

(b) Operating lease commitments

(i) Rent :

Biocon had entered into a lease agreement for land. Gross rental expenses for the period ended December 31, 2003 aggregated to Rs.720,000 (March 31, 2003 — Rs. 960,000). However, Biocon has on December 23, 2003 acquired the land and there are no committedlease rentals in future towards the lease of such land.

(ii) Vehicles :

The Group has taken vehicles for certain employees under operating leases, which expire in March 2007. Gross rental expenses forthe period ended December 31, 2003 aggregated to Rs. 1,087,751 (March 31, 2003 — Rs. 383,460). The committed lease rental in

the future are:

Not later than one year 1,097,805 716,037

Later than one year and not later than five years 2,558,695 2,151,988

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26. Contingent liabilities

(a) Taxation matters under appeal 7,630,942 7,630,942

(b) Corporate guarantees

(i) Corporate guarantee given by Biocon in favour of CED in respect of certain performance obligations of Syngene 80,000,000 80,000,000

(ii) Corporate guarantee given by Syngene in favour of CED in respect of certain performance obligations of Biocon 165,000,000 15,000,000

245,000,000 95,000,000

The Group is informed that the necessary terms and conditionshave been complied with and no liability has arisen.

(c) Claims against the Group not acknowledged as debts 2,280,000 2,373,750

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27. Segmental information

Business segments

The primary reporting of the Group has been performed on the basis of business segment. The Group is organised into threebusiness segments, enzymes, active pharmaceutical ingredients (‘Pharma’) and contract research services. Segments havebeen identified and reported based on the nature of the products, the risks and returns, the organisation structure and theinternal financial reporting systems.

April 1, 2003 to December 31, 2003

Particulars Enzyme Pharma Contract Joint Venture Unallocated Eliminations TotalResearch

Revenues

External sales 483,889,561 3,228,387,979 264,985,732 - - - 3,977,263,272

Inter-segment transfers 31,709,959 - - - - (31,709,959) -

Total revenues 515,599,520 3,228,387,979 264,985,732 - - (31,709,959) 3,977,263,272

Costs

Segment costs (305,370,427) (1,856,093,343) (154,017,555) - - - (2,315,481,325)

Inter-segment transfers - (31,709,959) - - - 31,709,959 -

Result

Segment result 210,229,093 1,340,584,677 110,968,177 - - - 1,661,781,947

Corporate expenses - - - (764,806) (365,934,340) - (366,699,146)

Other income - - - - 8,740,154 - 8,740,154

Interest income - - - - 932,385 - 932,385

Operating profit 1,304,755,340

Depreciation (13,844,723) (47,121,173) (16,900,599) (11,073) (41,310,217) - (119,187,785)

Interest expense - (3,553,288) (346,536) (47,214) (8,480,063) - (12,427,101)

Income taxes - - - - - (220,257,434) - (220,257,434)Current and deferred

Minority Interest - - - - (6,368) - (6,368)

Net profit 952,876,652

Other information

Segment assets 512,771,441 2,943,225,538 377,854,750 788,073 - - 3,834,639,802

Unallocated - - - - 487,247,525 - 487,247,525corporate assets

Total assets 4,321,887,327

Segment liabilities 115,661,598 977,635,887 97,085,138 2,340,372 - - 1,192,722,996

Unallocated - - - - 826,392,335 - 826,392,335corporate liabilities

Total liabilities 2,019,115,331

Capital expenditure 19,453,388 12,650,709 21,696,677 47,175 202,644,541 - 256,492,490

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April 1, 2002 to March 31, 2003

Particulars Enzyme Pharma Contract Joint Venture Unallocated Eliminations TotalResearch

Revenues

External sales 532,448,085 2,009,951,046 277,481,157 - - - 2,819,880,288

Inter-segment transfers 55,497,389 - - - - (55,497,389) -

Total revenues 587,945,474 2,009,951,046 277,481,157 - - (55,497,389) 2,819,880,288

Costs

Segment costs (356,377,038) (1,129,472,056) (169,990,431) - - - (1,655,839,524)

Inter-segment transfers - (55,497,389) - - - 55,497,389 -

Result

Segment result 231,568,436 824,981,601 107,490,726 - - - 1,164,040,764

Corporate expenses - - - - (430,476,021) - (430,476,021)

Other income - - - - 4,324,848 - 4,324,848

Interest income - - - - 2,751,478 - 2,751,478

Operating profit 740,641,069

Depreciation (17,971,112) (59,949,046) (17,260,230) - (42,250,839) - (137,431,227)

Interest expense - (15,096,700) - - (34,714,516) - (49,811,215)

Income taxes - - - - - (118,244,061) - (118,244,061)Current and deferred

Minority interest - - - - (4,848) - (4,848)

Net profit 435,149,717

Other information

Segment assets 479,692,430 1,827,844,623 173,560,336 - - - 2,481,097,389

Unallocated - - - - 419,003,245 - 419,003,245corporate assets

Total assets 2,900,100,634

Segment liabilities 6,437,726 326,722,194 64,723,678 - - - 397,883,598

Unallocated corporate - - - - 1,160,456,055 - 1,160,456,055liabilities

Total liabilities 1,558,339,653

Capital expenditure 63,719,838 111,552,245 74,049,263 - 123,612,281 - 372,933,627

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Geographical Segments

Secondary segmental reporting is performed on the basis of the geographical location of customers. The operations of theGroup comprise exports contributing to approximately 59 per cent (March 31, 2003 — 48 per cent). The management viewsthe Indian market and export markets as distinct geographical segments. The following is the distribution of the Group’s saleby geographical markets:

Revenues, net April 1, 2003 to April 1, 2002 toDecember 31, 2003 March 31, 2003

India 1,631,311,765 1,465,021,559

Exports 2,345,951,507 1,354,858,729

Total 3,977,263,272 2,819,880,288

Assets and additions to fixed assets by geographical area - The following is the carrying amount of segment assets andadditions to fixed assets by geographical area in which the assets are located:

Carrying amount of segment assets

December 31, 2003 March 31, 2003

India 3,718,063,783 2,639,237,801

Outside India 603,823,545 260,862,833

4,321,887,328 2,900,100,634

Carrying amount of segment assets outside India represents receivables from export debtors and export benefits recoverable.

Segment revenue and result

The expenses that are not directly attributable and that cannot be allocated to a business segment on a reasonable basis areshown as unallocated corporate expenses.

Inter-segment transfers

Segment revenue, segment costs and results include transfers between business segments. Such transfers have been madeat cost. The inter-segment transfers have been eliminated on consolidation.

Segment assets and liabilities

Segment assets include all operating assets used by the business segment and consist principally of fixed assets, investments,receivables and inventories. Segment liabilities comprise of long term debts which can be identified directly against therespective segment assets and liabilities. Assets and liabilities that have not been allocated between segments are shown aspart of unallocated corporate assets and liabilities respectively.

305

Biocon

28. Inter est in Joint Venture

Biocon has a 51 per cent interest in the assets, liabilities and expenses of BBPL, which is yet to commence operations.Biocon’s share of the assets and liabilities of the jointly controlled entity have been consolidated on a line by line basis. Thesummary of proportionate assets and liabilities consolidated with financial statements of the Group are as follows:

Proportionate assets and liabilities

December 31, 2003

Fixed Assets

Cost 47,175

Less: Accumulated depreciation 11,073

Net book value 36,102

Capital advances 746,936

783,038

Current assets, loans and advances

Cash and bank balances 5,035

5,035

Less: Current liabilities and provisions (2,340,373)

Net current liabilities (2,335,338)

Accumulated losses 1,654,300

Share capital 102,000

Current liabilities and provisions include Biocon’s share in advances given to BBPL aggregating Rs 2,166,604.

Proportionate expenses for the period April 1, 2003 to December 31, 2003

Expenditure

Manufacturing, contract research and other expenses 812,020

Depreciation 11,073

823,093

29. Prior period comparatives

Since this is the first time that the Group has presented interim financial statements in accordance with Accounting Standard25 – Interim Financial Reporting issued by the Institute of Chartered Accountants of India in accordance with the transitionalprovisions contained therein, the Group has not presented comparative statements of profit and loss and cashflows for thecomparable interim periods of the prior year. However, comparatives for the year ended March 31, 2003 have been providedby the management and have been reclassified, where necessary, to conform to the current period classification.

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CONSOLIDATED FINANCIAL STATEMENTS

BIOCON LIMITED (formerly BIOCON INDIA LIMITED)

AS OF DECEMBER 31, 2003 AND MARCH 31, 2003

WITH REPORT OF INDEPENDENT AUDITORS

307

Biocon

BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

Consolidated Financial StatementsAs of December 31, 2003 and March 31, 2003

Contents

Report of Independent Auditors .............................................................................................................................................. 308

Consolidated Balance Sheets ................................................................................................................................................... 309

Consolidated Statements of Income ......................................................................................................................................... 311

Consolidated Statements of Changes in Stockholders’ Equity ............................................................................................... 312

Consolidated Statements of Cash Flows .................................................................................................................................. 313

Notes to the Consolidated Financial Statements ..................................................................................................................... 314

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Biocon

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of Biocon Limited (formerly Biocon India Limited):

We have audited the accompanying consolidated balance sheets of Biocon Limited (formerly Biocon India Limited), a companyincorporated in India, and its subsidiaries (collectively referred to as the ‘Group’) as of December 31, 2003 and March 31,2003, and the consolidated statements of income, stockholders’ equity, and cash flows for the nine month period endedDecember 31, 2003 and for the year ended March 31, 2003. These financial statements are the responsibility of the Group’smanagement. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidatedfinancial position of the Group as of December 31, 2003 and March 31, 2003, and the consolidated results of its operationsand its cash flows for the nine month period ended December 31, 2003 and for the year ended March 31, 2003, respectively inconformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 2 and 3 to the consolidated financial statements, the Company adopted SFAS No. 142, “Accountingfor Goodwill and other Intangible Assets” on April 1, 2002.

Bangalore, India

January 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

CONSOLIDATED BALANCE SHEETS

(Expressed in Indian rupees, except share data and unless otherwise stated)

December 31, 2003 March 31, 2003In US$ In Rs In Rs

(Refer to Note 2.2)

ASSETS

Current assets

Cash and cash equivalents 31,506 1,435,097 1,338,294

Marketable securities 3,119,213 142,080,149 50,000,000

Time deposits 43,908 2,000,000 5,000,000

Restricted time deposits 389,475 17,740,585 20,000,000

Trade receivables, net 30,655,801 1,396,371,752 753,302,064

Employee receivables 139,999 6,376,961 6,212,721

Inventories 15,395,510 701,265,497 479,055,022

Deferred income taxes, net 201,264 9,167,568 6,788,997

Other current assets 2,532,337 115,347,939 116,931,499

Total current assets 52,509,013 2,391,785,548 1,438,628,597

Non-current assets

Goodwill 483,029 22,001,959 22,001,959

Property, plant and equipment, net 41,363,072 1,884,087,922 1,392,624,860

Due from related party - - 9,600,000

Employee receivables 325,683 14,834,843 15,120,946

Other non current assets 26,481 1,206,200 3,145,237

TOTAL ASSETS 94,707,278 4,313,916,472 2,881,121,599

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable 23,402,856 1,066,000,122 661,332,454

Advance from customers 513,228 23,377,551 27,655,783

Short term borrowings 8,613,939 392,364,936 276,888,231

Current portion of long term debt 474,204 21,600,000 139,233,867

Accrued employee benefits 1,187,345 54,083,486 29,713,156

Income taxes payable 1,285,170 58,539,487 4,307,230

Other current liabilities 107,772 4,908,994 6,268,172

Total current liabilities 35,584,514 1,620,874,576 1,145,398,893

Non-current liabilities

Long term debt 1,655,324 75,400,000 166,338,755

Deferred income taxes, net 4,178,190 190,316,552 143,749,925

Deferred sales taxes liability 3,585,726 163,329,812 103,545,391

TOTAL LIABILITIES 45,003,754 2,049,920,940 1,559,032,964

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December 31, 2003 March 31, 2003In US$ In Rs In Rs

(Refer to Note 2.2)

Stockholders’ equity (Refer to Note 16)

Common stock (Authorised share capital

120,000,000 (March 31, 2003 – 12,000,000) equity

shares of Rs. 5 each 9,879,254 450,000,000 18,376,500

Additional paid-in capital 8,187,431 372,937,499 375,540,147

Deferred compensation cost (379,905) (17,304,658) (31,427,443)

Loan to ESOP Trust (27,633) (1,258,700) (1,413,700)

Retained earnings 32,044,377 1,459,621,391 961,013,131

Total stockholders’ equity 49,703,524 2,263,995,532 1,322,088,635

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY 94,707,278 4,313,916,472 2,881,121,599

The accompanying notes are an integral part of these consolidated financial statements.

Kiran Mazumdar Shaw JMM ShawManaging Director Director

BangaloreJanuary 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

CONSOLIDATED STATEMENTS OF INCOME

(Expressed in Indian rupees, except share data and unless otherwise stated)

Nine months ended Year endedDecember 31, 2003 March 31, 2003

In US$ In Rs In Rs

(Refer to Note 2.2) (Refer to Note 2.2)

Revenues

Sale of products, net of excise duty of Rs. 233,069,444

(March 31, 2003 – Rs. 208,215,613) and sales tax of

Rs. 73,555,090 (March 31, 2003 — Rs. 63,077,156) 81,498,958 3,712,277,540 2,542,399,131

Contract research services 5,817,469 264,985,732 277,481,156

Total revenues 87,316,427 3,977,263,272 2,819,880,287

Cost of revenues (excluding depreciation shown separately below)

Cost of products sold 47,452,553 2,161,463,770 1,484,573,344

Cost of contract research services 3,381,286 154,017,555 177,406,272

Gross profit 36,482,588 1,661,781,947 1,157,900,671

Operating expenses

Research and development expenses 1,843,990 83,993,729 79,957,119

Selling, general and administrative expenses 6,188,415 281,882,324 332,927,726

Depreciation 2,523,675 114,953,404 133,958,105

Income from operations 25,926,508 1,180,952,490 611,057,721

Interest expense 272,823 12,427,101 50,689,648

Interest income (20,469) (932,385) (2,751,478)

Other (income) / expense, net (228,747) (10,419,447) (4,324,847)

Share of losses in joint venture 36,318 1,654,300 -

Income before income taxes and minority interest 25,866,583 1,178,222,921 567,444,398

Provision for income taxes 5,444,372 247,991,161 123,109,499

Net income 20,422,211 930,231,760 444,334,899

Basic earnings per share 0.24 11.10 5.29

Diluted earnings per share 0.24 10.77 5.13

Weighted average number of common shares used in computing earningsper share (Refer to Note 16)

Basic earnings per share 83,818,814 83,818,814 83,974,925

Diluted earnings per share 86,353,660 86,353,660 86,601,584

The accompanying notes are an integral part of these consolidated financial statements.

Kiran Mazumdar Shaw JMM ShawManaging Director Director

BangaloreJanuary 17, 2004

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co

n

BIOCON LIMITED

(formerly BIOCON INDIA LIMITED)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Expressed in Indian rupees, except share data and unless otherwise stated)

PARTICULARS Common Stock Additional Deferred Loan to ESOP Retained TotalShares Amount paid-in compensation Trust earnings

(Refer to Note 16) capital cost

Balances as of March 31, 2002 89,254,497 18,217,800 310,248,925 - (1,215,300) 516,678,232 843,929,657

Loan to ESOP Trust (39,700) (39,700)

Common stock issued for cash 745,503 158,700 (158,700) -

Compensation related to stock option grants(Refer to Note 17) 65,291,222 (65,291,222) -

Amortisation of compensation costs 33,863,779 33,863,779

Net income for the year 444,334,899 444,334,899

Balances as of March 31, 2003 90,000,000 18,376,500 375,540,147 (31,427,443) (1,413,700) 961,013,131 1,322,088,635

Repayment of loan by ESOP Trust 155,000 155,000

Cancellation/forfeiture of stock options (2,602,648) 2,602,648 -

Amortisation of compensation costs 11,520,137 11,520,137

Bonus shares issued (Refer to Note 16) 431,623,500 (431,623,500) -

Net income for the nine month period 930,231,760 930,231,760

Balance as on December 31, 2003 90,000,000 450,000,000 372,937,499 (17,304,658) (1,258,700) 1,459,621,391 2,263,995,532

In US $ (Refer to Note 2.2) 9,879,254 8,187,431 (379,905) (27,633) 32,044,377 49,703,524

The accompanying notes are an integral part of these consolidated financial statements.

Kiran Mazumdar Shaw JMM ShawManaging Director Director

BangaloreJanuary 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in Indian rupees, except share data and unless otherwise stated)

Nine months ended Year endedDecember 31, 2003 March 31, 2003

In US $ In Rs In Rs(Refer to Note 2.2) (Refer to Note 2.2)

CASH FLOWS FROM OPERATING ACTIVITIES:Net income 20,422,211 930,231,760 444,334,899Adjustments to reconcile net income to net cash provided by operating activities:Depreciation 2,523,675 114,953,404 133,958,105

Amortisation of stock compensation cost 252,912 11,520,137 33,863,779Provision for doubtful receivables 118,351 5,390,875 4,609,125Loss /(gain) on assets sold, net 8,094 368,674 (1,711,975)Deferred tax expense, net 970,100 44,188,055 39,263,792

Changes in assets and liabilities:Trade receivables (14,236,236) (648,460,563) (114,840,406)Employee receivables 2,675 121,863 (6,304,746)Inventories (4,878,386) (222,210,475) (236,925,846)Other current assets 76,823 3,499,231 (45,070,042)Due from related parties 210,757 9,600,000 6,127,104Current liabilities and non current liabilities 11,219,590 511,052,332 212,690,969

Net cash provided by operating activities 16,690,566 760,255,293 469,994,758CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of marketable securities (5,738,479) (261,387,740) (50,000,000)Sale of marketable securities 3,717,474 169,330,958 12,967Investment in time deposits, net 65,862 3,000,000 (5,000,000)Investment in restricted time deposits, net 49,603 2,259,415 (20,000,000)Purchase of property, plant and equipment (14,056,992) (640,295,976) (407,570,017)Sale of property, plant and equipment 2,005 91,349 2,067,750

Net cash used in investing activities (15,960,527) (727,001,994) (480,489,300)CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the issuance of share capital - - 158,700(Loan to)/Repayment from the ESOP Trust 3,403 155,000 (198,400)Repayment of short-term borrowings - - (103,495,494)Receipt of short-term borrowings 2,535,164 115,476,705 - Repayment of long term debt (5,281,507) (240,572,622) (403,945,610)Receipt of long term debt 702,525 32,000,000 456,542,325Payment of capital lease obligations - - (655,181)Deferred sales tax liability 1,312,501 59,784,421 47,512,013Cash dividends - - (2,710,651)

Net cash used for financing activities (727,914) (33,156,496) (6,792,298)Net change in cash and cash equivalents 2,125 96,803 (17,286,840)Cash and cash equivalents at the beginning of the period/year 29,381 1,338,294 18,625,134Cash and cash equivalents at the end of the period/year 31,506 1,435,097 1,338,294SUPPLEMENTARY DISCLOSURE FOR CASH ACTIVITIES

Cash paid for interest 567,363 25,843,368 48,573,631

Cash paid for income taxes 3,283,663 149,570,849 97,786,904

The accompanying notes are an integral part of these consolidated financial statements.

Kiran Mazumdar Shaw JMM ShawManaging Director Director

BangaloreJanuary 17, 2004

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

Notes to Consolidated Financial StatementsNINE MONTHS ENDED DECEMBER 31, 2003 AND YEAR ENDED MARCH 31, 2003

(Expressed in Indian rupees, except share data and as otherwise stated)

1. Company overview and description of business

1.1 Incorporation and history

Biocon Limited (‘Biocon’ or ‘the Company’) [formerly Biocon India Limited] was incorporated in 1978 under the laws of Indiaand controlled by Ms Kiran Mazumdar Shaw (‘KMZ’), along with her husband Mr. John M Shaw (‘JMM’) and her brotherMr. Ravi Mazumdar (‘RM’) directly and through Glentec International Limited (‘Glentec’), a company incorporated under thelaws of Mauritius and controlled by the above persons. KMZ, JMM, RM and Glentec are collectively hereinafter referred toas ‘the Control Group’. The Company has its registered office at 20th KM, Hosur Road, Electronic City PO, Bangalore, India.

As of December 31, 2003, the Company has a controlling interest in the following entities:

l Syngene International Private Limited (‘Syngene’), a 99.99 per cent owned subsidiary company incorporated inNovember 1993 under the laws of India by KMZ. The Company acquired its 73 per cent ownership in Syngene fromthe Control Group (which the Control Group acquired in March 2000) and an additional 27 per cent ownership interestfrom minority shareholders (Refer to Note 3), both transactions taking place on March 30, 2002.

l Clinigene International Private Limited (‘Clinigene’), a 100 per cent owned subsidiary company incorporated in August2000 under the laws of India by KMZ and JMM. Biocon acquired an ownership interest of 100 per cent in Clinigenein March 31, 2001 by way of a cash payment towards additional issuance of shares by Clinigene.

Biocon has entered into an Agreement on February 22, 2002 to set up a Joint Venture Company, Biocon BiopharmaceuticalsPrivate Limited (‘BBPL’) with CIMAB SA (‘CIMAB’), a company organised and existing under the laws of Cuba and engagedin research, development, manufacturing and marketing of biopharmaceuticals, manufacture and market products using CIMABtechnology and to carry out research activities. On April 18, 2003, Biocon acquired 10,200 shares for an equity participationof 51 per cent in BBPL. Biocon and CIMAB have equal participation rights, in the operations of BBPL, therefore the investmentin the joint venture BBPL has been accounted based on the equity method. BBPL has not yet commenced revenue-generatingoperations. As of December 31, 2003, BBPL had accumulated losses of Rs 3,243,725. Biocon is required to arrange for financingof capital expenditure requirements of BBPL. It is expected that the joint venture partner will provide their share of the capitalinvested by Biocon in the form of technology transfers (an intangible asset).

Biocon, together with its subsidiaries, Syngene and Clinigene are hereinafter collectively referred to as ‘the Group’.

1.2 Operations

The Group’s principal areas of operation are as follows:

Pharmaceuticals

The pharmaceuticals business comprises the manufacture and development of bulk drugs, with focus on productsinvolving fermentation and/or synthetic conversion. The pharmaceuticals business primarily seeks to leverage off theexpiry of product patents for Simvastatin, Lovastatin, Atorvastatin and Pravastatin (‘Statins’) that expire between 2001and 2009, through research capabilities and fermentation and synthetic chemistry skills that have been developed overthe years within the Group.

Enzymes

The enzymes business comprises the development, manufacture and sale of single component enzymes, proprietaryformulations and enzyme systems to cater to the demand of a number of diverse industries including food and beverages,textiles, starch, brewing, distilling etc.

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Contract research

The Group provides contract research services to overseas and domestic customers and is primarily engaged in thefollowing areas of such research:

l Molecular biology;

l Synthetic chemistry;

l Bio informatics; and

l Clinical research on well-defined and characterised patients suffering from chronic diseases such as, diabetes,osteoporosis, asthma etc.

2 SIGNIFICANT ACCOUNTING POLICIES

2.1 Principles of consolidation

The accompanying consolidated financial statements of the Group are prepared in conformity with accounting principlesgenerally accepted in the United States of America (‘US GAAP’) to reflect the financial position and the results ofoperations of the Group. All material transactions and balances between the Group entities have been eliminated.

The Company accounts for investments in the joint venture, BBPL by the equity method of accounting as its jointventure partner has participating rights over the operating and financing policies of BBPL. The Company has recognisedits share of the loss amounting to Rs 1,654,300 (March 31, 2003 – Rs Nil) in these consolidated financial statements. Thecarrying value of the investment in BBPL as of December 31, 2003 was Rs Nil.

The equity and net profit attributable to minority shareholders’ interest as of December 31, 2003 are Rs 17,214 (March 31,2003 — Rs 10,845) and Rs 6,368 (March 31, 2003 — Rs 4,848), respectively. It has not been separately disclosed in theconsolidated financial statements, as the amounts are insignificant.

2.2. Basis of presentation

For the convenience of readers, the balance sheet as of December 31, 2003 and the statement of income for the ninemonth period then ended have been translated into United States Dollars (‘US$’) using the Federal Reserve Bank ofNew York’s noon buying rate as confirmed by Hong Kong and Shanghai Banking Corporation (‘HSBC’) as of December 31,2003 which was 1US$ = Rs 45.55. The convenience translation should not be construed as a representation that the Rsamounts or the US$ amounts referred to in these financial statements have been, could have been, or could in the futurebe, converted into US$ or Rs, as the case may be, at this or at any other rate of exchange, or at all.

In accordance with the resolution passed in the Board of Director’s meeting held on March 30, 2002, the equity shares ofBiocon with a par value of Rs 100 each has been spilt into 10 equity shares of par value of Rs 10 each.

The shareholders at the EGM of the Company held on November 11, 2003, approved the sub-division of equity shares offace value of Rs 10 each into 2 equity shares of Rs. 5 each and increase the authorised capital from Rs. 20,000,000 toRs. 600,000,000. Subsequent to this sub-division, the authorised equity share capital of Rs. 20,000,000 has been dividedinto 4,000,000 equity shares of Rs. 5 each and the issued, subscribed and paid -up capital of Rs. 18,376,500 has beendivided into 3,675,300 shares of Rs. 5 each.

Further, the shareholders at the EGM of the Company held on November 11, 2003 approved the allotment of 86,324,700equity shares of Rs. 5 each as bonus shares in the ratio of 1:23.4877958 to the shareholders existing as on November 11,2003, which was the approved record date for this purpose, by capitalisation of the balance in the profit and loss accountof Rs. 431,623,500. The stock split and stock dividend has been retroactively reflected in the financial statements.

The Group also separately prepares its consolidated financial statements for the same period in accordance withaccounting principles generally accepted in India. The principle differences between Indian GAAP and US GAAP relateto the treatment of certain deferred tax items, the method of charging depreciation and the accounting for Biocon’s interestin the joint venture.

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The consolidated statements of income, stockholders’ equity, and cash flows presented for the nine month period endedDecember 31, 2003 are not directly comparable to the consolidated financial statements for the year ended March 31,2003, which is for a twelve month period.

2.3 Use of estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requiresmanagement of the Group to make estimates and assumptions that affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of the financial statements and the results of operationsduring the reporting periods. Although these estimates are based upon management’s best knowledge of current eventsand actions, actual results could differ from those estimates.

2.4 Foreign currency transactions

Monetary assets and liabilities in foreign currencies are remeasured into functional currency at the rates of exchangeprevailing at the balance sheet date. Transactions in foreign currencies are remeasured into functional currency at therates of exchange prevailing at the date of the transaction. All foreign exchange gains and losses are recorded in theconsolidated statements of income. The net foreign exchange gain recorded in the consolidated statements of income isRs. 32,001,125 (March 31, 2003 — Rs. 9,034,294).

2.5 Revenue recognition

The Group has two revenue streams, the sale of products and contract research services. The respective accountingpolicies are as follows:

(i) Revenue from sale of products

Revenue is recognised when significant risks and rewards in respect of ownership of the products are transferred tothe customer. Revenue is recognised when the following criteria are met:

- Persuasive evidence of an arrangement exists;

- The price to the buyer is fixed and determinable; and

- Collectibility of the sales price is reasonably assured.

Revenue from domestic sales is recognised on despatch of the products to customers, from the factories of theCompany. Revenue from export sales is recognised on shipment of products. Revenues do not include shipping andhandling charges collected from the customers amounting to Rs. 3,143,158 (March 31, 2003 – Rs. 4,726,434) duringthe nine-month period ended December 31, 2003.

(ii) Contract research revenues

Revenues from contract research services comprise fees received for research activities carried out for customers inthe fields of molecular biology and synthetic chemistry. Research activities are based on contracts that specify thenature of activity to be carried out, basis of billings, manner of payments and are typically in the nature of time andmaterial contracts. Revenues are recognised on a monthly basis, as services are rendered, in accordance with theterms of the contracts.

2.6 Cost of revenues

Cost of products sold comprises employee costs of direct labour, amortisation of deferred stock compensation, materialcosts and other direct costs incurred in producing bulk drugs and enzymes but excludes depreciation. Costs of contractresearch services comprise employee costs of direct labour, amortisation of deferred stock compensation, material costsand other direct costs related to the Groups’ research activities but excludes depreciation.

2.7 Research and development costs

Research and development costs are expensed as incurred. Capital expenditure incurred on equipment and facilitiesacquired or constructed for research and development activities and having alternative future uses, are capitalised asproperty, plant and equipment and depreciated over their economic useful life. Cost of acquired technology/know-howhaving no alternate use are expensed as incurred.

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2.8 Cash and cash equivalents

All highly liquid investments with original maturities of ninety days or less are considered to be cash equivalents.

2.9 Marketable securities

Management determines the appropriate classification of marketable securities at the time of purchase andre-evaluates such designation at each balance sheet date. As of December 31, 2003, all marketable securities were classifiedas available-for-sale and consisted of units of highly liquid mutual funds.

Available-for-sale securities are carried at fair market value with unrealised gains and losses recorded in othercomprehensive income, which is a component of stockholders’ equity. Realised gains and losses, and decline in valuejudged to be other than temporary on available-for-sale securities are included in the consolidated statement of income.

2.10 Inventories

Inventories are valued at the lower of cost or net realisable value. Cost is determined on a first in first out basis for allcategories of inventories. Cost in the case of raw materials and packing materials comprises the purchase price andattributable direct costs, less trade discounts. Cost in the case of work-in-progress and finished goods comprises materialcosts, direct labour, and production overheads.

Inventories are reviewed on a regular basis for identification of slow-moving and obsolete inventory, which are writtendown in the period of identification and are included in cost of products sold.

2.11 Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Equipment held under capital leases arestated at the present value of minimum lease payments at the inception of the leases. Advances paid towards acquisitionof property and equipment and the cost of property and equipment not put to use before the balance sheet date areclassified as capital work-in-progress.

The interest cost incurred for funding an asset during its construction period is capitalised based on the actual investmentin the asset and the average cost of funds. The capitalised interest is included in the cost of the relevant asset and isdepreciated over the estimated useful life of the asset.

Depreciation is computed using the straight-line method over the estimated useful lives of assets. Depreciation of equipmentheld under capital leases is computed using the straight-line method over the shorter of the assets’ estimated lives andthe lease term.

Costs of normal repairs and maintenance are charged to income as incurred. Major replacements or betterment of property,plant and equipment are capitalised. During the nine-month period the Group has incurred Rs 57,518,016 (March 31, 2003– Rs 53,556,632) towards normal repairs and maintenance.

2.12 Impairment of long-lived assets

The Group reviews long-lived assets for impairment, whenever an event or changes in circumstances indicate that thecarrying amount of such assets may not be recoverable. The carrying values of long-lived assets are assessed forrecoverability by reference to the estimated future undiscounted cash flows associated with them. Where this assessmentindicates a deficit, the assets are written down to market value. For assets, which do not have a readily determinablemarket value, the assets are written down to their estimated market value, calculated by reference to the estimated futurediscounted cash flows. Assets to be disposed are reported at the lower of the written down value or the fair value, lessthe cost to sell.

2.13 Goodwill

Goodwill represents the excess of cost over the fair value of net tangible and identifiable intangible assets of acquiredbusinesses. Effective April 1, 2002, the Group adopted Statement of Financial Accounting Standards No. 142, “Goodwilland Other Intangible Assets” (“SFAS No. 142”). Under SFAS No. 142, goodwill arising on business combinationsconsummated after June 30, 2001 will not be amortised to expense, but is instead subjected to a periodic impairment testat least annually.

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The impairment test is conducted at the reporting unit level by comparing the fair value of the reporting unit with itscarrying value. Fair value is primarily determined by computing the future discounted cash flows expected to be generatedby the reporting unit. If the carrying value exceeds the fair value, goodwill may be impaired. If this occurs, the fair valueof the reporting unit is then allocated to its assets and liabilities in a manner similar to a purchase price allocation inorder to determine the implied fair value of the reporting unit goodwill. This implied fair value is then compared with thecarrying amount of the reporting unit goodwill, and if it were less, the Group would then recognise an impairment loss.No goodwill impairment losses have been recognised in any of the periods presented herein. (Refer to Note 3)

2.14 Operating leases

Lease rental expenses on operating leases are charged to expense over the lease term as it becomes payable. Rentalexpense for these leases is being recognised on a straight-line basis over the lease term.

2.15 Employee benefits

In accordance with Indian law, all employees of the Group, are entitled to receive benefits under the Provident Fund, adefined contribution plan in which both the employee and the Group, contribute monthly at a determined rate (currently12 per cent of the employees’ base salary). These contributions are made to the Government Provident Fund.

The Superannuation Plan is a defined contribution pension plan for all employees of the Group. The Group contributesto employees’ superannuation fund at 15 per cent of the employee’s base salary. The superannuation schemes of theGroup are administered by a trust formed for this purpose through the superannuation scheme with Birla Sunlife InsuranceCompany Limited (‘Birla Sunlife’).

The Group has no further obligation under the Provident Fund or Superannuation Plan, beyond its contributions.Contributions to defined contribution plans are charged to income in the period in which they accrue.

In accordance with Indian law, the Group provides for gratuity, a defined benefit retirement plan (‘the Gratuity Plan’)covering all its employees. The Gratuity Plan provides a lump sum payment to vested employees on retirement or ontermination of employment of an amount based on the respective employees’ salary and the years of employment withthe Group. The gratuity plan fund benefits of the Group are administered by a trust formed for this purpose and managedby Birla Sunlife. Gratuity benefit cost for the period/year is calculated on an actuarial basis. Current service costs for theGratuity Plan are accrued in the period/year to which they relate. Actuarial gains or losses or prior service costs, if any,resulting from amendments to the plans are recognised and amortised over the remaining period of service of theemployees.

Accrual for vacation pay is determined on the full liability method for the unavailed leave balance standing to the creditof the employees at period/year end at current encashable salary rates.

2.16 Income taxes

The Group records income taxes in accordance with the liability method of accounting. The current charge for incometaxes is calculated in accordance with the relevant tax regulations applicable to each entity in the Group. Deferred incometaxes are recognised for the future tax consequences attributable to temporary differences between the financial statementcarrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carry forwards.The effect on deferred tax assets and liabilities of a change in tax rates is recognised in income in the period that includesthe enactment date. Deferred tax assets are recognised in full subject to a valuation allowance for any tax benefit, thefuture realisation of which is uncertain.

2.17 Comprehensive income

SFAS No. 130, “Reporting Comprehensive Income” establishes rules for the reporting of comprehensive income and itscomponents. Comprehensive income is defined as all changes in equity from non-owner sources. The unrealised gainson marketable securities for the year ended March 31, 2003 and the nine-month period ended December 31, 2003 wereinsignificant, and thus have been recorded as a component of operations.

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2.18 Stock-based compensation

The Group accounts for stock-based compensation using the intrinsic value method prescribed in APB No. 25,“Accounting for Stock Issued to Employees” and related interpretations. Compensation cost for stock options is measuredas the excess of the fair value of the Company’s stock on the stock options grant date over the amount an employeemust pay to acquire the stock and is recognised in a graded manner on the basis of weighted period of services. The fairvalue of the options is measured on the basis of an independent valuation performed in respect of stock options granted.

SFAS No. 123, “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements usinga fair-value-based method of accounting for stock-based employee compensation plans. The Group has elected its currentmethod of accounting as described above, and has adopted the disclosure requirements of SFAS No. 148, “Accountingfor Stock-Based Compensation – Transition and Disclosure”, an amendment of SFAS No. 123.

Had compensation cost for the Group’s stock based compensation been determined based on the fair value at the grantdates for awards under those plans consistent with the method of FASB Statement 123, the impact on the Group’s netincome of Rs 930,231,760 for the nine month period ended December 31, 2003 and Rs 444,334,899 for the year endedMarch 31, 2003, would have been negligible.

For purposes of applying SFAS No. 123, the estimated fair value of stock options granted during 2003 was Rs 18.58068.The fair value of options was estimated at the date of grant using the Black Scholes method with the followingassumptions:

Expected volatility 40%

Expected dividend yield 0.0%

Risk-free interest rate 5.5%

Expected life 2.5 years

2.19 Derivative instruments and hedging activities

The Group enters into forward foreign exchange contracts where the counter party is generally a bank. The Grouppurchases forward foreign exchange contracts to mitigate the risk of changes in foreign exchange rates on accountsreceivable. The Company has not designated these contracts as hedges in accordance with the requirements of SFAS133. Accordingly, these instruments are recorded on the balance sheet at fair value with the difference being recognisedin earnings immediately. The amount of open foreign currency contracts as of December 31, 2003 is US$ 12,900,000,which expire over the next two to three months.

2.20 Recent accounting pronouncements

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities - an interpretation of AccountingResearch Bulletin No. 51. FIN No. 46 is applicable to all variable interest entities created after January 31, 2003. In respectof variable interest entities created before February 1, 2003, FIN No. 46 will be applicable from fiscal periods beginningafter June 15, 2003. The Company is evaluating the impact of adoption of SFAS No.149 on its consolidated financialstatements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and HedgingActivities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, includingcertain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No.149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated afterJune 30, 2003. The Company is evaluating the impact of adoption of SFAS No.149 on its consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity.” SFAS No. 150 requires that certain financial instruments, which under previous guidance wereaccounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatoryredeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares inexchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is

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effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginningof the first interim period beginning after June 15, 2003. The initial adoption of SFAS No. 150 on July 1, 2003 did not haveany impact on the Company’s consolidated financial statements.

3. ACQUISITION OF MINORITY INTEREST IN SYNGENE

As of April 1, 2001 the Control Group had an effective ownership interest in Syngene of 73 per cent. In March 2002, theControl Group transferred its 73 per cent ownership interest in Syngene to Biocon in exchange for Biocon shares and theCompany acquired the balance 27 per cent from the minority shareholders on March 30, 2002, in exchange of its 2,652,518equity shares with a par value of Rs 5 each. The transaction was accounted for under the purchase method of accounting.The fair value of the purchase consideration based on the fair value of Biocon ‘s equity shares was determined to beRs. 49,123,120, based on a per share value of Rs 1.30677 per share which was higher than the fair value of the correspondingshare of net assets acquired of Rs 27,121,161. This resulted in goodwill of Rs 22,001,959 being created as part of thisacquisition.

The Company has identified Syngene’s contract research business as the reporting level unit and has assigned assetsacquired and liabilities assumed to this unit. The fair value of the reporting unit is determined based on future cash flows ofthe business, discounted at the rate of 9 per cent per annum, for 4 years on an unleveraged basis, projecting a future likelygrowth rate of 10 per cent per annum. As of December 31, 2003, management believes that such goodwill is not impaired.

4. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash in hand and balances available in current accounts.

December 31, 2003 March 31, 2003In US$ In Rs In Rs

(Refer to Note 2.2)

Cash in hand 7,047 320,978 186,998Bank balances 24,459 1,114,119 1,151,296

31,506 1,435,097 1,338,294

5. RESTRICTED AND OTHER TIME DEPOSITS

Restricted time deposits as of December 31, 2003 and March 31, 2003 includes Rs 20,000,000 maturing over the next 5 to11 months used as a lien executed for availing an overdraft facility of Rs 20,000,000 to finance working capital, repayableon demand, carrying an interest rate of 2 per cent above the time deposit rate, per annum. The Group has utilised thefacility during the period and the overdrawn balances as of December 31, 2003 and March 31, 2003 aggregate Rs 2,259,415and Rs Nil respectively. Other time deposits include Rs 2,000,000 (March 31, 2003 – Rs 5,000,000), which is held withHSBC, and will mature over the next 6 months.

6. MARKETABLE SECURITIES

The carrying value of mutual fund units as of December 31, 2003 aggregates Rs 142,080,149 (March 31, 2003 – Rs 50,000,000).

December 31, 2003 March 31, 2003Cost Fair value Cost Fair value

In Rs In Rs In Rs In Rs

IL&FS Fixed Maturity Plan - - 50,000,000 50,000,000JM Mutual Fund 35,417,505 35,420,200 - - LIC Mutual Fund 20,216,700 20,241,144 - - TATA Mutual Fund 15,106,938 15,106,533 - - Reliance Fixed Term Scheme 40,000,000 40,000,000 - - Reliance Mutual Fund 15,105,507 15,099,650 - - HSBC Mutual Fund 16,210,132 16,212,622 - -

142,056,782 142,080,149 50,000,000 50,000,000

The gross realized gains on marketable securities for the nine-month period ended December 31, 2003 amounts toRs 3,229,001 (March 31, 2003 – Rs Nil) and has been included as a part of Other Income.

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7. TRADE RECEIVABLES, NET

December 31, 2003 March 31, 2003

In US$ In Rs In Rs(Refer to Note 2.2)

Trade receivables 30,875,340 1,406,371,752 757,911,189

Less: Provision for doubtful receivables 219,539 10,000,000 4,609,125

30,655,801 1,396,371,752 753,302,064

During the nine month period ended December 31, 2003, the Group had written off Rs 197,085(March 31, 2003 — Rs Nil) being irrecoverable amounts from identified customers. The provision for doubtful receivablesof Rs 5,390,875 made during the nine-month period ended December 31, 2003 has been made on the basis of specificcustomer identification.

8. INVENTORIES

December 31, 2003 March 31, 2003

In US$ In Rs In Rs(Refer to Note 2.2)

Raw materials 10,621,754 483,820,877 250,103,994

Goods-in-transit 341,523 15,556,434 16,803,012

Packing materials 49,205 2,241,293 1,446,064

Work-in-process 4,147,775 188,931,141 198,608,203

Finished goods 235,253 10,715,752 12,093,749

15,395,510 701,265,497 479,055,022

During the nine-month period, the Company has written off Rs 10,426,044 (March 31, 2003 — Rs 8,503,611) towardsidentified obsolete and slow moving inventory.

9. PROPERTY, PLANT AND EQUIPMENT, NET

Estimated December 31, 2003 March 31, 2003useful life In US$ In Rs In Rs(In years) (Refer to Note 2.2)

Land 942,339 42,923,535 15,978,578

Advance paid towards acquisition of Land 2,603,672 118,597,270 64,200,000

Buildings 25 7,402,960 337,204,839 302,566,956

Plant, machinery and equipment 3 – 11 27,467,999 1,251,167,338 1,163,850,776

Research and development equipment 9 3,812,455 173,657,356 130,935,651

Furniture and fixtures 6 729,556 33,231,271 24,048,403

Vehicles 6 229,798 10,467,277 10,467,277

Capital work-in-progress 9,463,615 431,067,661 79,852,440

52,652,394 2,398,316,547 1,791,900,081

Accumulated depreciation (11,289,322) (514,228,625) (399,275,221)

Property, plant and equipment, net 41,363,072 1,884,087,922 1,392,624,860

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Property, plant and equipment, net above includes the following assets held under capital leases:

December 31, 2003 March 31, 2003

In US$ In Rs In Rs(Refer to Note 2.2)

Computers (included in plant, machinery and equipment) 97,085 4,422,217 4,422,217

Vehicles 43,908 2,000,000 2,000,000

140,993 6,422,217 6,422,217

Less: Accumulated depreciation 140,993 6,422,217 6,422,217

- - -

During the nine month period, the Group has capitalised borrowing costs identifiable to property, plant and equipmentof Rs. 5,996,000 (March 31, 2003 — Rs. 1,664,479).

On December 5, 2002, Karnataka Industrial Areas Development Board (‘KIADB’) allotted land aggregating 26.75 acres tothe Company for Rs 64,200,000 on a lease-cum-sale basis for a period of 6 years. Further, during the period the Companyhas acquired an additional 20 acres of land for Rs 48,202,350 from KIADB. The same is reflected at the current allotmentrate, the final amount to be determined by KIADB on the completion of six years on fulfilment of certain conditions.

The Company is required to comply with conditions as defined, which include a condition to commence commercialoperations within 24 months of possession i.e. by December 2004 and the Group is confident of fulfilling all the definedconditions as per the agreement with KIADB and accordingly, the payment has been reflected as ‘Advance paid towardsacquisition of Land’ and included in property, plant and equipment above.

During the nine-month period, Biocon has acquired 11.8 acres of freehold land from KMZ, the Managing Director, whichwas earlier leased to the Company, at an aggregate cost of Rs 26,749,888, which approximates the fair value of such landon the date of the acquisition.

10. FINANCIAL INSTRUMENTS

10.1 Fair Value of Financial instruments

SFAS 107 requires the Group to disclose the fair value of all financial instruments in the financial statements. However,this does not change any requirements for recognition, measurement, or classification of the financial instruments inthe financial statements.

The fair values of the Group’s current assets and current liabilities approximate their carrying values because oftheir short maturity. Such financial instruments are classified as current and are expected to be liquidated within thenext twelve months.

Long-term rental deposits, included under dues from related party for the year ended March 31, 2003 representinterest free deposits given for the factory premises taken on lease from the Managing Director. These depositswere refunded when the Company acquired such land during the nine month period ended December 31, 2003. (Referto Note 9 and 19).

Long-term employee receivables are loans given to employees to acquire assets such as property and cars. Suchloans are repayable over fixed periods ranging from three to eight years and are interest-free in nature. The fairvalue, determined using market rates of interest, of loans to employees of Rs 14,834,843 (March 31, 2003 —Rs 15,120,946) is Rs 12,210,588 (March 31, 2003 — Rs 11,404,637).

Long-term loan is repayable within five years. The Group pays interest on such loan at a rate, which closelyapproximates the market rate. Hence, the fair value of the long-term loan closely approximates its carrying value inthe financial statements of Rs 75,400,000 (March 31, 2003 — Rs 166,378,755).

As more fully discussed in Note 15, deferred sales taxes liability represents deferment of the sales tax liability of theCompany for a period of 8 to 12 years. These amounts are interest free in nature and are repayable over a 5 year term

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after the end of the deferment period. The fair value, determined using market rates of interest, of the amount ofdeferred sales tax, carried in the financial statements at Rs 163,329,812 (March 31, 2003 — Rs 103,545,391), determinedusing market rates of interest is Rs 88,158,975 (March 31, 2003 — Rs 39,967,690).

10.2 Concentration of credit risk

Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cashequivalents, investments in mutual funds, time deposits and trade receivables. By their nature, all such financialinstruments involve risk including the credit risk of non-performance by counter parties.

The Group’s cash equivalents and time deposits are invested with banks with high investment grade credit ratings.To reduce credit risk, investments are made in a diversified portfolio of mutual funds, as described in Note 6, whichare periodically reviewed.

Trade receivables are typically unsecured and are derived from revenues earned from customers. The Group monitorsthe credit worthiness of its customers to which it grants credit terms in the normal course of the business. TheCompany has a customer in China, Canada and India who individually accounted for 7, 4 and 13 per cent of thetrade receivables respectively and 14, 11 and 8 per cent respectively of the total sale of products during the nine-month period ended December 31, 2003.

In management’s opinion, as of December 31, 2003, there was no significant risk of loss in the event of non-performance of the counter parties to these financial instruments, other than the amounts already provided for inthe financial statements.

11. SHORT TERM BORROWINGS

December 31, 2003 March 31, 2003

In US$ In Rs In Rs(Refer to Note 2.2)

Cash credit and packing credit from banks 8,562,444 390,019,313 276,536,087

Book overdraft 51,495 2,345,623 352,144

8,613,939 392,364,936 276,888,231

Cash credit and packing credit from banks

(i) Biocon has a total rupee and foreign currency denominated fund based working capital facilities with State Bank of India (‘SBI’) of Rs130,000,000. These facilities are repayable on demand, secured by the hypothecation of inventories and book debts and carry an interestrate of 2.1 per cent per annum for foreign currency denominated loans and 7.5 to 12.25 per cent per annum for rupee loans. Theamount outstanding as on December 31, 2003 is Rs. Nil (March 31, 2003 — Rs. 39,650,178) inclusive of foreign currency denominatedloans of Rs. Nil [March 31, 2003 — Rs. 39,596,571 (US$ 834,051)].

(ii) Biocon has a total rupee and foreign currency denominated working capital facilities with Hongkong and Shanghai Banking Corporation(‘HSBC’) for Rs 175,000,000. These facilities are repayable on demand, secured by the hypothecation of inventories and book debt andcarry an interest rate of 2 per cent per annum for foreign currency denominated loans and 6 to 15 per cent per annum for rupee loans.Biocon has utilised Rs 171,223,491 (March 31, 2003 — Rs. 115,580,186) as of December 31, 2003 inclusive of foreign currencydenominated loans of Rs 100,319,990 (US$ 2,200,000) [March 31, 2003 — Rs. 90,255,512 (US$ 1,902,387)].

(iii) Biocon has a working capital facilities with Canara Bank (‘CB’) for Rs 130,000,000. These facilities are repayable on demand, secured bythe hypothecation of inventories and book debt and carry an interest rate of 2.1 per cent for foreign currency denominated loans and 8to 11.75 per cent per annum for rupee loans. Biocon has utilised Rs. 127,692,147 (March 31, 2003 — Rs. 121,305,722) as of December31, 2003 inclusive of foreign currency denominated loans of Rs. 127,626,362 (US$ 2,798,824) [March 31, 2003 — Rs. 117,435,931(US$ 2,473,637)].

The above working capital loans are further secured by the personal guarantee of the Managing Director.

(iv) During the nine-month period, Biocon entered into a working capital facility with Export Import Bank (‘EXIM Bank’) for Rs 92,860,000(US$ 2,000,000). These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry aninterest rate of 2.2 per cent. Biocon has utilised Rs 91,103,675 (US$ 1,997,888) [March 31, 2003 — Rs Nil) as of December 31, 2003.

The total interest expense incurred for the total short term borrowings for the nine month period ended December 31, 2003 aggregatedRs 12,783,486 (March 31, 2003 – Rs 26,350,913) excluding interest received from suppliers amounting to Rs 6,028,545 (March 31,

2003 – Rs 1,577,085) and interest capitalised amounting to Rs 5,996,000 (March 31, 2003 – Rs 1,664,479).

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12. LONG TERM DEBTDecember 31, 2003 March 31, 2003

In US$ In Rs In Rs(Refer to Note 2.2)

Term Loans

EXIM Bank loan - - 64,738,706

SBI Bank loan - - 26,667,250

HSBC Bank loan - - 149,166,666

Technology Development Board 2,129,528 97,000,000 65,000,000

2,129,528 97,000,000 305,572,622

Less Current portion of long term debt (474,204) (21,600,000) (139,233,867)

1,655,324 75,400,000 166,338,755

Term loans

(i) On April 9, 1999, Biocon entered into a term loan facility with EXIM bank for Rs 126,001,000 for funding its fixed asset acquisitions ofthe Submerged Fermentation Plant. These loans are repayable in 9 equal half yearly instalments commencing from December 10, 2000,and are secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 10.5 per cent perannum. Biocon had a balance of Rs 42,001,000 drawn but not due as of March 31, 2003, which was paid off in full as of December 31,2003.

(ii) On November 5, 1999, Biocon entered into a term loan facility with EXIM bank of India for Rs 46,730,706 for funding its fixed assetsacquisitions of the PlaFractor Plant. These loans are repayable in 10 equal half yearly instalments commencing from December 10,2000, secured by a charge on the fixed assets of Biocon and carry an interest rate of 7 per cent per annum. Biocon had a balance of Rs22,737,706 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003.

(iii) On May 5, 1999, Biocon entered into a term loan facility with SBI for Rs 50,000,000 for funding its fixed asset acquisitions of theSubmerged Fermentation Plant. These loans are repayable in 60 equal monthly instalments commencing from December 2000, aresecured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 2.99 per cent per annum forforeign currency denominated loan and 13 per cent per annum for the rupee loan. Biocon had a balance of Rs 26,667,250 drawn but notdue as of March 31, 2003, which was paid off in full as of December 31, 2003.

(iv) Biocon had obtained a rupee and foreign currency denominated term loan facility with HSBC for Rs 170,000,000 for funding its fixedasset acquisitions during the period and fully utilised this facility during the year ended March 31, 2003. The instalments commencingfrom November 2002, are secured by a pari passu charge over the fixed assets of Biocon and loan is repayable in 44 monthly carry aninterest rate of 2.77 per cent per annum for foreign currency denominated loans and 6.6 per cent per annum for rupee loans. Biocon hada balance of Rs 149,166,666 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003.

(v) On July 3, 2002, Biocon entered into a term loan facility with Technology Development Board (‘TDB’) forRs 100,000,000 for funding its fixed asset acquisitions of the PlaFractor plant. These loans are repayable in9 equal half yearly instalments commencing from February 2004, are secured by a first pari passu mortgage and charge on the fixed assetsof Biocon and carry an interest rate of 5 per cent per annum. As of December 31, 2003, Biocon had drawn Rs 97,000,000 (March 31,2003 — Rs 65,000,000) from the above facility.

The above term loans are further secured by the personal guarantee of the Managing Director.

The total interest expense incurred on the total long term borrowings for the nine month period ended December 31, 2003 aggregated Rs11,668,160 (March 31, 2003 — Rs 26,701,866) excluding interest received from suppliers amounting to Rs 6,028,545 (March 31, 2003 –

Rs 1,577,085) and interest capitalised amounting to Rs 5,996,000 (March 31, 2003 – Rs 1,664,479).

The maturity profile of the long-term debt is as follows:

In US$ In Rs(Refer to Note 2.2)

Period ending December 31,

2004 474,204 21,600,000

2005 474,204 21,600,000

2006 474,204 21,600,000

2007 472,009 21,500,000

2008 234,907 10,700,000

2,129,528 97,000,000

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The significant loan covenants for the TDB loan are as follows:

(i) The project envisaged commissioning of 9 PlaFractor equipment for the manufacture of mycophenolate mofetil;

(ii) In the event, the Company fails to commercialise the product/process within a period of 5 years from the date of the first disbursement,TDB shall be entitled to have the right to sell the technical know-how of the product/process developed under the project;

(iii) The amount of the loan assistance is to be used strictly for the purpose of the project;

(iv) The Company without the written permission of the TDB cannot declare dividend, undertake any merger, consolidation, revalue itsassets; transfer, assign, dispose of, pledge, charge, hypothecate or create any lien or in anyway encumber on all its undertakings, properties

and assets acquired for the project in favour of any person(s).

As of December 31, 2003, the Group has complied with all the above mentioned loan covenants.

13. EMPLOYEE BENEFIT PLANS

The Group has employee benefit plans in the form of certain statutory and welfare schemes covering substantially all ofits employees. The Group’s cost related to defined contribution plans and vacation pay is as follows:

Nine months period ended Year endedDecember 31, 2003 March 31, 2003

In US$ In Rs In Rs(Refer to Note 2.2)

Provident fund 211,204 9,620,344 10,316,139

Superannuation 222,996 10,157,457 11,986,840

Vacation pay 73,723 3,358,085 7,202,042

507,923 23,135,886 29,505,021

The change in benefit obligation and funded status of the gratuity plan for the nine month period ended December 31, 2003and for the year ended March 31, 2003 are as follows:

December 31, 2003 March 31, 2003

Change in benefit obligation

Benefit obligation at the beginning of the period/year 31,484,000 20,654,147

Service cost 8,583,141 9,866,574

Interest cost 1,180,650 1,239,337

Benefits paid (754,615) (276,058)

Actuarial Loss - -

Benefit obligation at the end of the period/year (A) 40,493,176 31,484,000

Change in plan assets

Fair value of plan assets at beginning of period/year 31,945,207 16,026,836

Return on plan assets 1,197,945 657,162

Actual contribution - 15,537,267

Benefits paid (754,615) (276,058)

Fair value of plan assets at end of period/year (B) 32,388,537 31,945,207

Funded status (A-B) 8,104,639 461,207

Excess of actual over estimated return - (304,448)

Accrued benefit cost 8,104,639 156,759

Net gratuity cost for the nine month period ended December 31, 2003 and year ended March 31, 2003 includes the followingcomponents:

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December 31, 2003 March 31, 2003

Components of net benefit cost

Service cost 8,583,141 9,866,574

Interest cost 1,180,650 1,239,337

Return on planned assets (1,197,945) (657,162)

Net gratuity cost (March 31, 2003 — Rs 10,448,749) 8,565,846 10,448,749

The assumptions used in accounting for the gratuity plan for the nine-month period ended December 31, 2003 and year endedMarch 31, 2003 are below:

December 31, 2003 March 31, 2003

Discount rate 5 % 6 %

Expected return on planned assets 5 % 6 %

Rate of compensation increase 6 % 6 %

The Group evaluates these assumptions based on its long-term plans of growth and industry standards.

14. PROVISION FOR INCOME TAXES

Nine months period ended Year endedDecember 31, 2003 March 31, 2003

In US$ In Rs In Rs(Refer to Note 2.2)

Current taxes 4,474,272 203,803,106 83,845,707

Deferred taxes 970,100 44,188,055 39,263,792

Provision for income tax 5,444,372 247,991,161 123,109,499

The components of the deferred tax liability are as follows:

December 31, 2003 March 31, 2003In US$ In Rs In Rs

(Refer to Note 2.2)

Deferred tax assets:

Provision for employee benefits 147,265 6,707,928 5,989,536

Technical know how fees 98,152 4,470,810 4,470,810

Others 73,923 3,367,191 2,427,412

Total deferred tax assets 319,340 14,545,929 12,887,758

Deferred tax liabilities:

Depreciation on property, plant and equipment 3,747,812 170,712,843 149,848,686

Undistributed profit of subsidiary 548,454 24,982,070 -

Total deferred tax liabilities 4,296,266 195,694,913 149,848,686

Net deferred tax liability 3,976,926 181,148,984 136,960,928

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The net deferred tax asset/(liability) is presented in the balance sheet as follows:

December 31, 2003 March 31, 2003Particulars In US$ In Rs In Rs

(Refer to Note 2.2)

Net current deferred tax asset/(liability):

Deferred tax asset 201,264 9,167,568 7,283,694

Deferred tax liability - - (494,697)

201,264 9,167,568 6,788,997

Net non-current deferred tax asset/(liability):

Deferred tax asset 118,076 5,378,361 6,098,761

Deferred tax liability (4,296,266) (195,694,913) (149,848,686)

(4,178,190) (190,316,552) (143,749,925)

Net deferred tax liability 3,976,926 181,148,984 136,960,928

The following is a reconciliation of the income tax at the statutory tax rate under the Indian Income-tax Act, 1961 and theprovision for income tax:

Nine month ended Year endedDecember 31, 2003 March 31, 2003

In US$ In Rs In Rs(Refer to Note 2.2)

Net income before taxes 25,866,583 1,178,222,921 567,444,398

Enacted tax rates in India 35.88% 35.88% 36.75%

Computed tax expense 9,279,637 422,687,473 208,535,816

Undistributed profits of subsidiary 548,454 24,982,070 -

Permanent Differences

Non taxable export income (4,068,071) (185,300,622) (69,040,377)

Stock compensation costs 90,732 4,132,849 12,444,939

Weighted deduction on research and development expenses (373,640) (17,019,309) (29,234,434)

Interest on delayed payment of tax - - 1,343,734

Others (32,740) (1,491,300) (940,179)

Provision for income tax 5,444,372 247,991,161 123,109,499

Biocon, Syngene and Clinigene file separate tax returns as per the applicable tax laws in India.

On July 1, 2002, Biocon received an approval from the Department of Scientific and Industrial Research to claim a weighteddeduction of 150 per cent on the expenditure incurred on scientific research or in-house research and development facilityunder section 35(2AB) of the Indian Income-tax Act, 1961 retroactively from financial year 1999-2000.

Under the Indian Income-tax Act, 1961, the profits of Syngene and certain units of Biocon are exempt from income taxesbeing profits attributable to earnings from a 100 per cent export oriented unit. Under this tax holiday, Syngene can utilisethe deduction for a period of 10 consecutive years starting from April 1, 1998. Syngene has opted for this exemption forthe years ended March 31, 1999 to March 31, 2008. On February 24, 2003, Syngene obtained an approval from theDepartment of Scientific and Industrial Research for exemption of profits for further five year i.e. upto financial year 2013.Further, each of the constituent entities in the Group shall be able to utilise a deduction from Indian income taxes forprofits attributable to export operations.

During the year ended March 31, 2003, Biocon believed that it could transfer the undistributed profits of Syngene in atax free manner and accordingly, did not recognise the deferred tax liability on the undistributed profits of Syngene. The

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accumulated profits of Syngene as of December 31, 2003 is available for distribution to Biocon (the holding company) atthe applicable tax rate for dividend distribution. For the nine-month period ended December 31, 2003 the Company hasrecognised the deferred tax liability for the excess of the financial reporting basis over the tax basis of its investment inSyngene.

Temporary differences between the financial statement carrying amounts of existing assets and liabilities and theirrespective tax bases arose due to difference in depreciation rates of property, plant and equipment and provision forgratuity and leave encashment which are allowable on a payment basis under the Indian Income-tax Act. Since exportturnover of the Group qualifies for a deduction from taxable income, a substantial portion of the temporary differenceswould not have any tax consequences, as they will reverse within the tax holiday period.

15. DEFERRED SALES TAXES LIABILITY

The Company has availed the benefit of deferring its sales tax liability for its manufacturing facilities in Bommasandraand Hebbagodi, to an extent of Rs 24,375,000 and Rs 648,938,000, in accordance with the Agro Food Processing IndustrialPolicy of the Government of Karnataka, for a period of 8 years and 12 years respectively. In accordance with theGovernment Order, the Group has deferred its sales tax liabilities aggregating Rs 163,629,812 (March 31, 2003 —Rs 103,545,391).

16. STOCKHOLDER’S EQUITY

The Company has only one class of common stock referred to herein as equity shares and each holder of equity sharesis entitled to one vote per share. Final dividends proposed by the Board of Directors are payable when formally approvedby the shareholders, who have the right to decrease but not increase the amount of the dividend recommended by theBoard of Directors. In the event of liquidation of the Company, the holders of equity shares shall be entitled to receiveall of the remaining assets of the Company, after distribution of all preferential amounts, if any. Such amounts will be inproportion to the number of equity shares held by the shareholders. The Indian Companies Act, 1956, provides certainguidelines and restrictions on the amount of dividend, which a Company can declare to the stockholders.

The stockholders in the Extraordinary General Meeting (‘EGM’) of the Company held on November 11, 2003, approved thesub-division of equity shares of face value of Rs 10 each into 2 equity shares of Rs 5 each. Further, the stockholders in theEGM of the Company held on November 11, 2003, approved the allotment of 86,324,700 equity shares of Rs 5 each as bonusshares in the ratio of 1:23.48779580. The bonus shares have been issued by the capitalisation of retained earnings.Accordingly, the number of equity shares authorised and outstanding prior to the bonus issue have been restated to reflectthe retroactive effect of the bonus issue from the beginning of the earliest period reported. Also, the earnings per sharehave been retroactively adjusted taking cognisance of the enhanced equity base due to the bonus issue.

December 31, 2003 March 31, 2003In US$ In Rs In Rs

(Refer to Note 2.2)

Authorised:120,000,000 equity shares of Rs 5 each (March 31, 2003 —120,000,000 equity shares of Rs 5 each) 13,172,338 600,000,000 600,000,000

Issued, subscribed and fully paid:90,000,000 (March 31, 2003 — 90,000,000)equity shares of Rs 5 each, fully paid 9,879,254 450,000,000 450,000,000

17. EMPLOYEE STOCK OPTION PLAN (‘ESOP’)

On September 27, 2001, the Board of Director’s approved the Biocon ESOP 2000 (‘the plan’) for the grant of stock optionsto the employees of Biocon and its subsidiaries. A compensation committee has been constituted to administer the planthrough the Biocon India Ltd Employee Welfare Trust (‘the Trust’).

The Trust purchases equity shares of Biocon using the proceeds from the loan obtained from Biocon and will subscribe

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to such number of shares as is necessary for transferring to the employees. The total number of equity shares transferredto the Trust shall not exceed 12,243,898 equity shares of Rs 0.2 each and shares transferred to each employee will notexceed 489,756 equity shares of Rs 0.2 each. The Compensation Committee shall determine the exercise price, which willnot be less than the face value of the shares. The options will vest with the employees equally over a four-year period.In accordance with the plan during the year ended March 31, 2003, the Company had granted 3,502,260 options to theeligible employees of the Company and its subsidiaries at an exercise price of Rs 0.10209 per share. 25 per cent of thetotal options granted under the plan will vest to the eligible employees on the completion of 12, 24, 36 and 48 monthsand is subject to the continued employment of the employee with the Company or its subsidiaries.

In case the employee resigns from employment, the rights relating to shares, which are eligible for exercise, may bepurchased by payment of the exercise price whereas, the balance shares shall be forfeited in favour of the ESOP Trust.

The Group applied APB Opinion 25 and related Interpretations in accounting for this plan. In accordance with APBOpinion 25, the compensation cost has been recognised for the differential between the exercise price and the fair valueof value of the shares on the date of the grant, which was Rs 18.76445 per share. The compensation cost is recognized inthe financial statements over the vesting period. The percentage to be recognized in each year is based on the aggregatepercentage accrued to the employee at the end of each year.

The Trust had 6,181,186 equity shares of Rs 5 each as of December 31, 2003 and a summary of the activity of the Trust isas follows:

Particulars December 31, 2003 March 31, 2003

Opening balance of unallocated shares 3,398,402 6,123,418

Shares acquired by the Trust 122,438 777,229

Shares allocated to employees - (3,502,245)

Shares forfeited and expired 125,500 -

Closing balance of unallocated shares 3,646,340 3,398,402

Options granted and exercised at period/year end (841,914) -

Options granted but not eligible for exercise at period/year end - (875,586)

Options granted but not eligible for exercise at period/year end (2,534,846) (2,626,674)

(3,376,760) (3,502,260)

Weighted average exercise price Rs 0.10209 Rs 0.10209

The total stock compensation cost recognised in the statement of income for the nine-month period endedDecember 31, 2003 and year ended March 31, 2003 is as follows:

Nine months ended Year endedDecember 31, 2003 March 31, 2003

In US$ In Rs In Rs(Refer to Note 2.2)

Cost of products sold 78,809 3,589,750 12,597,752

Cost of contract research services 63,495 2,892,178 7,415,841

Research and development expenses 26,227 1,194,662 3,385,904

Selling, general and administrative expenses 84,381 3,843,547 10,464,282

252,912 11,520,137 33,863,779

Shares allocated to the employees have been considered as outstanding for basic EPS to the extent they are vested.Shares held by the Trust, which have been allocated but not vested have been included for diluted EPS. The loan grantedto the Trust has been presented as a separate component of equity and repayments of the loan, by way of exercise ofthe shares by the employees has been applied toward this loan in the equity statement.

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18. LEASES

The Company had entered into an operating lease agreement for certain land for the factory (Refer to Note 19). Grossrental expenses for the nine-month period ended December 31, 2003 aggregated to Rs 720,000 (March 31, 2003 —Rs 960,000). However, the Company has on December 23, 2003 acquired the land and hence, there are no further committedlease rentals in future towards the lease of such land.

The Group has taken vehicles for certain employees under operating leases, which expire in March 2007. Gross rentalexpenses for the nine-month period ended December 31, 2003 aggregated to Rs 877,104 (March 31, 2003 — Rs 383,460).The committed future minimum lease rental payments are:

December 31, 2003In US$ In Rs

(Refer to Note 2.2)

Year ending December 31,

2004 24,101 1,097,805

2005 24,101 1,097,805

2006 24,101 1,097,805

2007 8,330 379,453

80,633 3,672,868

19. RELATED PARTY TRANSACTIONS

The Group had entered into transactions with the principal shareholder KMZ, for the lease of a portion of the factoryland. The rental expense paid to KMZ for the lease of land amounts to Rs 720,000 (March 31, 2003 — Rs 960,000). However,the Company has on December 23, 2003 acquired the land for a total consideration of Rs 26,749,888. In addition, theCompany had given KMZ, a refundable deposit for such land, which has been fully refunded as of December 31, 2003.

The remuneration paid to KMZ and JMM in accordance with the agreement entered into by them with the Company forthe nine month period ended December 31, 2003 was Rs 17,184,529 (March 31, 2003 — Rs 19,403,566).

20. COMMITMENTS AND CONTINGENCIES

a) Capital commitments

The Group had committed to spend approximately Rs 891,112,038 as of December 31, 2003 (March 31, 2003 —Rs 259,014,106), under agreements to purchase property, plant and equipment. This amount is net of advances paidin respect of these purchases. The Company is committed to arrange capital investment and finance expenditurerequired by the joint venture, BBPL and as per the agreement has committed to finance upto U$5.1 million.

b) Guarantees

Guarantees provided by banks on behalf of the Group amounted to Rs 245,000,000 (March 31, 2003 — Rs 95,000,000),which mature over periods upto September 2006. The guarantees are primarily in the nature of performance guaranteesand were provided to Indian Government agencies. The Group has concluded that the risk of the guarantees beingcalled is remote and accordingly no provision has been made.

c) Claims against the Group

The Group accounts for loss contingencies when the likelihood of the underlying adverse event occurring is probableand the loss can be reasonably estimated.

(i) Taxation matters under appeal

Biocon has received demand notices from the Income tax authorities in respect of assessments made in the years1993 to 1998 aggregating Rs 7,629,192 till December 31, 2003 (March 31, 2003 — Rs 7,629,192). Biocon has appealedthese assessments and management does not anticipate incurring a liability in respect of these amounts.

(ii) Other claims against the Group not acknowledged as debts amount to Rs 2,280,000 in December 31, 2003 (March 31,2003 — Rs 2,373,750).

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d) Other commitments

The Group’s operations are carried out from two units registered as a 100 per cent export oriented unit under theSpecial Economic Zone (‘SEZ’) scheme. Under this scheme the registered units have export obligations, which arebased on the formula provided by the notifications/circulars issued by the SEZ authorities from time to time.

The consequence of not meeting the above commitments would be a retroactive levy of import duty on itemspreviously imported duty free for these units. Additionally, the respective authorities have rights to levy penaltiesfor any defaults on a case-by-case basis. Management believes that it would meet the required export obligations.

21 SEGMENTAL INFORMATION

Business segments

The primary reporting of the Group has been performed on the basis of business segments. The Group is organised intothree business segments, enzymes, active pharmaceutical ingredients (‘Pharma’) and contract research services. Segmentshave been identified and reported based on the nature of the products, the risks and returns, the organisation structureand the internal financial reporting systems.

April 1, 2003 to December 31, 2003

Particulars Enzyme Pharma Contract Unallocated Eliminations TotalResearch

Revenues

External sales 483,889,561 3,228,387,979 264,985,732 - - 3,977,263,272

Inter-segment transfers 31,709,959 - - - (31,709,959) -

Total revenues 513,896,210 3,212,107,553 267,303,106 - (31,709,959) 3,977,263,272

Costs

Segment costs (305,370,427) (1,856,093,343) (154,017,555) - - (2,315,481,325)

Inter-segment transfers - (31,709,959) - - 31,709,959 -

Gross profit

Segment result 208,525,783 1,324,304,251 113,285,551 - - 1,661,781,947

Corporate expenses - - - (365,876,053) - (365,876,053)

Other income - - - 10,419,447 - 10,419,447

Interest income - - - 932,385 - 932,385

Operating profit 1,307,257,726

Depreciation (13,844,723) (47,121,173) (16,900,599) (37,086,909) - (114,953,404)

Interest expense - (3,553,288) (346,536) (8,527,277) - (12,427,101)

Share of losses in BBPL - - - (1,654,300) - (1,654,300)

Income taxes -

Current and deferred - - - (247,991,161) - (247,991,161)

Net profit 930,231,760

Other information

Segment assets 512,771,441 2,943,225,538 377,854,750 - - 3,833,851,729

Unallocated corporate assets - - - 480,064,743 - 480,064,743

Total assets 4,313,916,472

Segment liabilities 115,661,598 977,635,887 97,085,138 - - 1,190,382,624

Unallocated corporateliabilities - - - 859,538,316 - 859,538,316

Total liabilities 2,049,920,940

Capital expenditure 19,453,388 12,650,709 21,696,677 202,691,716 - 256,492,490

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April 1, 2002 to March 31, 2003

Particulars Enzyme Pharma Contract Unallocated Eliminations TotalResearch

Revenues

External sales 532,448,084 2,009,951,046 277,481,157 - - 2,819,880,287

Inter-segment transfers 55,497,389 - - - (55,497,389) -

Total revenues 587,945,473 2,009,951,046 277,481,157 - (55,497,389) 2,819,880,287

Costs

Segment costs (355,101,288) (1,129,472,056) (177,406,272) - - (1,661,979,616)

Inter-segment transfers - (55,497,389) - - 55,497,389 -

Gross profit

Segment result 232,844,185 824,981,601 100,074,885 - - 1,157,900,671

Corporate expenses - - - (412,884,845) - (412,884,845)

Other income - - - 4,324,847 - 4,324,847

Interest income - - - 2,751,478 - 2,751,478

Operating profit 752,092,151

Depreciation (12,491,675) (59,570,221) (16,428,695) (45,467,514) - (133,958,105)

Interest expense - (15,096,700) - (35,592,949) - (50,689,648)

Income taxes - Currentand deferred - - - (123,109,499) - (123,109,499)

Net profit 444,334,899

Other information

Segment assets 479,692,430 1,827,844,623 173,560,336 - - 2,481,097,389

Unallocated corporate assets - - - 400,024,210 - 400,024,210

Total assets 2,881,121,599

Segment liabilities 6,437,726 326,722,194 64,723,678 - - 397,883,598

Unallocated corporateliabilities - - - 1,161,149,366 - 1,161,149,366

Total liabilities 1,559,032,964

Capital expenditure 63,719,838 111,552,245 74,049,263 123,612,281 - 372,933,627

Geographical segments

Secondary segmental reporting is performed on the basis of the geographical location of customers. The operations of theGroup comprise exports contributing to approximately 59 percent (March 31, 2003 — 48 per cent). The management views theIndian market and export markets as distinct geographical segments. The following is the distribution of the Group’s sale bygeographical markets

Revenues April 1, 2003 to April 1, 2002 toDecember 31, 2003 March 31, 2003

India 1,631,311,765 1,465,021,558

Exports 2,345,951,507 1,354,858,729

Total 3,977,263,272 2,819,880,287

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Assets and additions to fixed assets by geographical area - The following is the carrying amount of segment assets andadditions to fixed assets by geographical area in which the assets are located:

Carrying amount of segment assets

December 31, 2003 March 31, 2003

India 3,710,092,928 2,620,258,766

Outside India 603,823,545 260,862,833

4,313,916,473 2,881,121,599

Carrying amount of segment assets outside India represents receivables from export debtors and export benefits recoverable.

Segment revenue and result

The expenses that are not directly attributable and that cannot be allocated to a business segment on a reasonable basis areshown as unallocated corporate expenses.

Inter-segment transfers

Segment revenue, segment costs and results include transfers between business segments. Such transfers have been madeat cost. The inter-segment transfers have been eliminated on consolidation.

Segment assets and liabilities

Segment assets include all operating assets used by the business segment and consist principally of fixed assets, investments,receivables and inventories. Segment liabilities comprise of long term debts which can be identified directly against therespective segment assets and liabilities. Assets and liabilities that have not been allocated between segments are shown aspart of unallocated corporate assets and liabilities respectively.

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BIOCON LIMITED(formerly BIOCON INDIA LIMITED)

CONSOLIDATED STATEMENTS OF ASSETS AND LFIABILITIES AND PROFITS ANDLOSSES, AS RESTATED, UNDER INDIAN GAAP FOR THE YEAR ENDED MARCH 31, 2003

AND FOR THE NINE MONTHS PERIOD ENDED DECEMBER 31, 2003

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January 17, 2004

To

The Board of DirectorsBiocon Limited20th KM, Hosur Road,Electronic City P.O.,Bangalore – 560 100

Dear Sirs,

1. At your request, we have examined the attached restated consolidated summary statement of assets and liabilities ofBiocon Limited (‘Biocon’ or ‘the Company’) (formerly Biocon India Limited) and its subsidiaries and its joint ventureinvestment (collectively referred to as ‘the Group’) as at December 31, 2003 and March 31, 2003 and the attached restatedsummary statement of profit and loss for each of the period/year ended on those dates (‘Summary Statements’) (seeAnnexure I and II) prepared by the Company and approved by the Board of Directors. These profits have been arrivedat after making such adjustments and regroupings, more fully described in the notes appearing in Annexure III to thisreport and are in accordance with the:

(i) the terms of reference received from the Company, requesting us to carry out work, proposed to be included in theOffer document of the Company in connection with its proposed Initial Public Offer (‘IPO’); and

(ii) Guidance Note on Reports in Company Prospectuses and Guidance Note on Audit Reports/Certificates on FinancialInformation in Offer Documents issued by the Institute of Chartered Accountants of India (‘ICAI’).

Based on our examination of these Summary Statements, we confirm that:

l The impact of changes in accounting policies adopted by the Company as at and for the period endedDecember 31, 2003 have been adjusted with retrospective effect in the attached Summary Statements;

l The prior period items have been adjusted in the Summary Statements in the period/year to which they relate;

l There are no extraordinary items, which need to be disclosed separately in the Summary Statements; and

l There are no qualifications in the auditors’ reports, which require any adjustments to the Summary Statements.

2. The summary of significant accounting policies adopted by the Group pertaining to the audited financial statements forthe period ended December 31, 2003 are enclosed as Annexure IV to this report.

3. We have also examined the statement of accounting ratios based on the restated profits relating to earnings per share,net asset value and return on net worth enclosed in Annexure V based on the consolidated financial information of theGroup proposed to be included in the Offer Document as approved by you and annexed to this report.

4. The sufficiency of the procedures performed, as set forth in the above paragraphs of this report, is the sole responsibilityof the Company. Consequently, we make no representation regarding the sufficiency of the procedures described aboveeither for the purposes for which this report has been requested or for any other purpose.

5. This report is intended solely for your information and for inclusion in the Offer Document in connection with the specifiedIPO of the Company and is not to be used, referred to or distributed for any other purpose without our prior writtenconsent.

S.R. Batliboi & AssociatesChartered Accountants

per Prashant SinghalPartnerMembership No: 93283

BangaloreJanuary 17, 2004

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Annexure I: Statement of Consolidated Profits and Losses, as restated(All amounts in Indian Rupees)

Nine months ended Year ended December 31, 2003 March 31, 2003

IncomeSales

Of products manufactured 3,708,848,336 2,529,353,053Of products traded 3,429,204 13,046,078

Contract Research fees 264,985,732 277,481,157Other Income 9,672,539 7,076,326Total Income 3,986,935,811 2,826,956,614ExpenditureConsumption of raw materials, chemical reagents and traded goods 1,940,529,899 1,372,673,858Employee costs 321,141,522 381,736,417Manufacturing, research, selling and administrative expenses 409,453,991 433,107,156Interest 12,427,101 49,811,215Depreciation 118,356,578 137,431,227(Increase)/decrease in work-in-progress and finished goods 11,055,059 (101,201,886)Total Expenditure 2,812,964,150 2,273,557,987Net profit before taxation 1,173,971,661 553,398,627Current tax 203,803,106 83,845,708Deferred tax 16,454,328 34,398,353Net profit after tax 953,714,227 435,154,566Minority interest 6,368 4,848Net profit before adjustments 953,707,859 435,149,718AdjustmentsIncrease/(decrease) in net profitsImpact of changes in accounting policies:Depreciation(Refer Note 2a on Annexure III) 4,060,660 5,464,818Lease assets(Refer Note 2b on Annexure III) - (740,876)Leave encashment(Refer Note 2c on Annexure III) (9,916,299) 9,916,299Duty drawback(Refer Note 2d on Annexure III) (818,001) (1,058,972)Deferred tax(Refer Note 2e on Annexure III) - (7,840,795)Others(Refer Note 2f on Annexure III) 373,886 148,169Other adjustments:Current tax — (short)/excess provision for tax(Refer Note 3a and 3b on Annexure III) - (13,149,604)Bad debts(Refer Note 3c on Annexure III) (378,070) (827,026)Total impact of adjustments (6,677,824) (8,087,987)Tax impact of adjustments(Refer Note 4 on Annexure III) 2,395,669 (4,741,636)Total of adjustments after tax impact (4,282,155) (12,829,623)Net Profit, as restated 949,425,704 422,320,095Profit and Loss account, beginning of the year 776,027,123 353,707,028

Balance carried forward, as restated 1,725,452,827 776,027,123

The above statement should be read with notes to Statement of Profits and Losses and Assets and Liabilities, as restated, appearing in Annexure

III and the significant accounting policies appearing in Annexure IV.

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Annexure II: Statement of Consolidated Assets and Liabilities, as restated(All amounts in Indian Rupees)

As at As at December 31, 2003 March 31, 2003

Fixed Assets

Gross block 1,994,044,114 1,743,917,882

Less : Accumulated depreciation 513,194,104 402,190,307

Net Block 1,480,850,010 1,341,727,575

Less:Revaluation Reserve 14,817,070 16,599,978[Refer Note 5c on Annexure III]

Net block after adjustment for

Revaluation Reserve 1,466,032,940 1,325,127,597

Capital work in progress 429,388,364 79,852,458

Total 1,895,421,304 1,404,980,055

Investments 142,062,984 50,001,201

Current Assets

Inventories 701,265,498 478,681,133

Sundry debtors 1,396,371,752 753,680,135

Cash and bank balances 21,175,682 26,338,294

Loans and advances 137,783,106 151,827,183

Total 2,256,596,038 1,410,526,745

Liabilities and Provisions

Secured loans 487,019,313 582,108,706

Unsecured loans 163,329,812 103,545,391

Current Liabilities and Provisions 1,209,255,267 719,712,633

Deferred tax liability 153,896,074 140,359,594

Total 2,013,500,466 1,545,726,324

Net worth 2,280,579,860 1,319,781,677

Represented by

Share capital 450,000,000 18,376,500

Reserves and Surplus 1,846,638,416 1,319,408,010

Less: Loan to the ESOP trust 1,258,700 1,413,700

Less:Revaluation reserve[Refer Note 5c on Annexure III] 14,817,070 16,599,978

Less: Revaluation reserve[Refer Note 5c on Annexure III]

Reserves (Net of revaluation reserves) 1,830,562,646 1,301,394,332

Minority interest 17,214 10,845

Total 2,280,579,860 1,319,781,677

The above statement should be read with notes to Statement of Profits and Losses and Assets and Liabilities, as restated, appearing in AnnexureIII and the significant accounting policies appearing in Annexure IV.

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Annexure III: Notes to the consolidated statement of profits and losses and assets and liabilities, as restated

1. Background

Biocon Limited (‘Biocon’ or ‘the Company’) (formerly Biocon India Limited), promoted by Ms Kiran Mazumdar Shaw(‘KMZ’), was incorporated at Bangalore in 1978 for manufacture of biotechnology products. Syngene International PrivateLimited (‘Syngene’) promoted by KMZ, was incorporated at Bangalore in 1993. At March 30, 2002, Biocon acquired99.99 per cent of the equity shares of Syngene and, resultantly, became the subsidiary of Biocon. Clinigene InternationalPrivate Limited (‘Clinigene’) was incorporated on August 4, 2000 and became a wholly owned subsidiary of Biocon onMarch 31, 2001.

Biocon entered into an Agreement on February 22, 2002 to set up a joint venture company, Biocon BiopharmaceuticalsPrivate Limited (‘BBPL’) with CIMAB SA (‘CIMAB’), a company organised and existing under the laws of Cuba andengaged in research, development, manufacturing and marketing of Biopharmaceuticals, to manufacture and marketproducts using technology and to carry out research activities. On April 18, 2003, Biocon acquired 10,200 equity sharesfor an equity participation of 51 per cent in the BBPL.

Biocon together with its subsidiary companies, Syngene and Clinigene and joint venture company, BBPL is collectivelyhereinafter referred to as ‘the Group’.

In accordance with the “Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 (SEBI guidelines) issuedby Securities and Exchange Board of India (‘SEBI’), the Group has also consolidated the ESOP Trust.

2. Adjustments resulting from changes in Accounting Policies

a. Depreciation

For and upto the accounting year ended March 31, 2000, Biocon and Syngene had been providing depreciation onits assets on the written down value method based on the rates specified under schedule XIV of theCompanies Act, 1956 (‘the Act’). Further, upto March 31, 1999, Biocon and Syngene computed depreciation onadditions from the first day of the month of the additions.

Effective April 1, 2000, Biocon and Syngene revised its policy to depreciate assets based on the estimated usefullives of its assets on the basis of a technical evaluation and also changed the method of providing depreciation tothe straight-line method.

Accordingly, depreciation on fixed assets has been recomputed based on the straight line method at the revisedestimated useful lives for the year ended March 31, 1999 and 2000. In addition, depreciation for the nine-month periodended December 31, 2003 and March 31, 2003 have been recomputed by applying the rates based on the revisedestimated useful lives retroactively.

b. Leased assets

Accounting Standard 19, Accounting for Leases (‘AS 19’) issued by the Institute of Chartered Accountants ofIndia (‘ICAI’) is mandatory in respect of accounting periods commencing on or after April 1, 2001. Biocon adoptedAS 19 for the first time in preparing its financial statements for the year ended March 31, 2002. Accordingly, for thepurpose of this statement, the assets for which finance lease rentals were paid during the year ended March 31, 1999,2000 and 2001 have been capitalized and depreciated over the economic useful life of the assets in accordance withAS 19.

c. Leave encashment

Hitherto, the Group accrued for the liability for encashment of unavailed leave payable on retirement of employeeson the basis of current employee compensation rates for the entire unavailed leave balance standing to the credit ofthe employees at the year-end. During the period ended December 31, 2003 the Group changed its accounting policyin respect of leave encashment and accrued for the liability based on an actuarial valuation for the unavailed leavebalance standing to the credit of the employees at period-end. Accordingly, the liability for the year ended March31, 2003 has been recomputed in accordance with the revised accounting policy.

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d. Duty drawback

Effective April 1, 2003, Biocon changed its policy for recognizing duty drawback income on an accrual basis i.e. asand when the eligible export sales are affected, from it being on filing basis for the year ended March 31, 2003. Also,during the nine months period ended December 31, 2003, the Biocon disclosed raw material cost net of duty drawback,whereas in the earlier years the duty drawback income was disclosed as ‘Other income’. Accordingly, duty drawbackincome has been recognized on an accrual basis for the year ended March 31, 2003 and has been adjusted againstraw material cost.

e. Deferred tax

The Group adopted Accounting Standard 22, Accounting for taxes on income (‘AS 22’) issued by ICAI for the firsttime in preparing its financial statements for the year ended March 31, 2002. Accordingly, for the purpose of thisstatement, the deferred tax asset/liability has been recognised in the respective years of origination with acorresponding effect to the statement of profits, as restated, with a corresponding adjustment to general reserve asat March 31, 2002.

Syngene, constituting two 100 per cent Export Oriented Units (approved by the Cochin Export Processing Zone onDecember 14, 1998 and the Cochin Special Economic Zone on August 24, 2001), claims exemption under section 10Bof the Income-Tax Act, 1961 (‘the Act’). Syngene had created a deferred tax liability as at March 31, 2002, as thetiming difference was expected to reverse after the respective tax holiday periods.

Further, during the year ended March 31, 2003, Syngene received an approval from the Department of Scientific andIndustrial Research (‘DSIR’) for exemption of profits under section 80-IB (8A) of the Income-tax Act, 1961.Consequently, Syngene did not recognize any deferred tax liability/asset on account of timing differences, duringthe year ended March 31, 2003, as Syngene expects it to reverse during the tax holiday/tax deduction period.Accordingly, deferred tax asset/liability pertaining to the earlier years have been retroactively adjusted.

f. Other adjustments

Other adjustments include change in the valuation of work-in-progress, finished goods and loss on sale of assets,for the respective years, arisen consequent to the change in the accounting policy of depreciation, as discussed inparagraph 2(a) above.

3. Other material adjustments

a. Current tax

During the year ended March 31, 2003, Biocon received an approval from the Department of Scientific and IndustrialResearch (‘DSIR’) to claim a weighted deduction on the expenditure incurred on scientific research or in-houseresearch and development facility under section 35(2AB) of the Income-tax Act, 1961, retroactively. Consequently,the current tax charge for the year ended March 31, 2003 was after considering a write back of tax relating to theprior years. Accordingly, for the purpose of this statement the resultant write-back of tax has been adjusted in therespective years.

b. Short/excess provision for income tax

Refunds received for advance tax paid has been adjusted to the respective years to which it pertains. Provision forcurrent tax has been restated to the respective year, where there was a shortfall in the provision for tax.

c. Bad debts

The bad debts written off in the earlier years, which have been subsequently recovered have been adjusted in thefinancial statements of such years when these amounts were written off.

4. Tax impact of adjustments

Tax impact of adjustments pertain to tax effect on restatement adjustments, other than adjustments arising for thematter discussed in paragraph 2e, 3a and 3b, above, at the tax rates applicable in the respective years.

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5. Non Adjustments /Regrouping

a. Manufacturing expenses

‘Consumption of raw material, chemical and reagents and traded goods’, ‘Employee costs’ and ‘Increase/(Decrease)in work-in-progress and finished goods’ have been regrouped and were included as part of ‘Manufacturing andother expenses’ in the audited consolidated financial statements of the Group for the nine months period endedDecember 31, 2003 and year ended March 31, 2003.

b. Duty drawback

The Group has grouped duty drawback (previously grouped as other income) [Refer Note 2d above], excise dutyexpense on certain special sales (previously grouped as ‘Manufacturing and other expenses’) and entry tax expenseon raw material procured (previously grouped as ‘Manufacturing and other expenses’) as a part of raw materialconsumed.

c. Revaluation reserve

In accordance with clause 6.18.7(b)(v) of the SEBI Guidelines, the statement of assets and liabilities as restated hasbeen prepared after deducting the revaluation reserve balance from both fixed assets and reserves.

6. Restated consolidated profit and loss account

Consolidated profit and loss account of the Group at April 1, 2002 has been restated to reflect the impact of adjustmentsin the prior years discussed in Notes 2, 3 and 4 above.

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Annexure IV: Significant accounting policies

1.1 Basis of preparation of financial statements

The accompanying consolidated financial statements are prepared under the historical cost convention, on the accrualbasis of accounting, in conformity with accounting principles generally accepted in India, to reflect the financial positionand the results of operations of Biocon together with its subsidiary companies, Syngene and Clinigene and joint venturecompany, BBPL.

The consolidated financial statements of the Group have been prepared based on a line-by-line consolidation of thebalance sheet, profit and loss account and cash flows of Biocon, Syngene, Clinigene and BBPL as at December 31, 2003.

In respect of the joint venture company, the Group applies the proportionate consolidation method. All material inter-company transactions and balances between the entities included in the consolidated financial statements have beeneliminated.

In accordance with the “Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 (SEBI guidelines) issuedby Securities and Exchange Board of India (‘SEBI’), the Group has also consolidated the ESOP Trust.

Since this is the first year that the Group has presented interim financial statements in accordance with AccountingStandard 25 – Interim Financial Reporting issued by the Institute of Chartered Accountants of India in accordance withthe transitional provisions contained therein, the Group has not presented comparative profit and loss account and cashflows for the comparable interim periods of the prior year. The accounting policies have been consistently applied by theGroup and are consistent with those used in the previous year.

As mentioned in Note 5c in Annexure III, the revaluation reserve has been deducted from both fixed assets and reserves,in the statement of assets and liabilities, as restated. The significant accounting policies are as follows:

1.2 Fixed assets and depreciation

Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at, estimated replacementcost as determined by valuers, less accumulated depreciation. The Group capitalises all costs relating to the acquisitionand installation of fixed assets.

Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period of use, onthe straight line method at the annual rates based on the estimated useful lives.

Per cent

Buildings 4.00

Plant and machinery 9.09 - 33.33

Research and development equipment 11.11

Furniture and fixtures 16.67

Vehicles 16.67

Goodwill is amortised over a period of 5 years and assessed for impairment at each balance sheet date.

Leasehold land, other than those on a lease-cum-sale basis, are depreciated over the lease period. Leasehold land on alease-cum-sale basis are capitalised at the allotment rates currently charged by the Municipal Authorities.

The depreciation charge over and above the depreciation calculation on the original cost of the revalued assets istransferred from the revaluation reserve to the profit and loss account.

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

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1.3 Inventories

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basis andincludes all applicable overheads in bringing the inventories to their present location and condition. Excise duty arisingon finished goods and customs duty on imported raw materials in stock (excluding stocks in the bonded warehouse) aretreated as part of the cost of inventories.

1.4 Revenue recognition

(i) Sale of pharmaceuticals, enzymes and compounds

Sales are recognised on despatch of goods to customers and are recorded net of excise duty, sales tax and otherlevies. For the purposes of disclosure in the financial statements, sales is reflected gross and net of excise duty inthe profit and loss account.

(ii) Contract research agreements

The Group enters into two basic types of contract research agreements and the revenues therefrom are recognisedon the following basis:

(a) Time and material management

Revenues are recognised as services are rendered, in accordance with contractual agreements.

(b) Fixed price arrangements

Revenues relating to fixed price contracts are recognised based on the percentage of completion method.

1.5 Investments

Long-term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other than temporary,in the value of investments. Current investments are stated at lower of cost and fair market value.

1.6 Retirement benefits

The Group has schemes of retirement benefits for provident fund, gratuity and superannuation, in respect of which, theGroup’s contributions are charged to the profit and loss account. The contributions towards provident fund are made tostatutory authorities. The gratuity and superannuation fund benefits of the Group are administered by a trust formed forthis purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited(‘Birla Sunlife’). In respect of gratuity and superannuation, the adequacy of the accumulated fund available with BirlaSunlife has been confirmed on the basis of an independent actuarial valuation made at period-end.

1.7 Leave encashment

Liability for leave encashment is in accordance with the rules of the Group and is provided on the basis of an actuarialvaluation performed by an independent actuary. Upto March 31, 2003, the Group provided for leave encashment on a fullliability basis. Had the Group followed its earlier accounting policy, the profit before tax for the nine month period endedDecember 31, 2003 would have been lower by Rs 644,243.

1.8 Foreign currency transactions

Foreign currency transactions during the period/year are recorded at the exchange rate prevailing on the date of thetransaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rateprevailing on the date of the balance sheet. Where the Group has entered into foreign exchange contracts, the differencebetween the forward rates and the spot rates at the date of the transaction is recognised in the profit and loss accountover the life of the contract. All exchange differences are dealt with in the profit and loss account, except those relatingto the acquisition of fixed assets, which are adjusted to the cost of the assets.

1.9 Research and development costs

Research and development costs, including technical know-how fees, incurred for development of products are expensedas incurred, except for development costs which relate to the design and testing of new or improved materials, products

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or processes which are recognised as an asset to the extent that it is expected that such assets will generate futureeconomic benefits. Research and development expenditure of a capital nature is added to fixed assets.

1.10 Income tax

Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current taxrates based on assessable income. The Group provides for deferred tax based on the tax effect of timing differencesresulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred taxassets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient futuretaxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of achange in tax rates is recognised in income in the period in which the change is substantially enacted.

The provision for current tax for each company in the Group is based on the earnings for the period from April 1, 2003 toDecember 31, 2003 and the actual tax liability for each company in the Group will be determined on the basis of theearnings for the period from April 1, 2003 to March 31, 2004.

1.11 Borrowing costs

Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as a part ofthe cost of the asset. Other borrowing costs are recognised as an expense in the year in which they are incurred.

1.12 Deferred employee stock compensation costs

Deferred employee stock compensation costs for stock options are recognised on the basis of generally acceptedaccounting principles and are measured as the excess of the fair value of Biocon’s stock on the stock options grant dateover the amount an employee must pay to acquire the stock and recognised in a graded manner on the basis of weightedperiod of services over the vesting period of equity shares. The fair value of the options is measured on the basis of anindependent valuation performed in respect of stock options granted.

1.13 Earnings per share

The earnings considered in ascertaining the Group’s earnings per share comprise of the net profit after tax. The numberof shares used in computing the basic earnings per share is the weighted average number of shares outstanding duringthe period/year and are adjusted for bonus shares and sub-division of shares for all periods/years presented in thesefinancial statements. The number of shares used in computing diluted earnings per share comprises the weighted averageshare considered for deriving basic earnings per share, and also the weighted average number of shares, if any whichwould have been issued on the conversion of all dilutive potential equity shares.

The shares issued to the ESOP Trust have been considered as outstanding for basic EPS purposes, to the extent theseshares have been allocated to the employees’ pursuant to the ESOP scheme and are eligible for exercise. For dilutive EPSpurpose, the shares, which are not yet eligible for exercise, have been considered as dilutive potential equity shares.

1.14 Operating lease

Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classifiedas operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis overthe lease term.

1.15 Finance lease

The cash value of fixed assets acquired on finance lease contracts is capitalised and depreciated in accordance with thefixed assets and depreciation policy of the Company. Interest payable under finance lease contracts, is charged on thediminishing balance method to the profit and loss account over the period of the finance lease contracts.

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Annexure V: Accounting ratios

Nine months ended December 31, 2003 Year ended March 31, 2003

Pre Split * Post Split Pre Split Post Split

Earnings per share (Rs):

Basic 22.65 11.33 10.06 5.03

Diluted 21.99 10.99 9.75 4.88

Return on net worth % 42% 42% 32% 32%

Net asset value per equity share (Rs) 50.68 25.34 29.33 14.66

Weighted average number of equity shares outstandingduring the year/period

Basic 41,909,407 83,818,814 41,987,463 83,974,925

Diluted 43,176,830 86,353,660 43,300,792 86,601,584

Total number of shares outstanding at the end of the 45,000,000 90,000,000 45,000,000 90,000,000

year/period

Notes:

1. The ratios have been computed as below:

Earnings per share (Rs) Net profit, as restated attributable to equity shareholders

Weighted average number of equity shares outstanding during the year/period

Return on net worth (%) Net profit after tax, as restated

Net worth excluding revaluation reserve at the end of the year/period

Net asset value per equity share (Rs) Net worth excluding revaluation reserve at the end of the year/period

Number of equity shares outstanding at the end of the year/period

2. Net profit, as restated as appearing in the Consolidated statement of profits and losses, as restated has been considered for the purpose ofcomputing the above ratios. These ratios are computed on the basis of the consolidated restated financial statements.

3. The shareholders at the EGM of Biocon held on November 11, 2003, approved the sub-division of equity shares of face value of Rs 10each into 2 equity share capital of Rs 20,000,000 has been divided into 4,000,000 equity shares of Rs 5 each and the issued, subscribedand paid-up capital of Rs 18,376,500 has been divided into 3,675,300 shares of Rs 5 each.

4. Further, the shareholders at the EGM of Biocon held on November 11, 2003 approved the allotment of 86,324,700 equity shares of Rs 5each as bonus shares in the ratio of 1 : 23.4877958 to the shareholders existing as on November 11, 2003, which was the approvedrecord date for this purpose, by capitalisation of the balance in the profit and loss account of Rs 431,623,500.

5. Earnings per share calculations are done in accordance with Accounting Standard 20 ‘Earnings Per Share’ issued by the Institute ofChartered Accountants of India, accordingly, share split and bonus shares issued are adjusted and disclosed for all the earlier financialyears.

6. Earnings per share for nine months period ended December 31, 2003 are not comparable with that of other financial years presentedabove.

n The stock split was effected before December 31, 2003 and has been included here for comparative purposes

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SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND US GAAP

The consolidated and non-consolidated financial statements included in this Prospectus have been prepared in accordancewith applicable Indian GAAP and the applicable provisions of the Companies Act, 1956 and the SEBI Guidelines. IndianGAAP differs in certain respects from US GAAP.

The following table summarises certain differences between Indian GAAP and US GAAP and that could be significant to thepresentation of our results of operations and financial position as of December 31, 2003. The following summary may notinclude all the differences that exist between US GAAP and Indian GAAP. US GAAP is generally more prescriptive andcomprehensive than Indian GAAP regarding recognition and measurement of transactions, account classification anddisclosure requirements. No attempt has been made to identify all disclosure, presentation or classification differences thatwould affect the manner in which transactions and events are presented in the financial statements and the notes thereto.Various US GAAP and Indian GAAP pronouncements, including guidance provided by the US Securities & ExchangeCommission, have been issued for which the mandatory application date is later than December 31, 2003. These together withstandards that are in the process of being developed in both jurisdictions could have a significant impact on futurecomparisons between US GAAP and Indian GAAP.

Particulars Indian GAAP US GAAP

1. Contents of financial statementsCompanies are required to presentBalance sheets and profit and lossaccounts for two years along with therelevant accounting policies and notes.

Additionally all listed companies(including companies in the process ofgetting listed), companies withturnover exceeding Rs.500 million andinsurance companies are required topresent cash flow statements.(Applicable for financial yearsbeginning on April 1, 2001 for otherthan listed companies).

All companies are required to presentbalance sheets, statements ofoperations, statements of cash flowsand statements of changes instockholders equity for two yearsalong with the relevant accountingpolicies and notes to accounts.

Companies are required to presentstatements of operations, statementsof cash flows and statements ofchanges in stockholders equity forthree years. They need not presentthe balance sheet for the third year.

Summary condensed financialinformation which is not part of theaudited financial statements, isgenerally presented for a five yearperiod

2. Changes in accounting policies— Accounting treatment

The effect of a change in accountingpolicy must be recorded in the incomestatement of the period in which thechange is made except as specified incertain standards where the changeresulting from adoption of the standardhas to be adjusted against openingretained earnings.

The effect of a change in accountingpolicy is generally included (net oftaxes) in the current year incomestatement after extraordinary items.

Pro-forma comparatives reflecting theimpact of the change should bedisclosed.

There is a requirement to makeretrospective adjustments for certainitems.

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3. Correction of errors The effect of correction of errors mustbe included in the current year incomestatement with appropriate disclosure.

The correction of an error usuallyresults in the restatement of relevantprior periods.

4. Principles of Consolidation Applicable to all Listed Companies fromApril 1, 2001.

Investment in associates should beaccounted for in accordance with theequity method of accounting.

In accordance with AS 27, “Financialreporting of Interests in joint ventures”the venturer recognises in its separateand consolidated financial statementsits share of jointly controlled assets,any liabilities it has incurred, its shareof any liabilities incurred jointly withother venturers in relation to the jointventure, any income from sale or use ofits share of output of the joint venture,together with its share of expensesincurred by joint venture and anyexpenses which it has incurred inrespect of interest in joint venture.

Goodwill on Consolidation is computedbased on the book value of assetstaken over/acquired and eitheramortised over a period of 3-5 yearsand/or tested for impairment at eachbalance sheet date.

Applicable to all Companies.

As under Indian GAAP.

Investment in Joint Ventures generallyaccounted for under the equitymethod of accounting.

Goodwill acquired in businesscombinations initiated after June 30,2001 shall not be amortized, . It is alsorequired to stop amortizing theremaining balance of previouslyamortized goodwill. All goodwill willbe allocated to a reporting unit, asdefined, and subject to an annualimpairment test.

5. Intangible assets Capitalize intangible assets if specificcriteria are met and amortize over usefullife, generally not exceeding 10 years.

The recoverable amount of anintangible asset that is not available foruse or is being amortized over a periodexceeding 10 years should be reviewedat least at each financial year-end evenif there is no indication that the assetis impaired.

Amortization should be based on theconsumption pattern of the asset or ona straight line basis if a pattern is notdeterminable.

During an acquisition, companiesneed to evaluate if certain intangibleassets exist and allocate purchaseprice to such intangible.

Intangibles that have an indefiniteuseful life are required to be tested, atleast annually, for impairment.

Intangible assets that have finiteuseful life are required to be amortizedover their estimated useful lives.

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6. Negative Goodwill (i.e. the excesof the fair value of net assetsacquired over the aggregatepurchase consideration)

Negative goodwill is computed basedon the book value of assets (not thefair value) of assets taken over/acquired and is credited to the capitalreserve account, which is a componentof stockholders’ equity.

Negative goodwill is allocated toreduce proportionately the valueassigned to non-current assets. Anyremaining excess is recorded in theincome statement as extraordinaryincome.

7. Research & Development CostExpenditure incurred on research mustbe expensed off as incurred.

Development costs can be capitalizedand amortized only if stringent criteriaare met.

Research and development costs mustbe expensed as incurred.

Certain software and website-development related costs need to becapitalized, if criteria met.

8. Property, plant and equipment Fixed assets are recorded at thehistorical costs or revalued amounts.

On revaluation, an entire class ofassets is revalued, or a selection ofassets for revaluation is made on asystematic basis. There is norestriction on the frequency ofvaluation. However, revaluation shouldnot exceed the recoverable amount ofassets.

Foreign exchange differences relatingto the procurement of property, plantand equipment can be capitalised as apart of the asset.

Upward revaluation of fixed assets isnot permitted under US GAAP.

All foreign exchange differencesrelating to the procurement ofproperty, plant and equipment areadjusted in the statement of income.

9. Depreciation Assets are depreciated over theirestimated useful economic lives.

The Indian Companies Act, 1956prescribes the minimum statutory ratesfor minimum depreciation provision.

Assets are depreciated over theirestimated useful economic lives.

10. Impairment of assets Applicable for accounting periodsbeginning from April 1, 2004 onwards.If impairment is indicated, the assetsmust be written down to higher of netselling price and the value in use basedon discounted cash flows.

The Impairment assessment is basedon undiscounted cash flows at thelowest level of independent cashflows. If the undiscounted cash flowsare less than the carrying amount theimpairment loss must be measuredusing discounted cash flows.

11. Investments in MarketableSecurities

Long-term investments are carried atcost (with provision for other thantemporary diminution in value).Current investments are carried atlower of cost or fair value determinedon individual basis or by category ofinvestment but not on overall (orglobal) basis.

The treatment depends on theclassification of the investments—ifheld to maturity then investment isheld at amortized cost, otherwisestated at fair value. Unrealized gains/losses must be recognized to othercomprehensive income or (if tradingsecurities) to income statement.

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12. Proposed Dividend Proposed dividends are recognized inthe financial statements for the periodto which they relate. Any proposeddividends declared after the balancesheet date is adjusted in the financialstatements for the relevant year evenif they are subject to shareholdersapproval.

A dividend is recorded when it hasbeen declared and approved. Stockdividends should preferably berecorded as of the time of declarationif the approval is perfunctory.

13. Deferred income taxes Deferred tax assets and liabilities arerecognized for all timing differencessubject to consideration of prudence inrespect of deferred tax assets.

Deferred tax assets from carry forwardlosses and unabsorbed depreciationare recognised only if there isconvincing evidence of virtualcertainty that such deferred tax assetscan be realised against future taxableprofits.

Deferred tax assets and liabilities aremeasured using tax rates that havebeen enacted or substantively enactedby the balance sheet date.

Deferred taxes are recorded inaccordance with the liability method.Deferred income taxes are recorded forfuture tax consequences of temporarydifferences. A valuation allowance ismade against deferred tax assets if itis more likely than not that the assetwill not be realized.

Deferred tax assets and liabilities aremeasured using enacted tax rates.

14. Retirement Benefits The liability for defined benefit planslike gratuity and pension is determinedas per actuarial valuation. There is nodefined method of expensedetermination, the discount ratedetermination criteria, guidance forvaluation of plan assets and the choiceis left to the individual discretion ofactuary.

The actuarial gains or losses arerecognized immediately in thestatement of income.

The liability for defined benefitschemes is determined using theprojected unit credit actuarial method.The discount rate for obligations isbased on market yields of high qualitycorporate bonds. The plan assets aremeasured using fair value or usingdiscounted cash flows if market pricesare unavailable.

If at the beginning of the year, theactuarial gains or losses exceeds 10%of the greater of the projected benefitobligation or the market-related valueof plan assets, then such amount isnot recognized immediately, butamortised over the average remainingservice period of active employeesexpected to receive benefits under theplan.

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15. Employee Stock CompensationThere is no specific guidance onaccounting for employee stockcompensation under Indian GAAP.

SEBI has issued the Employee StockOption Scheme and Employee StockPurchase Scheme Guidelines, 1999,which are effective for listedcompanies for all stock-option schemesestablished after 19 June, 1999. Inaccordance with these guidelines, theexcess of the market price/fairvaluation of underlying equity sharesas of the date of grant of the optionsover the exercise price of the options,including up-front payments, if any, isto be recognized and amortized on astraight-line basis over the vestingperiod

In the event of ESOP administeredthrough a Trust, the guidelinesmandate consolidation of Trust set upfor administration of employee stockoption plans.

Requires recognition of the cost ofshares/ options awarded toemployees, whether conditional uponperformance criteria or not, over theperiod to which the employee’sservice relates.

Entities have a choice of accountingmethods for determining the costs ofbenefits arising from employees stockcompensation plans. They may eitherfollow an intrinsic value method or afair value method.

Under the intrinsic value method, thecompensation cost is the differencebetween the market price of the stockat the measurement date and the priceto be contributed by the employee(exercise price). The measurementdate is typically the date of the grant,on which date, both the number ofshares and the exercise price wouldbe known. This method is widelyused in practice.

The fair value method is based on thefair value of the option at the grantdate. This is estimated using anoption-pricing model. If an entitychooses to follow the intrinsic valuemethod, it must make pro-formadisclosures of net income andearnings per share as if the fair valuemethod had been applied. All optionsgiven to non-employees have tofollow the fair value method.

An ESOP trust’s assets and liabilitiesare included in the balance sheet ofthe sponsoring entity where thearrangements are such that thesponsoring entity has de facto controland bears the benefits and risks ofthe shares held by the ESOP trust.

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16. Derivatives and other financialinstruments – Measurement ofderivative instruments andhedging activities

The accounting for derivativeinstruments has not clearly emerged inthe Indian context. Currently what isapplicable is the Guidance Note onAccounting for Equity Index andEquity Stock Futures and Options arethe pronouncements, which addressthe accounting for derivatives.

However, the accounting treatmentrecommended in the guidance note isapplicable to to all contracts enteredinto for Equity Derivative Instrumentsirrespective of the motive.

The impact of derivative instrumentsare correlated with the movement ofthe underlying assets and liabilitiesand accounted pursuant to theprinciples of hedge accounting. Therelated amount receivable from andpayable to the swap counter parties isincluded in the other assets orliabilities in the balance sheet. Whenthere is no correlation of movementsbetween derivative and the underlyingasset or liability, or if the underlyingasset or liability specifically related tothe derivative instrument is matured,sold or terminated, the derivativeinstrument is closed out or marked tomarket as an element of non interestincome on an outgoing basis.

Derivatives and hedge instrumentsmust be measured at fair value. Thechanges in fair value must berecognized in the income statement,except for effective cash flow hedgeswhere the changes in face value mustbe deferred in equity until effect of theunderlying transaction is recognizedin the income statement. (No basisadjustment on cash flow hedges offuture)

Gains/losses on hedge instrumentsused to hedge forecast transactionsare included in the cost of the asset/liability.

All derivatives, either assets orliabilities, are measured at fair value.Fair values for derivatives are basedon quoted market prices, which takeinto account current market andcontractual prices of the underlyinginstrument as well as time valueunderlying the positions. Derivativesthat are not designated, as part ofhedging relationship must be adjustedto fair value through income. If thederivative is a hedge, depending onthe nature of the hedge, the effectiveportion of the hedge’s change in fairvalue is either offset against thechange in fair value of the hedgedasset, liability or firm commitmentthrough income or held in equity untilthe hedged item is recognised asincome. The ineffective portion (i.e.,not hedged) of a derivative’s changein fair value is immediately recognizedin income.

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17. Off-Balance Sheet Items There is no specific guidance for theaccounting for off-balance sheet itemsunder Indian GAAP. Schedule VI of theCompanies Act, 1956 mandates thedisclosure of amounts committed to bepaid for the acquisition of fixed assetsnot provided for in the books ofaccounts.

Accounting standards require specificdisclosures for commitments andcontingent liabilities.

The US Securities and ExchangeCommission requires the disclosure ofmaterial facts and circumstances thatprovide investors with a clearunderstanding of a registrant’smaterial off-balance sheetarrangements and their materialeffects in the financial statements.

Further standards have been issuedrecently providing additionalguidelines for the accounting anddisclosures for Guarantees, includingindirect guarantees of indebtednessof others and for consolidation of“variable interest entities”.Additionally existing accountingstandards require disclosures ofcommitments made by an enterprise.

Contingent gains / losses must berecognized or disclosed in theaccounts provided certain conditionsare met.

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DECLARATION

All the relevant provisions of the Companies Act, 1956, and the guidelines issued by the Government of India or the guidelinesissued by the Securities and Exchange Board of India, established under Section 3 of the Securities and Exchange Board ofIndia Act, 1992, as the case may be, have been complied with and no statement made in this Prospectus is contrary to theprovisions of the Companies Act, 1956, the Securities and Exchange Board of India Act, 1992 or rules made thereunder orguidelines issued, as the case may be. We further certify that all the statements in this Prospectus are true and fair.

SIGNED BY ALL THE DIRECTORS

Ms. Kiran Mazumdar Shaw, Chairman & Managing Director

Mr. John Shaw, Vice Chairman

Dr. Neville Bain, Independent Director (Acting through his Constituted Attorney Ms. Kiran Mazumdar Shaw)

Prof. Charles Cooney, Independent Director (Acting through his Constituted Attorney Ms. Kiran Mazumdar Shaw)

Mr. Suresh Talwar, Independent Director (Acting through his Constituted Attorney Ms. Kiran Mazumdar Shaw)

Prof. Ravi Mazumdar, Director (Acting through his Constituted Attorney Ms. Kiran Mazumdar Shaw)

Ms. Ada K.H.Tse, Director (Nominee of AOF HS) (Acting through her Constituted Attorney Ms. Kiran Mazumdar Shaw)

SIGNED BY THE CHIEF FINANCIAL OFFICER

Mr. Murali Krishnan K.N., President (Group Finance)

Date : 23 March 2004Place : Bangalore

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