Neuland AR 2009 Ordinary Final June 25 - neulandlabs.com · market are: – Ciprofloxacin HCl – Mirtazapine – Ranitidine HCl – Levetiracetam ... to the global pharmaceutical

Neuland Laboratories Limited204, Second Floor, Meridian Plaza, Ameerpet, Hyderabad - 500 016

INDIVIDUALIZED FOCUS.GLOBAL PERSPECTIVE.

Neuland

Neuland Laboratories Limited | Annual Report 2009

www.neulandlabs.com

Forward looking statements

Throughout this report to the share owners, we discuss some of our expectations regarding the Company’s future

performance. All of these forward looking statements are based on our current views and assumptions. Actual results

could differ materially from these current expectations and from historical performance.

Our future results could also be affected by a variety of factors such as competitive dynamics in the market place, the

impact of competitive products and pricing, product development, actions of competitors, changes in capital structure,

changes in laws and regulations including changes in accounting standards, customer demand, effectiveness of marketing

programs, consumer perception of health related issues, economic conditions including changes in interest rates,

fluctuations in the cost and availability of supply-chain resources, and foreign economic conditions including currency

rate fluctuations.

The Company undertakes no obligation to publicly revise any forward looking statements to reflect future events or

circumstances.

This is Neuland

2

Growing thebusiness to its

potential

From the desk of theChairman & Managing

Director

6

Highlights of2008 - 09

6

Well-positioned forgrowth

8

Strengthened thebusiness

fundamentals

Operations Review

10

Shaping a betterfuture

12

Ensuring aperformance driven

culture

14

Committed to EHS

15

Abridged Financialsin US$

17

Board of Directors

20

Directors’ Report

22

ManagementDiscussion &

Analysis

31

Report on CorporateGovernance

34

Auditors’ Report

43

Balance Sheet

46

Profit and LossAccount

47

Cash FlowStatement

48

Schedules to theaccounts

49

Accounts of thesubsidiarycompanies

69

Contents

ConsolidatedFinancial Statements

80

Concept, Research, Design & ProductionCAPRICORN ASSOCIATES

Hyderabad

Neuland employees

and their families -

we are one large team

1Neuland Laboratories Annual Report 2009

We strive to be reliable in everything we do.

We are on-course to be the preferred source worldwide.

We are Neuland.

2 Neuland Laboratories Annual Report 2009

This is NeulandOur Company

Neuland is a leading Hyderabad based manufacturer of active pharmaceutical ingredients

(APIs) and an end-to-end solution provider for the pharmaceutical industry for chemistry

related services. The core competence is in its deep understanding of complex chemistry and

proven manufacturing expertise from exploratory gram scale to commercial multi-ton scale.

For 25 years, Neuland has been at the forefront of supporting drug development and cGMP

manufacturing of APIs. The Company's infrastructure and scientific teams provide reliable

solutions and services to the global pharmaceutical industry.

The organization's strength lies in its ability to partner with companies from early stages

where speed and effectiveness are important, and continue supporting them through the

development life cycle up to commercial launch of the product.

Fr. Nieuwland was the inspiration……We are all inspired by great thoughts, thought leaders and their foot-

prints. The impact can be permanent.

Julius Arthur Nieuwland, (1878-1936), PhD, a Belgian born Catholic

priest, an alumni of the University of Notre Dame, USA and a Professor

of Organic Chemistry, worked with a single-minded devotion on acetylene

and ended up being the father of synthetic rubber. He created a formula

that works.

He made a great impact with his industrial invention. His creation

chloroprene, when polymerized, forms an elastic material very similar to

fully vulcanized rubber. The new material is resistant to degradation by

oil, sunlight, and air, and chloroprene rubber does not require the addition

of sulfur for vulcanization. He had created history.

Father Nieuwland was an unassuming man who stayed mostly in his

laboratory, often eating and sleeping there, stretched out on the lab

bench, a rolled up lab coat as a pillow. He refused any royalties on his

creation due to his vow of poverty as a priest.

His single-minded devotion to organic chemistry and his humble nature

has inspired many generations of students at Notre Dame. Dr. D. R. Rao

was one of them.

When he formed the Company, he decided to pay his tributes to this

path finder. The name was kept Neuland (more easy to spell). The

devotion to chemistry, the dedication to find solutions and the humble

approach to life has remained the same.

Our Businesses

Manufacture of APIs

Neuland has established itself as a reputed manufacturer of

APIs for over two decades and has a product portfolio that

spans eight major therapeutic categories. Experience with

complex chemistry, and appropriate technical support enables

customers to get the quality they want, as much as regulatory

support and reliability.


Contract research

Neuland's fundamental strength in chemistry is largely

attributable to its R&D team. In order to play a stronger role

in the success of its customers, Neuland has a 40,000 sq.

feet R&D center at about an hour's drive from the Hyderabad

international airport. This state-of-the-art facility includes

dedicated synthesis laboratories, analytical laboratories, kilo

laboratories and a hydrogenation laboratory, all designed

towards supporting customer needs.

The R&D team has hands-on experience in scaling up activities

to commercialize products. This ensures that processes

developed in the laboratory are done considering future

Our mantra

Neuland would strive to remain a reliable and supportive supplier of products, services

and solutions to the global pharmaceutical industry, thereby becoming a preferred source

worldwide.

commercial constraints and partnering opportunities to scale

up manufacturing without loss of time.

Clinical research

As part of the long term objective of becoming an end-to-

end service provider to the pharmaceutical industry, clinical

research services are being developed as a joint venture with

US-based Cato Research Inc. to conduct clinical trials in India.

Cato Research has wide client base in the pharmaceutical

industry, and the joint venture would be supporting the

execution of the clinical trials. Initially, the joint venture

company styled Cato Research Neuland India Private Limited

will conduct phase II and III trials in areas such as diabetes,

dermatology, oncology among other therapeutic segments.


The Neuland Way

With our customers: Everything we do reflects the interests and needs of our customers.

With our business associates: We act in a spirit of sincere co-operation, mutual assistance,and complete transparency.

With our shareholders: We aim to keep the support of our shareholders by creating wealthin the long term.

With our employees: We are one team.

With our society: We will continuously strive to increase our role in improving thecommunity around us.

Our markets

Neuland has significant footprints in several countries

with 84% of the revenues accounted for by export to

44 countries in 2008-09. Exports to USA constituted

38% of the revenues, and approximately 45% of the

Company's exports. Europe constitutes another major

market with 36% of the revenue share.

Todate the Company has filed 31 DMFs with the USFDA

and over 330 DMFs with various health authorities in

Europe and Asia.

Our top ten products

The Company is present in eight major therapeutic

categories including cardiovasculars, central nervous

systems, anti-infectives, anti-asthmatics, anti-fungals,

anti-ulcerants and anti-spasmodics.

The top 10 products of the Company, where Neuland

has or expects to have a dominant position in the

market are:

– Ciprofloxacin HCl

– Mirtazapine

– Ranitidine HCl

– Levetiracetam

– Enalapril Maleate

– Ramipril

– Sotalol HCl

– Levofloxacin

– Ofloxacin

– Itraconazole

Our officesWe are a Hyderabad, India based Company and our twooverseas subsidiaries are at:

– San Clemente, California, United States

– Tokyo, Japan.

Our business drivers

The Company is able to provide reliable solutions and servicesto the global pharmaceutical industry primarily because ofthe exceptional strengths consistently demonstrated overseveral years. Some of the key strengths that add to thebusiness traction are,

– Cost competitiveness

– Deep understanding of complex chemistry

– Product knowledge

– Process efficiencies

– Proven manufacturing expertise

– Sensitivity and responsiveness to customer needs

– Processes that actually ensure that we are aligned tocustomer needs

– Review mechanisms that prevent Neuland fromexposing itself or its customers to significant risks.

Over the years, the Company has strived to be a reliable businesspartner to the large and medium pharmaceutical companies,who have often considered Neuland as a preferred source.


Our production facilities

Neuland has two world-class API manufacturing facilities close to the city of Hyderabad, capable in handling complex and

hazardous reactions. The manufacturing facilities for the APIs comply with stringent guidelines & requirements of Good

Manufacturing Practices (GMP) and are successfully inspected/approved by international health and regulatory agencies such as

the US FDA, EDQM, BfArM (Germany), TGA (Australia) and PMDA (Japan) - GMP compliance for Unit - 1. These ensure an

effective structural methodology at workplace which includes manufacturing of quality products, rational and effective use of

available resources, minimization of waste along with good safety and hygiene standards.

Safety aspects are given utmost significance in plant installation, equipment, systems and personnel to ensure productivity.

Combination of a dedicated team and world class production techniques guarantee delivery of products to customers across the

globe.

The one inverted triangle over another is indicative ofthe hour glass, suggesting that Neuland has found itsrightful place in the time slot.

The deep filled in colours to the left of the anglesdepict Neuland’s single-minded philosophy, viz.commitment to customer satisfaction, while the stripesto the right of the angles depict Neuland’s expansionof capacities and newer facets of the business.

The oval ring moving across suggests two things:

Dynamism (true to Neuland’s performance)

The chemical reaction process(true to Neuland’s activities)

The point at which the oval ring meets is also theepicenter, suggesting that this is the point that sparksoff Neuland’s dynamic activity.

The logo represents the basic philosophy of the Company - dynamism and customer satisfaction.

Neuland logo - what it represents


From the Desk of the Chairman & Managing Director

Growing the businessto its potential

Neuland made significant strategic, operational and financialprogress during 2008-09. New product lines were added, newerregions were covered in North America, Japan and Europe andconsiderable development work was done in contract researchand clinical research. The Company made strategic moves inproduct selection, focused on niche products, leveraged on itschemistry strengths and intellectual capital, rebalanced itsportfolio with products that have high entry barriers and alignedclosely with customer needs. At the same time, the operationswere streamlined ensuring that customers have in Neuland areliable and strong supply chain. Our financial accomplishments

were also solid during the year and the Company could report

the highest in volumes, revenues, operating profit, net income

and earnings per share.

Combined revenues from our active pharmaceutical ingredients

and contract research businesses showed a double-digit increase

of 38.7% during the year at Rs.3120.2 million and operating

profit at Rs.361.4 million grew by 38.3%. We incurred higher

interest costs and depreciation charge as well as corporate tax,

with the result there was a moderate increase in Net Income at

Rs.117.9 million as compared to Rs.113.5 million in the previous

year. The earnings per share were moderately higher at Rs.21.81

compared to Rs.21.04 in the earlier year.

While financial achievements are important in themselves, more

significant are our accomplishments in expanding our product profile

and redesigning our revenue mix during the year. We undertook a

all-round view of our business to examine our accountability to our

customers from product assurance to service levels and deliverables.While we have always been known for our knowledge of complexchemistry and for being extremely careful with our product quality,we sought to enhance the quality of service by executing oncommitted delivery time, transparency in operations and beingflexible to customer needs. In short, we aligned with the needs ofthe customers and improved every aspect of reliability.

We also recognize that we have as yet many miles to go, but areconscious that we have advanced on several measurable

● Recorded highest ever revenues, operating profit, net income and

earnings per share.

● Revenues increased by 38.7% at Rs.3120.2 million from Rs.2248.8

million.

● Operating profit at Rs.361.4 million grew by 38.3%.

● Net income was moderately higher at Rs.117.9 million as compared to

Rs.113.5 million in the previous year.

● Diluted earnings per share was moderately higher at Rs.21.81 as

compared to Rs.21.04.

● Total exports constituted 84% of the revenues. Exports to North America

and Europe totaled 74% of the revenues as against 66% in the previous

year.

● Subsidiaries in North America and Japan became fully operational and

improved Neuland's reach with the customers.

● Focused approach to contract research resulted in encouraging order

book. Neuland today works with some of the best names in global

pharmaceutical industry.

● Joint venture with Cato Research commenced operations. Development

work done in the market, and expect to initiate clinical trials in 2009-10.

Highlights 2008-09


yardsticks. The Neuland of today is dynamic and a high energy,result oriented organization.

This approach entailed revisiting our sources of supplies andtheir assurance standards, process efficiencies both at Neuland'sR&D center and production lines as well as our interface withthe customers. We are ensuring that the customers get updatedinformation about the progress of their respective projects on-line, thereby enhancing their level of confidence and on real-time basis functioning as the extension of their laboratories.We have raised the bar for ourselves and are working to be ourcustomers' best supply chain partner.

We improved our income stream, as well. While we at Neulandhave always been a research led manufacturer and added severalproducts that have created a niche for themselves, we stepped upour focus to develop our contract research market and commencedworking for some of the large and medium pharmaceuticalcompanies. We see this business growing at an accelerated paceoffering downstream benefits over the long-term.

Our core business of being a manufacturer of activepharmaceutical ingredients grew strongly, our people performedexceptionally and we invested heavily in research anddevelopment to ensure an enduring future. The success in 2008-09 is impressive proof that our strategic orientation towardsniche products. By concentrating on our core strength in researchbased chemistry and manufacturing of active ingredients forthe pharmaceutical industry, we aim to further advance thesedevelopments over the long term and demonstrate our potentialto the full extent.

The strength of our products and services and our growingreputation are key to our future. We are building on them byfocusing increasing amounts of energy and resources toward ourmarketing program. Our strategy is to effectively use every rupeeand dollar, allocate the appropriate amount of marketing spendand achieve superior returns from such investment. Our reach,expertise, processes and capabilities are ensuring that we buildour market to its full potential.

We at Neuland firmly believe that long-term business success ispossible only through policies and practices that aim to createvalue while maintaining economic, social and environmentalsustainability. Our commitment to environment is an integralpart of our business plan. We believe that only by achievingsymbiosis with nature and the people in our neighbourhood thatwe can successfully realize our mission and our strategic goalsin the long term.

From inception, we have been proud to have excellent governancepractices with a Board that earnestly guides and seeksaccountability from the operating managers. The professionalmanagement at Neuland has aligned the Company's business tobuilding strong relationships with the customers, vendors andemployees thereby generating long-term shareholder value.

Looking ahead, Neuland will continue to drive short-term growthwith its existing basket of products. We shall also strive to addat least 15 new products every year. Our growth will depend inthe long-term on the depth and breadth of our researchcapabilities, on our pipeline of new products in various stagesof development and on the improvements we have made foraccelerating new launches. We would continue to push ahead asa serious player in the contract research market and hope todevelop meaningful presence in newer areas such as clinicalresearch and peptide synthesis.

Progress at Neuland is occurring at a very rapid pace. Our visionsupported by our experience and robust processes drives usforward. The Company is stronger today than it was at any timein the past, and I believe it has great potential for the future.We shall continue to foster value creation with renewedcommitment and focus on long-term success to benefit ourcustomers, employees and investors. I can assure you, we atNeuland have what it takes to succeed and to win.

Warm regards

RevenuesRs. in Million

Operating ProfitRs. in Million

2004-05 2005-06 2006-07

1584.21702.9

2132.5

2007-08

2248.8

2008-09

3120.2

2004-05 2005-06 2006-07

201.1 207.3228.3

2007-08

260.8

2008-09

361.4


Neuland endeavors to establish a position as a globally respected reliable source of active

pharmaceutical ingredients and a reputed contract research organization with core competency

in complex chemistry and in its ability to scale up operations.

Well-positioned for growth

STRATEGICFOCUS AREAS

Ensure cost

leadership

across

all products

WHY?

Our products and services are input

materials for our customers, most of whom

are large and medium global pharmaceutical

companies manufacturing finished dosage

products. Neuland believes that its

customers have a challenging and

competitive environment for their end

products and must compete better in their

markets. Often their customers are national

healthcare systems, which aim to offer their

citizens access to affordable healthcare.

In their pursuit of long-term success,

customers need the best in cost while

demanding reliability and service. Cost

leadership, competitiveness and

profitability for active pharmaceutical

ingredients manufacturers is based on solid

production stability, high level of capacity

utilization and low operating costs.

HOW?

An important success factor for Neuland is its endeavor

for continuous cost optimization. There is an aggressive

attempt at partnering with our vendors to help reduce

material costs, as well as in-house efforts at improving

yields and process efficiencies. The thrust is to become

the most cost effective vendor for all products and

services.

Our manufacturing and project management system is

also supported by processes that allow us to focus on

areas where waste can be eliminated, thereby ensuring

that Neuland is more efficient and responsive to needs

of the market.

For the past few years, Neuland has been working to

improve its operating processes with regard to production

stability and productivity. We have worked with an in-

depth program within the framework of the Company's

core values platform. The objective has been to enhance

productivity in all aspects of the operations, by focusing

on leadership, work distribution and constraints,

enhancing delivery standards, employee involvement and

commitment.

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Sales VolumesTonnes

Return on InvestmentPer cent

2004-05 2005-06 2006-07

629 653

880

2007-08

744

2008-09

829

2004-05 2005-06 2006-07

22.84

28.44

20.61

2007-08

17.62

2008-09

18.13


STRATEGICFOCUS AREAS

Organic

growth

Building up a

portfolio of

attractive

products

Customer and

business

development

WHY?

Organic growth often leads to low-risk value

creation and also helps the company

maintain focus to first achieve its short and

medium terms goals without compromising

the long term goals of the Company.

Lifespan of certain product categories can

be finite. Long-term growth in the

pharmaceutical industry demands that there

be a consistent and growing product

pipelines to replace the eroding margins

from older products as well penetrate

deeper into existing markets and customer

base.

We strive to understand their businesses

as a corollary to understanding our own.

Our efforts as in the past have to be focused

to assist our customers to be more

successful.

HOW?

Growth at Neuland is being achieved by widening and

deepening the market, accelerating its growth by

increasing the dependence on research, adding product

lines, creating process improvements and eliminating

bottlenecks. Risk is being mitigated keeping in mind the

present global scenario:

� Striving for long-term growth targets where

investment levels are low for Neuland;

� Entering into niche product lines that have high entry

barriers;

� Leveraging on the existing relationship with global

big pharmaceutical companies;

� Ensuring research remains the engine of growth, with

downstream potential for manufacturing

opportunities;

� Endeavoring to function seamlessly as a key part of

the customers' supply chain.

Neuland combines excellent chemistry with expertise in

manufacturing and a deep understanding of customers'

future business needs. The process of identifying and

selecting products for our business is highly strategic,

emphasizing the quality, rather than the quantity of new

product opportunities. Products are selected, developed

and scaled up with an eye on the needs of the anticipated

needs of customers, regulatory framework and market

dynamics. These selections demonstrate the Company's

ability to develop robust and sustainable products that

are technically challenging to develop and produce. Care

is also taken to be in niche segments with high entry

barriers in addition to other products.

We examine and recognize what our customers need tomorrow.Our selection of new products, R&D efforts and regulatoryfocus is to develop products and intelligent solutions thatwill enhance our partnership with our customers.

We have forged better relationship with our customers andhave become their reliable partners built on a few key pillars:

� superior knowledge of complex chemistry;

� appreciate the needs of customers and respondproactively;

� respect their intellectual property;

� demonstrate complete transparency;

� offer products at quality and prices that assist themcompete better in their markets;

� resolve not to compete with our customers.

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Operations Review

Strengthened the business fundamentalsWe saw traction in our business during 2008-09. There was higher

demand for the existing products from larger number of customers

as well as encouraging response for newer products. Neuland's

subsidiaries commenced operations which helped extend the

reach in Japan and North America. Several focused initiatives

were taken to improve marketing and operational effectiveness

with a view to further improve Neuland's deliverables, cost

containment and extend the competitive edge.

The initiatives were primarily designed to offer niche products

that have entry barriers, strengthen reliability standards, improve

service levels including delivery schedules, and be a key part of

the customers' supply chain. The targeted marketing effort has

been received well and the Company has invested in improving

production volume as well as productivity. To stay competitive,

NLL has invested in establishing seamless global supplies and

maintains a strong focus on optimizing production efficiencies.

This effort underpins the Company's strategy. Flexible production

lines, high productivity and optimized physical flows helped in

cost containment as well as improved reliability in executing orders.

We ended the year as a much stronger company as a result of

our actions, better positioned to face the future. Volume sales

were higher by 11.3% at 828.9 tons as compared to 744.4 tons

in the previous year. Revenues were higher by 38.7% Rs.3120.2

million. The operating profit at Rs.361.4 million kept pace and

grew by 38.3%. The strength of the US dollar and cost

containment measures positively impacted our results.

The year was challenging for the pharmaceutical industry because

of the global recessionary pressures. We are happy to have

maintained our position well in a difficult business environment

and have strengthened the business fundamentals.

Net IncomeRs. in Million

Diluted EPS Rs.

2004-05 2005-06 2006-07

8.9611.43

16.75

2007-08

21.04

2008-09

21.81

2004-05 2005-06 2006-07

48.89

62.36

90.38

2007-08

113.52

2008-09

117.90


However, we recognize that an organization and its potential

cannot be measured on the performance of a few quarters. Ouremphasis is to stay focused on fundamentals, markets and keyprocesses. Neuland will continue to demonstate accelerated andconsistent growth.

We have a strong relationship with our customers and have oftenbeen able to deliver to their expectations. We could help reduceour selling prices and facilitate our customers to compete betterin their market. In turn, Neuland became the primary source forseveral global pharmaceutical companies.

Even as the raw material prices climbed sharply in the first halfof the financial year due largely to high crude oil prices, Neulandensured that there were no stock-outs. The Company has builtgood relations for all its key and critical raw material vendors,who find Neuland a tested and preferred customer. Our vendors

have clarity on Neuland's requirements and see us as a trustworthy

partner.

The Neuland team recognizes that there is scope for improvement,

especially in areas such as cost containment and newer initiatives

have been put in place at sourcing raw materials, process

improvements in R&D and on the production floor. Inventory

levels are being reduced, waste generation is being identified

and eliminated, and process efficiencies are being examined to

focus on cost control.

With an eye on the future, Neuland capitalized in 2008-09 assets

worth Rs.972 million approximately and operationalized them.

Additional production lines and de-bottlenecked manufacturing

capacity were commissioned and optimized in the second half

of the financial year.

Quality is more than a regulatory requirement for us; it is an

objective that extends to our entire manufacturing process and

is the foundation on which this organization was built. We have

always worked on this reality and have been far more consistent

than in the past. Today, Neuland has adopted quality in

everything it does. The objective is to be a reliable partner to

every customer, thereby meeting all stakeholder expectations.

Production volumes Tonnes

16.2% 24.9%

Revenue Net Income

CAGR 5 years


Shaping a better future

Sales by therapeutic segments Per cent

30CNS

19Cardiovascular

9Anti Ulcerants

8Anti Asthma

31Quinolones

Oth

ers

3

30CNS

19Cardiovascular

9Anti Ulcerants

8Anti Asthma

31Quinolones

Oth

ers

3

38North America

16India

10Rest of the world

36Europe

Sales by geographic area Per cent2008-092008-09

We are confident of the future because of the initiatives that we

have taken during the past few years:

� a long-term strategy that has value-adding growth

� a product portfolio that is broader, more robust and

competitive

� wider geographical presence

� an improved risk-reward ratio

Further, our foray into newer business opportunities such as

clinical research and peptide synthesis would position us to

manage effectively the challenges of the prevailing business

environment and maximize and deliver sustainable growth.

We are at an inflection point. We have built a platform that will

help us to climb to the next level. We are much stronger in all

that we do; we have added to income streams in businesses

where we have expertise; and, our potential for growth appears

to be very high. We see a demanding market that seeks the best

in quality while being cost conscious. We are convinced that

our strategy will create value that will benefit everybody: our

customers, investors, employees and in the long run, the Company

itself.

We are well-diversified with several therapeutic segments,

reasonably well-balanced between products, customers and

markets and resilient to cater to customer needs as well as

challenges of the economy in the markets that we operate.


Revenue trends US$ in Million

Mill

ions

inU

S$

Market size Market sizeProducts Market size at API prices at API prices

Tonnes Rs. in Million US$ in Milliion

Ranitidine HCl Form II 475 380.00 7.37

Levetiracetam 500 3,500.00 67.90

Levofloxacin 150 1,050.00 20.37

Enalapril Maleate 50 325.00 6.30

Ciprofloxacin HCl 400 780.00 15.13

Ramipril 14 588.00 11.41

Mirtazapine 18 630.00 12.22

Itraconazole 3 105.00 2.04

Ofloxacin 4 20.00 0.39

Sotalol HCl 40 180.00 3.49

Market size for Neuland's top 10 products

Conversion rate 1 US$ = Rs.51.55 Estimated from global trends

Neuland sees potential in its new ventures, clinical research and

high quality peptide services. Considerable amount of

development work has been done including recruitment of

qualified scientists as well as promotional activities in the market.

Neuland has all the building blocks including skilled professionals,

sophisticated knowledge and has invested in state-of-the-art

equipment and would leverage on the known strengths of the

Company to develop revenue streams in 2009-10.

At the same time, we are reducing our cost of doing business

without inhibiting research, manufacturing quality or our support

for our sales and marketing efforts. We are ensuring that our

operations run as efficiently and economically as possible. We

wish to do more, with less.

Success is the ability to see the possibilities before they are

obvious to others. It is a sum of countless small efforts by our

people doing the right things. Neuland has an effective team

that is committed and talented to anticipate the medium and

long-term goals of the Company. Team Neuland plans to

successfully drive the gross margin upwards. Our investment in

R&D is often with a view to lower the unit cost of production.

This will keep us healthy in the long run.

Our objective is to consolidate our position in the markets where

we have a larger presence: US, Europe and Japan. Our reach in

these has improved and customers have shown marked preference

for Neuland's products. We shall stay focused on sustainable

growth while remaining committed to business integrity, quality

and compliance in everything we do.

R&D SpendRs. in Million

Expenditure 2006-07 2007-08 2008-09

Revenue 52.11 59.68 86.49

Capital 163.63 200.06 120.24

Total 215.74 259.74 206.73


640 763 899

2007 2008 2009

Number of Employeesas at March 31

2004-05 2005-06 2006-07

193.55 201.44

234.73

2007-08

279.37

2008-09

239.64

Economic value addedRs. in Million

Neuland's success depends on the quality and performance of its

people and the individualities, diverse skills and creative potential

that they bring to the business. Our focus hence is on attracting,

identifying, developing and retaining the best people for key

positions to achieve our strategic goals. This remains a priority.

At the beginning of the year, Neuland had 763 employees which

increased to 899 by the year end, in line with the increase in

the Company's business. While the employee strength rose by

17.8%, the revenues climbed by 38.7%. The Company has built

up a large reservoir of highly skilled, trained and experienced

professionals. Remarkably, the number of PhDs, post graduates

and graduates totaled 766 at the year end.

For several years, Neuland has been creating an ambience that

encourages professional and personal growth of its employees,

often reflected in the business results. Employees have been

inspired by the Company's vision and values such as openness,

transparency, reliability and accountability. The Company sets store

by good governance, and encourages every employee to stay

responsible in their actions with all stakeholders, both internal

and external. Individuals and functional teams are held accountable

not only for what they accomplish, but how they get there.

The dynamic performance culture in the Company is fostered by

the employees being clear about Company objectives, knowing

how their work impacts those objectives, about their championing

the growth of shareholder value and in turn, how they benefit

from high levels of performance. Neuland's employees closely

align with business effectiveness and results, and perform to

their potential which they are aware are the essential components

to their own remuneration and rewards. Their consistency is the

Company's competitiveness.

Our business mantra is to be the most reliable partner for our

customers and be the preferred source worldwide. Our people

convert vision into practice, bring credibility by their

achievements and design future business successes.

Ensuring a performance driven culture


Committed to EHSRespect for nature is an integral part of our business strategy,

which is why we continually try to reduce our emissions and

effluents to the environment. A cornerstone of our environmental

commitment is high awareness of every employee.

By consistently adhering to the regulatory provisions and by

monitoring the development of new legislation and guidelines

for the pharmaceutical industry, we demonstrate our commitment

and care for the environment, a basic principle of ISO 14001:2004

standard. By successfully passing both the Certification Audit

according to the ISO 14001 standard and and OHSAS 18001:1999,

we proved that we have at the Bonthapally unit an effective,

environmental management system. Upgradation for OHSAS

18001:2007 from OHSAS 18001:1999 is on-going. Steps are

underway to get the Pashamylaram unit also inspected for

compliance with global standards.

We have installed additional emission controls, made significant

modifications to the manufacturing processes and cleaned up

pollution at our facilities. Awareness levels amongst the

employees have been supported by necessary training inputs.

EHS matters are recorded, tracked and followed up every day.

We operate on the philosophy:

� prevention of injury and ill-health, and,

� zero accidents.

Safety and good health of all our employees is integral to our

business. As part of this non-negotiable policy, we are constantly

examining our operations to not only maintain but improve safe

working conditions. Safe plants and safety conscious employees

are a prerequisite for a well-organized manufacturing program.

Accident analysis is done and tracked to minimize and eliminate

risks.

Employees have also been made aware that accident prevention

and occupational safety of themselves, their colleagues and the

environment is the responsibility of each individual. Active

involvement of all employees has strengthened the EHS initiative.

Fire Detection/alarm system for plant control, administration

building and electrical panel rooms are also provided and

upgraded in Bonthapally unit. These are of ionization, smoke,

beam & heat sensing types. Neuland's goal is to progress towards

achieving zero discharge and emission. Reverse osmosis system

has been commissioned in Bonthapally unit to eliminate impact

on environment and conserve water.

92.92

107.12

122.15

135.60

80.16

2004-05 2005-06 2006-07 2007-08 2008-09

Book Value Rs.

EHS SpendRs. in Million

Expenditure 2006-07 2007-08 2008-09

Revenue 36.20 42.30 64.90

Capital 4.20 5.50 31.60

Total 40.40 47.80 96.50



March 31, 2009 March 31, 2008

I SOURCES OF FUNDS

SHAREHOLDERS' FUNDS

Share Capital 1.06 1.06

Reserves & Surplus 13.54 12.26

14.61 13.32

LOAN FUNDS

Secured Loans 38.86 26.01

DEFERRED TAX LIABILITY (Net) 0.80 0.54

TOTAL FUNDS 54.27 39.87

II APPLICATION OF FUNDS

FIXED ASSETS

Gross Block 39.89 21.63

Less: Depreciation 11.47 10.04

Net Block 28.42 11.59

Capital Works In Progress 7.14 11.57

35.56 23.16

INVESTMENTS 1.45 1.41

CURRENT ASSETS, LOANS & ADVANCES

Inventories 13.68 10.66

Sundry Debtors 13.80 9.98

Cash and Bank Balances 2.06 1.79

Loans & Advances 5.38 6.83

34.92 29.26

LESS: CURRENT LIABILITIES AND PROVISIONS

Current Liabilities 15.55 12.15

Provisions 2.11 1.81

17.66 13.96

NET CURRENT ASSETS 17.26 15.30

TOTAL ASSETS (Net) 54.27 39.87

US$ millions

BALANCE SHEET AS AT MARCH 31, 2009

Abridged Financials in US$

Conversion rate 1 US$ = Rs.51.55


PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009


US$ millions

Year ended Year endedMarch 31, 2009 March 31, 2008

INCOME

Sales and Export Incentives 60.53 43.62

Less: Exicse Duty 1.03 1.39

59.50 42.23

Other Income 2.04 1.04

TOTAL 61.54 43.27

EXPENDITURE

Raw Materials Consumed 36.68 26.26

Manufacturing Expenses 10.48 7.23

Administration, Selling & Other Expenses 7.37 4.72

Interest and other charges 2.79 1.93

Depreciation/Amortisation 1.45 1.08

Less: Adjusted against Revaluation Reserve 0.02 0.02

1.43 1.06

TOTAL 58.75 41.20

PROFIT BEFORE TAX 2.79 2.07

Provision for Current Tax 0.32 0.23

Provision for Fringe Benefit Tax 0.05 0.03

Provision for Deferred Tax 0.26 (0.16)

MAT credit entitlement (0.10) (0.23)

Excess Provision of Income Tax no longer required (0.03) –

PROFIT AFTER TAX 2.29 2.20

Balance brought forward from Previous Year 1.44 1.20

AMOUNT AVAILABLE FOR APPROPRIATION 3.73 3.40

APPROPRIATIONS

Transfer to General Reserve 1.72 1.66

Proposed Dividend @ 35% 0.37 0.26

Tax on Distributed Profits 0.06 0.04

BALANCE CARRIED TO BALANCE SHEET 1.58 1.44



US$ millions

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2009


Year ended Year ended

March 31, 2009 March 31, 2008

A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit before tax and exceptional items 2.80 2.07

Adjustment for

Depreciation/Amortisation 1.43 1.06

Interest Expense 2.04 1.18

Unrealised foreign exchange gain – (0.52)

Deferred Revenue Expenditure written off – 0.05

Provision for gratuity and leave encashment 0.16 0.02

Provision for Doubtful Debts 0.15 0.07

Loan written back – (0.10)

Operating Profit before Working Capital changes 6.58 3.83

Add/(Less) Adjustment for changes in Working Capital

Trade Receivables (3.98) (0.96)

Inventories (3.00) (1.16)

Loans and Advances 1.44 (2.37)

Trade Payables 3.39 3.29

Cash flow from operating activities 4.43 2.63

Less Income Tax paid (0.24) (0.31)

Net Cash from Operating Activities (A) 4.19 2.32

B. CASH FLOW FROM INVESTING ACTIVITIESPurchase of Fixed Assets including Works-in-Process (14.40) (11.47)

Proceeds from sale of Fixed Assets 0.01 –

Net Cash used in Investing Activities (B) (14.39) (11.47)

C. CASH FLOW FROM FINANCING ACTIVITIESProceeds from long-term borrowings 10.46 8.47

Increase/(Decrease) in bank borrowings 3.99 3.58

Repayments of long-term borrowings (1.60) (1.43)

Interest Paid (2.03) (1.00)

Proceeds from/(Repayment of) Unsecured Loans – (0.01)

Dividend Paid (0.31) (0.30)

Investments in Subsidiaries (0.04) –

Net Cash used in Financing Activities (C) 10.47 9.31

Net increase/(decrease) in Cash & Cash Equivalents (A+B+C) 0.27 0.16

Cash & Cash EquivalentsOpening Balance 1.79 1.63

Closing Balance 2.06 1.79



Dr. D. R. RAOChairman & Managing Director, is the Chief Promoter of Neuland. He

has a Masters in Science from Andhra University, Post Graduate Diploma

in Technology from IIT Kharagpur, and a Ph.D., in Organic Chemistry

from the University of Notre Dame, U.S.A. Prior to promoting Neuland in

1984, Dr. Rao has held senior positions in R&D, production, and quality

assurance at Glaxo India for about ten years. He is a member of Royal

Society of Chemistry.

Board of Directorsas at March 31, 2009

Mr. HUMAYUN DHANRAJGIRa Non-Executive Director, is one of the most respected personalities in

the pharmaceutical industry. He has held several senior positions in

Glaxo India, including Managing Director and Executive Vice-Chairman.

He is a past President of Organization of Pharmaceutical Producers of

India.

Mr. P. V. MAIYAa Non-Executive Director, is an eminent banker. He had a long career

of 32 years with the State Bank of India where he was a General Manager;

he was deputed as the Executive Director of SCICI between 1991 and

1993, which position he relinquished to join first as Managing Director

to set up the ICICI Bank in 1994. He retired as Chairman & CEO of the

Bank in 1998. After retiring from the Bank, he was appointed as the

Managing Director of Central Depository Services (India) Limited which

he set up and relinquished the post in December 1999. He is now a

director of two companies including a large nationalised bank.

Dr. BANDARU S. REDDYa Non-Executive Director, was a Research Professor

at Susan Lehman Cullman Laboratory for Cancer

Research, Department of Chemical Biology, Rutgers

State University of New Jersey, USA. He served on

the editorial board of Nutrition & Cancer, and

International Journal of Oncology. He had over 500

publications to his credit. He passed away on April

20, 2009.

Mr. S. B. BUDHIRAJAa Non-Executive Director, was the Managing Director (Marketing) of

Indian Oil Corporation, the largest corporate in India and a past President

of the Institute of Management Consultants of India. He brings with

him considerable industrial experience.

Mr. G. V. K. RAMA RAOone of the promoters, is a Non-Executive Director.He is a practicing advocate.


M/s. K.S. Aiyar & Co.,Chartered Accountants# F-7 Laxmi Mills,Shakti Mills Lane,(Off Dr. E. Moses Road),Mahalaxmi,Mumbai - 400 011

Statutory Auditors

Dr. RUSSEL KAUFMANa Non-Executive Director, is the President and CEO of Wistar Institute.He is currently a Professor of Medicine at Wistar Institute and an Associatefaculty of Medicine at University of Pennsylvania. He is also a Directorat Wistar Cancer Center. He is Emeritus Professor of Medicine andBiochemistry at Duke University School of Medicine. He serves on variouseditorial boards of professional bodies/journals and is also a member onvarious advisory and governing boards. He is a member of various grantreview committees like American Cancer Society. He is also a consultantfor North Carolina Biotechnology Center and a consultant & reviewer forMichigan Life Sciences Corridor Fund. Dr. Kaufman is currently workingon vaccines for rabies and measles.

Dr. WILL MITCHELLa Non-Executive Director, is presently J. Rex Fuqua Professor of

International Management, Fuqua School of Business, Duke University,

Durham, NC, USA. Prior to joining Duke University, he was Professor of

Corporate Strategy and International Business at University of Michigan.

He is on the editorial board of several management journals. His teaching

and research interests include corporate strategy, alliance strategy and

dynamics of the health care industry.

Mrs. DAYA CHANDRAHASrepresents the Export-Import Bank of India, since July 2005.

WORKING CAPITAL BANKERS

State Bank of India, Overseas Branch,Abids, Hyderabad

Bank of India,Kukatpally Branch, Hyderabad

Indian Overseas Bank,Basheerbagh Branch, Hyderabad

Bankers

TERM LOAN LENDERS

Export Import Bank of India,Khairatabad, Hyderabad

State Bank of India, Overseas Branch,Abids, Hyderabad

Bank of India,Kukatpally Branch, Hyderabad

Mr. D. SUCHETH RAOExecutive Director and Chief Executive Officer, is a Mechanical Engineer

by profession and has an MBA in Corporate Finance from University of

Notre Dame, USA. He was Production Group Leader in Cummins Inc. USA

and later went on to become Green belt in Six Sigma. His background

primarily consists of exposure to various fields of business such as

marketing, finance, manufacturing, operations and information

technology.


DIRECTORS' REPORT

Your Directors have pleasure in presenting the twenty fifthAnnual Report of your Company and the audited statement ofaccounts for the year ended March 31, 2009.

FINANCIAL RESULTS Rs. in Million

2008-2009 2007-2008

Profit before Depreciation and Tax 217.81 161.50

Less Depreciation 73.70 54.85

Profit before Tax 144.11 106.65

Provision for current tax

and deferred tax 26.21 (6.87)

Profit after Tax 117.90 113.52

Add: Balance brought forward

from the previous year 74.22 61.62

Profit available for appropriation 192.12 175.14

Appropriation

General Reserve 88.42 85.14

Dividend (including Tax on Dividend) 22.10 15.78

Balance carried forward to

Balance Sheet 81.60 74.22

BUSINESS REVIEW

The financial year 2008-09 has been one of the most challengingyears in the history of our country affecting almost all sectorsof the economy. Indeed, the impact of the global economicalmeltdown was far greater on the international markets andaffected several countries. It is against this backdrop that oneneeds to review the performance of your Company.

Your Company was successful in its efforts by capturing marketshare in new geographies, deepening relationships with itscustomers, enhancing competitiveness and improving its deliverycapabilities. Measured in terms of volumes, revenues, operatingprofit and net income, it was the best year for your Company.

Revenues at Rs.3120.26 million were 38.7% higher overRs.2248.85 million achieved in the previous year. Persistentefforts to improve profitability including continued strict costcontrol and operational excellence yielded positive results andyour Company recorded highest ever Profit before tax ofRs.144.11 million, an increase of 35.12% compared to Rs.106.65million in the previous year. Your Company's large investmentsin R&D contributed to lowering the tax impact. Profit after taxwas modestly higher at Rs.117.90 million to Rs.113.52 million.

Volatility in foreign exchange rates was another phenomenonwitnessed throughout the financial year. Rupee was at 40 to aUS$ on 31st March, 2008 and touched Rs.52 during March 2009,a variation of 30% making it challenging to manage foreignexchange transactions of your Company.

Raw material and transportation costs were affected with crudeoil prices climbing from US$ 35 per barrel to a peak of US$ 147per barrel leading to inflation in the country, which crosseddouble digits and peaked at 12.9% not seen for several years.While the raw material prices scaled down in the second half ofthe financial year, profitability of your Company improved onlyin the last quarter.

The global economy shook with several international financialinstitutions collapsing during the year leading to a globalrecession. The Indian economy was also affected but not to thesame extent; however, the impact was felt in the money marketswhen the call money rates touched 22% during a few days.Severe liquidity crunch affected prime lending rates and interestcosts climbed adding to pressure on your Company's profitability.

Despite all-round pressures and unprecedented challenges, yourCompany continued to grow because of the positioning andstrategy that has been put in place over the past several years.The strength of your Company is in its ability to be a reliablesupplier for its customers built on strong organizational structureand systems. The customers experience on-time performance inits deliverables and your Company ensures there is totaltransparency in its order execution and processes.

Your Company's thrust in widening its reach in the regulatedmarkets saw export revenues climb to Rs.2571.74 million ascompared to Rs.1731.35 million in the previous year. Europeconstituted 36% of the revenues while North America accountedfor 38%, rest of the world contributed 10%. Domestic revenuesaccounted for the balance 16%.

OUTLOOK

Your Company continues to invest in the long term strategy of

becoming an end to end service provider to the pharmaceutical

industry. It will do so by having strong capabilities in both

research and manufacturing. In order to support global

pharmaceutical companies with their research needs, the

Company has developed a core competence in complex chemistry

by investing in state of the art R&D infrastructure and building

a strong team of scientists. To support generic pharmaceutical

companies, the Company has developed a portfolio of active

pharmaceutical ingredients that not only have significant market

size but also require the Company's deep expertise in chemistry,manufacturing, and regulatory systems that will ensure that itmaintains a significant market share in those markets.

SILVER JUBILEE YEAR

The Company was incorporated on January 7, 1984 and commencedits operations in 1986. The sales for the first full year of operationsin the year ended March 31, 1987 was Rs.3.8 Million.


Over the past twenty five years, your Company has traveled adistance that very few companies have and in the process,established itself as a company that focuses only on customerswho demand a very high quality of product and service. Beingfocused on the quality conscious regulatory markets since itsinception has helped the Company grow seamlessly andorganically without having to make radical changes to itsphilosophy or strategy.

What has changed though, over the last twenty five years is thesize and responsibility of the management team. It has growninto a cohesive team that is capable of meeting the challengesof the future.

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs.3.50per share (35%) (Previous year was Rs.2.50 per share) for theyear ended March 31, 2009, subject to the approval of theMembers at the ensuing Annual General Meeting. The Dividendwill be paid, to the registered Members of the Company as onthe book closure date.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements for the year ended March 31,2009 form part of the Annual Report.

SUBSIDIARIES

During the year under review, Neuland Laboratories K.K., Japan

was incorporated as a subsidiary of your Company and funds

were remitted with approval from Reserve Bank of India to

subscribe to the share capital. The accounts of both the

subsidiaries Neuland Laboratories Inc., USA, and Neuland

Laboratories K.K., Japan are attached and form part of the Annual

Report.

The subsidiaries of your Company in the US and Japan havebeen aggressively working on market development and ensuringthat it reaches out more effectively to its customers. Today,customers in North America and Japan are able to have theirneeds attended to immediately.

JOINT VENTURE

As referred to in the previous Report, your Company has formeda joint venture in India styled as Cato Research Neuland IndiaPrivate Limited in May 2008 in collaboration with Cato ResearchIsrael Limited, a wholly owned subsidiary of Cato Research Inc.,a global contract research and development organization basedin USA. Your Company's share in the joint venture is 70% as perthe Share Subscription and Shareholder Agreement.

Cato Research Israel Limited has remitted part of the funds tosubscribe to the share capital, and it is expected that the jointventure company will commence business in 2009-10. The

primary objective of the joint venture is to help global healthcare companies bring innovative drugs to the market in theshortest possible time span, using high quality and cost-effectiveresources available in India.

The accounts of the joint venture company Cato ResearchNeuland India Private Limited for the period ending March 31,2009 are attached to this Report. The joint venture company'saccounting year has been extended up to June 30, 2009.

RESEARCH & DEVELOPMENT

Neuland has focused its research in developing intellectualproperty in the area of non-infringing processes and resolvingcomplex chemistry challenges. Apart from being an activepharmaceutical ingredients development company, the large in-house R&D center, is a rapidly growing contract/collaboratedresearch services organization providing a wide range of servicesto global research based pharmaceutical companies andpartnering with customers worldwide. Today, the Company workswith some of the world's top 10 pharmaceutical companies fortheir drug discovery projects.

The focus on R&D as a key value driver has further strengthenedthe overall business and growth horizon of your Company.

ENVIRONMENT, HEALTH & SAFETY

At your Company, values associated with environment, healthand safety are integrated as a bottom line consideration andare used to measure the overall success of the company.Throughout your Company, at all levels, there is greater degreeof commitment and responsibility as it incorporates environment,health and safety standards into its business activities.

Globally respected organisation TUV conducted a surveillanceaudit in August 2008 to verify that the management systemsconform to all the benchmark standards and review continualimprovement. As Members are aware, your Company has beencertified for ISO 14001 & OHSAS 18001. ISO 14001 is a series ofInternational Standards on environment management systemand 0HSAS 18001 is an Occupational Health & Safety AssessmentSeries for health & safety management system.

There is a continual effort to raise the level of awareness, andstrengthen and integrate safety culture in the workplace. Freshwater usage and wastewater (effluent) reduction initiative isanother focus area within the manufacturing facilities.

INFORMATION SECURITY MANAGEMENT SYSTEMS (ISMS)

In accordance with the TUV/NORD certification procedures, your

Company has successfully completed its first Surveillance Auditof Information Security Management System and met thestandards under ISO/IEC 27001:2005. In order to furtherstrengthen its robust ISMS, Neuland has four TUV trained personswho function as Lead Auditors.


Your Company has installed software to enable users to conducton-line meetings within the organization and conduct meetingswith customers any time any where. Several intranet web

applications have been installed such as Ticketing System, Pipe

Line System, Customer Review System, etc which capture theproceedings of customer interaction and enable them to monitor

the progress made on their orders/projects relating to active

pharmaceutical ingredients and contract research. These systemshave significantly added to the level of transparency in your

Company's operations.

Neuland has gone live with SAP/HR and implemented four sub-

modules namely organizational management, recruitment,personnel administration and training and event management.

Indeed, the Management Information Systems have added a

cutting edge in analyzing performance reports across functionssuch as marketing and logistics.

ENTERPRISE WIDE RISK MANAGEMENT

Your Company has initiated the process to institutionalize risk

management. As a first step, management has mandated

documentation of the enterprise wide risks, existing control

measures in place to mitigate the risks and identification of

any residual risks. The exercise involved participation of the

senior management members and extensive deliberation and

documentation of future potential risks.

MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis as required under theListing Agreements with the Stock Exchanges forms part of the

Annual Report.

LISTING AT STOCK EXCHANGE

The Equity Shares of your Company continue to be listed on the

Bombay Stock Exchange Limited and were additionally listedon the National Stock Exchange Limited effective from October

13, 2008. Your Company's shares are traded regularly on both

exchanges. The annual listing fees for the year 2009-10 havebeen paid for both the Exchanges.

CORPORATE GOVERNANCE

Your Company has an eminent Board which insists on followingthe highest standards of corporate governance in its

deliberations. There is clear accountability at various

management levels and care is taken to ensure compliance withstatutory requirements and to adhere to the highest standard

of Business Ethics.

The Company is engaged in the process of assessing its practice

of corporate governance at various levels.

DIRECTORS' REPORT Contd...

DIRECTORS

It is with great regret we record that our Director Dr. Bandaru S.Reddy passed away after a brief period of ailment on April 20,2009. He was a highly respected professional and publishedover 500 research papers on cancer research. He was involvedwith your Company almost from the formative stages and was asource of strength for your Company. He participated in thedevelopments of the Company and inspired and encouraged theNeuland Team to climb new heights. We will miss him.

Mr. S.B. Budhiraja and Mr. G.V.K. Rama Rao retire as Directorsby rotation at the forthcoming Annual General Meeting andbeing eligible offer themselves for re-appointment. The profilesof the respective Directors are included in the Report onCorporate Governance annexed.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to Section 217 (2AA) of the Companies (Amendment)Act, 2000, your Directors make the following statement:

The Directors confirm that to the best of their knowledge andbelief and according to the information and explanation obtainedby them,

a. the applicable accounting standards have been followedin preparation of the annual accounts for the year endedMarch 31, 2009;

b. such accounting policies as mentioned in Schedule L ofthe notes of the financial statement have been selectedand applied consistently and judgments and estimates thatare reasonable and prudent made so as to give a true andfair view of the state of the affairs of the Company for theyear ended March 31, 2009 and of the profit of yourCompany for that year;

c. proper and sufficient care has been taken for themaintenance of adequate accounting records in accordancewith the provisions of the Companies Act 1956 forsafeguarding the assets of the Company and for preventingand detecting fraud and other irregularities;

d. the annual accounts for the year ended March 31, 2009have been prepared on a going concern basis.

EMPLOYEE STOCK OPTIONS

During the year, your Company granted stock options to its

employees to a tune of 34500 options under the Employee StockOptions Scheme pursuant to the resolution passed by the AnnualGeneral Meeting held on July 20, 2007. The options are valuedunder Fair Value Method. The Fair Value price as on March 31,2009 worked out to Rs.43.39.


Details of the options granted are set out in the annexure tothis Report, as required under Clause 12 of the Securities andExchange Board of India (Employee Stock Options Scheme andEmployee Stock Purchase Scheme) Guidelines, 1999.

AUDITORS

The financial statements have been audited by M/s. K.S. Aiyar& Co., Chartered Accountants, the statutory auditors.

The Audit Committee of your Company meets periodically withthe statutory auditors M/s. K.S. Aiyar & Co. and internal auditors,M/s. Grant Thornton & Co., to review the adequacy of internalcontrols, internal audit, the nature and scope of the statutoryauditor's functions, and to discuss auditing and financialreporting issues.

The statutory auditors M/s. K. S. Aiyar & Co, CharteredAccountants, retire at the ensuing Annual General Meeting andhave confirmed their eligibility and willingness to accept officefor the financial year ended March 31, 2010.

The statutory auditors in their report on the accounts for theyear ended March 31, 2009 stated that although internal controlsystem is commensurate with the size of the Company and natureof business, further strengthening is recommended in theenvironment of ERP with reference to all the key areas of control.The Company has implemented ERP package of SAP in September2007. We are now revisiting the areas of control whereeverrequired so that the system becomes robust and furtherstrengthened.

Cost Audit under Section 233B of the Companies Act, 1956, is aregular annual audit. The cost audit for the current financialyear is under process.

INSURANCE

Your Company has taken reasonable steps to cover risks and theBoard is kept appraised of the risk assessment and minimizationprocedures.

The assets of the Company have been adequately covered underinsurance. The policy values have been enhanced taking intoconsideration the expanded and upgraded facilities of theCompany.

FIXED DEPOSITS

There are no Fixed Deposits outstanding as on March 31, 2009.

There are matured but unclaimed fixed deposits amounting toRs.0.07 Million being the deposit amount, which may come upfor repayments. The provisions of Section 58A of the CompaniesAct, 1956 have been complied with.

DISCLOSURE PARTICULARS

As required by your Company (Disclosure of Particulars in theReport of Board of Directors) Rules, 1988, the relevantinformation and data are given in Form - A & B to this report.

INDUSTRIAL RELATIONS

Your Company's relations with its employees continue to becordial. Dedicated work by the workmen, supervisors andexecutives of your Company made it possible to achieve successunder trying and challenging circumstances.

PARTICULARS OF EMPLOYEES

As required under the provisions of Section 217(2A) of theCompanies Act, 1956 read with Companies (Particulars ofemployees) Rules 1975 as amended, the names and otherparticulars of employees are set out in Annexure to this report.

ACKNOWLEDGEMENT

Your Directors place on record their appreciation andacknowledge with gratitude the significant contribution madeby the employees. They have helped the Company face thechallenges far better and enabled the customers see the Companyas their preferred source worldwide. The customers and vendorshave been a source of strength and have encouraged yourCompany to perform better.

Your Directors also acknowledge the guidance received fromState Bank of India, Bank of India, Indian Overseas Bank, ExportImport Bank of India and all government agencies and looksforward to their continuing support.

For and on behalf of the board

Dr. D.R. Rao

Hyderabad, May 21, 2009 Chairman & Managing Director

DIRECTORS' REPORT Contd...


PARTICULARS OF EMPLOYEES

Information as per Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars ofemployees) Rules, 1975 (as amended) and forming part of the Director's report for the year endedMarch 31, 2009.

Name Age Qualifi- Desig- Month of Experience Remu- Lastcations nation joining in years neration Employment

Rs. in Million

Dr. D. R. Rao 65 M.Sc.DIIT PhD Chairman & January 40 6.90 M/s. Unique(Notre Dame), Managing 1984 Chemicals,C Chem MRSC Director Mumbai,(London) Director

R&D and QA

Mr. D. Sucheth Rao1 33 B.E., MBA Executive August 9 6.90 M/s. Cummins,(Notre Dame Director & 2003 USAUniversity, CEOUSA)

Mr. D. Saharsh Rao1 29 B.E., M.S. (MIS), Vice March 5 3.40 M/s. SifyMBA President - 2005 Limited(University of CorporateNorth Carolina, Planning &USA) Development

1Mr. D. Sucheth Rao & Mr. D. Saharsh Rao are relatives of Dr. D. R. Rao.

FORM - ADisclosure of particulars with respect to conservation of energy (to the extent applicable)

A. POWER & FUEL CONSUMPTIONCurrent Year Previous Year

1. Electricity

a. Purchased

Unit in Million (KWH) 16.39 12.81

Total Amount (Rs. in Million) 48.1 36.40

Rate/Unit (Rs./Kwh) 2.94 2.84

b. Own generation (Unit in Million) KWH 2.36 1.02

(Through Diesel Generator)

Units per litre of Diesel Oil 3.21 3.21

Cost/Unit (Rs./kwh) 11.66 12.99

2. Coal

Quality "C" Grade used in Steam Boiler

Quantity (Tonnes) 12,013 9,631

Total cost (Rs. in Million) 47.10 31.10

Average rate (Rs./Tonne) 3,917 3,224

B. CONSUMPTION PER UNIT OF PRODUCTION ELECTRICITY (Units) & COAL (in Tonnes)

Since the company manufactures different types of bulk drugs and its intermediates, it is not practicableto give consumption per unit of production.

ANNEXURE TO THE DIRECTORS' REPORT

Rs. in Million


FORM - B

RESEARCH AND DEVELOPMENT

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

1. Development of patent non-infringing process for active pharmaceutical ingredients in thetherapeutic categories of anti-glucoma, anti-fungal, anti-hyperlipoproteinemic, anti-hypertensive,anti-asthmatic, anti-psychotic, anti-emetic, anti-parkinsonian, anti-depressant, benign prosstatichyperplasia, antibacterial, anti-alzheimers.

2. Development of efficient and cost effective processes for existing products to reduce total variablecost and cycle time.

3. Contract research and development of the process for active pharmaceutical ingredients forspecific customer on exclusive basis.

4. Contract research and services for the innovator companies for their research activities.

5. Custom synthesis and contract manufacture.

6. Development of analytical methods, quality improvement and cost optimization studies.

7. Creation of intellectual property and international regulatory filings.

8. Study of impurity profiles, metabolites of the products and synthesis and sale of these impuritiesand metabolites.

2. Benefits derived as a result of the above:

a. The above research has resulted in commercializing/scaling up of a number of products including,

� Entacapone Form-A

� Aripiprazole Anhydrous Form B

� Ezetimibe Form X

� Eprosartan Mesylate Anhydrous Form

� Salmeterol Xinafoate

� Voriconazole

� Montelukast sodium of amorphous form

� Tiotropium bromide of anhydrous and monohydrate form

b. The Company has developed processes for the following active pharmaceutical ingredients andready for the scale up activity:

� Linezolid

� Darifenacin hydro bromide

� Nateglinide

� Rosuvastatin Calcium

c. Modification of existing manufacturing process for reducing the total variable cost, time cycle,improvement in yield and quality resulted in significant savings in the cost of production of antihypertensive, anti bacterial, anti ulcer bulk actives.

d. Patents were filed for novel process for active pharmaceutical ingredients like Montelukast Sodium,Ezetimibe, Irbesartan, Linezolid, Aripiprazole, Rosuvastatin and Netaglinide.

e. Drug Master Files (DMF) have been filed for active pharmaceutical ingredients such as EnatacaponeForm A and Tiotropium Bromide and DMF filing were under way for other products such asAripiprazole of Anhydrous Form B, Ezetimibe Form X, Eprosartan Mesylate of anhydrous Form andSalmeterol Xinafoate.




NIL

3. Future plan of action

� To develop processes for new bulk drugs of various therapeutic categories which were identifiedas new products after thorough study of market analysis.

� Development of cost effective processes for the existing products

� Undertake more of contract research and custom synthesis

� Expand the R&D activities in the new facility created

� Setup an R&D centre for drug discovery and development

� Improvements in quality and productivity

4. Expenditure on R&D Rs. in Million

Current Year Previous Year

Capital 120.24 200.05

Recurring 86.49 59.69

Total 206.73 259.74

R&D Expenditure was 6.63% of total revenue, as against 11.93% in the previous year.

TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

1. The technologies developed by R&D division of the Company towards the quality and yield improvementof existing products and also development of technology for new bulk drugs have been commercializedand adopted by the manufacturing facility of the Company.

2. In case of improved technology (imported during the last 5 years reckoned from the beginning of thefinancial year), the following information may be furnished.

a. Technology imported:

b. Year of import:

c. Has technology fully been absorbed:

d. If not fully absorbed, areas where this hasnot taken place, reasons therefore andfuture plans of actions:

FOREIGN EXCHANGE EARNINGS AND OUTGO

a. Activities relating to exports, initiative taken to increase exports, developments of new exportsmarkets for products and services and export plans:

i. Your company has had a strong export focus in the past, and expects thrust to continue in thefuture. In fiscal 2009, 84% of revenues were derived from exports.

ii. Your Company's total exports on FOB basis was Rs.2534.35 Million against previous year exportturnover of Rs.1486.53 Million.

iii. Your Company expects considerable export revenue during 2009-10.

b. Foreign exchange earned and used for the year ended March 31, 2009:

Total foreign exchange earnings used and earned is given in Note no. 17G, H, I of the Notes toAccounts.


Dr. D. R. RaoHyderabad, May 21, 2009 Chairman & Managing Director

}


ANNEXURE TO THE DIRECTORS REPORT

Disclosure pursuant to the provisions of the Securities and Exchange Board of India (Employee Stock OptionScheme) Guidelines, 1999

Description

a. Options granted

b. The Pricing Formula

c. Options Vested

d. Options Exercised

e. The total number of shares arising as aresult of exercise of options

f. Options lapsed

g. Variation of terms of options

h. Money realized by exercise of Options

i. Total number of options in force

j. Employee wise details of options grantedi. Senior managerial personnel

Particulars

34,500

The Price was decided by the Board which is not lessthan the face value per share per Option.

Nil

Nil

Nil

Nil

Nil

Nil

34,500

Name No of Shares

Mr. Thomas Speace 2,500Mr. Raghavendracharyulu A. 1,500Mr. Ganapathi Rao S. 1,500Mr. Sudheer Y. 1,500Dr. Mike Anwar 1,500Dr. Arul R. 1,500Mr. Talaulikar T. M. 1,500Dr. Tirupataiah Ch. 1,500Mr. Sundar N. 1,500Mr. G.S.N. Murthy 1,500Mr. Shaik Meera Sharif 1,000Mr. D. Srinivasa Chary 1,000Mr. B. Ashok Kumar Reddy 1,000Dr. Sanjay Bhawsar 1,000Mr. Venkataswamy A. 1,000Mr. Krishna Mohan D.S. 1,000Mr. Rama Krishna Rao G. 1,000Mr. V. Himesh 500

Mr. B. Mallikarjun 500Mr. Srinivasulu P. 500Mr. S.D.P.L. Narayana 500Mr. M. Venkatramayya 500Mr. Tadinada Ravikant 500Mr. Gali Uday Sreenath 500Dr. Sujit Das Adhikari 500Mr. Nelson E. Lawrence B. 500Mr. Rayudu T.V.V.S. 500Mr. G. Chandra Sekhar 500Mr. Suri Patrudu G. 500Mr. Srinivas Nagalla 500Mr. Mathew T.K. 500Mr. Bangaram T.V. 500Mr. Narayana A.V.L. 500Mr. G. Kalyan Chakravarthy 500Mr. P. Arun Kumar 500Mr. D. Janardhan Rao 500Mrs. Tulasi H.S. 500Mr. A. Narayana Murthy 500Mr. Quaisar Anwar 500Mr. Ganga Rao K. 500

ii. Any other employee who received a grant inany one year of option amounting to 5% or moreof options granted during the year

iii. Identifying employees who were granted optionduring any one year equal to or exceeding 1%of the issued capital (excluding outstandingwarrants and conversions) of the company a thetime of grant

k. Diluted Earnings per Share

l. Difference between the employee compensationcost, computed using the intrinsic value of the stockoptions and the employee compensation cost thatshall have been recognized if the fair value of theoptions were used

Nil

Nil

Before Adjustment Rs.21.81Adjusted Rs.21.54

Rs.1,472,872


Numbers



Description

The impact of this difference on the profits and on EPSof the company

m. Weighted - average exercise prices and weightedaverage fair value of the options whose exerciseprices is less than the market price of the stock onthe grant date

n. A descriptions of the method and significantassumptions used during the year to estimate theFair Value of Options, including the followingweighted - average information :

i. Risk- free interest interest rate (%) 7.00

ii. Expected life (No.of years ) 7

iii. Expected volatility (%) 1.21

iv. Dividend yield (%) 1.75

v. The price of the underlying share in themarket at the time of option grant (Rs.) 104.70

Particulars

The effect of adopting the fair value on the net incomeand Earnings per Share for 2008-09 is furnished asfollows:

Particulars Rs.in Million

Net income (PAT) 117.90

Add: Intrinsic value compensation cost –

Less: Fair value compensation cost 1.47

Adjusted Income 116.43

Earnings per Share (Rs.)Basic Diluted

As reported 21.85 21.81

As adjusted 21.57 21.54

Weighted average exercise price of Option - Rs.104

Weighted average Fair Value of Option - Rs.143.06


Dr. D. R. RaoHyderabad, May 21, 2009 Chairman & Managing Director

Disclosure pursuant to the provisions of the Securities and Exchange Board of India (Employee Stock OptionScheme) Guidelines, 1999 (Contd.)

Statement pursuant to Section 212 of the Companies Act, 1956 relating to subsidiary companies

Particulars Reporting Exchange Capital Reserves Total Total Turnover Profit Provision Profit CountryCurrency rate Assets Liabilities Before for After

Taxation Taxation Taxation

Neuland Laboratories K.K. ¥ 0.51 1.54 0.37 4.08 2.17 12.20 0.58 0.21 0.37 Japan

Neuland Laboratories Inc. US$ 51.55 Rs.44 1.04 1.86 0.82 30.57 1.55 0.51 1.04 U.S.A.

CATO Research Neuland India Private Limited Rs. – 4.24 – 4.24 0.03 – (0.03) – (0.03) India

Rs. in Million

*

*includes Rs.3.74 million as share application money.


MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL PERSPECTIVE

The growth in 2008 in the global pharmaceutical industry was5% as compared with 7% in the previous year, the NorthAmerican market showing virtually no growth (IMS Health).

Analysts believe that there is a clear correlation between demandfor medicines and key macroeconomic variables such as GDP,consumer spending, and government expenditures. It isestimated that the worldwide financial crisis contributed to

record-low sales growth in 2008. Revenue growth was softest

in those countries where patients pay a high portion of their

drug costs, such as the U.S., China, and Brazil.

The global pharmaceutical market was $770 billion in 2008 (IMS

data) and biotechnology drugs/biologics accounted for $120

billion and generics for $80 billion of the global market. The

three top therapeutic categories were CNS drugs at $118 billion,

cardiovascular drugs at $105 billion and cancer drugs at $70

billion of sales.

North America, Europe and Japan continued to remain the key

markets for the pharmaceutical industry with 85% of theworldwide pharmaceutical sales in 2008. The top eight globalmarkets - the U.S., Germany, France, the U.K., Canada, Italy,Spain and Japan - today account for 84% of total generics sales.

U.S. which constitutes 42% of global sales, is the largest

generics market. Reports indicate that US markets experienced

a 2.7% sales decline while volume increased 5.4%. Generics

products now account for 63.7% of the total U.S. pharmaceutical

market volume. The U.S. generics market is currently valued at

$33 billion, compared with $34 billion in 2007, reflecting

declining prices and fewer blockbusters losing patent protection

in 2008.

However, generics sales rose 10.2% in Japan, 16.9% in France,12.5% in Italy and 10.5% in Spain.

The market dynamics in the global pharmaceutical industryinclude:

Consolidation and expansion: Smaller generics producers areexperiencing significant margin pressure. At the same time, largecompanies are consolidating their operations in establishedmarkets or expanding into emerging ones through localacquisitions or partnerships. As a result, the generics industryis becoming more divided between large, high-performingcompanies extending their global footprint and smaller, localproducers.

Dependence on branded blockbusters: Generics companiesare expected to benefit as products generating $139 billion inbranded sales in the top eight world markets lose their patentprotection through 2012. However, in the longer term, theslowing growth in large branded blockbusters being developedby R&D based manufacturers ultimately will lead to feweropportunities for generics companies.

Global sales of pharmaceuticals are expected to increase onlyby 2.5% to 3.5% in 2009 as per present industry trends. This isthe lowest growth forecast in 25 years. Combined with thenumber of patent expirations due in 2011 and 2012, it isestimated that the global compound annual growth rate for thepharmaceutical market to be 3% to 6% through 2013, comparedwith 6.6% to 7.9% for the period 2004 through 2007.

ACTIVE PHARMACEUTICAL INGREDIENTS (APIs)

On the basis of the pharmaceutical customer base, the IndianAPI manufacturing can be divided into two sectors - innovativeor branded sector and generic or unbranded sector. Theinnovative segment accounts for more than half of the totalAPI market in India followed by the generic segment.

With sales of $2 billion, the Indian API manufacturing industryis the third largest in the world and is expected to make salesof $4 billion by 2012, an average yearly growth rate of 19%.

India is well positioned to be one of the largest global APImanufacturers, thanks to low labour and environmental costs,the size and dynamism of its economy, and incentives providedby the government. It could eventually further squeeze theprofits of European producers, and in the long term even threatenthe dominance of China as top API producer.

Indian API manufacturers are better organised for supplyingdocumentation to the clients for Drug Master Files (DMFs),compliance with good manufacturing practice (GMP) and so onwith the result India is the top country in DMF submissions andhas the largest number of US Food and Drug Administration(FDA) approved plants on a worldwide scale.

Reputed Indian manufacturers have always inspired confidencein foreign customers. Indian API manufacturers who have arapidly improving skilled basis for new drug discovery expecttheir exports, especially to regulated markets, will increase fasterthan their sales to the domestic market. There are several APImanufacturers searching for newer avenues such as productionof high potency APIs to differentiate themselves fromcompetition.


India is becoming an API manufacturing base for several globalproducers. They save on production cost while ensuring theyget products that meet regulatory standards. In short, India isexpected to improve its share of API business.

The world demand for APIs is forecast to increase at an averageyearly rate of 8.2% over the next five years, reaching a value of$46 billion by 2012. Eventually India is poised to emerge ontop of global competition, pointing to its high - the highest inthe world in fact - growth rates of API export sales, especiallytoward highly regulated markets such as the US.

COMPANY PERSPECTIVE & OPPORTUNITIES

Despite the challenges in the environment, Neuland is wellpositioned to take advantage of the emerging opportunities.Some of them are listed below:

� Worldwide market opportunity for merchant APIs is ataround $40 billion, and in 2008-09, Neuland crossed about$60 million. The opportunity is huge and the Company isstriving to increase its share of the cake.

� Market size in the US and Europe showed tepid growthlast year. All the global pharmaceutical players arereportedly affected by the recessionary pressures and seekto contain costs and maintain profitability. Largerquantum of business is being outsourced to qualityconscious manufacturers. Outsourcing to Neuland givesthem quality products from a reliable manufacturer atcost effective rates. Neuland could improve its revenuesin these markets in 2008-09 and this trend is expectedto continue.

� Similarly, health departments of governments in US,Europe and Japan seek to reduce the cost of healthcare.They seek to reduce cost of drugs and float tenders whichwork ultimately to the advantage of players such asNeuland.

� Several products are going off-patent. Neuland has aportfolio of products such as levetiracetam, levofloxacin,hemihydrate, ropinirole and a few others that meet theneeds of generic players.

Neuland is present with API products in all top therapy classessuch as cardiovascular, anti-depressants, anti-ulcerants, anti-epilepsy etc.

CONTRACT RESEARCH

A recent study had estimated the cost of successfully getting adrug to market was more than $1 billion.

Large pharmaceutical companies in the U.S. and Europe are

under immense pressure to cut R&D costs, which have ballooned

to almost unmanageable levels. Spend on Contract Research

Organizations now account for about $13.5 billion, which is

22.5% of the annual pharmaceutical and biotechnology R&D

budget expenditure (estimated to be approximately $60 billion),

that has been funneled into the overall contract market relating

to drug discovery and development.

Neuland is positioned as a reliable service provider to the

pharmaceutical industry, to give customers successful products

and intelligent solutions, at costs that are within their budget.

Contract research can be a growth driver from 2009-10 and

impact revenue streams.

PERFORMANCE HIGHLIGHTS

Neuland grew its revenue by 38.7% to Rs.3120.26 million as

compared to 2248.85 million reported in the previous year.

Exports accounted for 84% of revenues while the balance 16%

was sold in the domestic market. Europe constituted 36% of

the revenues while North America accounted for 38%. The

balance 10% was exported to rest of the world.

Improved reach was made possible by the newly launched

subsidiary in the US and Neuland could step up exports to North

America from 14% of revenues in the previous year to 38% in

the year under review. Significantly, the sharp rise was on higher

revenues of Rs.3120.26 million.

Considerable investments have been made in enhancing the

marketing infrastructure both in the US and Japan. Similarly,

Neuland invested in manufacturing, de-bottlenecked the

production processes and augmented capacity. While the costs

were booked during the year, the returns can be expected in

the future. Significant savings in the cost of production and

reduction in the total variable cost and time cycle, as well as

improvement in yield and quality was made possible by the

modification of manufacturing processes.

R&D THRUST

Neuland give its customers the competitive edge through faster

product development and optimized costs. The Company can

help reduce the transition time between drug discovery,

development and entry into the market. The customer gains

with reproducible, innovative solutions.

Multi disciplinary project teams interface with the customer

from the start to the finish, to ensure a seamless integratedapproach through efficient project management.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT Contd...


Neuland has gone one step ahead and harnessed most moderncommunication technology. The customer has access to hisproject and is able to keep himself informed of the progress as

it happens. Installation of a dedicated server has in fact reducedthe need for video conferencing, tele-conferencing and weekly

reports. Neuland offers 100% transparency which ensures live

communication throughout the life of the project.

The joint venture with Cato Research Israel Limited for clinical

research will accelerate the Company into an end-to-end service

provider. Neuland's execution abilities, reliability andcommitment will supplement the technology and business

development strength of Cato Research.

RISK MANAGEMENT

Grant Thornton India have reviewed the enterprise wide risksand submitted their report. The report would facilitate themanagement to identify significant threats and risks and assistin institutionalizing a framework of risk management proceduresfor capturing risk.

The report is being studied by all the functions and departmentswith a view to take corrective actions, mitigate threats andminimize key risks.

INTERNAL CONTROL

The Company has a robust internal control system and is

supervised on a day-to-day basis by competent professionalmanagers. Periodically, the systems are reviewed and aligned to

the needs of a fast growing organization. This is an ongoingexercise.

Implementation of ERP on the SAP platform has improvedcontrols, created analytical tools and enhanced the decisionmaking process. Internal Audit is conducted by an independentfirm of Chartered Accountants who report to the AuditCommittee.

HUMAN RESOURCES

The Company recorded highest volumes, revenues, operatingprofit and net income and improved on several operationalstandards primarily because of the commitment, initiatives andhigh-octane energy demonstrated by the employees at all levels.Considerable investment is made by the Company in trainingthe employees to add to their competence and skill levels.

Industrial relations is geared at developing and aligning theoperatives to the overall goal of the organization. This was theguiding principle behind the amicable 3-year wage settlementthat was reached this year with the recognized trade union ofthe Company's Unit-2 at Pashamylaram, Hyderabad.

During the year 1,956 participants were trained covering 8,296man-hours in areas as diverse as tools for regulatory compliance,recent advances in chemical research, process development, GMP,safe handling of hazardous chemicals, ICH Q7 guidelines,analytical method validation, ISO 9001, OHSAS 18001, ISO14001, ISO 27001, QMS Systems, patent search, gooddocumentation and recording practices. The participation profileand training inputs are tabulated below:

Category Number of Totalparticipants man-hours

Senior management 251 1,581

Middle management 388 1,636

Junior management 1,284 5,002

Operators 33 77

Total 1,956 8,296

There were 763 employees at the beginning of the year andinvestments were made in recruiting skilled resources in keydepartments such as technology transfer, intellectual propertymanagement, supply chain management, clinical trialsmanagement, custom synthesis, and manufacturing. At the yearend, the Company had 899 employees.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT Contd...


A. MANDATORY REQUIREMENTS

1. Company’s Philosophy on Code of Corporate Governance

To adhere to the highest standards of quality in its products, processes and dealing with its stakeholders andto generate consistent returns to shareholders on a sustainable and long term basis and to ensure accuracyand transparency in financial reporting.

2. Board of Directors

Composition:

1 Expired on April 20, 2009

Number of Board Meetings and the dates of Board Meeting

Four Board Meetings were held during the financial year ended March 31, 2009. The dates on which the saidmeetings were held are as follows:

May 23, 2008 July 24, 2008 October 24, 2008 January 22, 2009

3. Committees of the Board

a. Audit Committee

The terms of reference stipulated by the Board of Directors to the Audit Committee are, as contained inClause 49 of the Listing Agreement and Section 292A of the Companies Act, 1956, as follows:

a. Oversight of the Company's financial reporting process and the disclosure of its financial information toensure that the financial statements are correct, sufficient & credible;

b. Recommending the appointment, re-appointment and, if required, the replacement or removal of statutoryauditors, fixation of audit fee and also approval for payment for any other services;

c. Reviewing with management, the quarterly and annual financial statements before submission to theBoard, focusing primarily on:

i. matters required to be included in the Directors Responsibility Statement to be included in theDirectors' Report in terms of Clause (2AA) of Section 217 of the Companies Act, 1956;

REPORT ON CORPORATE GOVERNANCE

Dr. D. R. Rao Chairman &(Promoter) Managing Director 3 – – 4 Yes

Mr. D. Sucheth Rao Executive Director & CEO 4 – – 4 Yes

Mr. G. V. K. Rama Rao Non-Executive – – – 4 Yes(Promoter) Director

Mr. S. B. Budhiraja Non-Executive 4 3 2 4 YesIndependent Director

Mr. H. Dhanrajgir - do - 9 5 1 3 Yes

Mr. P. V. Maiya - do - 3 1 1 3 No

Dr. B. S. Reddy1 - do - – – – – No

Dr. Russell E. Kaufman - do - – – – 2 Yes

Dr. Will Mitchell - do - – – – 4 Yes

Mrs. Daya Chandrahas Nominee (EXIM Bank) – – – 4 No

Name of the Director Category

No. ofdirectorshipsheld in othercompanies

Number ofboard/

committeemembershipheld in othercompanies

Among thecommittee

membershipsheld in othercompanies,number of

chairmanshipsheld

No. ofBoard

Meetingsattended

Attendanceat the last

AGM


ii. changes, if any, in accounting policies and practices and reasons for the same;

iii. major accounting entries involving estimates based on the exercise of judgement bymanagement;

iv. qualifications in draft audit report;

v. significant adjustments made in the financial statements arising out of audit findings;

vi. the going concern assumption;

vii. compliance with accounting standards;

viii. compliance with stock exchange and legal requirements concerning financial statements;and,

ix. any related party transactions i.e. transactions of the Company of material nature, withpromoters or the management, their subsidiaries or relatives etc. that may have potentialconflict with the interests of the Company at large.

d. Reviewing with the management, the quarterly financial statements before submission to theBoard for approval.

e. Reviewing with the management, performance of statutory and internal auditors, the adequacyand compliance of internal control systems.

f. Reviewing the adequacy of internal audit function, if any including the structure of the internalaudit department, staffing and seniority of the official heading the department, reporting structurecoverage and frequency of internal audit.

g. Discussion with internal auditors any significant findings and follow up thereon.

h. Reviewing the findings of internal investigations by the internal auditors into matters wherethere is suspected fraud or irregularity or a failure of internal control systems of a materialnature and reporting the matter to the Board.

i. Discussion with statutory auditors before the audit commences about the nature and scope ofaudit as well as post-audit discussion to ascertain any area of concern.

j. Reviewing the Company's financial and risk management policies.

k. Review:

i. Management Discussion & Analysis of financial condition and results of operations;

ii. Statement of significant related party transactions submitted by management;

iii. Management letters/letters of internal control weaknesses issued by the statutory auditors;

iv. Internal audit reports relating to internal control weaknesses;

v. The appointment, removal and terms of remuneration of the chief internal auditor.

l. To look into the reasons for substantial defaults in the payment to the depositors, shareholders(in case of non payment of declared dividends) and creditors.

The Company Secretary acts as the secretary of the Audit Committee.

During the year, the Committee met four times, as against the minimum requirement of threemeetings. The Chairman & Managing Director, the Executive Director, the statutory auditor, theinternal auditor and Vice-President (Finance) of the Company were also invited to attend theAudit Committee Meetings.


Dates of the Audit Committee Meeting held during 2008-09:

May 22, 2008 July 23, 2008 October 23, 2008 January 21, 2009

Attendance record at Audit Committee MeetingsName of Member of Audit Committee Meetings attended

Mr. H. Dhanrajgir, Chairman 2

Mr. S. B. Budhiraja 4

Mrs. Daya Chandrahas 4

Mr. P.V. Maiya 3

b. Remuneration Committee

Remuneration Committee consists of the following Non-Executive Directors:

Mr. P. V. Maiya, Chairman

Mr. S. B. Budhiraja

Mr. G. V. K. Rama Rao

During the year, Remuneration Committee meeting was held on May 22, 2008 and January 21, 2009.

Remuneration Policy

The remuneration policy of the Company for managerial personnel is primarily based on the following:

● Performance of the Company, its divisions and units

● Performance and potential of individual managers, and,

● External competitive environment.

Remuneration of Directors

The remuneration of the Directors is decided by the Board of Directors as per the remuneration policyof the Company within the ceiling fixed by the shareholders.

Executive Directors

Dr. D. R. Rao 6.90 Nil 5 years1 Nil

Mr. D. Sucheth Rao 6.90 Nil 5 Years1 Nil

1 Notice period - 12 Months, Severance fees - Nil

Non-Executive Directors

All the fees paid to the Non-Executive Directors w.e.f. January 1, 2006 was with prior approval of theMembers at the General Meeting.

During the year, Non-Executive Directors were paid sitting fees of Rs.10,000 for attending eachmeeting of the Board, Audit Committee, and Remuneration Committee. Sitting fees for Shareholders'/Investors' Grievance Committee meeting was paid at Rs.5,000 for each meeting.

REPORT ON CORPORATE GOVERNANCE Contd...

Executive Directors

All elements ofremuneration

package i.e. salarybenefits, commission,

pension, etc.(Rs. in Million)

Fixed componentand performancelinked incentivesalong with theperformance

criteria

Servicecontracts/

Notice Period/Severance fees

Stock option withdetails if

any and whetherissued at

discount as wellas the period

over which accruedand over which

exercisable


The following is the schedule of sitting fees paid:

Rs.

Mr. G. V. K. Rama Rao 60,000

Mr. S. B. Budhiraja 100,000

Mr. H. Dhanrajgir 50,000

Mr. P. V. Maiya 85,000

Dr. Russel E. Kaufman 20,000

Dr. Will Mitchell 40,000

Mrs. Daya Chandrahas 80,000

During the year, Non-Executive Directors were paid a commission of Rs.1,50,000 each in respect offinancial year 2008-09 apart from sitting fees.

Shareholding of Non-Executive Directors as on March 31, 2009:

No. of Shares

Mr. G. V. K. Rama Rao 17,600

Mr. S. B. Budhiraja 2,400

Mr. H. Dhanrajgir 2,000

Mr. P. V. Maiya 1,000

Dr. B. S. Reddy 7,000

c. Share Transfer and Investors'/Shareholders' Grievance Committee

Composition and Attendance

During the financial year 2008-09, one meeting of the Committee was held on May 22, 2008 and wasattended by Mr. P. V. Maiya and Dr. D. R. Rao.

The Company received 12 complaints form the Shareholders/stock exchange/SEBI/Department ofCompany Affairs/Registrar of Companies which inter-alia included non-receipt of dividend, annualreport, transfer of shares. The complaints were gathered by the Company from Registrars and TransferAgents and from its own sources, which were duly attended to and the Company has furnishednecessary documents/information to the shareholders. Out of complaints received during the year,none of the complaints were pending as on March 31, 2009. All have been disposed of to thesatisfaction of the Shareholders.

The Share Transfer and Investors'/Shareholders' Grievance Committee reviews the following:

� Transfer/transmission of shares/debentures;

� Issue of duplicate share certificates;

� Review of shares dematerialised and all other related matters;

� Monitors expeditious redressal of investors' grievances;

� Non receipt of Annual Report and declared dividend;

� All other matters related to shares/debentures.

The Registrars & Transfer Agents are completing share transfers once in every 15 days.

Requests for share transfer are not pending.

Ms. K. Sandhya Lakshmi was the Compliance Officer from March 3, 2008 to April 1, 2009.



4. General Body MeetingsThe last three Annual General Meetings details are given herein below.

Year Date Day Time Venue

2006 August 10, 2006 Thursday 2.30 p.m. KLN Prasad Auditorium, FAPCCI, Hyderabad

2007 July 20, 2007 Friday 10.00 a.m. Anjuman, Taj Banjara, Hyderabad

2008 July 24, 2008 Thursday 2.30 a.m. Anjuman, Taj Banjara, Hyderabad

Special Resolutions passed at the last three AGMs

Year 2005 - 06 2006 - 07 2007 - 08

Item

5. Information in respect of Directors seeking appointment/re-appointment as required underClause 49 IV(G) of the Listing Agreement

Mr. G.V.K. Rama Rao

Mr. G.V.K. Rama Rao is one of the promoters and a Non-Executive Director. Mr. G.V.K. Rama Rao is arenowned Advocate and is an advisor to several cultural and social organisations in the GodavariDistrict of Andhra Pradesh. He is a prominent social worker and is associated with several culturalorganisations.

Mr. S.B. Budhiraja

a Non-Executive Director, was the Managing Director (Marketing) of Indian Oil Corporation, thelargest corporate in India and past president of the Institute of Management Consultants of India.

6. Disclosures

a. Related Party Transactions

The particulars of transactions between the Company and its related parties as per the AccountingStandard (AS-18) are set out at Notes to Accounts. However these transactions are not likely to haveany conflict with the Company's interest.

b. Code of Conduct

The Board of Directors has adopted the Code of Business Conduct and Ethics for Directors and SeniorManagement. The said Code has been communicated to the Directors and the Members of the SeniorManagement. The Code has also been posted on the Company's website www.neulandlabs.com


No specialresolutions werepassed

a. Appointment of Dr. Russell E. Kaufmanto an office or place of profit for aperiod of 5 years and fixation of hisremuneration

b. Appointment of Mr. D. Saharsh Raoas Vice President - Corporate Planning& Development & fixation of hisremuneration

c. Consent of the shareholders to create,offer, issue and allot stock options tothe employees & Directors of theCompany.

d. Consent of the shareholders to create,offer, issue and allot stock options tothe employees & Directors of thepresent or future wholly ownedsubsidiaries of the Company.

e. Amendment to the Articles ofAssociation for inserting clause tohold Board & Committee meetingsthrough video or teleconferencing.

Re-appointment ofMr. D. Sucheth Rao asWhole time Director ofthe Company for a periodof 5 years and fixation ofhis remuneration.


c. Risk Management

Business risk evaluation and management is an ongoing process within the organization. During theperiod under review, a detailed exercise on Business Risk Management (BRM) was initiated coveringthe entire gamut of business operations. The projects under progress.

d. Compliances by the Company

The Company has complied with the requirements of the Stock Exchanges, SEBI and other statutoryauthorities on all matters related to capital markets during the last three years; no penalties orstrictures have been imposed on the Company by the Stock Exchanges or SEBI or any other statutoryauthorities relating to the above.

7. Means of Communication

a. In compliance with the requirements of Listing Agreement, the Company regularly intimatesunaudited as well as audited financial results to the Stock Exchanges immediately after they aretaken on record by the Board. These financial results are normally published in Economic Times& Eenadu or Business Standard & Sakshi. As per SEBI Circular No.SMD/POLICY/CIR-13/02 datedJune 20, 2002 and July 3, 2002 and as per the amended Listing Agreement under Clause 51 -EDIFAR, financial statements, shareholding pattern and segment report are being filed on quarterlybasis on EDIFAR site.

b. Management Discussion and Analysis Report forms part of the Report of the Directors.

8. General Shareholders Information

Annual General Meeting

Date, Time and VenueSaturday July 18, 2009 at 2:30 p.m.at Emerald 1, Taj Krishna, Road No. 1,Banjara Hills, Hyderabad

Date of Book Closure Dividend payment dateJuly 15, 2009 to July 18, 2009 On or before August 14, 2009

Listing on Stock Exchanges

The Equity Shares of the Company are presently listed on the following stock exchanges:

Bombay Stock Exchange Limited (BSE)Phiroze Jeejeebhoy Towers,Dalal Street,Mumbai 400 001

National Stock Exchange of India LimitedExchange Plaza, Banda Kurla Complex,Bandra (E), Mumbai 400 001

The Company confirms that it has paid the annual listing fees due to Bombay Stock Exchange Limitedand National Stock Exchange of India Limited for the year 2009-10.

The Company has not issued any GDRs/ADRs/warrants or any other convertible instruments.

Stock Code - Physical

524558 on Bombay Stock Exchange Limited

NEULANDLAB on National Stock Exchange of India Limited

ISIN No. for NSDL & CDSL

INE794A01010

Financial Calendar

Adoption of QuarterlyResults for the Tentative Datesquarter ending

June 30, 2009 July 18, 2009

September 30, 2009 October 20, 2009

December 31, 2009 January 20, 2010

March 31, 2010 May 19, 2010



Registrar and Transfer Agents

Sathguru Management Consultants Private LimitedPlot No.15, Hindi Nagar,Punjagutta, Hyderabad – 500 034Ph : + 91 40 2335 0586Fax : + 91 40 2335 4042Email : [email protected]

Share price movements 2008 - 09

Market Price Data: High, Low & Closing prices during each month in last financial year

2008 April 198.00 142.00 182.75 – – –

May 191.00 160.00 175.15 – – –

June 185.00 152.60 157.50 – – –

July 185.00 144.00 150.00 – – –

August 157.90 139.05 140.10 – – –

September 153.95 120.00 141.70 – – –

October 141.50 82.00 105.00 119.00 84.95 109.09

November 114.40 88.00 95.40 112.00 92.10 94.65

December 110.90 90.00 108.30 109.50 92.20 109.50

2009 January 113.00 89.00 93.20 109.90 92.30 92.30

February 99.00 83.00 87.10 97.95 91.00 91.55

March 98.50 80.50 91.05 95.35 82.00 95.35

Note: Equity Shares of the Company were listed on National Stock Exchange of India Limited on October 13, 2008.

Share Transfer System

Share transfers are processed by the above Share Transfer Agents and approved by the Share TransferCommittee.

Dematerialisation of shares

The shares of the Company are in compulsory demat segment. The Company's shares are available fortrading in the depository system, of both the National Securities Depository Limited and the CentralDepository Services (India) Limited. As on March 31, 2009, the total shares dematerialized were4,069,603 in both depositories amounting to 75.41% of the share capital of the Company.

Rematerialisation of shares

The Company has not received any request for rematerialisation of shares during the year.

Shareholding Pattern as on March 31, 2009

Resident Individuals 4,098 93.73 1,314,625 24.36

NRIs/FIIs/OCBs 46 1.05 1,260,735 23.36

Bodies Corporate 148 3.39 645,857 11.97

Promoters/Directors and their relatives 75 1.72 1,995,262 36.97

FIs/Banks/MFs/Others 5 0.11 179,976 3.34

Total 4,372 100.00 5,396,455 100.00

Month High Low Closing


High Low Closing

National Stock Exchangeof India Limited

Bombay Stock Exchange LimitedRs. Rs.

Category No. ofMembers

Percent tototal

No. of Sharesheld

% of Shareholding


No. of Sharesheld

Percent toCapital

No. ofMembers

Category

Distribution Pattern as at March 31, 2009

Promoters/Directors/Associates 1,995,262 36.97 75

Mutual Funds, Banks & FIs 179,976 3.34 5

Bodies Corporate 645,857 11.97 148

NRIs/FIIs/OCBs 1,260,735 23.36 46

Individual Shareholders 1,314,625 24.36 4,098 - 5,000 Shares & above - Below 5,000 Shares

Total 5,396,455 100.00 4,372

Plant Locations of the Company

Unit 1: BonthapallyMandal JinnaramMedak, Andhra Pradesh

Address for Correspondence

i. Investor Correspondence: For transfer/dematerialisation of shares, payment of dividend onshares, interest and any other query relating to the shares of the Company:

For Shares held in Physical form For Shares held in Demat Form

Registrar and Transfer Agents To the Depository ParticipantSathguru Management Consultants Private LimitedPlot No.15, Hindi NagarPanjagutta, Hyderabad – 500 034

ii. Any query on Annual Report

The Company Secretary,Neuland Laboratories Limited204, Meridian Plaza,6-3-853/1 Ameerpet, Hyderabad - 500 016Phone : +91 40 2341 2934/2936/2937/2956

+91 40 6651 8682/8683/8684Fax : +91 40 2341 2957e-mail : [email protected]

Code of Conduct for insider tradingThe Company has adopted the code of conduct for insider trading as prescribed under ScheduleI and II of the SEBI (Prohibition of Insider Trading) Regulations.

B. NON-MANDATORY REQUIREMENTS

a. Chairman of the Board

The Company has an executive Chairman and Managing Director, who is entitled to maintain aChairman's office at the Company's expense.

b. Shareholders Rights

As the Company's half yearly results are published in English news papers having wide circulationand in Telugu news paper (vernacular language news paper, having circulation in Hyderabadwhere the Registered Office of the Company is situated) the same are not sent to the Shareholdersof the Company.

Unit 2: Plot No. 92-94, 257-259Industrial Development AreaPashamylaramMandal PatancheruMedak, Andhra Pradesh

iii. For investor grievancese-mail : [email protected]




To the Members ofNeuland Laboratories Limited

We have examined the compliance of conditions of Corporate Governance by Neuland Laboratories Limited,for the year ended March 31, 2009, as stipulated in Clause 49 of the Listing Agreement of the saidCompany with Stock Exchange(s). The compliance of conditions of Corporate Governance is the responsibilityof the management. Our examination was limited to procedures and implementation thereof, adopted bythe Company for ensuring the compliance of the conditions of the Corporate Governance. It is neither anaudit nor an expression of opinion on the financial statements of the Company.

In our opinion and to the best of our information and according to the explanations given to us and therepresentations made by the Directors and the management, we certify that the Company has compliedwith the conditions of Corporate Governance as stipulated in the abovementioned Listing Agreement.

As required by the Guidance Note issued by the Institute of Chartered Accountants of India, we have tostate that as per the records maintained by the Company, there were no investor grievances remainingunattended/pending for a period exceeding one month as on March 31, 2009

We further state that such compliance is neither an assurance as to the future viability of the Company northe efficiency or effectiveness with which the management has conducted the affairs of the Company.

For K. S. Aiyar & Co.Chartered Accountants

Raghuvir M. AiyarPartner

Mumbai, May 23, 2009. Membership No.: 38128

DECLARATION

As provided under Clause 49 of the Listing Agreement with the Stock Exchanges, the Board Members andthe senior management personnel have confirmed compliance with the Code of Conduct and Ethics for theyear ended March 31, 2009.

For Neuland Laboratories Limited

Dr. D. R. RaoHyderabad, May 21, 2009. Chairman & Managing Director

CMD/CFO CERTIFICATION

As required by sub clause V of Clause 49 of the Listing Agreement with the Stock Exchanges, we havecertified to the Board that for the financial year ended March 31, 2009 the Company has complied with therequirements of the said sub-clause.

For Neuland Laboratories Limited For Neuland Laboratories Limited

Dr. D. R. Rao A. RaghavendracharyuluChairman & Managing Director Vice-President (Finance)Hyderabad, May 21, 2009.

AUDITORS' CERTIFICATE ON CORPORATE GOVERNANCE


AUDITORS' REPORT

To the Members ofNeuland Laboratories Limited

Report on the accounts for the year ended on March 31, 2009 in compliance with Section 227(2) of the Companies Act,1956.

We have audited the attached Balance Sheet of Neuland Laboratories Limited, as at March 31, 2009 and also the Profitand Loss Account for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended onthat date. These financial statements are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

1. As required by the Companies (Auditor's Report) Order, 2003 as amended by Companies (Auditor'sReport)(Amendment) Order, 2004, issued by the Central Government of India in terms of sub-section (4A) ofSection 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified inparagraphs 4 and 5 of the said Order.

2. Further to our comments in the Annexure referred to above, we report that:

a. We have obtained all the information and explanations, which to the best of our knowledge and belief, werenecessary for the purposes of our audit;

b. In our opinion, proper books of account as required by law have been kept by the company so far as appearsfrom our examination of those books;

c. The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books ofaccount;

d. In our opinion, the Balance Sheet and Profit and Loss Account dealt with by this report comply with theaccounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956 to the extentapplicable;

e. On the basis of written representations received from the Directors/Company, as on March 31, 2009, andtaken on record by the Board of Directors we report that none of the Directors is disqualified as on March 31,2009 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of theCompanies Act, 1956.

f. In our opinion and to the best of our information and according to the explanations given to us, the saidaccounts give the information required by the Companies Act, 1956, in the manner so required and 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 the Company as at March 31, 2009;

ii. In the case of the Profit and Loss Account, of the profit for the year ended on that date; and

iii. In the case of Cash Flow Statement, of the cash flows for the year ended on that date.





(Referred to in paragraph 1 of our Report of even date on the accounts for the year ended onMarch 31, 2009 of Neuland Laboratories Limited)

i. a. The Company has maintained proper records showing full particulars including quantitative details and situationof fixed assets.

b. The Fixed Assets have been physically verified by the management in accordance with regular programme ofverification which, in our opinion, is reasonable having regard to the size of the Company and nature of itsassets. Discrepancies noticed on such verification have been appropriately dealt with in the books of account.

c. Fixed assets disposed off during the year were not substantial. According to the information and explanationsgiven to us, we are of the opinion that the disposal of fixed assets has not affected the going concern statusof the Company.

ii. a. The inventories have been physically verified during the year by the management. In our opinion, thefrequency of verification is reasonable.

b. The procedures of physical verification of inventories followed by the management are reasonable and adequatein relation to the size of the Company and the nature of its business.

c. In our opinion and according to the information and explanation given to us, the Company is maintainingproper records of inventory. The discrepancies noticed on verification between physical stocks and the bookrecords were not material and have been properly dealt with in the books of account.

iii. The company has not granted or taken loans, secured or unsecured to/from companies, firms or other partiescovered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly, sub-clause (b),(c), (d), (f) & (g) are not applicable.

iv. In our opinion and according to the information and explanations given to us, there is an adequate internalcontrol system commensurate with the size of the Company and the nature of its business for the purchases ofinventory and fixed assets and for the sale of goods and services, however, further strengthening of these controlsis recommended in the environment of ERP. During the course of our audit, no major weakness has been noticedin the internal control system in respect of these areas.

v. a. As per information and explanation and on basis of records maintained by the company we are of the opinionthat particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in theregister required to be maintained under that section.

b. In our opinion and according to the information and explanations given to us, the transactions made inpursuance of contracts or arrangements entered in the registers maintained under Section 301 of the CompaniesAct, 1956 have been made at prices which are reasonable having regard to the prevailing market prices at therelevant time.

vi. In our opinion and according to the information and explanations given to us, the Company has complied withthe provisions of Sections 58A, 58AA or any other relevant provisions of the Act and the Companies (Acceptanceof Deposits) Rules, 1975 with regard to the deposits accepted from the public. As informed to us, no order hasbeen passed by the Company Law Board or National Company Law Tribunal or Reserve Bank of India or any courtor any other tribunal.

vii. In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

viii. We have broadly reviewed the books of account relating to materials, labour and other items of cost maintainedby the Company pursuant to the Rules made by the Central Government for the maintenance of cost records underSection 209(1)(d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accountsand records have been made and maintained.

ix. a. According to the records of the Company, provident fund, Investor Education and Protection Fund, employees'state insurance, income tax, sales tax, wealth tax, service tax, sustoms duty, excise duty, cess and othermaterial statutory dues applicable to it have generally been regularly deposited during the year with theappropriate authorities though there has been a small delay in a few cases. According to the information andexplanations given to us, undisputed dues in respect of provident fund, Investor Education and ProtectionFund, employees' state insurance, income tax, sales tax, wealth tax, service tax, customs duty, excise duty,

ANNEXURE TO THE AUDITORS’ REPORT


cess and other statutory dues which were outstanding, at the year end for a period of more than six monthsfrom the date they became payable are as follows:

Name of the Nature of dues Amount Year to which Due Date Date of paymentStatute Rs. in Lakhs the amount relates

Companies Investor 1.54 2000-2001 2008-2009 Not paid as onAct, 1956 Education March 31, 2009 (Since paid)

Protection Fund

b. According to the records of the Company, sales tax, income tax, customs duty, wealth tax, service tax, exciseduty or cess which have not been deposited on account of dispute are given below :

Name of the Statute Nature of dues Amount Forum where dispute is pendingRs. in Lakhs

Sales Tax Sales Tax Demand 33.50 High Court, Andhra PradeshAssessment Years 2004-2005and 2005-2006

x. The Company does not have any accumulated losses at the end of the financial year and has not incurred cashlosses during the financial year covered by our audit and the immediately preceding financial year.

xi. In our opinion and according to the information and explanations given to us, the Company has not defaulted inrepayment of dues to a financial institution, bank or debenture holders.

xii. Based on our examination of the records and the information and explanations given to us, the Company has notgranted any loans and advances on the basis of security by way of pledge of shares, debentures and othersecurities.

xiii. In our opinion the Company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore the provisions ofclause 4(xiii) of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company.

xiv. In our opinion the Company is not dealing in or trading in shares, securities, debentures and other securities.Accordingly, the provisions of clause 4 (xiv) of the Companies (Auditor's Report) Order, 2003 are not applicable tothe Company.

xv. According to the information and explanations given to us, the Company has not given any guarantee for loanstaken by others from bank or financial institutions.

xvi. In our opinion, the term loans have been applied for the purpose for which they were raised.

xvii. According to the information and explanations given to us and on an overall examination of the balance sheet ofthe Company, we report that no funds raised on short-term basis have been used for long-term investment.

xviii. The Company has not made any preferential allotment of shares to parties and companies covered in the registermaintained under Section 301 of the Companies Act, 1956

xix. The Company has not issued any debentures.

xx. The Company has not raised any money through public issue during the year.

xxi. According to the information and explanations given to us, no fraud on or by the Company has been noticed orreported during the course of our audit.





Schedule March 31, 2009 March 31, 2008

SOURCES OF FUNDS

SHAREHOLDERS' FUNDS

Share Capital A 54.67 54.67

Reserves & Surplus B 698.22 632.09

752.89 686.76

LOAN FUNDS

Secured Loans C 2003.16 1340.85

DEFERRED TAX LIABILITY (Net) 41.38 27.78

TOTAL FUNDS 2797.43 2055.39

APPLICATION OF FUNDS

FIXED ASSETS D

Gross Block 2056.49 1114.81

Less: Depreciation 591.29 517.59

Net Block 1465.20 597.22

Capital Work-in-Progress 368.02 596.47

1833.22 1193.69

INVESTMENTS E 74.60 72.71


Inventories F 704.66 550.13

Sundry Debtors G 711.50 514.26

Cash and Bank Balances H 106.20 92.12

Loans & Advances I 277.56 352.09

1799.92 1508.60


Current Liabilities J 801.61 626.40

Provisions K 108.70 93.21

910.31 719.61

NET CURRENT ASSETS 889.61 788.99

TOTAL ASSETS (Net) 2797.43 2055.39

NOTES TO ACCOUNTS L

The schedules referred to above and notes to accounts form an integral part of the Balance Sheet.

Rs. in Million


A. RaghavendracharyuluVice President (Finance)

For and on behalf of the Board

Dr. D.R. RaoChairman & Managing Director

S.B. BudhirajaDirector

Daya ChandrahasDirector

D. Sucheth RaoWholetime Director

Humayun DhanrajgirDirector

G.V.K. Rama RaoDirector

Per our report attached


RAGHUVIR M. AIYARPartner

Hyderabad, May 21, 2009.


Schedule March 31, 2009 March 31, 2008

INCOMESales and Export incentives 3120.26 2248.85Less: Excise duty 53.04 71.82

3067.22 2177.03Other Income 1 105.34 53.42TOTAL 3172.56 2230.45

EXPENDITURERaw Materials Consumed 2 1891.17 1353.75Manufacturing Expenses 3 540.13 372.68Administration, Selling & Other Expenses 4 379.86 243.18Interest and other Charges 5 143.59 99.34Depreciation/Amortisation D 74.80 55.95Less: Adjusted against revaluation reserve 1.10 1.10

73.70 54.85TOTAL 3028.45 2123.80

PROFIT BEFORE TAXATION 144.11 106.65Provision for Current Tax 16.33 12.08Provision for Fringe Benefit Tax 2.79 1.53Provision for Deferred Tax 13.60 (8.40)MAT credit entitlement (5.13) (12.08)Exces Provision of Income Tax no longer required (1.38) –

PROFIT AFTER TAX 117.90 113.52Balance brought forward from previous year 74.22 61.62AMOUNT AVAILABLE FOR APPROPRIATION 192.12 175.14APPROPRIATIONS

Transfer to General Reserve 88.42 85.14Proposed Dividend @ 35% 18.89 13.49Tax on distributed profits 3.21 2.29

BALANCE CARRIED TO BALANCE SHEET 81.60 74.22NOTES TO ACCOUNTS LEARNINGS PER SHARE

Basic Earnings per Share (Rs.) 21.85 21.04Diluted Earnings per Share (Rs.) 21.81 21.04Face Value per Share (Rs.) 10.00 10.00

The schedules referred to above and notes to accounts form an integral part of the Profit and Loss Account.

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

Rs. in Million














March 31, 2009 March 31, 2008

A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit before tax and exceptional items 144.11 106.65Adjustment for

Depreciation/Amortisation 73.70 54.85Interest Expense 105.32 60.57Unrealised foreign Exchange (Gain) – (26.58)Loss on sale of fixed assets 0.16 0.08Deferred Revenue Expenses written off – 2.64Provision for gratuity and leave encashment 8.02 0.86Provision for Doubtful Debts 7.94 3.46Loan written back – (5.00)

Operating Profit before Working Capital changes 339.25 197.53Add/(Less) Working Capital changes

Trade Receivables (205.16) (49.50)Inventories (154.53) (59.93)Loans and Advances 74.42 (122.19)Trade Payables 174.58 169.64Cash flow from investing activities 228.56 135.55Less Income Tax paid (12.45) (16.12)

Net cash from operating activities (A) 216.11 119.43B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets including Work-in-Process (742.34) (591.06)Proceeds from Sale of Fixed Assets 0.37 0.11

Net Cash used in investing activities (B) (741.97) (590.95)C. CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from long-term borrowings 539.30 436.40Increase/(Decrease) in bank borrowings 205.56 184.79Repayments of long-term borrowings (82.55) (73.94)Interest Paid (104.71) (51.40)Proceeds from/(Repayment of) Unsecured Loans – (0.48)Dividend Paid (15.78) (15.58)Investments in Subsidiaries (1.89) –

Net Cash used in financing activities (C) 539.93 479.79Net increase/(decrease) in Cash & Cash Equivalents (A+B+C) 14.07 8.27

Opening Balance 92.13 83.85Closing Balance 106.20 92.12

Notes: 1. All figures in brackets are outflows.2. Previous year's figures have been regrouped wherever necessary.3. Direct taxes paid are treated as arriving from operating activities and are not bifurcated between

investing & financing activities.4. Cash & cash equivalent is cash & bank balances as per Balance Sheet.

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2009Rs. in Million














As at As atMarch 31, 2009 March 31, 2008

SCHEDULE - ASHARE CAPITAL

AUTHORISED10,000,000 Equity Shares of Rs.10 each 100.00 100.00 300,000 Cumulative Redeemable Preference Shares of Rs.100 each 30.00 30.00 300,000 Preference Shares of Rs.100 each either cumulative or

non-cumulative and redeemable or otherwise 30.00 30.00160.00 160.00

ISSUED5,590,000 Equity Shares of Rs.10 each, fully paid 55.90 55.90

(Previous Year - 5,590,000 Equity Shares of Rs.10 each)SUBSCRIBED CAPITAL5,499,731 Equity Shares of Rs.10 each 55.00 55.00

(Previous Year - 5,499,731 Equity Shares of Rs.10 each)PAID UP CAPITAL5,396,455 Equity Shares of Rs.10 each fully paid up 53.96 53.96

(Previous Year - 5,396,455 Equity Shares of Rs.10 each)

Add: 103,276 Forfeited Equity Shares of Rs.10 each 0.71 0.71[(Previous Year - 103,276) (amount originally paid up)]a. Of the above shares, 715,040 Equity Shares of Rs.10 each

are allotted as fully paid up by way of bonus shares.b. 11,080 Equity Shares of Rs.10 each for consideration

other than in cash to erstwhile shareholders ofNeuland Drugs and Pharmaceuticals Private Limited.

54.67 54.67

SCHEDULE - BRESERVES & SURPLUS

Capital Reserve 0.33 0.33Share Premium 360.54 360.54General Reserve

Opening Balance 182.06 103.57Less: Adjustment for employee benefits provision net of tax – 6.65Less: Adjustment of foreign exchange gain (Net of depreciation) 28.57 –Add: Transfer from Profit and Loss Account 88.42 85.14

241.91 182.06Revaluation Reserve 14.94 16.04Less: Depreciation on revalued assets 1.10 1.10

13.84 14.94Profit and Loss Account 81.60 74.22

698.22 632.09

SCHEDULES FORMING PART OF THE BALANCE SHEETRs. in Million



SCHEDULE - CSECURED LOANS

TERM LOANSa. Foreign Currency Loans 523.99 469.34b. Rupee Loans 726.86 325.42

1250.85 794.76

The above loans are secured by a pari-passu first chargeon the immovable properties and pari-passu chargeon moveable properties (subject to the prior chargein favour of the Company's bankers on specifiedmoveables, created/to be created for securingborrowings for working capital requirements) andfurther guaranteed by the Chairman & ManagingDirector and one of the Directors in their personalcapacities.

As per covenant of the foreign currency loan agreementwith the Export Import Bank of India, included in (a)above, the bank has an option to convert the loaninto a rupee loan in case the Company defaults inrepayment.

Technology Development Assistance from TIFAC 1.50 4.50The above loan is secured by movable property of theCompany at Bonthapally manufacturing unit includingits movable plant and machinery, machinery spares,tools and accessories and other movables both presentand future (save and except book debts) whetherinstalled or not are aquired for the purpose of theproject at the cost of or from the money advanced byTIFAC under Technology Development Assistanceagreement.

Working Capital Finance from Bank 737.74 532.17Working capital loans from bank is secured byhypothecation of raw materials, stocks in process,finished goods, book debts, stores & spares and exportreceivables and is further secured by second charge onall fixed assets and movable machinery of the Company,first charge being held by financial institution andguaranteed by the Chairman & Managing Director andone of the Directors in their personal capacities.

OTHER LOANSHire Purchase Loans 13.07 9.42

The above loan is against the hypothecation of vehicles.2003.16 1340.85

Rs. in Million


SCHEDULE - DFIXED ASSETS

GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK

Name of Assets Cost as on Additions/ (Deductions)/ Adjustments Cost as on Upto (Deductions)/ For the Adjustments Total upto As on As on31.03.2008 Adjustments Adjustments (Refer Note below) 31.03.2009 31.03.2008 Adjustments Year (Refer Note below) 31.03.2009 31.03.2009 31.03.2008

Land 6.95 2.10 – – 9.05 – – – – – 9.05 6.95

Buildings 262.14 216.50 – (7.57) 471.07 59.29 – 9.81 (0.10) 69.00 402.07 202.73

Plant and Machinery 693.50 617.60 – (17.01) 1294.09 402.55 – 51.49 (0.62) 453.42 840.67 291.30

R&D Equipment 71.99 97.61 – (4.51) 165.09 15.13 – 3.55 (0.08) 18.60 146.49 56.63

Data Processing 18.81 4.06 – – 22.87 10.86 – 2.25 – 13.11 9.76 7.96Machines

Furniture & Fittings 13.43 20.71 – (0.28) 33.86 4.23 – 1.02 – 5.25 28.61 9.20

Vehicles 25.20 11.70 (0.84) – 36.06 10.49 (0.31) 3.01 – 13.19 22.87 14.71

Intangible Assets 16.87 – – – 16.87 13.57 – 1.65 – 15.22 1.65 3.30(Process Development Cost)

Intangible Assets – SAP 5.92 1.61 – – 7.53 1.48 – 2.02 – 3.50 4.03 4.44

TOTAL 1114.81 971.89 (0.84) (29.37) 2056.49 517.60 (0.31) 74.80 (0.81) 591.29 1465.20 597.22

Previous Year 890.83 225.44 – (1.46) 1114.81 517.59 (0.16) 55.95 – 517.59 597.22

Capital Work––in–Process 368.02 596.47(Including advances on capital goods)

Rs. in Million


SCHEDULE - EINVESTMENTS - Long Term (at Cost)

(Other Investments - Unquoted and Non-traded)Jeedimetla Effluent Treatment Limited 0.22 0.22

2,200 equity shares of Rs.100 each fully paid up(2,200 equity shares of Rs.100 each)

Pantancheru Enviro-Tech Limited 2.09 2.09209,136 equity shares of Rs.10 each fully paid up(209,136 equity shares of Rs.10 each)

Investment in Andhra Pradesh Gas Power Corporation Limited 70.40 70.40402,000 equity shares of Rs.100 each fully paid(402,000 equity shares of Rs.100 each fully paid)

Neuland Laboratories K.K., Japan 1.54 –300,000 equity shares of Yen 100 each fully paid

Neuland Laboratories Inc., USA –1,000 equity shares of $ 0.001 each fully paid (amounting to Rs.44 only)

CATO Research Neuland India Private Limited 0.35 –35,000 equity shares of Rs.10 each fully paid

74.60 72.71

Note: Adjustment carried out on account of foreign exchange gain relating to the financial year 2007-08 pursuant to notification datedMarch 31, 2009 issued by the Ministry of Corporate Affairs (See Note 6 on Schedule L).


SCHEDULES FORMING PART OF THE BALANCE SHEET Contd...

Rs. in Million


SCHEDULE - FINVENTORIES - As Certified by the Management

Raw Materials 229.69 206.01Work-in-Process 78.64 71.97Finished Goods 360.73 228.84Stores and Consumables 24.21 18.92Goods in Transit 11.39 24.39

704.66 550.13

SCHEDULE - GSUNDRY DEBTORS

Unsecured, Considered goodSundry Debtors outsanding for a period exceeding six months

Considered good 18.20 6.12Considered doubtful 25.42 19.22

43.62 25.34Less: Provision for doubtful debts 25.42 19.22

18.20 6.12Others 693.30 508.14

711.50 514.26

SCHEDULE - HCASH & BANK BALANCES

Cash on hand 0.24 0.22Bank Balances with Scheduled Banks

Current Accounts 7.46 22.91Fixed Deposit Accounts (against margin money) 66.00 44.49Fixed Deposit Accounts 32.50 24.50

106.20 92.12

SCHEDULE - ILOANS & ADVANCES (Unsecured, Considered Good)

Advances recoverable in cash or in kind or for value to be receivedAdvances to Suppliers 17.09 24.59Other Advances 44.89 44.64Advance Payment against Taxes - Income Tax 73.16 76.70Deposits 20.71 21.19Prepaid Expenses 6.76 3.79Balances with Central Excise 27.80 16.64Other Receivables

Interest Accrued 6.15 3.15Central Excise Claim Receivable & other receivables 5.01 83.70Export benefits & other claims receivable 75.99 77.69

277.56 352.09



SCHEDULE - JCURRENT LIABILITIES

Sundry Creditors forGoods Supplied 441.32 394.74Expenses 123.67 103.17Capital Expenditure 78.51 9.76

Advances from Customers 12.11 6.55Other Liabilities 140.45 106.20

796.06 620.42Export incentive obligation 5.33 5.91Due to Shareholders

Investor Education and Protection Fund(Appropriate amount shall be transferred to Investor Education andProtection Fund if and when due) Unpaid amount due to Investors Education and Protection Fund 0.15 – Fixed deposits matured but not claimed including interest thereon 0.07 0.07

However no amounts mentioned above are due to be transferred to

Investor Education and Protection Fund as on March 31, 2009.

801.61 626.40

SCHEDULE - KPROVISIONS

Gratuity/Pensions 19.04 11.57Leave Encashment 9.45 6.50Proposed Dividend & Tax 22.10 15.78Income Tax 55.32 57.83Provision for Fringe Benefit Tax 2.79 1.53

108.70 93.21

SCHEDULES FORMING PART OF THE BALANCE SHEET Contd...

Rs. in Million



SCHEDULE - 1OTHER INCOME

Interest received 7.03 4.04Miscellaneous Income 8.29 5.18Net Foreign Exchange Gain/(Loss) 60.65 37.94Product Development charges received 29.37 6.26

105.34 53.42

SCHEDULE - 2CONSUMPTION OF RAW MATERIALS & FINISHED GOODS

Opening Stock of Raw Materials 206.01 192.17Add: Purchases 1861.17 1236.02Add: Cost of finished goods sold 192.24 159.55

2259.42 1587.74Less: Closing Stock of Raw Materials 229.69 206.01

Value of Material Consumption (i) 2029.73 1381.73Opening Stock

Finished Goods 228.84 197.27Work-in-Process 71.97 75.56

300.81 272.83Closing Stock

Finished Goods 360.73 228.84Work-in-Process 78.64 71.97

439.37 300.81(Increase)/Decrease in Stocks (ii) (138.56) (27.98)Total Consumption of Raw Materials and Finished Goods (i) + (ii) 1891.17 1353.75

SCHEDULE - 3MANUFACTURING EXPENSES & OTHER EXPENSES

Stores and Consumables 47.67 40.45Power and Fuel 108.07 69.97Carriage Inwards 7.92 11.87Payments & Provisions to Employees

Salaries and Wages 197.65 136.81Staff Welfare Expenses 9.03 4.27Employer's contribution to EPF, FPF, ESI & EDLIS 17.63 13.19

224.31 154.27Repairs and Maintenance

Repairs to Buildings 5.54 3.08Repairs to Machinery 14.57 10.04Others 62.76 37.05

82.87 50.17Effluent Treatment & Transport charges 49.93 32.32Packing Material 17.61 11.50Testing Charges 1.86 1.74Increase/(Decrease) in provision for Excise Duty on Finished Goods (0.11) 0.39

540.13 372.68

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT

Rs. in Million


Rs. in Million


SCHEDULE - 4ADMINISTRATIVE, SELLING & OTHER EXPENSES

Rent, Rates & Taxes 10.35 8.20Travelling Expenses 50.53 34.43Professional Charges 38.90 26.59Remuneration to Auditors

Statutory Audit 0.66 0.58Tax Audit 0.20 0.16Limited Reviews 0.60 0.40Other Services 0.16 0.09Out-of-pocket Expenses 0.05 0.10

1.67 1.33Insurance 15.07 13.14Advertisement 1.24 1.56Sales Commission 18.24 15.12Selling and Distribution Expenses 65.88 7.08Freight and Forwarding Charges 47.17 41.87Provision for Doubtful Debts & Advances 13.71 9.37

Less: Amount written back on collection 5.77 5.907.94 3.47

Other Expenses 35.95 28.86Sitting Fees 0.43 0.39R&D Charges (See Note 10 on Schedule L) 86.49 59.69Deferred Revenue & Miscellaneous Expenses written off – 1.45

379.86 243.18

SCHEDULE - 5INTEREST & OTHER CHARGES

Interest on Working Capital 67.22 41.60Interest on Term Loan 38.10 18.95Interest on Fixed Deposits & Other Loans – 0.03Discounting & Negotiation Charges 14.79 22.41Others 23.48 16.35

143.59 99.34

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT Contd...


SCHEDULE – LNOTES TO ACCOUNTS

SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF ACCOUNTING

Financial statements are prepared under the historical cost convention, in accordance with applicable accountingstandards issued by the Institute of Chartered Accountants of India and relevant provisions of the CompaniesAct, 1956 (except for certain fixed assets which have been revalued in the past as detailed in (D) below).

B. REVENUE RECOGNITION

i. Sales are recognized on dispatch of products. Sales are inclusive of insurance, freight and exclusive ofSales Tax.

ii. The export incentives are accrued and accounted on the basis of the actual exports made during the year.

iii. Income from product development services are recognised when services are rendered or related costs areincurred in accordance with the terms of specific contracts.

C. EXCISE DUTY

Excise Duty recovered is reduced from sale of products. Excise in respect of finished goods is accounted for, asand when goods are cleared from the factory and stocks of finished goods are valued inclusive of excise dutywhere applicable.

D. FIXED ASSETS

i. Fixed assets are stated at cost less accumulated depreciation. Cost of acquisition of fixed assets isinclusive of freight, duties (net of CENVAT & VAT), taxes, incidental expenses relating to acquisition andthe cost of installation/erection as applicable

ii. Foreign exchange gain/loss on borrowings for acquisition/construction of fixed assets have been reducedfrom/added to the related costs of assets with effect from April 1, 2007 as per the Ministry of CorporateAffairs notification dated March 31, 2009 in amendment of accounting standards.

iii. Land, buildings, plant & machinery and certain fixed assets are shown at re-valued values. Other fixedassets are shown at cost.

iv. Depreciation on fixed assets is provided on Straight Line Method at the rates prescribed by Schedule XIVof the Companies Act, 1956 as amended, and is calculated on a pro-rata basis. Depreciation is charged onpro rata basis for assets purchased/sold during the year. Depreciation on value written up on revaluedassets is calculated on SLM basis with reference to the remaining useful life of the asset and the RevaluationReserve is charged with the difference between the depreciation calculated on such revalued costs andthe historical cost.

v. Borrowing costs that are attributable to the acquisition or construction of fixed assets are capitalized aspart of such assets for the period up to the date of put to use. All other borrowing costs are charged torevenue.

vi. Expenses on equipment for Research & Development are capitalized.

vii. Intangibles being cost of SAP ERP are amortized over a period of three years.

E. INVESTMENTS

Long term Investments are carried at cost. However, provision for diminution in value if any is made torecognize a decline other than temporary in the value of investments.

F. FOREIGN CURRENCY TRANSACTIONS

a. Transactions in foreign exchange are accounted for at the exchange rate prevailing on the date of transaction.Gains and losses arising thereon are recognized in the Profit amd Loss Account. In respect of itemscovered by forward exchange contract, the premium or discount arising at the inception of such a forwardexchange contract is amortised as an expense or income over the life of the contract.


b. Foreign currency monetary items are reported using the closing rate. Non-monetary items which arecarried in terms of historical cost denominated in a foreign currency are reported using the exchange rateat the date of the transaction;

c. In case of fixed assets, please see D(ii) above.

G. INVENTORIES

Inventories are valued at lower of cost and estimated net realizable value, after providing for cost of obsolescenceand other anticipated loss whenever considered necessary. Work-in-progress is valued at estimated cost onthe basis of stage wise completion of the production. Finished goods and work in process include cost ofconversion and other costs incurred in bringing the inventories to their present level of location and condition.Cost is determined by using the weighted average basis.

H. TAXATION

Provision for current tax is made after taking into consideration benefits admissible under the provisions ofIncome Tax Act, 1961. Deferred tax resulting from 'timing differences' between book and taxable profit isaccounted for using the tax rates and laws that have been enacted or substantively enacted as on the balancesheet date. The deferred tax assets is recognized and carried forward only to the extent that there is areasonable certainty that asset will be realized in future.

I. EMPLOYEE STOCK OPTION SCHEMES (ESOP)

The Company accounts for compensation expense under the Employee Stock Option Schemes using the intrinsicvalue method as permitted by the Guidance Note on 'Accounting for Employee Share-based Payments' issuedby the Institute of Chartered Accountants of India. The difference between the market price and the exerciseprice as at the date of the grant is treated as compensation expense and charged over the vesting period.

J. EMPLOYEE BENEFITS

a. Defined Contribution Plan

The Company's Employee's Provident Fund administered through Government Provident Fund, EmployeeState Insurance Scheme and Labour Welfare Fund are considered as Defined Contribution Plans. TheCompany's contributions paid/payable towards these defined contributions plan are recognized as expensein the Profit and Loss Account during the period in which the employee renders the related service. Theinterest rate payable by the trust to the beneficiaries every year is being notified by the government. TheCompany has no obligation to make good the shortfall, if any, between the return from the investmentsand the notified interest rate.

b. Defined Benefit Plan

Company's liabilities towards gratuity, leave encashment are considered as Defined Benefit Plans. Thepresent value of the obligations under such Defined Benefit Plans are determined based on actuarialvaluation using the projected unit credit method, which recognizes each period of service as giving riseto an additional unit of employee benefit entitlement and measures each unit separately to build up thefinal obligation.

The obligation is measured at the present value of estimated future cash flows using a discount rate thatis determined by reference to market yields at the balance sheet date on Government securities.

c. Long-term Employee Benefit

Company's liability towards sick leave is determined using the Projected Unit Credit Method which considerseach period of service as giving rise to an additional unit of benefit entitlement and measures each unitseparately to build up the final obligation.

K. CONTINGENT LIABILITIES

Contingent liabilities are disclosed after careful examination of the facts and legal aspects of the matterinvolved.


Rs. in Million

NOTES TO ACCOUNTS Contd...

1. SEGMENT REPORTING

a. The Company's operations are predominantly related to the manufacture of bulk drugs, as such there isonly one primary reportable segment. Secondary reportable segments are identified taking into accountthe geographical markets available to the products, the differing risks and returns and internal reportingsystem.

b. As part of secondary reporting, revenues are attributed to geographical areas based on the location ofcustomers as detailed below:

Particulars 2008 - 2009 2007 - 2008

Revenue % Revenue %

Domestic 495.47 16.11 445.68 20.47

Exports 2571.75 83.89 1731.35 79.53

Total 3067.22 100.00 2177.03 100.00

c. The Company does not track its assets and liabilities by geographical area.

2. RELATED PARTY TRANSACTIONS

Disclosures as required by the Accounting Standard - 18

a. Name of the related parties and descriptions of relationships

Name Nature of Relationship

Sucheth & Saharsh Holdings Pvt. Ltd. Other Related Party (Associate)

b. Key Management Personnel


Dr. D. R. Rao Chairman & Managing Director

Mr. D. Sucheth Rao Excutive Director & CEO& Son of Chairman & Managing Director

Mr. D. Saharsh Rao Vice President - Corporate Planning &Development & Son of Chairman &Managing Director

c. Relatives of Key Managerial Personnel


Mrs. D. Vijaya Rao Wife of Chairman & Managing Director

Mrs. D. Rohini Niveditha Rao Wife of Excutive Director & CEO

Mrs. K. Deepthi Wife of Vice President -Corporate Planning & Development

d. Subsidiary Companies

1. Neuland Laboratories K.K., Japan Wholly owned subsidiary

2. Neuland Laboratories Inc., USA Wholly owned subsidiary

3. Cato Research Neuland India Private Limited Partly owned subsidiary


e. Transactions during the year and balances outstanding as at the year end with the related partiesare as follows:

Rs. in Million

Associate Key Relative of Key SubsidiaryNature of transactions Management Management Companies

Personnel Personnel

Rent paid 0.62 – – 0.96

(1.15) – – (0.76)

Office maintenance 0.42

(0.42)

Remuneration paid to Chairman & Managing Director 4.23

(4.30)

Remuneration paid to Excutive Director & CEO 4.41

(3.74)

Remuneration paid to Vice President -

Corporate Planning & Development 3.71

(2.18)

Commission paid to Chairman & Managing Director 3.10

(1.62)

Dividend paid to Chairman & Managing Director 2.84

(2.01)

Commission paid to Excutive Director & CEO 2.90

(2.08)

Dividend paid to Excutive Director & CEO 0.39

(0.23)

Dividend paid to Vice President -

Corporate Planning & Development 0.23

(0.12)

Advance paid –

(15.75)

Outstanding at the year end – due to 0.43 0.06 3.70

(0.32) (0.02) (– )

Outstanding deposit at the year end - due from 2.00

(2.00)

Investment in Share Capital

- Neuland Laboratories K.K., Japan 1.54

(– )

- Neuland Laboratories Inc., USA (Rs.) 44.00

(– )

- Cato Research Neuland India Private Limited 0.35

(– )

Services Received 42.74

(– )

Figures in brackets relate to previous year.

3. EARNINGS PER SHARE

Computation for Basic & Diluted Earnings per Share March 31, 2009 March 31, 2008

I. Net Profit as per Profit and Loss Account available forEquity Shareholders (Rs. in Million) 117.90 113.52

II. Weighted average number of equity shares forEarnings per Share computation for Basic andDiluted Earnings per Share 5,396,455 5,396,455

III. Earnings per Share (Weighted Average)Basic (Rs.) 21.85 21.04Diluted (Rs.) 21.81 21.04




4. MANAGERIAL REMUNERATION

a. Managerial Remuneration (excluding the contributions to provident fund, provision for gratuityand leave encashment paid or payable to Directors)

March 31, 2009 March 31, 2008

A. Minimum Remuneration of

Chairman & Managing Director

Salary 3.60 3.60

Perquisites 0.20 0.26

Commission 3.10 1.62

Total (A) 6.90 5.48

B. Remuneration of Executive Director & CEO

Salary 3.40 2.80

Perquisites 0.60 0.60


Total (B) 6.90 5.48

C. Non-Executive Directors


Total (C) 1.00 0.90

Total Remuneration (A+B+C) 14.80 11.86

b. Computation under Section 349 of the Companies Act, 1956 March 31, 2009 March 31, 2008

Profit before tax 144.11 106.65

Add: Provision for depreciation as per Profit and Loss Account 73.70 54.85

Remuneration to Directors 14.80 11.86

Provision for doubtful debts 7.94 3.47

240.55 176.83

Less: Depreciation under Section 350 of the Companies Act 73.70 54.85

Profit as per Section 349 of the Companies Act 166.85 121.98

Overall remuneration as per Sections 198 and 309

of the Companies Act 14.80 12.08

Less: Remuneration paid to Wholetime Directors 7.80 7.26

Commission payable as per Sections 198 and 309

of the Companies Act 7.00 4.82

5. During the year, pursuant to implementation of SAP ERP system, certain cost formulas for inventory valuationhave been changed. The impact of these changes is not material.

6. The Company has opted to adopt the amendment to the Companies (Accounting Standards) Rules, 2006effected by a notification dated March 31, 2009 issued by the Ministry of Corporate Affairs, Government ofIndia. Pursuant to this adoption, an amount of Rs.29.37 Million being foreign exchange fluctuations gainpertaining to foreign currency loan availed for acquisition of depreciable capital asset, recognized as incomein the year 2007-08 is now reversed and credited to respective capital assets with a corresponding effect togeneral reserve. Similarly an amount of Rs.108.50 Million being foreign exchange fluctuation loss pertainingto such foreign currency loan for the current year is debited to respective capital asset, instead of recognizingas loss in the Profit and Loss Account. The effect on depreciation pursuant to these adjustments will beaccounted over the balance period of respective capital assets prospectively. As a result of the above changein policy, the profits for the year after tax are higher by Rs.108.50 Million and reserves and surplus are lowerby Rs.28.57 Million.

Rs. in Million


Gratuity Funded Leave Encashment

I. Expense recognised in the statement ofProfit and Loss for the year ended March 31, 2009Current Service Cost 2.90 3.03

2.40 0.48Interest Cost 1.33 0.50

1.18 0.48Expected return on Plan Assets (0.43) –

(0.28) –Net Actuarial (Gains)/Losses 1.40 0.09

(1.04) 0.58Total Expense 5.19 2.98

2.26 1.53II. Net Assets/(Liability) recognised in the

Balance Sheet as at March 31, 2009Present Value of Defined Obligation as at March 31, 2009 22.22 9.45

(17.12) –Fair Value of Plan Assets as at March 31, 2009 5.06 –

5.72 –Funded Status [Surplus/(Deficit)] Difference (17.15) –

(11.39) –Net Assets/(Liability) as at March 31, 2009 (17.15) 9.45

(11.39) (6.29)III. Change in 0bligation during the

year ended March 31, 2009Present Value of defined Benefit Obligationat the beginning of the year 17.12 6.42

14.72 5.94Current Service Cost 2.90 3.03

2.40 0.48Interest Cost 1.33 0.50

1.18 0.48Actuarial (Gains)/Losses 1.40 0.09

(1.02) 0.58Benefits Payments (0.52) (0.59)

(0.16) (1.18)Present Value of Defined Benefit Obligationat the end of the year 22.22 9.45

17.12 6.29IV. Change in the Assets during the

year ended March 31, 2009Fair Value of Plan Assets at the beginning of the year 5.44 –

3.45 –Expected return on Plan Assets 0.43 –

0.28 –Contribution by Employer – –

2.13 –Actual benefits paid (0.52) –

(0.16) –Actuarial Gains/(Losses) on Plan Assets (0.29) –

0.03 –Fair Value of Plan Assets at the end of the year 5.06 –

5.72 –

Rs. in Million

Figures in italics relate to previous year.


6A.



Rs. in Million

March 31, 2009 March 31, 2008

V. Actuarial Assumptions

Discount rate 7.76% 8.00%

Rate of return on Plan Assets 8.00% 8.00%

Salary escalation rate (Management Staff) 4.00% 4.00%

Attrition rate 4.00% 4.00%

Mortality Standard Table Standard Table LICLIC (1994-96) (1994-96) ultimate

ultimateDisability No explicit No explicit

allowance allowance

The estimates of future salary increases considered in actuarial valuation takes into account the inflationrate on long term basis.

7. DISCLOSURE REQUIRED BY MICRO, SMALL AND MEDIUM ENTERPRISES (DEVELOPMENT) ACT, 2006

As per requirement of Section 22 of Micro, Small & Medium Enterprises Development Act, 2006 followinginformation is disclosed:

Particulars Rs. in Million

Principal amount remaining unpaid to any supplier as at the end of

each accounting year 2.60

Interest due on above remaining unpaid Nil

Amounts paid beyond the appointed day during the accounting year Nil

Interest paid on above Nil

Interest due and payable on above Nil

Interest accrued and remaining unpaid at the end of the accounting year Nil

Interest remaining unpaid of the previous years for the purpose of disallowance

under the Income Tax Act, 1961 Nil

The above information regarding micro, small and medium enterprises has been determined to the extentsuch parties have been identified on the basis of information available with the Company. This has beenrelied upon by the auditors.

8. DEFERRED TAX

The Company has been recognizing in the financial statements the deferred tax assets/liabilities, in accordancewith Accounting Standard (AS 22) Accounting for Taxes on Income issued by the Institute of CharteredAccountants of India. The position of Deferred Tax Assets and Liabilities is as follows:

March 31, 2009 March 31 , 2008

Deferred Tax Liabilities

Depreciation difference 53.03 42.21

Deferred Revenue Expenditure –

Capital expenditure 165.47 123.63

Total 218.50 165.84

Deferred Tax Assets

Unabsorbed Depreciation & Loss 147.77 111.59

Provisions 14.49 9.18

Inventory 14.86 17.29

Total 177.12 138.06

Net Deferred Tax Assets/Liabilities 41.38 27.78


9. COST OF POWER AND FUEL CONSUMED INCLUDED UNDER VARIOUS HEADS IS AS FOLLOWS:

2008-09 2007-08

Production 108.07 69.97

Effluent Treatment & Transport Charges 3.00 3.00

Research & Development Expenses 11.66 7.72

Total 122.73 80.69

10. R&D EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT CONSISTS OF THE FOLLOWING:

2008-09 2007-08

Material consumed 8.19 3.89

Power and fuel 11.66 7.72

Staff cost 36.34 24.09

Professional charges 12.99 15.75

Others 17.30 8.24

Total 86.48 59.69

11. EMPLOYEE STOCK OPTION SCHEME - 2008

Pursuant to the resolution passed by the Board of Directors on July 20, 2007 and members of the Company atthe Annual General Meeting held on July 20, 2007 the Company had introduced Employee Stock OptionScheme ("the scheme") for permanent employees and Directors of the Company and of its subsidiaries, as maybe decided by the Compensation Committee/Board. The scheme provides that the total number of optionsgranted thereunder will be not more than 3% of the paid up capital. Each option, on exercise, is convertibleinto one equity share of the Company having face value of Rs.10. Pursuant to a resolution passed by theRemuneration & Compensation Committee vide Circular Resolution dated November 17, 2008, 34500 optionshave been granted at an exercise price of Rs.104, which is the market price as on the date of the grant.Accordingly, the Company has not recognized any expense on account of grant of stock options.

Stock options activity under the scheme is as follows:

Particulars 2008-09

Option Outstanding at the beginning of the year Nil

Options Granted during the year 34,500

Options Exercised during the year Nil

Options Lapsed during the year Nil

Options Outstanding at the year end 34,500

12. CONTINGENT LIABILITY

a. Claims against the Company not acknowledged as debts:

i. Customs duty demand of Rs.2.29 Million including interest (Previous Year - Rs.2.29 Million). Thesame was adjusted against the pre-deposit of Rs.4.00 Million made by the Company. The Companyhas filed an appeal against the demand before the Appellate Tribunal, Chennai, which is yet to bedecided. Simultaneously, the Company also filed an appeal before Hon'ble High Court of Madras forrefund of balance of pre-deposit together with interest. As the export obligations against the materialimported under DEEC Scheme have been completed, the Company expects the outcome in its favor.

Rs. in Million


Numbers



ii. The Company has received final assessment order from the commercial tax department for a demandof Rs.2.72 Million for the Assessment Year 2004-2005 and Rs.4.72 Million for Assessment Year 2005-2006, for non submission of sales tax forms. As the Company expects to collect the relevant pendingsales tax forms, a writ petition has been filed with High Court of Andhra Pradesh against thedemand. Out of the total demand of Rs.7.44 Million, the company has paid an amount of Rs.4.09Million to the department under protest and is shown under Current Assets.

iii. Andhra Pradesh Gas Power Corporation Limited and its shareholders (including Neuland) have filedwrit petition before the Division Bench of High Court of Andhra Pradesh, which has been admittedand favorable interim orders have been granted. The Company has been advised that it has a strongcase to succeed in the pending appeal.

iv. Certain disputes, for unascertained amounts, are pending in the Labour Courts, Andhra Pradesh. Asthe chances of appellants succeeding in their claims being remote, the Company expects no liabilityon this account.

b. Bills discounted amounting to Rs.37.82 Million (Previous Year - Rs.115.15 Million).

c. Unexpired Letters of Credit opened on behalf of the Company by bank for the raw material amounting toRs.256.69 Million (Previous Year - Rs.223.20 Million).

d. Estimated amounts of contracts on capital account to be executed and not provided for net of advanceRs.95.00 Million (Previous Year - Rs.59.54 Million).

e. Bank Guarantees given by the Company to Central Excise and Customs and other Government authoritiesamounting to Rs.10.33 Million (Previous Year - Rs.11.41 Million).

13. Neuland Laboratories Limited in collaboration with Cato Research Israel Limited, (a wholly owned subsidiaryof Cato Research Inc., a global contract research and development organization based in USA) formed a jointventure in India styled as Cato Research Neuland India Private Limited on May 14, 2008.

The joint venture company has received all permissions/approvals from authorities to begin its operations.Neuland's share in the joint venture is 70%. The commitment towards initial share capital contribution isUS$ 350,000 - approximately Rs.14.07 Million.

14. Fixed assets include vehicles acquired under hire purchase agreement amounting to Rs.19.33 Million as onMarch 31, 2009 (Previous Year - Rs.11.94 Million). The hire purchase charges have been charged to Profit andLoss Account. The hire purchase installment due within one year is Rs.5.40 Million.(Previous Year - Rs.3.33Million)

15. The subsidiary in United States of America, Neuland Laboratories Inc. and the subsidiary in Japan, NeulandLaboratories K.K. have commenced their business during the financial year ended March 31, 2009. A marketingservices agreement have been signed and made operative between Neuland Laboratories Limited and itssubsidiaries during the year.

16. During the previous years, the Company had availed Rs.5 million as unsecured loan from ICICI Bank underSPREAD (Sponsored Research and Development Scheme). Since the project was unsuccessful in commercialization,the same was written back as per the terms and conditions of the loan agreement during the previous year andincluded in Other Income.

17. OPERATING LEASE

a. Future lease rental payments

2008-09 2007-08

Not later than one year 0.68 0.62

Later than one year and not later than five years 4.57 4.16

Later than five years 69.15 70.24

b. Lease payment recognized in the Profit and Loss Account Rs.0.62 Million (Previous Year - Rs.0.56 Million).

c. General description of leasing arrangements:

i. Leased Assets - Lease rental are charged on the basis of agreed terms.

Rs. in Million


Kgs.

18. ADDITIONAL INFORMATION PURSUANT TO THE PROVISIONS OF PARAGRAPHS 3 AND 4 OF PART II OFSCHEDULE VI TO THE COMPANIES ACT, 1956.

A. Production Data

Installed capacity1, actual production

Products Installed Capacity Actual Production

2008-2009 2007-2008 2008-2009 2007-2008

Bulk Drugs2 – – 694,590 695,298

Intermediates – – 116,846 63,046

1As certified by the management, being technical matter accepted by the auditors as correct.2Note a. Including contract manufacturing.

b. Installed capacity is flexible as the plant is versatile, enabling the Company to produce in differentcapacities and therefore it varies depending on the product programme.

B. Sales

2008-2009 2007-2008

Kgs. Rs. in Million Kgs. Rs. in Million

Bulk Drugs 713,541 2671.20 683,332 1934.11

Intermediates 115,427 339.01 61,122 182.38

Others 57.01 60.54

Total 3067.22 2177.03

C. Details of Finished Goods Stocks

Bulk Drugs & Intermediates

Opening stock

Bulk Drugs 35,668 88.05 23,702 67.72

Intermediates 43,654 140.79 41,729 129.55

Closing stock

Bulk Drugs 16,716 127.42 35,668 88.05

Intermediates 45,073 233.31 43,654 140.79

D. Details of Raw Materials

1, 2, 4 D C 5 F A P 341,388 144.67 341,879 124.78

Cyclopropylamine 86,527 82.69 83,295 53.68

Piperazine Anhydrous 302,553 82.88 253,376 61.83

N Ethyl Piperazine 27,473 11.75 27,717 11.54

ECPPA 19,418 68.46 28,555 94.07

1M-1M-2 Nitro Ethane 118,760 86.36 116,610 50.54

Benzl Ester HCL 10,952 131.09 15,351 200.13

(s)+2-Aminobutyramide-Hcl 26,603 125.19 4,510 17.34

Others 1296.64 767.82

Total 2029.73 1381.73



E. Value of imported and indigenous raw materials consumed and percentage of each to total consumption

2008-2009 2007-2008

Rs. in Million % Rs. in Million %

Imported 1001.67 49 752.89 54

Local 1028.06 51 628.84 46

Total 2029.73 100 1381.73 100

F. Value of imports on CIF value basis

Raw Materials 1036.40 551.31

Capital Goods 8.03 21.18

G. Expenditure in foreign currency

Foreign Travel 6.15 1.82

Foreign agent's Commission 8.49 7.82

Professional Charges 40.37 25.94

US branch office Expenditure 37.91 18.71

Others 17.46 8.36

H. Earnings in foreign currency

i. Export of Goods on FOB basis Rs.2534.35 Million. (Previous Year - Rs.1486.53 Million)

ii. Product Development Charges Rs.29.37 Million (Previous Year - Rs.6.26 Million)

I. Amount remitted during the year in foreign currency on account of final dividend of 2007-08 toNon-Resident shareholders

Particulars 2008-09 2007-08

No. of Shares (of Rs.10 each) 1,291,450 1,376,850

No. of shareholders 26 27

Amount of Dividend (Net of Taxes Rs. in Million) 3.23 3.44

Year to which dividend related 2007-2008 2006-07


19. PARTICULARS OF UNHEDGED FOREIGN CURRENCY EXPOSURE AS AT BALANCE SHEET DATE

Foreign currency loan Rs.475.93 Million (US$ 9.23 Million @ average closing rate of 1 US$ = Rs.51.55)[Previous Year - Rs.401.34 Million (US$ 9.99 Million @ average closing rate of 1 US$ = Rs.40.19)]

Export Debtors Rs.499.33 Million (US$ 9.89 Million @ average closing rate of 1 US$ = Rs.50.49[Previous Year - Rs.437.07 Million (US$ 11.07 Million @ average closing rate of 1US$ = Rs.39.49)]

Import Creditors Rs.76.10 Million (US$ 1.48 Million @ average closing rate of 1 US$ = Rs.51.55)[Previous Year - Rs.136.82 Million (US$ 3.40 Million @ average closing rate of1 US$ = Rs.40.19);

Rs.5.16 Million (Eur 0.07 Million @ 68.56)[Previous Year - Rs.6.49 Million (Eur 0.10 Million @ average closing rate of 1 Eur =Rs.63.60)]


20. Previous year's figures have been regrouped and/or rearranged wherever necessary.















I. Registration Details State code: 0 1

Corporate Identification No.: L 8 5 1 9 5 A P 1 9 8 4 P L C 0 0 4 3 9 3

Balance Sheet Date: March 31, 2009

II. Capital Raised during the year: N i l

III. Position of Mobilisation and Deployment of Funds (Rs.in '000s)

Total Liabilities : 3 7 0 7 7 4 8 Total Assets : 3 7 0 7 7 4 8

Sources of Funds Application of Funds

Paid Up Capital - Equity : 5 4 6 7 1 Net Fixed Assets : 1 8 3 3 2 3 4

Reserves & Surplus : 6 9 8 2 1 8(Including Capital Work-in-Progress)

Secured Loans : 2 0 0 3 1 6 5 Investments : 7 4 6 0 2

Unsecured Loans : N I L Current Assets : 8 8 9 5 9 9

Deferred Tax Liability : 4 1 3 8 1 Misc. Expenditure : N I L

IV. Performance of the Company (Rs.in '000s)

Turnover & Other Income : 3 1 7 2 5 5 9 Diluted Earnings Per Share: 2 1 . 8 1

Total Expenditure : 3 0 2 8 4 4 7 Dividend Rate (%) : 3 5 . 0 0

Profit before Tax : 1 4 4 1 1 2

Profit after Tax : 1 1 7 8 9 6

V. Generic name of three principal products

Item Code No. (ITC Code) Product Description

a. 3 0 0 4 9 0 7 1 Enalapril Maleate

b. 2 9 4 1 9 0 3 0 Ciprofloxacin

c. 2 9 4 2 0 0 1 4 Ranitidine

BALANCE SHEET ABSTRACT AND COMPANY'S GENERAL BUSINESS PROFILE(As per Schedule VI, Part IV of the Companies Act, 1956)


Neuland Laboratories K.K., JapanChairman's Message

I am pleased to present the First Annual Report of your Corporate.Under the guidance of the Board and together with otherpersonnel, I have endeavored to build a new business andincrease earning. I will make the most of this valuable experienceas I confront the various challenge that lie ahead.

We can expect the service environment to be challenging infuture. We are a customer-focused organization as we seek toenhance services further and reinforce our commitment tobusiness relations in Japan.

DESCRIPTION OF BUSINESS

Neuland Laboratories K.K., a company incorporated under thelaws of Japan, is engaged primarily in sales, services (contractmanufacturing services including medical chemistry (discoverysupport), drug development support, process development andanalytical R&D as well as clinical testing) and support of activepharmaceutical ingredient, marketing and business supportservices on behalf of the parent company.

THE YEAR IN REVIEW

The financial results for the year ended March 31, 2009 were asfollows:

FINANCIAL RESULTS

Yen in million Rs. in million

Profit before Tax 1.13 0.58

Provision for current tax and deferred tax 0.40 0.20

Profit after Tax 0.73 0.37

Balance carried forward to Balance Sheet 0.73 0.37

Your Corporation was successful in its efforts to reach out to itscustomers in Japan and received encouraging response fromthem.

OUTLOOK

Today, customers in Japan are seeing your Corporate as serviceprovider on 24x7 basic and we expect your Corporation tosatisfactorily face challenges. We expect to lay a strongfoundation for the future and enhance our volumes, revenuesand market share.

MARKETING AND BUSINESS SUPPORT SERVICES AGREEMENT

On February 12, 2009, the Corporation formally signed amarketing and business support services agreement with NeulandLaboratories Limited (our parent Company) whereby yourCorporation has been appointed a service provider in Japan tocarry out marketing and business support services. This iseffective from April 1, 2008.


Your Corporation has installed software to enable users toconduct on-line meetings within the organization and conductmeetings with customers any time any where. Several intranetweb applications have been installed such as Ticketing System,Pipe Line System, Customer Review System, etc which capturethe proceedings of customer interaction and enable them tomonitor the progress made on their orders/projects relating toactive pharmaceutical ingredients and contract research. Thesesystems have significantly added to the level of transparency inyour Corporation's operations.

DIRECTORS

Mr. D. Sucheth Rao, Yasuaki Kizawa and Dr. D.R. Rao have beenelected as the initial Directors of the Corporation.

EMPLOYEES

As of March 2009, we had 2 full time employees.

AUDITORS

The financial statements have been reviewed by M/s WakabaTax Co., Certified Public Accountants.

ACKNOWLEDGEMENT

I place on record my appreciation and acknowledge withgratitude the significant contribution made by the employees.The customers and vendors have been a source of strength andhave encouraged your Corporation to perform better. I lookforward to your continued understanding and cooperation.


Dr. D.R. RaoMay 13, 2009 Chairman


¥ Rs.

SOURCES OF FUNDS

SHAREHOLDERS' FUNDS

Share Captial 3,000,000 1,536,900

Reserves & Surplus 730,621 374,297

TOTAL FUNDS 3,730,621 1,911,197



Sundry Debtors 3,573,179 1,830,540

Cash and Bank Balances 1,333,052 682,922

Loans & Advances 3,058,744 1,566,995

7,964,975 4,080,457


Current Liabilities 3,830,554 1,962,393

Provisions 403,800 206,867

4,234,354 2,169,260

NET CURRENT ASSETS 3,730,621 1,911,197

TOTAL ASSETS (Net) 3,730,621 1,911,197

Rs. in Million

Neuland Laboratories K.K., Japan


¥ Rs.

INCOME

Sales & Export Incentive 23,807,191 12,196,424

Other Income 930 476

TOTAL 23,808,121 12,196,900

EXPENDITURE

Administration & Selling Expenses 22,673,700 11,615,736

TOTAL 22,673,700 11,615,736

PROFIT BEFORE TAX 1,134,421 581,164

Provision for Current Tax 403,800 206,867

PROFIT AFTER TAX 730,621 374,297

APPROPRIATIONS

Transfer to General Reserve 730,621 374,297

BALANCE CARRIED TO BALANCE SHEET 730,621 374,297

The subsidiary was incorporated on July 14, 2008. The Profit and Loss Account has been prepared for the periodJuly 14, 2008 to March 31, 2009.

Rs. in Million

PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM

July 14, 2008 to March 31, 2009


¥ Rs.

Net Profit before Tax and exceptional items 1,134,421 581,164

Operating profit before Working Capital changes 1,134,421 581,164

Add/(less) Working Capital changes

Trade Receivables (3,573,179) (1,830,540)

Loans and Advances (3,058,744) (1,566,995)

Trade Payables 3,830,554 1,962,393

Cash flow from operating activities (1,666,948) (853,978)

Net cash from operating activities (A) (1,666,948) (853,978)

Cash flow from investing activities – –

Net cash used in investing activities (B) – –

Cash flow from financing activities

Share Capital proceeds 3,000,000 1,536,900

Net cash used in financing activities (C) 3,000,000 1,536,900

Net Increases/(decrease) in cash & cash equivalents (A+B+C) 1,333,052 682,922

Opening Balance – –

Closing Balance 1,333,052 682,922

Notes:

1. All figures in brackets are outflows.

2. Previous year's figures have been regrouped wherever necessary.

3. Direct taxes paid are treated as arriving from operating activities

and are not bifurcated between investing and finance activities.

4. Cash & cash equivalents is cash & bank balance as per Balance Sheet.

Rs. in Million




1. OFFICE LEASE EXPENSES

The Company paid the prepaid office lease expense JPY 353,1010 for April, 2009 in March, 2009 and recordedas March expense. This expense should be recorded in Prepaid Expense Account as asset in this year end. Wedisregarded this as immaterial since a profit affects only the cost incurred multiplied by 5%.

2. TRADE SHOW EXPENSES

The company paid the trade show CPhI Japan from 21 April to 23 April, 2009 expenses of JPY 390,000 inOctober 2008. The transaction was recorded as the expense in this period. This expense should be recorded inPrepaid Expense Account as asset in this year end. We disregarded this as immaterial since a profit affects onlythe cost incurred multiplied by 5%.

3. PREVIOUS YEAR'S ADJUSTING EXPENSE

The company paid the salary of 2 employees additionally in this period for the reason that they were not fullypaid for the shortage of the case flow in the representative office periods before the company was incorporated.Total additional salary amounts of JPY 3,520,000 for the period before incorporation were included in thisperiod. This additional salary should be classified as previous year's adjusting expense.

The additional salary in details are as follows;

Mr. Kizawa JPY 1,840,000

Mr. Ishihara JPY 1,680,000

4. VACATION ACCRUAL

Mr. Kizawa and Mr. Ishihara seem to have been given 20 days paid holidays. We disregarded this since thecompany has no specific regulation to estimate the vacation liabilities.


NOTES TO FINACIAL STATEMENTS

ACCOUNTANTS' REVIEW REPORT

To the Board of Directors and ShareholdersNeuland Laboratories K.K.

We have examined the accompanying Balance Sheet of Neuland Laboratories K.K. at March 31, 2009 and Profit andLoss Account for the period from the date incorporated July 14, 2008 to March 31, 2009, all expressed in Japaneseyen. The preparation of these financial statements is the responsibility of the company.

Our examination was made in accordance with generally accepted accounting principles and, accordingly, includedsuch test of accounting records including ledgers, vouchers, vouchers, receipts, bank pass books and so on andsuch other reviewing procedures as we considered necessary in the circumstances.

In our opinion, the statements mentioned above, expressed in Japanese yen, present fairly the financial statementsof Neuland Laboratories K.K. at March 31, 2009, in conformity with generally accepted accounting principles.

Sincerely yours,

Tokyo, Japan WAKABA TAX CO.May 13, 2009.

Sd/-


Neuland Laboratories Inc. USADIRECTORS' REPORTThe Directors have pleasure in presenting the First Annual Reportof your Corporation and the audited statement of accounts forthe year ended March 31, 2009.

FINANCIAL RESULTS

$ Rs. in million

Profit before tax 29,909 1.54

Provision for current tax and deferred tax 9870 0.51

Profit after tax 20,039 1.03

Balance carried forward to Balance Sheet 20,039 1.03

DESCRIPTION OF BUSINESS

Neuland Laboratories Inc., a Delaware corporation, is engagedprimarily in marketing and business support services for theproducts (Active Pharmaceutical Ingredients) and services(Contract research manufacturing services, contract R&D services,medical chemistry (discovery support), drug developmentsupport, process development and analytical R&D as well asclinical testing) of its parent company throughout North America.

SIGNIFICANT REVENUES

A significant portion of the revenues are from North America.Your Corporation recognizes the revenue when services areperformed.

BUSINESS REVIEW

The financial year 2008-09 has been one of the most challengingyears affecting almost all sectors of the economy. Impact ofthe global recession was seen on the performance of yourcorporation too. Your Corporation though was successful in itsefforts by capturing market share in new geographies such asNorth America, deepening relationships with its customers,enhancing competitiveness and improving its deliverycapabilities.

The business of distributing and marketing is highly competitive.Many of our competitors are substantially larger and have greaterfinancial resources with which to manufacture and market theirproducts. In particular, the retail segment is highly competitive.Many direct marketers not only focus on selling their own brandedproducts, but offer national brands at discounts as well. Manycompetitors have established brand names recognizable toconsumers. In addition, major pharmaceutical companies offernationally advertised multi-vitamin products.

We intend to compete by stressing the quality of our servicesand competitive pricing of products. We also propose to increaseour advertising to promote our products.

OUTLOOK

Today, customers in North America see your Corporation as serviceprovider on 24x7 basis and this is expected to facilitate furtherstrengthening of bonds. North America is a large market withhuge potential for our products and services. Your Corporation

will leverage its presence and fast track its goal of becoming anend-to-end service provider to the pharmaceutical industry.

MARKETING AND BUSINESS SUPPORT SERVICES AGREEMENT

On May 14, 2008, the Corporation signed a marketing andbusiness support services agreement with Neuland LaboratoriesLimited (our parent Company) whereby your Corporation hasbeen appointed as a service provider in United Sates of Americaand Canada to carry out marketing and business support services.


Your Corporation has installed software to enable users toconduct on-line meetings within the organization and conductmeetings with customers any time any where. Several intranetweb applications have been installed such as Ticketing System,Pipe Line System, Customer Review System, etc which capturethe proceedings of customer interaction and enable them tomonitor the progress made on their orders/projects relating toactive pharmaceutical ingredients and contract research. Thesesystems have significantly added to the level of transparency inyour Corporation's operations.

DIRECTORS

Mr. D. Sucheth Rao, Thomas M. Speace and Dr. D.R. Rao havebeen elected as the initial Directors of the Corporation.

EMPLOYEES

As of March 2009, we had two full time employees.

INSURANCE

Your corporation has taken reasonable steps to prevent risksand the Board is kept appraised of the risk assessment andminimization procedures.

INDUSTRIAL RELATIONS

Your Corporation's relations with its employees continue to becordial. Dedicated work by the executives of your Corporationmade it possible to achieve significant success in its first yearof incorporation.

ACKNOWLEDGEMENT

Your Directors place on record their appreciation andacknowledge with gratitude the significant contribution madeby the employees. The customers and vendors have been a sourceof strength and have encouraged your Corporation to performbetter.

Your Directors also acknowledge the guidance received allgovernment agencies and looks forward to their continuingsupport.


Dr. D.R. RaoChairman

May 21, 2009


US$ Rs.

SOURCES OF FUNDS

SHAREHOLDERS' FUNDS

Share Capital 1 44

Reserves & Surplus 20,039 1037140

TOTAL FUNDS 20,040 1,037,184


CURRENT ASSETS

Sundry Debtors 36,741 1855068

36,741 1,855,068


Current Liabilities 6,832 309,095

Provision for Income Tax 9,870 508,789

16,702 817,884

NET CURRENT ASSETS 20,039 1,037,184

TOTAL ASSETS 20,039 1,037,184

Rs. in Million

Neuland Laboratories Inc. USA


US$ Rs.

INCOME

Service Fee income for the year 642,989 30570326

642,989 30,570,326

TOTAL 642,989 30,570,326

EXPENDITURE

Administration, Selling & Other Expenses 613,080 29024398

TOTAL 613,080 29,024,398

PROFIT BEFORE TAXATION 29,909 1,545,928

Provision for Current Tax 9,870 508,788

PROFIT AFTER TAX 20,039 1,037,140

AMOUNT AVAILABLE FOR APPROPRIATION

APPROPRIATIONS

Transfer to General Reserve 20,039 1,037,140

BALANCE CARRIED TO BALANCE SHEET 20,039 1,037,140

Rs. in MillionPROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009


US$ Rs.

Net Profit before Tax and exceptional items 29,909 1,545,928

Operating profit before Working Capital changes 29,909 1,545,928

Add/(less) Working Capital changes

Trade Receivables (36,741) (1,855,068)

Trade Payables 6,832 309,096

Cash flow from operating activities (1) (44)

Net cash from operating activities (A) (1) (44)

Cash flow from investing activities

Net cash used in investing activities (B) – –


Share capital 1 44

Net cash used in financing activities (C) 1 44

Net Increases/(decrease) in cash & cash equivalents (A+B+C) – –

Opening Balance – –

Closing balance – –

Notes:

1. All figures in brackets are outflows.

2. Previous years figures have been regrouped wherever necessary.

3. Direct taxes paid are treated as arriving from operating activities

and are not bifurcated between investing and finance activities.

4. Cash & cash equivalents is cash & bank balance as per Balance Sheet.

Rs. in Million




1. BUSINESS ACTIVITY

Neuland Laboratories, Inc. (the Company) was incorporated on January 4, 2007 in the State of Delaware. TheCompany is a wholly owned subsidiary of Neuland Laboratories Limited (Parent Company). The Parent is basedin Hyderabad, India. The parent is a manufacturer and exporter of active pharmaceutical ingredients andintermediates for the pharmaceuticals industry. The parent and the Company have entered into a Marketingand Business Support Services Agreement (the Agreement). The Company provides marketing and businesssupport services for the parent throughout North America.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less tocash equivalents. At various times during fiscal 2009, the Company may have had bank deposits in excess ofthe Federal Deposit Insurance Corporation's maximum coverage of $250,000.

Revenue recognition

The Company recognizes revenues when services are performed. In accordance with the Marketing and BusinessSupport Services Agreement, the Company generally recognizes revenue equal to 105% of the actual costsincurred.

Marketing, advertising, and promotion

The Company expenses marketing, advertising and promotion costs as incurred. These costs for the year endedMarch 31, 2009 were approximately $29,000.

Concentration of credit risk

The Company generates all of its revenues from the parent.

Fair value of financial instruments

The carrying value of cash is considered to be representative of its fair value, based on the short term natureof the instruments.


NOTES TO FINACIAL STATEMENTS


Income Taxes

The Company is a C Corporation and income taxes are accounted for in accordance with Statement of FinancialAccounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). Under SFAS No. 109, the liabilitymethod is used in accounting for income taxes. Under this method, deferred tax assets and liabilities aredetermined based on differences between financial reporting and tax basis of assets and liabilities, and aremeasured based on the future tax consequences of events that have been included in the financial statementsof the Company.

Recent Accounting Pronouncement

The Financial Accounting Standards Board (FASB) has issued FASB Interpretation No. 48, Accounting forUncertainty in Income Taxes - an interpretation of FASB Statement No. 109, ("FIN 48"). FIN 48 prescribes arecognition threshold and measurement attribute for the financial statement recognition and measurement ofa tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company determinewhether the benefits of tax positions are "more likely than not" of being sustained upon audit based on thetechnical merits of the tax position. For tax positions that are more likely than not of being sustained uponaudit, the Company recognizes the largest amount of the benefit that is more likely than not of beingsustained in the financial statements. For tax positions that are not more likely than not of being sustainedupon audit, the Company does not recognize any portion of the benefit in the financial statements. Additionally,FIN 48 provides guidance on derecognition, classification, interest and penalties, disclosure and transition.

In accordance with FASB Staff Position No. FIN 48-3, the Company has elected to defer implementation of FIN48 until fiscal 2010. Management does not believe the adoption of FIN 48 will have a material impact on theCompany's financial statements. The Company's accounting policy for evaluating uncertain tax positions forthe year ended March 31, 2009, is FASB Statement No. 5, Accounting for Contingencies ("FASB 5"). In accordancewith FASB 5, the Company accrues for uncertain tax positions when the evaluation of a potential loss is"probable" and the amount can be reasonably estimated. As on March 31, 2009, the Company had no accrualsfor potential losses related to uncertain tax positions.


CATO Research Neuland India Private LimitedDIRECTORS' REPORTThe Directors have pleasure in presenting the First Annual Reportof your Company and the statement of accounts for the periodended March 31, 2009.

FINANCIAL RESULTS

Rs. in Million

Profit before Tax (0.03)

Provision for current tax and deferred tax –

Profit after Tax (0.03)

Balance carried forward to Balance Sheet (0.03)

BUSINESS REVIEW

Your Company's core business is primarily in providing contractresearch organization services to various clients in the areasrelated to consulting services for drug discovery and developmentservices, data processing and data management, regulatoryaffairs related to intellectual property rights.

The years 2008 and 2009 have been one of the most challengingyears in the history of world affecting almost all sectors of theeconomy. Global economy shook with several financialinstitutions collapsing during the year leading to a globalrecession. Indian economy remained largely unaffected. Howeveryour Company has taken all necessary steps and in the processof commencing the business

OUTLOOK

It is our endeavor to become prime player in service providersegment for small and medium pharmaceutical companies formonitoring and data management services.

RESEARCH & DEVELOPMENT

We are working to strengthen company competitiveness throughimproved R&D efficiency by implementing reforms in thecompany's structure and environment while simultaneouslyworking to align our intellectual property and R&D strategies.

DIRECTORS

Mr. D. Sucheth Rao and Mr. Henjek Rotmensch are being electedas the initial directors of the Company.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to Section 217 (2AA) of the Companies (Amendment)Act, 2000, the Directors confirm that to the best of theirknowledge and belief and according to the information andexplanation obtained by them:

a. in preparation of the accounts for the period ended March31, 2009 the applicable accounting standards have beenfollowed;

b. such accounting policies as mentioned in the notes of thefinancial statement have been selected and appliedconsistently and judgments and estimates that arereasonable and prudent made so as to give a true and fairview of the state of the affairs of the Company for theperiod ended March 31, 2009 and of the loss of yourCompany for that period;

c. proper and sufficient care has been taken for themaintenance of adequate accounting records in accordancewith the provisions of the Companies Act 1956 forsafeguarding the assets of the company and for preventingand detecting fraud and other irregularities;

d. the accounts for the period ended March 31, 2009 havebeen prepared on a going concern basis.

AUDITORS

M/s. K. S. Aiyar & Co, Chartered Accountants, are the statutoryauditors of the Company for the period ending June 30, 2009.

ACKNOWLEDGEMENT

Your Company views maintaining good communication with ourstakeholders, employees, customer and vendors, as a veryimportant responsibility. With this in mind, we aim to attaincontinued growth as we tackle challenges and work hard toachieve our goals.


Hyderabad, D. Sucheth RaoMay 20, 2009 Chairman


Rs.

SOURCES OF FUNDS

SHAREHOLDERS' FUNDS

Share Application Money 4,237,979

TOTAL FUNDS 4,237,979


CURRENT ASSETS

Cash and Bank Balances 4,237,979

LESS: CURRENT LIABILITIES & PROVISIONS

Current Liabilities 25,000

NET CURRENT ASSETS 4,212,979

PRE-OPERATIVE EXPENSES 25,000

(to the extent not written off)

4,237,979

CATO Research Neuland India Private Limited


March 31, 2009

INCOME –

EXPENDITURE

Audit fees 25,000

BALANCE CARRIED TO BALANCE SHEET 25,000

Rs. in MillionPROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

March 31, 2009

Net Profit before Tax and exceptional items (25,000)

Adjustments for

Operating profit before working capital changes (25,000)

Add/(less) working capital changes

Trade payables 25,000

Cash flow from operating activities –

Net cash from operating activities –


Proceeds from share capital 4,237,979

Net cash used in financing activities 4,237,979

Net increase/(decrease) in Cash & Cash Equivalents 4,237,979

Opening balance –

Closing balance 4,237,979

Rs. in MillionCASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2009


The Board of Directors,Neuland Laboratories Limited

1. We have examined the attached Consolidated Balance Sheet of Neuland Laboratories Limited and its subsidiaries('the Neuland Group'), as at March 31, 2009 and also the Consolidated Profit and Loss Account and theConsolidated Cash Flow Statement for the year ended on that date annexed thereto. These financial statementsare the responsibility of Neuland Laboratories Limited's management and have been prepared by the managementon the basis of separate financial statements and other financial information regarding components. Ourresponsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. These Standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatements. An audit includes examining on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples 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 financial statements of certain subsidiaries, whose financial statements reflect total assets ofRs.101.73 lakhs, Company's share in revenue of Rs.427.67, in profit (net) of Rs.13.07 lakhs and cash inflowsof Rs.49.20 lakhs are unaudited.

4. We report that the Consolidated Financial Statements have been prepared by Neuland Laboratories Limited'smanagement in accordance with the requirements of Accounting Standard (AS) 21, Consolidated FinancialStatements, and Accounting Standard (AS) 23 Accounting for Investments in Associates in ConsolidatedFinancial Statements, issued by the Institute of Chartered Accountants of India and on the basis of separateaudited/unaudited financial statements of the Neuland Group included in the Consolidated Financial Statements.

5. On the basis of the information and explanation given to us and on the consideration of the separate auditreports on the individual financial statements of the Neuland Group wherever audited and its aforesaidsubsidiaries, we are of the opinion that: the attached Consolidated Financial Statements give a true and fairview in conformity with the accounting principles generally accepted in India:

a. The Consolidated Balance Sheet gives a true and fair view of the state of affairs of the Neuland Group asat March 31, 2009;

b. The Consolidated Profit and Loss Account gives a true and fair view of the consolidated results of operationsof the Neuland Group for the year then ended; and

c. The Consolidated Cash Flow Statement gives a true and fair view of the cash flows of the Neuland Groupfor the year then ended.




AUDITORS’ REPORT


Schedule March 31, 2009

SOURCES OF FUNDSSHAREHOLDERS' FUNDS

Share Capital A 54.67Share Application money 3.74Reserves & Surplus B 699.55

757.96LOAN FUNDS

Secured Loans C 2003.16DEFERRED TAX LIABILITY (Net) 41.38Minority Interst 0.12TOTAL FUNDS 2802.62

APPLICATION OF FUNDSFIXED ASSETS D

Gross Block 2056.49Less: Depreciation 591.29Net Block 1465.20Capital Work-in-Process 368.02

1833.22INVESTMENTS E 72.71CURRENT ASSETS, LOANS & ADVANCES

Inventories F 704.66Sundry Debtors G 711.50Cash and Bank Balances H 111.12Loans & Advances I 279.13

1806.41LESS: CURRENT LIABILITIES AND PROVISIONS

Current Liabilities J 800.30Provisions K 109.42

909.72NET CURRENT ASSETS 896.69TOTAL ASSETS (Net) 2802.62NOTES TO ACCOUNTS L

The schedules referred to above and notes to accounts form an integral part of the Consolidated Balance Sheet.

Rs. in Million

CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2009














Schedule March 31, 2009

INCOMESales and Export incentives 3120.26Less: Excise duty 53.04

3067.22Other Income 1 105.34TOTAL 3172.56

EXPENDITURERaw Materials Consumed 2 1891.17Manufacturing Expenses 3 568.98Administration, Selling & Other Expenses 4 348.95Interest and other Charges 5 143.63Depreciation/Amortisation D 74.80Less: Adjusted against Revaluation Reserve 1.10

73.70TOTAL 3026.43

PROFIT BEFORE TAXATION 146.13Provision for Current Tax 17.05Provision for Fringe Benefit Tax 2.79Provision for Deferred Tax 13.60MAT credit entitlement (5.13)Exces Provision of Income Tax no longer required (1.38)

PROFIT AFTER TAX 119.20Minority Interest 0.03PROFIT/(LOSS) AFTER MINORITY INTEREST 119.23Balance brought forward from previous year 74.22AMOUNT AVAILABLE FOR APPROPRIATION 193.45APPROPRIATIONS

Transfer to General Reserve 88.42Proposed Dividend @ 35% 18.89Tax on distributed profits 3.21

BALANCE CARRIED TO BALANCE SHEET 82.93NOTES TO ACCOUNTS LEARNINGS PER SHARE

Basic Earnings per Share (Rs.) 22.09Diluted Earnings per Share (Rs.) 22.05Face Value per Share (Rs.) 10.00

The schedules referred to above and notes to accounts form an integral part of the Consolidated Profit and Loss Account.

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2009

Rs. in Million














March 31, 2009

A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit before tax and exceptional items 146.14Adjustment for

Depreciation/Amortisation 73.70Interest Expense 105.32Minority Interest 0.03Loss on sale of fixed assets 0.16Deferred Revenue Expenses written off –Provision for gratuity and leave encashment 8.02Provision for Doubtful Debts 7.94Loan written back –

Operating Profit before Working Capital changes 341.31Add/(Less) Working Capital changes

Trade Receivables (205.17)Inventories (154.53)Loans and Advances 72.85Trade Payables 173.27Cash flow from investing activities 227.73Less Income Tax paid (12.45)

Net cash from operating activities (A) 215.28B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets including Work-in-Process (742.34)Proceeds from Sale of Fixed Assets 0.37

Net cash used in investing activities (B) (741.97)C. CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from long-term borrowings 539.30Increase/(Decrease) in bank borrowings 205.56Repayments of long-term borrowings (82.55)Interest Paid (104.71)Proceeds from/(Repayment of) Unsecured Loans –Dividend Paid (15.78)Share application money received 3.86

Net cash used in financing activities (C) 545.68Net increase/(decrease) in Cash & Cash Equivalents (A+B+C) 18.99

Opening Balance+ 92.13Closing Balance 111.12

Notes: 1. All figures in brackets are outflows.2. Previous year's figures have been regrouped wherever necessary.3. Direct taxes paid are treated as arriving from operating activities and are not bifurcated between

investing & financing activities.4. Cash & cash equivalent is cash & bank balances as per Consolidated Balance Sheet.

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2009

Rs. in Million














As atMarch 31, 2009

SCHEDULE - ASHARE CAPITAL

AUTHORISED10,000,000 Equity Shares of Rs.10 each 100.00 300,000 Cumulative Redeemable Preference Shares of Rs.100 each 30.00 300,000 Preference Shares of Rs.100 each either cumulative or

non-cumulative and redeemable or otherwise 30.00160.00

ISSUED5,590,000 Equity Shares of Rs.10 each, fully paid 55.90

(Previous Year - 5,590,000 Equity Shares of Rs.10 each)SUBSCRIBED CAPITAL5,499,731 Equity Shares of Rs.10 each 55.00

(Previous Year - 5,499,731 Equity Shares of Rs.10 each)PAID UP CAPITAL5,396,455 Equity Shares of Rs.10 each fully paid up 53.96

(Previous Year - 5,396,455 Equity Shares of Rs.10 each)

Add: 103,276 Forfeited Equity Shares of Rs.10 each 0.71[(Previous Year - 103,276) (amount originally paid up)]a. Of the above shares, 715,040 Equity Shares of Rs.10 each

are allotted as fully paid up by way of bonus shares.b. 11,080 Equity Shares of Rs.10 each for consideration

other than in cash to erstwhile shareholders ofNeuland Drugs and Pharmaceuticals Private Limited.

54.67

SCHEDULE - BRESERVES & SURPLUS

Capital Reserve 0.33Share Premium 360.54General Reserve

Opening Balance 182.06Less: Adjustment of foreign exchange gain (Net of depreciation) 28.57Add: Transfer from Profit and Loss Account 88.42

241.91Revaluation Reserve 14.94Less: Depreciation on revalued assets 1.10

13.84Profit and Loss Account 82.93

699.55

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET

Rs. in Million


As atMarch 31, 2009

SCHEDULE - CSECURED LOANS

TERM LOANSa. Foreign Currency Loans 523.99b. Rupee Loans 726.86

1250.85

The above loans are secured by a pari-passu firstcharge on the immovable properties and pari-passucharge on moveable properties (subject to the priorcharge in favour of the Company's bankers on specifiedmoveables, created/to be created for securingborrowings for working capital requirements) andfurther guaranteed by the Chairman & ManagingDirector and one of the Directors in their personalcapacities.

As per covenant of the foreign currency loanagreement with the Export Import Bank of India,included in (a) above, the bank has an option toconvert the loan into a rupee loan in case the Companydefaults in repayment.

Technology Development Assistance from TIFAC 1.50The above loan is secured by movable property of theCompany at Bonthapally manufacturing unit includingits movable plant and machinery, machinery spares,tools and accessories and other movables both presentand future (save and except book debts) whetherinstalled or not are aquired for the purpose of theproject at the cost of or from the money advanced byTIFAC under Technology Development Assistanceagreement.

Working Capital Finance from Bank 737.74Working capital loans from bank is secured byhypothecation of raw materials, stocks in process,finished goods, book debts, stores & spares and exportreceivables and is further secured by second chargeon all fixed assets and movable machinery of theCompany, first charge being held by financialinstitution and guaranteed by the Chairman &Managing Director and one of the Directors in theirpersonal capacities.

OTHER LOANSHire Purchase Loans 13.07

The above loan is against the hypothecation of vehicles.2003.16

Rs. in Million


SCHEDULE - DFIXED ASSETS

GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK

Name of Assets Cost as on Additions/ (Deductions)/ Adjustments Cost as on Upto (Deductions)/ For the Adjustments Total upto As on As on31.03.2008 Adjustments Adjustments (Refer Note below) 31.03.2009 31.03.2008 Adjustments Year (Refer Note below) 31.03.2009 31.03.2009 31.03.2008

Land 6.95 2.10 – – 9.05 – – – – – 9.05 6.95

Buildings 262.14 216.50 – (7.57) 471.07 59.29 – 9.81 (0.10) 69.00 402.07 202.73

Plant and Machinery 693.50 617.60 – (17.01) 1294.09 402.55 – 51.49 (0.62) 453.42 840.67 291.30

R&D Equipment 71.99 97.61 – (4.51) 165.09 15.13 – 3.55 (0.08) 18.60 146.49 56.63

Data Processing 18.81 4.06 – – 22.87 10.86 – 2.25 – 13.11 9.76 7.96Machines

Furniture & Fittings 13.43 20.71 – (0.28) 33.86 4.23 – 1.02 – 5.25 28.61 9.20

Vehicles 25.20 11.70 (0.84) – 36.06 10.49 (0.31) 3.01 – 13.19 22.87 14.71

Intangible Assets 16.87 – – – 16.87 13.57 – 1.65 – 15.22 1.65 3.30(Process Development Cost)

Intangible Assets – SAP 5.92 1.61 – – 7.53 1.48 – 2.02 – 3.50 4.03 4.44

TOTAL 1114.81 971.89 (0.84) (29.37) 2056.49 517.60 (0.31) 74.80 (0.81) 591.29 1465.20 597.22

Previous Year 890.83 225.44 – (1.46) 1114.81 517.59 (0.16) 55.95 – 517.59 597.22

Capital Work––in–Process 368.02 596.47(Including advances on capital goods)

Rs. in Million

As atMarch 31, 2009

SCHEDULE - E

INVESTMENTS - Long Term (at Cost)

(Other Investments - Unquoted and Non-traded)

Jeedimetla Effluent Treatment Limited 0.22

2,200 equity shares of Rs.100 each fully paid up

(2,200 equity shares of Rs.100 each)

Pantancheru Enviro-Tech Limited 2.09

209,136 equity shares of Rs.10 each fully paid up

(209,136 equity shares of Rs.10 each)

Investment in Andhra Pradesh Gas Power Corporation Limited 70.40

402,000 equity shares of Rs.100 each fully paid

(402,000 equity shares of Rs.100 each fully paid)

72.71

Note: Adjustment carried out on account of foreign exchange gain relating to the financial year 2007-08 pursuant to notification datedMarch 31, 2009 issued by the Ministry of Corporate Affairs (See Note 7 on Schedule L).


SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET Contd...

Rs. in Million

As atMarch 31, 2009

SCHEDULE - FINVENTORIES - As Certified by the Management

Raw Materials 229.69Work in Process 78.64Finished Goods 360.73Stores and Consumables 24.21Goods in Transit 11.39

704.66

SCHEDULE - GSUNDRY DEBTORS

Unsecured, Considered goodSundry Debtors outsanding for a period exceeding six months

Considered good 18.20Considered doubtful 25.42

43.62Less: Provision for doubtful debts 25.42

18.20Others 693.30

711.50

SCHEDULE - HCASH & BANK BALANCES

Cash on hand 0.24Bank Balances with Scheduled Banks

Current Accounts 12.38Fixed Deposit Accounts (against margin money) 66.00Fixed Deposit Accounts 32.50

111.12

SCHEDULE - ILOANS & ADVANCES (Unsecured, Considered Good)

Advances recoverable in cash or in kind or for value to be receivedAdvances to Suppliers 17.09Other Advances 46.46Advance Payment against Taxes - Income Tax 73.16Deposits 20.71Prepaid Expenses 6.76Balances with Central Excise 27.80Other Receivables

Interest Accrued 6.15Central Excise Claim Receivable & other receivables 5.01Export benefits & other claims receivable 75.99

279.13


As atMarch 31, 2009

SCHEDULE - JCURRENT LIABILITIES

Sundry Creditors forGoods Supplied 441.32Expenses 122.36Capital Expenditure 78.51

Advances from Customers 12.11Other Liabilities 140.45

794.75Export incentive obligation 5.33Due to Shareholders

Investor Education and Protection Fund(Appropriate amount shall be transferred to Investor Education andProtection Fund if and when due) Unpaid amount due to Investors Education and Protection Fund 0.15 Fixed deposits matured but not claimed including interest thereon 0.07

However no amounts mentioned above are due to be transferred to

Investor Education and Protection Fund as on March 31, 2009.

800.30

SCHEDULE - KPROVISIONS

Gratuity/Pensions 19.04Leave Encashment 9.45Proposed Dividend & Tax 22.10Income Tax 56.04Fringe Benefit Tax 2.79

109.42

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET Contd...

Rs. in Million


Year endedMarch 31, 2009

SCHEDULE - 1OTHER INCOME

Interest received 7.03Miscellaneous Income 8.29Net Foreign Exchange Gain/(Loss) 60.65Product Development charges received 29.37

105.34

SCHEDULE - 2CONSUMPTION OF RAW MATERIALS & FINISHED GOODS

Opening Stock of Raw Materials 206.01Add: Purchases 1861.17Add: Cost of finished goods sold 192.24

2259.42Less: Closing Stock of Raw Materials 229.69

Value of Material Consumption (i) 2029.73Opening Stock

Finished Goods 228.84Work in process 71.97

300.81Closing Stock

Finished Goods 360.73Work in process 78.64

439.37(Increase)/Decrease in Stocks (ii) (138.56)Total Consumption of Raw Materials and Finished Goods (i) + (ii) 1891.17

SCHEDULE - 3MANUFACTURING EXPENSES & OTHER EXPENSES

Stores and Consumables 47.67Power and Fuel 108.07Carriage Inwards 7.92Payments & Provisions to Employees

Salaries and Wages 223.93Staff Welfare Expenses 11.60Employer's contribution to EPF, FPF, ESI & EDLIS 17.63

253.16Repairs and Maintenance

Repairs to Buildings 5.54Repairs to Machinery 14.57Others 62.76

82.87Effluent Treatment & Transport charges 49.93Packing Material 17.61Testing Charges 1.86Increase/(Decrease) in provision for Excise Duty on Finished Goods (0.11)

568.98

SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

Rs. in Million


Rs. in Million

Year endedMarch 31, 2009

SCHEDULE - 4ADMINISTRATIVE, SELLING & OTHER EXPENSES

Rent, Rates & Taxes 11.83Travelling Expenses 54.03Professional Charges 39.13Remuneration to Auditors

Statutory Audit 0.69Tax Audit 0.20Limited Reviews 0.60Other Services 0.16Out-of-pocket Expenses 0.05

1.70Insurance 15.76Advertisement 1.44Sales Commission 18.24Selling and Distribution Expenses 23.11Freight and Forwarding Charges 47.17Provision for Doubtful Debts & Advances 13.71

Less: Amount written back on collection 5.777.94

Other Expenses 41.68Sitting Fees 0.43Research & Development Charges 86.49

348.95

SCHEDULE - 5INTEREST & OTHER CHARGES

Interest on Working Capital 67.22Interest on Term Loan 38.10Discounting & Negotiation Charges 14.79Others 23.52

143.63

SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT AND LOSS ACCOUNT Contd...


SCHEDULE – L

NOTES TO ACCOUNTS

SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF ACCOUNTING

Financial statements are prepared under the historical cost convention, and comply in material aspects withthe applicable accounting principles in India and accounting standards notified under sub-section (3C) ofSection 211 of the Companies Act, 1956.

2. PRINCIPLES OF CONSOLIDATION

A. i. The Consolidated Financial Statements relate to Neuland Laboratories Limited (the 'Company'), itswholly owned subsidiaries and the joint venture. The Consolidated Financial Statements have beenprepared on the following basis:

The financial statements of the Company, its subsidiaries and the joint venture have been combinedon a line-by-line basis by adding together the book values of like items of assets, liabilities, incomeand expenses, after fully eliminating intra-group balances and intra-group transactions resulting inunrealised profits or losses.

The Consolidated Financial Statements have been prepared using uniform accounting policies for liketransactions and other events in similar circumstances and are presented to the extent possible, inthe same manner as the Company's separate financial statements.

ii. The subsidiaries and joint venture considered in the Consolidated Financial Statements are:

Name of the Company Country of % interest as atIncorporation March 31, 2009

Subsidiaries

Neuland Laboratories K.K. Japan 100

Neuland Laboratories Inc. USA 100

Joint Venture

Cato Research Neuland India Private Limited India 70

The financial statements are prepared under the historical cost convention, in accordance withapplicable accounting standards issued by the Institute of Chartered Accountants of India andrelevant provisions of the Companies Act, 1956 (except for certain fixed assets which have beenrevalued in the past as detailed in (D) below).

B. Revenue Recognition

i. Sales are recognized on dispatch of products. Sales are inclusive of insurance, freight and exclusiveof Sales Tax.

ii. The export incentives are accrued and accounted on the basis of the actual exports made during theyear.

iii. Income from product development services are recognised when services are rendered or relatedcosts are incurred in accordance with the terms of specific contracts.

C. Excise Duty

Excise Duty recovered is reduced from sale of products. Excise in respect of finished goods is accountedfor, as and when goods are cleared from the factory and stocks of finished goods are valued inclusive ofexcise duty where applicable.


D. Fixed Assets

i. Fixed Assets are stated at cost less accumulated depreciation. Cost of acquisition of fixed assetsis inclusive of freight, duties (net of CENVAT & VAT), taxes, incidental expenses relating to acquisitionand the cost of installation/erection as applicable.

ii. Foreign exchange gain/loss on borrowings for acquisition/construction of fixed assets have beenreduced from/added to the related costs of assets with effect from April 1, 2007 as per notificationdated March 31, 2009 issued by the Ministry of Corporate Affairs in amendment of accountingstandards.

iii. Land, buildings, plant & machinery and certain fixed assets are shown at re-valued values. Otherfixed assets are shown at cost.

iv. Depreciation on fixed assets is provided on Straight Line Method (SLM) at the rates prescribed bySchedule XIV of the Companies Act, 1956 as amended, and is calculated on a pro-rata basis.Depreciation is charged on pro rata basis for assets purchased/sold during the year. Depreciation onvalue written up on revalued assets is calculated on SLM basis with reference to the remaining usefullife of the asset and the Revaluation Reserve is charged with the difference between the depreciationcalculated on such revalued costs and the historical cost.

v. Borrowing costs that are attributable to the acquisition or construction of fixed assets are capitalizedas part of such assets for the period up to the date of put to use. All other borrowing costs arecharged to revenue.

vi. Expenses on equipment for Research & Development are capitalized.

vii. Intangibles being cost of SAP ERP are amortized over a period of three years.

E. Investments

Long term Investments are carried at cost. However, provision for diminution in value if any is madeto recognize a decline other than temporary in the value of investments.

F. Foreign Currency Transactions

i. Transactions in foreign exchange are accounted for at the exchange rate prevailing on the date oftransaction. Gains and losses arising thereon are recognized in the Profit and Loss Account. Inrespect of items covered by forward exchange contract, the premium or discount arising at theinception of such a forward exchange contract is amortised as an expense or income over the life ofthe contract.

ii. Foreign currency monetary items are reported using the closing rate. Non-monetary items which arecarried in terms of historical cost denominated in a foreign currency are reported using the exchangerate at the date of the transaction.

iii. In case of fixed assets, please see D(i) above.

G. Inventories

Inventories are valued at lower of cost and estimated net realizable value, after providing for cost ofobsolescence and other anticipated loss whenever considered necessary. Work-in-progress is valued atestimated cost on the basis of stage wise completion of the production. Finished goods and work inprocess include cost of conversion and other costs incurred in bringing the inventories to their presentlevel of location and condition. Cost is determined by using the weighted average basis.

NOTES TO CONSOLIDATED ACCOUNTS Contd...


H. Taxation

Provision for current tax is made after taking into consideration benefits admissible under the provisionsof Income Tax Act, 1961. Deferred tax resulting from 'timing differences' between book and taxable profitis accounted for using the tax rates and laws that have been enacted or substantively enacted as on thebalance sheet date. The deferred tax assets is recognized and carried forward only to the extent that thereis a reasonable certainty that asset will be realized in future.

I. Employee Stock Option Schemes (ESOP)

The Company accounts for compensation expense under the Employee Stock Option Schemes using theintrinsic value method as permitted by the Guidance Note on 'Accounting for Employee Share-basedPayments' issued by the Institute of Chartered Accountants of India. The difference between the marketprice and the exercise price as at the date of the grant is treated as compensation expense and chargedover the vesting period.

J. Employee Benefits

i. Defined Contribution Plan

The Company's Employee's Provident Fund administered through Government Provident Fund, EmployeeState Insurance Scheme and Labor Welfare Fund are considered as Defined Contribution Plans. TheCompany's contributions paid/payable towards these defined contributions plan are recognised asexpense in the Profit and Loss Account during the period in which the employee renders the relatedservice. The interest rate payable by the trust to the beneficiaries every year is being notified by thegovernment. The Company has no obligation to make good the shortfall, if any, between the returnfrom the investments and the notified interest rate.

ii. Defined Benefit Plan

Company's liabilities towards gratuity, leave encashment are considered as Defined Benefit Plans.The present value of the obligations under such Defined Benefit Plans are determined based onactuarial valuation using the projected unit credit method, which recognises each period of serviceas giving rise to an additional unit of employee benefit entitlement and measures each unit separatelyto build up the final obligation.

The obligation is measured at the present value of estimated future cash flows using a discount ratethat is determined by reference to market yields at the balance sheet date on Government securities.

iii. Long-term Employee Benefit

Company's liability towards sick leave is determined using the Projected Unit Credit Method whichconsiders each period of services as giving rise to an additional unit of benefit entitlement andmeasures each unit separately to build up the final obligation.

K. Contingent Liabilities

Contingent liabilities are disclosed after careful examination of the facts and legal aspects of the matterinvolved.



Rs. in Million


3. SEGMENT REPORTING

a. Company's operations are predominantly related to the manufacture of bulk drugs, as such there is onlyone primary reportable segment. Secondary reportable segments are identified taking into account thegeographical markets available to the products, the differing risks and returns and internal reportingsystem.

b. As a part of secondary reporting, revenues are attributed to geographical areas based on the location ofcustomers as detailed below:

Particulars 2008 - 2009

Revenue %

Domestic 495.47 16.11

Exports 2571.75 83.89

Total 3067.22 100.00

c. The Company does not track its assets and liabilities by geographical area.

4. RELATED PARTY TRANSACTIONS

Disclosures as required by the Accounting Standard - 18

a. Name of the related parties and descriptions of relationships


Sucheth & Saharsh Holdings Pvt. Ltd. Other Related Party (Associate)

b. Key Management Personnel


Dr. D. R. Rao Chairman & Managing Director

Mr. D. Sucheth Rao Excutive Director & CEO& Son of Chairman & Managing Director

Mr. D. Saharsh Rao Vice President - Corporate Planning &Development & Son of Chairman &Managing Director

c. Relatives of Key Managerial Personnel


Mrs. D. Vijaya Rao Wife of Chairman & Managing Director

Mrs. D. Rohini Niveditha Rao Wife of Excutive Director & CEO

Mrs. K. Deepthi Wife of Vice President -Corporate Planning & Development


d. Transactions during the year and balances outstanding as at the year end with the related partiesare as follows:

Associate Key Relative of Key SubsidiaryNature of transactions Management Management Companies

Personnel Personnel

Rent paid 0.62 – – 0.96

Office maintenance 0.42

Remuneration paid to Chairman & Managing Director 4.59

Remuneration paid to Excutive Director & CEO 4.41

Remuneration paid to Vice President -Corporate Planning & Development 3.71

Commission paid to Chairman & Managing Director 3.10

Dividend paid to Chairman & Managing Director 2.84

Commission paid to Excutive Director & CEO 2.90

Dividend paid to Excutive Director & CEO 0.39

Dividend paid to Vice President -Corporate Planning & Development 0.23

Outstanding at the year end – due to 0.43 0.06 3.70

Outstanding deposit at the year end - due from 2.00

Investment in Share Capital

- Neuland Laboratories K.K., Japan 1.54

- Neuland Laboratories Inc., USA (Rs.) 44.00

Services Received 42.74

5. EARNINGS PER SHARE – (EPS)

Computation for Basic & Diluted Earnings per Share March 31, 2009

I. Net Profit as per Profit and Loss Account available forEquity Shareholders (Rs. in Million) 119.23

II. Weighted average number of equity shares forEarnings per Share computation for Basic andDiluted Earnings per Share 5,396,455

III. Earnings per Share (Weighted Average)

Basic (Rs.) 22.09Diluted (Rs.) 22.05

6. During the year, pursuant to implementation of SAP ERP system, certain cost formulas for inventoryvaluation have been changed. The impact of these changes are not material.

7. The Company has opted to adopt the amendment to the Companies (Accounting Standards) Rules, 2006effected by a notification dated March 31, 2009 issued by the Ministry of Corporate Affairs, Government ofIndia. Pursuant to this adoption, amount of Rs.29.37 Million being foreign exchange fluctuations gain pertainingto foreign currency loan availed for acquisition of depreciable capital asset, recognized as income in the year2007-08 is now reversed and credited to respective capital assets with a corresponding effect to generalreserve. Similarly an amount of Rs.108.50 Million being foreign exchange fluctuation loss pertaining to suchforeign currency loan for the current year is debited to respective capital asset, instead of recognizing as lossin the Profit and Loss Account. The effect on depreciation pursuant to these adjustments will be accountedover the balance period of respective capital assets prospectively. As a result of the above change in policy,the profits for the year after tax are higher by Rs.108.50 Million and reserves and surplus are lower by Rs.28.57Million.

Rs. in Million



8. Gratuity Funded Leave Encashment

I. Expense recognised in the statement of

Profit and Loss for the year ended March 31, 2009

Current Service Cost 2.90 3.03

Interest Cost 1.33 0.50

Expected return on Plan Assets (0.43)

Net Actuarial (Gains)/Losses 1.40 0.09

Total Expense 5.19 2.98

II. Net Assets/(Liability) recognised in the

Balance Sheet as at March 31, 2009

Present Value of Defined Obligation as at March 31, 2009 22.22 8.82

Fair Value of Plan Assets as at March 31, 2009 5.06

Funded Status [Surplus/(Deficit)] Difference (17.15)

Net Assets/(liability) as at March 31, 2009 (17.15) 9.45

III. Change in 0bligation during the

year ended March 31, 2009

Present Value of defined Benefit Obligation

at the beginning of the year 17.12 6.42

Current Service Cost 2.90 2.40

Interest Cost 1.33 0.50

Actuarial (Gains)/Losses 1.40 0.09

Benefits Payments (0.52) (0.59)

Present Value of Defined Benefit Obligation

at the end of the year 22.22 8.82

IV. Change in the Assets during the

year ended March 31, 2009

Fair Value of Plan Assets at the beginning of the year 5.44 –

Expected return on Plan Assets 0.43 –

Contribution by Employer – –

Actual benefits paid (0.52) –

Actuarial Gains/(losses) on Plan Assets (0.29) –

Fair Value of Plan Assets at the end of the year 5.06 –

March 31, 2009

V. Actuarial Assumptions

Discount rate 7.76%

Rate of return on Plan Assets 8.00%

Salary escalation rate (Management Staff) 4.00%

Attrition rate 4.00%

Mortality Standard Table LIC (1994 - 96) ultimate

Disability No explicit allowance

Rs. in Million



9. CONTINGENT LIABILITY

a. Claims against the Company not acknowledged as debts:

i. Customs duty demand of Rs.2.29 Million including interest (Previous Year - Rs.2.29 Million). Thesame was adjusted against the pre-deposit of Rs.4.00 Million made by the Company. The Companyhas filed an appeal against the demand before the Appellate Tribunal, Chennai, which is yet to bedecided. Simultaneously the Company also filed an appeal before Hon'ble High Court of Madras forrefund of balance of Pre-deposit together with interest. As the export obligations against the materialimported under DEEC Scheme have been completed, the Company expects the outcome in its favor.

ii. The Company has received final assessment order from the commercial tax department for a demandof Rs.2.72 Million for the Assessment Year 2004-2005 and Rs.4.72 Million for Assessment Year 2005-2006, for non-submission of sales tax forms. As the Company is expects to collect the relevantpending sales tax forms, a writ petition has been filed with Hon'ble High Court of Andhra Pradeshagainst the demand. Out of the total demand of Rs.7.44 Million, the Company has paid an amount ofRs.4.09 Million to the department under protest and is shown under current assets.

iii. Andhra Pradesh Gas Power Corporation Limited and its shareholders (including Neuland) have filedwrit petition before the Division Bench of Hon'ble High Court of Andhra Pradesh which has beenadmitted and favorable interim orders have been granted. The Company has been advised that it hasa strong case to succeed in the pending appeal.

iv. Certain disputes, for unascertained amounts, are pending in the Labour Courts, A.P. As the chancesof appellants succeeding in their claims being remote, the Company expects no liability on thisaccount.

b. Bills discounted amounting to Rs.37.82 Million.

c. Unexpired Letters of Credit opened on behalf of the Company by bank for raw material amounting toRs.256.69 Million.

d. Estimated amounts of contracts on capital account to be executed and not provided for, net of advance,Rs.95.00 Million.

e. Bank Guarantees given by the Company to Central Excise and Customs and other government authoritiesamounting to Rs.10.33 Million.

10. Neuland Laboratories Limited in collaboration with Cato Research Israel Limited (a wholly owned subsidiary ofCato Research Inc., a global contract research and development organization based in USA) formed a jointventure in India styled as Cato Research Neuland India Private Limited on May 14, 2008.

The joint venture company has received all permissions/approvals from authorities to begin its operations.Neuland's share in the joint venture is 70%. The commitment towards initial share capital contribution isUS$ 350,000 - approximately Rs.14.07 Million.

11. Fixed assets include vehicles acquired under hire purchase agreement amounting to Rs.19.33 Million as onMarch 31, 2009 (Previous Year - Rs.11.94 Million). The hire purchase charges have been charged to Profit andLoss Account. The hire purchase installment due within one year is Rs.5.40 Million.

12. The subsidiary in United States of America, Neuland Laboratories Inc. and the subsidiary in Japan, NeulandLaboratories K.K. have commenced their business during the financial year ended March 31, 2009. A marketingservices agreement have been signed and made operative between Neuland Laboratories Limited and itssubsidiaries during the year.

13. During the previous year the company had availed Rs.5 million as unsecured loan from ICICI Bank underSPREAD (Sponsored Research and Development Scheme). Since the project was unsuccessful in commercializationthe same was written back as per the terms and conditions of the loan agreement during the previous year andincluded in 'Other Income.'



Rs. in Million

14. OPERATING LEASE

a. Future Lease Rental payments

2008-09

Not later than one year 0.68

Later than one year and not later than five years 4.58

Later than five years 69.15

b. Lease payment recognized in the Profit and Loss Account Rs.0.62 Million.

c. General Description of Leasing arrangement:

i. Leased Assets - Lease rental are charged on the basis of agreed terms.

15. EMPLOYEE STOCK OPTION SCHEME - 2008

Pursuant to the resolution passed by the Board of Directors on July 20, 2007 and members of the Company atthe Annual General Meeting held on July 20, 2007 the Company had introduced Employee Stock OptionScheme ("the scheme") for permanent employees and Directors of the Company and of its subsidiaries, as maybe decided by the Compensation Committee/Board. The scheme provides that the total number of optionsgranted thereunder will be not more than 3% of the paid up capital. Each option, on exercise, is convertibleinto one equity share of the Company having face value of Rs.10. Pursuant to a resolution passed by theRemuneration & Compensation Committee vide Circular Resolution dated November 17, 2008, 34500 optionshave been granted at an exercise price of Rs.104, which is the market price as on the date of the grant.Accordingly, the Company has not recognized any expense on account of grant of stock options.

Stock options activity under the scheme is as follows:

Particulars 2008-09

Option Outstanding at the beginning of the year Nil

Options Granted during the year 34,500

Options Exercised during the year Nil

Options Lapsed during the year Nil

Options Outstanding at the year end 34,500

16. PARTICULARS OF UNHEDGED FOREIGN CURRENCY EXPOSURE AS AT BALANCE SHEET DATE

Foreign currency loan Rs.475.93 Million (US$ 9.23 Million @ average closing rate of 1US$ = Rs.51.55)

Export Debtors Rs.499.33 Million (US$ 9.89 Million @ average closing rate of US$ = Rs.50.49)

Import Creditors Rs.76.10 Million (US$ 1.48 Million @ average closing rate of 1 US$ = 51.55)

Rs.5.17 Million (Eur 0.07 Million @ 68.56)

17. No previous year's figures have been given being the first year of preparation of Consolidated Financial

Statements.














Numbers


NotesFor your use


NotesFor your use

Forward looking statements

Throughout this report to the share owners, we discuss some of our expectations regarding the Company’s future

performance. All of these forward looking statements are based on our current views and assumptions. Actual results

could differ materially from these current expectations and from historical performance.

Our future results could also be affected by a variety of factors such as competitive dynamics in the market place, the

impact of competitive products and pricing, product development, actions of competitors, changes in capital structure,

changes in laws and regulations including changes in accounting standards, customer demand, effectiveness of marketing

programs, consumer perception of health related issues, economic conditions including changes in interest rates,

fluctuations in the cost and availability of supply-chain resources, and foreign economic conditions including currency

rate fluctuations.

The Company undertakes no obligation to publicly revise any forward looking statements to reflect future events or

circumstances.

This is Neuland

2

Growing thebusiness to its

potential

From the desk of theChairman & Managing

Director

6

Highlights of2008 - 09

6

Well-positioned forgrowth

8

Strengthened thebusiness

fundamentals

Operations Review

10

Shaping a betterfuture

12

Ensuring aperformance driven

culture

14

Committed to EHS

15

Abridged Financialsin US$

17

Board of Directors

20

Directors’ Report

22

ManagementDiscussion &

Analysis

31

Report on CorporateGovernance

34

Auditors’ Report

43

Balance Sheet

46

Profit and LossAccount

47

Cash FlowStatement

48

Schedules to theaccounts

49

Accounts of thesubsidiarycompanies

69

Contents

ConsolidatedFinancial Statements

80

Concept, Research, Design & ProductionCAPRICORN ASSOCIATES

Hyderabad

Neuland employees

and their families -

we are one large team

Neuland Laboratories Limited204, Second Floor, Meridian Plaza, Ameerpet, Hyderabad - 500 016

INDIVIDUALIZED FOCUS.GLOBAL PERSPECTIVE.

Neuland

Neuland Laboratories Limited | Annual Report 2009

www.neulandlabs.com

Documents

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