Neuland GLOBAL PERSPECTIVE. · Neuland GLOBAL PERSPECTIVE. ... Ranitidine HCl (Form ... Our future results could also be affected by a variety of factors such as competitive dynamics

Neuland

INDIVIDUALIZED FOCUS.GLOBAL PERSPECTIVE.

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

conc

ept,

res

earc

h &

pro

duct

ion

- CA

PRIC

ORN

www.neulandlabs.com

Neuland Laboratories Limited | Annual Report 2008

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 wealth in the long term

With our employees : We are one team

With our society : We will continuously strive to increase our role in improving the community around us

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.

The Neuland logo what does it signify

The one inverted triangle over another is indicative of the hour

glass, suggesting that Neuland has found its rightful place in the

time slot.

The deep filled in colours to the left of the angles depict Neuland’s

single-minded philosophy, viz. commitment to customer

satisfaction, while the stripes to the right of the angles depict

Neuland’s expansion of 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 the epicenter,

suggesting that this is the point that sparks off Neuland’s dynamic

activity.

The logo represents the basic philosophy of the Company, dynamism

and customer satisfaction.

Unit Product Used in the treatment of

Bonthapally Albuterol Sulfate Anti-asthmatics(Salbutamol Sulphate)Terbutaline SulphateIpratropium BromideTiotropium BromideSalmeterol Xinafoate

Sotalol HCl CardiovascularLabetalol HClEnalapril MaleateRamiprilIrbesartanRosuvastatin

Moxifloxacin HCl FluoroquinolonesLevofloxacinOfloxacin

Itraconazole Anti-fungal

Mirtazapine CNSOlanzapineLevetiracetamEscitalopram OxalateRopinirole HClDonepezil HCl Form I

Fluticasone Propionate Cortico steroid

Dutasteride Benign Prostatic Hyperplasia

Pashamylaram Ciprofloxacin HCl FluoroquinolonesCiprofloxacin Lactate & Base

Ranitidine HCl (Form I & II) Anti-ulcerant

Eprosartan Mesylate CardiovascularEzetimibe

Voriconazole Anti - Fungal

Entacapone CNSAripiprazole

Darifenacin Hydrobromide Anti - Spasmodic

Montelukast Sodium Anti - asthmaticsLevalbuterol HClLevalbuterol Tartrate

Product Profile

Approvals received from international regulatoryauthorities - US FDA, EDQM & TGA

Certifying Authority Approvals

US FDA Both Neuland's facilities have been 'systems' inspected by USFDA, who have communicated that the manufacturing facilitiesare acceptable for the production of non-sterile APIsproduced by chemical synthesis.

Received GMP clearance for both the facilities for allnon-sterile bulk APIs by chemical synthesis

Ranitidine HCl Form IRanitidine HCl Form IICiprofloxacin HClSalbutamol SulphateSotalol HClRamiprilEnalapril MaleateItraconazole

German Health GMP certification from German Health Authority forAuthorities Ciprofloxacin HCl and Ranitidine HCl.

EDQM, France GMP compliance for Unit - 1

Therapeutic GoodsAdministration(TGA), Australia

Certificate of Suitabilityfrom the EuropeanDirectoratefor the Quality OfMedicines(EDQM)

Unit 1 facility at Bonthapalli has been granted ISO 14001:2004 and OHSAS 18001:1999 certification. This certificationrecognizes our commitment and compliance to environmental concerns, quality and adequate health and safetymeasures towards the workforce.

Number of US DMFs filed is 29. Total number of DMFs filed with various health authorities is 303 in 44 countries.

Meet Neuland 1

Our business 2

Highlights of 2007 - 08 4

Building infrastructure for growthFrom the desk of the Chairman & Managing Director 6

We did what we set out to do 8

Revenue streams strengthened 10

We give what the customers want 12

Human Resource Management 14Moving forward

ContentsAbridged Financials in US$ 17

Board of Directors 20

Directors’ Report 22

Management Discussion & Analysis 28

Report on Corporate Governance 31

Auditors’ Report 41

Balance Sheet 44

Profit and Loss Account 45

Cash Flow Statement 46

Schedules 47

Forward looking statementsThroughout this report to the share owners, we discuss some of our expectations regarding the Company’s future performance. All of these forward lookingstatements 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.

1Neuland Laboratories Annual Report 2008

Meet NeulandWe're Neuland, a quality conscious, research driven, reliable source of active pharmaceutical

ingredients and an established contract research organization. Operating from India for over

two decades, Neuland is the preferred source for the pharmaceutical industry across the globe,

with strengths in research based chemistry and manufacturing.

We're becoming an end-to-end service provider to the pharmaceutical industry with our

growing presence in contract research and foray into clinical research. We are quickly

establishing ourselves as a one-stop resource to both innovators and generic companies.

We have the mission to be the most reliable source worldwide by developing bulk

pharmaceutical products and services through cGMP that consistently exceeds all our customer

and regulatory expectations by using the latest technologies.

We're present in over 85 countries and geographically well distributed between established,

emerging, and domestic markets. Exports to North America and Europe alone totaled 66% of the

revenues on 2007-08.

We have a result oriented team that works to make the corporate vision come true. This talented

team sees reliability and deliverables through the eyes of the customers.

We're building on our proven business model, world class manufacturing and research

capabilities, and skilled human resources to create an organization that is greater than the sum

of its parts.

We believe being trustworthy and transparent in dealing with our stakeholders is critical to our

credo.

2 Neuland Laboratories Annual Report 2008

Active PharmaceuticalIngredients (APIs)

Our business

The name Neuland stands for Quality. The production of Active

Pharmaceutical Ingredients (API) has traditionally been one of

our core competencies. Neuland with its rich experience in two

decades of manufacturing always strives to share knowledge and

provide best of technical support to all our customers.

Neuland quality, strong chemistry, regulatory support and

reliability are always bundled with our API. We offer more than

just APIs.

Neuland's product portfolio spans an impressive mix of APIs

across 8 major therapeutic categories. Neuland has two world-

class API manufacturing facilities close to the city of Hyderabad,

capable in handling complex and hazardous reactions. Safety

aspects continue to be given utmost significance may it be plant

installation, equipment, systems and personnel to ensure

productivity. Combination of a dedicated team and world class

production techniques guarantee delivery of products to our

customers across the globe.

The manufacturing facilities for our 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 WHO. These ensure an

effective structural methodology at workplace which includes

manufacturing of quality products, rational and effective use of

available resources, minimization of wastes along with good

safety and hygiene standards.


Clinical Research

Contract ResearchNeuland's fundamental strength in chemistry is largely

attributable to its R&D team. The Company was founded by a

technocrat whose vision was to build a company that

differentiates itself with its R&D strength.

In order to play a stronger role in the success of its customers,

Neuland recently inaugurated a 40,000 sq. feet R&D center at

Bonthapally, 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, which are equipped

with best-in-class equipments.

The advantage that Neuland has over other contract research

service providers is, 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

commercial constraints and partnering opportunities to scale up

manufacturing without loss of time. Also, third party intellectual

property is given utmost respect at Neuland.

Clinical research services is being developed as a joint venture

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

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

end service provider to the pharmaceutical industry, Neuland is

venturing into areas of clinical research to offer support services

such as pre-clinical research, formulation development and bio-

analytical studies. Neuland holds 70% stake in the venture.

Initially, the joint venture company will conduct phase II and III

trials in areas such as diabetes, dermatology, oncology and other

therapeutic segments. Cato Research has some of the best names

in the pharmaceutical industry as its clients, and Neuland would

be supporting the execution of the clinical trials.


14.5% 21.8%Revenue Net Income

CAGR 6 years

Highlights 2007-08

2004-052003-04 2005-06 2006-07

68.85

80.16

92.92

Rs.

107.12

2007-08

122.15

Book ValueRs.

2004-052003-04 2005-06 2006-07

198.69 193.55201.44

234.73

2007-08

279.37

Economic Value Added

Therapeutic SegmentPer cent

286

35

3 1 7

20

Sales DistributionPer cent

50

16

14 20

Raw Material60.69

Expenses to Income RatioPer cent

ManufacturingExpenses 16.71

Admn & Selling 10.90

Interest 4.45Depreciation 2.46 Profit Before Tax 4.78


Highlights 2007-08

✓ Revenues increased by 5.4% to Rs.2248.8 million

from Rs.2132.5 million.

✓ Net income rose to Rs.113.5 million, higher by 25.7%

over the previous year. This was the fourth

consecutive year of rise in net income.

✓ Earnings per Share was highest in the history of the

Company. It climbed to Rs.21.04 from Rs.16.75 in

the previous year.

✓ While the volume sales reduced in 2007-08 to 744.4 MT

from 880.3 MT, the revenues were higher. The

realization per kilogram sold was higher year-on-year.

✓ Exports at Rs.1731.3 million climbed by nearly 31%

over the previous year.

✓ Exports to North America and Europe

constituted 66% of the revenues as against 42%

in the previous year.

✓ Greater focus is being given to the North

American and Japanese markets. Reaching out

to customers will further improve when the

subsidiaries become fully operational in 2008-09.

✓ Thrust areas are contract research and clinical

research. Orders are being booked and executed

in contract research; while the joint venture

company has been incorporated in May 2008 and

the business is expected to go live in the second

half of 2008-09.

RevenuesRs. in Million

Sales VolumesTonnes

Net IncomeRs. in Million

EPS Rs.

2004-052003-04 2005-06 2006-07

229.7

201.1207.3

228.3

Rs. In Millions

2007-08

260.8

Operating ProfitRs. in Million

2004-052003-04 2005-06 2006-07

33.07

22.84

28.44

20.61

Percentage

2007-08

17.62

Return on InvestmentPer cent

2004-052003-04 2005-06 2006-07

-25.12

48.89

62.36

Net IncomeAmount in Millions

90.38

2007-08

113.52

2004-05

2003-04

2005-06 2006-07

-6.64

8.96

11.43

EPSRupees

16.75

2007-08

21.04

2004-052003-04 2005-06 2006-07

571629 653

880

2007-08

744

2004-052003-04 2005-06 2006-07

1470.61584.2

1702.9

2132.5

e e uesRs. In Million

2007-08

2248.8


We ended the business year 2007-08 with satisfactory

performance. We improved on our revenues

moderately and increased the earnings. I am proud of

the Neuland team that has again put all its energies

into consolidating the business and crafting the future

of Neuland.

During the year, we increased revenues by 5.45% to

Rs.2248 million, net income by 25% to Rs.113 million

and earnings per share to Rs.21, all of which were new

records for the Company.

We continued to strengthen our Company to face

global competition. The organization and working

processes have been made leaner and more productive.

We have become more efficient and flexible. We have

aligned ourselves to meet the needs of our customers

much better. As always, helping our customers become

more successful in managing their markets remains our

top priority.

Globalization is making our business more complex,

faster and fiercely competitive. If we want to succeed

tomorrow, we need to lay the ground work today. This

means finding solutions for all the key challenges. We

focused on greater stability and growth, and revisited

our entire infrastructure with intent to make them more

flexible, effective and responsive to customer needs.

Throughout the year, we kept enhancing our reliability

process.

Building infrastructurefor growth

From the Desk of the Chairmanand Managing Director


We have kept it simple based on a Plan-Perform-

Deliver model. We ensure that each transaction gets the

critical attention, with the result that the product

quality is as intended, performance standards are

maintained and the delivery is on time, every time.

An intensive review was done during the year before

we further modernized our manufacturing facilities.

This has not only reduced the constraints but improved

our flexibility to take larger batches and production

runs. We have been able to enhance our service levels

and are better positioned to deliver what the customer

wants.

Our thrust is to become an end-to-end service provider

to the pharmaceutical industry. Over the years we have

been recognized for our research based manufacturing

capabilities. We are leveraging on the reservoir of

talents in R&D to deal with complex chemistry and are

extending the relationship by undertaking research

projects for our customers.

For over two decades, we have added value to

customers by our core competence in manufacturing

active pharmaceutical ingredients. We shall replicate

this success in contract research and contract

manufacturing. We are further extending the value

chain by foraying into clinical research with our

association with the US-based Cato Research. Our

contribution to the pharmaceutical industry in this area

would commence in the second half of 2008-09.

We at Neuland are excited by the opportunities to

make an impact in the industry and are underwriting

growth for the Company. We are building the

infrastructure of the business and by several initiatives

are building the business itself. The large investments

made during the year will secure the future growth of

the Company. We are indeed making transformational

changes.

In the medium term, more than in the past, we will

focus on profitability given the enhanced product mix

and productivity improvement program. We will strive

to achieve high capacity utilization and bring

efficiencies in the production process. We will scale up

products that have demand pull and shall strive for

higher trajectory of growth. We shall build in the

process a vibrant and sustainable Neuland.

We have been fortunate to have some of the best

customers, vendors, and employees. It is with great

pleasure and a very real sense of commitment that I am

looking forward to working with all of them even as we

will be increasing the size of our family in our journey

to enhance Neuland's continuing development.

Warm regards

WE HAVE KEPT IT SIMPLE BASED ON A

PLAN-PERFORM-DELIVER MODEL. WE ENSURE

THAT EACH TRANSACTION GETS CRITICAL

ATTENTION, WITH THE RESULT THAT THE

PRODUCT QUALITY IS AS INTENDED,

PERFORMANCE STANDARDS ARE MAINTAINED

AND THE DELIVERY IS ON TIME, EVERY TIME.


Considerable planning and execution helped

create a sturdy business model. Constraints to

performance were examined in detail and

action initiated to modernize, de-bottleneck and

augment manufacturing capacity.

A new pilot plant was operationalized. Efficiencies

were improved across all parameters.

Response level to customers were checked and action

taken to enhance communication and reduce reaction

time. There was scaling up of new products which

helped add to the basket and the product mix was

improved.

With an eye on improving performance and

deliverables, investment of over Rs.225 million was

made to the gross block during the year. To put this

figure in perspective, the net block as at March 31, 2007

was Rs.428.9 million and the Company made fresh

investment of an additional 52% during the financial

year 2007-08. Similarly, the addition to plant and

machinery was 61% over the closing balance of the

previous year. Investment into R&D equipments was

an additional 103% over the previous year end balance.

Every investment and upgradation was done with

intent to align better with customer needs, enhance

reliability and add to the sustainability of the business.

Growth was substantially underwritten. Neuland today

has become much stronger than what it was a year ago.

The revenues were higher only by 5.45% in part due to

the depreciation in the dollar, the currency of trade for

the Company. While hedging of the currency was done,

the entire risk due to the volatility of the dollar could

not be covered.

During the year, the volume of active pharmaceutical

ingredients sold was lower because of the change in the

product mix, although the orders accepted were

dispatched with improvement in due date

We did what we set out to doReview of Operations

EVERY INVESTMENT AND UPGRADATION WAS DONE

WITH INTENT TO ALIGN BETTER WITH CUSTOMER

NEEDS, ENHANCE RELIABILITY AND ADD TO THE

SUSTAINABILITY OF THE BUSINESS. GROWTH WAS

SUBSTANTIALLY UNDERWRITTEN. NEULAND TODAY

HAS BECOME MUCH STRONGER THAN WHAT IT WAS

A YEAR AGO.

performance. The average realization per kilogram was

better, and because of the efficiency improvements, the

margins improved. Efficiency improvements also

helped to cope with the intense competitive pressures.

Sales to the export market constituted 80% of the revenues

and totaled Rs.1731.3 million compared to Rs.1322.6

million, an increase of around 31%. Large segment of

domestic sales is used by the formulators in the country

with approved facilities to export to regulated markets.

This trend continued, and it is gratifying to know that

Neuland's products are preferred by the premium

customers for their quality conscious markets.


Neuland managed the sensitivities and challenges of

raw material availability by derisking the source base,

reduced the dependence on single sources and

increased the availability of raw materials on time.

Alternate sourcing efforts have helped save significant

amount, thereby reducing variable cost. In fact, the

Company is taking steps to build robust, transparent

vendor partnership which would create a more

effective stakeholder interest and enable further

derisking and improving certainty.

Adequate platform and promotional activity was

undertaken to launch contract research, contract

manufacturing and clinical research. These efforts are

expected to show visibility in 2008-09 and beyond.

There was high degree of positive energy throughout

the organization with staff and employees keen to

participate in the rapidly rising momentum. The

business has high level of traction and the team has

strived to ensure that the future growth is secured.


Neuland is a company of the future. The business mix

has been revisited to make it robust and the revenue

stream has been strengthened. In fact, the platform

created for API manufacture and research businesses is

expected to impact revenue in the near to medium

term.

The steps taken so far are likely to increase production,

further improve productivity and add to operating

margins. During the year 2008-09, seven new products

are expected to be commercialized while newer

products are being taken up by R&D keeping an eye on

the future needs of customers.

For several years, the Company has been present in the

North American and Japanese markets. Commitment to

these markets is being further enhanced by establishing

subsidiaries to improve the reach to the customers.

These are potentially large markets that demand

product quality and service especially reliability in all

the deliverables, areas of strength and competence for

Neuland.

Our customers know us for our strength in complex

chemistry and our ability to offer customized solutions.

The knowledge base, manpower and technology

already in place are being leveraged to create a niche

for Neuland in contract research and contract

manufacture.

Neuland has a joint venture with one of the leading

clinical research service provider in the US-based Cato

Research. The enormous strengths of Cato and the

execution abilities of Neuland would support the needs

of the global pharmaceutical industry. In clinical trial

management, having a global presence is an important

asset. This joint venture has given Neuland an added

Revenue streams strengthenedOutlook

NEULAND IS A COMPANY OF THE FUTURE. THE

BUSINESS MIX HAS BEEN REVISITED TO MAKE IT

ROBUST AND THE REVENUE STREAM HAS BEEN

STRENGTHENED. IN FACT, THE PLATFORM CREATED

FOR API MANUFACTURE AND RESEARCH BUSINESSES

IS EXPECTED TO IMPACT REVENUE IN THE NEAR TO

MEDIUM TERM.


advantage. Growth potential is not limited by the

traditional constraints of capacity, and would depend

on the ability to develop the market and the value that

the joint venture team would bring to the customers.

In all its businesses, the Company has positioned itself

well to deliver results and be an end-to-end service

provider to the industry. The track record of aligning

the Company's systems and values along the needs and

expectations of the customers is a carefully built core

strength and provides a cutting edge to meet

competitive pressures. Over the years, the industry has

recognized Neuland as a reliable and preferred source.

These strengths will be leveraged to create an

empowered Neuland that meets stakeholder

expectations.

THE TRACK RECORD OF ALIGNING THE COMPANY’S

SYSTEMS AND VALUES ALONG THE NEEDS AND

EXPECTATIONS OF THE CUSTOMERS IS A CAREFULLY

BUILT CORE STRENGTH AND PROVIDES A CUTTING

EDGE TO MEET COMPETITIVE PRESSURES. OVER THE

YEARS, THE INDUSTRY HAS RECOGNIZED NEULAND

AS A RELIABLE AND PREFERRED SOURCE.

TO MEET OUR GOALS, WE WILL:

� FOCUS AND ALIGN WITH OUR

CUSTOMERS

� GROW API BUSINESS WITH A LARGE

PRODUCT BASKET AND

GEOGRAPHICAL SPREAD

� STEP UP PRESENCE IN THE U.S. AND

JAPAN

� INCREASE PRODUCTION AND

PRODUCTIVITY

� MAXIMISE MARGINS IN

ESCALATING COST ENVIRONMENT

� PROVIDE THRUST TO CONTRACT

RESEARCH, CONTRACT

MANUFACTURING AND CLINICAL

RESEARCH

� BECOME AN END-TO-END SERVICE

PROVIDER TO THE

PHARMACEUTICAL INDUSTRY

Plan Perform Deliver

MEDIUM TERM GOALS


Contract research deals with research that sponsors

want done. All sponsors want drug development of the

desired quality with the same assurance and

confidentiality that their in-house would provide.

There is also the element of cost. A brief look at costs

would help appreciate the ground realities.

A recent study had estimated the cost of successfully

getting a drug to market was more than $1 billion.

Big pharmaceutical companies in the U.S. and Europe

are under immense pressure to cut R&D costs, which

have ballooned to almost unmanageable levels. CRO

spend 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.

Companies also recognize that one approach may not

be appropriate for all development programs. Some

We give what the customers wantContract research

Drug Discovery Pre - clinical Clinical trials RegulatoryReview

Large - scaleManufacturing/Phase IV

Mandato

ryD

eta

iled

Revie

w

Mandato

ryD

eta

iled

Revie

w

RegulatoryApproval

Contract Research Process Model

● ● ● ● ●Medicinal Chemistry Process R&D Scale - up Regulatory Compliance Contract Manufacturing

Neuland partners with you all the way


may require a tactical approach, which is more ad-hoc

and project oriented, while others may benefit from a

more formalized and portfolio oriented strategic

approach.

Bringing new drugs to market has always been an

expensive, high-risk proposition, and latest analysis

indicates that costs have continued to skyrocket. The

single largest challenge facing drug developers - both

pharmaceutical and generic companies - is to contain

R&D costs and reduce development times without

compromising on the quality of research. It's a tall

order.

This is where we at Neuland see our ability to become a

reliable service provider to the industry. As a reliable

partner, we would continue to help our customers to

get what they want. They need successful products and

intelligent solutions, at costs that are within their

budget. We give them what they want.

AS A RELIABLE PARTNER, WE WOULD CONTINUE TO

HELP OUR CUSTOMERS TO GET WHAT THEY WANT.

THEY NEED SUCCESSFUL PRODUCTS AND

INTELLIGENT SOLUTIONS, AT COSTS THAT ARE

WITHIN THEIR BUDGET. WE GIVE THEM WHAT THEY

WANT.

On a normal day, Neuland creates and builds on its

knowledge platform, fosters openness for new things and

encourages employees to pursue innovative

developmental activities. The same human resources

supported by a large research centre with world class

assets and technology address the needs of customers

with products and services of global standards at cost-

effective operational costs. The business remains derisked.

While we would share best practices with the

customers, we would interlock our business to their

value adding chain. We see downstream benefits over

the longer term. Success today is actually working for

success tomorrow.


Human ResourceManagementMoving forward

How we do business is as important as the quality of

our products. For our customers, it means easy access

not only to our large product portfolio, but also

services and solutions that helps them meet their

customers' needs.

For us that means, from procurement through

production to marketing we are one team. When we get

an order, we ring the bell, get excited and get going. We

plan well to perform better and get that much more

reliable in our deliveries. We keep it simple, and keep

moving forward.

We recognize strategic goals and clearly defined

principles are a pre-requisite for long term business

success. Our standards are laid down in our values and

principles, which form our commitment to conducting

business responsibly. We apply these values in our day

to day business and as a result strengthen the trust of

our employees and associates in our activities.

Within the organization, the team sets store by several

attributes and in particular,

� Mutual respect and open dialogue

� Safety, health and environmental protection

� Personal and Professional competence

� Integrity. Integrity in fact is an essential aspect of

risk management at Neuland.


Our working conditions conform to basic recognized

labor and social standards. High standards are

important to us both within our Company and the

social environment. Therefore, we act in accordance

with transparency and trust with our employees,

vendors and business partners.

The experience, expertise and enthusiasm of our

employees is motivated to safely propel Neuland

towards its ultimate goal - to be the best end-to-end

service provider to the pharmaceutical industry. We

listen to our customers and improve our products and

services to meet their present and future needs. Its a

high energy, high performance organization.

We do not live in the past nor rest on our laurels. We

strive to differentiate ourselves from competition. This

needs constant review, training and raising the bar on

best practices. During the year, on an average the

training input per person was 9 hours. As many as

2,018 participants attended training programs spread

over 7,400 man hours where emphasis was on areas

such as:

� Plant engineering

� Process Chemistry in the Pharmaceutical Industry

� Process Optimization and QC/QA Validation

� cGMP applicable to API

� Intellectual property rights

� Safety & Loss Prevention

Skill sets brought on board included capabilities in

contract research, medicinal chemistry, technology

transfer and scale-up of products. There was near zero

separations at the top management. The annualized

attrition rate was at 15%, well below pharmaceutical

industry average.

The team makes it vibrant and it is these men and

women who are helping build a stronger Neuland that

is better equipped to deliver what the customers want

and the returns the investors expect.

THE EXPERIENCE, EXPERTISE AND ENTHUSIASM OF OUR

EMPLOYEES IS MOTIVATED TO SAFELY PROPEL NEULAND

TOWARDS ITS ULTIMATE GOAL - TO BE THE BEST END-TO-END

SERVICE PROVIDER TO THE PHARMACEUTICAL INDUSTRY. WE

LISTEN TO OUR CUSTOMERS AND IMPROVE OUR PRODUCTS AND

SERVICES TO MEET THEIR PRESENT AND FUTURE NEEDS. ITS A

HIGH ENERGY, HIGH PERFORMANCE ORGANIZATION.


WHY THE BELL RINGS AT NEULAND

Ringing of the bell is symbolic to producing asound that nullifies any external distractionand helps a worshipper to focus his or hersenses on finding inner peace while praying.It also evokes people's yearning for peace ofmind and calms the body and soul. In ancienttimes, ringing of a bell was a method ofcommunication.

At Neuland, the ringing of the bell signifies asound that celebrates a sense of achievement.It also reminds us of the fact that focusing ourcollective and sincere efforts at the task onhand will make anything possible. May thisbell ring on more occasions as Neulandcelebrates its never ending march to success.

Neuland


March 31, 2008 March 31, 2007

I SOURCES OF FUNDS

SHAREHOLDERS' FUNDS

Share Capital 1.36 1.36

Reserves & Surplus 15.73 13.49

17.09 14.85

LOAN FUNDS

Secured Loans 33.36 19.27

Unsecured Loans – 0.14

33.36 19.40

DEFERRED TAX LIABILITY (Net) 0.69 0.99

TOTAL FUNDS 51.14 35.24

II APPLICATION OF FUNDS

FIXED ASSETS

Gross Block 27.74 22.17

Less: Depreciation 12.88 11.49

Net Block 14.86 10.67

Capital Works In Progress 14.84 5.72

29.70 16.39

INVESTMENTS 1.81 1.81

CURRENT ASSETS, LOANS & ADVANCES

Inventories 13.69 12.20

Sundry Debtors 12.80 10.51

Cash and Bank Balances 2.29 2.09

Loans & Advances 8.76 5.66

37.54 30.45

LESS: CURRENT LIABILITIES AND PROVISIONS

Current Liabilities 15.59 11.14

Provisions 2.32 2.34

17.91 13.48

NET CURRENT ASSETS 19.63 16.97

MISCELLANEOUS EXPENDITURE – 0.07

(to the extent not written off or adjusted)

TOTAL ASSETS (Net) 51.14 35.24

US$ millions

BALANCE SHEET AS AT MARCH 31, 2008

Abridged Financials in US$

Conversion rate 1 US$ = Rs.40.19


Year ended Year endedMarch 31, 2008 March 31, 2007

INCOME

Sales and Export Incentives 55.96 53.06

Less: Exicse Duty 1.79 2.76

54.17 50.30

Other Income 1.33 0.99

TOTAL 55.50 51.29

EXPENDITURE

Raw Materials Consumed 33.68 32.14

Manufacturing Expenses 9.27 8.12

Administration, Selling & Other Expenses 6.05 5.35

Interest and other charges 2.48 1.88

Depreciation/Amortisation 1.39 1.35

Less: Adjusted against Revaluation Reserve 0.03 0.03

1.36 1.32

TOTAL 52.84 48.81

PROFIT BEFORE TAX 2.65 2.48

Provision for Current Tax 0.30 0.28

Provision for Fringe Benefit Tax 0.04 0.03

Provision for Deferred Tax (0.21) 0.20

MAT credit entitlement (0.30) (0.28)

PROFIT AFTER TAX 2.82 2.25

Balance brought forward from Previous Year 1.53 1.36

AMOUNT AVAILABLE FOR APPROPRIATION 4.36 3.61

APPROPRIATIONS

Transfer to General Reserve 2.12 1.69

Proposed Dividend @25% 0.34 0.34

Tax on Distributed Profits 0.06 0.05

BALANCE CARRIED TO BALANCE SHEET 1.85 1.53

US$ millions

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2008



Year ended Year ended

March 31, 2008 March 31, 2007

A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit before tax and exceptional items 2.65 2.48

Adjustment for

Depreciation/Amortisation 1.36 1.32

Interest Expense 1.51 0.96

Unrealised foreign Exchange (Gain)/Loss (0.66) (0.32)

Deferred Revenue Expenses/Miscellaneous Expenditure written off 0.07 0.08

Provision for gratuity and leave encashment 0.02 0.02

Provision for Doubtful Debts 0.09 0.12

Loan written back (0.12) –

Operating Profit before Working Capital changes 4.92 4.66

Add/(Less) Adjustment for changes in Working Capital

Trade Receivables (1.23) (3.11)

Inventories (1.49) (2.04)

Loans and Advances (3.04) (0.04)

Trade Payables 4.22 1.15

Cash flow from operating activities 3.38 0.63

Less Income Tax paid (0.40) (0.98)

Net Cash from Operating Activities (A) 2.98 (0.35)

B. CASH FLOW FROM INVESTING ACTIVITIESPurchase of Fixed Assets including Works-in-Process (14.71) (7.23)

Proceeds from sale of Fixed Assets – 0.01

Net Cash used in Investing Activities (B) (14.71) (7.22)

C. CASH FLOW FROM FINANCING ACTIVITIESProceeds from long-term borrowings 10.86 8.95

Increase/(Decrease) in bank borrowings 4.60 2.07

Repayments of long-term borrowings (1.84) (1.84)

Interest Paid (1.28) (0.90)

Proceeds from/(Repayment of) Unsecured Loans (0.01) (0.02)

Dividend Paid (0.39) (0.31)

Net Cash used in Financing Activities (C) 11.94 7.95

Net increase/(decrease) in Cash & Cash Equivalents (A+B+C) 0.21 0.38

Cash & Cash EquivalentsOpening Balance 2.09 1.69

Closing Balance 2.29 2.09

US$ millions

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2008



Dr. D. R. RAO

Chairman & Managing Director, is the Chief Promoter of Neuland. He has a Masters inScience 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 topromoting Neuland in 1984, Dr. Rao has held senior positions in R & D, production, andquality assurance at Glaxo India for about ten years. He is a member of Royal Society ofChemistry.

Mr. HUMAYUN DHANRAJGIR

a Non-Executive Director, is one of the most respected personalities in the pharmaceuticalindustry. He has held several senior positions in Glaxo India, including Managing Directorand Executive Vice-Chairman. He is a past President of Organization of PharmaceuticalProducers of India.

Mr. P. V. MAIYA

a Non-Executive Director, is an eminent banker. He had a long career of 32 years with theState Bank of India where he was a General Manager; he was deputed as the ExecutiveDirector of SCICI between 1991 and 1993, which position he relinquished to join first asManaging Director to set up the ICICI Bank in 1994. He retired as Chairman & CEO of theBank in 1998. After retiring from the Bank, he was appointed as the Managing Director ofCentral Depository Services (India) Limited which he set up and relinquished the post inDecember 1999. He is now a director of two companies including a large nationalised bank.

Mr. S. B. BUDHIRAJA

a 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 Consultantsof India. He brings with him considerable industrial experience.

Dr. BANDARU S. REDDY

a Non-Executive Director, is a Research Professor at Susan Cullman Laboratory for CancerResearch, the Rutgers University, USA. He serves on the editorial board of Nutrition &Cancer, and International Journal of Oncology. He has over 400 publications to his credit.

Board of Directors

WORKING CAPITAL BANKERS

State Bank of India, Overseas Branch,Abids, Hyderabad

Bank of India,Kukatpally Branch, Hyderabad

Indian Overseas Bank,Basheerbagh Branch, Hyderabad

BankersTERM LOAN LENDERS

Export Import Bank of India,Khairatabad, Hyderabad

State Bank of India, OverseasBranch, Abids, Hyderabad

Bank of India,Kukatpally Branch, Hyderabad

The Karur Vysya Bank Ltd,R.P Road, Secunderabad


Mr. G. V. K. RAMA RAO

one of the promoters, is a Non-Executive Director.He is a practicing advocate.

Dr. RUSSEL KAUFMANa Non-Executive Director, is the President and CEO of Wistar Institute. He is currently aProfessor of Medicine at Wistar Institute and an Associate faculty of Medicine at Universityof Pennsylvania. He is also a Director at Wistar Cancer Center. He is Emeritus Professor ofMedicine and Biochemistry at Duke University School of Medicine. He serves on variouseditorial boards of professional bodies/journals and is also a member on various advisoryand governing boards. He is a member of various grant review committees like AmericanCancer Society. He is also a consultant for North Carolina Biotechnology Center and aconsultant & reviewer for Michigan Life Sciences Corridor Fund. Dr. Kaufman is currentlyworking on vaccines for rabies and measles.

Dr. WILL MITCHELL

a Non-Executive Director, is presently J. Rex Fuqua Professor of International Management,Fuqua School of Business, Duke University, Durham, NC, USA. Prior to joining DukeUniversity, he was professor of Corporate Strategy and International Business at Universityof Michigan. He is on the editorial board of several management journals. His teaching andresearch interests include corporate strategy, alliance strategy and dynamics of the healthcare industry.

Mrs. DAYA CHANDRAHAS

represents the Export-Import Bank of India, since July 2005.

Mr. D. SUCHETH RAO

Executive Director and Chief Operating Officer, is a Mechanical Engineer by professionand has an MBA in Corporate Finance from University of Notre Dame, USA. He wasProduction Group Leader in Cummins Inc. USA and later went on to become Green belt inSix Sigma. His background primarily consists of exposure to various fields of business suchas marketing, finance, manufacturing, operations and information technology.

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


DIRECTORS' REPORTYour Directors have pleasure in presenting the twenty fourthAnnual Report of your Company and the audited statement ofaccounts for the year ended March 31, 2008.

FINANCIAL RESULTS Rs. in Million

2007-2008 2006-2007

Profit before Depreciation and Tax 161.50 153.00

Less Depreciation 54.85 53.16

Profit before Tax 106.65 99.84

Provision for current tax

and deferred tax (6.87) 9.46

Profit after Tax 113.52 90.38

Add: Balance brought forward

from the previous year 61.62 54.61

Profit available for appropriation 175.14 144.99

Appropriation

General Reserve 85.14 67.79

Dividend (including Tax on Dividend) 15.78 15.58

Balance carried forward to

Balance Sheet 74.22 61.62

BUSINESS REVIEW

Neuland witnessed moderate growth during the year under reviewbut the growth is well diversified and has the ingredients forlong term sustainability. The market for your Company's activeingredients was favorable throughout the year. Order intake grewmost substantially from Europe and in the United States. Newheights were scaled in 2007-08 and landmarks created inrevenues, profits, networth and assets. Revenues increased fromRs.2132.50 million in the previous year to Rs.2248.86 million,representing a growth of 5.45%. The growth in volume iswitnessed both in existing products and in the new launcheswhere competition is less severe. Profit before tax for the yearunder review climbed to Rs.106.65 million from Rs.99.8 millionin the previous year - an increase of 6.86%. Profitability for theyear improved thanks to growth in volume and continued strictcost control and operational excellence. Your Company's largeinvestments in R&D contributed to lowering the tax impact.Profit after tax increased from Rs.90.38 million to Rs.113.52million.

Exports climbed to Rs.1731.35 million as compared to Rs.1322.65million in the previous year. Europe accounted for 50% of therevenues; North America for 16% and 14% was from rest of theworld. Sales within India were 20% of the total revenues. Neulandhas developed a well diversified market for its products. YourCompany's marketing strategy is to establish significant presencein all major markets that hold promise of sustained growth. Asin earlier years, your Company added to its product lines andfiled 303 DMFs globally.

Consciously nurtured customer-oriented approach at Neulandhas helped optimize the customers' plans and processes. Byimproving organizational expertise, enhancing production

capacity, introducing efficacious processes and adherence todelivery schedules, the Company's offering has gained an edgein the market. Particular mention needs to be made of yourcompany's endeavors in delivering products to customers as pertheir requirements and in the time frame committed. Thesecontinuing measures to improve our response to customers havebegun to make your Company a preferred source to its customers,and they may be further expected to build significant marketshare and may also secure a premium for all the products overthe long haul.

Your Company's strategic business plans and resources are intune with the expanding customer base. New capacities arecreated and up-gradation of facilities is being executed.Operational efficiencies receive continuous attention by thesenior level functionaries. Additional facilities are expected tobecome operational in the first quarter of 2008-09

OUTLOOK

Your Company will continue to pursue its strategic growth planin diverse markets and strive to be the preferred source for allits customers. The product basket of active ingredients is beingexpanded, and new markets are being explored. The Companyintends to reach a very high percentage of on-time delivery soas to make it a key differentiator.

Contract Research is an identified area of growth for yourCompany. Neuland has enormous strength in its talent pool ofhuman resources, and is poised to become a coveted choice forour customers with significant interest in R&D area. YourCompany's strengths in R&D and manufacturing capabilities arebeing leveraged to deepen customer relationships as well aswiden the product portfolio.

This kind of partnership is beneficial to customers in enhancingtheir competitiveness as well as to your Company by adding toits business verticals in future years.

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs.2.50per share (25%) for the year ended March 31, 2008, subject tothe approval of the Members at the ensuing Annual GeneralMeeting. The Dividend will be paid, to the registered Membersof the Company as on the book closure date.

SUBSIDIARIES

Neuland Laboratories Inc., USA, a subsidiary of your Company,was incorporated on January 4, 2007 in the State of Delaware,USA with its principal office in Orange County, California. Alldocuments have been filed for registration with the State ofCalifornia to operate as a foreign (incorporated in Delaware)Corporation. The business plan is being operationalized andactivities are set to start in the financial year 2008-09.

The premium markets of Japan hold huge opportunities for yourCompany's products and services. In order to intensively developyour Company's business, improve the reach to the customer


and generate long term association with them, NeulandLaboratories k.k., Japan is being incorporated as a subsidiaryof your Company. Approval from Reserve Bank of India has beenobtained, and steps are being initiated to remit share capitaland incorporate the subsidiary. As soon as regulatory approvalsare received from the authorities, the subsidiary will commencebusiness.

In the absence of business or financial activities during theyear, no financial statements of the subsidiary are beingsubmitted.

JOINT VENTURE

Your Company is leveraging on its existing skills and capabilitiesand has formed a joint venture in India styled as Cato ResearchNeuland India Private Limited in May 2008 in collaborationwith Cato Research Israel Ltd., a wholly owned subsidiary ofCato Research Ltd., a global contract research and developmentorganization based in USA.

The primary objective of the joint venture is to help globalhealth care companies bring innovative drugs to the market inthe shortest possible time span, using high quality and cost-effective resources available in India. Your Company's share inthe joint venture is 70%. The joint venture company has receivedall necessary permissions/approvals and is expected tocommence operations in the first half of 2008-09.

RESEARCH & DEVELOPMENT

R&D is both a driving force and a strategic tool for your Companywhich provides an impetus for new products and processes. Overthe years your Company's customers have benefited by thesolutions that Neuland has offered and have worked closer todevelop mutually advantageous business relationship. Some ofthe highlights of activities are given below:

� Your Company has developed products and processes foractive pharma ingredients of various therapeutic categorieswhich are identified as new products after thorough studyof market analysis. Your Company has improved processesto reduce the variable cost of the existing products.

� Neuland has started research alliances at its new 40,000square feet R&D Centre to undertake contract research onmedicinal chemistry, custom synthesis, process R&D andanalytical services.

ENVIRONMENT, HEALTH & SAFETY

Your Company is dedicated to protecting the environmentespecially in and around its facilities and its neighborhood anddoes take care to benchmark itself with the global standards asregards Environment, Health & Safety. Awareness levels amongstthe employees have been supported by necessary training inputs.EHS matters are recorded, tracked and followed up every day.

During November 2007, the Bonthapally unit was successfullyaudited and certified for ISO 14001:2004 and OSHAS

18001:1999. As Members are aware, ISO 14001 is a series ofInternational Standards on environment management systemand OSHAS 18001 is an Occupational Health & Safety AssessmentSeries for health & safety management system. Thesecertifications are a testimony to Neuland's commitment towardsenvironment protection and health and safety management alongwith the quality of products. Efforts are presently ongoing toachieve similar certification standards for the Pashamylaramunit.

INFORMATION SECURITY MANAGEMENT CERTIFICATION

Your Company obtained the ISO 27001: 2005 certification forits robust Information Security Management Systems. Neulandis the first pharmaceutical company in Andhra Pradesh to achievethis status. All assets in Neuland generate sensitive informationand need to be secured and this certification validates the strongsystems already in place. The Company has adopted an actionplan to closely monitor its adherence to the ISO 27001: 2005standards and employees at all levels have been trainedadequately.

DIRECTORS

Mr. Balakrishna Iyer resigned as Director of the Company witheffect from 21st July, 2007 due to personal reasons. The Boardof Directors expresses its sincere appreciation and gratitude forthe valuable and mature advice and guidance received duringhis association with the Company. Mr. H. Dhanrajgir and Mr. P.V. Maiya retire as Directors by rotation at the forthcoming AnnualGeneral Meeting and being eligible offer themselves for re-appointment.

Dr. Will Mitchell was co-opted as a member of the Board in theirmeeting held on May 23, 2008. Your Company has received anotice under Section 257 of the Companies Act, 1956 proposingto appoint Dr. Will Mitchell as a Director retiring by rotation.

The profiles of the 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. in preparation of the annual accounts for the year endedMarch 31, 2008 the applicable accounting standards havebeen followed;

b. such accounting policies as mentioned in schedule N 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, 2008 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, 2008have been prepared on a going concern basis.

FINANCES

The Company has tied up its long term debt and working capitalto meet the increasing needs of the business. This is an area ofcontinual attention to ensure adequacy, optimal utilization andcost control. The funds are utilized for the purposes that theyare intended.

The Company uses forward exchange contracts to hedge againstits foreign currency exposures relating to the underlyingtransactions and firm commitments. The use of these foreignexchange forward contracts reduces the risk or cost to theCompany.

AUDITORS

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

The Audit Committee of your Company meets periodically withthe internal auditors, M/s. Grant Thornton & Co., to review theperformance of internal audit, to discuss the nature and scopeof the statutory auditor's functions, and to discuss auditing,internal control and financial reporting issues. To ensurecomplete independence, the statutory auditor and the internalauditor have full and free access to the Members of the AuditCommittee to discuss any matter of substance.

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

The Auditors M/s. K. S. Aiyar & Co, Chartered Accountants, retireat the ensuing Annual General Meeting and have confirmedtheir eligibility and willingness to accept office for the financialyear ended March 31, 2009.

REPLY TO AUDITORS' REMARKS

The statutory auditors in their report on the accounts for theyear ended March 31, 2008 stated that although internal controlsystem is commensurate with size of the Company and natureof business, further strengthening is recommended in the contextof implementation of ERP with reference to all the key areas ofcontrol. The Company has implemented ERP package of SAP inSeptember 2007. The statutory auditors' remarks relate to somedelays during the transition phase of switching over to SAPwhich have been set right by March end. Nonetheless, we arealso revisiting other areas of control. The Auditors also observedthe Company needs to make certain disclosures as required underMicro, Small and Medium Enterprises Development Act 2006.The omission is inadvertent and the Company has since

DIRECTORS' REPORT Contd...

implemented the system of compiling this information effectivefrom first quarter of the financial year 2008-09.

INSURANCE

Your Company has taken reasonable steps to prevent risks andthe Board is kept appraised of the risk assessment andminimization procedures.

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, 2008.There are matured but unclaimed fixed deposits amounting toRs.0.072 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 difficult circumstances. An amicable settlementhas been arrived at Unit I with the workmens' union.

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 Company acknowledges the significant contribution madeby the employees. The trust reposed in your Company by itsesteemed customers helped stabilise growth during the yearunder review.

Your Company also acknowledges the support and guidancereceived from State Bank of India, Bank of India, Indian OverseasBank, Lakshmi Vilas Bank Ltd., Industrial Development Bank ofIndia, Export Import Bank of India, Karur Vysya Bank and allgovernment agencies and looks forward to their continuingsupport.

For and on behalf of the board

Dr. D.R. Rao

Chairman & Managing DirectorHyderabad, May 23, 2008


PARTICULARS OF EMPLOYEES

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, 2008.

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

Dr. D. R. Rao 64 M.Sc.DIIT PhD Chairman & January 39 5.48 M/s. Unique(Notre Dame), Managing 1984 Chemicals,C Chem MRSC Director Mumbai,(London) Director

R&D and QA

Mr. D. Sucheth Rao1 32 B.E., MBA Chief August 8 5.48 M/s. Cummins,(Notre Dame Operating 2003 USAUniversity, Officer &USA) Executive

Director

Mr. D. Saharsh Rao1 28 B.E., M.S. (MIS), Vice March 4 2.18 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) 12.81 11.77

Total Amount (Rs. in Million) 36.40 31.66

Rate/Unit (Rs./Kwh) 2.84 2.69

b. Own generation (Unit in Million) KWH 1.02 0.65

(Through Diesel Generator)

Units per litre of Diesel Oil 3.21 3.20

Cost/Unit (Rs./kwh) 12.99 10.77

2. Coal

Quality "C" Grade used in Steam Boiler

Quantity (Tonnes) 9,631 9,313

Total cost (Rs. in Million) 31.10 25.01

Average rate (Rs./Tonne) 3,224 2,685

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

Rs. in Million


FORM - B

RESEARCH AND DEVELOPMENT

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

a. Development of process for the the manufacture of APIs in the therapeutic categories of anti-glucoma, anti-fungal, anti-hyperlipoproteinemic, anti-hypertensive, anti-asthmatic, anti-psychotic,anti-emetic, anti-parkinson, anti-depressant, benign prostatic hyperplasia, antibacterial, anti-Alzheimer.

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

c. Development of process for manufacture of active pharmaceutical ingredients for specific customeron exclusive basis.

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

e. Custom synthesis and contract manufacture.

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

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

h. Creation of intellectual property and international regulatory filings.

2. Benefits derived as a result of the above:a. The above research has resulted in commercializing / scaling up of eight active pharmaceutical

ingredients from different therapeutic categories of antiemetic, anti glaucoma, anti hypertensive,antiparkinsonian and anti alzheimer's.

b. Company has developed processes for the following active pharmaceutical ingredients that areunder scale up and commercialization:

i. Aripiprazole of anhydrous Form B

ii. Levalbuterol Tartrate

iii. Tiotropium bromide of anhydrous and monohydrate Form

iv. Montelukast sodium of amorphous Form

v. Ezetimibe of Form X

vi. Voriconazole

vii. Eprosartan mesylate of anhydrous Form

viii. Darifenacin Hydrobromide.

The following active pharmaceutical ingredients that are under development:

i. Salmeterol Xinafoate

ii. Rosuvastatin calcium

iii. Nateglinide

iv. Dutasteride

v. Linezolid

c. Modification of existing manufacturing process to reduce variable costs and cycle time, andimprove yield and quality resulted in significant savings to the cost of production of hypertensive,anti bacterial, anti ulcerative APIs.

d. i. Patent were filed for Novel process for APIs like Entacapone, Donepezil Hydrochloride Form-I/Form-III, Levalbuterol Hydrochloride, Tiotropium bromide, Voricanazole, Darifinacin Hydrobromide, Eprosartan Mesylate and an intermediate of Moxifloxacin Hydrochloride.

ii. Patents are under filing for patent non-infringing process for Montelukast, Irbesartan,Ezetimibe, Linezolid and Netaglinide.

e. For active pharmaceutical ingredients such as Donepezil Hydrochloride, Drug Master Files (DMFs)have been filed.

f. On exclusive basis process has been developed and filed DMF for the manufacture of antihypertensive and opthalmic active ingredients for which the contract manufacturing is started.

g. Serviced an innovator company by supplying new chemical entity from gram to kilogram quantitiesto support their drug discovery and development program.


NIL}

3. Future plan of action

� To develop processes for new APIs of various therapeutic categories which are identified as newproducts after thorough study of market analysis.

� Improve the process to reduce the variable cost of the existing products.

� Undertake more contract research on medicinal chemistry, custom synthesis and analytical services.

� To support and service to the existing customer for existing products.

� To ensure the reliability for all R&D activities and services.

� To achieve minimum 99% due date performance (DDP) for all R&D activities.

4. Expenditure on R&D Rs. in Million

Current Year Previous Year

Capital 200.05 200.19

Recurring 59.69 52.11

Total 259.74 252.30

R&D Expenditure was 11.93% of total revenue, as against 12.47% 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:

Your company has had a strong export focus in the past, and expects thrust to continue in the future.In fiscal 2008, 80% of revenues were derived from exports.

Your Company total exports were Rs.1731.35 million against previous year export turnover of Rs.1322.65million.

Your Company expects considerable export revenue during 2008-09.

b. Foreign exchange earned and used for the year ended March 31, 2008.

Total foreign exchange earnings used and earned is given in Note 17G, H, I of the Notes to Accounts.

For and on behalf of the board

Dr. D. R. RaoHyderabad, May 23, 2008 Chairman & Managing Director


North America, Europe and Japan continued to remain the key markets for the pharmaceuticalindustry with 86% of the worldwide pharmaceutical sales in 2007.

Overall sales growth in the U.S. prescription market moderated to 3.8% in 2007, comparedwith growth of more than 8% in 2006. Total U.S. prescription sales reached $286.5 billion,with slower sales growth resulting from loss of exclusivity of branded medicines, fewer newproduct approvals, the leveling of year-on-year growth from the Medicare Part D program,and the impact of safety issues.

Total dispensed prescription volume grew at 2.8% in the U.S. compared with 4.6% in 2006.Antidepressants ranked as the leading therapy class by dispensed prescription volume in2007. Overall, the top five therapeutic categories - antidepressants, lipid regulators, codeine& combination pain medications, ace inhibitors and beta blockers - continued to lead themarket in terms of prescription utilization.

Prescription sales grew in North America by approximately 4.2% and totaled $304.5 billionaccounting for 46% of the global sales in 2007. Japan remained the second single largestmarket with recorded sales of $58.5 billion. Europe had an aggregated growth of 6.7% at$206 billion and constituted 31% of total global pharmaceutical sales.

In 2007, there was a continuing shift away from primary care classes to biotech andspecialist-driven therapies, which grew at a 9% and 10% respectively. Among the leadingtherapy classes, oncology drugs continued their rapid growth, at 14% - the result of innovativenew medicines, expanded indications and accelerated uptake of products to fill unmetneeds.

With prescription sales of $18.4 billion, drugs for cardiovascular diseases continued to bethe largest therapy class in the U.S., despite a 15.4% year-on-year sales decline. Protonpump inhibitors ranked second, with prescription sales of $14.1 billion and growth of2.8%. Antipsychotics replaced antidepressants as the third largest therapeutic class in2007, with prescription sales growth of 12.1% to $13.1 billion.

In sharp contrast to the branded pharmaceutical market, which has stalled recently, thegenerics market is enjoying a period of unprecedented success. This market is showingrobust growth driven by rising healthcare costs and fed by a steady stream of patentexpiries. Levels of generic uptake vary widely across the seven major markets (USA, Canada,France, Spain, Italy, Germany and U.K.), with important implications for industry strategy.Generic sales were over 50% of the volume of pharmaceutical sales in these key markets.

U.S. is the world's largest market for generics, and with some of the blockbuster drugs likelyto go off-patent in the near future and increasing preference for generics by managed careorganizations, the U.S. generics market and, therefore, the global generic pharmaceuticalsmarket is expected to grow at a rate higher than the global pharmaceuticals industry.

The loss of patent protection by 2012 of almost $80 billion worth of top selling drugs willbe the major driving force for the growth in the generic market. Additionally, as healthcarecosts in the developed world continue to increase and the growth of pharmaceutical marketsin developing countries continue to grow, more generic copies of successful drugs arebeing sold worldwide than ever before. This trend is expected to prevail over the nextdecade.

Increasing competition has compelled the industry players to consolidate and improvetheir competitive advantage by optimizing their product portfolio, geographic reach,technology and cost effectiveness. Several players in the industry see the need forcollaboration as a business model as a way to manage the competitive pressure.

MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL PERSPECTIVE


Both innovator pharmaceutical and generic companies have been leveraging their strengthsto meet the challenges of market share, volume growth, R&D productivity, variable costs,return on investment and product safety. They have preferred to outsource to capableplayers in countries such as India to enhance their own competitiveness and improve theirvalue propositions.

The growth in generics drugs is reflected in the growth for APIs to the generic drug industry.According to industry sources, generic APIs accounted for 43.5% (or $13.5 billion) of thetotal merchant API market (including both APIs and advanced intermediates. Branded orinnovative APIs accounted for 56.5% or $17.5 billion.

Global demand for APIs as a whole (both branded or innovative and generic APIs) is expectedto increase at an average annual rate of 8.2% over the next several years. The merchantmarket for APIs is expected to reach $44 billion by 2012, with demand for generic APIsgrowing faster than demand for APIs for branded or innovative drugs.

Demand for generic APIs is projected to increase at an annual average rate of 10.9% toreach $20.7 billion by 2012. In contrast, demand for APIs for branded or innovative drugsis forecast to increase at an annual average rate of 5.9% to reach $23.3 billion by 2012.This differential in growth rates will shift the balance of API power by 2012 with genericAPIs at 47% and branded or innovative APIs at 53%.

The traction in the Indian economy is mirrored by the fast tracked growth within theIndian pharmaceutical industry. India stands at the 4th position in terms of volume (8% ofworld's production), 13th in terms of value, and 17th in terms of pharmaceutical exportvalue in the global pharmaceutical industry. The present worth of Indian pharmaceuticalindustry is estimated to be $8 billion, with a CAGR of around 8%. Indian pharmaceuticalindustry as well as the market is fragmented with only 300 companies in the organizedsector.

Contract research in the Indian pharmaceuticals sector emerged as a strong industry driver,with a growth rate of around 25%. If this pace of growth continues, experts predict contractresearch to grow and become a separate industry in itself worth approximately $1 billion bythe year 2010. Indian pharmaceutical industry currently holds the first position and is themost preferred destination in the world to outsource manufacturing of drugs.

Although highly fragmented, Indian pharmaceutical industry offers the advantages of highlyregulated, standardized and quality driven processes and products, low cost-competitiveness,the best talent pools of the R&D experts and scientists and a strong manufacturing base.Indian pharmaceutical industry is expected to do business worth about $12 billion by theyear 2012.

Neuland grew its revenue by 5.45% to Rs.2248.8 million as compared to Rs.2132.5 millionreported in the previous year. Exports accounted for 80% while the balance 20% was soldin the domestic market.

Europe constituted 50% of the revenue, recording a quantum jump of 61% over the previousyear. Exports to North America were higher by 45%. Although domestic revenues werelower at 20%, significant part of the sales was exported to the regulated markets byformulators having product approvals.

Margins were under pressure throughout the year with sensitivities in availability and firmprices of raw materials. Neuland managed the situation better because of the effectivesteps taken to create multiple sources of supply and yield improvements at the manufacturingstage.

INDIAN INDUSTRYPERSPECTIVE

PERFORMANCEHIGHLIGHTS

ACTIVEPHARMACEUTICALINGREDIENTS (APIs)


MANAGEMENT DISCUSSION AND ANALYSIS REPORT Contd...

Neuland has a large basket of products with presence in several therapeutic segments. Thefront runners amongst them include Ciprofloxacin, Ramipril, Mirtazapine, Enalapril Maleateand Ranitidine. The products scaled up and commercialized in the past few years such asLevetiracetam, Olanzapine and Levofloxacin are getting good response and are expected tosignificantly contribute to the revenues.

The product pipeline is being further expanded to meet the needs of the market, with aneye on the products going off-patent in the future.

Neuland sees huge potential in contract research and is executing orders that involvemedicinal chemistry, analytical and process research and drug development support to thepharmaceutical companies. The core competency and reliability strengths of Neuland arebeing leveraged to build further on relationships with customers.

This business is a niche area and will have interface with the manufacturing capabilities ofthe Company with long term downstream benefits. The upgraded facilities at the R&Dcenter and the large pool of talent are expected to consolidate Neuland's position furtheras one of the best partners in the pharmaceutical industry.

The joint venture with Cato Research for clinical research will accelerate the Company intoan end-to-end service provider to the pharmaceutical industry. Neuland's execution abilities,reliability and commitment will supplement the technology and business developmentstrengths of Cato Research. This business will go live in Q2FY09 and is expected to impactthe revenue for the financial year.

The Company is evolving into an end-to-end service provider to the pharmaceutical industry,and will enable our customers and in turn ourselves, to grow profitably.

Grant Thornton India has been appointed to facilitate the identification of significantthreats and risks and to assist in institutionalizing a framework of risk management proceduresfor capturing risks. An exhaustive assessment is being made and the report is awaited.

The Company has a sturdy internal control system and is supervised on a day-to-day basisby competent professional managers. Periodically, the systems are reviewed and aligned tothe needs of a fast growing organization. This is an ongoing exercise.

Implementation of ERP on the SAP platform has improved controls, created analytical toolsand enhanced the decision making process. The Board and the management have takencognizance of the statutory auditors' observations, and are taking steps to review andfurther strengthen these controls especially under the ERP system implementation process.

Internal Audit is conducted by Grant Thornton who report to the Audit Committee.

Neuland has been able to create an impact in the pharmaceutical industry primarily due tothe commitment of the talented and professional team that works to deliver what thecustomer wants. During the year, considerable emphasis was placed on training, with over7,400 man hours of training for a total of 2,018 participants.

Motivated employees were encouraged to take the lead in meeting standards and customerexpectations. Responsibility sharing and emphasis on improving reliability standards resultedin perceptible change in values and deliverables.

The year began with 640 employees and closed at 763 with investment in critical departmentssuch as intellectual property, plant engineering, safety, health and environment. The attritionrate was lower at 15%, well below the industry average of 20%, and was near zero in themanagement cadre. Industrial peace was maintained at both units and an amicable settlementwas arrived at Unit I with the workmens' union.

R&D THRUST

RISK MANAGEMENT

INTERNAL CONTROLSYSTEMS

HUMAN RESOURCES


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, 2008, 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, 2008

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

Membership No.: 38128

Hyderabad, May 23, 2008.

AUDITORS' CERTIFICATE ON CORPORATE GOVERNANCE


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 Appointed at the Annual General Meeting held on July 20, 2007.2 Resigned w.e.f. July 21, 2007.

Number of Board Meetings and the Dates of Board Meeting

Four Board Meetings were held during the financial year ended March 31, 2008. The dates on which the saidmeetings were held are as follows:

May 18, 2007 July 20, 2007 October 24, 2007 January 25, 2008

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 1 – – 4 Yes

Mr. D. Sucheth Rao Executive Director 2 – – 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 - 8 5 1 4 Yes

Mr. P. V. Maiya - do - 2 1 1 4 Yes

Dr. B. S. Reddy - do - – – – – No

Dr. Russell E Kaufman1 - do - – – – 2 Yes

Mr. N. Balakrishna Iyer2 Nominee (SBI) – – – 1 No

Mrs. Daya Chandrahas Nominee (EXIM) – – – 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 2007-08

May 18, 2007 July 19, 2007 October 24, 2007 January 24, 2008

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

Mr. H. Dhanrajgir, Chairman 4

Mr. S. B. Budhiraja 4

Mr. N. Balakrishna Iyer1 1

Mrs. Daya Chandrahas 4

Mr. P.V. Maiya2 21 Resigned w.e.f. July 21, 20072 Appointed as a Member of the Committee w.e.f. October 24, 2007

b. Remuneration Committee

Remuneration Committee consists of the following Non-Executive Directors:

Mr. P. V. Maiya, ChairmanMr. S. B. BudhirajaMr. G. V. K. Rama Rao, andMr. Balakrishna Iyer1

1 Resigned w.e.f. July 21, 2007

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 5.48 Nil 5 years1 Nil

Mr. D. Sucheth Rao 5.48 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. H. Dhanrajgir 80,000

Mr. S. B. Budhiraja 80,000

Mr. P. V. Maiya 60,000

Mr. G. V. K. Rama Rao 40,000

Mr. N. Balakrishna Iyer 25,000

Mrs. Daya Chandrahas 80,000

Dr. Russel E. Kaufman 20,000

During the year, Non-Executive Directors were paid a commission of Rs.150,000 each in respect offinancial year 2006-07 apart from sitting fees.

Shareholding of Non-Executive Directors as on March 31, 2008:

No. of Shares

Dr. B. S. Reddy 7,000

Mr. H. Dhanrajgir 2,000

Mr. S. B. Budhiraja 2,400

Mr. P. V. Maiya 1,000

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

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

Composition and Attendance

During the financial year 2007-08, one meeting of the Committee was held on July 20, 2007 and wasattended by Mr. N. Balakrishna Iyer and Dr. D. R. Rao. Mr. N. Balakrishna Iyer resigned on July 21,2007. Mr. P. V. Maiya was appointed as Chairman of the Committee w.e.f. January 25, 2008.

The Company attends to the investors' grievances/correspondence expeditiously and usually reply issent within a period of 15 days of receipt.

The Company received eight 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, 2008. 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.

Mr. E. Sairam, Company Secretary was the Compliance Officer of the Company from April 1, 2007 toNovember 15, 2007. Ms. K. Sandhya Lakshmi is the Compliance Officer from March 3, 2008.


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

Year Date Day Time Venue

2005 July 29, 2005 Wednesday 2.30 p.m. KLN Prasad Auditorium, FAPCCI, Hyderabad

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

A Special Resolution for enhancing the borrowing limits of the Company from Rs.600 million toRs.1500 million was passed by way of postal ballot during the year.

Special Resolutions passed at the last three AGMs

Year 2004 - 05 2005 - 06 2006 - 07

Item

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

Mr. H. Dhanrajgir

Mr. Dhanrajgir is one of the most respected personalities in the pharmaceutical industry. He has heldseveral senior positions in Glaxo India, including Managing Director and Executive Vice Chairman. Heis a past President of Organisation of Pharmaceutical Producers of India.

Mr. P. V. Maiya

Mr. Maiya, is an eminent banker. He had a long career of 32 years with the State Bank of India wherehe was a General Manager; he was deputed as the Executive Director of SCICI between 1991 and1993, which position he relinquished to join first as Managing Director to set up the ICICI Bank in1994. He retired as Chairman & CEO of the Bank in 1998. After retiring from the Bank, he wasappointed as the Managing Director of Central Depository Services (India) Limited which he set upand relinquished the post in December 1999. He is now a director of two companies including a largenationalised bank.

Dr. Will Mitchell

Dr. Will Mitchell is presently a Professor of Business Administration in Strategy, J. Rex Fuqua Professorof International Management at the Duke University's Fuqua School of Business in Durham, NC, USAfrom 2001. He was awarded PhD by the University of California at Berkeley, School of BusinessAdministration in 1988 for his dissertation on "Dynamic Commercialization". Earlier, he was professorof Corporate Strategy and International Business from 1999 to 2001 at University of Michigan. He ison the editorial board of several management journals. His teaching and research interests includecorporate strategy, alliance strategy and dynamics of the health care industry.


No specialresolutionswerepassed

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.

a. Appointment of Dr. D. R. Rao asChairman & Managing Director ofthe Company and fixation of hisremuneration.

b. Revision of remuneration ofMr. D. Sucheth Rao, ExecutiveDirector.

c. Appointment of Mr. D. SaharshRao, relative of Dr. D. R. Rao andMr. D. Sucheth Rao, as ChiefInformation Officer of theCompany.

d. Approval for payment of sittingfees to Non-Executive Directors,as per Clause 49 of the ListingAgreement.

e. Approval for payment ofcommission to Non-ExecutiveDirectors.


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

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) has been completedand the report is under preparation.

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 Times of India &Vaartha or Business Standard & Andhra Bhoomi. As per SEBI Circular No.SMD/POLICY/CIR-13/02dated June 20, 2002 and July 3, 2002 and as per the amended Listing Agreement under Clause51 - EDIFAR, financial statements, shareholding pattern and segment report are being filed onquarterly basis 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 VenueThursday July 24, 2008 at 2:30 p.m.at Anjuman, Taj Banjara, Road No. 1,Banjara Hills, Hyderabad

Date of Book Closure Dividend payment dateJuly 21, 2008 to July, 24 2008 On or before August 22, 2008

Listing on Stock Exchanges

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

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

The Company confirms that it has paid the Annual Listing fees due to the (BSE) for the year 2008-09.

In terms of Section 5(2) of the Securities Contracts (Regulation) Act, 1956, Securities and ExchangeBoard of India had withdrawn the permanent recognition granted to Hyderabad Stock ExchangeLimited w.e.f. 29th August, 2007.

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

Financial Calendar

Adoption of QuarterlyResults for the Tentative Datesquarter ending

June 30, 2008 July 24, 2008September 30, 2008 3rd/4th week of October 2008December 31, 2008 3rd/4th week of January 2009March 31, 2009 May/June 2009


Stock Code - Physical

524558 on Bombay Stock Exchange Limited, Mumbai

ISIN No. for NSDL & CDSL

INE794A01010

Registrar and Transfer Agents

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

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

2007 April 169.95 150.00 161.75 14,383.72 12,425.52 13,872.37

May 190.90 150.00 155.40 14,576.37 13,554.34 14,544.46

June 163.00 130.00 151.05 14,683.36 13,946.99 14,650.51

July 209.30 148.00 158.35 15,868.85 14,638.88 15,550.99

August 172.00 131.00 169.75 15,542.40 13,779.88 15,318.60

September 169.00 152.00 153.05 17,361.47 15,323.05 17,291.10

October 165.75 125.10 139.45 20,238.16 17,144.58 19,837.99

November 149.50 115.10 138.10 20,204.21 18,182.83 19,363.19

December 225.00 125.00 216.90 20,498.11 18,886.40 20,286.99

2008 January 239.00 137.00 165.85 21,206.77 15,332.42 17,648.71

February 184.00 150.00 168.05 18,895.34 16,457.74 17,578.72

March 170.00 120.05 154.80 17,227.56 14,677.24 15,644.44

Share Transfer SystemShare 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, 2008, the total shares dematerialized were4,061,282 in both depositories amounting to 75.26% of the share capital of the Company.

Rematerialisation of shares

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

Month High Low Closing


Neuland Share price

High Low Closing

Bombay Stock Exchange Limited,BSE SENSEX

Rs.


No. of Sharesheld

Percent toCapital

No. ofMembers

Category

Category No. ofMembers

Percent tototal

No. of Sharesheld

% of Shareholding

Shareholding Pattern as on March 31, 2008

Resident Individuals 4224 93.43 1,342,133 24.87

NRIs/FIIs/OCBs 44 0.97 1,256,702 23.29

Bodies Corporate 166 3.68 644,304 11.94

Promoters/Directors and their relatives 80 1.77 1,973,140 36.56

FIs/Banks/MFs/Others 7 0.15 180,176 3.34

Total 4,521 100.00 5,396,455 100.00

Distribution Pattern as at March 31, 2008

Promoters/Directors/Associates 1,973,140 36.56 80

Mutual Funds, Banks & FIs 180,176 3.34 7

Bodies Corporate 644,304 11.94 166

NRIs/FIIs/OCBs 1,256,702 23.29 44

Individual Shareholders 1,342,133 24.87 4,224

Total 5,396,455 100.00 4,521

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]

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

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


Code of Conduct for insider trading

The Company has adopted the code of conduct for insider trading as prescribed under Schedule I and II of theSEBI (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 a Chairman'soffice at the Company's expense.

b. Shareholders Rights

As the Company's half yearly results are published in English news papers having wide circulation and inTelugu news paper (vernacular language news paper, having circulation in Hyderabad where the RegisteredOffice of the Company is situated) the same are not sent to the Shareholders of the Company.

c. Postal Ballot

The Company passed an Ordinary Resolution by way of Postal Ballot during the year for taking consent of themembers of the Company for enhancement of borrowing limits from Rs.600 million to Rs.1500 million.

M/s. L. V. V. Iyer & Associates were appointed as the scrutinizer for the above postal ballot.

On February 16, 2008, the Chairman declared that the Ordinary Resolution set out in the Notice datedDecember 22, 2007 was duly approved by the requisite majority of the Shareholders. The result of the postalballot as per the report of the Scrutinizer is as below:

Number of Valid Postal Ballot Forms received 208

Votes in favour of the resolution 1,493,385

Votes against the resolution 2,005

Number of invalid postal ballot forms received 18

DECLARATION

As provided under Clause 49 of the Listing Agreement with the Stock Exchanges, the Board Members and thesenior management personnel have confirmed compliance with the Code of Conduct and Ethics for the yearended March 31, 2008.

For Neuland Laboratories Ltd.

Dr. D. R. RaoHyderabad, May 23, 2008. Chairman & Managing Director

CEO/CFO CERTIFICATION

As required by sub clause V of Clause 49 of the Listing Agreement with the Stock Exchanges, we have certifiedto the Board that for the financial year ended March 31, 2008 the Company has complied with the requirementsof the said sub-clause.

For Neuland Laboratories Ltd. For Neuland Laboratories Ltd.

Dr. D. R. Rao A. RaghavendracharyuluChairman & Managing Director Vice-President (Finance)Hyderabad, May 23, 2008.



AUDITORS' REPORT

To the Members ofNeuland Laboratories Limited

Report on the accounts for the year ended on March 31, 2008 in compliance with Section 227(2) of theCompanies Act, 1956.

We have audited the attached Balance Sheet of Neuland Laboratories Limited, as at March 31, 2008 andalso the Profit and Loss Account for the year ended on that date annexed thereto and the Cash FlowStatement for the year ended on that date. These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on these financial statements basedon our audit.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. 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.

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) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on thematters specified in paragraphs 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 andbelief, were necessary 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 faras appears from our examination of those books;

(c) The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement withthe books of account;

(d) In our opinion, the Balance Sheet and Profit and Loss Account dealt with by this report complywith the accounting standards referred to in sub-section (3C) of Section 211 of the CompaniesAct, 1956 to the extent applicable;

(e) On the basis of written representations received from the directors/companies, as on March 31,2008, and taken on record by the Board of Directors we report that none of the directors isdisqualified as on March 31, 2008 from being appointed as a director in terms of clause (g) ofsub-section (1) of Section 274 of the Companies Act, 1956.

(f) Attention is invited to Note 7 of Schedule N of accounts relating to the liability of interest andrequired disclosures under the Micro, Small and Medium Enterprises Development Act, 2006. TheCompany is in the process of compiling information regarding measurement and disclosuresprescribed under the Act. In view of the above, we are unable to comment on the impact of thesame on the accounts.

(g) In our opinion and to the best of our information and according to the explanations given to us,the said accounts give the information required by the Companies Act, 1956, except as stated inpara (f) above, in the manner so required and give a true and fair view in conformity with theaccounting 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, 2008;

(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.



Hyderabad, May 23, 2008. Membership No.: 38128


(Referred to in paragraph 1 of our Report of even date on the Accounts for the year ended onMarch 31, 2008 of Neuland Laboratories Limited)

i. a. The Company has maintained proper records showing full particulars including quantitative detailsand situation of fixed assets.

b. The Fixed Assets have been physically verified by the management in accordance with regularprogramme of verification which, in our opinion, is reasonable having regard to the size of theCompany and nature of its assets. Discrepancies noticed on such verification have beenappropriately dealt with in the books of account.

c. Fixed assets disposed off during the year were not substantial. According to the information andexplanations given to us, we are of the opinion that the disposal of fixed assets has not affectedthe going concern status of the Company.

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

b. The procedures of physical verification of inventories followed by the management are reasonableand adequate in 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 ismaintaining proper records of inventory. The discrepancies noticed on verification between physicalstocks and the book records were not material and have been properly dealt with in the books ofaccount.

iii. The company has not granted or taken loans, secured or unsecured to/from companies, firms orother parties covered 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 adequateinternal control system commensurate with the size of the Company and the nature of its businessfor the purchases of inventory and fixed assets and for the sale of goods and services, however,further strengthening of these controls is recommended in the environment of ERP. During the courseof our audit, no major weakness has been noticed in the internal control system in respect of theseareas.

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

b. In our opinion and according to the information and explanations given to us, the transactionsmade in pursuance of contracts or arrangements entered in the registers maintained under Section301 of the Companies Act, 1956 have been made at prices which are reasonable having regard tothe prevailing market prices at the relevant time.

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

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

viii. We have broadly reviewed the books of account relating to materials, labour and other items of costmaintained by the Company pursuant to the Rules made by the Central Government for the maintenanceof cost records under Section 209(1)(d) of the Companies Act, 1956 and we are of the opinion thatprima facie the prescribed accounts and records have been made and maintained.

ix. a. According to the records of the Company, Provident Fund, Investor Education and ProtectionFund, Employees' State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty,Excise Duty, Cess and other material statutory dues applicable to it have generally been regularlydeposited during the year with the appropriate authorities though there has been a small delayin a few cases. According to the information and explanations given to us, no undisputed amounts

ANNEXURE TO THE AUDITORS’ REPORT


payable in respect of above were in arrears, as at March 31, 2008 for a period of more than sixmonths from the date on which they became payable.

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

Name of the Statute Nature of dues Amount Forum where disputeRs. in Million is pending

Sales Tax Sales Tax Demand 2.72 Appellate DeputyAssessment Year 2004 - 2005 Commissioner

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

xi. In our opinion and according to the information and explanations given to us, the Company has notdefaulted in repayment 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, theCompany has not granted any loans and advances on the basis of security by way of pledge of shares,debentures and other securities.

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

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

xv. According to the information and explanations given to us, the Company has not given any guaranteefor loans taken 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 thebalance sheet of the Company, we report that no funds raised on short-term basis have been used forlong-term investment.

xviii. The Company has not made any preferential allotment of shares to parties and companies covered inthe register maintained 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 beennoticed or reported during the course of our audit.



Hyderabad, May 23, 2008. Membership No.: 38128


Sch March 31, 2008 March 31, 2007

I. SOURCES OF FUNDS1. SHAREHOLDERS' FUNDS

(a) Share Capital A 54.67 54.67(b) Reserves & Surplus B 632.09 542.10

686.76 596.772. LOAN FUNDS

(a) Secured Loans C 1340.85 774.34(b) Unsecured Loans D – 5.48

1340.85 779.823. DEFERRED TAX LIABILITY (Net) 27.78 39.614. TOTAL FUNDS 2055.39 1416.20II. APPLICATION OF FUNDS1. FIXED ASSETS E

(a) Gross Block 1114.81 890.83(b) Less: Depreciation 517.59 461.87(c) Net Block 597.22 428.96(d) Capital Works In Progress 596.47 229.81

1193.69 658.772. INVESTMENTS F 72.71 72.713. CURRENT ASSETS, LOANS & ADVANCES

(a) Inventories G 550.13 490.19(b) Sundry Debtors H 514.26 422.40(c) Cash and Bank Balances I 92.12 83.85(d) Loans & Advances J 352.09 227.29

1508.60 1223.734. LESS: CURRENT LIABILITIES AND PROVISIONS

(a) Current Liabilities K 626.41 447.60(b) Provisions L 93.20 94.05

719.61 541.655. NET CURRENT ASSETS 788.99 682.086. MISCELLANEOUS EXPENDITURE M – 2.64

(to the extent not written off or adjusted)7. TOTAL ASSETS (Net) 2055.39 1416.208. NOTES TO ACCOUNTS NThe schedules referred to above and notes to accounts form an integral part of the Balance Sheet.

Rs. in Million

BALANCE SHEET AS AT MARCH 31, 2008

A. RaghavendracharyuluVice President (Finance)

K. Sandhya LakshmiCompany Secretary

For and on behalf of the Board

Dr. D.R. RaoChairman & Managing Director

S.B. BudhirajaDirector

Daya ChandrahasDirector

G.V.K. Rama RaoDirector

D. Sucheth RaoWhole time Director

Humayun DhanrajgirDirector

P.V. MaiyaDirector

Per our report attached


RAGHUVIR M. AIYARPartner



Sch March 31, 2008 March 31, 2007

INCOME1. Sales and Export incentives 2248.85 2132.50

Less: Excise duty 71.82 110.802177.03 2021.70

2. Other Income 1 53.42 39.65TOTAL 2230.45 2061.35EXPENDITURE

3. Raw Materials Consumed 2 1353.75 1291.774. Manufacturing Expenses 3 372.68 326.285. Administration, Selling & Other Expenses 4 243.18 214.946. Interest and other Charges 5 99.34 75.367. Depreciation/Amortisation E 55.95 54.26

Less: Adjusted against revaluation reserve 1.10 1.10(See Note 11b page .......) 54.85 53.16TOTAL 2123.80 1961.51PROFIT BEFORE TAXATION 106.65 99.84

8. (a) Provision for Current Tax (See Note J page .....) 12.08 11.24(b) Provision for Fringe Benefit Tax 1.53 1.23(c) Provision for Deferred Tax (8.40) 8.23(d) MAT credit entitlement (12.08) (11.24)PROFIT AFTER TAX 113.52 90.38

9. Balance brought forward from previous year 61.62 54.61

AMOUNT AVAILABLE FOR APPROPRIATION 175.14 144.99

APPROPRIATIONS10. Transfer to General Reserve 85.14 67.79

11. (a) Proposed Dividend @25% 13.49 13.67

(b) Tax on distributed profits 2.29 1.91

BALANCE CARRIED TO BALANCE SHEET 74.22 61.62

12. NOTES TO ACCOUNTS

13. EARNINGS PER SHARE

Basic & Diluted Earnings Per Share (Rs.) 21.04 16.75Face 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, 2008Rs. in Million










P.V. MaiyaDirector






March 31, 2008 March 31, 2007

A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit before tax and exceptional items 106.65 99.84Adjustment forDepreciation/Amortisation 54.85 53.16

Interest Expense 60.57 38.72Unrealised foreign Exchange (Gain) (26.58) (12.80)Loss on sale of fixed assets 0.08 0.15Deferred Revenue Expenses written off 2.64 3.07Provision for gratuity and leave encashment 0.86 0.60Provision for Doubtful Debts 3.46 4.90Loan written back (5.00) _

Operating Profit before Working Capital changes 197.53 187.64Add/(Less) Working Capital changes

Trade Receivables (49.50) (124.87)Inventories (59.93) (81.99)Loans and Advances (122.19) (1.53)Trade Payables 169.64 46.40

Cash flow from investing activities 135.55 25.65Less Income Tax paid (16.12) (39.43)Net cash from operating activities (A) 119.43 (13.78)

B. CASH FLOW FROM INVESTING ACTIVITIESPurchase of Fixed Assets including Works-in-Process (591.06) (290.40)Proceeds from Sale of Fixed Assets 0.11 0.60

Net Cash used in Investing Activities (B) (590.95) (289.80)C. CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from long-term borrowings 436.40 359.65Increase/(Decrease) in bank borrowings 184.79 83.08Repayments of long-term borrowings (73.94) (73.75)Interest Paid (51.40) (36.26)Proceeds from/(Repayment of) Unsecured Loans (0.48) (0.82)Dividend Paid (15.58) (12.47)

Net Cash used in Financing Activities (C) 479.79 319.43Net increase/(decrease) in Cash & Cash Equivalents (A+B+C) 8.27 15.85

Opening Balance 83.85 68.00Closing Balance 92.12 83.85

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, 2008

Rs. in Million










P.V. MaiyaDirector






As at As atMarch 31, 2008 March 31, 2007

SCHEDULE - ASHARE CAPITAL (Item I-1a, Page 44)

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: Forfeited Shares (amount originally paid up) 0.71 0.71

54.67 54.67a. 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 cash to erstwhile shareholders of Neuland

Drugs and Pharmaceuticals Pvt. Ltd.

c. The Company has forfeited 103,276 partly paid shares

during the previous year vide a resolution passed at the

meeting of Board of Directors held on October 25, 2005.

SCHEDULE - BRESERVES & SURPLUS (Item I-1b, Page 44)

Capital Reserve 0.33 0.33Share Premium 360.54 360.54

General ReserveOpening Balance 103.57 35.78Less: Adjustment for employee benefits provision net of tax 6.65 –Add: Transfer from Profit and Loss Account 85.14 67.79

182.06 103.57Revaluation Reserve 16.04 17.14Less: Depreciation on revalued assets 1.10 1.10

14.94 16.04Profit and Loss Account 74.22 61.62

632.09 542.10

SCHEDULES FORMING PART OF THE BALANCE SHEET

Rs. in Million



SCHEDULE - CSECURED LOANS (Item I-2a, Page 44)

1. Term Loans(a) Foreign Currency Loans 469.34 410.99(b) Rupee Loans 325.42 45.55

794.76 456.54

The above loans are secured by a pari-passu first chargeon the immovable properties and pari-passu charge onmoveable properties (subject to the prior charge in favourof the Company's bankers on specified moveables, created/to be created for securing borrowings for working capitalrequirements) and further guaranteed by the Chairman &Managing Director and one of the Directors in theirpersonal capacities.

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 loan into aRupee loan in case the Company defaults in repayment.

2. Technology Development Assistance from TIFAC 4.50 8.40The above loan is secured by movable property of theCompany at Bonthapally manufacturing unit including itsmovable plant and machinery, machinery spares, tools andaccessories and other movables both present and future(save and except book debts) whether installed or not areaquired for the purpose of the project at the cost of orfrom the money advanced by TIFAC under TechnologyDevelopment Assistance agreement.

3. Working Capital Finance from Bank 532.17 301.55Working Capital loans from bank is secured byhypothecation of raw materials, stocks in process, finishedgoods, book debts, stores & spares and export receivablesand is further secured by second charge on all fixed assetsand movable machinery of the company first charge beingheld by financial institution and guaranteed by theChairman & Managing Director and one of the Directors intheir personal capacities.

4. Others LoansHire Purchase Loans 9.42 7.85The above loan is against the hypothecation of vehicles.

1340.85 774.34

SCHEDULE - DUNSECURED LOANS (Item I-2b, Page 44)

Fixed Deposits – 0.48The ICICI Bank Ltd under its sponsored research and

development programme – 5.00– 5.48

Rs. in Million


SCHEDULE - EFIXED ASSETS (Item II-1, Page 44)

GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK

Name of Assets Cost as on Additions/ (Deductions)/ Cost as on Upto (Deductions)/ For the Total upto As on As on31.03.2007 Adjustments Adjustments 31.03.2008 31.03.2007 Adjustments Year 31.03.2008 31.03.2008 31.03.2007

Land 6.95 – – 6.95 – – – – 6.95 6.95

Buildings 211.14 51.00 – 262.14 51.99 – 7.42 59.41 202.73 159.15

Plant and Machinery 568.68 124.83 – 693.51 365.73 – 36.48 402.21 291.30 202.94

R&D Equipment 40.08 31.91 – 71.99 11.13 – 4.23 15.36 56.63 28.95

Data ProcessingMachines 15.31 3.57 (0.07) 18.81 9.07 – 1.78 10.85 7.96 6.16

Furniture & Fittings 8.50 4.92 – 13.42 3.63 – 0.59 4.22 9.20 4.88

Vehicles 23.30 3.30 (1.39) 25.21 8.42 (0.16) 2.24 10.50 14.71 14.89

IntangibleAssets 16.87 – – 16.87 11.83 – 1.74 13.57 3.30 5.04(Process Development Cost)

Intangible Assets - SAP – 5.91 – 5.91 – – 1.47 1.47 4.44 –

TOTAL 890.83 225.44 (1.46) 1114.81 461.80 (0.16) 55.95 517.59 597.22 428.96

Previous Year 801.99 90.60 (1.76) 890.83 408.62 (1.01) 54.26 461.87 428.96

Capital Work--in-Process – – – – – – – – 596.47 229.81(Including advances on capital goods)

Rs. in Million


SCHEDULE - FINVESTMENTS - Long Term (at Cost) (Item II-2, Page 44)

Other Investments - Unquoted and Non-tradedJeedimetla Effluent Treatment Limited 0.22 0.22

2,200 Equity Shares of Rs.100 each fully paid up(Previous Year - 2,200 Equity Shares of Rs.100 Each)

Patancheru Enviro-Tech Limited 2.09 2.09209,136 Equity Shares of Rs.10 each fully paid up(Previous Year - 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(Previous Year - 402,000 Equity Shares of Rs.100 each fully paid)

72.71 72.71

SCHEDULE - GINVENTORIES - As Certified by the Management (Item II-3a, Page 44)

Raw Materials 206.01 192.17Work in Process 71.97 75.56Finished Goods 228.84 197.26Stores and Consumables 18.92 15.52Goods in Transit 24.39 9.68

550.13 490.19


SCHEDULES FORMING PART OF THE BALANCE SHEET Contd...

Rs. in Million


SCHEDULE - HSUNDRY DEBTORS (Item II-3b, Page 44)

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

Considered good 25.34 8.89Considered doubtful 19.22 15.85

44.56 24.74Less: Provision for doubtful debts 19.22 15.85

25.34 8.89Others 488.92 413.51

514.26 422.40

SCHEDULE - ICASH & BANK BALANCES (Item II-3c, Page 44)

Cash on hand 0.22 0.73Bank Balances with Scheduled Banks

Current Accounts 22.91 6.01Fixed Deposit Accounts (against margin money) 44.49 64.61Fixed Deposit Accounts 24.50 12.50

92.12 83.85

SCHEDULE - JLOANS & ADVANCES (Item II-3d, Page 44) (Unsecured, Considered Good)

Advances recoverable in cash or in kind or for value to be receivedAdvances to Suppliers 24.59 13.82Other Advances 44.64 8.48Advance Payment against Taxes - Income Tax 76.70 74.08Deposits 21.19 19.13Prepaid Expenses 3.79 4.85Balances with Central Excise 16.64 18.43Other Receivables

Interest Accrued 3.15 2.63Central Excise Claim Receivable & other receivables 83.70 29.65Export benefits & other claims receivable 77.69 56.22

352.09 227.29



SCHEDULE - KCURRENT LIABILITIES (Item II-4a, Page 44)

Sundry Creditors forGoods Supplied 394.74 271.13Expenses 103.18 98.93Capital Expenditure 9.76 15.89

Advances from Customers 6.55 18.00Other Liabilities 106.20 38.90

620.43 442.85Export incentive obligation 5.91 4.67Due to Shareholders

Investor Education and Protection Fund(Appropriate amount shall be transferred to Investor Education andProtection Fund if and when due)Fixed deposits matured but not claimed including interest thereon 0.07 0.08However no amounts mentioned above are due to be transferred toInvestor Education and Protection Fund as on March 31, 2008

626.41 447.60

SCHEDULE - LPROVISIONS (Item II-4b, Page 44)

Gratuity/Pensions 11.57 4.72Leave Encashment 6.50 2.41Proposed Dividend & Tax 15.78 15.58Income Tax 57.83 69.07Provision for Fringe Benefit Tax 1.52 2.27

93.20 94.05

SCHEDULE - MMISCELLANEOUS EXPENDITURE (Item II-6, Page 44)

Deferred Revenue Expenditure – 2.64– 2.64

SCHEDULES FORMING PART OF THE BALANCE SHEET Contd...

Rs. in Million



SCHEDULE - 1OTHER INCOME (Item 2, Page 45)

Interest received 4.04 5.01Miscellaneous Income 5.18 2.29Net Foreign Exchange Gain/(Loss) 37.94 12.80Product Development charges received 6.26 19.55

53.42 39.65

SCHEDULE - 2CONSUMPTION OF RAW MATERIALS & FINISHED GOODS (Item 3, Page 45)

Opening Stock of Raw Materials 192.16 174.33Add : Purchases 1236.02 1175.35Add : Cost of finished goods sold 159.55 189.87

1587.73 1539.55Less : Closing Stock of Raw Materials 206.00 192.17

Value of Material Consumption (i) 1381.73 1347.38Opening Stock

Finished Goods 197.26 142.95Work in process 75.56 74.26

272.82 217.21Closing Stock

Finished Goods 228.83 197.26Work in process 71.97 75.56

300.80 272.82(Increase)/Decrease in Stocks (ii) (27.98) (55.61)Total Consumption of Raw Materials and Finished Goods (i) + (ii) 1353.75 1291.77

SCHEDULE - 3MANUFACTURING EXPENSES (Item 4, Page 45)

Stores and Consumables 40.45 48.41Power and Fuel 69.97 54.92Carriage Inwards 11.87 13.31Payments & Provisions to Employees

Salaries and Wages 136.81 116.46Staff Welfare Expenses 4.27 3.09Employer's contribution to EPF, FPF, ESI & EDLIS 13.19 6.96

154.27 126.51Repairs and Maintenance

Repairs to Buildings 3.08 2.71Repairs to Machinery 10.04 7.09Others 37.05 31.23

50.17 41.03Effluent Treatment & Transport charges 32.32 27.20Packing Material 11.50 13.83Testing Charges 1.74 2.95Increase/(Decrease) in provision for Excise Duty on Finished Goods 0.39 (1.88)

372.68 326.28

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT

Rs. in Million


Rs. in Million


SCHEDULE - 4ADMINISTRATIVE, SELLING & OTHER EXPENSES (Item 5, Page 45)

Rent, Rates & Taxes 8.20 8.49Travelling Expenses 34.43 21.59Professional Charges 26.59 15.58Remuneration to Auditors

Statutory Audit 0.58 0.43Tax Audit 0.16 0.10Limited Reviews 0.40 0.27Other Services 0.09 0.14Out-of-pocket expenses 0.10 0.14

1.33 1.08Insurance 13.14 13.00Advertisement 1.56 0.75Sales Commission 15.12 25.89Selling and Distribution Expenses 7.08 7.47Freight and Forwarding Charges 41.87 36.73Provision for doubtful debts & advances 9.37 6.88

Less: Amount written back on collection 5.90 1.983.47 4.90

Other Expenses 28.86 23.66Sitting Fees 0.39 0.63R&D Charges (See Note 10) 59.69 52.11Deferred Revenue & Miscellaneous Expenses written off 1.45 3.06

243.18 214.94

SCHEDULE - 5INTEREST & OTHER CHARGES (Item 6, Page 45)

Interest on Working Capital 41.60 26.97Interest on Term Loan 18.95 11.64Interest on Fixed Deposits & Other Loans 0.03 0.11Discounting & Negotiation Charges 22.41 23.46Others 16.35 13.18

99.34 75.36

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


SCHEDULE – NNOTES TO ACCOUNTS

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

iii. Depreciation on fixed assets is provided on Straight Line Method at the rates prescribed by Schedule XIVof the Companies Act, 1956 as amended, taking quarter as unit until March 31, 2007 after which date thedepreciation is calculated on a pro-rata basis. Depreciation is charged on pro rata basis for assets purchased/sold during the year. Depreciation on value written up on revalued assets is calculated on SLM basis withreference to the remaining useful life of the asset and the Revaluation Reserve is charged with thedifference between the depreciation calculated on such revalued costs and the historical cost.

iv. 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 commencement of production. All other borrowingcosts are charged to revenue.

v. Expenses on Research & Development equipment are capitalized.

vi. Intangibles being cost of SAP ERP is 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. i. Deferred Revenue Expenses incurred up to March 31, 2005

In case of expenditure incurred on intangible items on Research & Development / FDA Expenses, Trial RunExpenses incurred prior to March 31, 2005 which are yet to be amortized fully, are continued to beexpensed out over the five year period as originally contemplated. Expenses incurred prior to March 31,2003 on Public Issue, Fixed Deposit Issue are written off over the ten year period as originally contemplated.

ii. Expenditure incurred on intangible items on Research & Development / FDA Expenses, Trial Run Expensesincurred on or after April 1, 2005 are charged to Profit & Loss account.

G. 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 & Loss Account. In respect of items coveredby forward exchange contract, the premium or discount arising at the inception of such a forward exchangecontract 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;


H. 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 first-in, first-out (FIFO) basis.

I. 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.

J. Contingent Liabilities

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

2. 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 2007 - 2008 2006 - 2007

Revenue % Revenue %

Domestic 445.68 20.47 699.05 34.58

Exports 1731.35 79.53 1322.65 65.42

Total 2177.03 100.00 2021.70 100.00

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

3. RELATED PARTY TRANSACTIONS

Disclosures as required by the Accounting Standard - 18 are given below:

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, Chief Operating Officer & Wholetime Director

c. Relatives of Key Managerial Personnel

Name Nature of Relationship

Mrs. D. Vijaya Wife of Chairman & Managing Director

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

Rs. in Million


NOTES TO ACCOUNTS Contd...

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

Rs. in Million

Key Relative ofNature of transactions Associate Management Key

personnel Managementpersonnel

Rent paid for office 0.58 – –(1.61) – (0.50)

Rent paid for land 0.56 – –(0.51) – –

Rent paid for residential accommodation – – 0.12– – (0.36)

Rent paid for guest house – – 0.64– – (-)

Office maintenance – 0.42(0.37)

Remuneration paid to CMD – 4.30(4.53)

Remuneration paid to COO 3.74(3.29)

Remuneration paid to Vice President (Corp Development) 2.18(–)

Commission paid to CMD 1.62(1.12)

Commission paid to COO 2.08(2.23)

Advance Paid 15.75(15.00)

Outstanding at the year end - due to – 0.32 0.02(0.16) (–) (0.07)

Outstanding deposit at the year end - due from 2.00(2.00)

Figures in brackets pertain to previous year.

4. EARNINGS PER SHARE – (EPS)

Computation for Basic & Diluted Earnings Per Share March 31, 2008 March 31, 2007

I. Net Profit as per Profit and Loss Account available forEquity Shareholders (Rs. in Million) 113.52 90.38

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 and Diluted (Rs.) 21.04 16.75


5. MANAGERIAL REMUNERATION

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

March 31, 2008 March 31, 2007

A. Minimum Remuneration of

Chairman and Managing Director

Salary 3.60 3.60

Perquisites 0.26 0.51

Commission 1.62 1.12

Total (A) 5.48 5.23

B. Remuneration of Executive Director & COO

Salary 2.80 2.40

Perquisites 0.60 0.60


Total (B) 5.48 5.23

C. Non-Executive Directors


Total (C) 0.90 0.90

Total Remuneration (A+B+C) 11.86 11.36

b. Computation under Sec.349 of the Companies Act, 1956. March 31, 2008 March 31, 2007

Profit before tax 106.65 99.84

Add: Provision for depreciation as per Profit and Loss Account 54.85 53.16

Remuneration to Directors 11.86 11.36

Provision for doubtful debts 3.47 4.90

176.83 169.26

Less: Depreciation under Sec.350 of the Companies Act 54.85 53.16

Profit as per Sec.349 of the Companies Act 121.98 116.10

Overall remuneration as per Sec.198 and 309

of the Companies Act 12.08 11.51

Less: Remuneration paid to Wholetime Directors 7.26 7.11

Commission payable as per Sec.198 and 309

of the Companies Act 4.82 4.40

6. 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 recognised 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.

Rs. in Million



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 recognises 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. Short term compensated absences are provided based on past experience of leave availed.

d. Long term employee benefit

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

Gratuity Funded Leave Encashment

I. Expense recognised in the statement of

Profit and Loss for the year ended March 31, 2008

Current Service Cost 2.40 0.47

Interest Cost 1.18 0.47

Expected return on plan assets (0.28) –

Net Actuarial (Gains)/Losses (1.04) 0.59

Total Expense 2.26 1.53

II. Net Assets/(Liability) recognised in the

Balance Sheet as at March 31, 2008

Present Value of Defined Obligation as at March 31, 2008 (17.11) (6.29)

Fair Value of plan assets as at March 31, 2008 5.72 –

Funded Status [Surplus/(Deficit)] Difference (11.39) –

Net Assets/(Liability) as at March 31, 2008 (11.39) (6.29)

III. Change in 0bligation during the

year ended March 31, 2008

Present value of defined Benefit Obligation

at the beginning of the year 14.72 5.94

Current Service Cost 2.40 0.47

Interest Cost 1.18 0.47

Actuarial (Gains)/Losses (1.02) 0.59

Benefits Payments (0.20) (1.18)

Present value of Defined Benefit Obligation

at the end of the year 17.12 6.29

IV. Change in the Assets during the

year ended March 31, 2008

Fair Value of Plan Assets at the beginning of the year 3.45 –

Expected return on Plan Assets 0.28 –

Contribution by Employer 2.13 –

Actual benefits paid (0.16) –

Actuarial Gains/(Losses) on Plan Assets 0.02 –

Fair Value of Plan Assets at the end of the year 5.72 –

Rs. in Million


Rs. in Million

March 31, 2008 March 31, 2007

V. Actuarial Assumptions

Discount rate 8% 8%

Rate of return on Plan Assets 8% 8%

Salary escalation rate (Management-Staff-Attrition rate) 4% 4%

Consequent to the Accounting Standard (Revised) AS -15 issued by the Institute of Chartered Accountantsof India, the Company has reviewed and revised its accounting policy in respect of gratuity and leaveencashment benefits. In accordance with the transitional provisions contained in the Accounting Standard,the difference of Rs.10.07 million (as adjusted for deferred tax of Rs.3.43 million) between the liabilityin respect of employee benefits existing as on April 01, 2007 and the liability that would have beenrecognised at the same date under the previous accounting policy has been adjusted against the openingbalance in the General Reserve.

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

In the absence of necessary information relating to the suppliers registered as Micro or Small enterprisesunder the Micro, Small and Medium Enterprises (Development) Act, 2006, the Company has not been able toidentify such suppliers and the information required under the said Act could not be compiled and disclosed.

8. DEFERRED TAX

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

March 31, 2008 March 31 , 2007

Deferred Tax Liabilities

Depreciation difference 42.21 51.04

Deferred Revenue Expenditure – 0.90

Capital Expenditure 123.63 24.31

Total 165.84 76.25

Deferred Tax Assets

Unabsorbed Depreciation & Loss 111.59 12.75

Provisions 9.18 7.81

Inventory 17.29 16.08

Total 138.06 36.64

Net Deferred Tax Assets/Liabilities 27.78 39.61

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

March 31, 2008 March 31, 2007

Production 69.97 54.92

Effluent Treatment & Transport Charges 3.00 2.50

Research & Development Expenses 7.72 6.24

Total 80.69 63.66



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

2007-08 2006-07

Material consumed 3.89 11.63

Power and fuel 7.72 6.24

Staff cost 24.09 15.95

Professional charges 15.75 13.57

Others 8.24 4.72

Total 59.69 52.11

11. 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.4.0 million made by the Company. The Company hasfiled an appeal against the demand before the Appellate Tribunal, Chennai, which is yet to bedecided. Simultaneously the Company also filed an appeal before Honorable 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 favour.

ii. The company has received final assessment order for 2004-05 with demand for Rs.2.72 million fornon submission of sales tax forms. As the company is going to collect relevant pending sales taxforms, an appeal before Deputy Commissioner - Appeals against the above sales tax demand ofRs.2.71 million is being filed.

iii. During the year A.P.TRANSCO has lifted the additional amount for wheeling charges and surpluspower amounting to Rs.8.52 million (Previous Year - Rs.15.56 million). Andhra Pradesh Gas PowerCorporation Limited and its shareholders (including Neuland) have filed writ petition before theDivision Bench of High Court of A.P, which has admitted and favourable interim orders have beengranted. The Company has been advised that it has a 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 Rs.115.15 million (Previous Year - Rs.160.98 million).

c. Unexpired Letters of Credit opened on behalf of the Company by Bank for the raw material amounting toRs.223.20 million (Previous Year - Rs.57.15 million).

d. i. Estimated amounts of contracts on capital account to be executed and not provided for Net ofadvance Rs.59.54 million (Previous Year - Rs.56.73 million).

ii. With reference to an agreement of sale with APIIC dated 19th May, 2005 for acquiring 5 acres ofland, 80% of the project is to be completed in 2 years. The Company has taken an extension toconstruct the project during the current finacial year 2008-09. The Company has obtained all theapprovals from the concerned authorities and commenced the construction activity.

e. Bank guarantees given by the Company to Central Excise and Customs and other government authoritiesamounting to Rs.11.41 million (Previous year - Rs.1.76 million).

12. Neuland in collaboration with Cato Research Israel Ltd., (a wholly owned subsidiary of Cato Research Inc., aglobal contract research and development organization based in USA) formed a joint venture in India styled asCato Research Neuland India Private Limited on May 14, 2008.

The joint venture company has received all permissions/approvals from authorities to begin its operations.The joint venture is expected to commence operations in 2008-09.

Neuland's share in the joint venture is 70%. The commitment towards initial share capital contribution isUS$ 350,000 - approximately Rs.14.07 million.

Rs. in Million


(Kgs.)

13. a. Fixed Assets include vehicles acquired under Hire Purchase Agreement amounting to Rs.11.94 million ason March 31, 2008 (Previous Year - Rs.15.35 million). The hire purchase charges have been charged toProfit and Loss Account. The Hire purchase installment due with in one year is Rs.3.33 million.

b. Total depreciation/amortization provided on Fixed Assets amounted to Rs.55.95 million (Previous Year -Rs.54.26 million). Out of this Rs.54.85 million (Previous Year Rs.53.16 million) being depreciation on theoriginal cost of assets is debited to Profit and Loss account and the balance depreciation of Rs.1.10million (Previous Year - Rs.1.10 million) being depreciation on the enhanced value of revalued assets hasbeen charged to Revaluation Reserve Account.

c. During the year, the Company has refined the method of providing depreciation by calculating the sameon a pro-rata basis based on the number of days as per Note 1(D)(iii). Hitherto the depreciation wascalculated taking each quarter as a unit. Consequent to this change, the charge to the Profit and LossAccount for the year is lower by Rs.1.95 million and the net block of fixed assets is correspondinglyhigher by that amount.

14. The Company has availed Rs.5.0 million as unsecured loan from ICICI Bank under SPREAD (Sponsored Researchand Development Scheme). Since the project was unsuccessful in commercialization, the same has beenwritten back as per the terms and conditions of loan agreement during the year and is included in "OtherIncome".

15. A subsidiary in the United States of America has been incorporated on January 4, 2007 in the State ofDelaware with its principal office in Orange county. No funds towards equity capital have been remitted duringthe year and the subsidiary is yet to commence business.

The Company is in the process of forming a subsidiary in Tokyo, Japan. No funds towards equity capital havebeen remitted during the year.

16. OPERATING LEASE

a. Future Lease Rental payments

2007-08 2006-07

Not later than one year 0.62 0.56

Later than one year and not later than five years 4.16 3.78

Later than five years 70.24 66.74

b. Lease payment recognized in the Profit and Loss Account Rs.0.56 million (Previous Year - Rs.0.51 million).

17. Additional information pursuant to the provisions of Paragraphs 3 and 4 of Part II of Schedule VI to theCompanies Act 1956.

A. Production Data

Installed capacity1, actual production

Products Installed Capacity Actual Production

2007-2008 2006-2007 2007-2008 2006-2007

Bulk Drugs2 – – 695,298 826,580

Intermediates – – 63,046 64,646

1As certified by the management, being technical matter accepted by the auditors as correct.

2Note a. Including contract manufacturing and purchases of finished goods.

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.

Rs. in Million



B. Sales

2007-2008 2006-2007

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

Bulk Drugs 683,332 1934.11 822,964 1780.05

Intermediates 61,122 182.38 57,364 219.33

Others 60.54 22.32

Total 2177.03 2021.70

C. Details of Finished Goods Stocks

Bulk Drugs & Intermediates

Opening Stock

Bulk Drugs 23,702 67.71 20,086 60.32

Intermediates 41,729 129.55 34,447 82.62

Closing Stock

Bulk Drugs 35,668 88.05 23,702 67.71

Intermediates 43,654 140.78 41,729 129.55

D. Details of Raw Materials

1, 2, 4 D C 5 F A P 341,879 124.78 392,105 159.37

Cyclopropylamine 83,295 53.68 96,790 68.88

Piperazine Anhydrous 253,376 61.83 256,775 74.35

N Ethyl Piperazine 27,717 11.54 18,074 7.17

ECPPA 28,555 94.07 18,912 72.04

1M-1M-2 Nitro Ethane 116,610 50.54 118,544 60.85

Benzl Ester HCL 15,351 200.13 4,807 66.58

Others 785.16 838.14

Total 1381.73 1347.38

E. Value of imported and indigenous raw materials and finished goods consumed and percentage ofeach to total consumption

2007-2008 2006-2007

Rs. in Million % Rs. in Million %

Imported 752.89 54 750.84 56

Local 628.84 46 596.54 44

Total 1381.73 1347.38

F. Value of imports on CIF value basis

Raw Materials 551.31 629.34

Capital Goods 21.18 30.89

G. Expenditure in foreign currency

Foreign Travel 1.82 2.71

Foreign Agent's Commission 7.82 18.20

Professional charges 25.94 27.28

US Branch office expenditure 18.71 17.83

Others 8.36 3.03











P.V. MaiyaDirector





H. Earnings in foreign currencyExport of Goods on FOB basis Rs.1486.53 million. (Previous Year - Rs.1186.35 million)

I. Amount remitted during the year in foreign currency on account of final dividend of 2006-07 to non-resident share holdersParticulars

No.of Shares (Rs.10 each) 1,376,850 1,384,121

No.of Shareholders 27 33

Amount of Dividend (Net of Taxes Rs. in Million) 3.44 2.76

Year to which dividend related 2006-2007 2005-2006

18. PARTICULARS OF UNHEDGED FOREIGN CURRENCY EXPOSURE AS AT BALANCE SHEET DATE:Foreign currency loan Rs.401.33 million (US$ 9.98 million @ average closing rate of 1 US$ = Rs.40.19)

(Previous year Rs. 111.89 million - US$ 2.54 million @ average closing rate of1 USD = Rs.43.86)

Export Debtors Rs.437.06 million (US$ 11.06 mllion @ average closing rate of 1 US$ = Rs.39.49)(Previous year Rs.156.35 million - US$ 3.62 million @ average closing rate of 1 US$= 43.15)

Import Creditors Rs 136.82 million (US$ 3.40 million @ average closing rate of 1 US$ = Rs.40.19)Rs. 6.48 million (EUR 0.10 million @ average closing rate of 1 EUR = Rs.63.60)(Previous year Rs.78.65 million - US$ 1.79 million @ closing rate of1 US$ = Rs.43.86)

19. Previous year figures have been regrouped and/or rearranged wherever necessary.


I. Registration Details Registration No.: 4 3 9 3 State code: 0 1

Corporate Identification No.: U 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, 2008

II. Capital Raised during the year : N i l

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

Total Liabilities : 2 7 7 5 0 1 0 Total Assets : 2 7 7 5 0 1 0

Sources of Funds Application of Funds

Paid Up Capital - Equity : 5 4 6 7 1 Net Fixed Assets : 1 1 9 3 6 8 8

Reserves & Surplus : 6 3 2 0 8 4(Including Capital Work-in-Progress)

Secured Loans : 1 3 4 0 8 5 4 Investments : 7 2 7 1 5

Unsecured Loans : N I L Current Assets : 7 8 8 9 8 7

Deferred Tax Liability : 2 7 7 8 1 Misc. Expenditure : N I L

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

Turnover & Other Income : 2 2 3 0 4 5 7 Earnings Per Share : 2 1 . 0 4

Total Expenditure : 2 1 2 3 8 0 7 Dividend Rate (%) : 2 5 . 0 0

Profit before Tax & Exceptional items : 1 0 6 6 5 0

Profit after Tax & Exceptional items : 1 1 3 5 2 5

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)

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 wealth in the long term

With our employees : We are one team

With our society : We will continuously strive to increase our role in improving the community around us

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.

The Neuland logo what does it signify

The one inverted triangle over another is indicative of the hour

glass, suggesting that Neuland has found its rightful place in the

time slot.

The deep filled in colours to the left of the angles depict Neuland’s

single-minded philosophy, viz. commitment to customer

satisfaction, while the stripes to the right of the angles depict

Neuland’s expansion of 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 the epicenter,

suggesting that this is the point that sparks off Neuland’s dynamic

activity.

The logo represents the basic philosophy of the Company, dynamism

and customer satisfaction.

Unit Product Used in the treatment of

Bonthapally Albuterol Sulfate Anti-asthmatics(Salbutamol Sulphate)Terbutaline SulphateIpratropium BromideTiotropium BromideSalmeterol Xinafoate

Sotalol HCl CardiovascularLabetalol HClEnalapril MaleateRamiprilIrbesartanRosuvastatin

Moxifloxacin HCl FluoroquinolonesLevofloxacinOfloxacin

Itraconazole Anti-fungal

Mirtazapine CNSOlanzapineLevetiracetamEscitalopram OxalateRopinirole HClDonepezil HCl Form I

Fluticasone Propionate Cortico steroid

Dutasteride Benign Prostatic Hyperplasia

Pashamylaram Ciprofloxacin HCl FluoroquinolonesCiprofloxacin Lactate & Base

Ranitidine HCl (Form I & II) Anti-ulcerant

Eprosartan Mesylate CardiovascularEzetimibe

Voriconazole Anti - Fungal

Entacapone CNSAripiprazole

Darifenacin Hydrobromide Anti - Spasmodic

Montelukast Sodium Anti - asthmaticsLevalbuterol HClLevalbuterol Tartrate

Product Profile

Approvals received from international regulatoryauthorities - US FDA, EDQM & TGA

Certifying Authority Approvals

US FDA Both Neuland's facilities have been 'systems' inspected by USFDA, who have communicated that the manufacturing facilitiesare acceptable for the production of non-sterile APIsproduced by chemical synthesis.

Received GMP clearance for both the facilities for allnon-sterile bulk APIs by chemical synthesis

Ranitidine HCl Form IRanitidine HCl Form IICiprofloxacin HClSalbutamol SulphateSotalol HClRamiprilEnalapril MaleateItraconazole

German Health GMP certification from German Health Authority forAuthorities Ciprofloxacin HCl and Ranitidine HCl.

EDQM, France GMP compliance for Unit - 1

Therapeutic GoodsAdministration(TGA), Australia

Certificate of Suitabilityfrom the EuropeanDirectoratefor the Quality OfMedicines(EDQM)

Unit 1 facility at Bonthapalli has been granted ISO 14001:2004 and OHSAS 18001:1999 certification. This certificationrecognizes our commitment and compliance to environmental concerns, quality and adequate health and safetymeasures towards the workforce.

Number of US DMFs filed is 29. Total number of DMFs filed with various health authorities is 303 in 44 countries.

Meet Neuland 1

Our business 2

Highlights of 2007 - 08 4

Building infrastructure for growthFrom the desk of the Chairman & Managing Director 6

We did what we set out to do 8

Revenue streams strengthened 10

We give what the customers want 12

Human Resource Management 14Moving forward

ContentsAbridged Financials in US$ 17

Board of Directors 20

Directors’ Report 22

Management Discussion & Analysis 28

Report on Corporate Governance 31

Auditors’ Report 41

Balance Sheet 44

Profit and Loss Account 45

Cash Flow Statement 46

Schedules 47

Forward looking statementsThroughout this report to the share owners, we discuss some of our expectations regarding the Company’s future performance. All of these forward lookingstatements 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.

Neuland

INDIVIDUALIZED FOCUS.GLOBAL PERSPECTIVE.

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

conc

ept,

res

earc

h &

pro

duct

ion

- CA

PRIC

ORN

www.neulandlabs.com

Neuland Laboratories Limited | Annual Report 2008

Documents

Neuland GLOBAL PERSPECTIVE. · Neuland GLOBAL PERSPECTIVE. ... Ranitidine HCl (Form ... Our future results could also be affected by a variety of factors such as competitive dynamics