Shasun Chemicals Annual Report 2009-10

Shasun Chemicals and Drugs Limited

ANNUAL REPORT0910

Forward-looking statements

In this Annual Report we have disclosed forward-looking information to enable investors to comprehend our prospects and take informed investment decisions. This report and other statements written and oral that we periodically make contain forward-looking statements that set out anticipated results based on the managements plans and assumptions. We have tried wherever possible to identify such statements by using words such as anticipate, estimate, expects, projects, intends, plans, believes, and words of similar substance in connection with any discussion of future performance.

We cannot guarantee that these forward-looking statements will be realized, although we believe we have been prudent in our assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should bear this in mind.

We undertake no obligation to publicly update any forward looking-statements, whether as a result of new information, future events or otherwise.

ContentsFinancial Snapshot 01 | Shasuns Journey 02 | Directors Profile 06 | Directors Report 10 Management Discussion and Analysis 18 | Report on Corporate Governance 26 Auditors Report 39 | Standalone Financial Statements 42 | Consolidated Financial Statements 66 Research and Development Financials 80 | Financial Summary of Subsidiary Companies 81 Ratio Analysis 82 | Notice of Annual General Meeting 83 | Corporate Information 88

1SHASUN CHEMICALS AND DRUGS LIMITEDANNUAL REPORT 2009-10

Financial Highlights

Rs. in Mn.

2005-06 2006-07 2007-08 2008-09 2009-10 Sales 3,490.34 4,059.10 4,386.58 4,656.35 5,289.39 Profit Before Depreciation, Interest and Tax 711.80 708.40 575.25 14.46 622.34 Interest 49.36 54.09 66.50 122.18 159.19 Depreciation 231.45 250.88 265.33 269.06 260.16 Profit Before Tax 430.99 403.42 243.41 (376.78) 202.99 Profit After Tax 365.04 382.82 222.65 (333.72) 220.65 Dividend Distributed on equity shares 81.82 81.96 48.31 - 48.31 Dividend % 85.00 85.00 50.00 - 50.00 Earnings per share (Rs.) 7.80 7.93 4.56 (6.91) 4.57 Share Capital 96.21 96.42 96.63 96.63 96.63 Reserves 1,697.01 1,990.81 2,155.17 1,821.45 1,985.58 Net worth 1,798.51 2,113.38 2,256.44 1,923.56 2,087.39 Gross Block 2,935.81 3,279.86 3,792.31 3,843.10 3,917.06

2 SHASUN CHEMICALS AND DRUGS LIMITED ANNUAL REPORT 2009-10

First export order of Ibuprofen. First Analgin sale to Hoechst, innovator of the molecule.

1988First USFDA inspection of the companys Pondicherry Ibuprofen facility.

1990 1991Shasun converted into a public limited company, incorporating its present name.

1:1 bonus declared.

Shasun Inc. (US subsidiary) established in Boston, Massachusetts.

1992

Incorporated as a private limited company, Shasun Chemicals (Madras) Private Limited at Chennai.

1976First production facility established at Velachery, Chennai, for manufacture of Analgin (antipyretic).

1977Analgin capacity was increased to 12 MT per month out of internal accruals.

1984Second production facility was established at Pondicherry for manufacture of Ibuprofen (anti inflammatory).

1986

Third manufacturing unit set up at Cuddalore to manufacture the anti-ulcerative Ranitidine HCL.

The company makes the first domestic sale to innovator Glaxo.

Shasuns Journey


The companys Boston subsidiary was replaced by Shasun USA Inc. a new wholly owned subsidiary, at New Jersey.

Received the ISO 9002 certification from BVQI.

Declared its third bonus of 1:2.

1996 1997The company signed a technology agreement with Chircotech, UK, for S+Naproxen.

Recognised as an Export House by Ministry of Commerce, Government of India.

Received Certificate of Suitability from EDQM for Ibuprofen.

The company signed technology and joint marketing agreements with Nagase & Co. Japan for S+Ibuprofen.

1995The company received the Trishul award for exports from the Chemicals Export Promotion Council, Government of India. Announced a second 1:1 bonus.

1993The companys IPO was oversubscribed 20 times as it mobilised Rs six crores through the sale of equity shares at Rs. 40 each.

The companys shares were listed on Mumbai, Ahmedabad and Chennai stock exchanges.

1994

The company made its first sale of Ibuprofen to Boots, the innovator of the molecule.

1998


The company signed a joint venture agreement with Austin Chemical Company, USA, for process development and custom manufacturing for multinationals.

Received certificate of suitability from EDQM for Ranitidine HCL Form I.

1999Signed a Technology Partnership with Eastman Chemical Company, USA, for the manufacture of HPMCP.

2000The companys Pondicherry facility for Naproxen was inspected by the US FDA.

Entered into an arrangement with Eastman Technology for the manufacture of MAP.

2001

2002 2003Commercialised HPMCP.

Established a biotech laboratory in its R&D centre.

Received the British Five Star Award for safety, while the Pondicherry unit was awarded the National Safety Award for the second consecutive year by the British Safety Council, London.

The companys bulk drug manufacture at Cuddalore was given the IDMA Quality Silver Award.

Chemistry R&D labs were recognised by the University of Madras as a qualifying centre for doctoral research.

Certified as ISO 9001:2000 by BVQI.

Cuddalore facility was inspected by the US FDA for three APIs.

Won a Safety Award from British Safety Council for the third consecutive year.

Signed a letter of intent with Eli Lilly for supply and manufacture of an anti-TB drug.

Multi Purpose Plant at Cuddalore was commissioned.

The company filed its first International process patent.

2004

The company commissioned its new Research Centre and its Formulations facility.

Entered into strategic marketing arrangment with Glenmark and Alpharma (Now part of Actavis).

Successful inspection by TPD (Canada) of formulation facility.

2005


UK MHRA approval received for the formulation facility.

Completed its first ever acquisition of Rhodia Pharma Solution business marking it advent in the global supply arena.

2006Successful maiden inspection of the formulation unit by US FDA authorities in Pondicherry (Puducherry).

Successful completion of the US FDA inspection of its Cuddalore and UK facilities (Annan and Dudley).

Received certification of ISO 27001 (ISMS-Information Security Management Systems) by Bureau Veritas.

Signed a licensing agreement with Gilead for manufacture of Viread to support the Clinton Foundation initiative.

2007

2008Licensing of cross-coupling technology (Buchwald Technology) to H-Lundbeck A/S and Merck & Co. Inc.

Setting up of Lab facility at Piscataway (New Jersey), United States to provide API development service in pre-clinical and clinical trial stages.

Embarks on implementation of an enterprise resource planning (ERP) - SAP across all its locations.

Successful completion of clinical trials of Streptokinase, a bio-tech product.

Successful completion of US FDA re-inspection of formulation unit at Puducherry.

Closure of Annan plant at Scotland, UK and operations consolidated at Dudley facility.

Commercial Launch of Recombinant Streptokinase in the Indian Market in June 2009.

Initiation of Toxicity Studies with respect to GCSF and PEG-GCSF - biotech products.

Received commercial order of a leading API product from an Innovator Company (an anti depressant drug).

Achieved leadership position in API product - Gabapentin (finds application for anti epileptic cases).

Finished Dosages sales has grown by 100% as compared to FY09 and has crossed Rs 50 crores in turnover in FY10.

2009 2010


Directors Profile

Executive Directors

Mr. N. Govindarajan, Chief Executive Officer and Managing Director.

He is a mechanical engineer from Annamalai University and expert on piping engineering through his program from I.I.T. Powai. He joined Shasun as General Manager - Projects Planning in January 2000. Based on his experience of over a decade in chemical and agro chemical industries and also due to his credible contribution to R&D development at Shasun, he rose to become Vice President - R&D. During the next 2 years, he structured several relationships with key clients including MNCs, envisioned the promise of generics, and developed an organizational culture that delivered the promise of Indian R&D especially in synthetic organic chemistry.

For his outstanding contribution to the R&D, he was appointed as CEO in the year 2003, to provide thought leadership and strategic management. Over the years he has been instrumental in transforming the organization to one that is professionally managed and also made substantial contribution in successful acquisition of Rhodia Pharma Solutions Limited, U.K. In 2006, Govindarajan was appointed as Managing Director and CEO of Shasun.

Dr. S. Devendra, Wholetime Director,

A Graduate in Medicine has been one of the key architects in developing the organisation and is instrumental in transforming the company from single product to multi product. He has gained national and international reputation for his knowledge in marketing, customer satisfaction, global competition, and strategic thinking. He has been mentoring and developing the marketing skills of the company.


Mr. S. Abhaya Kumar, Wholetime Director,

He is a multi-faceted personality, a successful First Generation Industrialist, a successful & leading businessman in diversified and emerging fields as well as a philanthropist cum social worker. Starting out with a career in pharmaceuticals, he worked his way through stem cell research, multimedia animation, and social projects and also runs Sri Shankarlal Sundarbai Shasun Jain College for Women in T. Nagar. He is the Founder Director of Shasun Chemicals and Drugs Limited. In 2004, he ventured in to starting LifeCell - a company dedicated for stem cell related work; he is the Director of a large animation studio called Imageworks India a joint venture with Sony Imageworks. He is also on the various corporate bodies like MMA, BDMA. One of the accolades in his merit list includes him being selected as one of the finalists for the Young Entrepreneur of the Year Award hosted by the Ernst & Young in 2003.The Chennai chapter of The Indus Entrepreneurs (TiE) honoured Shri S. Abhaya Kumar with the Large Start-up Entrepreneur of the Year Award for setting up LifeCell in 2008. CII (Southern Region) have released a book titled Star Trek on 101 Entrepreneurs from Tamilnadu (2008) which includes the name of Mr. S. Abhaya Kumar.

Mr. S. Vimal Kumar, Wholetime Director,

He is a Fellow Member of the Institute of Chartered Accountants of India and is presently involved in Strategic Planning. He served the Company as Finance Director for 23 years from 1982 till 2005. During his tenure he spearheaded MIS, Finance, Treasury management, Accounts and Systems and built a strong team of professionals. He played a key role and was instrumental in Companys maiden overseas acquisition in 2006.


Non-Executive Directors

Mr. A. Mahendran, Chairman

He is a Commerce graduate of Loyola College, Madras (1976) and a Chartered Accountant (1979).

He started his Professional life as a partner with M/s. R.G.N. Price & Co. before joining Transelektra Domestic Products Private Ltd., as an Executive Director in 1987, with the scope of an overall management of the Company. The year 1994 saw the takeover of Transelektra by the Godrej Group and Mr. Mahendrans elevation as the Managing Director of Transelektra

(since renamed as Godrej Sara Lee Ltd (GSLL) In his capacity as the Executive Director and later as the Managing Director of GSLL in its various avatars, Mr. A Mahendran has played the pivotal role & steered the fortunes of that Company right from its inception. GSLL is the worlds largest manufacturer of mosquito repellent mats and Indias largest household insecticide company. He has nurtured the Good knight brand, which has been acknowledged as a Super Brand year after year. His long experience in the industry, business acumen, administration ability, positive disruption and active involvement in the day to day management of GSLL have contributed to the present stature of GSLL He is the architect of the merger between Godrej Tea Ltd. and Godrej Industries Foods Division to create Godrej Beverages & Foods Ltd. (GBFL) in 2006 (since renamed as Godrej Hershey Ltd). He has been managing the affairs of Godrej Hershey ever since. He has pioneered the idea of premium pest management service and created an off-shoot of Home Insecticides business in India. Godrej HiCare Ltd (GHCL) is the Company thus formed. He is the founder member of HOUSEHOLD INSECT CONTROL ASSOCIATION (HICA). He has been appointed as Managing Director of Godrej Consumer Products Limited w.e.f. July 1, 2010.He is also the Promoter-Director of Harvey Heart Hospitals, Madras, which is a super speciality hospital in cardiac care. As a member of the Institute of Chartered Accountants of India, he has attended various seminars on management in India and overseas.

Vistasp Farrokh Banaji, V.F. Banaji is presently CEO of Banner Global Consulting, a strategic HR consultancy firm.Earlier, he was Executive Director & President (Group Corporate Affairs) at Godrej Industries Limited. He led the Corporate HR, IT and Legal functions for Godrej Industries and Associate Companies. Before joining Godrej, Visty Banaji was based in Paris as leader of ALSTOMs global project for reengineering key HR processes and supporting them through the deployment of a state-of-the-art HR Management System. Prior to his international assignment he worked as Executive

Director (HR) for ALSTOM in India.Mr. Banajis earlier career was with the Tata Group, which he joined as a TAS Officer in 1973. Starting with Telco (now Tata Motors) in its complex at Pune, in 1980 he was chosen to drive Manpower Planning at the corporate level and then appointed to lead the Corporate HR function for Telco.Mr. Banaji received the Pathfinders Award 2006 for Seasoned HR Professional, at the 10th National Conference of the National HRD Network.


Mr. Tapan Ray Mr. Tapan Ray has around thirty years of national and international experience in the Health Care Industry with Pharmaceuticals, Medical Diagnostics, Biotech, Nutraceutical / Cosmeceutical, Nutritional and Hospital Products business, based in India and the UK. He has held various senior positions, like:

International Marketing Strategy Manager, Glaxo Plc. U.K. Director in the Board of Glaxo India Limited Non-Executive Director of Biddle Sawyer India Limited Managing Director of Abbott Laboratories India Limited Managing Director of Kopran Limited, India CEO and Director of Sami Labs Limited, India He was also the President and Vice-President of the Organization of Pharmaceutical Producers of India (OPPI), the Chairman of its Marketing Committee. He currently holds the position of: Director General of the Organization of Pharmaceutical Producers of India (OPPI). Member of the Council of International Federation of Pharmaceutical Manufacturers and Associations (IFPMA),

Geneva, Switzerland Member of the Advisory Board of NMIMS - Institute of Intellectual Property Studies, Mumbai Member of the National Life Science Committee of the Confederation of Indian Industries (CII) Member of the National Pharmaceutical Committee of the Federation of Indian Chambers of Commerce and Industries

(FICCI) Life Member of the Bombay Management Association. Visiting Faculty in Indias Top Management Institutes and a Key note Speaker in various National and Inter-national

seminars and conferences.He holds a B.Sc.(Honors) and a Masters Degree in Geology from the University of Calcutta and has been a National Scholar. He was trained at the Indian Institute of Management (IIM), Ahmedabad.


Directors Report

Financial Results (consolidated)Rs. in Mn.

Financial Results for the year ending 31.03.2010 31.03.2009Gross Revenue 8,380.96 7,982.80Profit before interest depreciation and Tax 675.35 (601.97)Profit before tax 19.88 (1,413.87)Profit after tax 37.42 (1,370.86)

Financial Results (standalone) Rs. in Mn.

Financial Results for the year ending 31.03.2010 31.03.2009Gross Revenue 5,689.86 4,930.82 Profit before interest depreciation and Tax 622.11 14.46 Profit before tax 202.74 (376.78)Profit after tax 220.40 (333.72)Profit brought forward 1,026.62 1,360.34 Profit available for appropriation 1,247.02 1,026.62 Appropriated as followsDividend on Equity Shares 48.31 - Tax on Dividend 8.21 - Transfer to General Reserve 22.04 - Balance carried forward 1,168.46 1,026.62 EPS (diluted) on the basis of Rs. 2/share 4.54 (6.90)

Dear Shareowners,

The Directors take pleasure in presenting the Thirty Fifth Annual Report of your company together with the audited statement of accounts for the year ended March 31, 2010.

A detailed analysis of the operations of the company has been provided in the management discussion and analysis report, which forms a part of this annual report.

1. Dividend

The Board of Directors of the company is pleased to recommend a dividend of Rs. 1 per equity share of Rs. 2 each for financial year 2009-10. This dividend, if approved at the ensuing AGM will be paid to those shareholders whose name appear on the register of members of the company as on July 30, 2010. The total outflow on account of dividend including tax on distributed profits is Rs. 5.68 Mn. (Nil for previous year).

2. Directors

In accordance with the Articles of Association of the Company, Mr. S. Vimal Kumar retires by rotation and is due for election.

Mr. A. Mahendran who had been appointed a Director of the Company with effect from June 27, 2009 in the casual vacancy caused by the resignation of Dr. Jagdish N Sheth holds office upto the date of the Annual General Meeting. He is eligible for election.

Mr. Tapan Ray who had been appointed a Director of the Company with effect from June 27, 2009 in the casual

vacancy caused by the resignation of Mr. D.A. Prasanna holds office upto the date of the Annual General Meeting. He is eligible for election.

The Board appointed Mr. Vistasp Farrokh Banaji as additional director on the Board of Directors of the Company on October 29, 2009. He will hold this office till the Annual General Meeting of the Company scheduled on July 30, 2010. Due notice has been received from a member proposing his appointment. It is proposed to appoint him as Director of the Company liable to retire by rotation. The resolution for the same has been included in the notice of the Annual General Meeting.

Mr. S. Krishnan, who was appointed as director in last AGM, unexpectedly expired on February 28, 2010.

The Board places on record its appreciation for the services rendered by him during their tenure of office.

The brief profile of Mr. A. Mahendran, Mr. Tapan Ray, Mr. Vistasp Farrokh Banaji and Mr. S. Vimal Kumar is given in the Corporate Governance section for the reference of members.


3. Auditors

The Statutory auditors of the company, M/s. Jagadisan & Company, Chartered Accountants retire at the ensuing Annual General Meeting and are eligible for re-appointment.

4. Cost Audit

Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed Cost Audit of the Company.

Mr. C.L. Narayenan, Cost Accountant, has been reappointed as Cost Auditor of the Company with the consent of the Central Government of India to conduct cost audit of the Company for the year 2009-10.

5. Listing arrangements

The companys shares are listed at Bombay Stock Exchange and National Stock Exchange and the annual listing fee has been paid to these exchanges.

6. Subsidiaries

The company has five subsidiary companies as on March 31, 2010. The members may refer to the Statement under Section 212 of the Companies Act, 1956 and the information on the financials of the subsidiaries appended to the above statement under Section 212 of the Companies Act, 1956 in the Annual Report for further information on these subsidiaries.

Your Company received the approval under Section 212(8) of the Companies Act, 1956, from the Ministry of Corporate Affairs exempting the Company from attaching the documents as mentioned under section 212 (1) of the Companies Act, 1956 with respect to its subsidiary companies in the Annual Report of the Company.

The consolidated financial statements of the subsidiaries duly audited are presented along with the accounts of your Company. The annual accounts of subsidiary companies are kept at the Companys registered office and also at the respective registered office of the subsidiaries for inspection and shall be made available to the members seeking such information. Members who wish to obtain a copy of the financial of the subsidiary companies may write to the Company Secretary at Shasun Chemicals and Drugs Limited, No.28, Sardar Patel Road, Guindy, Chennai - 600 032.

7. Safety and Environment

At Shasun Chemicals and Drugs Limited, a responsible Environment, Health & Safety (EHS) commitment is integral to our existence. This is reflected in the creation of

a safe and healthy working environment across our plants and offices.

This commitment is also reflected in the Companys ability to reduce operational injury rates year after year. In year 2009-10 there was no loss time injury accident at all the units. At Shasun, our safety performance is a key strength, starting from awareness creation as well as mandatory application across all permanent and contract workers.

Shasun enjoys the services of a team experienced and competent in the management of Environment, Health and Safety issues. The team invests proactively in impact mitigation initiatives coupled with simulation. All modern tools and techniques like Preliminary Hazard Analysis (PHA), Hazard and Operability studies (Hazop) and Process Safety Management (PSM) are encompassed to improve Environment, Health and Safety. Internal and external audits measure our Environment, Health and Safety performance and also inspire the company to achieve an international standard with zero deviations. ISO 14001 and ISO 2007 certificates for both Pondy and Cuddalore APIs are the testimony of this.

The companys focus extends beyond employees to community and customers. As a part of social accountability, the company organizes various health related medical programs both in Cuddalore and Puducherry.

8. Corporate Governance and Management Discussion and Analysis

The Corporate Governance and Management Discussion and Analysis reports as set out in annexure hereto form an integral part of this report. A certificate from the auditors of the company certifying compliance of the conditions of corporate governance as stipulated in Clause 49 of the listing agreement with stock exchanges is also annexed to the report on corporate governance.

9. Personnel

The Directors wish to place on record their appreciation to the employees for the cooperation extended to the management in harmonious industrial relations at the various units as well as their notable contributions at the work place.

10. Particulars of Employees

The statement of particulars of employees, providing information as per Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees)


Rules, 1975, form a part of this report. However, as per the provisions of Section 219(1) (b) (iv) of the Companies Act, 1956, the Annual Report excluding this statement is being sent to all the members. Any member interested in obtaining a copy of this statement may write to the Company Secretary at its registered office.

11. Conservation of Energy, Technology absorption, Foreign exchange earnings and outgo

Particulars in respect of conservation of energy, technology absorption and foreign exchange earnings and outgo as required under section 217(1)(e) of the Companies Act 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended up to date is annexed hereto and the same forms part of the report.

12. Directors Responsibility Statement

In terms of the provisions of section 217(2AA) of the Companies Act,1956 your Directors confirm as under:

a) That in preparation of the annual accounts the applicable accounting standards have been followed and that no material departure have been made from the same.

b) That they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of financial year and of the profit or loss of the company for that period.

c) That they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities.

d) That they have prepared the annual accounts on a going concern basis.

13. Public Deposits

The company has not accepted any public deposits.

14. Acknowledgement

Your Directors would like to express their grateful appreciation for the assistance and co-operation received from the Banks during the year under review. Your Directors also places on record their deep sense of appreciation for the continued support of customers, suppliers and investors of the company.

Place: Chennai, Date: May 30, 2010

Dr. S. Devendra

Wholetime DirectorS. Abhaya Kumar

Wholetime DirectorS. Vimal Kumar

Wholetime Director

On behalf of the Board

N. Govindarajan CEO and Managing Director


Annexure 2INFORMATION UNDER SECTION 217 (1) (E) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988

Research and Development

Shasuns R&D center is located at Kelambakkam, on the outskirts of Chennai. Shasun Research Center (SRC) has been operating successfully for the past four years and is primarily engaged in developing innovative and cost-effective processes for Shasuns in-house needs as well as for external customers under its CRAMS offerings. Infrastructural enhancements have been done in a phased manner to ensure the best service standards and thereby ensure customer satisfaction. The facility has been appreciated by many of its customers for its technological sophistication and professional workforce.

SRC is well equipped with the latest equipments used in synthetic organic chemistry and encourages its scientists to initiate research in various domains in synthetic organic chemistry to generate expertise, and identify newer areas which could be potential revenue drivers for the company in the near and foreseeable future. Shasun, thanks to the acquisition of Rhodia Pharma Solutions acquired commercial rights to enabling technologies such as Hydrolytic Kinetic Resolution (HKR), Aromatic Bond Formation (ABF) and Trifluoro-methylation etc in the year 2006. Over the last three years, SRC has consciously invested resources into these technologies to generate significant know-how which would enable it to service the process development needs of its customers in a more efficient manner.

The Product Department is at present located in the formulations facility at Puducherry. The department develops finished dosage forms for the US, European and Canadian markets. During

Annexure 1STATEMENT AS PER SECTION 217(1) (E) OF THE COMPANIES ACT, 1956

A. Power & Fuel ConsumptionYear Ending

1 Electricity 31.03.2010 31.03.2009a. Purchased units in 000s 42997 34450 Total amount paid Rs. in 000s 164230 139738 Rate per unit Rupees 3.82 4.06b. Own generation by

I. Diesel Generator (Units) in 000s 5610 4372Unit per Ltr. of Diesel Oil 3.52 3.58Rate per unit Rupees 9.72 9.32

II Windmills (units)* in 000s 3266 2227Amount Adjusted Rs. in 000s 10658 7794Rate per unit Rupees 3.26 3.50

2 OthersFurnace Oil Kgs in 000s 6860 11763Total Amount paid Rs. in 000s 163638 160363Rate per unit Rupees 23.85 13.63

*Power Generated from windmill is adjusted to power consumption at Cuddalore unit.

B. Consumption per unit of ProductionYear Ending

31.03.2010 31.03.2009Electricity purchased KWH/ton 7.15 6.71Diesel Generator KWH/ton 0.93 0.85Furnace Oil Kg/ton 1.14 2.29

Annexure to Directors Report


the year the Ibuprofen tablet Rx ANDA (Abbreviated New Drug Applications) was approved by the US FDA and we are expecting approval for the Ibuprofen 200mg OTC product. We are also expecting approval for another contract development ANDA submitted in previous years. Also during the year, the UK MHRA re-inspected and further approved the facility for another three years, and the facility was audited by the US FDA for the contract development ANDA and also approved. The department also increased the number of projects being handled for new and existing US and European customers.

The Biotech Unit has successfully launched Streptokinase, a fibrinolytic drug, used for the treatment of heart attacks. Streptokinase, a biosimilar, is the first line of defense in almost all cases of heart attacks and is therefore expected to be standard-of-care in all hospitals. Currently, the Biotech division has invested in doubling its capacity and will be able to manufacture Streptokinase bulk API equivalent to ~two lakh vials a year. Two other biosimilars are in the pipeline and are expected to be launched in the next financial year.

(Rs. Mn.)Year Ended 31.03.2010 Year Ended 31.03.2009

Capital 11.69 1.32Recurring 190.74 165.56Total 202.43 166.86

EXPENDITURE ON RESEARCH AND DEVELOPMENT


Annexure 3INFORMATION ON FOREIGN EXCHANGE EARNINGS AND OUTGO IS GIVEN IN ITEM NOS.10 & 11 IN NOTES TO ACCOUNTS.

Description 2001 Plan 2006 PlanTotal No of shares 8,22,000 Equity Shares of

Rs. 2 each*9,62,082 Equity Shares of Rs. 2 each

Pricing Formula Not less than 50 per cent of the closing market price of Bombay Stock Exchange on the date of grant of options

Closing market price of Bombay Stock Exchange on the date of grant of options

Details of Grant Given under Plan 2001 & 2006 Issuance # 3 Issuance # 1Option granted during the period 244200 options representing

244200 equity shares of Rs. 2 each

191666 options representing 191666 equity shares of Rs. 2 each

Price at which option granted Rs. 45 per share (Face value Rs. 2 per share)

Rs. 14.80 per share (Face value Rs. 2 per share)

Options Vested as of 31-03-2010 109935 shares NilOptions Exercised as of 31-03-2010 36320 shares NilOption lapsed & forfeited as of 31-03-2010 78450 shares NilTotal No of the Option in force at the end of the year

129430 shares 191666

Grant to Senior Manager Personnel S. Hariharan - 5000 Kevin Cook - 95833(No of options) S.P. Venkateshan Rangachari

- 4000Michel Spagnol - 95833

A.M. Mohan - 5000 K. Ramachandran - 3000 Milind Biyani - 2000

Variation in terms of the options Nil NilMoney realized by exercise of the option Rs. 1634400 Nil

* The face value of Rs. 10 per share were sub divided into five equity shares having a nominal value of Rs. 2 per share with effect from August 27, 2005

Company is following Intrinsic Value method as per SEBI Guidelines to value its options.

Clause 6(k) of SEBI guidelines on ESOP states that:

In case the company calculates the employee compensation cost using the intrinsic value of the stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options, shall be disclosed in the Directors report and also the impact of this difference on profits and on EPS of the company shall also be disclosed in the Directors report.

Annexure 4EMPLOYEE STOCK OPTION PLAN

The details of option granted under 2001 & 2006 plan are given below.


S.No. Description ESOP 2001 (Issuance 3 ) ESOP 2006 (Issuance 1)i. Method of calculation of

employee compensation costThe Company has calculated the employee compensation cost using the intrinsic value of the stock options.

The Company has calculated the employee compensation cost using the intrinsic value of the stock options.

The grant price is the market price prevailing on the grant date. Therefore, there will be no compensation cost as per Intrinsic Value Basis.

ii. Difference between the employee compensation cost so computed at (i) above and the employee compensation cost that shall have been recognized if it had used the fair value of the options

Rs. 5,49,894 Rs. 9,48,143

iii. The impact of the difference on profits and on EPS of the Company

PAT : Rs. 220.41 Mn.

Less:

Additional cost based on Fair value : Rs. 0.85 Mn.

Adjusted PAT : Rs. 219.55 Mn.

Adjusted EPS : Rs. 4.54

PAT : Rs. 220.41 Mn.

Less:

Additional cost based on Fair value : Rs. 0.95 Mn.

Adjusted PAT : Rs. 219.46 Mn.

Adjusted EPS : Rs. 4.54

iv. Weighted average exercise price

The weighted average exercise price was Rs. 8 for the options granted on December 07, 2001, Rs. 35 for the options granted on October 18, 2003 and Rs. 45 for the options granted on May 25, 2006 under SHASUN ESOP-2001 Scheme.

No option has been exercised. Options have been granted at price of Rs. 14.80 i.e., market price at the date of grant of options.

v. Description of the method and significant assumptions used during the year to estimate the fair value of the options

The Black - Scholes option-pricing model was developed for estimating fair value of traded options that have no vesting restrictions and are fully transferable. Since option-pricing models require use of substantive assumptions, changes therein can materially affect the fair value of options. The option-pricing models do not necessarily provide a reliable measure of the fair value of options.

The main assumptions used in the Black Scholes option-pricing model during the year were as follows:

Risk free rate 8%

Expected life of option 1 year

Expected Volatility 4.1% for ESOP 2006 plan and 3.4% for ESOP 2001 plan

Expected dividend - Nil

The price of the underlying share in market at the time of option grant Rs. 14.80 for options granted under ESOP 2006 and Rs. 80 for options granted under ESOP 2001.


ANNEXURE 5STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACTS, 1956 RELATING TO SUBSIDIARY

COMPANIES

Name of the Subsidiary Company / Step-down Subsidiary

Shasun Pharma

Solutions Inc.

Shasun USA Inc.

SVADS Holdings

SA

Shasun Life

Sciences Pvt. Ltd.

Shasun Pharma

Solutions Ltd.

Financial Year of Subsidiary Company Ended on:

March 31, 2010

March 31, 2010

March 31, 2010

March 31, 2010

March 31, 2010

Paid Up Capital of Subsidiary Company INR 18,414,529

INR 539,880

INR 3,429,500

INR 100,030

INR 412,677,047

Extent of Holding in Equity Share Capital 100 % 100 % 100 % 99.97 % 100 %

The net aggregate profits/(losses) of the subsidiary company so far as it concerns the members of Shasun Chemicals and Drugs Limiteda. Dealt with in the accounts of Shasun Chemicals and Drugs Limited amounted to

For the subsidiary Companys financial year ended on March 31, 2010

NIL NIL NIL NIL NIL

b. Not dealt with in the accounts of Shasun Chemicals and Drugs Limited amounted to

i) For the Subsidiary Companys financialyear ended on March 31, 2010

INR (52,463,411)

INR (109,372,896)

INR (395,192)

NIL INR (169,798,584)

ii) For previous financial years of the subsidiary up to March 31, 2009

INR (71,247,524)

INR (45,011,013)

INR (15,718)

NIL INR (758,471,399)

iii) Material changes between the end offinancial year of the subsidiary and that of Holding Company

No change No change No change No change No change


Dr. S. Devendra

Wholetime DirectorS. Abhaya Kumar

Wholetime DirectorS. Vimal Kumar

Wholetime Director

On behalf of the Board

N. Govindarajan CEO and Managing Director


The Global Pharmaceutical Industry The Global Pharmaceutical market grew by approximately 8% to reach US$ 837 Bn in 2009. North America, Europe and Japan

continued to remain the key markets accounting for 80% of the worldwide pharmaceutical sales in 2009. Growth rate in 2009 was much higher than the recorded growth in 2008 (Growth rate in 2008 was 4.8%) and the significant factors that led to this recovery in growth include recovery of the global economy from the throes of the financial crisis and the above than average industry growth rates exhibited by the Emerging Markets of Pharma. Emerging markets include India, China, Brazil, Russia, South Korea and Turkey.

During 2009, Emerging markets further consolidated their position with a 11% share in the global landscape with growth in countries like Brazil, Russia, India & China (BRIC) and Turkey well exceeding the growth in developed markets. The worlds largest market, the United States recorded sales of US$ 300.3 Bn, a growth of 3.5%. Pharmaceutical sales in North America, the worlds largest market, were US$ 316 Bn, a growth of 4.0%. Sales in Europe grew by 3.1% to reach US$ 248 Bn. Japan, the worlds second largest market clocked sales of US$ 83.7 Bn, recording a growth of 4.4%. Sales in Latin America, led by key markets of Brazil and Mexico, grew by 11.9%, to reach US$ 33 Bn. Asia, Africa and Australia combined, grew by 9.6%, to US$ 152 Bn. Sales in India grew by a robust 16% to USD 9.2 Bn.

The year 2009 saw a further strengthening of three pivotal themes that have shaped the pharmaceutical industry over the past two decades

MERGERS & ACQUISITIONS PHARMACEUTICAL OUTSOURCING GENERICS

MERGERS & ACQUISITIONS

2009 was a year of Super M&As. Pfizers USD 68 billion acquisition of Wyeth, Merck Sharp & Dohmes USD 41.1 billion acquisition of Schering Plough and Roches USD 46.7 billion acquisition of 43% stake in Genentech all happened in 2009. The underlying rationale between these acquisitions was to derive substantial cost synergies in R&D and Marketing in an era of declining R&D productivity, fewer blockbuster products and increasing generic penetration.

Management Discussion and Analysis

Key

tren

ds

Decreasing R&D productivity

Fewer and smaller blockbuster drugs

Global financial crisis

Increasing generic penetration

Four structural changes affecting pharma growth

Source: E&Y: OPPI Joint Study on Pharmaceutical Industry

900

700

500

300

100

0

12%

10%

8%

6%

4%

2%

0%

691

393

641737 773

837

2001 2005 2006 2007 2008 2009

11.8%

7.2%6.8% 6.6%

4.8%

8.0%

Source: IMS Health Market Prognosis, March 2010


PHARMACEUTICAL OUTSOURCING

The global pharmaceutical outsourcing market grew by 13.3% and was worth USD 58 billion in 2009. It is expected to grow at a rate of 14% to reach USD 66 billion by 2010. Out of the total global CRAMS market, contract research was USD 19.7 billion, and is expected to grow with an estimated CAGR of 17% over the next three years. Contract manufacturing was USD 38.3 billion accounting for the major share (approximately 65%) of the total global pharmaceutical outsourcing market and is expected to grow at a CAGR of 13% over the next three years.

Indian CRAMS sector is expected to grow at a much higher rate as compared to the global industry. Indias share of the Contract Manufacturing market is estimated to increase from 2.8% in 2007 to 5.48% in 2010 and reach USD 2.3 bn in 2010. Indias share of the outsourcing market is estimated to increase from 2.0% in 2007 to 6.0% in 2010 and reach USD 1.5 bn in 2010. API/Intermediate outsourcing is more prevalent in India than formulation outsourcing. Around 64% of total outsourcing is in the area of APIs/Intermediates. Further, most Indian players participate in mid-late lifecycle products and in contributing to the N-2 state of APIs.

OUTLOOK

CRAMS market would continue to provide high growth opportunity and companies which offer reliable services with a significant value proposition in terms of costs, technology and speed would garner a significant pie of this incremental growth. India riding on its cost value proposition comprising cost efficiency along with skilled manpower and technical capabilities is excellent poised to capture a significant portion of this growing market. Indias share of the global outsourcing market is expected to grow from 2.2% in 2008 to 3.5% in 2010 highlighting the excellent prospects for Indian CRAMS players in the ensuing years. However, competition is expected to be intense as the boundaries between Generics players and CRAMS players is diminishing rapidly.

200180160140120100806040200

350

300

250

200

150

100

50

0

117112

74 7985

187

2004 2005 2006 2007 2008 2009

226

271298 284

268

140

Value of Deals (USD Bn) Number of Deals

GENERICS

The global generics market grew by 7.7% in 2009 to US$ 83 Bn, with the top eight markets (US, Germany, UK, Canada, France, Spain, Italy and Japan) contributing 76%. Growth in the generics segment in top eight markets was 8%, surpassing the 3% growth witnessed in the branded segment in the same countries. In Japan, while generics accounted for only 14% of the market by volume, growth during the year was a promising 12%.

Growth in emerging markets is driven by increasing domestic consumption due to strengthening of healthcare infrastructure, greater awareness and improving economic conditions. Generics segment in emerging markets is predominantly branded, which further improves attractiveness. This attractiveness was well evident in the recent acquisition of the domestic formulations business of Nicholas Piramal by Abbott. The deal was valued at 10 times sales. A spate of product portfolio deals have also been executed by Innovator companies with Generics players to tap the lucrative Generics market in these markets. Pfizers tie-ups with Aurobindo Pharma and Strides Arcolab, GSKs tie-up with Dr. Reddys Laboratories and Astra Zenecas tie-up with Torrent Labs are good examples.

With over US$ 80 Bn of drugs going off patent in the next two years, and a higher generic penetration across developed and emerging markets, the generics market will continue to provide attractive growth opportunities.

Sales at Risk due to patent expiry (USD Bn)

60

50

30

20

10

0

58

26 27

48

39 37

2009 2010 2011 2012 2013 2014

40

Percentage of Prescriptions

120

100

60

40

20

0

5147 47 57 63

1999 2001 2003 2005 2007

80

4953 53 4337

GenericsBrands


The prevailing pharmaceutical market environment in key Generics markets is as discussed below:

United States: Generics market grew by 7% to US$ 34 Bn in 2009. Generics continued to play an increasingly prominent role in the US healthcare market and accounted for 72% of total US pharmaceutical market volume, reaching an all time high in 2009. A major growth driver for generics is the upcoming patent expiries for many blockbuster pharmaceutical products, which will become open to generic competition. According to the baseline forecast by IMS Health, the US generics market is expected to deliver a CAGR in excess of 14% in value terms, over the period 2005 to 2010.

Europe: Generics market in Europe grew by 6.2% in value terms, up from 4.7% growth reported in the last year, and accounted for 37.4% of the market in volume terms, up from 36.4% in previous year. The key markets in Western Europe were under pressure from price erosion. While the volumes remained at a peak during the year, lower prices affected growth. Generics market in Germany grew by 8%, in France and Spain by 7%, while in the UK, growth was 5% during 2009. Romania, a key market in Central Europe, was impacted due to healthcare reforms, and the market was also under pressure from unprecedented currency fluctuation. Central, Eastern & Southern Europe, continued to experience buoyant growth, led by a higher per capita pharmaceutical expenditure, and an increasing utilization of generic drugs, driven by the governments efforts to reduce healthcare spend.

Japan: Japans generic market at US$ 3.9 Bn in 2008 is much smaller as compared to its US & European counterparts and also in comparison to the overall

pharmaceutical market in Japan which was at USD 84 Bn in 2009. The Japanese generic drugs market grew at a CAGR of 8.0% between 2003 - 2009, and while the growth rate is lower than that in the US and European markets, it is seen as having greater potential going forward. The Japanese Generics market is characterized by a strong support from the government, which in a desperate bid to limit its healthcare costs, is introducing a number of generic-friendly policies. Other factors such as a large number of patent expiries and the largely un-penetrated nature of the market are also pointing towards promising growth rates in the ensuing years. The generic market in Japan is presently dominated by domestic manufacturers, with the top six manufacturers accounting for 56% of the total market in 2007. But opening up of the market and introduction of a number of generic-friendly reforms is attracting a number of foreign players in the market. Daiichi Sankyos (a Japanese Innovator pharma company) takeover of Ranbaxy was also seen as a move by Daiichi Sankyo to position itself strongly in this high growth segment.

OUTLOOK

The fundamentals of the Generics Industry continue to remain strong. With the passage of Obamas healthcare reforms that lays significant emphasis on reducing treatment costs through the usage of generic medicine and with similar trends visible in Europe, the Generics markets in US and Europe would continue to offer attractive growth opportunities for companies that are able to offer a reliable, low cost solution. As regards to Japan, the push towards Generics by the Japanese Government is expected to lead to growth rates exceeding that of US & European markets as exhibited during 2009.


The Indian Pharmaceutical Industry The Indian Pharmaceutical market registered an annual

growth of 16% (MAT Dec-09). The chronic therapy segment comprising of psychiatry, neurology, cardiology etc recorded a growth of 13.1% and contributed 28.3% to the total market, while acute therapy segment comprising of pain, analgesics, anti-infectives etc grew at a rate of 8.6%. The overall market growth was a mix of higher volumes of existing products, new product introductions and price increases with all three witnessing a positive trend. Approximately 75% of the overall market growth was led by volume increases in existing products. Semi-urban and rural markets are becoming an important driver for growth in the Indian market. With higher per capita income & increasing access to modern medicine, this segment is expected to continue its strong growth momentum. Extra-urban markets (tier 2 towns with population under 100,000) accounted for 40% of the total markets in 2009. Acute therapies dominate the extra-urban market with 80% contribution, while chronic therapies are also growing especially in cardiac therapy (8%). The emergence of an organised pharmaceutical retail segment and the fast growing area of medical insurance are likely to be other important factors that would positively impact the sector in the coming years. The market has a potential to reach US$ 30 Bn by 2020 on back of increasing health insurance and awareness, affordability, doctor and clinical reach, growing organized pharmaceutical retail segment and various other factors.

Outlook on the Indian Pharma market continues to be positive. Currently India has one of the lowest per capita drug consumption in the world. Growth in the market would be driven by higher volume consumption led by economic growth providing increased affordability of pharmaceutical products coupled with a rising awareness of modern medicine. Apart from these intrinsic growth drivers, export driven growth led by Generics & Pharmaceutical outsourcing is also expected to be strong thereby making India one of the fastest growing pharmaceutical markets in the world.

OUR COMPANY PERFORMANCE

Your company is cognizant of the various emerging trends in the Global Pharmaceutical Landscape and has taken a lot of initiatives to ensure that it is well positioned to leverage the opportunities that arise out of such trends. The following section discusses such initiatives on a divisional basis

API BUSINESS

On a consolidated basis, API and its intermediate business contributed close to 55% of the turnover of the company. On a standalone basis, they contributed close to 80% of the total sales.

Your Companys strategy with respect to this segment is to enhance capacity utilization at its manufacturing facilities. This could be achieved through

Manufacturing higher quantities of the existing products Commercializing newer products

Shasuns current API portfolio consists of Ibuprofen, Ranitidine, Nizatidine and Gabapentin amongst others. During FY10, capacity utilization was enhanced for three key products Ibuprofen, Ranitidine and Gabapentin and development of new products in the therapeutic areas of hyperphosphataemia, Pain Management and Tranquilizers was also successfully undertaken to ensure higher capacity utililization in the following years

Ibuprofen is a non-steroidal anti-inflammatory drug. The global Ibuprofen market grew by 5% during 2009 in volume terms. With the failure of the COX II inhibitors such as Rofecoxib and Valdecoxib because of adverse side effects and the absence of newer, reliable pain management treatments in the marketplace, Sales of Ibuprofen are expected to maintain its healthy uptrend globally in the coming years. This augurs very well for your company as it is the largest manufacturer of Ibuprofen in the world.

Shasun recorded a 6% growth in sales of Ibuprofen and its derivatives such as Ibuprofen Lysinate, Ibuprofen Sodium and S+Ibuprofen. Your Company has taken a conscious strategy of trying to increase the proportion of sales from Ibuprofen derivatives and significant groundwork for the same was done during FY10.

Ranitidine is a widely used anti-ulcerant. During the year under review, sales of this product increased by more than 10% (reversing the declining trend witnessed last year) during the year mainly on account of improved offtake in key regulated markets.

Nizatidine is also an anti-ulcerant drug but with a much lower global demand in volume terms. Shasun is one of the largest producers of this active bulk and enjoys major share in the global market. The sale of this product declined by 10% during the year compared to previous year mainly on account of reduced offtake from its major customer. However we expect higher sales of Nizatidine during FY11 due to increased off take from a major customer.

Gabapentin is used for the treatment of epilepsy and neuropathic pain. The molecule went generic in 2005 and has become a significant driver of growth in volume and value. The company registered a growth of more than 100% during the year in sales of Gabapentin. The company has undertaken various initiatives to enhance its competitiveness in the market place and this is expected to result in sustained and enhanced sales Gabapentin in the years to come.


OUTLOOK

The company continues to enjoy significant traction in its core APIs. With respect to Ibuprofen, the company intends to maintain its above-average growth rate and focus on higher value addition through more sales of Ibuprofen derivatives capitalizing on the groundwork done during FY09. The Company is under discussions with select customers to enter into binding supply contracts (including exchange rate fluctuation) which would lead to more stability to Sales and Profits in the ensuing years. On Gabapentin, various initiatives undertaken by the Company have borne fruit and the Company expects sustain the high contribution from this product in the current fiscal year too.

As explained earlier, the Global Generics market is poised to register attractive growth rates in the ensuing years. To capture this opportunity, your Company has undertaken development work on various APIs which were selected after a rigorous evaluation and is confident of them being revenue drivers and enhance capacity utilization at our facilities in the years to come. Considering the immense growth opportunities offered by the Japanese generic market, your Company has established a marketing presence there and is actively looking towards extracting sustainable long-term value out of that market. A promising product targeted towards the Japanese Generic market has received extremely encouraging response and your company is confident that this product would be a significant value driver in a few years from now.

Given the growing importance of emerging markets, your company has undertaken a restructuring of its marketing organization to ensure renewed focus on these markets. Your company is currently evaluating various initiatives in these markets and is well poised to capitalize on the attractive growth rates in these markets.

Contract Research and Manufacturing Services Business Your Company has an active presence in CRAMS in both

APIs and Formulations

API CRAMS INCLUDES

Shasun Pharma Solutions Limited, UK CRAMS (India)

FORMULATIONS CRAMS INCLUDES

The activities carried out by its Finished Dosages facility in Pondicherry wherein it predominantly services Generics customers as of now

Shasun, with its strong research capability and rich manufacturing experience in diverse geographies, further strengthened by longstanding relationships with global pharmaceutical majors, has positioned itself as a complete pharmaceutical solutions provider. During 2009-10, CRAMS business registered revenue of Rs. 2930 Mn., comprising 37% of the total revenue of Shasun.

SHASUN PHARMA SOLUTIONS LIMITED, UK

Shasun Pharma Solutions Limited, wholly owned subsidiary of Shasun Chemicals and Drugs Limited has closed its manufacturing facility at Annan, Scotland, United Kingdom effective March 31, 2009. The closure was done with an objective of creating a much leaner and cost-effective manufacturing operation in UK leading to improved profitability in the years to come. The Annan exit and consolidation to one site together with cost optimization activity at the Dudley site has transformed the company cost structure resulting in the company returning to profitability in Q4. The companys product portfolio is also very healthy as shown under

CRAMS (INDIA)

On the Contract Manufacturing front in India, your Company has successfully commercialized a leading API in the area of CNS. Your Company also took a conscious decision to focus on Japan. Japan is the second largest pharmaceutical market that is relatively untapped. It offers tremendous growth potential for outsourcing service providers. Keeping this in mind, Shasun has set up a marketing presence in Japan and has built relationships with seven of the top ten innovator pharma companies in Japan.

OUTLOOK

FY10 was a year of consolidation for Shasuns UK subsidiary. With the closure of the Annan plant, cost structure of the UK division has improved tremendously and the division is expected to better its performance during the current fiscal year. A key product for which your Company is the key API supplier has continued to do very well in Clinical trials and this augurs very well for enhanced business prospects in future.

On the India front, focus would be towards beefing up sales efforts in various geographies. Your company decided to target Japan as a key pharmaceutical market during FY10 and made significant inroads towards establishing long-lasting relationships with various Japanese pharmaceutical companies. Your Company expects to leverage upon these relationships starting this fiscal year and expects a significant proportion of revenues from that

25 24

810

6

20

10

5

0Launch Phase 3 Phase 2 Phase 1

15


geography. On the Contract Manufacturing front, the Company expects enhanced business from a CNS product that was commercialized during this fiscal year.

Your company has also taken initiatives to integrate its CRAMS offering across geographies and this is expected to result in renewed traction in its revenue building efforts. Your company is also constantly evaluating newer technologies/areas of specialization. Such a move would enable your company create a differentiated value proposition for its customers.

FINISHED DOSAGES BUSINESS FORMULATIONS CRAMS

Your company is following a service oriented model for its Finished Dosages business and is predominantly service customers in the Generics Space. The division scaled up its business tremendously and achieved a turnover of Rs. 487 Mn. during FY10, a growth of over 80% over the previous year.

The Finished Dosages facility has undergone successful inspections by various regulatory bodies such as US FDA, MHRA (U.K) and TPD Health, Canada.

Shasun is working towards increasing its Finished Dosages business through partnerships and by exploring opportunities in Contract Manufacturing with Innovator and Generic Pharmaceutical companies.

Finished Dosages Business remains a major opportunity for Shasun to increase and diversify its revenue base. With the foundation (capacity and approvals) ready, we expect revenues from this business to increase significantly in the coming years.

OUTLOOK

Shasun would continue to focus on forging tie-ups with Global Pharmaceutical customers through a service oriented Business model to enhance capacity utilization

and thereby profitability at its Finished Dosages business. The facilitys excellent regulatory track record coupled with its inherent cost advantage gives the Company the required confidence to achieve its projected steep growth targets for this division.

Given the attractive opportunities presented by the Global Generics Market, your Company is also working on a set of products where it would file its own ANDAs. This move, apart from enhancing the technical skills of the company, would also mean enhanced profitability in the years to come.

Biotech Your company launched Recombinant Streptokinase in

the Indian Market during FY10. Initial market response has been encouraging and this division clocked a turnover of Rs. 3.2 crores during FY10. Your company has ramped up capacity and expect increased sales of this product during the current fiscal. The company had developed the technology for manufacturing recombinant Streptokinase in collaboration with CSIR-IMTech, an Indian Government institution of scientific repute.

OUTLOOK

Your company is actively promoting its recombinant Streptokinase in the Indian market. It has also actively exploring export options for this product and is confident of a favourable result on that front.

Your Company has also initiated Clinical trials for two more products and anticipate launching these products during FY11. Given the growing importance of biologics within the pharmaceutical landscape, opportunities for Biological CRAMS are also on the rise. Your company, by virtue of its long-standing presence in Small molecule CRAMS, is ideally positioned to capitalize on the strong relationships with innovator pharmaceutical companies and thereby generate revenues from this offering in the years to come.


Financial Review Shasun India Manufacturing cost as a proportion of net revenues

decreased from 68% in 2008-09 to 63% in 2009-10. The decrease is largely on account softening of utility prices during intial part of the financial year and improving efficiencies in the operations.

Selling and distribution expenses increased to 6% of net revenues in 2009-10 from 4% last year. This was due to firming up of freight rates. Other operating expenses too remained largely under control.

Interest outflow increased from Rs. 122.18 Mn. in 2008-09 to Rs. 159.19 Mn. in 2009-10. The increase was due to higher borrowings coupled with higher interest rates compared to the previous year.

The company provided current taxes (MAT provision) of Rs. 17.24 Mn. in view of carried forward losses under Income Tax. The deferred tax liability for Rs. 34.90 Mn. got reversed during the year mainly on account of timing difference between book depreciation compared to depreciation under Income tax. This is as per Accounting Standard 22, Accounting for Taxes on Income, issued by the Institute of Chartered Accountants of India.

FOREX LOSSES

Company incurred losses of Rs. 328.51 Mn. in 2009-10 (Rs. 561.86 Mn. in 2008-09) due to currency fluctuations. Your company derives nearly three-fourth of its revenue from exports. It has large amount of inflow and outflow in foreign currency. It had hedged its export receivable and the sharp depreciation of rupee against US dollar resulted in significant losses on hedged contracts. Also, the sharp fluctuation in currency exchange rates resulted in transactional and reinstatement loss

INTERNAL CONTROL AND SYSTEMS

The company deploys internal control procedures commensurate with the size and nature of its business. The aim of these procedures is to ensure efficient use and protection of the companys resources, accuracy in financial reporting, and due compliance with statutes and company procedures. Well-defined individual roles and responsibilities, as well as an effective feedback flow, facilitate effective monitoring and a responsible internal audit. Regular Audit Committee Meetings are held where the statutory auditors as well as the internal auditors participate and the internal audit reports are thoroughly discussed and reviewed.

Risk Management Shasun is exposed to varied business risks while competing

in global environment. The major risks and mitigations are as follows:

ENVIRONMENT RISK

Manufacturing of Active Pharma Ingredient involves handling and processing of chemicals with water and thus generation of effluents. Effluent has to be treated properly, if not could adversely disturb the environment. Any emission or discharge beyond the norms laid down by the relevant regulatory bodies could cause legal censure and affect the companys brand equity. Cuddalore Small Industrial Promotion Corporation of India (SIPCOT) is considered as one of the high pollution industrial area and regulatory authorities are keeping close watch on any such deviation.

RISK MITIGATION

A responsible Environment, Health and Safety approach is central to the companys existence. An EHS policy outlines this approach, comprising best EHS practices and continuous improvement. The companys investments in reverse osmosis plants, the bio filtration, close collection & aeration tanks, activated carbon bed facility for fugitive emissions, and monitoring of environment by reputed third party are proof of its commitment to exemplary EHS practices. Various audits by customers have also established Shasuns environmental, health and safety practices as among the best in its industry in the country. The ISO 14001 and OSHAS 18001 certification of its Cuddalore and Pondy API facilities by BVQI are a manifestation of this discipline. The Cuddalore facility is also a Zero Liquid Discharge facility (No aqueous effluents are discharged into the external environment) indicating the highest standards of effluent treatment.

REGULATORY RISK

The Pharma industry is strictly regulated in most developed countries and therefore poses a potential risk if any failure to meet these requirements could prevent companies like Shasun from entering new and expanding in existing markets, thereby limiting prospects for growth.

RISK MITIGATION

Regulatory capability is a key Shasun strength, reflected in the following achievements: institution of a strong team to focus exclusively on meeting the evolving regulatory requirements of different markets and coordinating with its manufacturing team to make products that conform to them; successful conduct of regulatory compliances with the minimum of non-conformances, making it possible for the companys products to be placed in markets in the shortest time; successful inspection and certification of the companys API facilities by the US FDA, EU authorities, Japanese agency, TGA etc. The companys formulations facility also has been successfully inspected by the US FDA, MHRA and TPD (Canada), indicates Shasuns regulatory depth.


CLIENT CONCENTRATION RISK

The company depends on a few large companies for a majority of its revenues, any attrition in which could impact its fortunes.

RISK MITIGATION

The company has built its foundation on long-term relationships with many important and major customers. Shasun is focused on extending these relationships, as these partners increasingly involve Shasuns participation across a wider range of products and services. However, from a de-risking point of view, the company is broadening its customer base by enhanced focus on a few high potential markets (such as Japan, Brazil, Chile, South Africa, etc apart from its existing forte in Europe and US) and approaching new customers with newer products. This would reduce risk associated with dealings with only a few large customers.

EXCHANGE RATE RISK

Shasun derives nearly 3/4th of its revenues from exports, exposing the company to an exchange fluctuation risk.

RISK MITIGATION

Company is addressing this risk at multiple levels providing for escalation clauses in key contracts, borrowing in appropriate currency, diversifying its sales into various currencies viz., US Dollar, Euro, Pound Sterling, Japanese Yen and Indian Rupee.

Human Resources In a knowledge-driven business, the companys performance is enhanced through selective recruitment, skill enhancement and

people retention. The company has 1450 employees on its rolls across all the units.

Shasun recruits professionals of high academic achievement, experience and behavioral competencies across the operations, research and marketing functions.

Operations: The minimum qualification is a B.Sc./M.Sc. A degree in Chemical Engineering supplemented by prior experience of dealing with pharma products is preferred.

Research: The company recruits scientists with strict criteria on qualification and industry experience that can deliver results.

Marketing: The company requires professionals with a technical background reinforced with marketing experience with pharmaceutical or chemical products in regulated markets.

The companys induction training for new recruits comprises familiarization visits; orientation on various functions and tailor made to each specific unit. Managers are sent for external orientation to conferences, seminars, workshops and training programs where they are updated with contemporary industry and managerial practices.

Highlights 2009-10 Added new talents in line with the companys growth plan.

Goal setting for Executives and above, across the organization. Analysis of exit interviews and initiatives to retain the talent.

The Way ahead Shasun is looking at periodical and/or regular improvements in its current practices while bringing in best practices from outside.

The focus area for the Human Resource function for the coming year is to focus on employee engagement activities, develop internal talent through focused initiatives for individual talent development, improving productivity of existing resources and succession planning of critical positions.


1. Philosophy on Corporate Governance The company is committed to good corporate governance. The company provides detailed information on various

issues concerning its business and financial performance. The company respects the right of its shareholders to information on the performance of the company and considers itself as trustee of its shareholders.

2. Board of Directors The present strength of the Board is seven directors. The Board comprises of four whole time directors including

Managing Director. There are three non-whole time director and all of whom including the Chairman are independent directors.

The Constitution of the board is given below

Director Wholetime/ Independent Number of other directorship held

Number of membership

on other Board committees

Number of Chairmanship on other Board

CommitteesMr. A.Mahendran Chairman & Independent

Director9 3 2

Dr. S.Devendra Whole-time Director 2 1 -Mr. S.Abhaya Kumar Whole-time Director 4 - -Mr. S.Vimal Kumar Whole-time Director 2 2 -Mr. N.Govindarajan Chief Executive Officer &

Managing Director- - -

Mr. Vistasp Farrokh Banaji

Independent Director - - -

Mr. Tapan Ray Independent Director - - -Mr. S.Krishnan ** Independent Director 1 1 -

Note:

1. The number of directorship held by Directors excludes those in private companies, companies as defined under Section 25 of the Companies Act, 1956 and foreign companies.

2. The number of memberships / chairmanships on other Board committee includes only memberships/ chairmanships in respect of Audit Committee and Shareholders Grievance Committee.

** Mr. S. Krishnan was appointed on July 26, 2009. He expired on February 28, 2010.

The Independent Director

According to the Clause 49 of the listing agreement, independent director shall mean a non-executive director of the Company who:

a ) apart from receiving directors remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director;

b) is not related to promoters or persons occupying management positions at the board level or at one level below the board;

c) has not been an executive of the company in the immediately preceding three financial years;

Report on Corporate Governance


d) is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following:

i) the statutory audit firm or the internal audit firm that is associated with the company, and

ii) the legal firm(s) and consulting firm(s) that have a material association with the company.

e) is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director;

f) is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.

g) is not less than 21 years of age

None of the directors is a member of more than ten board level committees or a chairman of more than five such committees, as prescribed under clause 49 of the listing agreement.

3. Board Meetings and Attendance at Board Meetings and Annual General Meeting The Board of Directors of the company met ten times during the financial year, under review - April 23, 2009,

May 21,2009, June 27, 2009, July 26, 2009, October 07, 2009, October 29, 2009, December 16, 2009, January 25, 2010, February 19, 2010 and March 26, 2010. The company placed the annual operating plans, budget and performance of various divisions from time to time before the Board. Information regarding recruitment of senior executives, show cause notices which are materially important, details of subsidiaries, labour problems, signing of wage agreements, etc., are also placed before the Board.

The attendance at the Board Meetings and Annual General Meeting:

Director Board of Directors Meeting

Last AGM(held on 23.09.09 )

No. of meeting held AttendedDr. S. Devendra 10 10 PresentMr. S. Abhaya Kumar 10 7 PresentMr. S. Vimal Kumar 10 10 PresentMr. N. Govindarajan 10 10 PresentMr. C.L. Jain1 4 3 N.A.Mr. C. M. Tolia2 4 4 N.A.Dr. Jagdish N Sheth3 2 1 N.A.Mr. D. A. Prasanna4 2 1 N.A.Mr. A. Mahendran5 8 5 Not PresentMr. Tapan Ray6 8 5 PresentMr. Vistasp Farrokh Banaji7 5 2 N.A.Mr. S. Krishnan8 7 3 Present

1. Mr. C.L. Jain resigned from directorship on August 04, 20092. Mr. C.M. Tolia retired from directorship on September 23, 20093. Dr. Jagdish N Sheth resigned from directorship on June 27, 20094. Mr. D.A. Prasanna resigned from directorship on June 27, 20095. Mr. A. Mahendran was inducted as director on June 27, 20096. Mr. Tapan Ray was inducted as director on June 27, 20097. Mr. Vistasp Farrokh Banaji was inducted into the Board on October 29, 20098. Mr. S. Krishnan was inducted into the Board on July 26, 2009. He expired on February 28, 2010.


Name Designation Wholetime/Independent

Profession No. of Committee Meeting held

Committee Meeting Attended

Mr. S. Krishnan1 Chairman Independent Director 2 2Mr. C.L. Jain Member Independent Director 2 2Mr. C.M. Tolia Member Independent Industrialist 2 2Mr. A. Mahendran2 Member Independent Director 4 4Mr. Tapan Ray Member Independent Director 4 3Mr. S. Vimal Kumar3 Member Wholetime Director 1 1

Note:1. Mr. S. Krishnan was appointed as Chairman on October 29, 2009. He expired on Feb 28, 2010.2. At present Mr. A. Mahendran is the chairman of the Audit Committee.3. Mr. S. Vimal Kumar was appointed as member on October 29, 2009. Mr. Dinesh Bhutda - Company Secretary is the Secretary of Audit Committee.

Terms of Reference of the Audit Committee include a review of Financial reporting process Draft financial statements (Quarterly & Annual) and auditors report before submission to the board Accounting policies and practices Internal controls and internal audit systems Risk management policies and practices Related party transactions Internal audit reports and adequacy of internal audit function Compliance with Stock Exchange and legal requirements concerning Financial Statements.

The role of the audit committee includes recommending the appointment and removal of statutory auditor, discussion of audit plan, fixation of audit fee and also approval for payment of any other services.

5. Investors Grievance Committee The investor grievance committee of the Board was re-constituted on October 29, 2009 and now comprises of 1. Mr. S. Krishnan* - Chairman2. Mr. S. Vimal Kumar - Member3. Mr. N. Govindarajan - Member* Mr. S. Krishnan expired on Feb 28, 2010

The Investor grievances Committee specifically looks into redressing of shareholders complaints such as transfer of Shares, non-receipt of shares, non-receipt of dividends and to ensure expeditious share transfer process.

Mr. Dinesh Bhutda, Company Secretary is designated as compliance officer of the Company for overseeing and addressing investor complaints.

Circular Resolution

Recourse to circular resolution is made in exceptional and emergent cases that are recorded at the succeeding Board/Committee Meetings. During the year, three circular resolutions were passed which were recorded at the subsequent Board meetings.

4. Audit Committee The audit committee was constituted in the year 2000. It was last reconstituted on October 29, 2009. During the year

under review, the committee met four times - June 27, 2009, July 26, 2009, October 29, 2009 and January 25, 2010.

The Constitution of the Committee and the attendance of each member of the Committee are given below:


6. Compensation Committee The Compensation Committee was constituted comprising of non-executive and Independent Directors on

October 29, 2001. It was last reconstituted on October 29, 2009. The Compensation Committee devises suitable remuneration package to whole time directors and recommends the same to Board. The Board thereafter may approve the package, subject to approval of shareholders at the following Annual General Meeting., wherever applicable. The committee also approves issue of stock options to employees.

The compensation committee held two meetings during the year - April 23, 2009 and July 26, 2009.

The attendance of committee members at the meetings:

Name Designation Compensation Committee Meeting No. of meeting held Attended

Mr. Vistasp Farrokh Banaji* Chairman of Committee Nil NilMr. A.Mahendran Member 1 1Mr. Tapan Ray Member 1 1Dr. Jagdish N Sheth Member 1 1Mr. D.A. Prasanna Member 1 1Mr. C.L. Jain Member 2 2Mr. C.M. Tolia Member 2 1

*Appointed as Chairman of Committee on October 29, 2009


7. Remuneration to Directors Details of remuneration paid to Directors are given below:

Director Relationship withDirectors

Business relationship with Shasun if any

Remuneration paid during 2009-10(Rs. In Thousands)

Sitting fees Salary/ Perquisites/

other benefits

Commission Total

Executive DirectorsDr. S. Devendra Brothers Promoter 2726 1025 3751Mr. S. Abhaya Kumar Brothers Promoter 2679 1025 3704Mr. S. Vimal Kumar Brothers Promoter 2762 1025 3787Mr. N. Govindarajan M.D. & CEO 8905 - 8905Non-Executive DirectorsDr. Jagdish N Sheth None 10 - 10Mr. C. L. Jain None 70 - 70Mr. C. M. Tolia None 80 - 80Mr. D. A. Prasanna None 10 - 10Mr. A. Mahendran None 110 500 610Mr. Tapan Ray None 100 500 600Mr. Vistasp Farrokh Banaji None 20 500 520Mr. S. Krishnan None 50 500 550

Note: 1. Salary paid to Executive Directors includes contribution made to provident fund and other funds.2. Company has not given any loans and advances to its directors.3. Company has not granted any options under ESOP to its directors.

8. Name and Designation of Compliance Officer Mr. Dinesh Bhutda - Company Secretary.

9. A. Related Party Disclosure Information on related party disclosure are given in Item No.28 of Notes to Accounts in the financial statement.

B. Compliance: No transactions of material nature are entered into by the company with promoters, directors or management,

or their relatives etc, that may have a potential conflict with interest of the company. There are no material pecuniary transactions with the independent/non-executive directors other than the payment of remuneration disclosed as above.

10. Means of Communication The companys quarterly unaudited financial results / annual audited results are being published in at least one of

the leading English news papers such as Business Standard and also in one vernacular news paper, in compliance with Stock Exchange listing requirements. Annual Report is circulated to all Shareholders. The financial results and annual report are also uploaded on the companys website www.shasun.com.


For and on behalf of Jagadisan & Co.,

Chartered Accountants

V. Jagadisan Partner Membership No. 3694


11. SEBI prescription of Insider Trading As per SEBI guidelines, the Board has designed a code of conduct strictly in accordance with model code of conduct

prescribed. The Code besides other relevant matters prohibits an insider from dealing in shares of the company while in possession of unpublished price sensitive information in relation to company. During the time of declaration of results, dividend and other material events the trading window is closed as per code.

12. Secretarial Audit Reports As stipulated by SEBI, a qualified Practising Company Secretary carries out Secretarial Audit to reconcile the

total admitted capital with National Securities Depository Limited and Central Depository Services(India) Limited and the total issued and listed capital. The Audit confirms that the total listed and paid up capital is in agreement with the aggregate of the total number of shares in dematerialized form (held by NSDL and CDSL) and total number of shares in physical form.

Quarterly Secretarial Audit Reports on reconciliation of the total admitted capital with NSDL/CDSL and the total issued and listed capital were carried out and furnished to the Stock Exchanges.

13. Code of conduct The company has code of conduct for all Board members and the senior management of the company pursuant to

Clause 49(D) of the listing agreement.

Auditors Certificate on Compliance of Conditions of Corporate Governance - March 31, 2010.

To The Members of Shasun Chemicals and Drugs Limited

We have examined the compliance of conditions of Corporate Governance by Shasun Chemicals and Drugs Limited (the Company) for the year ended on March 31, 2010, as stipulated in Clause 49 of the Listing Agreements of the Company with the stock exchanges.

The compliance of conditions of Corporate Governance is the responsibility of the Management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statement of the Company.

In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above-mentioned Listing Agreements.

We have been explained that no investor grievances are pending for a period exceeding one month against the Company as per the records maintained by the Company.

We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the Management has conducted the affairs of the Company.


General Shareholders Information1. Annual General Meeting The Thirty-Fifth Annual General Meeting of the Shareholders of the company will be held on Friday, July 30, 2010

at Russian Cultural Centre, No.74, Kasturi Ranga Road, Teynampet, Chennai 600 018 at 3.00 P.M.

2. The last three Annual General Meetings and details of Special Resolution Passed.

Financial Year ended Date Time Venue Special resolutions2006-07 24.07.2007 3.30 P.M. Sri Mahaswami Auditorium,

Vani Mahal 103 G N Chetty Road T Nagar Chennai 600 017.

1. To issue shares under ESOP. 2. To issue shares under ESOP to employees of subsidiary company.3. Approval under section 314 of the Companies Act, 1956.

2007-08 26.07.2008 11.30 A.M. The Music Academy168, T T K RoadChennai 600 014.

No Special Resolution passed in this meeting.

2008-09 23.09.2009 03.00 P.M. Russian Cultural CentreNo.74, Kasturi Ranga RoadTeynampet Chennai 600 018

1. Remuneration as per Schedule XIII to M.D.2. Approval u/s.314 of the Companies Act, 1956.

3. Postal Ballot No resolution was passed through postal ballots during the financial year 2009-10

4 Book Closure The companys Register of Members and Share Transfer Books will remain closed from July 27, 2010 to July 30,

2010 (both days inclusive).

5 Financial Calendar

Financial reporting forQuarter ending June 30, 2010 July 2010Quarter ending September 30, 2010 October 2010Quarter ending December 31, 2010 January 2011Quarter ending, March 31, 2011 May 2011

6. Registered Office/Corporate Office Batra Centre

28, Sardar Patel Road Guindy, Chennai 600032 Tamil Nadu, India. Tel : 91-44-43446700 Fax : 91-44-22350924 & 22350278 E- mail : [email protected] Website : www.shasun.com


DETAILS ON LOCATION OF FACTORIES

A) Active Pharmaceutical Ingredient

Puducherry : Periakalapet, Puducherry 605 014.

Cuddalore : A 1/B SIPCOT Industrial Complex, Kudikkadu Village, Cuddalore 607 005.

B) Formulations

Puducherry : Periakalapet, Puducherry 605 014.

C) Research & Development Centre

60, Velachery Road Shasun Research Centre Formulations Chennai - 600 042. # 27, Kelambakkam Road Periakalapet Keezhakottaiyur Puducherry - 605 014. Chennai - 600 048.

7. Listing on Stock Exchanges The companys shares are listed at Bombay and National Stock Exchange. The listing fees have been paid to

both the Stock Exchanges for the financial year 2009-10.

8. Stock Market Data A) STOCK CODE: THE STOCK CODE FOR THE COMPANYS SHARES IS AS FOLLOWS

The Stock Exchange Mumbai : 524552

The National Stock Exchange of India Limited : SHASUNCHEM

B) THE ISIN NOS. FOR THE COMPANYS SHARES IN DEMAT MODE: INE317A01028

C) STOCK PRICE DATA ON A MONTH-TO-MONTH BASIS DURING FINANCIAL YEAR 2009-10

NSE

Documents

Shasun Chemicals Annual Report 2009-10