Aurobindo Pharma Ltd

Dear Members ,

Your Directors are pleased to present the 24th Annual Report of the Company togetherwith the Audited Accounts for the financial year ended March 31, 2011.

FINANCIAL RESULTS

DIVIDEND

Your Directors have proposed a final dividend of 100% i.e. Rs1 per equity share of Rs1and with the interim dividend of 100% i.e. Rs5 per equity share of Rs5, the total dividendfor the financial year 2010-2011 comes to 200% i.e. Rs2 per share on the equity share ofRs1 against 100% i.e. Rs5 per share of Rs5 paid in the previous year.

FINANCIAL HIGHLIGHTS

Members will be happy to know that your Company is in its Silver Jubilee year. Thiseventful journey has been a period of planned growth and success, and your Directors takethis opportunity to compliment each one of the Members, customers, business associates andemployees for their encouragement, support and co-operation. Your Company shall maintainthe momentum and stands dedicated to strive for continued growth and thereby meet everystakeholder expectation in the future, as well.

The year under review witnessed Aurobindo cross the one billion dollar revenue mark, alandmark that truly reflects the presence your Company has in the global pharmaceuticalmarket. The challenges of the market were met vigorously due largely to the enormousadvantage that your Company has built with its customer relationships, product basket,manufacturing capabilities and organizational strength. Aurobindo demonstrated great speedand flexibility in its marketing and manufacturing efforts and resilience while dealingwith competitive pressures. The performance results showcase the success.

The financial year 2010-2011 saw significant improvement in all parameters includingrevenues, operating income, profit before tax, profit after tax and earnings per share.The revenue growth of over 27.4% at Rs42299.9 million was a culmination of our strategicinitiatives in widening our presence in Europe and USA, penetrating better with largerbasket of products with existing customers and commercializing of new products as well ascreating footprints in untapped markets such as Japan.

Net profit after tax at Rs5938 million was higher by 12.9% over Rs5257.6 million in theprevious year. It is a new high for your Company translating to Earnings per Share ofRs18.56 (Face Value Rs1) as compared to Rs16.63 (adjusted for split in Face Value from Rs5to Rs1). Effectively, your Company earned 11.6% higher earnings over the previous year.

REVIEW OF OPERATIONS

Despite the difficult economic environment, your Company delivered sales growth both inUSA and Europe. Your Company's total volume was higher in each of the existing markets.More importantly, there were higher deliveries in all the key therapeutic segments.

Your Company continues to hold an enviable basket of a large number of products inseveral therapeutic segments approved by regulatory authorities across the globe. Themarketing efforts were galvanized to create demand, deliver on expectations and ensure topline growth. Converting approvals and quickly commercializing them remains one of yourCompany's key strengths.

The newly commercialized manufacturing unit, Unit VII (SEZ) at Jedcherla added to theexisting huge production capabilities of your Company to support the marketing thrust. Theunit at Dayton (USA) was significantly scaled up to deliver high value products.

Consolidation of facilities helped add newer products in all other facilities. Acrossall facilities, production was optimized and utilization was stepped up. Overall, capacityutilization was higher month after month from June 2010.

Large state-of-the-art manufacturing facilities have created headroom for growth foryour Company to meet market expectations. Rising volume deliveries and new productlaunches during 2010-2011 are a testimony to your Company's improving competitiveness.

OUTLOOK

Aurobindo's business strategies and financial position are on solid footing even as thedynamics of the global market are challenging and changing increasingly towards costeffective generic formulations. This change is accelerating and driving the need forAurobindo to continuously renew and upgrade its operations. Your Company is equal to thechallenges and expected results are being achieved by the dedicated teamwork on themanufacturing side as well as by aligning with the needs of the customers.

Today, greater traction is visible in formulation sales in USA, Europe and the emergingmarkets. Working closely with MNCs has enabled Aurobindo to become a preferred choicesupplier.

During 2011-2012, your Company is striving towards commercializing 12 new generics,with 4 of them expected to be on a first-to-launch basis. Higher volumes, higherutilization and improvements in productivity would improve visibility of revenues, marginsand earnings.

Your Company's clear focus on quality, product development, manufacturing efficiencies,productivity improvements and quicker reach to market will drive the future success. Thisfocus will enable Aurobindo to enter the financial year 2011-2012 with optimism and keepthe Company on track to deliver revenue of USD 2 billion in 2013-2014.

In order to further strengthen and provide focus to the growing volume of APIs andformulation business, the Board has constituted a Restructuring Committee to explore andevaluate possible growth linked restructuring options, inter alia, including spin-off ordemerger or any other suitable form, with the ultimate objective of enhancingshareholders' value and customer satisfaction. The Restructuring Committee, consisting ofDirectors including independent directors, will take all necessary steps and recommend thebest options to the Board for consideration.

RESEARCH & DEVELOPMENT

The Company has maintained its momentum to enlarge the product pipeline. Given thenature of the pharmaceutical industry, all activities translate into results afterconsiderable investment of inputs, necessary process validations, stringent qualityassurances and uncompromising compliance needs. Therefore, there is a time lag inachieving results and/or commercializing new products.

Your Company has invested in a large pool of skilled talents to actively create newerproducts. Their accomplishments have been in areas as varied as product development,quality enhancement, process development, customer support and knowledge sharing.

During the year under review, the R&D team has entered into newer therapeutic areassuch as ophthalmic products and contraceptives. Validation batches are planned to be takenin 2011-2012. The R&D team in USA have commercialized and launched new products andmany more are expected in the forthcoming financial year.

Overall, your Company filed 46 new patent applications taking the total applicationsfiled to 464. During the year under review, Aurobindo filed 380 DMFs taking the aggregateof DMFs filed in different countries to 1,937. At the same time, 98 formulation dossierswere filed taking the aggregate of formulation dossiers filed in different countries to588. As at March 31, 2011 your Company holds 133 FDA approved/tentatively approved ANDAs,and 156 formulation dossier approvals from other regulatory authorities.

Every R&D effort is focused on enhancing the competitiveness and long termsustainability of your Company.

QUALITY MANTRA

Your Company is pledged to supplying highest quality medicines to customers founded onthe belief that Aurobindo is committed to healthier life. This presupposes that yourCompany at all times is regulatory compliant, meets stringent requirements of customersand that the drugs sold shall provide health care and wellness for the consumers.

While your Company has put in place the necessary systems, regularly all the systems,procedures and controls are continuously fine-tuned. As a consequence, the quality systemshave been revisited to strengthen them while training inputs have been stepped up toelevate the level of awareness, supervision and controllership.

Aurobindo is striving to ensure that it is benchmarked as the best-in-class and therebyprovide reassurance to all stakeholders. Every effort is hence being made to ensure thatthere is no compromise on quality of products and processes.

ENVIRONMENT, HEALTH & SAFETY

At Aurobindo, in every activity, your Company safeguards its employees, facilities andthe environment, conserves natural resources and promotes environmental awareness. In thepursuit of the corporate goal as a responsible corporate, your Company has initiatedseveral activities and adopted best practices such as:

Stepped up investments on wastewater treatment systemsacross all facilities;

Installed stripper system, multiple effect evaporation,agitated thin film drier systems and reverse osmosis systems established across API Units;

Established multiple effect evaporation systems in threeformulation units;

Significantly reduced wastewater disposal to commoneffluent treatment facility;

Explored avenues for disposal of hazardous wastes throughalternate destruction and reuse technologies; and,

Instituted continuous on-line monitoring systems fortreated wastewater and on-line emission of suspended particulate matter.

Safety and health of all the employees continues to be of paramount importance.Considerable work has gone into making our operations safer by implementation of StandardOperating procedures, ergonomics initiatives, regular safety audits etc. Among the focusarea during the year under review were as follows:

Introduction of risk assessments to identify all risks inthe work area and devise and implement proper controls to mitigate the risk;

Training to all new employees and contract workmen;

Identification of process hazards at lab stage itself andusage of calorimetric reaction.

Your Company stayed on track to get accreditation to ISO 14001:2004, a key objective ofthe year. One of the API units achieved ISO 14001:2004 certification while threeformulation units are on the verge of being certified.

FOREIGN CURRENCY CONVERTIBLE BONDS

As Members are aware, in 2005, your Company had issued 60,000 Foreign CurrencyConvertible Bonds of USD 1,000 each due in 2010. After conversion into equity shares,repurchase and cancellation, the outstanding bonds aggregating to face value of USD 2.118million were repaid on due date in August, 2010.

During 2006, your Company had issued 150,000 Zero Coupon Foreign Currency ConvertibleBonds of USD 1,000 each due in 2011 (Tranche A Bonds) and 50,000 Forward ConversionConvertible Bonds of USD 1,000 also due in 2011 (Tranche B Bonds).

The outstanding FCCBs as at March 31, 2011 is 139,200 bonds and are due for repaymentas per the terms of the Offering Circular. Your Company is confident of discharging itscommitment.

EQUITY SHARE CAPITAL

The Board of Directors of your Company at their meeting held on November 3, 2010,approved the sub-division of equity shares of the face value of Rs5 each in the Companyinto equity shares with the face value of Rs1 each. With approval of the Members at theExtraordinary General Meeting of the Company held on December 23, 2010, the sub-dividedshares were issued to Members as on February 11, 2011 (the Record Date).

SUBSIDIARIES/JOINT VENTURES

The reports and accounts of the subsidiary companies are not annexed to this Report.The Board of Directors of the Company have approved and passed a resolution in thisregard. A statement pursuant to Section 212(8) of the Companies Act, 1956 is annexed.

Annual accounts of the subsidiary companies are kept for inspection by any investor atthe Registered Office of the Company as well as at the Registered Office of the respectivesubsidiary companies. Any investor interested in a copy of the accounts of thesubsidiaries may write to the Company Secretary at the Registered Office of the Company.

HUMAN RESOURCES

Aurobindo is well known for its execution capabilities, manufacturing strengths,product quality, ability to keep to its commitments and be a reliable partner for itscustomers. Over the years, organizational strengths have enabled your Company to growfaster than the industry average in each of the past decade.

The momentum continued during the year under review with a new high in volume sold,highest ever revenues and profit after tax. Your Company has been well served by all theemployees, Aurobindo's valuable resources.

As at March 31, 2011 employees on roll constituted 8,317, higher by 3% over 8,066 as onthe same date a year ago.

DIRECTORS

In accordance with the provisions of the Companies Act, 1956, read with the Articles ofAssociation of the Company, Mr. K. Ragunathan, Dr. M. Sivakumaran and Mr. M. Madan MohanReddy, Directors retire at the ensuing Annual General Meeting and being eligible offerthemselves for re-appointment.

The re-appointment of Mr. P.V. Ramprasad Reddy, Chairman and Mr. K. Nithyananda Reddy,Managing Director is being proposed at the ensuing Annual General Meeting.

A brief profile of Mr. K. Ragunathan, Dr. M. Sivakumaran, Mr. M. Madan Mohan Reddy, Mr.P.V. Ramprasad Reddy and Mr. K. Nithyananda Reddy are provided in the Report on CorporateGovernance.

DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to the provisions of Section 217 (2AA) of the Companies Act, 1956 as amended,the Board of Directors confirms that in the preparation of the Profit and Loss Account forthe year ended March 31, 2011 and the Balance Sheet as at that date:

i. the applicable accounting standards have been followed;

ii. had selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fair viewof the state of affairs of the Company as at the end of the financial year and of theprofits of the Company for the year;

iii. proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities; and,

iv. the annual accounts have been prepared on a going concern basis.

GROUP

Pursuant to an intimation from the promoters, the names of the promoters and entitiescomprising 'group' as defined under the Monopolies and Restrictive Trade Practices('MRTP') Act, 1969 are disclosed in the Annual Report for the purpose of the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

CORPORATE GOVERNANCE

The certificate of the Practicing Company Secretary Mr. S. Chidambaram confirmingcompliance of conditions of Corporate Governance as stipulated under Clause 49 of theListing Agreement with the Stock Exchanges in India is annexed.

AUDITORS

M/s. S.R.Batliboi & Associates, Chartered Accountants retire at the ensuing AnnualGeneral Meeting and being eligible, offer themselves for re-appointment as StatutoryAuditors of the Company for the financial year 2011-2012.

COST AUDITORS

M/s. Sagar & Associates, Cost Accountants, have been reappointed as Cost Auditorsof the Company with the consent of the Central Government of India to conduct cost auditof both the bulk drug and formulations divisions of the Company for the year 2010-2011.The due date for filing Cost Audit Report Reports of the Company for 2009-10 was September30, 2010 and the same was filed with the Ministry of Corporate Affairs on September 18,2010.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION ETC.

Information in accordance with the provisions of Section 217 (1) (e) of the CompaniesAct, 1956 read with the Companies (Disclosure of Particulars in the Report of Board ofDirectors) Rules, 1988 is given in Annexure I forming part of this Report.

FIXED DEPOSITS

Your Company has not accepted any fixed deposits during the year under review. As suchno amount of principal or interest was outstanding on the date of the Balance Sheet.

INDUSTRIAL RELATIONS

As in the earlier years, your Company had cordial relations with its employees at alllevels. There is a continuous effort to step up leadership and technical skills that hashelped them function better, stay focused on systems and best practices and in theprocess, build a robust Aurobindo with capabilities to face emergent challenges.

PARTICULARS OF EMPLOYEES

The particulars of employees as required to be disclosed in accordance with theprovisions of Section 217 (2A) of the Companies Act, 1956 and the Companies (Particularsof Employees) Rules, 1975 as amended are annexed to the Directors' Report. However, as perthe provisions of Section 219 (1)(b)(iv) of the Companies Act, 1956, the Report andAccounts are being sent to all the members of the Company excluding the aforesaidinformation. Any member interested in obtaining such particulars may write to the CompanySecretary.

EMPLOYEE STOCK OPTION SCHEME

At the Annual General Meeting of the Company held on July 31, 2004 the Members approvedformulation of Employee Stock Option Scheme - 2004 (ESOP 2004) for the eligible employeesand Directors of the Company and its subsidiaries.

Further, the Members at the Annual General Meeting of the Company held on September 18,2006 approved formulation of Employee Stock Option Scheme - 2006 (ESOP 2006) for theeligible employees and Directors of the Company and its subsidiaries.

During the year no options were granted under ESOP-2004 and ESOP-2006. 29,707 equityshares of Rs5 each were issued and allotted under the ESOP-2004 Scheme.

Details of the options granted up to March 31, 2011 are set out in the annexure to thisReport, as required under Clause 12 of the Securities and Exchange Board of India(Employee Stock Options Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.

ACKNOWLEDGEMENTS

Your Directors place on record their sincere appreciation for the dedication andcommitment of the employees at all levels and their significant contribution to yourCompany's growth. Your Company is grateful to the customers and business associates fortheir support and encouragement. Your Directors thank the banks, financial institutions,government departments and shareholders and look forward to having the same support in allour future endeavors

Annexure-I to the Directors’ Report

Information required under the Companies (Disclosure of Particulars in the Report ofBoard of Directors) Rules, 1988.

FORM – A

CONSUMPTION PER UNIT OF PRODUCTION

Specific areas in which Research and Development carried out by the Company

The Company carried out process development and commercialized various products incephalosporin antibiotics and antiviral compounds. Further, it continued process researchfor maximizing the yield with improved quality.

Benefits derived as a result of the above R&D

The Company's continuing efforts to become a strong knowledge based and technologyoriented R&D driven health care Company have yielded results by way of improvedprocesses in the commercial production.

Newer products and processes have facilitated Aurobindo to expand its market.

Future plan of action

Your Company has ambitious plans to invest further for enhancing its R&Dcapabilities.

Expenditure on Research and Development

Efforts, in brief, made towards technology absorption, adaptation and innovation:

Technology absorption is not involved as the process for manufacture of bulk drug isbeing developed in-house by the Company.

Benefits derived as a result of the above efforts, e.g., product improvement, costreduction, import substitution etc.

The processes were simplified and thereby achieving reduction in cost and improvementin products.

Particulars of imported technology: Nil

Foreign Exchange Earning & Outgo

Activities relating to exports, initiatives taken to increase exports. Registration ofmore product dossiers with global authorities, setting up of foreign subsidiaries andcommencement of activities at subsidiaries and joint ventures.

Foreign exchange earned and out-go during the year ended March 31, 2011:

Annexure-II to the Directors’ Report

DETAILS OF STOCK OPTIONS PURSUANT TO SEBI GUIDELINES ON STOCK OPTIONS

Note: The Equity Share of Rs5 each was split into five equity shares of Rs1 each witheffect from February 11, 2011. The number of shares, number of options, grant price,weighted average exercise price, weighted average fair value and closing market price atNSE mentioned herein is taken after giving effect to the split.