Sun Pharmaceuticals Industries Ltd

Your Directors take pleasure in presenting the Eighteenth Annual Report and AuditedAccounts for the year ended March 31, 2010.

Financial Results

Dividend

Your Directors are pleased to recommend an equity dividend of Rs. 13.75 per equityshare of face value Rs. 5/- each (previous year Rs. 13.75 per equity share of face valueRs. 5/- each) for the year ended March 31, 2010.

Management Discussion and Analysis

The management discussion and analysis on the operations of the Company is provided ina separate section and forms part of this report.

Human Resources

A dedicated team of over 8000 multi-cultural employees have been pushing boundaries ofyour organisation to maximize opportunities across our corporate office, Company's variousR&D Centres & 19 plants (including associate companies) spread across threecontinents. The potential and ability to deliver consistently is established by ourremarkable team, evident from our consistent growth. The Company recognises the importanceand contribution of our people. Performance orientation and ethics are high priorityareas. The supportive work environment and opportunities for career advancement within theCompany itself, helps retain talent. Your Directors recognise the team’s valuablecontribution and places on record their appreciation for Team Sun Pharma.

Information as per Section 217(2A) of the Companies Act, 1956, read with the Companies(Particulars of Employees) Rules, 1975 as amended, is available at the registered officeof your Company. However, as per the provisions of Section 219(1)(b)(iv) of the said Act,the Report and Accounts are being sent to all shareholders of the Company and othersentitled thereto excluding the aforesaid information. Any shareholder interested inobtaining a copy of this statement may write to the Company Secretary/Compliance Officerat the

Corporate Office or Registered Office address of the Company.

Information on Conservation of Energy, Technology Absorption, Foreign Exchange Earningand Outgo.

The additional information relating to energy conservation, technology absorption,foreign exchange earning and outgo, pursuant to Section 217(1)(e) of the Companies Act,1956 read with the Companies (Disclosure of Particulars in the Report of the Board ofDirectors) Rules, 1988, is given in Annexure and forms part of this Report.

Corporate Governance

Report on Corporate Governance and Certificate of the auditors of your Companyregarding compliance of the conditions of Corporate Governance as stipulated in Clause 49of the listing agreement with stock exchanges, are enclosed.

Consolidated Accounts

In accordance with the requirements of Accounting Standard AS-21 prescribed by theInstitute of

Chartered Accountants of India, the Consolidated Accounts of the Company and itssubsidiaries is annexed to this Report.

Subsidiaries

The Ministry of Corporate Affairs, Government of India, has granted approval that therequirement to attach various documents in respect of subsidiary companies, as set out insub-section (1) of Section 212 of the Companies Act, 1956, shall not apply to the Company.Accordingly, the Balance Sheet, Profit and Loss Account and other documents of thesubsidiary companies are not being attached with the Balance Sheet of the Company.Financial information of the subsidiary companies, as required by the said order, isdisclosed in the Annual Report. The Company will make available the Annual Accounts of thesubsidiary companies and the related detailed information to any member of the Company andits subsidiaries who may be interested in obtaining the same. The annual accounts of thesubsidiary companies will also be kept open for inspection by any investor at theRegistered Office & Corporate / Head Office of the Company and that of the respectivesubsidiary companies. The Consolidated Financial Statements presented by the Companyinclude financial results of its subsidiary companies.

Finance

CRISIL continued to reaffirm its highest rating of "AAA/ Stable" and"P1+", for your Company’s Banking Facilities throughout the year enablingyour Company to avail facilities from banks at attractive rates. The Company does notoffer any Fixed Deposit scheme.

Corporate Social Responsibility

Your organization continued to support activities in two areas-- health and education.Other areas of support were disaster relief and civic utilities around the plants andresearch centers, where assistance was provided on a need basis.

Directors

Shri Sudhir V. Valia, Shri Hasmukh S. Shah and Shri Ashwin S.Dani retire by rotationand being eligible offer themselves for re-appointment.

Shri Subramanian Kalyanasundaram was appointed as an Additional Director, and ChiefExecutive Officer & Whole-time Director of the Company for a period of five years fromApril 1, 2010 to March 31, 2015, by the Board of Directors by way of circular resolutionpassed on March 31, 2010, and holds the office as a director up to the ensuing AnnualGeneral Meeting. The Company has received requisite notice under Section 257 of theCompanies Act, 1956, from a member to propose his name for being appointed as a Directorof the Company.

Directors’ Responsibility Statement

Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956, withrespect to Directors’ Responsibility Statement, it is hereby confirmed:

(i) that in the preparation of the annual accounts for the financial year ended March31, 2010, the applicable accounting standards have been followed along with properexplanation relating to material departures;

(ii) that the Directors have selected appropriate accounting policies and applied themconsistently and made judgements and estimates that were reasonable and prudent so as togive a true and fair view of the state of affairs of the Company at the end of thefinancial year and on the profit of the Company for the year under review;

(iii) that the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act, 1956for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities; and,

(iv) that the Directors have prepared the annual accounts for the financial year endedMarch 31, 2010 on a ‘going concern’ basis.

Auditors

Your Company’s auditors, M/s. Deloitte Haskins & Sells, Chartered Accountants,Mumbai, retire at the conclusion of the forthcoming Annual General Meeting. Your Companyhas received a letter from them to the effect that their re-appointment, if made, will bein accordance with the provisions of Section 224(1-B) of the Companies Act, 1956.

Acknowledgements

Your Directors wish to thank all stakeholders and business partners, yourCompany’s bankers, financial institutions, medical profession and business associatesfor their continued support and valuable co-operation. The Directors also wish to expresstheir gratitude to investors for the faith that they continue to repose in the Company.

For and on behalf of the Board of Directors

Dilip S. Shanghvi

Chairman & Managing Director

B. Consumption per unit of production

It is not feasible to maintain product category-wise energy consumption data, since wemanufacture a large range of formulations and bulk drugs having different energyrequirements.

C. Energy conservation measures

1 Internal and External Energy Audits for improvisation and continuous monitoring ofPower Factor.

2 Alternative energy sources like Gas & Steam have been used in place ofelectricity for heating of De-mineralized water, fluid bed dryers for producing hot airsystems for coating department and for maximisation of condensate recovery of biomass toimprove efficiency.

3 Installation of Cogeneration Power Plants including biomass based at variouslocations to generate electricity and use waste heat from power plant to achieve overallbest efficiency of electricity generation.

4 Using refrigerated type air dryer instead of desiccant type to reduce air losses andinstallation of evaporative cooling units for AC outdoor units to improve efficiency.

5 Replaced LRP insulation to Puff insulation in all chilled water and brine pipe linesfor waste heat recovery to improved chilling efficiency.

6 Maximization of Condensate recovery of Boilers to improve efficiency.

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

We continue to be one of the most aggressive investors and developers ofgeneric-related pharmaceutical research and technology in the country, with researchprograms to support our generic business pursued at our modern R&D centres. Our expertscientist team is engaged in complex developmental research projects in process chemistryand dosage forms, including complex generics based on drug delivery systems at theseresearch centres. This research activity supports the short, medium and long term businessneeds of the company, in India and all the other markets that your company invests in.

Projects in formulation development and process chemistry help us introduce a largenumber of new and novel products to the Indian market including products with complexityor a technology edge. Process chemistry enables us to be integrated right up to the APIstage for important products. This helps us maintain our leadership position in the Indianmarket with specialty formulations and derive market and cost advantage from API’sdeveloped and scaled up In-house. Further, it helps us to compete in the internationalregulated markets across US / Europe.

The team also works on projects involving complex drug delivery systems for IndiaComplex API like steroids, sex hormones, peptides, carbohydrates and taxanes which requirespecial skills and technology, are developed and scaled up for both API and dosage forms.This complete integration for some products works to the company’s advantage. Theseprojects may offer higher value addition and sustained revenue streams.

2. Benefits derived as a result of the above R&D

In 2009-10, about 39 formulations were introduced across marketing divisions, (notincluding line extensions, but including complex products). All of these were based ontechnology developed in house. Technology for 16 API was commercialised. For some of theimportant API that we already manufacture, processes were streamlined so as to have moreenergy efficient or cost effective or environment friendly processes. A large part of ourAPI sales is to the regulated market of US / Europe, and this earns valuable foreignexchange and also a reputation for quality and dependability. The company’sformulation brands are exported to 40 international markets where a local field forcepromotes the same.

The Department of Scientific and Industrial Research,Ministry of Science and Technologyof Government of India has granted approval to the in house research and developmentfacility of your Company under the provision of the Income Tax Act, 1961.

3. Future plan of action

A state of the art bioequivalence facility with a functional capacity of 220 beds witha well equipped, Phase 1 Clinical unit and ECG Core Laboratory for clinical studies andsafety studies and the same is being expanded to more than 300 beds. Eighteen highcapacity LCMS, fully computerised blood chemistry labs capable of comprehensive analysisare being used extensively for biostudies. This facility has been inspected for India andfor the US.

4. Expenditure on R&D

1. Efforts in brief, made towards technology absorption, adaptation andinnovation

Year after year, your company continues to invest on R&D revenue as well as capex.A large part of the spend is for complex products, ANDA filings for the US, and APItechnologies that are complex and may require dedicated manufacturing sites. Investmentshave been made in creating research sites,employing scientifically skilled and experiencedmanpower, adding equipment and upgrading continuously the exposure and researchunderstanding of the scientific team in the therapy areas of our interest.

2. Benefits derived as a result of the above efforts e.g. product improvement,cost reduction, product development, import substitution

(a) Market leader for several complex products. Offers complete baskets of productsunder speciality therapeutic classes. Strong pipeline of products for future introductionin India, emerging markets, as well as US and European generic market.

(b) Not dependent on imported technology, can make high cost products available atcompetitive prices by using indigenously developed manufacturing processes and formulationtechnologies.

(c) Offer products which are convenient and safe for administration to patients,products with a technology advantage.

(d) We are among the few selected companies that have set up completely integratedmanufacturing capability for the production of anticancer, hormones, peptide,cephalosporins and steroidal drugs.

(e) The Company has benefited from reduction in cost due to import substitution andincreased revenue through higher exports.

3. Your company has not imported technology during the last 5 years reckonedfrom the beginning of the financial year.

C. Foreign Exchange Earnings and Outgo