Ranbaxy Laboratories Ltd Merged Directors Report

Your Directors have pleasure in presenting the 53rd Annual Report and Audited Accounts for the 15 months period ended March 31, 2014.

STANDALONE WORKING RESULTS UNDER INDIAN GAAP

Rs. in Million

	Fifteen Months ended March 31, 2014	Year ended December 31, 2012
Net Sales	66,570.39	61,124.43
Expenditure	80,166.41	63,437.65
(Loss)/ Profit before exceptional items and tax	(3,668.84)	2,169.42
Exceptional Items
Settlement provision reversal	(1,458.05)	–
Profit on sale of intellectual property rights	(4,327.69)	–
Product recall expenses	–	2,370.20
derivativ(other than on loans) Lossonforeigncurrencyoption	3,279.16	412.05
Inventory provision/ write off and other costs	3,557.92	–
Provision in respect of non-current investment in a subsidiary	3,050.96	1,030.00
Provision for other than temporary diminution in the value of non current
	713.11	–
investment in an associate
(Loss) before Tax	(8,484.25)	(1,642.83)
Income Tax Expenses
– Current tax	305.70	(19.44)
Deferred tax	–	–
(Loss)	(8,789.95)	(1,623.39)
Balance as per the last Balance Sheet	(25,312.70)	(23,689.31)
CONSOLIDATED WORKING RESULTS UNDER INDIAN GAAP
Net Sales	130,403.24	122,528.94
Expenditure	133,287.41	112,784.10
Profit before exceptional items and tax	1,225.75	14,720.53
Exceptional Items
Inventory provision/ write off and other costs	3,428.73	–
Impairment of goodwill	1,629.76	–
Provision for other-than-temporary diminution in the value of non-current	305.68	–
investment in an associate
Product recall expenses	–	1,859.54
Loss on foreign currency option derivative, net(otherthan on loans) 3,279.16 412.05
(Loss)/ profit before tax, share in loss of associate (net) and minority interest	(7,417.58)	12,448.94
Income Tax Expenses
– Current tax	3,570.25	2,912.58
Deferred tax	(255.77)	26.46
(Loss)/ profit after tax and before share in loss of associates (net) and minority interest	(10,732.06)	9,509.90
Share in loss of associates (net)	140.41	185.82
Minority interest in (loss)/ profit for the period (net)	(19.95)	96.44
(Loss)/ profit after tax, share in loss of associates (net) and minority interest	(10,852.52)	9,227.64
Balance as per the last Balance Sheet	(7,957.23)	(17,184.87)

CHANGE IN FINANCIAL YEAR

The Board of Directors of the Company approved change in the financial year of the Company from January-December to April-March effective April 1, 2014. In January 1, 2013 to March 31, 2014.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements for the 15 months period ended March 31, 2014, under Indian GAAP form part of the Annual Report.

OPERATIONS

The Company continued to be among the top pharmaceutical companies from India with consolidated global sales of Rs.130,403.24 million for the period of fifteen months ended March 31, 2014. Profit before exceptional items, tax, share in loss of associates (net) and minority interest stood at Rs.1,225.75 million. However, the Company incurred a loss of Rs.10,852.52 million primarily due to provision for diminution in the value of investments, impairment of goodwill, stock provision/write off due to inclusion of Mohali and Toansa plants to certain terms of the Consent Decree by the US FDA and loss on foreign currency option derivatives. During the period, in terms of the settlement with the US DOJ, the Group paid the settlement amount of US$ 515.40 million (including interest expense and other related cost) towards resolution of civil and criminal allegations. During the period, US FDA issued import alerts for the Company’s plants at Mohali and Toansa and advised that both these plants will be subject to certain terms of the Consent Decree earlier entered into by the Company. The Company proactively, temporarily stopped API supplies from Toansa and Dewas facilities to the rest of the world pending further internal review. This voluntary decision was taken as a precautionary measure and out of abundant caution to better allow the Company to assess and review the processes and controls at these sites. In March 2014, US DOJ, United States Attorney’s Office for the District of New Jersey has issued an administrative subpoena seeking information primarily related to the Company’s API manufacturing facility at Toansa. The Company is fully cooperating with this information request.

The Company is continuing its focus for improving margins through innovative product development, better product mix, emphasis on branded products and control on cost. Significant measures have been taken for simplification of processes and structures which will result in improvement in productivity and efficiency

DIVIDEND

In view of the loss incurred by the Company, no dividend has been proposed for the 15 months period ended March 31, 2014.

SCHEME OF ARRANGEMENT BETWEEN THE COMPANY AND SUN PHARMACEUTICAL INDUSTRIES LIMITED

The Board of Directors at its meeting held on April 6, 2014 approved the Scheme of Arrangement for merger of the Company with Sun Pharmaceutical Industries Ltd. (SPIL) with an Appointed Date of April 1, 2014 at a Share Exchange Ratio of 4 Equity Shares of SPIL of Re.1 each fully paid-up for every 5 Equity Shares of the Company of Rs.5 each fully paid-up subject to requisite regulatory approvals in India and overseas as well as the approval of shareholders, creditors and the Courts in India. The transaction will be beneficial to all the stakeholders of the Company. Post-merger, the combined entity is expected to have a leadership position in the Indian Pharmaceutical Market with about 9.2% market share and No.1 Indian pharma company in the USA market, with more than $2 billion in sales. The combined entity will have operations in 65 countries and 47 manufacturing facilities across the globe.

CHANGES IN CAPITAL STRUCTURE

Allotment of shares on exercise of Stock Options by the Employees

During the period, the ESOPs Allotment Committee allotted Equity Shares (on pari-passu basis) pursuant to exercise of stock optionsgranted prior to 2011 under the old ESOP Schemes as summarised below:

Date of Allotment	No. of Shares
January 11, 2013	93,050
April 15, 2013	94,136
July 10, 2013	28,520
October 11, 2013	12,273
January 10, 2014	37,281

The Allotment Committee of Directors on December 11, 2013, allotted 600,000 Equity Shares of Rs.5 each for cash at par to Ranbaxy ESOP Trust (Trust), set up to administer Ranbaxy Employee Stock Option Plan-2011 (ESOP-2011). The Trust allocates the shares to the employees of the Company and of its subsidiaries on exercise of stock options from time to time under ESOP-2011.

SUBSIDIARIES AND JOINT VENTURES

In December 2012, the Companyhadapprovedtheproposaltointegratethebusinessoperationsand management of

Ranbaxy Unichem Co. Ltd. (‘Unichem’), its subsidiary, with Daiichi Sankyo (Thailand) Ltd., a subsidiary of Daiichi Sankyo Company Limited, Japan. The said integration has been completed with effect from October 1, 2013. Pursuant to this, Unichem had become an associate of the Company. During the period, a new wholly owned subsidiary company was incorporated in Thailand by the name of Ranbaxy (Thailand) Co. Ltd. Ranbaxy Pharma AB, Sweden and Ranbaxy (Hong Kong) Limited, non-operating entities were liquidated during the period. The Hon’ble High Courts of Delhi and Punjab & Haryana vide their orders dated 7 December 2012 and6February2013respectively had approved the scheme of merger of Rexcel Pharmaceuticals Limited, Solus Pharmaceuticals Limited, Ranbaxy Drugs and Chemicals Company, Ranbaxy Life Sciences Research Limited and Ranbaxy SEZ Limited, subsidiaries of the Company with Ranbaxy Drugs Limited another subsidiary of the Company, with an Appointed Date ofApril1,2012.TheSchemebecameeffective on 9 May 2013 upon filing of the Order of the Hon’ble High Court of Delhi and Punjab & Haryana with the Registrar of Companies at Chandigarh, India.

A statement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary companies is attached to the accounts. In terms of the general exemption granted by the Ministry of Corporate Affairs vide its circular no. 02/2011 dated February 8, 2011, the Audited Accounts and Reports of Board of Directors and Auditors of the Company’s subsidiaries have not been annexed to this Annual Report. The Company has complied with the requirements as prescribed under the said circular. The consolidated financial statements prepared in accordance with Accounting Standard 21 issued by the Institute of Chartered Accountants of India forming part of this Annual Report include the financial information of the subsidiary companies.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Management Discussion and Analysis Report, as required under the Listing Agreements with the Stock Exchanges, is enclosed at Annexure ‘A’.

EMPLOYEES’ STOCK OPTION SCHEMES

Information regarding the Employees’ Stock Option Schemes is enclosed at Annexure ‘B’.

LISTING AT STOCK EXCHANGE

The Equity Shares of the Company continue to be listed on Bombay Stock Exchange Ltd. and The NationalStock Exchange of India Ltd. Global Depository Shares are listed on the Stock Exchange at Luxembourg. The annual listing fees for the year 2013 2014 has been paid to these Exchanges.

DISCLOSURE OF PARTICULARS

As required by the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, the relevant information and data is given at Annexure ‘C’.

FIXED DEPOSITS

The Company has not invited / received any fixed deposits during the period.

DIRECTORS’ RESPONSIBILITY STATEMENT

In terms of provisions of Section 217 (2AA) of the Companies Act, 1956, (i) In the preparation of the annualaccounts,theapplicableaccountingstandards have been followed, alongwith proper explanation relating to material departures, wherever applicable.

(ii) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company, as at the end of the accounting year and of the loss of the Company for the period.

(iii) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

(iv) The Directors have prepared the annual accounts on a going concern basis.

DIRECTORS

As per provisions of the Companies Act, 2013, Mr. Akihiro Watanabe, Dr. Anthony H. Wild, Mr. Percy K. Shroff and Mr. Rajesh V. Shah, Independent Directors, are proposed to be reappointed at the ensuing AGM for a term of five years. Mr. Takashi Shoda, Non-Executive-Non-Independent Director, retires by rotation at the ensuing AGM and being eligible offers himself for re-appointment.

CORPORATE GOVERNANCE

Report on Corporate Governance alongwith the Certificate of the Auditors, M/s. B S R & Co. LLP, confirming compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges forms part of the Annual Report.

COST AUDIT

M/s. R. J. Goel & Co., Cost Accountants, were appointed as the Cost Auditor of the Company and their Audit report on the Cost Accounts of the Company for the 15 months period ended March 31, 2014, will be submitted to the Central Government in due course.

In terms of the Companies (Cost Accounting Records and Compliance) Rules, 2011, Cost Audit Report for the year ended December 31, 2012 was filed on June 8, 2013, well before the last date of filing being June 30, 2013.

AUDITORS

M/s. B S R & Co. LLP, Chartered Accountants, retire as Auditors of the Company at the conclusion of ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept the office of the Auditors, if reappointed.

AUDITORS’ REPORT

With regard to the comments contained in the Auditors’ Report, explanations are given below :-

(i) The accumulated losses of the Company at the end of the current period are more than fifty percent of its net worth (Computed without adjusting accumulated losses) and the Company incurred cash losses in the current period (Clause x of the Annexure to the Auditors’ Report) The accumulated losses are primarily due to provision created (net of reversal) for settlement with the Department of Justice (DOJ) of the United States of America for resolution of civil and criminal allegations by the DOJ (refer to note 8 of the financial statements) in earlier years. The Company has incurred cash losses during the current period primarily due to US FDA related remediation costs and certain exceptional items including loss on foreign exchange option derivatives and inventory provision/ write off and other costs at Toansa and Mohali plants.

(ii) Short Term funds used for long term purposes (Clause xvii of the Annexure to the Auditors’ Report) during the current period) with the DOJ TheCompanyhadcreatedaprovisionfor during the year ended December 31, 2011, which is currently reflected as payable of Rs.29,238.60 million to a subsidiary (refer to note 8 of the financial statements). This has resulted in long-term funds being lower by Rs.35,175.73 million compared to long-term assets as at 31 March 2014. Accordingly, short term funds of Rs.35,175.73 million have been used for long-term purposes. The Company expects to overcome the situation in the near future.

(iii) Procedures of physical verification of inventories and maintaining proper records of inventories and fraud reported on the Company (clause (ii)(b), (c) and clause (xxi) of the Annexure to the Auditors’ Report) During the currentperiod,theCompanyhaswritten-down carrying amount of inventory by Rs.424 million, consequent to the findings of an exercise carried out by the management in response to certain internal information received by it. The findings primarily concluded intentional incorrect inventory management of certain intermediate products by certain manufacturing unit level staff resulting in yield mismanagement and consequent incorrect higher quantity of inventories. Appropriate actionshave been taken by the Company including strengthening of internal controls. (iv) Slight delay in deposit of statutory dues (clause ix(a) of the Annexure to the Auditors’ Report).

In few cases, there was slight delay in depositing small amounts of statutory dues. Requisite corrective actions have been taken.

STATEMENT OF EMPLOYEES

Statement of particulars of employees as required under Section 217(2A) of the Companies Act, 1956 (“Act”) and Rules framed thereunder forms part of the Annual Report. However, in terms of the provisions of Section 219(1)(b) (iv) of the Act, this Report and Accounts are being sent to all the shareholders excluding the Statement of particulars of employees under Section 217(2A) of the Act. Any shareholder interested in obtaining a copy of the statement may write to the Company Secretary at the Corporate Office of the Company.

ACKNOWLEDGEMENTS

The Directors hereby wish to place on record their appreciation of the significant contribution made by each and every employee of the Company. The Directors also thank all other stakeholders for their support and encouragement. Your Directors look forward to your continued support in the years to come.

	On behalf of the Board of Directors
Gurgaon	Dr. Tsutomu Une
May 9, 2014	Chairman