Arch Pharmalabs

The Directors have pleasure in presenting the 15th Annual Report of
 your Company along with the audited statements of accounts for the
 financial year ended 31st March, 2008
 
 FINANCIAL RESULTS
 
 The highlights of the financial results for year ended 31st March, 2008
 are given below:
 
                                                   Amount in Rs. Lakhs
 Particulars for the year ended   31.03.2008   31.03.2008   31.03.2007
                                Consolidated  Stand-alone  Stand-alone
 
 Net Sales & Conversion Income      53941.49     51419.93     36255.19
 
 Other Income                         367.70       346.54       155.64
 
 Total Income                       54309.19     51766.47     36410.83
 
 Material Cost                      35388.48     34428.08     23677.89
 
 Staff Cost                          2521.58      2102.53      1517.52
 
 Other Expenditure                   5830.92      5396.79      4183.16
 
 Total Expenditure                  43740.97     41927.40     29378.59
 
 Profit Before Interest 
 and Depreciation                   10568.22      9839.07      7032.26
 
 Interest                            3783.98      3570.57      2495.81
 
 Depreciation                        1811.94      1606.19      1193.44
 
 Profit Before Tax (PBT)             4972.29      4662.31      3343.01
 
 Provision for Tax-Current            669.13       625.00       244.62
 
 - Deferred                           695.73       662.34       701.88
 
 - Fringe Benefit                      32.71        30.00        20.00 
 
 Profit after Tax (PAT)              3574,72      3344.97      2376.51 
 
 Share of Profit/(Loss) from 
 Investment in Associate             (108.15)           -            -
 
 Less: Share of Profit transferred 
 to Minority Group                    (77.90)           -            -
 
 Pre-Acquisition profit              (124.32)           -            -
 
 Extra-ordinary Income                     -            -       640.00
 
 Profit after Tax after 
 Extra-ordinary Income               3264.36      3344.97      3016.51
 
 EPS(in Rs.)                           15.11        15.49        14.23 
 
 This being the first instance of preparation of Consolidated Financial
 Statements, no comparable figures for the previous year are available.
 
 Your Companys business comprising Pharmaceutical Intermediates and
 Active Pharmaceutical Ingredients (APIs) continued to post steady
 growth. The increase of products offered under both Intermediates and
 API basket has contributed significantly to the increased turnover and
 profitability. Your Management reiterates it market leadership in the
 domestic market for a series of APIs and Intermediates.
 
 A detailed overview and analysis on the performance and the outlook of
 your Company is set out in the Management Discussion & Analysis
 Report, forming a part of this Annual Report.
 
 The company through its focused business strategy perceives itself as a
 Non-competing vendor which has led to zero conflict perception
 amongst customers worldwide.
 
 DIVIDEND
 
 Your Directors dont recommend any dividend on Equity Shares, in view
 of the need to conserve financial resources for the planned capex.
 
 However, a dividend is recommended by the Board at the rate of 7.50% on
 the Redeemable Preference Shares for part of the year ended 31st March,
 2008.
 
 CONSOLIDATED ACCOUNTS
 
 The consolidated financial statements have been prepared by the Company
 in accordance with the relevant accounting standards under the
 Companies Act, 1956. The audited consolidated financial statement
 together with Auditors Report thereon forms part of Annual Report.
 
 GROWTH STRATEGY
 
 Continuing with the growth strategy from the last financial year, your
 company has acquired majority stake in Benzochem Lifesciences Pvt. Ltd.
 and has consolidated the business of its subsidiary company, Arch
 Finechemicals Limited [previously known as Watsol Organics Limited]
 through a Business Transfer Agreement. Your Company has also acquired
 the assets of Chromato Labs Private Limited situated at Taloja, near
 our Corporate R&D Centre, during the financial year under review.
 
 - Acquisition of substantial stake in Avon Organics Limited
 
 Avon Organics Limited is a listed Public Company engaged in the
 manufacture of Intermediates and APIs. It has two manufacturing
 facilities, a USFDA inspected site at Solapur, Maharashtra and the
 other facility is situated at Sadasivpeth, Andhra Pradesh.
 
 Arch has been allotted 98,09,100 Equity Shares of Rs.10 each, fully
 paid-up on preferential allotment basis for a consideration of Rs.20.00
 per equity share, aggregating to Rs. 1961.82 lakhs. Further to above,
 Arch had also made a Public Announcement as per the requirement of SEBI
 (SAST) Regulations, 1997.
 
 The draft offer document filed with SEBI is pending their clearance for
 want of certain information, which has been furnished to SEBI. The
 Company is awaiting approval from SEBI to complete its obligation of
 acquiring 20% Equity Shares comprising of 45,00,000 Equity Shares for a
 consideration of Rs.20.00 per Equity Share or such amount as may be
 determined during the evaluation by SEBI.
 
 - Acquisition of majority stake in Benzochem Lifesciences Pvt. Ltd.
 
 The latest acquisition of the Company has been through a majority stake
 in Benzochem Lifesciences Private Limited, Tarapur. Maharashtra, which
 is engaged in manufacturing of APIs in Anti-Cancer and Anti-Malarial
 segments. Arch has acquired a stake of 70% in the company.
 
 - Business transfer of Arch Finechemicals Limited [formerly known as
 Watsol Organics Limited]
 
 Pursuant to the acquisition of majority stake in Watsol
 
 Organics Limited, the name of the Company has been changed to Arch
 Finechemicals Limited with effect from 8th February, 2008.
 
 Further, the business of the subsidiary company, Arch Finechemicals
 Limited is consolidated with Arch Pharmalabs Limited by way of
 execution of Business Transfer Agreement during the current financial
 year.
 
 - Asset takeover of Chromato Labs Pvt. Ltd.
 
 During the year under review, your Company has taken over assets of
 Chromato Labs Private Limited, situated at Taloja, Maharashtra, with
 effect from 12th December, 2007. The manufacturing facility is located
 opposite our existing Corporate R&D Centre -1. The proximity to the R&D
 centre will facilitate scale up of various processes developed in our
 labs besides adding to our product offerings in the Anti-Asthmatic
 segment.
 
 OTHER DEVELOPMENTS
 
 Change of name of subsidiary Company - Arch Life Sciences Limited
 [Formerly known as Sibra Pharmaceuticals Limited]
 
 Pursuant to the acquisition of a majority stake in Sibra
 Pharmaceuticals Limited, the name of the Company was changed to Arch
 Life Sciences Limited with effect from 27th May, 2008.
 
 GROWTH PLANS UNDERWAY
 
 Your company has two distinct business verticals viz.  Products &
 Services. Technology Transfer agreements for innovative technologies,
 Contract Manufacturing arrangements, Recent Acquisitions and our
 Co-Marketing strategy has helped propel us to the top of the league
 tables as a Pure Play APIs and Intermediates player. We intend to focus
 on these strategies in the year going forward to protect and improve on
 our positioning in the pharma world.  On the services side, we have
 recently completed expansion of our Corporate R&D Centre at Taloja
 which is bound to translate into higher Custom Synthesis and Services
 Outsourcing business. Moreover, we have recently acquired a R&D centre
 from a European company at close proximity to our Corporate R&D centre.
 This site is proposed to be dedicated exclusively for Full Time
 Equivalence (FTE) deals with Innovator companies. Certain relationships
 with Innovator companies which started off at the bottom of the pyramid
 have evolved into a larger strategic role for Arch in the discovery
 business. Besides the custom synthesis and FTE business, we have been
 associated with scale up programmes for various compounds which are
 near launch and this is bound to result in higher volumes and
 visibility in the coming years.
 
 RESEARCH & DEVELOPMENT ACTIVITIES
 
 Arch is committed to achieve growth through excellence in quality,
 technical capabilities, IPR focus and confidentiality.  It has entered
 into supply / service agreement with various pharmaceutical including
 innovator companies across the world. Arch has harnessed its technical
 expertise and infrastructure to deliver diverse chemistries from
 milligrams to metric tonnes. With this capability, it is poised to
 achieve global recognition as a non-competing partner for
 pharmaceutical research services.
 
 Our Corporate R&D Centre - I is spread over 4000 sq.mt.  located close
 to Mumbai, focuses on process development.  In addition, we also have
 Site Research & Development Labs.  With demonstrated chemical and
 commercialized biocatalytic competencies, coupled with quality
 assurance system at site, Arch has a striking track record for
 consistency, reliability and timely deliveries of products and
 services.  Arch offers customer specific services on its foundation of
 innovative route selection coupled with its ability to adhere to
 timeliness and communication.
 
 At Arch, Research and Development activity focuses on the following
 main areas:
 
 - Attract Innovator and Generic companies by offering Custom Synthesis
 services and R&D offshoring options.
 
 - Develop commercially viable, operationally safe and environmentally
 acceptable processes for APIs and Intermediates.
 
 - Improvement of existing processes for achieving higher efficiency,
 lower cost, increased safety and lower environmental impact.
 
 - Support to the Regulatory Affairs Department in complying with
 regulatory requirements and protection of technologies through IPR.
 
 - Support to valued customers.
 
 PERSONNEL
 
 The Board records its appreciation of the support and contribution of
 all employees towards the growth of the company. Your company has 1046
 permanent employees as on March 31st, 2008. The Company enjoys cordial
 relations with its employees at all levels.
 
 None of the employees drew remuneration of Rs.24 lakhs or above per
 annum / Rs.2 lakhs or above per month during the year. This information
 is furnished as required under Section 217 (2A) of the Companies Act,
 1956 read with the Companies (Particulars of Employees) Rules, 1975.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 Your Directors affirm that the audited accounts containing financial
 statements for the financial year under review are in full conformity
 with the requirements of the provisions of Section 217(2AA) of the
 Companies Act, 1956. Directors further confirm:
 
 1.  that in the preparation of the annual accounts the applicable
 accounting standards had been followed along with proper explanations
 relating to material departures.
 
 2.  that the accounting policies are consistently applied and
 reasonable, prudent judgement and estimates are made so as to give a
 true and fair view of the state of affairs of the Company at the end of
 the financial year and of the profit or loss of the Company for that
 period.
 
 3.  that the Directors had taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of this Act for safeguarding the assets of the Company and
 for preventing and detecting fraud and other irregularities.
 
 4.  that the Directors had prepared the annual accounts on a going
 concern basis.
 
 DIRECTORS
 
 As on 31st March, 2008, the Board of Directors consisted of 8 Directors
 with 4 Executive and 4 Non-Executive Directors.
 
 Mr. K. Srinivas, Managing Partner - Equity Group, BTS Investment
 Advisors Pvt. Ltd. has been inducted into the Board of Directors as a
 Nominee Director of Swiss Technology Venture Capital Funds Pvt. Ltd.,
 Mauritius investment in our company with effect from 19th December,
 2007. The appointment is according to the terms of the Common
 Shareholders Agreement entered by the Company with Swiss Technology
 Venture Capital Funds Pvt. Ltd., Mauritius.  Mr. K. Srinivas holds an
 MBA and is an Engineering graduate.  He has over 18 years of experience
 including 15 years in venture capital industry, which comprises working
 with some of the leading Indian venture capital management companies
 such as IFCI Venture Management and IL&FS Venture Corporation Limited.
 
 Mr. Sunil Diwakar, Managing Partner- IL&FS Investment Managers Limited
 (IIML), has been inducted into the Board of Directors as a Nominee
 Director of IL&FS Investment Managers Limited investment in our company
 with effect from 28th January, 2008. The appointment is according to
 the terms of the Common Shareholders Agreement entered by the Company
 with IL&FS Investment Managers Limited.  Mr. Sunii Diwakar holds a
 Masters degree in Production Technology from IIT, Madras and holds a
 Diploma in International Management from IMI, New Delhi. Mr. Sunil
 Diwakar has one of the longest careers in the Indian private equity
 industry of over 17 years. In addition he has also worked in the
 Aeronautical engineering industry for 3.5 years. Since joining IIML, he
 has helped in sourcing, evaluating and monitoring transactions for the
 US$ 153mn Leverage India Fund. Over the years, he has gained
 multi-sector exposure in manufacturing, life sciences, IT, media and
 retail transactions. Prior to joining IIML, he was with IndAsia Fund
 Advisors managing a US$ 53 mn AMP- IndAsia Fund and before that, he
 headed the Mumbai office of ICICI Venture. At ICICI, he was part of the
 origination and exit teams for Intas Pharmaceuticals, a mid-size
 branded formulation company, TV18, the owner of CNBC India Channel and
 Pantaloon Retail, the largest retailer in the country.
 
 Mr. Rajiv Shukla, Director, Private Equity Group, ICICI Venture Funds
 Management Company Limited [ICICI VCF], has been inducted into the
 Board of Directors as a Nominee Director of ICICI VCFs investment in
 our company with effect from 5th May, 2008. The appointment is
 according to the terms of the Common Shareholders Agreement entered by
 the Company with ICICI VCF.
 
 Mr. Rajiv Shukla has a Masters degree in Healthcare Management from
 Harvard University, a Fellowship in Pharmaceutics from the State
 University of New York and a Bachelors degree in Pharmaceutics from
 the Institute of Technology at Banaras Hindu University.
 
 Mr. Rajiv Shukla has senior leadership experience across corporate
 development, investment banking and management consulting. He was
 previously Executive Director and Global Head of the Lifescience and
 Chemicals practice at Avendus Capital, one of the top 5 investment
 banks in India. Before that, he was Senior Director of Business
 Development at Pfizer at their global headquarters. At Pfizer, Mr.
 Rajiv Shukla played a key role in five acquisitions totalling USD 63
 billion besides leading numerous growth and cost management initiatives
 for which he received several leadership awards. Mr. Rajiv Shukla began
 his career as a Management Consultant with Boston Consulting Group.
 
 He serves on the Cll National Committee on Pharmaceuticals and the
 Bombay Chamber of Commerce and Industry IPR Committee.
 
 During the financial year under review, Mr. Shahzaad Dalai, Nominee
 Director, IL&FS Investment Managers Limited and Mr. Pramod Shedde,
 Nominee Director, Swiss Technology Venture Capital Funds Pvt. Ltd.,
 Mauritius had resigned from the Board of Directors. Mr. Aluri S. Rao,
 Nominee Director, ICICI Venture Funds Management Co. Ltd. had also
 resigned from the Board on 8th April, 2008.
 
 AUDITORS
 
 The statutory auditors of the company, M/s. Nayak & Rane, Chartered
 Accountants, retire at the conclusion of the ensuing Annual General
 Meeting and being eligible, offer themselves for reappointment. The
 requisite certificate pursuant to Section 224(1-B) of the Companies
 Act, 1956 has been received.
 
 FIXED DEPOSITS
 
 The Company neither accepted nor renewed any fixed deposits from the
 public during the year.
 
 PARTICULARS REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION
 ETC. AND FOREIGN EXCHANGE EARNINGS AND OUTGO
 
 The information in accordance with Rule 2 of the Companies (Disclosure
 of Particulars in the Report of the Board of Directors) Rules, 1988,
 relating to the conservation of Energy and Technology Absorption and
 Foreign Exchange Earnings and outgo during the year under review as at
 March 31,2008 is given in the Annexure forming part of this Report.
 
 REPORTS ON CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION & ANALYSIS
 
 A report on Corporate Governance along with a certificate from the
 Statutory Auditors of the company regarding compliance of conditions of
 Corporate Governance and a Management Discussion & Analysis Report form
 part of this Annual Report.
 
 AUDIT COMMITTEE
 
 During the year under review, as per the provisions of Section 292A of
 the Companies Act, 1956, the Company had appropriately formed an Audit
 Committee. The Committee focused its attention on overseeing and
 monitoring the financial reporting system within the Company.
 
 SAFETY, HEALTH AND ENVIRONMENT (SHE)
 
 We ensure that all the activities and products are manufactured
 considering appropriate safety, health and environmental risks.
 
 Your Company is committed to maintain internationally accepted
 manufacturing practices.
 
 Arch is one of the few companies to have successfully scaled up
 bio-catalysis based reactions and constantly looks out for employing
 such technologies in other areas. We design our processes to make best
 use of raw materials, resources and energy efficiency.
 
 Arch has incorporated following SHE measures.
 
 - Full fledged effluent treatment plants on all sites.
 
 - Solid waste management systems.
 
 - Solvent recycling.
 
 Arch has an environment management system in place to identify
 potential hazards and take necessary steps to minimize exposure to
 people and operations.
 
 Regulatory shop floor safety meetings, mock drills, screening of safety
 films and quarterly safety review takes place to ensure that every
 employee is committed to the SHE policy of the Company.
 
 Today Arch has ISO 14001:2004 certification for two of its key sites
 and the process of certification has been initiated for other sites.
 
 Your Companys SHE Objectives are:
 
 - Identify and update the safety, health & environmental hazards and
 risks associated with our activities and products.
 
 - To categorize high risk areas and improve conditions for enhanced
 safety.
 
 - To minimize waste generation, promote recycling.
 
 - To plan and reduce harmful solids, liquids & gas emissions.
 
 - Safety awareness to our suppliers and customers.
 
 The workmen are provided with adequate protective cover in order to
 ensure complete safety.
 
 CORPORATE SOCIAL RESPONSIBILITIES
 
 The company as a responsible corporate social citizen, has put in place
 several initiatives to fulfill its social responsibility and
 contributes actively to various social welfare activities.  The support
 is provided to resource centres that work towards the development and
 upliftment of the rural populace.
 
 1.  Successful commercialization of green chemistry by using
 Biocatalysts in certain key APIs and intermediates (Biocatalysts create
 novel process development solutions for efficient, cost-effective and
 environmentally friendly pharmaceutical manufacturing by replacing
 traditional synthetic chemical compounds). The Company along with its
 two technology partners has identified 20+ APIs to be commercialized in
 the next 2 years using Biocatalysis Technology.
 
 2.  Creation of Jobs both direct and indirect employment including
 contractual labour.
 
 3.  Contributing to various educational institutions for funding their
 various research initiatives like UDCT Mumbai, NT Mumbai etc.
 
 4.  Donations to various charitable institutions and NGOs.
 
 5.  Supporting development activities in sports like Hockey and
 Badminton - Dhanraj Pillay Hockey Academy and P Gopichand Badminton
 Academy for spotting and nurturing young talent.
 
 6.  Various measures for the benefit of the people living in villages,
 near our manufacturing sites like contribution for building of school,
 borewells, childrens home (orphaned and economically backward class
 children).
 
 INSURANCE
 
 The Company has made necessary arrangements for adequately insuring its
 insurable interests.
 
 ACKNOWLEDGMENTS
 
 Your Directors wish to thank all stakeholders, business partners, your
 Companys bankers, financial institutions, government authorities. Your
 directors are also grateful to the customers, suppliers and business
 associates of your Company for their continued co-operation and
 support. Your Directors express their appreciation for the dedication
 and commitment extended by its employees at all levels and their
 contribution to the growth and progress of the Company.
 
                                        For and on behalf of the board
 
                                                                  Sd/-
 
                                                        AJIT A. KAMATH
                                          CHAIRMAN & MANAGING DIRECTOR
 
 Place : Mumbai
 Date  : 10.10.2008