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Arch Pharmalabs

BSE: 524729|ISIN: INE182F01017|SECTOR: Pharmaceuticals

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� Mar 09

Directors Report	Year End : Mar '10

After a particularly challenging last financial year, the financial year under review has bounced back for your company with lot of promise and performance backed by good financial results. FINANCIAL PERFORMANCE: Analysis of Profit and Loss Account Standalone** Particulars Rs. in Crores USD in Million* FY 10 FY 09 FY 10 FY 09 INCOME Turnover 1051.98 735.57 233.05 144.37 Less Excise Duty (28.61) (22.24) (6.34) (4.37) Net Turnover 1023.37 713.33 226.71 140.01 Other Income 6.45 2.07 1.43 0.41 Total 1029.82 715.40 228.14 140.41 EXPENDITURE Cost of Materials 640.31 468.26 141.85 91.91 Manufacturing and Other Expenses 140.93 108.92 31.22 21.38 Interest and Finance Charges 131.24 59.64 29.07 11.71 Depreciation 45.87 24.01 10.16 4.71 PROFIT BEFORE TAX 71.47 54.57 15.83 10.71 Provision for Taxation 20.59 17.80 4.56 3.49 Current Tax 12.25 7.50 2.71 1.47 MAT Credit (4.99) 0.00 (1.11) 0.00 Deferred Tax 13.33 8.62 2.95 1.69 Fringe Benefit Tax 0.00 0.39 0.00 0.08 Prior Period amortization of 0.00 1.29 0.00 0.25 Technology transfer PROFIT AFTER TAX 50.88 36.77 11.27 7.22 Less: Share of Profit 0.00 0.00 0.00 0.00 transferred to Minority Group PROFIT AFTER TAX (After 50.88 36.77 11.27 7.22 Adjustment of Minority Interest) Less: Extraordinary Items 0.00 0.00 0.00 0.00 PROFIT AFTER TAX 50.88 36.77 11.27 7.22 (After Extraordinary Items) Consolidated Rs. incTores USD in Million* Particulars FY 10 FY 09 FY 10 FY 09 INCOME Turnover 1195.27 1012.00 264.79 198.63 Less Excise Duty (33.42) (31.26) (7.40) (6.13) Net Turnover 1161.85 980.74 257.39 192.50 Other Income 6.74 2.45 1.49 0.48 Total 1168.59 983.19 258.88 192.98 EXPENDITURE Cost of Materials 722.56 649.13 160.07 127.40 Manufacturing and Other Expenses 142.97 81.66 31.67 16.03 Interest and Finance Charges 174.89 156.95 38.74 30.80 Depreciat 51.72 32.68 11.46 6.41 PROFIT BEFORE TAX 76.45 62.78 16.94 12.32 Provision for Taxation 12.25 12.17 2.71 2.39 Current Tax 20.59 19.57 4.56 3.84 MAT Credit (4.99) 0.00 (1.11) 0.00 Deferred Tax 13.33 5.62 2.95 1.10 Fringe Benefit Tax 0.00 0.49 0.00 0.10 Prior Period amortization of 0.00 1.29 0.00 0.25 Technology transfer PROFIT AFTER TA 55.86 43.21 12.37 8.48 Less: Share of Profit transferred to Minority Group 3.10 2.93 0.69 0.58 PROFIT AFTER TAX (After 52.76 40.28 11.69 7.90 Adjustment of Minority Interest) Less: Extraordinary Items 1.62 1.49 0.36 0.29 PROFIT AFTER TAX 51.14 38.79 11.33 7.61 (After Extraordinary Items) * 1 USD = Rs. 45.14 as on March 31, 2010. 1 USD ($) = Rs. 50.95 as on 31 March, 2009 (RBI reference rates have been taken). ** During the last FY 2009, Standalone figures only Includes the figures of subsidiaries i.e. Arch Finechemicals Limited, Benzochem Lifesciences FVt. Ltd., Arch Life Sciences Limited and Dombivili site, from the date of acquisition of these companies vide Business Transfer Agreements. Sl. Date of Name of No. Acquisition Transferor Company 1. August 1,2008 Arch Finechemicals Limited 2. January 1,2009 Benzochem Lifesciences Pvt. Ltd. 3. March 11,2009 Arch Life Sciences Limited 4. January 1,2009 Dombivilisite The sales prior to the respective dates of acquisition were included at the time of consolidation of accounts, therefore the comparison of consolidated accounts will be more realistic for analysis purpose. (Rs. in Crores) Particulars Standalone Consolidated FY 10 FY 09 FY10 FY 09 Gross Turnover 1,051.98 735.57 1,195.27 1,012.00 Less Excise Duty (28.61) (22.24) (33.42) (31.26) Net Turnover 1,023.37 713.33 1,161.85 980.74 During theyear under review, the consolidated sales have increased from Rs. 980.74 crores to Rs. 1161.85 crores (increase by 18.47%). The same is on account of expanded capacities and improved utilization of existing capacities. During the current financial year under review, the growth was mainly from the Services Business. (Rs. in Crores) Particulars Standalone Consolidated FY101 FY09 FY10 FY09 Other Income Interest 6.18 1.19 6.46 1.50 Miscellaneous Income 0.26 0.88 0.28 0.95 6.45 2.07 6.74 2.45 During the year under review, the consolidated Other Income has increased from Rs. 2.45 crores to Rs. 6.74 crores. The same is on account interest received on the Advances given to Co-marketing and Co-manufacturing partners and on Fixed Deposits. (Rs. in Crores) Particulars Standalone Consolidated FY10 FY09 FY10 FY 09 Cost of Materials 640.31 468.26 722.56 649.13 Cost of Materials / 62.57% 65.64% 62.19% 66.19% Sales (%) During the year under review, the cost of materials decreased from 66.19% to 62.19%. The same is due to increase of revenues of higher margin Service Business. Further during the year under review, company phased out few low margin products. . (Rs. in Crores) Particulars Standalone Consolidated FY101 FY09 FY10 FY09 Manufacturing and 140.93 108.92 174.89 156.95 Other Expenses Manufacturing and 13.77% 15.27% 15.05% 16.00% Other Expenses / Sales (%) Manufacturing and other expenses includes, Manufacturing Expenses, Staff cost, Selling expenses and establishment expenses. The cost has not increased in proportionate to increase in sales, since increased revenues are from higher margin Services Business segment. (Rs. in Crores) Particulars Standalone Consolidated FY10 FY09 FY10 FY09 Profit Before 248.58 138.21 271.14 177.11 Depreciation, Interest and Tax (operating profit) Profit Before 24.29% 19.38% 23.34% 18.06% Depreciation, Interest and Tax/ Sales (%) PBDIT Margin has improved on account of increased revenues from higher margin Services Business and replacement of low margin merchant products with higher margin products. ,_ . � (Rs. in Crores) Particulars Standalone Consolidated FY 10 FY 09 FY 10 FY 09 Interest and 131.24 59.64 142.97 81.66 Finance Charges Adjusted Interest 120.84 70.04 132.57 92.06 and Finance Charges* Total Borrowings 1126.08 854.90 1,248.41 953.7 * Rs. 10 40 Crores has been added in the financial change of FY 09 and deducted from FY 10 since the said amount relates to FY 09. (Rs. in Crores) Particulars Standalone Consolidated FY10 FY09 FY10 FY09 Depreciation 45.87 24.01 51.72 32.68 The same has increased on account of increased Gross Block due to expansion undertaken at existing plants. (Rs. in Crores) Particulars Standalone Consolidated FY 10 FY 09 FY 10 FY 09 Profit Before Tax 71.47 54.57 76.45 62.78 Adjusted Profit Before Tax 81.87 44.17 86.85 52.38 Adjusted Profit 8.00% 6.19% 7.47% 5.34% Before Tax/Sales (%) For calculating adjusted PBT, Rs. 10.40 crores has been added in PBT of FY 09 and deducted from FY 2010, since the said amount relates to the last year. PBT Margin has improved on account of increased revenues from higher margin Services Business and replacement of low margin merchant products with higher margin products. Analysis of the Balance Sheet Standalone** Particulars Rs. in Crores USD in Million* FY 10 FY 09 FY 10 FY 09 SOURCES OF FUNDS Issued, Subscribed and Paid Up 21.23 21.23 4.70 4.17 Share Application Money 30.00 0.00 6.65 0.00 Reserves and Surplus 415.82 364.93 92.12 71.63 Minority Interest 0.00 0.00 0.00 0.00 LOAN FUNDS Secured Loans 900.13 673.03 199.41 132.10 Unsecured Loans 225.95 181.87 50.06 35.70 Deferred Tax Liability 42.51 29.18 9.42 5.73 Total 1,635.65 1,270.24 362.35 249.31 APPLICATION OF FUNDS FIXED ASSETS Gross Block (incld. CWIP) 755.82 644.29 167.44 126.46 Net Block (incld. CWIP) 644.50 578.11 142.78 113.47 Goodwill (On Consolidation) 0.00 0.00 0.00 0.00 Investments 49.24 71.79 10.91 14.09 Foreign Currency Monetary Item 0.07 0.50 0.01 0.10 Translation Difference Account Current Assets, Loans and 1190.54 831.26 263.74 163.15 Advances Less: Current Liabilities & 248.70 211.42 55.10 41.49 Provisions Net Current Assets 941.84 619.84 208.65 121.66 Total 1,635.65 1,270.24 362.35 249.31 Consolidated Particulars Rs. in Crores USD in Million* FY 10 FY 09 FY 10 FY 09 SOURCES OF FUNDS Issued, Subscribed and Paid Up 21.23 21.23 4.70 4.17 Share Application Money 30.00 0.00 6.64 0.00 Reserves and Surplus 412.92 362.14 91.47 71.08 Minority Interest 25.08 29.32 5.56 5.75 LOAN FUNDS Secured Loans 1,006.42 756.33 222.96 148.45 Unsecured Loans 241.98 197.37 53.61 38.74 Deferred Tax Liability 43.92 30.59 9.73 6.00 Total 1,781.55 1,396.98 394.67 274.19 APPLICATION OF FUNDS FIXED ASSETS Gross Block (incld. CWIP) 896.12 758.91 198.52 148.95 Net Block (incld. CWIP) 732.23 645.87 162.21 126.76 Goodwill (On Consolidation) 9.63 17.41 2.13 3.42 Investments 0.28 0.37 0.06 0.07 Foreign Currency Monetary Item 0.07 0.50 0.02 0.10 Translation Difference Account Current Assets, Loans and 1292.60 929.7 286.35 182.47 Advances Less: Current Liabilities & 253.25 196.87 56.10 38.64 Provisions Net Current Assets 1,039.35 732.84 230.25 143.83 Total 1,781.55 396.98 394.67 274.19 * 1 USD ($) = Rs. 45.14 as on March 31, 2010. 1 USD ($) = Rs. 50.95 as on 31March, 2009. * During the last FY 2009, Standalone figures only includes the figures of subsidiaries i.e. Arch Finechemicals Limited, Benzochem Lifesciences Pvt. Ltd., Arch Life Sciences Limited and Dombivili site, from the date of acquisition of these companies vide Business Transfer Agreements. (Rs. in Crores) Particulars Standalone Consolidated FY 10 FY 09 FY 10 FY 09 AUTHORISED 40.00 40.00 40.00 40.00 Issued, Subscribed 21.23 21.23 21.23 21.23 and Paid up Share Capital Share Application 30.00 0.00 30.00 0.00 Money The Share Application Money of Rs. 30 crores as on 31sl March 2010 is against the equity infusion by the Promoters (pending allotment). (Rs.in Crores) Particulars Standalone Consolidated FY 10 FY 09 FY 10 FY 09 RESERVES AND SURPLUS General Reserve 4.10 4.10 4.10 4.10 Capital Reserve 0.09 0.09 0.09 0.09 Securities Premium 225.21 225.21 225.21 225.21 Account Debenture 18.06 21.67 18.06 21.67 Redemption Reserve Profit and 168.35 113.86 165.45 111.07 Loss Account Total 415.81 364.93 412.92 362.14 TANGIBLE NETWORTH 467.04 386.16 464.15 383.37 The Reserves and Surplus and thereafter Tangible Networth have increased due to plough back of profits. However increase in consolidated Reserves and Surplus and tangible Networth is after reducing share of minority shareholders in theprofitsofthesubsidiarycompanies. (Rs. in Crores) Particulars Standalone Consolidated FY10 FY 09 FY10 FY 09 LOAN FUNDS Secured Loans 900.13 673.031 1,006.43 756.33 Unsecured Loans 225.95 181.87 24T.98 197.37 Total 1,126.09 854.90 1,248.40 953.69 The net increase in Loan Funds is primarily attributable to a) loans taken for Capital Expenditure undertaken at various locations, b) loans taken for the Working Capital requirements of the company. (Rs. in Crores) Particulars Standalone Consolidated FY10 FY 09 FY 10 FY 09 FIXED ASSETS Gross Block 688.40 527.071 798.891 624.14 Capital work in Progress 67.42 117.22 97.22 134.77 Gross Block 755.82 644.29 896.11 758.91 (including CWIP) Less: Depreciation / 111.32 66.18 163.89 113.05 Amortisation Net Block 644.50 578.11 732.22 645.86 (including CWIP) The increase in Gross Block is mainly on account of capex undertaken at various locations for: - Expansion of the capacities - Modernisation of the facilities - Upgradation of equipments - Regular Maintenance. (Rs. in Crores) Particulas Standalone Consolidated FY 10 FY 09 FY 10 FY 09 Investments 49.241 71.79 0.28 0.37 The decrease ininvestments in the Standalone Arch is due to sale of stake (70%) held in Benzochem Limited. (Rs. in Crores) Particulars Standalone Consolidated FY 10 FY 09 FY 10 FY 09 Current Assets, Loans and Advances Inventories 374.341 310.941 435.941 367.17 Sundry Debtors 477.15 311.27 536.12 355.29 Cash and Bank Balances 50.13 40.83 63.38 43.40 Loans and Advances 288.92 168.22 257.15 163.84 Total 1,190.54 831.26 1,292.601 929.71 Less: Current Liabilities & Provisions Current Liabilities 246.861 210.051 251.03 190.83 Provisions 1.84 1.37 2.22 6.04 Total 248.70 211.42 253.25 196.87 Net Current Assets 941.84 619.85 1,039.35 732.84 With the increased operations during FY10, the net current assets (Consolidated) increased from Rs. 732.84 crores in FY09 to Rs. 1039.35 crores in FY10. The same is mainly driven out of increase in Sundry debtors, Inventories and Loans and advances during FY10. However, the said increase is to some extent compensated with an increase in Current Liabilities. RATINGS ASSIGNED During the year under review, the ratings assigned during the last year have been reaffirmed by the Rating agencies. The details are as under. Rating Agency Credit Definition of Rating Rating ICRA Limited A1 Highest credit quality rating (Short Term) indicating highest safety and best prospects of timely payment of debt Fitch Ratings (I) F1 Highest credit quality rating Pvt. Ltd. indicating strong capacity (Short Term) for timely payment of financial commitments CARE Ratings A Indicates Adequate safety (Long Term) for timely servicing of debt obligations CARE Ratings A Indicates Adequate safety (Under Basel for timely servicing of Norms - Long Term) debt obligations CARE Ratings PR1 Indicates strong capacity (Under Basel for timely payment of short Norms - Short Term) term debt obligations and carry lowest credit risk DIVIDEND In view of the need to conserve financial resources for the planned capital expenditures, your Directors do not recommend any dividend on Equity Shares for the year under review. 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 this Annual report. POTENTIAL RISK & MITIGATING FACTORS Your company does not perceive any risks or concerns other than those that are common to Pharmaceutical industry such as regulatory risks, exchange risks and other commercial and business risks. Some of the obvious and identifiable risks include the following: - Competition from other Indian Companies operating in similar segments. - Competition from countries that offer low cost manufacturing base such as China, Korea and other emerging markets. - Other key risks related to our business include loss of key personnel, interest rate, foreign exchange and regulatory changes. Environment risk The Company has a SHE policy, which outlines this approach, comprising safety practices and continuous investment. The companys investments in reverse osmosis plants are proof of its commitment to exemplary SHE practices. Various audits by customers have also established Archs environmental and safety practices as among the best in its industry in the country. Recently the Companys Vitalife site has received the final certification of compliance to OHSAS 18001:2007 (a standard for occupational health & safety management system) & ISO 14001:2004 (guideline for environment management system) for development, manufacture & supply of bulk drugs, intermediates and specialty chemicals on 6 May, 2010 by M/s. Moody International Certification Limited. Regulatory risk With the regulatory framework of the Pharmaceutical Industry in place, the companies are required to continuously update itself with the changes and recommendations by the regulators. The company has a strong regulatory team which is entrusted to focus exclusively on meeting the evolving regulatory requirements and coordinating with its manufacturing team to make products that conform to them; successful conduct of regulatory compliances with the minimum of non-conformances, successful inspection and certification of the companys facilities by the Global regulatory authorities like USFDA, EDQM among others. Client concentration risk The company enjoys enduring long-term relationships with large customers, strengthened by its status as preferred supplier of a number of products. Arch is focused on extending these relationships, as these partners increasingly involve Archs participation across a wider range of products and services. With varied products and service offerings coupled with the technology advantage, cost competitiveness etc., Arch is increasing its client base. Exchange rate risk Since Arch is engaged in exports of its products and services and at the same time imports raw materials, it more or less helps the company to naturally hedge its foreign currency exposure connected with such transactions. RESEARCH & DEVELOPMENT ACTIVITIES Discussions on the Research & Development activities undertaken by the Company, certain specific areas in which R&D work was carried on, benefits derived out of such R&D, future plans etc is separately stated in the Annexure to this report. INDUSTRIAL RELATIONS AND HUMAN RESOURCE MANAGEMENT The Board wishes to place on record their appreciation of the support and contribution of all employees towards the growth of the company. The Company continues to enjoy cordial and harmonious relations with its employees at all levels. The Companys HR policies and processes are aligned to effectively drive its expanding business and emerging opportunities. This has been achieved by continuously investing in learning and conducting training and development programs, creating a compelling work environment and empowering employees at all levels Your company had 2061 permanent employees as on March 31st, 2010. Details of the employees drawing remuneration of Rs. 24 lakhs or above per annum / Rs. 2 lakhs or above per month during the year have been included as an Annexure to this report. 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 the Directors had prepared the annual accounts on a going concern basis. 2. 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 3. 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. 4. that in the preparation of the annual accounts the applicable accounting standards had been followed along with proper explanations relating to material departures. 5. of the Company and for preventing and detecting fraud and other irregularities. DIRECTORS The present strength of the Board is seven members. The Board of Directors of Arch Pharmalabs Limited consists of 7 Directors with 4 Executive and 3 Non-Executive Directors. The Non-Executive Directors are the Directors nominated by the Institutional stakeholders of the Company. The Directors of the Company are professionals with experience in the Pharmaceutical Industry, Legal, Finance, Marketing and General administration and bring in a wide range of skills and experience to the Board. Details of Directors proposed to be re-appointed Proposed re-appointment of Mr. Ajit Kamath, Chairman & Managing Director Mr. Ajit Kamath, Chairman and Managing Director, retires by rotation at the ensuing Annual General Meeting and being eligible, has offered himself for re-appointment. Mr. Ajit Kamath is a commerce graduate and possesses an extensive experience in the pharmaceutical business. In Arch Pharmalabs Limited, his contribution spans across all levels, starting from grass root level to organizational development. His pioneering efforts have steered Arch Pharmalabs Limited to a globally recognized pharmaceutical company. - Mr. Ajit Kamath, aged 40 years, is the Chairman and Managing Director of the Company. - He is responsible for formulation of overall business strategy and management of client relationships for the Company. - A first generation entrepreneur, he has more than 14 years of experience in the pharmaceuticals business. Proposed re-appointment of Mr. Manoj Jain, Deputy Managing Director Mr. Manoj Jain, Deputy Managing Director, retries by rotation at the ensuing Annual General Meeting and being eligible, has offered himself for re-appointment. Mr. Manoj Jain is a Chartered Accountant by qualification and provides extensive value in the area of corporate policy, strategic and perspective planning and external relations. Mr. Jain in instrumental in steering the companys growth wheel. - Mr. Manoj Jain, aged 40 years, is the Deputy Managing Director of the Company. - He is responsible for Accounting, Finance, Secretarial& Legal functions of the Company. - A first generation entrepreneur, he has more than 14 years of experience in the pharmaceuticals business. AUDITORS The observations made in the Auditors Report are self- explanatory and therefore, do not call for any further comments under section 217 (3) of the Companies Act, 1956. The Joint statutory auditors of the company, M/s. Nayak & Rane, Chartered Accountants, and M/s. Chaturvedi & Shah, 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. A certificate pursuant to the provisions of Section 224 (1B) of the Companies Act, 1956 has been received from M/s. Nayak & Rane, Chartered Accountants and M/s. Chaturvedi & Shah, Chartered Accountants stating their eligibility and consent for being appointed as Joint Statutory Auditors of the Company with immediate effect. 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 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 31,2009 is given in the Annexure forming part of this Report. REPORTS ON CORPORATE GOVERNANCE A report on Corporate Governance along with a certificate from the Statutory Auditors of the company regarding compliance of conditions of Corporate Governance form part of this Annual Report. AUDIT COMMITTEE The Company has an Audit Committee concerned with overseeing and monitoring the financial reporting system within the company and appropriate reporting to the Board of Directors. SAFETY, HEALTH AND ENVIRONMENT (SHE) We ensure that all the activities and products are manufactured considering appropriate safety, health and environment risks EHS Objectives: - Identify and upgrade systems for safety, health and environmental hazards and risk management - Minimize waste generation, promote recycling and green chemistry - EHS practices conforming to International norms Quality Assurance At Arch, quality policy is mandated and supported by the Executive Management and co-ordinated by an Independent Corporate Quality Assurance (CQA) Department. - ISO &WHO-GMP Certification - Validated Systems and Controls in place - Complaint Handling and CAPA - Continuous upgradation of skills - Registration Documents (DM F/CTD) - Regulatory compliance as per customer needs The Companys Vitalife site has been honored with GOLD AWARD in the Pharmaceutical Sector for Safety Management by Greentech Foundation, which is a US Based Non-Profit Organization, committed to recognize and celebrate ethos of outstanding performance in safety issues. The award is a unique form of benchmarking the stringent quality standards, credibility and honouring the proactive practices of the awardees enhancing their esteem and global stature. The Companys Vitalife site has received the final certification of compliance to OHSAS 18001:2007 (a standard for occupational health & safety management system) & ISO 14001:2004 (guideline for environment management system) for development, manufacture & supply of bulk drugs, intermediates and specialty chemicals on 6th May, 2010 by M/s. Moody International Certification Limited. Regular First-aid camps and safety exhibitions have been held at all locations of the Company. CORPORATE SOCIAL RESPONSIBILITIES (CSR) As CSR initiatives are getting importance, the organizations are expected not only to make a difference to the economic development and stability in their areas of operation but also play a key role in the social and environmental development of the region on a whole. 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. a) Successful commercialization of green chemistry by using Biocatalysts in certain key APIs and intermediates and environmentally friendly pharmaceutical manufacturing by replacing traditional synthetic chemical compounds). Creation of Jobs both direct and indirect employment including contractual labour. b) Contributing to various educational institutions for funding their various research initiatives like UDCT Mumbai, IIT Mumbaietc. c) Donations to various charitable institutions and NGOs. d) Continued support of development activities in sports like Hockey and Badminton - Dhanraj Pillay Hockey Academy and R Gopichand Badminton Academy for spotting and nurturing young talent. e) Various measures for the benefit of the people living in villages, near our manufacturing sites like contribution for building of school, approach roads for villagers at certain locations of the Company, borewells, childrens home (orphaned and economically backward class children). f) Created awareness of World Environment Day on 6lh June 2010 by leading initiative for Tree Plantation Drive at all the manufacturing sites of the company. g) The Company sponsored an Ambulance Service at its Badlapur unit for use by all the units in the vicinity of Badlapur Industrial Manufacturers Association. INFORMATION TECHNOLOGY Enterprise Resource Planning (ERP): The Core ERP 4.0 was purchased from M/s Vishwayon Software Pvt. Ltd. in March 2008 and was deployed in a phased manner. The implementation was completed by 2009 end. The ERP comprises of modules viz. Purchasing cycle, Stores and inventory, Sales and Financial accounting Outsourced Mailing system: Arch Pharmalabs Ltd is utilizing mailing services which are hosted by Logix Infosecurity Pvt. Ltd, Mumbai. The mailing system has more than 900 email accounts Total QA- PCMS system: Arch uses Q-Cent DCMS system in its Dombivali and Vitalife plants. The system is used by BMR & BPR issues. SAP ECC 6.0: In December 2009, ARCH has procured 402 licenses of SAP ECC 6.0. The implementation project launched on 27th May 2010 shall have following modules: 1. Financial Accounting (Fl) 2. Controlling (CO) 3. Materials Management (MM) 4. Plant Maintenance (PM) 5. Production Planning (PP) 6. Quality Management (QM) 7. Project System (PS) 8. Sales & Distribution (SD) The implementation project is in process and scheduled Go-live is in last quarter of financial year 2010. Zensar Technologies Limited has been selected as our implementation partner. ARCH WAN: All Arch sites are provided with MPLS / VPN connectivity from Tulip Telecom, India. Badlapur has a BSNL leased line as part of the point to point connectivity with head office. Majority of the locations have video conferencing facility along with data. The pictorial presentation is as below: INSURANCE All the assets of the company are adequately insured as per Industry standards. INTERNAL CONTROL SYSTEMS Your Company conducts its business with integrity and high standards of ethical behavior, and in compliance with the laws and regulations that govern its business. Your Company has a well established framework of internal controls in operation, including suitable monitoring procedures and self- assessment exercises. In addition to external audit, the financial and operating controls of your Company at various locations are reviewed by the Internal Auditors, who report their findings to the Audit Committee of the Board. Compliance with laws and regulations is also monitored. Your Companys Code of Conduct sets out the fundamental standards to be followed by employees in their everyday actions. In accordance with the Code of Conduct, and Standards associated with the Code of Conduct, employees are required to become familiar with the legal requirements, policies and procedures applicable to their areas of operation, avoid conflicts of interest and are tasked with upward reporting of all unethical and illegal conduct. All employees are committed to the principle of performance with integrity and ensuring that activities comply with all applicable laws. Strong oversight and self monitoring policies and procedures demonstrate your Companys commitment to the highest standards of integrity. The Company ongoing implementation of SAP as ERP platform is further expected to help in establishing checks and exercise of timely controls. NOTES ON SUBSIDIARIES Your Company has 4 subsidiary companies as on 31 * March, 2010. Pursuant to Section 212(8) of the Companies Act, 1956, the Central Government vide its letter no. 47/666/2010-CL-lll dated August 4,2010 granted exemption from attaching to the Balance Sheet of the Company, the Accounts and other documents of each of its subsidiaries. However, the Consolidated Financial Statements of the Company, which include the results of the said subsidiaries, form a part of this Annual Report. A statement containing certain particulars of the subsidiaries, as stipulated by the Government of India, Ministry of Corporate Affairs while granting such exemption, are attached to the Annual Report. Copies of the annual accounts of the Companys subsidiaries can be sought by any investor of the Company on making a written request to the Company at the Registered Office of the Company in this regard. The Annual Accounts of the subsidiary companies are also available for inspection by any investor at the Companys registered office. ACKNOWLEDGMENTS Your Directors take this opportunity to thank Central and State Governments, Financial Institutions, Banks, Government authorities, customers, vendors and shareholders for their continued cooperation and support. Your Directors value the professionalism of all the employees of the company who have worked relentlessly worked in a challenging environment and whose efforts have stood the company in good stead. For and on behalf of the Board Sd/- Place: Mumbai AJIT KAMATH Date : 03.09.2010 CHAIRMAN & MANAGING DIRECTOR

Source : Dion Global Solutions Limited

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