Cadila Healthcare

The unrelenting focus on extending the growth curve, making, vital
 grmrth investments that yield value and maintaining a robust business
 health by pruning costs — have all helped your Conpany in keeping its
 balance in these unsteady times and maximising performance.
 
 Delivering robust performance in challenging times
 
 The year 2008-09 was a year unlike any other. Caught in the spiralling
 economic downturn which swept across the global economies, the world
 faced tough conditions and considerable market uncertainty. In these
 tough times, your Company reinforced its credentials of being
 resilient, proactive and driving performance despite the odds.
 
 The unrelenting focus on extending the growth curve, making vital
 growth investments that yield value and maintaining a robust business
 health by pruning costs - have all helped your Company in keeping its
 balance in these unsteady times and maximising performance.
 
 As the year 2009-10 unfolds, we do not yet know the full extent of the
 economic challenge that businesses will face. I believe, however, that
 your Company is well positioned to shape positive responses and will
 continue to grow, compete and explore winning pathways, globally.
 
 Over the years, your Company has been complementing its aggressive
 growth strategy with a constant flow of new approaches and ideas,
 tempered by experience. We have been learning and gaining from past
 responses to challenges and successes and more importantly, developing
 a tested view towards what works versus what doesnt. In challenging
 times, this works as a weather shield in more ways than one. Heres how
 we delivered a robust performance in 2008-09:
 
 Being proactive rather than reactive
 
 While fast growth is the order of the day, its also equally essential
 to forecast trends and be proactive. At the first signs of the
 downturn, we took some important decisions early on. We firmly resolved
 to focus on growth because where there is growth there can never be
 blight. There can never be situations to even consider lay-offs. So our
 first response to the slowdown was to step up the growth momentum.
 Secondly, we initiated several cost saving measures that enabled us to
 be better prepared for the slowdown. Our timely and prudent measures
 buffered the impact and added to the groups profitability in what has
 generally been seen as a lean year.
 
 The three-pronged focus was on :
 
 - aggressively growing the business and increasing revenues and margins
 
 - identifying cost optimisation opportunities through new initiatives
 and ideas
 
 - tightening the control over spends and optimising return on
 investment
 
 A concerted effort on all three fronts helped boost ourTotal Income by
 26% and increase our Net Profit (before exceptional items) by 23% in
 2008-09.
 
 Business Health considerations have always been a priority not just in
 lean times but even in good times. We have initiated several programmes
 that have focussed on improving efficiencies and reducing costs. PRISM
 which looked at trimming non-labour spends was launched in 2003. SLIM,
 which looked at lean manufacturing initiatives, was launched in 2006.
 Last year, we institutionalised a structured programme of cost
 identification and improvement in our supply chain processes. Project
 SPEED (Supply Planning - Effective, Efficient to meet Demand) has been
 quite effective with nearly 100 Zydans from across functions and
 geographies involved in more than 20 task forces.
 
 The focus on rationalising costs and improving productivity through
 SPEED resulted in an initiative that reduced costs and enhanced
 efficiencies across the value chain. Streamlining our supply chain
 processes, we set up the Global Demand and Supply Organisation (GDSO)
 to synergise and create cost optimal and seamless supply chain
 operations.
 
 Besides this, the various rationalisation measures that were initiated
 across the organisation helped in improving the EBITDA margin by 1%
 from 19.7% to 20.7%.
 
 A business model that balances stability with agility
 
 I strongly believe that our business model is one that sustains us
 through challenging times and firmly places us on the path of balanced
 growth.  Our execution skills — the ability to deliver on our
 commitments, is fundamental to our business approach. We work
 proactively to achieve our goals, nurture long-term relationships that
 grow deeper over time and move well beyond the usual conventional
 business models. This creates a differentiated approach that enables us
 to demonstrate tangible value. Our intense focus on the Healthy Billion
 goal of achieving sales of over $ 1 bn by 2010-11 continues with a full
 range of new initiatives. Here is the business model which has
 successfully leveraged our strengths and capabilities and maximised
 opportunities.
 
 On course with our global expansion plans
 
 As a part of our global strategy, we have often side-stepped big ticket
 acquisitions and instead, looked at value-accruing acquisitions which
 provide strategic market access in prioritised markets, in line with
 this strategy, this year, we made a foray into Spain with the
 acquisition of Laboratorios Combix. Alongwith France, operations in
 Spain now strengthen our base in the European generic market.
 
 Another key focus market for us is South Africa and we have been
 looking at opportunities to unlock value by consolidating operations.
 We have now been able to do this, by acquiring a majority stake of 70%
 in Simayla Pharmaceuticals. The acquisition opens up new avenues of
 growth in a market that is estimated to cross US$ 4 bn at consumer
 prices over the next three years. Our third acquisition for the year
 was Etna Biotech of Italy.  This, infact, was our first acquisition in
 the research space.
 
 When we had embarked on our global expansion plans in 2002, we knew
 that to be a successful global company, we had to compete on two
 fronts: in mindset as well as in geography. We knew that we must go
 further than we have ever gone and create an inclusive environment with
 a leadership team comprising people with versatile capabilities from
 different global backgrounds and global experience. Each step forward
 in our global business provides a new dimension for growth and profit.
 
 Yet, for all of our breadth and size, we remain a company with a
 singular focus: healthcare. We are an integrated, global healthcare
 company. That is our identity and that is our purpose. We are here to
 create healthier communities globally.
 
 Making innovation count
 
 We live in an age where healthcare has been intrinsic to well being and
 good health. Innovation in life sciences and advancements in
 pharmaceutical technology continue to alter the way we treat diseases,
 making possible what once seemed impossible.
 
 As the horizon of healthcare expands, so does our commitment of
 supporting the medical fraternity with innovative, need-based
 therapies.  Our research pipeline has shaped up into a very promising
 one with 7 NMEs in various stages of clinical trials. NME - ZYT1, which
 was filed with the DCGI and the USFDA during the year has now moved
 into Phase I clinical trials. We have also filed an IND application
 with the DCGI forZYDl, a novel candidate in the class of antidiabetic
 agents. Besides this, there are several other candidates in late stage
 preclinical development which augurs well for us. Secondly, we have
 entered into a new drug discovery and development alliance with Eli
 Lilly and Company, USA, for a collaborative research programme.
 Together, we will be working on a drug discovery and development
 programme in the area of cardiovascular research. We have also
 undertaken a research programme on monoclonal antibodies with the WHO.
 
 These initiatives take us closer to realising our vision of becoming a
 research-driven pharmaceutical company by 2020.
 
 Championing new ideas and initiatives
 
 Were in an era thats driven by the sheer power of ideas - its ideas,
 knowledge and information that is impacting change and transformation.
 They are changing the way we live, our perceptions and our responses.
 So, exploring new facets, asking the right questions and coming up with
 new ideas that can change the way we work for the better, forms the
 core of the transformation process at Zydus.
 
 We ask ourselves - Where will the next fast-growing markets come from?
 How can we be trendsetters? What can we do differently than our
 competitors? Is there a need to re-position ourselves inspite of
 fairing well in the segment? How can we create synergies to maximise
 reach? What are the ways in which we can connect better with the
 customers? What are the niche product ideas that can open up new
 opportunities for us and create a new market? Posing these questions
 and many more threw up several new ideas, some of which we implemented
 during the year.
 
 We now have dedicated teams for marketing nutraceuticals and
 rheumatology therapies in India, which we believe have a tremendous
 potential for growth. We have also instituted the Topcare division
 which will service the major hospitals across the country.
 
 Strengthening the market position by leveraging technology and
 cost-competitive manufacturing capabilities has also been one of the
 focus areas.  We broke new grounds by receiving the WHO accreditation
 for Lyssavac N - the Purified Duck Embryo Rabies Vaccine (PDEV). With
 this, we became the 1st Pharma company in India and 2nd Pharma company
 in the world to receive this accreditation.
 
 To capitalise on the emerging trends and to take the consumer business
 on a high growth trajectory, we felt it was necessary to create
 synergies and bring the consumer business under one radar. We did this
 by merging the consumer business of Cadila Healthcare Ltd, with
 Carnation Nutra Analogue Ltd. Zydus Wellness Ltd., as we have renamed
 the company, will unlock value in this new sunrise sector and create
 long term value for shareholders.
 
 So, in every facet of our business, we are focusing on capturing growth
 within our existing businesses and making inroads into newer markets.
 The more we pool our knowledge and ideas together, the greater is the
 expanse that we create for a bountiful harvest.
 
 Investing in People
 
 The optimism that we can overcome the challenges that the economic
 scenario presents, stems from what Ive seen on Zydus front lines,
 working closely with excellent people across alt levels of our
 organisation. Ive experienced, first hand, how our people with their
 ideas, imagination and capabilities bring in a Zydus difference to
 create value. This helps us offer meaningful solutions that deliver
 results and in turbulent times such as this its this P factor that
 spells success.  With the extraordinary array of capabilities and
 talents that exist inside our company, we are able and will be able to
 respond quickly and decisively to opportunities, whenever and wherever
 they may exist. This I believe unlocks an entire spectrum of
 possibilities.
 
 It is with favourable prospects and with the strength of good earnings
 in the year gone by that we move ahead towards our long-term goals.
 Sustained, fast paced growth and long-term profitability is a
 pre-requisite for achieving our goals and we are confident that we can
 capitalise on these opportunities in the future.
 
 As we continue to focus on our future growth, we remain committed to
 our employees, customers, stockholders, partners and the communities in
 which we operate. We are encouraged by your support and look forward to
 reporting significant progress to you in the years ahead.
 
 Pankaj R. Patel
 June 20, 2009