Divis Laboratories

The Directors have pleasure in placing before you the Eighteenth
 Annual Report of the Company together with the Audited Accounts for the
 year ended 31st March, 2008.
 
 
 FINANCIAL RESULTS                                   (Rs. in Crores)
 Particulars                                       2007-08      2006-07
 
 Net Sales                                        1033.19        724.42
 Other income                                       13.61         13.61
 Total Income                                     1046.80        738.03
 PBDIT                                             430.52        259.61
 Finance Charges                                    10.18         10.58
 Depreciation                                       35.65         22.33
 Profit before tax                                 384.69        226.70
 Provision for tax
 Income Tax                                         38.34         33.32
 MAT Credit Entitlements                           (19.30)            -
 Deferred Tax                                       11.77          1.37
 Fringe Benefits Tax                                 0.32          0.27
 Profit after tax                                  353.56        191.74
 Profit brought forward from
 previous year                                     392.71        235.59
 Total available for Appropriation                 746.26        427.33
 Appropriations
 Proposed / Interim Dividend                        25.82         12.91
 Corporate Dividend Tax                              4.39          1.81
 General Reserve                                    36.00         19.90
 Balance carried to Balance Sheet                  680.05        392.71
 Earnings per Share (EPS)
 Basic                                              54.77         29.91
 Diluted                                            54.14         29.55
 
 DIVIDEND
 
 Your Directors are pleased to recommend a dividend of 200% i.e.,
 Rs.4.00 per equity share of Rs.2/- each for the year 2007-08 subject to
 approval of members.
 
 PERFORMANCE AND OPERATIONS REVIEW
 
 During the year, Divis achieved a turnover of Rs.1033 crores as
 against Rs. 724 crores during the previous year reflecting a growth of
 43%. Exports constituted 94% of total turnover and exports to advanced
 markets comprising Europe and America accounted for 82% of business.
 Expenses for the year included a charge of Rs.8.60 crores on account of
 stock options granted to employees as against Rs.24.11 crores during
 the last year. Profit after Tax (PAT) grew by about 84% to Rs.353.56
 crores as against Rs.191.74 crores during the previous year.
 
 TAXATION
 
 We made a provision of Rs.38.34 crores for Income-tax provision this
 year (including prior year adjustment) as against Rs. 33.32 crores
 during the previous year. However, tax provision for the year includes
 a MAT credit entitlement of Rs.19.30 crores as profits of EOU Units
 have been subjected to MAT. An amount of Rs. 11.77 crores has been
 provided towards Deferred Tax Liability during the year as against
 Rs.1.37 crores during the previous year.
 
 CAPITAL EXPENDITURE
 
 During the year, your company has spent an amount of Rs.176.25 crores
 on capital expenditure (net of capital work- in-progress) towards
 enhancing production capacities. We have set up new production as well
 as utility facilities in SEZ and EOU Units, and enhanced existing
 capacities at Unit-1.
 
 Nutraceuticals Manufacturing facility has been commissioned at Divis
 Pharma SEZ and commenced commercial operations effective 1st June,
 2008. This facility with the state-of-the-art beadlet technology is the
 first of its kind to be set up in India. Several application products
 have been developed fully and some of these are being marketed
 commercially through its subsidiaries in USA and Europe as well as
 directly.
 
 EQUITY CAPITAL
 
 During the year, your Company split the face value of equity shares
 from Rs. 10/- per share to Rs. 2/- per share after obtaining approval
 of members through postal ballot.
 
 EMPLOYEE STOCK OPTION SCHEME
 
 The Employee Stock Option Scheme (ESOP 2006) approved by the company
 provided for vesting of stock options in 4 tranches of which the first
 tranche has been exercised by the employees during the last year. The
 second tranche was vested on 13th March, 2008. However, the employees
 have not exercised these options during the year. An amount of Rs.8.60
 crores (Rs.24.11 crores during last year) has been charged to Expenses
 during the year as per SEBI Guidelines.
 
 As per the provisions of Securities and Exchange Board of India
 (Employee Stock Option Scheme and Employee Stock Purchase Scheme),
 Guidelines, 1999, disclosures with respect to Scheme are given in the
 Annexure - I to this report.
 
 SUBSIDIARIES
 
 Your company has two 100% subsidiaries viz., M/s. Divis Laboratories
 (USA) Inc., in USA and M/s. Divis Laboratories Europe AG in
 Switzerland for marketing its nutraceutical products and a greater
 reach to customers within these regions. Accumulated losses at the
 subsidiaries are Rs.5.24 crores (,287,985) and Rs.6.97 crores (CHF
 1,703,712) respectively. Auditors of these subsidiaries have observed
 that they have negative networth and suffer from deficiency of cash for
 continuing operations as a going-concern without the support of the
 parent.
 
 The losses in the subsidiaries are on account of low level of
 operations as the subsidiaries have currently been marketing only a few
 of the nutraceutical products. With commencement of commercial
 operations of the Nutra plant effective 1st June, 2008, the
 subsidiaries will have full scale marketing operations and would
 achieve profitable operations.
 
 CONSOLIDATED ACCOUNTS
 
 As stipulated in the listing agreement with the stock exchanges, 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 statements together with
 Auditors Report thereon form part of the Annual report.  The
 consolidated net profits after tax of the company and its subsidiaries
 for the year ended 31st March 2008 amounted to Rs.347.60 crores as
 compared to Rs.185.86 crores in the previous financial year
 representing a basic earning per share of Rs. 53.84 and Rs.53.23 on
 diluted basis.
 
 DIRECTORS
 
 Sri G.V. Rao, Prof C. Ayyanna and Sri Madhusudana Rao Divi will retire
 by rotation at the ensuing Annual General Meeting and, being eligible,
 offer themselves for re- appointment.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 As required under Section 217 (2AA) of the Companies Act, 1956,
 Directors of your company hereby state and confirm that:
 
 a) the applicable accounting standards have been followed in the
 preparation of the annual accounts
 
 b) the accounting policies selected were applied consistently and the
 judgements and estimates made are reasonable and prudent so as to give
 a true and fair view of the state of affairs of the Company as at 31st
 March, 2008 and its profit for the year ended on that date;
 
 c) proper and sufficient care has been taken 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.
 
 d) the annual accounts have been prepared on a going concern basis.
 
 AUDITORS
 
 The Auditors, M/s. P.V.R.K. Nageswara Rao & Co., Chartered Accountants,
 Hyderabad retire at the ensuing Annual General meeting and, being
 eligible, offer themselves for reappointment.
 
 COST AUDIT
 
 Pursuant to Section 233B of the Companies Act, 1956, the Central
 Government has prescribed Cost Audit for the company for the financial
 year 2007-08. M/s. EVS & Associates, Cost Accountants, Hyderabad have
 been appointed as Cost Auditors. While the Cost audit reports for the
 year 2006-07 have been filed with the Central Government, cost audit
 for the year 2007-08 is in progress.
 
 CORPORATE GOVERNANCE, MANAGEMENT DISUCSSION AND ANALYSIS
 
 Report on Corporate Governance and Management Discussion & Analysis is
 included as a part of this Annual Report.
 
 RELATED PARTY TRANSACTIONS
 
 As a matter of policy, your Company carries out transactions with
 related parties on an arms-length basis. Statement of these
 transactions is given in the Notes to Accounts attached in compliance
 of Accounting Standard No.AS-18.
 
 FIXED DEPOSITS
 
 Your Directors wish to inform that the Company has not accepted any
 deposits from public covered by provisions of Section 58A of the
 Companies Act, 1956.
 
 CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION
 
 Particulars required under Section 217 (1) (e) of the Companies Act,
 1956 read with Rule 2 of the Companies (Disclosure of Particulars in
 the Report of Board of Directors) Rules, 1988 is given in the Annexure
 - II to this report.
 
 HUMAN RESOURCES
 
 Particulars of employees required to be furnished under Section 217
 (2A) of the Companies Act, 1956 read with the Companies (Particulars f
 Employees) Rules, 1975 are given in the Annexure - III attached and
 forms part of this Report.
 
 ACKNOWLEDGEMENTS
 
 We thank our customers, suppliers and investors for their continued
 support. We also gratefully acknowledge the continued assistance and
 co-operation extended by Government authorities, financial institutions
 and banks to the company. The Board expresses its 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 of Directors
 
 Hyderabad                                     Dr. Murali K. Divi
 7th June, 2008                          Chairman & Managing Director