Granules India

In 2009, Granules India celebrated its 25th anniversary. During our
 infancy, Granules started at the first step of the value chain by
 supplying Paracetamol APIs. As we grew with the market, we chose to
 move up the value chain by pioneering the concept of PFIs, After a
 successful debut with a Paracetamol PFI, we chose to apply the same
 concept to other APIs such as Ibuprofen and Metformin. We recently
 added the final piece of our value proposition by introducing and
 commercialising our Finished Dosage plant, effectively completing the
 pharmaceutical manufacturing value chain.
 
 Our evolution from a commodity supplier to a value-adding partner is
 entirely due to our customers. We believe in leveraging our strengths
 so that they complement those of our clients therefore curtailing the
 challenges they face. We originated the PFI concept to reduce our
 customers capital expenditure and supply chain complexities. After our
 customers expressed the need for higher volumes, we built one of the
 worlds largest PFI plants with a 6 metric ton batch size. As a
 testimony of our client dedication, we developed relationships with
 several leading global pharmaceutical companies entrenching our
 presence in major regions and markets. This partnership-driven approach
 has allowed us to move from day-to-day cost pressures to long-term
 relationships forged around mutual success, high quality products and
 services.
 
 Reflecting on fiscal year 2008-09
 
 Fiscal 2008-09 was a profitable year for Granules and gave a strong
 indication of the Companys direction for 2009-10. The annualised
 fiscal year resulted in a topline growth of 50.4% over the prior
 financial year. Revenue growth was primarily driven by increased
 utilisation at our Bonthapally plant. We automated more processes in
 the facility, which garnered higher production efficiency and lowered
 rejected batches.  Despite strong growth, our annualised profit after
 taxes declined to Rs. 4.2 cr compared with Rs. 9.0 cr in the prior
 fiscal year. The decline was solely due to an Rs. 8.9 cr loss on
 restatement of foreign currency liabilities against which there was no
 cash outflow during the year. Excluding this one-time charge, our PBT
 would have been Rs. 13.1 cr.
 
 In late 2008, we commenced operations in our Finished Dosage plant
 which reflects a major milestone in our Companys history. This
 facility will enable Granules to provide products throughout the value
 chain in both a cost- effective and efficient manner. Apart from
 increasing revenue, we will increase profit margins and ROI since
 finished dosages have substantially higher profit margins than APIs and
 PFIs. The facility has been through 15 customer audits and also
 received approvals from regulation agencies such as Harmed (EU) and
 TGA.
 
 Our formulations development department has been an important element
 in our endeavour to create more value for our customers through new
 product development and customisation. We put in place a 60-member team
 dedicated to developing new products. In the past year, the department
 filed three ANDAs. After we receive approval for these ANDAs, Granules
 will be able to distinguish itself further from its competitors by
 offering more options with our extensive product portfolio. We also
 launched an Organisational Excellence (OE) initiative across the
 organisation. This initiative will increase efficiency in our process
 systems through Functional Effectiveness Teams (FETs) and Area
 Effectiveness Teams (AETs). The OE program will also undertake focused
 cross-functional and vertical projects, which will provide us with key
 insights to improve ourselves.
 
 The Road Ahead
 
 We are extremely excited and believe we have a strategy in place to
 increase shareholder value. The cornerstone of our near-term growth
 strategy is the finished dosage plant. The facility has not generated
 material returns since it was completed in 2007, which we expect to
 change in 2009. In the past year, we had over a dozen customers and
 agencies audit the facility. We expect to receive approvals from these
 customers, which will increase production substantially and drive our
 growth. Also, we anticipate U.S. FDA approval in 2009, which will
 expand our reach in the U.S. market. Early indications have been
 encouraging; in mid-2009, Granules signed a multi-year contract with a
 large multinational pharmaceutical company.
 
 Our organisation has seen tremendous growth in the last few years and
 we are undertaking several initiatives to sustain this growth. These
 initiatives will not only help us become more efficient and effective,
 but will help us develop the resources and talent we need to match the
 continued growth we expect to see in 2009. We are in the process of
 rolling out an enterprise resource planning (ERP) system throughout our
 organisation. This system will automate several processes and will
 allow departments to communicate more effectively with one another. The
 increased coordination will help cut lag time between steps, allowing
 Granules to be more responsive to our customers. We are also developing
 the Companys most valuable asset, our employees. We are conducting
 more training so employees can constantly develop their skills. To
 strengthen our talent pool and reduce turnover, we are starting an HR
 initiative that helps employees chart their career path and formulate
 goals.
 
 As our Company grows, we are actively reducing our environmental
 impact. Our green initiatives will not only help the environment, but
 will lower operating costs and will support our endeavour to become a
 preferred partner. I have requested our OE programme to seek
 environmentally friendly manufacturing alternatives wherever possible.
 Environmental projects have ranged from small items such as creating a
 compost pile using organic kitchen waste to large scale projects such
 as installing a more efficient boiler at our Bonthapally plant. We have
 also targeted a carbon neutral goal at Gagillapur and expect to embark
 on more similar initiatives.
 
 While it is comforting to reflect on our history, we are more excited
 about what the future holds. Our strategy has helped us evolve from a
 small API commodity supplier in Hyderabad to a multi-faceted
 organisation with operations in four continents, catering to 300
 clients in 50 countries. Our drive for excellence through a fully
 integrated value chain, expanding reach in established and emerging
 markets, zeal to cultivate in-house talent and pursuit to remain
 environment friendly all translate into our ability to seize the
 moment.
 
 Yours sincerely,
 C. Krishna Prasad
 Managing Director