Granules India

The Directors submit the Annual Report of the Company together with the
 audited statement of accounts for the year ended June 30, 2008.
 
 1. Financial results
 
 Particulars                                      2007-08      2006-07
                                              (Rs.in lacs)  (Rs.in lacs)
 
 
 Sales                                            21,414.65   18,570.10
 Other income                                         68.51      246.31
 Total income                                     21,483.16   18,816.41
 Expenditure before depreciation, 
 interest and tax                                 18,032.71   15,447.16
 Interest and finance charges                      1,197.21    1,202.85
 Depreciation and amortisation                       972.09      817.73
 Profit before tax                                 1,281.15    1,348.67
 Provision for taxes including deferred tax 
 and FBT                                             367.70      336.70
 Prof it after tax                                   913.45    1,011.97
 Add: surplus brought forward                      3,324.03    2,630.90
 Surplus available                                 4,237.48    3,642.87
 Appropriations
 Dividend                                            250.71      250.29
 Tax on distributed profits                           42.60       42.54
 Transfer to general reserve                          23.00       27.00
 Balance carried to balance sheet                  3,921.17    3,323.04
 
 2. Changes in share capital
 
 During the financial year 2007-08, 33,520 equity shares were issued and
 allotted to the employees consequent to the exercise of the stock
 options issued by the Company, which resulted in an increase in the
 paid-up equity share capital from Rs. 20,02,36,340 to Rs. 20,05,71,540.
 
 In accordance with the resolution passed by the shareholders at the
 Extraordinary General Meeting held on February 17, 2007, the Committee
 of the Board allotted 16,00,000 warrants at Rs. 94.50 per warrant,
 convertible into equity shares of Rs. 10 each to the promoters of the
 Company. On the said warrants, T0% of the value i.e., Rs. T,5T, 20,000
 was received towards application money. As on June 30, 2008, the entire
 16,00,000 warrants were outstanding.
 
 The said warrants were not exercised by the applicants before the due
 date i.e. September 27, 2008 and consequently, the entire application
 amount of Rs. 1,51,20,000 received from the applicants was forfeited to
 the Company.
 
 3.  Dividend
 
 In view of the Companys profitable performance, the Directors are
 pleased to recommend for approval of the shareholders, a dividend of
 12.5% on 2,00,57,1 54 equity shares (face value of Rs. 10 each) of the
 Company in respect of the financial year 2007-08. The dividend, if
 declared as above, would involve an outflow of Rs. 250.71 lakhs towards
 dividend and Rs. 42.61 lakhs towards dividend tax, resulting in a total
 outflow of Rs. 293.32 lakhs. Under the Income Tax Act, 1961, the
 dividend will be tax free in the hands of the shareholders.
 
 4.  Transfer to reserves
 
 The Company proposes to transfer Rs. 23 lakhs to the general reserve
 out of the amount available for appropriations. After the
 appropriations, it is proposed that Rs. 597.13 lakhs be retained from
 the current years profits.
 
 5.  Operating results
 
 The Company has achieved a turnover of Rs. 21,414.65 lakhs, showing a
 significant 15% growth compared with that of the previous year. The
 operating profit during the year has increased 13% to Rs. 6,065.95
 lakhs. Profit after tax has decreased 10% to Rs. 913.45 lakhs.
 
 6.  Funding
 
 Your Company has availed the sanctioned loan of US$ 9 million from the
 International Finance Corporation (IFC).
 
 7.  Research and development
 
 R&D at Granules India, a service organisation, is catering to our
 in-house product development requirements for both PFI and finished
 dosage. Our in-house development philosophy aims to collaborate and
 offer a business model of delivering end-to-end solutions for OTC -
 monograph, OTC ANDA and prescription products.
 
 During the year, the Companys R&D developed many new products with
 novel formulations that deliver superior customer value and better
 consumer appeal. Process technology development for new API launch and
 cost reduction of currently produced APIs were focused on.
 
 Granules provide comprehensive drug development resources and solutions
 for pre-formulation, formulation development, analytical development,
 cGMP scale-up, stability and also coordinate bioavailability,
 bioequivalence studies for regulated and emerging markets.
 
 8.  Directors
 
 Pursuant to Article 51 of the Articles of Association of the Company,
 Shri L. S. Sarma and Shri A. P. Kurian, Directors, will retire by
 rotation at the forthcoming Annual General Meeting and being eligible
 offer themselves for re-appointment. Your Board of Directors recommends
 their re-appointment.
 
 Brief profiles of Shri L. S. Sarma and Shri A. P. Kurian, the nature of
 their expertise in specific functional areas and the number of
 companies in which they hold directorships and memberships /
 chairmanships of committees of the board, as stipulated under Clause 49
 of the Listing Agreement with the stock exchanges, have been provided
 in the section on Corporate Governance in this Annual Report.
 
 9.  Corporate Governance report and Management Discussion and Analysis
 
 A report on Corporate Governance is attached to this Report as is a
 Management Discussion and Analysis statement.
 
 10.  Directors responsibility statement
 
 Pursuant to the requirement of Section 217 (2AA) of the Companies Act,
 1956 and based on the representations received from the operating
 management, the Directors hereby confirm that:
 
 i. the applicable accounting standards issued by the Institute of
 Chartered Accountants of India have been followed;
 
 ii. appropriate accounting policies have been applied consistently.
 Judgement and estimates that are reasonable and prudent have been made,
 so as to give a true and fair view of the state of affairs the profits
 of the Company as at the end of the financial year.
 
 iii. proper and sufficient care has been taken for the maintenance of
 adequate accounting records, in accordance with the provisions of the
 Companies Act, 1956 for safeguarding the assets of the Company and for
 preventing and detecting fraud and other irregularities.
 
 iv. the annual accounts have been prepared on a going concern basis.
 
 11.  Subsidiary company, Granules USA Inc.
 
 Granules USA Inc., a wholly owned subsidiary company, operates for the
 marketing requirements of the Company in USA. During 2007-08, the
 subsidiary company achieved a turnover of Rs. 5,508.52 lakhs.
 
 The relevant particulars of Granules USA Inc. and the consolidated
 final accounts for the year ended June 30, 2008, in accordance with the
 Accounting Standard AS-21 on Consolidated Financial Statements, read
 with Accounting Standard AS-23 on Accounting for Investment in
 Associates, are appended to this report.
 
 12.  Joint venture company: Granules-Biocause Pharmaceutical Co. Ltd.
 
 During the year under review, the joint venture company has commenced
 commercial operations. At a 50% share, joint venture achieved a
 turnover of Rs. 3,818.47 lakhs.
 
 13.  Auditors
 
 M/s. Kumar & Giri, Chartered Accountants, who are the statutory
 auditors of the Company hold office, in accordance with the provisions
 of the Companies Act, 1956, up to the conclusion of the forthcoming
 Annual General Meeting and have confirmed their eligibility and
 willingness for re- appointment.
 
 14.  Cost auditors
 
 Mr. E. Vidya Sagar, Cost Accountant, was appointed as the cost auditor
 of the Company, subject to the consent of the Government of India to
 conduct cost audits of the bulk drugs division of the Company for
 2008-09.
 
 15.  Fixed deposits
 
 Your Company has not accepted any public deposits and, as such, no
 amount on account of principal or interest on public deposits was
 outstanding on the date of balance sheet.
 
 16.  Conservation of energy and technology absorption
 
 The particulars as prescribed under section 217 (1) (e) of the
 Companies Act, 1956 read with the Companies (Disclosure of Particulars
 in the Report of Board of Directors) Rules, 1988 are set out in
 Annexure I to this report.
 
 17.  Human resources
 
 Your Company enjoys cordial employee relations, marked by empowerment
 and delegation. In view of this need, the Company approved an Employee
 Stock Option Plan and implemented the Granules India Equity Option Plan
 2002, framed and implemented in accordance with the SEBI (Employees
 Stock Option Scheme and Employees Stock Purchase Scheme) Regulations
 1999.
 
 18.  Particulars of employees
 
 Information as required under Section 217 (2A) of the Companies Act,
 1956 read with the Companies (Particulars of Employees) Rules, 1975, as
 amended, are given in Annexure II to this report.
 
 19.  Employee Stock Option Plan
 
 Your Company implemented the Granules India Equity Option Plan 2002
 with the objective of enhanced employee commitment.
 
 The details of the stock options granted under the Granules India
 Equity Option Plan 2002, including grants to senior management
 (comprises all Independent Directors), are given below:
 
 Description                                  Deatails
 
 A  Total number of shares               3,91,082 - one share represents
                                         one option
 B  Pricing formula                      At the fair market value as on
                                         the date of the grant
 C  Options granted during the year      Nil
 D  Options vested during the year       41,520
 E  Options exercised during the year    33,520
 F  Total number of shares arising as a  
    result of exercise of options        33,520
 G  Options lapsed during the year       1,04,100
 H  Variation of terms of options        Not applicable
 I  Money realised by exercise of 
    options during the year              Rs. 1 5,01,780
 J  Total number of options in force     45,500
 K  Options granted to the Independent  
    Director during the year             Nil
 L  Employees who were granted options 
    amounting to 5% or                   Nil
    more of the options granted 
    during the year.
 M  Employees who were granted options 
    in any one year                      Not applicable
    equal to or exceeding 1% of the  
    issued capital of the
    Company at the time of grant.
 
 20. Transfer of unpaid / unclaimed dividend to Investor Education and
 Protection Fund (IEPF)
 
 Pursuant to the provisions of Section 205A (5) of the Companies Act,
 1956, the dividends declared for the year 1999-2000 and which remained
 unpaid / unclaimed for a period of seven years has been transferred to
 the credit of the Investor Education and Protection Fund (IEPF),
 established by the Central Government pursuant to Section 205C of the
 said Act.
 
 21.  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 in compliance with
 Accounting Standard AS - 18.
 
 22. Acknowledgement
 
 The Directors thank the Companys customers, vendors, investors,
 business associates, bankers and financial institutions for their
 support.
 
 The Directors also thank the Government of India and the Governments of
 various countries, the concerned State Governments and other government
 Departments and governmental Agencies for their cooperation.
 
 The Directors place on record their appreciation of the contributions
 made by every member of the Granules family.
 
                                     On behalf of the Board of Directors
 
 Place : Hyderabad                                  Dr. C. Nageswara Rao
 Date  : October 20, 2008                                       Chairman