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Directors Report of Merck Ltd.

Dec 31, 2016

We are pleased to present the report on our business and operations for the year ended December 31, 2016.

FINANCIAL HIGHLIGHTS:

The Financial performance of your Company for the year ended December 31, 2016 is summarized below:

(Rupees million)

Particulars

2016

2015

Income from Operations

9,963.3

9395.0

Other Income

242.4

233.1

Profit before Interest,

1,435.2

1067.5

Depreciation and Tax

Depreciation/ Impairment

333.0

234.2

Provision for Taxation (net)

343.3

297.7

Profit after tax

758.9

535.6

Profit available for

3,028.9

2473.4

appropriations

Appropriations:

Transfer to General Reserve

75.9

53.6

Dividend (including Tax on

Dividend)

219.8

149.8

Balance carried to the

2,733.2

2270.0

Balance Sheet

EPS

- Basic (Rs.)

45.7

32.3

- Diluted (Rs.)

45.7

32.3

COMPANY''S OPERATIONAL PERFORMANCE:

The Company continues to operate in two business segments, i.e. Pharmaceuticals and chemicals. Detailed operational working of your Company is provided in the Management Discussion and Analysis Report forming part of this report (as Annexure I.) During the financial year ended December 31, 2016, your Company achieved a turnover of Rs. 9,683.3 million as against a turnover of Rs. 9,083.2 million in the previous year, registering a growth of 6.6%. During the year under review, the Pharmaceutical segment showed an increase in turnover of 15%, the Chemical segment registered a decrease of 15.7% in comparison with the respective segment turnover achieved during the previous financial year. The profit after tax increased by 41.7% during the year 2016 over previous financial year, 2015.

The export turnover of your Company during the year 2016 was Rs. 869.4 million as against Rs.802.0 million achieved in the previous year.

TRANSFER TO RESERVES:

The Company proposes to transfer Rs. 75.9 million to the general reserve out of the amount available for appropriation and an amount of Rs. 2,733.2 million is proposed to be retained in the profit and loss account.

DIVIDEND:

Your Board of Directors has recommended a dividend of Rs. 11/- (Rupees Eleven Only) per equity share for the year ended December 31, 2016. This is subject to approval of the Members at the forthcoming Annual General Meeting.

FIXED DEPOSITS:

Your Company has not accepted any deposits from the public or the Members during the year 2016 and no amount on account of principal or interest on public deposits was outstanding as on the date of the balance sheet.

CORPORATE GOVERNANCE:

A Report on the compliance of Corporate Governance Code along with certificate from Secretarial Auditor thereon, as stipulated under Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, is annexed to this Report as Annexure II.

CORPORATE SOCIAL RESPONSIBILITY:

A brief outline of the Corporate Social Responsibility (CSR) Policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are set out in Annexure IV of this report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014. The Corporate Social Responsibility Policy is available on the website of the Company, www.merck.co.in

DIRECTORS'' RESPONSIBILITY STATEMENT:

In accordance with Section 134(5) of the Companies Act, 2013, your Directors confirm that, to the best of their knowledge and belief that:

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) such accounting policies have been selected and applied them consistently and made judgments and estimates that are reasonable and prudent 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 of the Company for that period.

(c) proper and sufficient care 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 had been prepared on a going concern basis.

(e) the directors have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

DIRECTORS:

Director liable to retire by rotation:

Mr. N. Krishnan, [DIN 01027659] Executive Director, Finance will retire by rotation at the forthcoming Annual General Meeting of the Company and being eligible offers himself for re-appointment as Director of the Company. The Board recommends his reappointment.

Resignations:

Pursuant to an internal organizational restructuring, Mr. Brijesh Kapil, [DIN 06949048] Executive Director, Consumer Health Care and Mr. Ali Slieman, [DIN 07055130] Executive Director, Bio Pharma resigned from the Board of Directors of the Company effective from October 04, 2016.

Mr. Bradley Simpson [DIN 07187375] resigned from the Board of Directors effective October 04, 2016 since his nomination on the Board of the Company was withdrawn by Merck KGaA. Hence, he ceased to be a director w.e.f. October 04, 2016.

The Directors place on record their appreciation for the valuable contributions made by Mr. Brijesh Kapil, Mr. Ali Slieman and Mr. Bradley Simpson during their tenure as members of the Board of the Company.

Appointments:

Ms. Zoe Tang (aka Mei Lin Tang) [DIN 07658011] was nominated as Non-Executive Director by Merck KGaA in place of Mr. Bradley Simpson. Her appointment as member of the Board became effective from December 23, 2016.

Independent Directors/Non- Executive Directors:

During the year, the non-executive directors of the Company had no pecuniary relationship or transactions with the Company.

Mr. S.N. Talwar, Mr. H.C.H. Bhabha and Mrs. Rani Ajit Jadhav are the Independent Directors on the Board of the Company, they have confirmed to the Company that they meet the criteria of independence as prescribed under Section 149(6) of the Act.

None of the Non-Executive Directors serve as an Independent Directors on more than seven listed Companies and none of the Executive Directors serve as an Independent Director on any other listed Company.

NUMBER OF MEETINGS OF THE BOARD:

Five meetings of the board were held during the year. For details of the meetings of the board and its committees, please refer to the corporate governance report, which forms part of this report.

BOARD EVALUATION:

Pursuant to the provisions of the Companies Act,

2013 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Board and Nomination & Remuneration Committee have adopted and reviewed the formal mechanism for evaluating its performance and effectiveness as well as that of its Committees and Individual Directors, including the Chairman of the Board. The Board carried out an annual evaluation of performance of the Board, its committees and individual performance of directors.

For Board and its Committees, the exercise was carried out through a structured evaluation process covering various aspects of the Boards functioning such as composition of the Board & Committees, experience & competencies, performance of specific duties & obligations, governance issues, etc. For evaluation of performance of individual directors, non-executive and executive directors, responses were solicited from each director by way of a questionnaire on various parameters and traits of the directors, including their attendance and contribution in the Board and Committee meetings, domain knowledge, accessibility to management and objectivity in their decision making. Chief financial officer, who is also an executive director was evaluated on additional parameters including financial planning, cost effectiveness, tax planning and risk mitigation measures. Performance of the Chairman of the Board was separately evaluated on additional parameters including his ability to manage the Board, ability to deal with conflict, domain knowledge, etc. Each director also self-evaluated. Individual response of each director was collated by Company Secretary and discussed with the Board and Nomination and Remuneration Committee. On the basis of the individual response received and its own evaluation, the Board evaluated the performance and functioning of the Board, committees and nonexecutive directors. Nomination and Remuneration Committee evaluated the performance of executive directors. During the evaluation the directors whose performance was being evaluated abstained from the meeting. In conclusion, the Board and Nomination and Remuneration committee was satisfied with the performance and functioning of the Board, its Committees and individual members. Ms. Zoe Tang, who joined the Board of the Company only a week before the close of the financial year, did not get any chance to meet and interact with the board members. As such the Board deferred her evaluation to the next performance evaluation cycle.

AUDITORS AND THEIR REPORT:

Auditors in their report and Company Secretary in Practice in their secretarial audit report have not made any adverse remark, qualification or reservations.

In terms of the provisions of the section 139 (2) of the Companies Act 2013 and applicable rules, M/s B.S.R. & Co LLP, Chartered Accountant will retire as auditor of the Company at the conclusion of the ensuing Annual General Meeting of the Company.

The Board of Directors on the recommendation of the audit committee have recommended to the shareholders appointment of M/s Haribhakti & Co. LLP Firm Registration No. 103523W/W100048 as Statutory Auditor of the Company for a period of 5 years commencing from the conclusion of the ensuing annual general meeting. If appointed by the shareholders they will hold office until the conclusion of 55th Annual General Meeting of the Company.

The Board places on record its appreciation for the contribution of M/s B.S.R. & Company. LLP Chartered Accountant during the tenure as the Statutory Auditor’s of the company.

COST AUDIT:

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Amendment Rules, 2014, the Central Government has prescribed cost audit of the accounts to be maintained by your Company. To conduct the cost audit, M/s. Joshi Apte & Associates, Cost Accountants, has been re-appointed as Cost Auditors of your Company for the year 2017 in the meeting of Board of Directors held on Monday, February 27, 2017, subject to the approval of the Central Government, if any, required. The Cost Audit Report in XBRL format for the financial year ended December 31, 2016 was filed within due date.

A resolution for ratification of the remuneration payable to the Cost Auditor is included in the Notice of the Annual General Meeting for seeking approval of Members.

SECRETARIAL AUDITORS AND THEIR REPORT:

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Secretarial Audit has been carried out by M/s. Kanj & Associates, Practicing Company Secretary for the year ended December 31, 2016 and their report is annexed as Annexure III.

INTERNAL CONTROLS AND THEIR ADEQUACY:

The Board of Directors of the Company are responsible for ensuring that Internal Financial Controls have been laid down in the Company and such controls are adequate and operating effectively.

The Company has Internal Financial Control framework commensuration with the size, scale and complexity of its operations. The framework has been designed to provide reasonable assurance with respect to recording and providing reliable financial and operational information, complying with applicable laws, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance with corporate policies. The controls, based on the prevailing business conditions and processes have been tested during the year and no reportable material weakness in the design or effectiveness was observed. The framework on Internal Financial Controls over Financial Reporting has been reviewed by the internal and Statutory auditors.

The Internal Audit team develops an annual audit plan based on the risk profile of the business activities. The Internal Audit plan is approved by the Audit Committee, which also reviews compliance to the plan. The Internal Audit team monitors and evaluates the efficacy and adequacy of internal control systems in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the report of internal audit function, process owners undertake corrective action(s) in their respective area(s) and thereby strengthen the controls. Significant audit observations and corrective action(s) thereon are presented to the Audit Committee.

The Audit Committee reviews the reports submitted by the Internal Auditors in each of its meeting. Also, the Audit Committee at frequent intervals has independent sessions with the Statutory auditor to discuss the adequacy and effectiveness of internal financial controls.

The Board has implemented systems to ensure compliance of all applicable laws, these systems were effective and operative. At quarterly intervals the Managing Director and the Company Secretary place before the Board a certificate certifying compliance of laws and regulations as applicable to the business and operations of the Company after obtaining confirmation from all business unit and functional heads responsible for compliance of such applicable laws and regulations. The Company Secretary is responsible for compliance of corporate laws including Companies Act 2013, SEBI Act and rules/guidelines and listing regulations applicable to the Company.

During the year no frauds were reported by auditors in terms of section 143 (2) of the Act.

AUDIT COMMITTEE RECOMMENDATIONS:

During the year all the recommendations of the Audit Committee were accepted by the Board. The Composition, details of its meetings, of the Audit Committee are fully described in the Corporate Governance Report, which form part of this report.

RISK MANAGEMENT:

The Company is exposed to uncertainties in the sectors in which it operates. These uncertainties create new business opportunities with inherent risks. A key factor in determining a company’s capacity to create sustainable value is the level of risk that the company is willing to take (at strategic and operational levels) and its ability to manage them effectively. Many risks exist in a company’s operating environment and emerge on a regular basis. The Company’s Risk Management processes focus on ensuring that these risks are identified on a timely basis and reasonably addressed.

The Board of the Company has formed a risk management committee to frame, implement and monitor the risk mitigation plan for the Company. The committee is responsible for identifying key risk areas, periodically reviewing the risk management plan and ensuring its effectiveness. The audit committee has additional oversight in the area of financial risks and controls. Major risks are identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis.

The development and implementation of risk management policy has been covered in the management discussion and analysis, which forms part of this report.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS:

The particulars of loans, guarantees and investments are given in note no. 11 of the financial statement.

MATERIAL DEVELOPMENTS AFTER THE END OF THE FINANCIAL YEAR:

January 31, 2017 onwards a section workmen at the Company’s Goa plant stopped work while the Company and the worker’s union were engaged in negotiating the workers’ charter of demand including wage revision. The Company Management has not yet succeeded until the signing of this report to convince these workmen to resume work and to come to the negotiating table. The Company has referred the matter to the labour commissioner for conciliation proceedings which are ongoing. The management is confident that it will arrive at an amicable settlement with the workers, however, continued stoppage would impact operations at the Goa plant and supply of medicines in the market.

RELATED PARTY TRANSACTIONS:

The Company has implemented a Related Party Transactions policy for the purposes of identification and monitoring of such transactions. The policy on related party transactions as approved by the Board is uploaded on the Company’s website www.merck.co.in. All the related party transactions are entered into by the Company, at arm’s length basis and in the ordinary course of business.

All related party transactions are placed before the Audit Committee for approval. Prior omnibus approval of the Audit Committee is obtained on a quarterly basis. The audit committee has reviewed these transactions entered by the Company with these related parties.

The details of the material related party transactions as required under Section 134(3)(h) r/w Rule 8 of the Companies (Accounts) Rules, 2014, is attached as Annexure V in the form AOC 2.

MATERIAL ORDERS PASSED BY THE REGULATORS AND COURTS:

During the year under review no regulator or court has passed any significant and material orders impacting the going concern status of the Company and its future operations. Given hereunder is the gist of orders passed by regulators or the courts which may have material impact on the financial position of the Company:

In March 2016, the Health Ministry banned 344 fixed drug combinations through a gazette notification, based on the recommendation of its expert committee. Two drugs produced by your Company were impacted by this ban order. Pharmaceutical companies including your company challenged the order before the Hon’ble Delhi High Court and the Court was pleased to set aside the government notification. The Government may challenge the said decision of the Hon’ble Delhi High Court before Hon’ble Supreme court. Any adverse decision by the higher court or further addition to this list of banned drugs could impact the growth of the pharmaceutical companies.

The Company has received a demand notice from National Pharmaceutical Pricing Authority (NPPA) demanding a sum of Rs. 116.8 million plus interest Rs. 157.8 million alleging overcharging of price of the formulation Polybion L 100 ML syrup during the period from May 2006 to June 2009. The Company has challenged the said orders by way of a writ petition. In a separate proceedings filed by Cradel Pharmaceuticals Private Limited, the manufacturer of the said drug, Hon’ble Kolkata High Court granted temporary stay against the demand notice subject to a sum of Rs. 22.5 million being deposited with NPPA, which the Company has made. The Company has been legally advised it has a good defendable case. The Company has challenged the said orders and will defend itself vigorously, however, any adverse orders by the courts may have material impact on the profits of the Company.

VIGIL MECHANISM AND WHISTLE BLOWER POLICY:

In terms of the provisions of Section 177(9) of the

Companies Act, 2013 the Company has implemented a vigil mechanism which include implementation of the whistleblower policy. The whistle blower policy aims at conducting business in a transparent and compliant manner. No employee has been denied access to the chairman of the audit committee. The Company in conjunction with the Corporate Disclosure and Investigation policy of its ultimate holding Company has informed all its employees that any non-compliant behavior of directors or employees including non-compliance of its code of conduct shall be brought to the notice of the management for investigation and necessary action, using the speak-up line number provided therein. Whistleblower complaints and their redressal are discussed at the audit committee of the Company. The said policy is available on the Company’s website.

NOMINATION AND REMUNERATION POLICY:

Pursuant to the provisions of Section 134(3) (e), 178 of the Companies Act, 2013 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Company adopted a Nomination and Remuneration Policy which is available on our website www.merck. co.in. The Company’s Remuneration Policy provides a framework to support the implementation of the Merck Total Rewards Philosophy, specifically, it is intended to provide more detailed clarification on the guiding principles so as to support its implementation; guidance as to design of reward programs; and explanation as to roles, responsibilities and governance for program design, administration and communication. Performance of all employees of the Company is evaluated at regular interval using online tools, their bonus and annual increments are determined on the basis of overall company performance and individual performance rating achieved by them during the year under review.

PARTICULARS OF EMPLOYEES:

The information as required under Section 197 of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below:

(a) The ratio of the remuneration of each director to the median remuneration of the employees of the Company for the financial year:

Ratio of median remuneration

Non- Executive Directors

Mr. S.N. Talwar

2.23

Mr. H.C.H. Bhabha

1.67

Mrs. Rani Ajit Jadhav

1.27

Mr. Bradley Simpson1, 3

N.A.

Ms. Zoe Tang 2 3

N.A.

Executive Directors

Mr. Anand Nambiar

88.71

Mr. Brijesh Kapil1, 4

N.A.

Mr. Ali Slieman1, 4

N.A.

Mr. N. Krishnan

30.41

1 Resigned with effect from October 04, 2016.

2 Appointed with effect from December 23, 2016.

3 Directors did not get any remuneration during the year.

4 Directors resigned during the year as such their remuneration is not comparable with the annual median remuneration of employees.

Note - Median means the numerical value separating the higher half of a population from the lower half and the median of a finite list of number may be found by arranging all the observations from lowest value to highest value and picking the middle one .

(b) The percentage increase in remuneration of each director, chief executive officer, chief financial officer, company secretary in the financial year:

Director, Chief Financial Officer & Company Secretary

% Increase in remuneration during the financial year

Mr. Suresh Talwar (Chairman

5.26

and Independent Director)

Mr. H. C. H. Bhabha

7.14

(Independent Director)

Mrs. Rani Ajit Jadhav

10

(Independent Director)

Mr. Anand Nambiar (Managing

3.5*

Director)

Director, Chief Financial Officer & Company Secretary

% Increase in remuneration during the financial year

Mr. Brijesh Kapil* (Executive Director - Consumer Health)

@

Mr. Ali Slieman* (Executive Director - Bio Pharma)

@

Mr. N. Krishnan (Executive Director and Chief Financial Officer)

11

Mr. Vikas Gupta (General Counsel & Company Secretary)

11

* Resigned with effect from October 04, 2016

$ The percentage increase in the remuneration as compared to previous year remuneration is not comparable since Mr. Anand Nambiar joined as director last year from February 2015. Additionally, Mr. Nambiar was given one time retention bonus.

@ The percentage increase in the remuneration as compared to previous year remuneration is not comparable since Mr. Brijesh Kapil and Mr. Ali Slieman joined as director last year from February 2015 and resigned from the Board effective from October 2016.

(c) The percentage increase in the median remuneration of employees in the financial year: 10%

(d) The number of permanent employees on the rolls of Company: 1583 as on December 31, 2016

(e) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration

Average increase in the remuneration of salaries of the employees is based on a detailed performance evaluation which inter-alia include their performance viz-a-vis the objectives achieved by them during the year. The overall financial performance of the Company is also taken into consideration while arriving at the average percentage increase of the salaries of employees. Salaries of employees is adjusted periodically against the industry benchmark. During the year under review average increase in the salaries of employees was around 10%.

(f) Key Parameters for any variable component of remuneration availed by directors:

Executive Directors are entitled for payment of bonus which is dependent upon the Company’s overall performance and their individual performance rating. Additionally, non-executive independent directors are entitled for payment of commission which is determined based on the time spent by the Non-Executive Directors at the Audit Committee Meetings, Board Meetings, other Committee Meetings and contribution made by them from time to time on strategic matters.

(g) Affirmation that the remuneration is as per the remuneration policy of the Company:

It is hereby confirmed that the remuneration paid during the year is as per the Remuneration Policy of the Company.

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in a separate annexure forming part of this report. Further, the report and the accounts are being sent to the members excluding the aforesaid annexure. In terms of the applicable provisions of the Companies Act, 2013, the said annexure is open for inspection at the Registered Office of the Company. Any shareholder interested in obtaining a copy of the same may write to the Company Secretary.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

The particulars as prescribed under Section 134(3) (m) of the Act, read with Rule 8 of the Companies (Accounts) Rules, 2014, are set out in Annexure VI.

EXTRACTS OF ANNUAL RETURN:

Extracts of Annual Return in the prescribed format under the Companies Act, 2013 forms part of this Report as Annexure VII.

DISCLOSURE AS PER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013:

The Company has zero tolerance towards sexual harassment at the workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and Rules there under (Prevention of Sexual Harassment Act).

During the year ending December 31, 2016, the Company has received one complaint of sexual harassment, which is being investigated in terms of the applicable provisions of the Prevention of Sexual Harassment Act.

GREEN INITIATIVE:

Your Company has taken the initiative of going green and minimizing the impact on the environment. The Company has been circulating the copy of the Annual

Report in electronic format to all those Members whose email address is available with the Company. Your Company would encourage other Members also to register themselves for receiving Annual Report in electronic form. Kindly refer the contact details and ways to register your email address given under the heading ‘Request to the Members’ at the end of the notice of the Annual General Meeting.

ACKNOWLEDGEMENTS:

Your Directors thank and express their gratitude to the Company’s employees, customers, vendors, investors, and institutions for their continued support to the Company. Your Directors also thank the State Government and concerned Government Departments/ Agencies for their co-operation.

Your Directors also register sincere thanks and infinite appreciations to the contributions made by every Member of the Merck family globally.

On behalf of the Board of Directors

S. N. Talwar Chairman

Mumbai, April 21, 2017


Dec 31, 2014

Dear Members,

We are pleased to present the report on business and operations for the year ended December 31, 2014.

FINANCIAL HIGHLIGHTS:

The financial performance of your Company for the year ended December 31, 2014 is summarized below:

(Rupees million)

Particulars 2014 2013

Income from Operations 8,674.9 7,977.8

Other Income 203.3 214.5

Profit before Interest, Depreciation and Tax 792.4 983.2

Depreciation 126.8 100.7

Provision for Taxation (net) 233.4 323.7

Profit after tax 432.2 558.8

Profit available for appropriations 2,100.5 1,889.3

Appropriations:

Transfer to General Reserve 43.2 55.9

Dividend (including Tax on Dividend) 119.5 165.1

Balance carried to the Balance Sheet 1,937.8 1,668.3

EPS

– Basic (Rs.) 26.0 33.7

– Diluted (Rs.) 26.0 33.7

COMPANY''S OPERATIONAL PERFORMANCE:

Details of operational working of your Company are given in the Management Discussion and Analysis Report forming part of this Report. During the financial year ended December 31, 2014, your Company achieved a turnover of Rs. 8,324.5 million as against a turnover of Rs. 7,729.6 million in the previous year, registering a growth of 7.7%. During the year under report, the Pharmaceuticals segment registered an increase in turnover of 5.1% and, the Chemicals segment registered an increase of 13.5% as compared to the respective segment turnover achieved during the previous financial year.

The export turnover of your Company during the year 2014 was Rs. 677.4 million as against Rs. 707.7 million achieved in the previous year.

SHARE CAPITAL:

Share Capital Audit as per the directives of the Securities and Exchange Board of India is being conducted on a quarterly basis by Messrs Saraf and Associates, Practicing Company Secretaries. The Share Capital Audit Reports are duly forwarded to the Bombay Stock Exchange and National Stock Exchange of India Limited where the equity shares of your Company are listed. During the year ended December 31, 2014 there is no change in the issued and subscribed capital of your Company, the outstanding capital as on December 31, 2014 is Rs. 166.0 million comprising of 16 million equity shares of Rs. 10/- each.

DIVIDEND:

Your Board of Directors have recommended a dividend of Rs. 6/- (Rupees six) per equity share for the year ended December 31, 2014. This is subject to approval of the Members at forthcoming Annual General Meeting.

FIXED DEPOSITS:

Your Company has not accepted any public deposits from the public or the Members during the year 2014 and no amount on account of principal or interest on public deposits was outstanding as on the date of the balance sheet.

CORPORATE SOCIAL RESPONSIBILITY:

In terms of the provisions of Section 135 of the Companies Act, 2013 your Company has constituted a CSR Committee under the chairmanship of an Independent Director of the Company. The Company also adopted CSR policy which is available on its website www.merck.co.in

During the year under review the Company has initiated following projects to meet its corporate social responsibility obligations.

(a) Narmada Samgara Project: During the year your Company has collaborated and extended support for improving lives of the people living in inaccessible areas along the banks of river Narmada, Madhya Pradesh. These tribal people are not having access to healthcare facilities, clean drinking water, and education. The Company has provided assistance by way of provision of medicines, sponsorship of doctors and water test equipment. The Company has also provided cash assistance for running a river ambulance which travels to villages inhabited along the banks of the river Narmada. The ambulance carries medicines and medical staff for on-the-spot medical checkup and providing treatment to sick. During the current financial year the Company intends to provide a boat for extending this service to additional areas. The Company has spent Rs. 3.0 million on this project, in the current financial year.

(b) CSR activities at Goa: The Company, in the villages close to its factory in Goa, distributed free school uniforms and note books to students, through village Panchayat. A medical camp was also organized for the benefit of villagers. During the year the Company has spent Rs. 0.12 million on these activities.

(c) Scholarships to bright stars from weaker section of the Society: During the year the Company, through Merck India Charitable Trust (MICT), continued to provide scholarships to students from the weaker sections of the society. A lump sum amount is given to selected students to meet their expenses on tuition fee, books and other education expenses. Student once selected gets the annual scholarship until she/he continues to perform well in studies and passes the graduation or equivalent examination.

During the year the Company could not spend 2% of its average profit for the last three years since during the year it used its managerial resources to lay the basic frame work for undertaking the CSR activities in accordance with the provisions of the Companies Act, 2013 including finalizing the CSR policy, constituting statutory and executive committees for undertaking CSR activities, identifying the CSR projects which meet the Company policy and statutory requirements.

DIRECTORS'' RESPONSIBILITY STATEMENT:

In accordance with Section 217(2AA) of the Companies Act, 1956, your Directors confirm that:

(a) In the preparation of the annual accounts, the applicable Accounting Standards/Rules have been followed along with proper explanation relating to material departures;

(b) The accounting policies have been consistently applied and reasonable and prudent judgment and estimates have been made so as to give a true and fair view of the state of affairs of the Company as at December 31, 2014 and the profit for the year ended on that date;

(c) Proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 has been taken for safeguarding the assets of the Company and for detecting and preventing fraud and other irregularities; and

(d) The annual accounts have been prepared on a going concern basis.

DIRECTORS:

Mrs. Rani Ajit Jadhav was appointed as an Additional Director with effect from February 05, 2015 who holds office up to the date of the ensuing Annual General Meeting. She was appointed as an Independent Director for a term of five years with effect from subject to the approval of the shareholders at the ensuing Annual General Meeting.

Mr. Anand Nambiar was appointed as an additional Director with effect from February 05, 2015 who holds office up to the date of the ensuing Annual General Meeting. He was also appointed as "Managing Director" for a period from February 05, 2015 to September 30, 2017 subject to the approval of the shareholders at the ensuing Annual General Meeting and approval of the Central Government.

Dr. Claus-Dieter Boedecker resigned as a Director and Managing Director of the Company with effect from January 31, 2015, due to his desire to re-locate to Germany, his home country. The Directors placed on record their appreciation of his valuable contributions as member of the Board during his tenure as Managing Director of the Company.

Mr. Brijesh Kapil was appointed as an additional Director with effect from February 05, 2015 who holds office up to the date of the ensuing Annual General Meeting. He was also appointed as Wholetime Director for a period of five years with effect from February 05, 2015 subject to the approval of the shareholders at the ensuing Annual General Meeting.

Mr. Ali Sleiman was appointed as an additional Director with effect from February 05, 2015 who holds office up to the date of the ensuing Annual General Meeting. He was appointed as Wholetime Director for a period from February 05, 2015 to September 30, 2017 subject to the approval of the shareholders at the ensuing Annual General Meeting and approval of the Central Government.

Mr. Pramod Pimplikar, Director (Technical Operations) resigned as Director and Wholetime Director of the Company with effect from January 13, 2015. The Directors placed on record their appreciation of his valuable contributions as member of the Board and senior member of the management team.

Mr. E.A. Kshirsagar, Independent Director resigned from the Board of Directors effective January 13, 2015 to create a vacancy for induction of a woman director on the Board of the Company in compliance with the provisions of the Companies Act, 2013 and to adhere to the Merck principle of keeping its board structure lean. The Directors placed on record their appreciation of his valuable contributions as member of the Board.

In terms of the provisions of Section 149 of the Companies Act, 2013 and other applicable provisions, if any, the Board has recommended the appointment of Mr. S.N. Talwar and Mr. H.C.H. Bhabha, existing Independent Directors, as Independent Directors of the Company for a period of 5 years effective from April 08, 2015.

Mr. N. Krishnan, Director (Finance) will retire by rotation at the forthcoming Annual General Meeting of the Company and being eligible offers himself for re-appointment as Director of the Company. Board recommends his re-appointment.

AUDITORS:

Messrs BSR & Co. LLP, Chartered Accountants, retires as Statutory Auditors of the Company at the conclusion of the forthcoming Annual General Meeting and has confirmed their eligibility and willingness to accept the office of the Auditors for the year 2015, if re-appointed.

A certificate from them has been received to the effect that their appointment as Statutory Auditors if made would be in accordance to the provisions of Sections 139 and 141 of the Companies Act, 2013 and rules framed thereunder.

The Board and Audit Committee of your Company have recommended the re-appointment of Messrs BSR & Co. LLP, Chartered Accountants, as Statutory Auditors of your Company, to hold office as such from the conclusion of the forthcoming Annual General Meeting until the conclusion of subsequent Annual General Meeting to be held in 2016.

COST AUDIT:

Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed cost audit of the accounts to be maintained by your Company concerning its bulk drugs and formulations divisions. To conduct the cost audit of these divisions, M/s. Sanghvi Randeria & Associates, a firm of Cost Accountants has been re-appointed as Cost Auditors of your Company for the year 2014 in the meeting of Board of Directors held on Friday, January 31, 2014, subject to the approval of the Central Government, required if any. The Cost Audit Report for the financial year ended December 31, 2013 was due to be filed on June 30, 2014 has been filed on June 29, 2014.

PERSONNEL:

As on December 31, 2014, the total number of employees on the payroll was 1515. Industrial relations with the employees at various levels generally continued to be cordial.

The particulars of employees, as required under Section 217(2A) read with the Companies (Particulars of Employees) Rules, 1975, form part of this Report. However, pursuant to the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Reports and Accounts are being sent to the Members excluding the statement of particulars of employees. Any Member may obtain a copy of the said statement by writing to the Company Secretary at the registered office of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo required to be disclosed as per Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules 1988, is given in the annexure forming part of this Report.

CORPORATE GOVERNANCE:

A Report on the compliance of Corporate Governance Code along with Auditors'' certificate thereon, as stipulated under Clause 49 of the Listing Agreement, is annexed to this Report.

GREEN INITIATIVE:

Your Company has taken the initiative of going green and minimising the impact on the environment. The Company has been circulating the copy of the Annual Report in electronic format to all those Members whose email address is available with the Company. Your Company would encourage other Members also to register themselves for receiving Annual Report in electronic form. Kindly refer the contact details and ways to register your email address given under the heading ''Request to the Members'' at the end of the notice of the Annual General Meeting.

ACKNOWLEDGEMENTS:

Your Directors thank and express their gratitude to the Company''s employees, customers, vendors, investors, and institutions for their continued support to the Company. Your Directors also thank the State Government and concerned Government Departments/ Agencies for their cooperation.

Your Directors also register sincere thanks and infinite appreciations to the contributions made by every Member of the Merck family globally.

On behalf of the Board of Directors

S. N. Talwar Chairman

Mumbai, February 05, 2015


Dec 31, 2013

The financial performance of your Company for the year ended 31 December, 2013 is summarized below:

(Rupees million)

Particulars 2013 2012

Income from Operations 7,977.8 6,872.8

Other Income 214.5 202.0

Profit before Interest, Depreciation

and Tax 983.2 1,256.9

Depreciation 100.7 89.0

Provision for Taxation (net) 323.7 383.9

Profit after tax 558.8 784.0

Profit available for appropriations 1,889.3 1,457.1

Appropriations:

Transfer to General Reserve 55.9 78.4

Dividend (including Tax on 165.1 48.2

Dividend)

Balance carried to the Balance 1,668.3 1,330.5

Sheet

EPS

– Basic (Rs.) 33.7 47.2

– Diluted (Rs.) 33.7 47.2

COMPANY''S OPERATIONAL PERFORMANCE:

Detailed operational working of your Company are discussed in the Management Discussion and Analysis Report forming part of this Report. During the financial year ending 31 December, 2013, your Company achieved a turnover of Rs. 7,729.6 million as against a turnover of Rs. 6,580.7 million in the previous year, registering a growth of 17.5%. During the year under report, the Pharmaceuticals segment showed an increase in turnover of 20%, the Chemicals segment registered an increase of 12% as compared to the respective segment turnover in the previous year.

The devaluation of the Indian Rupee vis-a-vis major currencies resulted in increase of input costs, sluggish in economic environment and impairment of current assets, were key reasons for the dent in operating margins. The Profit after Tax for the year under review was Rs. 558.8 million as against Rs. 784.0 million in previous year, showing a fall of 28.7%.

The export turnover of your Company during the year 2013 was Rs. 707.7 million as against Rs. 729.8 million achieved in the previous year.

SHARE CAPITAL:

Share Capital Audit as per the directives of the Securities and Exchange Board of India is being conducted on a quarterly basis by Messrs K.G. Saraf & Company, Practicing Company Secretaries. The Share Capital Audit Reports are duly forwarded to the Bombay Stock Exchange and National Stock Exchange of India Limited where the equity shares of your Company are listed. During the year ended 31 December, 2013 there was no change in the issued and subscribed capital of your Company, the outstanding capital as on 31 December, 2013 was Rs. 166.0 million comprising of 16.6 million equity shares of Rs. 10.00/- each.

DIVIDEND:

Your Board of Directors has recommended a dividend of Rs. 8.50/- (Rupees Eight and paisa Fifty) per equity share for the year ended 2013. This is subject to approval of Members at the forthcoming Annual General Meeting.

FIXED DEPOSITS:

Your Company has not accepted any public deposits from the public or the Members during the year 2013 and no amount on account of principal or interest on public deposits that may have been accepted in the past was outstanding as on the date of the Balance Sheet.

DIRECTORS'' RESPONSIBILITY STATEMENT:

In accordance with Section 217(2AA) of the Companies Act, 1956, your Directors confirm that:

(a) in the preparation of the annual accounts, the applicable Accounting Standards/Rules have been followed along with proper explanation relating to material departures;

(b) the accounting policies have been consistently applied and reasonable and prudent judgment and estimates have been made so as to give a true and fair view of the state of affairs of the Company as at 31 December, 2013 and the profit for the year ended on that date;

(c) proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 has been taken for safeguarding the assets of the Company and for detecting and preventing fraud and other irregularities; and

(d) the annual accounts have been prepared on a going concern basis.

DIRECTORS:

Mr. S. N. Talwar and Mr. H. C. H. Bhabha, both Non- Executive Independent Directors, will retire by rotation at the forthcoming Annual General Meeting of the Company and being eligible they offer themselves for re-appointment as Directors of the Company.

AUDITORS:

Messrs B S R & Co. LLP, Chartered Accountants, retires as Statutory Auditor of the Company at the conclusion of the forthcoming Annual General Meeting and has confirmed their eligibility and willingness to accept the office of the Auditors for the year 2014, if re-appointed. The Board and Audit Committee of your Company has recommended the re-appointment of Messrs B S R & Co. LLP, Chartered Accountants, as Statutory Auditor of your Company, to hold office as such from the conclusion of the forthcoming Annual General Meeting until the conclusion of the next Annual General Meeting.

COST AUDIT:

Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed cost audit of the accounts to be maintained by your Company with regard to its bulk drugs and formulations divisions. To conduct the cost audit of these divisions, M/s. Sanghvi Randeria & Associates, a firm of Cost Accountants, has been re-appointed as Cost Auditors of your Company for the year 2014 in the meeting of Board of Directors held on Friday, 31 January, 2014, subject to the approval of the Central Government, required if any. The Cost Audit Report for the financial year ended 31 December, 2012 was due to be filed on 30 June, 2013, which was filed on 27 June, 2013.

PERSONNEL:

As on 31 December, 2013, the total number of employees on the payroll was 1,496. Industrial relations with the employees at various levels generally continued to be cordial.

The particulars of employees, as required under Section 217(2A) read with the Companies (Particulars of Employees) Rules, 1975, form part of this Report. However, pursuant to the provisions of Section 219(1)(b) (iv) of the Companies Act, 1956, the Reports and Accounts are being sent to the Members excluding the statement of particulars of employees. Any Member may obtain a copy of the said statement by writing to the Company Secretary at the registered office of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo required to be disclosed as per Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules 1988, is given in the annexure forming part of this Report.

CORPORATE GOVERNANCE:

A Report on the compliance of Corporate Governance Code along with Auditors'' certificate thereon, as stipulated under Clause 49 of the Listing Agreements, is annexed to this Report.

GREEN INITIATIVE:

Your Company has taken the initiative of going green and minimising the impact on the environment. The Company has been circulating the copy of the Annual Report in electronic format to all those Members whose email address is available with the Company. Your Company would encourage other Members also to register themselves for receiving Annual Report in electronic form. Kindly refer the contact details and ways to register your email address given under the heading ''Request to the Members'' at the end of the notice of the Annual General Meeting.

ACKNOWLEDGEMENTS:

Your Directors thank and express their gratitude to the Company''s employees, customers, vendors, investors, and institutions for their continued support to the Company. Your Directors also thank the State Government and concerned Government Departments/Agencies for their co-operation.

Your Directors also register sincere thanks and infinite appreciations to the contributions made by every Member of the Merck family globally.

On behalf of the Board of Directors

S. N. Talwar

Chairman

Mumbai, 31 January, 2014


Dec 31, 2012

The are pleased to present the report on our business and operations for the year ended December 31, 2012.

FINANCIAL HIGHLIGHTS:

(Rupees million)

2012 2011

Income from Operations 6,872.8 5,895.7

Other Income 202.0 168.8

Profit before Interest, Depreciation and Tax 1,257.1 892.8

Interest 0.2 0.2

Depreciation 89.0 79.5

Impairment (reversal) - (142.8)

Provision for Taxation (net) 383.9 319.1

Profit after tax 784.0 636.8

Profit available for appropriations 1,457.1 673.1

Appropriations:

Transfer to General Reserve 78.4 -

Dividend 41.5 -

Balance carried to the Balance Sheet 1,330.5 673.1

EPS

- Basic (Rs.) 47.2 38.4

- Diluted (Rs.) 47.2 38.4

OPERATIONS:

The operational working of the Company in detail is discussed in the Management Discussion and Analysis Report forming part of this Report. During the financial year ending December 31, 2012 the Company achieved turnover of Rs. 6,580.7 million as against turnover of Rs 5,575.7 million achieved during the previous year, registering a growth of 18%. During the year under report, the Pharmaceuticals segment showed an increase in turnover of 14.4% and the Chemicals segment registered an increase of 26.3% as compared to the respective segment turnover in the preceding financial year.

The Profit after Tax for the year under review was Rs. 784.0 million as against Rs. 636.8 million in 2011, showing an increase of 23°/o.

The export turnover of the Company during the year 2012 was Rs. 729.8 million as against Rs. 538.9 million achieved in the preceding year.

SHARE CAPITAL:

Share capital audit as per the directives of the Securities and Exchange Board of India is being conducted on a quarterly basis by K.G. Saraf ft Company, Practising Company Secretaries. The Share Capital Audit Reports are duly forwarded to the Bombay Stock Exchange and National Stock Exchange of India Limited where the equity shares of the Company are listed. During the year ended December 31, 2012 there is no change in issued and subscribed capital of the Company, the outstanding capital as on December 31, 2012 is Rs. 166.0 million comprising of 16.60 million equity shares of Rs. 10 each.

DIVIDEND:

The Board of Directors has recommended a dividend of Rs. 2.50/- (Rupees two and fifty paisa per share only) per equity share of the company for the year 2012. This is subject to the approval of the Members at the ensuing annual general meeting.

FIXED DEPOSITS:

The Company has not accepted any public deposits from the public or the members during the year 2012.

DIRECTORS'' RESPONSIBILITY STATEMENT:

In accordance with Section 217(2AA) of the Companies Act, 1956, your Directors confirm that:

(a) in the preparation of the annual accounts, the applicable Accounting Standards/Rules have been followed along with proper explanation relating to material departures;

(b) the accounting policies have been consistently applied and reasonable and prudent judgement and estimates have been made so as to give a true and fair view of the state of affairs of the Company as at December 31, 2012 and the profit for the year '' ended on that date;

(c) proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, has been taken for safeguarding the assets of the Company and for detecting and preventing fraud and other irregularities and;

(d) the annual accounts have been prepared on a going concern basis.

DIRECTORS:

During the year Dr. Claus-Dieter Boedecker was appointed as Managing Director of the Company for a period of three (3) years effective from August 01, 2012 in place of Dr. Marek Dziki, whose contract of employment expired on July 31, 2012.

The Board appointed Mr. N. Krishnan as Whole- time Director of the Company for a period of five (5) years effective from October 22, 2012 in place of Mr. R. L. Shenoy who ceased to be the Whole-time Director and Chief Financial Officer of the Company upon attaining superannuation.

Terms of appointment of Dr. Claus-Dieter Boedecker and Mr. N. Krishnan are set out in the notice convening annual general meeting.

Pursuant to Article 110 of the Articles of Association of the Company, Merck KGaA, Germany, has appointed Dr. Peter-Ulrich Mannheimer as Director of the Company in place of Mr. Tim Kneen with effect from October 01, 2012.

We place on record our sincere appreciation for the contributions made by Dr. Marek Dziki, Mr. Tim Kneen and Mr. R.L. Shenoy during their respective tenures as members of the Board of the Company.

Mr. Pramod Pimplikar, Executive Director, and Mr. E.A. Kshirsagar, Director, will retire by rotation at the forthcoming Annual General Meeting of the Company being eligible they are seeking re-appointment as Director of the Company. Board recommends their re-appointment.

AUDITORS:

Messrs B S R ft Co., Chartered Accountants, retires as Auditors of the Company at the conclusion of the forthcoming Annual General Meeting and has confirmed their eligibility and willingness to accept the office of the Auditors for the year 2013, if re-appointed. The Board and audit committee of the Company has recommended the reappointment of Messrs B S R ft Co., Chartered Accountants, as statutoiy auditor of the Company to hold office as such until the conclusion of next Annual General Meeting.

COST AUDIT:

Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed cost audit of the accounts to be maintained by the Company concerning its bulk drugs and formulations divisions. To conduct the cost audit of these divisions, Messrs Sanghvi Randeria Et Associates, Cost Accountants, has been re-appointed as Cost Auditors of the Company for the year 2013, subject to the approval of the Central Government.

PERSONNEL:

As on December 31, 2012, the total number of employees on the payroll was 1,277. Industrial relations with the employees at various levels generally continued to be cordial. During the year under review workers union at Goa plant initiated negotiations with the Company which is under finalization and active discussions.

The particulars of employees, as required under Section 217(2A) read with the Companies (Particulars of Employees) Rules, 1975, form part of this Report. However, pursuant to the provisions of Section 219(l)(b) (iv) of the Companies Act, 1956, the Report and Accounts are being sent to the Members excluding the statement of particulars of employees. Any Member may obtain a copy of the said statement by writing to the Company Secretary at the registered office of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo required to be disclosed as per Section 217(l)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is given in the annexure forming part of this Report.

CORPORATE GOVERNANCE:

A Report on the compliance of Corporate Governance Code along with auditors'' certificate thereon, as stipulated under Clause 49 of the Listing Agreements, is annexed to this Report.

GREEN INITIATIVE:

Your company has taken the initiative of going green and minimizing the impact on the environment. This year we are circulating the copy of the annual report only in electronic format to all those Members who have registered their email address with us. This would substantially reduce the number of paper printed copies. We would encourage other Members also to register themselves for receiving annual report in electronic form.

ACKNOWLEDGEMENTS:

The Directors thank the Company''s employees, customers, vendors, investors, and institutions for their continued support to the Company. The Directors also thank the Government of various countries, Government of India, State Government and concerned Government Departments/Agencies for their co-operation.

On behalf of the Board of Directors

S. N. Talwar

Chairman

Mumbai, January 30, 2013


Dec 31, 2010

The Directors have the pleasure in presenting their Report on the business and operations of your Company along with the Accounts for the year ended December 31, 2010.

FINANCIAL HIGHLIGHTS:

(Rs. mio.)

2010 2009

TURNOVER 5,090.8 4,731.1

OTHER INCOME 433.7 432.1

Profit before Interest, Depreciation 1,171.6 1,039.9 and Taxation

Interest 0.7 0.3

Depreciation/Impairment loss 213.8 75.1

PROFIT BEFORE TAXATION 957.1 964.5

Provision for Taxation (net) 325.3 309.7

PROFIT AFTER TAXATION 631.8 654.8

Profit & Loss Account brought

forward 1,306.5 1,366.7

PROFIT AVAILABLE FOR

APPROPRIATION 1,938.3 2,021.5

APPROPRIATIONS:

Transfer to General Reserve 63.2 326.6

Interim Dividend Paid 1,576.9 --

Dividend Tax on Interim Dividend 261.9 --

Final Dividend (Proposed) -- 332.0

Dividend Tax on Proposed Final Dividend -- 56.4

Balance carried to the Balance Sheet 36.3 1,306.5

OPERATIONS:

The operational working of the Company, in detail is discussed in the Management Discussion and Analysis Report forming part of this Report. The turnover of the Company showed an increase of 7.6% over the turnover achieved in the previous year. As against Rs. 4,731.1 mio. achieved in the year 2009, the turnover of the Company in 2010 was Rs. 5,090.8 mio. While the Pharmaceuticals segment showed an increase in the turnover of 3.1%, the Chemicals segment showed an increase of 20.9% compared to the respective turnover of the segments in the preceding year.

The Profit After Tax for the year under review was Rs. 631.8 mio. as against Rs. 654.8 mio. in 2009, a decline of 3.5%.

The F.O.B. value of exports of the Company during the year 2010 was Rs. 468.8 mio. as against Rs. 522.2 mio. achieved in the preceding year. The fall in the value of the exports turnover was on account of the decline in the value of Oxynex exports in the year 2010.

The Company has debited the Profit and Loss Account towards the impairment loss to the extent of Rs. 142.8 mio. on the assets used for the manufacture of Oxynex at its Goa plant for the following reasons:

1. There has been an unexpected steep fall in the demand for Oxynex internationally and the future cash flows warrant the impairment of the value of assets to the extent of Rs. 142.8 mio.

2. It will be difficult to get a willing customer to purchase the assets used for the manufacture of Oxynex as the same are located in the midst of Goa plant. Therefore, any interested customers may find it difficult to have an easy access and also find difficulties in installing the utilities as currently most of the utilities of the Goa plant are installed centrally for all the production units.

Under the circumstances, as obtaining the fair value of the assets may not be feasible, the Directors have taken the decision to impair the value of Oxynex assets used for the manufacture of Oxynex to the extent of Rs. 142.8 mio. based on the value in use of the said assets.

SHARE CAPITAL:

The buy back offer of the Companys equity shares process which was initiated in May 2009, was closed in May 2010. The details of the buy back of Companys equity shares are as follows:

Number of equity shares bought back 261,842

The total cost of equity shares bought back Rs. 109.1 mio.

The paid up capital after the buy back Rs. 166.0 mio.

Share capital audit as per the directives of the Securities and Exchange Board of India is being conducted on a quarterly basis by K.G. Saraf ft Company, Practicing Company Secretaries. The Share Capital Audit Reports are duly forwarded to the Bombay Stock Exchange and National Stock Exchange of India Limited where the equity shares of the Company are listed.

DIVIDEND:

Your Company has been exploring the best way to utilize the surplus money lying and invested in the low yielding bank deposits and debt funds for the last few years. This fact was brought to the notice of the Members from time to time. Having not been able to acquire any business or brands meeting our requirements and having received a limited response to the buy back offer, your Directors felt that it would be prudent to distribute a part of the surplus funds lying to the Members. Accordingly, the Directors declared an interim dividend of Rs. 95 per share for the year 2010 in October last year.

The Directors, therefore, do not propose to recommend any final dividend.

FINANCE:

The Company has invested most of the surplus funds in fixed deposits with banks and a small amount in debt based mutual funds.

FIXED DEPOSITS:

The Company has not accepted any public deposits from the public or the Members during the year 2010.

DIRECTORS RESPONSIBILITY STATEMENT:

In accordance with Section 217(2AA) of the Companies Act, 1956, your Directors confirm that:

(a) in the preparation of the annual accounts, the applicable Accounting Standards/Rules have been followed along with proper explanation relating to material departures;

(b) the accounting polices have been consistently applied and reasonable and prudent judgement and estimates have been made so as to give a true and fair view of the state of affairs of the Company as at December 31, 2010 and the profit for the year ended on that date;

(c) proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 has been taken for safeguarding the assets of the Company and for detecting and preventing fraud and other irregularities and;

(d) the annual accounts have been prepared on a going concern basis.

DIRECTORS:

During the year, Mr. Ralph Zaat - Non Executive Director of the Company resigned from the services of the parent company, Merck KGaA which consequent upon such resignation withdrew his nomination as Director from the Board of your Company. In the place of Mr. Ralph Zaat, Mr. Timothy Kneen was nominated by Merck KGaA as Director of your Company in accordance with Article 110 of the Articles of Association of the Company. The Directors while welcoming Mr. Kneen to the Board place on record their sincere appreciation for the valuable contribution and guidance rendered by Mr. Ralph Zaat during his tenure as a Director of the Company.

AUDITORS:

Messrs B S R Et Co., Chartered Accountants, retire as Auditors of trie Company at the conclusion of the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept the office of the Auditors for the year 2011, if re-appointed. The Audit Committee of the Board recommends the re-appointment of Messrs B S R ft Co. as the Statutory Auditors for the year 2011.

COST AUDIT:

Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed cost audit of the accounts maintained by the Company concerning its bulk drugs and formulations divisions. To conduct the cost audit of these divisions, Messrs S. S. Mani ft Co. have been re-appointed as Cost Auditors of the Company for the year 2011, subject to the approval of the Central Government.

PERSONNEL:

As on 31 December, 2010, the total number of employees on the payroll was 1,257. Industrial Relations with the employees at various levels continue to be cordial.

The particulars of employees, as required under Section 217(2A) read with the Companies (Particulars of Employees) Rules, 1975, form part of this Report. However, pursuant to the provisions of Section 219(l)(b) (iv) of the Companies Act, 1956, the Report and Accounts are being sent to the Members excluding the statement of particulars of employees. Any Member interested in obtaining a copy of the said statement may write to the Company Secretary at the Registered Office of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo required to be disclosed as per Section 217{l(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules 1988, is given in the annexure forming part of this Report.

CORPORATE GOVERNANCE:

The Report on the Corporate Governance Code along with a certificate from the Auditors of the Company regarding compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreements, as also the Management Discussion and Analysis Report, are annexed to this Report.

On behalf of the Board of Directors

S. N. Talwar Chairman

Mumbai, February 8, 2011.


Dec 31, 2009

The Directors have pleasure in presenting their Report on the business and operations of your Company along with the Accounts for the year ended December 31, 2009.

FINANCIAL HIGHLIGHTS:

(Rs. mio.)

2009 2008

SALES 4.731.1 3,894.6

OTHER INCOME 432.1 477.1

Profit before Interest, Depreciation and Taxation 1,039.9 974.8

Interest 0.3 0.1

Depreciation 75.1 57.3

PROFIT BEFORE TAXATION 964.5 917.4

Provision for Taxation (net) 309.7 287.3

PROFIT AFTER TAXATION 654.8 630.1

Profit a Loss Account Balance brought forward 1,366.7 1,423.5

PROFIT AVAILABLE FOR APPROPRIATION 2,021.5 2,053.6

APPROPRIATIONS:

Transfer to General Reserve 326.6 341.7

Dividend (Proposed) 332.0 295.1

Dividend Tax 56.4 50.1

Balance carried to the Balance Sheet 1,306.5 1,366.7

OPERATIONS:

The turnover of the Company for the year 2009 was Rs. 4,731.1 mio. as against Rs. 3,894.6 mio. for the year 2008, showing a growth of 21.5°/o during the year under review. The profit after tax for the year under review was Rs. 654.8 mio as against Rs. 630.1 mio. in the previous year.

The turnover of the Pharmaceuticals division grew from Rs. 3,189.6 mio. in 2008 to 3,525.5 mio. in 2009 showing a growth of 10.5%. The turnover of the Chemicals division for the year was 1,205.6 mio. as against Rs. 705.0 mio. in the previous year, registering an impressive growth of 71.0%.

During the year under review, the Companys exports increased to Rs. 579.8 mio. as against Rs. 353.2 mio. for the previous year registering an impressive growth of 64.2
BUY BACK OF SHARES:

The Board at its meeting held on May 20, 2009 approved the buy back of Companys fully paid up Equity Shares from the open market at a price not exceeding Rs. 435/- per share. The buy back is limited to an amount of Rs. 451.4 mio being 10% of total paid up capital and free reserves based on audited accounts for the year ended December 31, 2008. The Company has bought back 2,61,842 Equity Shares and all the shares bought back in the buy back offer have been extinguished as on date.

DIVIDEND:

The Board of Directors has recommended a divided of Rs. 20/- per share as against Rs. 17.50 per Equity Share paid for the previous year. This is subject to the approval of the Members at the ensuing Annual General Meeting.

FINANCE:

The investments of the Company in various debt funds, and fixed deposits with Banks as on the date of the Report amount to Rs. 3,435.8 mio.

DIRECTORS RESPONSIBILITY STATEMENT:

In accordance with Section 217(2AA) of the Companies Act, 1956, your Directors confirm that:

(a) in the preparation of the annual accounts, the applicable Accounting Standards/Rules have been followed along with proper explanation relating to material departures;

(b) the accounting polices have been consistently applied and reasonable and prudent judgement and estimates have been made so as to give a true and fair view of the state of affairs of the Company as at December 31, 2009, and the Profit for the year ended on that date;

(c) proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 has been taken for safeguarding the assets of the Company and for detecting and preventing fraud and other irregularities and;

(d) the annual accounts have been prepared on a going concern basis.

DIRECTORS:

Mr. S. N. Talwar and Mr. E. A. Kshirsagar will retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment. During the year, Mr. Ralph Zaat was nominated on the Board by Merck KGaA pursuant to the provisions of Article 110 of the Articles of Association of the Company in place of Dr. H. S. Hermansson. The Board placed on record its appreciation of the valuable services rendered by Dr. Hermansson during his tenure as a Director of the Company.

Mr. R. L. Shenoys tenure as a Whole-time Director expired on December 26, 2009. The Directors are of the opinion that it would be advisable to re-appoint Mr. R. L. Shenoy as a Whole-time Director for an additional period of two years with effect from December 27, 2009 subject to Members approval at the ensuing Annual General Meeting.

FIXED DEPOSITS:

During the year, the Company has not accepted any fixed deposit.

AUDITORS:

Messrs B S R ft Co., Chartered Accountants retire as the Statutory Auditors at the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. The Audit Committee of the Board recommends the re-appointment of Messrs B S R Et Co., as the Statutory Auditors for the year 2010. Messrs B S R 8t Co. have confirmed their eligibility and willingness to continue to act as the Statutory Auditors of the Company for the year 2010, if re-appointed.

COST AUDIT:

Messrs S. S. Mani Et Co. have been re-appointed to conduct the cost audit of the accounts maintained by the Company in respect of bulk drugs and formulations, for the year 2010.

PERSONNEL:

As on December 31, 2009, the total number of employees on the payroll was 1,245. Industrial Relations with the employees at various levels continue to be cordial.

The particulars of employees as required under Section 217(2A) read with the Companies (Particulars of Employees) Rules, 1975, form part of this Report.

However, pursuant to the provisions of Section 219(l)(b) (iv) of the Companies Act, 1956, the Report and Accounts are being sent to the Members excluding the statement of particulars of employees under Section 217(2A) of the Companies Act, 1956. Any Member interested in obtaining a copy of the said statement may write to the Company Secretary at the Registered Office of the Company.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo required to be disclosed as per Section 217(l)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, is given in the annexure forming part of this Report.

CORPORATE GOVERNANCE:

The Report on the Corporate Governance Code along with a certificate from the Auditors of the Company regarding compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreements, as also the Management Discussion and Analysis Report, are annexed to this Report.

On behalf of the Board of Directors

S. N. Talwar Chairman

Mumbai, January 22, 2010.

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