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Directors Report of Natco Pharma Ltd.

Mar 31, 2023

The Board takes pleasure in presenting the 40^th Annual Report of the Company along with the Audited Financial Statements and other reports for the year ended March 31, 2023.

COMPANY OVERVIEW

There are two business segments of NATCO: Pharmaceuticals and Agrochemicals. Pharmaceuticals is the dominant business segment contributing a major portion of revenue. It comprises of FDFs and APIs. APIs business is strategic and serves captive requirements and third party sales. Capabilities in APIs include complex multi-step synthesis & scale-up, advanced synthetic/ separation technologies, containment facility for handling high-

potency APIs, synthesis of peptide (solid phase pharmaceuticals, oligo nucleotide pharmaceuticals etc. and a well established process safety engineering lab. FDF business is predominantly focused on high-barrier-to-entry products. It serves international customers in United States, Canada, Brazil, Philippines, Asia Pacific etc. Our R&D capabilities are demonstrated by its complex and niche product filings in formulations and API segments. Agrochemicals business segment is carried under Crop Health Sciences division of the Company. It has successfully launched broad-spectrum insecticide Chlorantraniliprole (CTPR) and its combination products in India across key agrarian states.

FINANCIAL SUMMARY

(H in millions)
	STANDALONE		CONSOLIDATED
PARTICULARS	Year ended 31st March 2023	Year ended 31st March 2022	Year ended 31st March 2023	Year ended 31st March 2022
Net Revenue /Income	24365	18624	28117	20438
Gross profit before interest and depreciation	9302	3076	10402	3625
Finance Cost	86	133	145	177
Profit before depreciation and Amortisation - (Cash Profit)	9216	2943	10257	3448
Depreciation and Amortisation	1509	1384	1638	1426
PBT before exceptional items	7707	1559	8619	2022
Exceptional items	-	-	-	-
Profit before Tax (PBT)	7707	1559	8619	2022
Provision for Tax -Current	1331	325	1627	478
Provision for Tax -Deferred	5	(157)	(161)	(156)
Profit after Tax	6371	1391	7153	1700
Other comprehensive income (OCI)	(194)	404	27	497
Total Comprehensive income for the year	6177	1795	7180	2197

The details of the Company''s operations have been further discussed in detail in the Management Discussion and Analysis Report.

DIVIDEND

The Company declared three interim dividends for the FY 202223, the details of which are as follows:

S. NO.	DATE OF BOARD MEETING	DATE OF PAYMENT	INTERIM DIVIDEND DECLARED ON PER EQUITY SHARE OF FACE VALUE J 2/- EACH (Amount in J)
1.	August 9, 2022	August 30, 2022	3.50
2.	November 10, 2022	November 30, 2022	0.75
3.	February 9, 2023	March 1, 2023	1.25
TOTAL			5.50

The total dividend pay-out amounted to H 1004 million resulting in a pay-out of 15.76% of the standalone profit after tax of the Company.

The three Interim Dividends have been paid to all eligible shareholders. Accordingly, your Directors recommend that the above three interim dividends be treated as the final dividend of the Company for the Financial Year 2022-23. The Dividend Distribution Policy is available on the website of the Company at https://www.natcopharma.co.in/wp-content/uploads/2019/08/ Dividend-Distribution-Policy.pdf

TRANSFER TO RESERVES

The Company has not transferred any amount to the general reserve for the financial year ended March 31, 2023.

SHARE CAPITAL

During the year under review, 37,000 equity shares were allotted on May 16, 2022 under Natco Employee Stock Option Scheme,

2017 (NATSOP2017), which were due for allotment as per the NATSOP2017 Scheme.

Further, during the year under review, the Company has bought back 87,050 shares and the same were extinguished as on March 31, 2023.

Accordingly, the issued and subscribed share capital of the Company as on March 31, 2023, stood at H 365 million divided into 18,24,70,115 equity shares of H 2/- each as against H 365 million divided into 18,25,20,165 equity shares of H 2/- each as on March 31, 2022.

BUYBACK OF EQUITY SHARES

The Board of Directors at their meeting held on March 8, 2023, the Company was authorised to buyback its fully paid-up equity shares of face value of H 2/- (Rupees Two only) each at a price not exceeding H 700/- (Rupees Seven Hundred only) per Equity Share (the Maximum Buyback Price) payable in cash for an aggregate amount not exceeding H 210,00,00,000/- (Rupees Two Hundred and Ten Crores only) (the Maximum Buy-back Size), from the shareholders of the Company excluding promoters, promoter group and persons who are in control of the Company, via the "Open Market" route through the stock exchanges mechanism, i.e., using the electronic trading facilities of the stock exchanges where the Equity Shares of the Company are listed (i.e., BSE Limited and National Stock Exchange of India Limited), in accordance with the provisions of Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018, as amended ("Buyback Regulations") and the Companies Act, 2013 (including the rules and regulations framed thereunder), as amended, and other applicable provisions (the process hereinafter referred to as the "Buyback").

The Buyback commenced on March 21, 2023 in accordance with the provisions of Buyback regulations. In this regard, as on May 12, 2023, the Company has bought back 34,47,295 (Thirty Four Lakhs Forty Seven Thousand Two Hundred and Ninety Five) Equity Shares at an average price of H 609.1712 (Rupees Six Hundred Nine and paisa One Seven One Two only) per Equity Share for an aggregate consideration of H 209,99,92,885.33 (Rupees Two Hundred and Nine Crores Ninety Nine Lakhs Ninety Two Thousand Eight Hundred Eighty Five and paisa Three Three only) which represents 100.00% of the Maximum Buyback Size. Accordingly, the Buyback Committee has approved the closure of Buyback pursuant to the terms of the Public Announcement, with effect from the closing of trading hours of May 12, 2023, prior to the six months from the date of commencement of the Buyback.

Accordingly, the Company has made payment to the shareholders and extinguished all the shares bought back within stipulated time period and complied with all the regulatory filings.

DEPOSITS

During Financial Year 2022-23, the Company did not accept any deposit within the meaning of Sections 73 and 74 of the Companies Act, 2013 read together with the Companies (Acceptance of Deposits) Rules, 2014 and therefore no amount

of principal or interest was outstanding, as on the date of balance sheet.

CHANGE IN THE NATURE OF BUSINESS, IF ANY

During the year under review, there was no change in the nature of business of the Company or any of its Subsidiaries.

SUBSIDIARIES

The Company has Eight (8) international subsidiaries including (2) step-down subsidiaries as on 31^st March, 2023. The consolidated financial statement of the Company and all its subsidiaries prepared under Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 form part of the annual report. The Company has not acquired any other Subsidiary Company nor any of the existing Subsidiary Company(s) are ceased to become Subsidiary of the Company during the Financial Year 2022-23.

Further, the Board of Directors at their meeting held on April 20, 2023 have approved to incorporate a Subsidiary Company in Indonesia. The Board of Directors at their meeting held on May 29, 2023 have approved to incorporate a wholly-owned subsidiary Company in Colombia and approved to acquire M/s. Zista Pharma Limited, United Kingdom i.e., 100% on acquisition and will become a Wholly-owned Subsidiary Company to the Company subject to due diligence and compliance with regulatory requirements.

Further, a Statement containing the salient features of the Financial Statements of the Subsidiaries in the prescribed Form AOC-1, is attached as "Annexure - I" to the Board''s Report. This Statement also provides the details of the performance and financial position of each Subsidiary.

In accordance with Section 136 of the Companies Act, 2013, the Audited Financial Statements and related information of the Subsidiaries, where applicable, will be available for inspection during regular business hours i.e., from 9:00 a.m. to 5:30 p.m. at the Company''s registered office in Hyderabad, Telangana, India.

MATERIAL SUBSIDIARIES

As per Regulation 16 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations"), a "material subsidiary" to mean a subsidiary, whose income or net worth exceeds ten percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. None of the Subsidiary Companies are material subsidiary to the Company based on the income or net worth as on March 31, 2023.

However, NATCO Pharma (Canada) Inc., Canada is the material subsidiary of the Company based on the income or net worth of the Company for Financial Year 2020-21 and will continue as material subsidiary as per Regulation 3 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

In addition to the above, Regulation 24 of the Listing Regulations requires that at least one Independent Director on the Board of

Directors of the listed entity shall be a Director on the Board of Directors of an unlisted material subsidiary, whether incorporated in India or not. For the purpose of this Regulation, material subsidiary means a subsidiary, whose income or net worth exceeds twenty percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. Accordingly, the said provision of the appointment of an Independent Director of the Company in the Board of the material subsidiary Company is not applicable, since, the prescribed limits are not exceeded by the Company.

The other requirements of Regulation 24 of the Listing Regulations with regard to Corporate Governance requirements for Subsidiary Companies have been complied with.

PARTICULARS OF LOANS, GUARANTEES AND INVESTMENTS

The Company provides investments, loans and guarantees to its subsidiaries /other Companies for its business purpose. Details of investments, loans and guarantees covered under Section 186 of the Companies Act, 2013, form part of the notes to the financial statements provided in this Annual Report.

CORPORATE GOVERNANCE AND ADDITIONAL SHAREHOLDERS INFORMATION

Pursuant to the Listing Regulations, a detailed report on the Corporate Governance systems and practices of the Company is given under Corporate Governance Report which is part of this Annual Report.

A certificate from CS D. Renuka, Company Secretary in Practice (C.P. No. 3460) on the compliance with the conditions of Corporate Governance is part of the Corporate Governance Report.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

A detailed report on the Management Discussion and Analysis is provided as a separate chapter in this Annual Report.

BOARD OF DIRECTORS

In accordance with the provisions of the Companies Act, 2013, Sri. Rajeev Nannapaneni (DIN: 00183872) and Sri P.S.R.K. Prasad (DIN: 07011140), Directors are liable to retire by rotation and being eligible offers themselves for reappointment at the ensuing Annual General Meeting of the Company.

During the year under review the Board of Directors of the Company has appointed Dr. Pavan Ganapati Bhat (DIN: 09691260) as Director & Executive Vice President (Technical Operations) of the Company with effect from August 9, 2022 which was subsequently approved by the members of the Company at the 39^th Annual General Meeting held on September 30, 2022.

During the year under review there has been no change in the Board of Directors of the Company except the above mentioned changes.

BOARD EVALUATION

A formal annual evaluation has been made by the Board of its own performance, Chairman of the Board, its Committee(s) and individual Director(s). The performance evaluation has been done by the entire Board of Directors, excluding the Director being evaluated. Various evaluation techniques are used to assess the performance of the Directors. The Directors have participated in this evaluation process. The Independent Directors in their separate meeting have also evaluated the performance of the Chairman of the Company, Non-Independent Directors and the Board as a whole.

APPOINTMENT OF DIRECTOR(S), KMPS AND REMUNERATION POLICY

The assessment and appointment of members to the Board is based on a combination of criterion that includes ethics, personal and professional stature, domain expertise, gender diversity and specific qualification required for the position. The Independent Board member is also assessed on the basis of independence criteria defined in Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of the Listing Regulations.

In accordance with Section 178(3) of the Companies Act, 2013 and on recommendations of Nomination and Remuneration Committee, the Board adopted a remuneration policy for Directors, Key Managerial Personnel (KMPs) and Senior Management which is available on the website of the Company https://www.natcopharma.co.in/wp-content/uploads/2022/06/ Nomination-Remuneration-Policy.pdf

Dr. Pavan Ganapati Bhat (DIN: 09691260) was appointed as Directors and Executive Vice President (Technical Operations) of the Company with effect from August 9, 2022.

DECLARATION BY INDEPENDENT DIRECTORS

All Independent Directors of the Company have submitted requisite declarations confirming that they continue to meet the criteria of independence as prescribed under Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of the SEBI Listing Regulations. The Independent Directors have also confirmed that they have complied with the Company''s Code of Conduct.

REGISTRATION OF INDEPENDENT DIRECTORS IN INDEPENDENT DIRECTOR''S DATABANK

All the Independent Directors of the Company have been registered and are members of Independent Directors Databank maintained by Indian Institute of Corporate Affairs.

CONFIRMATION FROM THE BOARD

any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge their duties with an objective independent judgment and without any external influence. Further, the Board after taking these declaration/disclosures on record and acknowledging the veracity of the same, concluded that the Independent Directors are persons of integrity and possess the relevant expertise and experience to qualify as Independent Directors of the Company and are Independent of the Management.

OPINION OF THE BOARD

The Board opines that all the Independent Directors of the Company strictly adhere to corporate integrity, possesses requisite expertise, experience and qualifications to discharge the assigned duties and responsibilities as mandated by the Companies Act, 2013 and Listing Regulations diligently.

NUMBER OF MEETINGS OF THE BOARD AND ITS COMMITTEES AND OTHER COMMITTEES

The Board currently has eight (8) Committees, namely, Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, Compensation Committee, Corporate Social Responsibility Committee, Risk Management Committee, Committee Dealing with Land Property and Buyback Committee.

A detailed update on the Board, its composition, detailed charter including terms of reference of various Board Committees, number of Board and Committee meetings held during Financial Year 2022-23 and attendance of the Directors is provided in the Corporate Governance Report, which forms part of the Annual report.

All the recommendations made by the Committees of Board including the Audit Committee were accepted by the Board.

MEETING OF INDEPENDENT DIRECTORS

A separate meeting of the Independent Directors was held on February 9, 2023, inter-alia, to discuss evaluation of the performance of Non-Independent Directors, the Board as a whole, evaluation of the performance of the Chairman, taking into account the views of the Executive and Non- Executive Directors and the evaluation of the quality, content and timeliness of flow of information between the management and the Board that is necessary for the Board to effectively and reasonably perform its duties.

The Independent Directors expressed satisfaction with the overall performance of the Directors and the Board as a whole.

BUSINESS RISK MANAGEMENT

The Company has a risk management mechanism in place to manage uncertainties through identification, analysis, assessment, implementing and monitoring to reduce the impact of risks to the business which is discussed in detail in the Management Discussion and Analysis section of this Annual Report.

MATERIAL CHANGES AND COMMITMENTS AFFECTING FINANCIAL POSITION BETWEEN END OF FINANCIAL YEAR AND DATE OF REPORT

No material changes and commitments have occurred after the close of the financial year till the date of this report which may affect the financial position of the Company.

BUSINESS RESPONSIBILITY AND SUSTAINABILITY REPORT

The Company has adopted the Business Responsibility and Sustainability Report (BRSR) in the format specified by SEBI for Financial Year 2022-23. The BRSR is forming part of this Annual Report.

INTERNAL FINANCIAL CONTROLS

The Company has in place adequate the Internal Financial Controls commensurate with the business operations of the Company which are operating effectively. Your Company has adopted policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Company''s policies, the safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial disclosure.

INSURANCE

The Company''s plant, property, equipment and stocks are adequately insured against all major risks. The Company also has appropriate liability insurance covers particularly for product liability and clinical trials. The Company has also taken Director''s and Officer''s Liability Policy to provide coverage against the liabilities arising on them.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 134(3)(c) of the Companies Act, 2013 in relation to Financial Statements of the Company for the year ended March 31, 2023, the Board of Directors state 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) The Directors had selected such accounting policies and applied them consistently and made judgements 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 and loss of the Company for that period;

c) The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) The Directors had prepared the annual accounts on a going concern basis;

e) The Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

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.

RELATED PARTY TRANSACTIONS

In accordance with Section 134(3)(h) of the Companies Act, 2013 and Rule 8(2) of the Companies (Accounts) Rules, 2014, the particulars of contract(s) or arrangement(s) entered into by the Company with related parties referred to in Section 188(1) in Form AOC-2 is attached as "Annexure - II" to this Board''s Report.

The details of related party disclosures form part of the notes to the Financial Statements provided in this Annual Report.

VIGIL MECHANISM/WHISTLE BLOWER POLICY

The Company believes in upholding professional integrity and ethical behaviour in the conduct of its business. To uphold and promote these standards, the Company has a Vigil Mechanism / Whistle Blower Policy which serves as a mechanism for its Director(s) and employee(s) to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. The policy also provides employee(s) access to the Chairperson of the Audit Committee under certain circumstances. The details of the procedures are also available on the website of the Company https://www.natcopharma.co.in/wp-content/uploads/2022/06/ Whistle-Blower-Policy.pdf

A brief note on the Whistle Blower Policy is also provided in the Report on Corporate Governance, which forms part of this Annual Report.

INTERNAL COMPLAINTS COMMITTEE

The Company has Internal Complaints Committees in place in all the units in line with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. A brief note on the same is provided in the Report on Corporate Governance, which forms part of this Annual Report.

AUDITORS

STATUTORY AUDITORS

The members of the Company at their Annual General Meeting held on September 5, 2019 appointed M/s. B S R & Associates LLP (Firm Registration No. 116231W/W-100024) as the Statutory Auditors of the Company to act as such from the conclusion of 36^th Annual General Meeting (AGM) held for the Financial year 2018-19 till the conclusion of the 41^st AGM to be held for the Financial Year 2023-24.

SECRETARIAL AUDITOR

Pursuant to Section 204 of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment & Remuneration

of Managerial Personnel) Rules, 2014, CS B. Kiran Kumar with Certificate of Practice (CP) No. 15876, Proprietor, M/s. B K & Associates, a Practicing Company Secretary conducted the Secretarial Audit of the Company for Financial Year 2022-23. The Secretarial Audit Report in Form No. MR-3 is attached as "Annexure - III" to this Board''s Report.

Upon recommendation of the Audit Committee, the Board has re-appointed CS B. Kiran Kumar (CP No. 15876) Proprietor, M/s. B K & Associates, a Practicing Company Secretary as Secretarial Auditor of the Company for the financial year 2023-24.

COST AUDITORS

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Rules, 2014, the Company maintains the Cost Audit records which are required to be maintained. The Board on the recommendation of the Audit Committee, reappointed M/s. S.S. Zanwar & Associates (Firm Registration No.100283) as Cost Auditors of the Company for Financial year 2023-24. The provisions also require that the remuneration of the Cost Auditors be ratified by the shareholders and accordingly the same is put forward to the shareholders for their ratification in the ensuing Annual General Meeting. The Cost Audit report for the Financial Year 2022-23 will be filed with the Central Government within the stipulated timeline and the relevant Cost Audit report for FY 2021-22 was filed within the due date to the Central Government.

INTERNAL AUDITORS

The Company has appointed M/s. Grant Thornton Bharat LLP as Internal Auditors of the Company for FY 2023-24 and the Internal Auditors will report to the Audit Committee and the Board of Directors of the Company.

AUDITORS'' QUALIFICATIONS/ RESERVATIONS/

ADVERSE REMARKS/ FRAUDS REPORTED

There are no Auditors'' Qualifications or reservations or adverse remarks on the financial statements of the Company. The Auditors have not reported any frauds to the Audit Committee as prescribed under Section 143(12) of the Companies Act, 2013.

There is an observation by the Secretarial Auditor that there was delay in transferring the Unclaimed dividend amounts, required to be transferred from the Unclaimed Suspense Account to the Investor Education and Protection Fund (IEPF) by the Company pertaining to the Financial Years 2014-15 and 2015-16, while the due date(s) of transfer as per the provisions of the Act were 19^thMarch, 2022 and 19^th March 2023, respectively, the same were actually transferred on 17^th May, 2023 severally.

EXPLANATIONS OR COMMENTS BY THE BOARD ON QUALIFICATION, RESERVATION OR ADVERSE REMARK OR DISCLAIMER MADE

The reason for delay in transfer of Unclaimed dividend amounts from the Unclaimed Suspense Account to the Investor Education and Protection Fund (IEPF) by the Company due to

the reconciliation for the aforesaid Financial Years could not be completed on time to affect the said transfer to IEPF. Hence, there was delay in transfer of the said unclaimed dividend pertaining to the Unclaimed Suspense Account.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE COURTS/REGULATORS

During Financial year 2022-23, there were no significant and/or material orders, passed by any Court or Regulator or Tribunal, which may impact the going concern status or the Company''s operations in future.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

The Board formulated a Corporate Social Responsibility (CSR) Policy which is in full force and operation and is subject to monitoring by the CSR Committee of Directors from time to time.

The details about the CSR initiatives taken during the Financial Year 2022-23 are discussed in a separate head "Corporate Social Responsibility" which forms a part of this Annual Report.

The Annual Report on CSR activities of the Company is attached as "Annexure - IV" and Impact Assessment report issued by M/s. Give Grants Foundation, Gurgaon is available on the website of the Company at https://www.natcopharma.co.in/investors/ Impactassessmentreport.

TRANSFER OF UNPAID AND UNCLAIMED DIVIDEND AMOUNTS TO INVESTOR EDUCATION AND PROTECTION FUND

Pursuant to the provisions of Section 124(5) of the Companies Act, 2013, the declared dividends which remained unpaid or unclaimed for a period of seven years, have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 125 of the said Act the details of which are disclosed in the Corporate Governance Report.

EMPLOYEES STOCK OPTION SCHEME

Details pertaining to the Employee Stock Option Schemes is disclosed in the Corporate Governance Report which forms a part of this Annual Report.

CREDIT RATING

The Company''s credit ratings from ICRA on long term borrowings is âAA" and on short term borrowings is âA1 "

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 attached as "Annexure-V" to this Board''s Report.

The information required under Rule 5(2) and (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,

2014, is provided in an Annexure forming part of this Report. In terms of the second proviso to Section 136 of the Act, the Report and Accounts are being sent to the Members excluding the aforesaid Annexure. The said annexure is open for inspection at the Registered Office of the Company and any member interested in obtaining the same may write to the Company Secretary at the Registered Office of the Company.

CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The details of Energy Conservation, Research and Development, Technology Absorption and Foreign Exchange Earnings and Outgo as required under Section 134(3)(m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is attached as "Annexure-VI" to this Board''s Report.

ANNUAL RETURN

Pursuant to Section 92(3) read with Section 134(3)(a) of the Act, the Annual Return as on 31^st March, 2023 is available on the Company''s website on https://www.natcopharma. co.in/investors/ annual return

COMPLIANCE WITH SECRETARIAL STANDARDS

The Company has complied with Secretarial Standards issued by the Institute of Company Secretaries of India.

GREEN INITIATIVE

To preserve environment, the Company has undertaken number of green initiatives which not only reduce burden on environment but also ensure secured dissemination of information. Such initiatives include energy saving, water conservation and usage of electronic mode in internal processes and control, statutory and other requirement(s).

ACKNOWLEDGEMENTS

The Board wish to place on record their appreciation to shareholders, Government Authorities, banks, business partners, medical practitioners and other stakeholders for the assistance, co-operation and encouragement extended to the Company. The Board also commend the continuing commitment and dedication of the employees at all levels, which has been critical for the Company''s success. The Board look forward to their continued unstinted support in future also.

For and on behalf of the Board of Directors

V.C. Nannapaneni Rajeev Nannapaneni

Managing Director Director & Chief Executive Officer

DIN: 00183315 DIN: 00183872

Place: Hyderabad Date: August 09, 2023

Mar 31, 2022

The Board takes pleasure in presenting the 39th Annual Report of the Company along with the Audited Financial Statements and other reports for the year ended March 31, 2022.

Company Overview

Pharmaceuticals and agrochemicals are the two business segments of NATCO. The pharmaceutical business segment is an established business contributing a major portion of revenue. It comprises of FDFs and API''s. The Company''s API business remains a strategic pillar, driving inhouse captive requirements for key molecules as well as direct

customer sales. Among several know-how capabilities, multistep synthesis oligonucleotides, semisynthetic fusion technologies, high-potency APIs, and complex molecules are some of the key competences of the API division. In addition, the Company''s formulations business remains steadfast on serving international customers in the markets of United States, Europe, Brazil, Canada, and the Philippines. The R&D team continues to widen the therapeutic basket. With robust pipeline of drugs in areas of cancer, pharma specialities, cardiology, and diabetology, the prospects of business growth remain strong for the company. The Company''s crop health sciences division, is expected to grow with the launch of high value products in India.

Financial Summary

(H in Millions)
	Standalone		Consolidated
Particulars	Year ended 31st March 2022	Year ended 31st March 2021	Year ended 31st March 2022	Year ended 31st March 2021
Net Revenue /Income	18624	17546	20438	21557
Gross profit before interest and depreciation	3076	5187	3625	7098
Finance Cost	133	113	177	133
Profit before depreciation and amortisation -(Cash Profit)	2943	5074	3448	6965
Depreciation and Amortisation	1384	1152	1426	1169
PBT before exceptional items	1559	3922	2022	5796
Exceptional items	-	-	-	-
Profit before Tax (PBT)	1559	3922	2022	5796
Provision for Tax -Current	325	933	478	1478
Provision for Tax -Deferred	(157)	(106)	(156)	(106)
Profit after Tax	1391	3095	1700	4424
Other comprehensive income (OCI)	404	133	497	87
Total Comprehensive income for the year	1795	3228	2197	4511

The details of the Company''s operations have been further discussed in detail in the Management Discussion and Analysis Report.

Impact of Covid-19

In March 2020, the World Health Organisation declared COVID-19 to be a pandemic. The Group has adopted measures to curb the spread of infection in order to protect the health of its employees and ensure business continuity

with minimal disruption. The Group has considered internal and external information while finalising various estimates and recoverability of assets in relation to its financial statement captions up to the date of approval of the financial statements by the Board of Directors. Considering the Group is in the business of manufacturing and supplying of pharmaceutical products which is categorised under essential goods, there has been a minimal disruption with respect to operations including production and distribution activities. The actual impact of the global health pandemic may be different from that which has been estimated, as the

COVID-19 situation evolves in India and globally. The Group will continue to closely monitor any material changes to the future economic conditions.

Dividend

The Company declared three interim dividends for the FY 2021-22, the details of which are as follows:

			(Amount in H)
S. No.	Date of Board Meeting	Date of payment	Interim Dividend Declared per equity share of face value J 2/- each
1.	12th August, 2021	1st September, 2021	2.00
2.	11th November, 2021	2nd December, 2021	0.50
3.	14th February, 2022	4th March, 2022	2.00
	TOTAL		4.50

The total dividend pay-out amounted to H 822 million resulting in a pay-out of 59% of the standalone profit after tax of the Company.

The three Interim Dividends have been paid to all eligible shareholders. Accordingly, your Directors recommend that the above three interim dividends be treated as the final dividend of the Company for the Financial Year 2021-22. The Dividend Distribution Policy is available on the website of the Company at https://www.natcopharma.co.in/wp-content/uploads/2019/08/Dividend-Distribution-Policy.pdf

Transfer to Reserves

The Company has not transferred any amount to the general reserve for the financial year ended March 31, 2022.

Share Capital

During the year under review 1,82,340 equity shares were issued and allotted under Employee Stock Option Schemes (ESOP- NATSOP 2016 & NATSOP 2017). Accordingly, the issued and subscribed share capital of the Company as on March 31, 2022, stood at H 365 million divided into 18,25,20,165 equity shares of H 2/- each as against H 364 million divided into 18,23,37,825 equity shares of H 2/- each as on March 31, 2021.

Deposits

During FY 2021-22, the Company did not accept any fixed deposit within the meaning of Sections 73 and 74 of the

Companies Act, 2013 read together with the Companies (Acceptance of Deposits) Rules, 2014 and therefore no amount of principal or interest was outstanding, as on the date of balance sheet.

Change in the nature of Business, if any

During the year, there was no change in the nature of business of the Company or any of its Subsidiaries.

Subsidiaries

The Company has Eight (8) international subsidiaries including (2) step-down subsidiaries as on 31st March,2022. The consolidated financial statement of the Company and all its subsidiaries prepared under Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 form part of the annual report.

During the FY 2021-22, the Company through NATCO Pharma Inc., USA a wholly owned Subsidiary of the Company has acquired Dash Pharmaceuticals LLC, USA on 1st January, 2022, and Dash Pharmaceuticals LLC, USA is a step-down wholly owned Subsidiary Company of the Company. Except the aforesaid acquisition, the Company has not acquired any other Subsidiary Company nor any of the existing Subsidiary Company(s) are ceased to become Subsidiary of the Company during the Financial Year 2021-22.

Further, a Statement containing the salient features of the financial statement of the Subsidiaries in the prescribed Form AOC-1, is attached as "Annexure - I" to the Board''s Report. This Statement also provides the details of the performance and financial position of each Subsidiary.

In accordance with Section 136 of the Companies Act, 2013, the audited financial statements and related information of the subsidiaries, where applicable, will be available for inspection during regular business hours i.e., from 9:00 AM to 5:30 PM at the Company''s registered office in Hyderabad, Telangana.

Material Subsidiaries

However, NATCO Pharma (Canada) Inc., Canada is the material subsidiary of the Company based on the income or net worth of the Company for FY 2021-22 and will continue as material subsidiary as per Regulation 3 of SEBI (LODR) Regulations, 2015.

In addition to the above, Regulation 24 of the Listing Regulations requires that at least one Independent Director on the Board of Directors of the listed entity shall be a Director on the Board of Directors of an unlisted material subsidiary, whether incorporated in India or not. For the purpose of this Regulation, material subsidiary means a subsidiary, whose income or net worth exceeds twenty percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. Accordingly, the said provision of the appointment of an Independent Director of the Company in the Board of the material subsidiary Company is not applicable as the prescribed limits are not exceeded by the Company.

The other requirements of Regulation 24 of the Listing Regulations with regard to Corporate Governance requirements for Subsidiary Companies have been complied with.

Particulars of Loans, Guarantees and Investments

Corporate Governance and additional Shareholders Information

Pursuant to the Listing Regulations, a detailed report on the Corporate Governance systems and practices of the Company is given under Corporate Governance Report which is part of this Annual Report. Similarly, other detailed information for shareholders is provided in the chapter Additional Shareholders'' Information.

A certificate from Mrs. D Renuka, Company Secretary in Practice (C.P. No. 3460) on the compliance with the conditions of Corporate Governance is part of the Corporate Governance Report. A certificate from Mrs. D Renuka that none of the Directors on the Board of the Company are disqualified from being appointed or continuing as a Directors of Company by the Ministry of Corporate Affairs or any other statutory authority to that effect is attached to this Annual Report.

Management Discussion and Analysis Report

A detailed report on the Management Discussion and Analysis is provided as a separate chapter in this annual report.

Board of Directors

In accordance with the provisions of the Companies Act, 2013, Dr. D. Linga Rao (DIN: 07088404), Director is liable to retire by rotation and being eligible offers himself for reappointment at the ensuing Annual General Meeting of the Company.

Sri Sridhar Sankararaman, (DIN: 06794418), Non-Executive and Non-Independent Director of the Company has resigned from the Directorship of the Company with effect from 15th February, 2022 due to his professional obligations and other pre occupations.

Board Evaluation

As per the provisions of the Companies Act, 2013 and the Listing Regulations as amended from time to time, an evaluation of the performance of the Board was undertaken. The contribution and impact of individual Directors were reviewed through a peer evaluation on parameters such as level of engagement and participation in Board/Committee meetings, flow of information, independence of judgment, conflicts resolution, managing relationships within the Board and their contribution in enhancing the Board''s overall effectiveness. The feedback obtained from the interventions was discussed in detail and, where required, independent and collective action points for improvement were put in place.

Appointment of Director(s), KMPs and Remuneration Policy

I n accordance with Section 178(3) of the Companies Act, 2013 and on recommendations of Nomination and Remuneration Committee, the Board adopted a remuneration policy for Directors, Key Management Personnel (KMPs) and Senior Management which is available on the website of the Company www.natcopharma.co.in.

Sri G.S. Murthy, Independent Director of the Company has been appointed as Chairman of the Company with effect from 1st April, 2022.

Upon recommendation of the Nomination and Remuneration Committee, the Board of Directors at their meeting held on 14th February, 2022 approved the appointment/re-appointment of the Sri V.C. Nannapaneni, Managing Director, Sri Rajeev Nannapaneni, Director and

Chief Executive Officer, Sri P.S.R.K Prasad, Director and Executive Vice President (Corporate Engineering Services) and Dr. D. Linga Rao, Director and President (Tech. Affairs) of the Company for a period of two (2) year from 1st April, 2022 to 31st March, 2024 and the same has been approved by the members of the Company through Postal Ballot on 25th March, 2022.

CS M. Adinarayana (FCS 3808), Company Secretary & Vice President (Legal & Corporate Affairs) of the Company has been superannuated from the Company w.e.f. the closure of business hours of 31st March, 2022 and upon the recommendation of the Nomination and Remuneration Committee, the Board of Directors at their meeting held on 31st March, 2022 have appointed CS Venkat Ramesh Chekuri (A41964) as the Company Secretary and Compliance Officer of the Company w.e.f. 1st April, 2022.

Declaration by Independent Directors

Registration of Independent Directors in Independent Directors Databank

All the Independent Directors have been registered and are members of Independent Directors Databank maintained by Indian Institute of Corporate Affairs.

Confirmation from the Board

All the Independent Directors of the Company have given their respective declaration/disclosures under Section 149(7) of the Act and Regulation 25(8) of the Listing Regulations and have confirmed that they fulfill the independence criteria as specified under Section 149(6) of the Act and Regulation 16 of the Listing Regulations and have also confirmed that they are not aware of any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge their duties with an objective independent judgment and without any external influence. Further, the Board after taking these declaration/disclosures on record and acknowledging the veracity of the same, concluded that the Independent Directors are persons of integrity and possess the relevant expertise and experience to qualify as Independent Directors of the Company and are Independent of the Management.

Opinion of the Board

Number of Meetings of the Board and its Committees and other Committees

The Board currently has eight (8) Committees, namely, Audit Committee, Stakeholders Relationship Committee, Nomination and Remuneration Committee, Compensation Committee, Corporate Social Responsibility Committee, Risk Management Committee, Committee Dealing with Land Property and Buyback Committee.

A detailed update on the Board, its composition, detailed charter including terms of reference of various Board Committees, number of Board and Committee meetings held during FY 2021-22 and attendance of the Directors is provided in the Corporate Governance Report, which forms part of the Annual report.

All the recommendations made by the Committees of Board including the Audit Committee were accepted by the Board.

Meeting of Independent Directors

A separate meeting of the Independent Directors was held on 14th February, 2022, inter-alia, to discuss evaluation of the performance of Non-Independent Directors, the Board as a whole, evaluation of the performance of the Chairman, taking into account the views of the Executive and NonExecutive Directors and the evaluation of the quality, content and timeliness of flow of information between the management and the Board that is necessary for the Board to effectively and reasonably perform its duties.

The Independent Directors expressed satisfaction with the overall performance of the Directors and the Board as a whole.

Business Risk Management

Material changes and commitments affecting financial position between end of financial year and date of report

No material changes and commitments have occurred after the close of the financial year till the date of this report which may affect the financial position of the Company.

Business Responsibility and Sustainability Report

As recommended by SEBI, the Company has voluntarily adopted the Business Responsibility and Sustainability Report (BRSR) in the format specified by SEBI for FY 2021-22. The BRSR is forming part of this Annual Report.

Internal Financial Controls

The Company has in place adequate Internal Financial Controls commensurate with the business operations of the Company which are operating effectively. Your Company has adopted policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Company''s policies, the safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial disclosure.

Insurance

The Company''s plant, property, equipment and stocks are adequately insured against all major risks. The Company also has appropriate liability insurance covers particularly for product liability and clinical trials. The Company has also taken Directors'' and Officers'' Liability Policy to provide coverage against the liabilities arising on them.

Directors Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act, 2013 in relation to Financial Statements of the Company for the year ended March 31, 2022, the Board of Directors state 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) The Directors had selected such accounting policies 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 and loss of the Company for that period;

d) The Directors had prepared the annual accounts on a going concern basis;

e) The Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

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.

Related Party Transactions

The details of related party disclosures form part of the notes to the Financial Statements provided in this Annual Report.

Vigil Mechanism/Whistle Blower Policy

The Company believes in upholding professional integrity and ethical behavior in the conduct of its business. To uphold and promote these standards, the Company has a Vigil Mechanism / Whistle Blower Policy which serves as a mechanism for its Director(s) and employee(s) to report genuine concerns about unethical behavior, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. The policy also provides employee(s) access to the Chairperson of the Audit Committee under certain circumstances. The details of the procedures are also available on the website of the Company https://www. natcopharma.co.in/wp-content/uploads/2022/06/Whistle-Blower-Policy.pdf.

A brief note on the Whistle Blower Policy is also provided in the Report on Corporate Governance, which forms part of this Annual Report.

Internal Complaints Committee

Auditors

Statutory Auditors

The members of the Company at their Annual General Meeting held on September 5, 2019 appointed M/s B S R & Associates LLP (Firm Registration No. 116231W/W-100024) as the Statutory Auditors of the Company to act as such from the conclusion of 36th Annual General Meeting (AGM) held for the financial year 2018-19 till the conclusion of the 41st AGM to be held for the FY 2023-24.

Secretarial Auditor

Pursuant to Section 204 of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, CS B. Kiran Kumar with Certificate of Practice (CP) No. 15876, Proprietor, M/s. BK & Associates, a Practicing Company Secretary conducted the Secretarial Audit of the Company for FY 2021-22. The Secretarial Audit Report in form No. MR-3 is attached as "Annexure - III" to this Board''s Report.

Upon recommendation of the Audit Committee, the Board has re-appointed CS B. Kiran Kumar (CP No. 15876) Proprietor, M/s. BK & Associates, a Practicing Company Secretary as Secretarial Auditor of the Company for the FY 2022-23.

Cost Auditors

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Rules, 2014, the Company maintains the Cost Audit records in respect of its pharmaceutical business. The Board on the recommendation of the Audit Committee, appointed M/s. S.S. Zanwar & Associates (Firm Registration No.100283) as Cost Auditors of the Company for FY 2022-23. The provisions also require that the remuneration of the Cost Auditors be ratified by the shareholders and accordingly the same is put forward to the shareholders for their ratification in the ensuing AGM. The Cost Audit report for the FY 2021-22 will be filed with the Central Government within the stipulated timeline and the relevant Cost Audit report for FY 2020-21 were filed within the due date to the Central Government.

Auditors'' Qualifications/ reservations/ adverse remarks/ Frauds reported

There are no Auditors'' Qualifications or reservations or adverse remarks on the financial statements of the Company issued by the Statutory Auditors of the Company.

There is an observation by the Secretarial Auditor that as per Regulation 18(2)(a) of Listing Regulations, the Audit Committee shall meet at least four times in a year and not more than one hundred and twenty days shall elapse between two meetings. However, the gap between two consecutive Audit Committee Meetings was more than 120 days for quarter ended June 30, 2021, a system generated mail was received from National

Stock Exchange of India Limited (NSE) in this regard and the Company gave prompt reply with explanation, no further action was taken or correspondence received from NSE till date in furtherance thereto.

Explanations or Comments by the Board on qualification, reservation or adverse remark or disclaimer made

As per SEBI Notification reference No. SEBI/HO/CFD/ CMD1/P/CIR/2021/556 dated April 29, 2021 due to COVID-19 pandemic condition extended the deadline for announcing the Audited Financial Results for the Financial Year ended March 31, 2021 to June 30, 2021. Accordingly, your Company has conducted both the Audit Committee and Board of Directors Meeting on June 17, 2021 for consideration of Audited Financial Results for the FY 2020-21.

However, due to the severe pandemic situation and some unavoidable situations/circumstances, the gap between the two Audit Committee Meetings was more than 120 days (i.e., there was gap of 6 days). The gap that arose between the two meetings were unintentional for which your Company will take utmost care and caution in future.

The Auditors have not reported any frauds to the Audit Committee as prescribed under Section 143(12) of the Companies Act, 2013.

Significant and Material Orders Passed by the Courts/Regulators

During FY 2021-22, there were no significant and/or material orders, passed by any Court or Regulator or Tribunal, which may impact the going concern status or the Company''s operations in future.

Corporate Social Responsibility Initiatives

The Board formulated a Corporate Social Responsibility (CSR) Policy which is in full force and operation and is subject to monitoring by the CSR Committee of Directors from time to time.

The details about the CSR initiatives taken during the FY 2021-22 are discussed in a separate head Responsible Societal Actions which forms a part of this Annual Report.

The Annual Report on CSR activities of the Company is attached as Annexure - IV and Impact Assessment report

issued by M/s. Poverty Learning Foundation, Hyderabad is available on the website of the Company at https://www. natcopharma.co.in/investors/Impactassessmentreport

Transfer of unpaid and unclaimed dividend amounts to Investor Education and Protection Fund

Employees Stock Option Scheme

Details pertaining to the Employee Stock Option Schemes is disclosed in the Corporate Governance Report which forms a part of this Annual Report.

Credit Rating

ICRA Limited has reaffirmed their rating "AA" (which means high degree of safety regarding timely servicing of financial obligations and has very low credit risk) for various banking facilities enabling your Company to avail facilities from banks at attractive interest rates indicating a very strong degree of safety for timely payment of financial obligations such as payment of interest and repayment of principal, if any.

Particulars of Employees

The information required under Rule 5(2) and (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in an Annexure forming part of this Report. In terms of the second proviso to Section 136 of the Act, the Report and Accounts are being sent to the Members excluding the aforesaid Annexure. The said annexure is open for inspection at the Registered Office of the Company and any member interested in obtaining the same may write to the Company Secretary at the Registered Office of the Company.

Conservation of Energy, Research and Development, Technology Absorption, Foreign Exchange Earnings and Outgo

Annual Return

Pursuant to Section 92(3) read with Section 134(3)(a) of the Act, the Annual Return as on 31st March, 2022 is available on the Company''s website on https://www.natcopharma. co.in/investors/annualreturn

Compliance with Secretarial Standards

The Company has complied with Secretarial Standards issued by the Institute of Company Secretaries of India.

Green Initiative

Acknowledgements

For and on behalf of the Board of Directors

V.C. Nannapaneni Rajeev Nannapaneni

Managing Director Director & Chief Executive Officer

DIN: 00183315 DIN: 00183872

Place: Hyderabad Date: May 30, 2022

Mar 31, 2018

The Board takes pleasure in presenting the 35th Annual Report of the Company along with the audited financial statements and other reports for the year ended 31 March 2018.

Company Overview

NATCO Pharma (NATCO) is an Indian based vertically integrated pharmaceutical company having presence in multiple speciality therapeutic segments. Over the years, NATCO has developed an innate ability to deliver molecules, which tend to have limited competition upon launch. The Company has manufactured speciality medicines and niche pharmaceutical products.

NATCO is driven by its commitment to improve patient care with its nuclei of focus on innovation and differentiation. Its products are now available to patients across geographies at affordable prices. With an emphasis on innovation ingrained in NATCOâs philosophy, the speciality product range is constantly expanded through tenacity in selective research programmes.

NATCO is constantly driven by its mission toâmake specialty medicines accessible to allâ. Operating in an evolving industry scenario, the Company is also strategically repositioning itself to explore many opportunities of organic growth and at the same time fortifying its manufacturing capabilities to reinforce its impact.

Financial Summary

(Rs. in million)

Standalone Financials for			Consolidated Financials for
Year ended 31 March			Year ended 31 March
2017	2018		2017	2018
20028	21,085	Revenue from operations	20,650	22,020
6341	8,876	Profit before tax	6,244	8,872
4948	6,982	Profit for the year	4,849	6,952
(22)	(47)	Other comprehensive Income for the year (not to be reclassified to P&L)	(22)	(44)
6012	9,544	Surplus brought forward from last balance sheet	5,650	9,094
4948	6,982	Profit available for appropriation	4,860	6,962
Appropriations:
(1176)	(1,509)	Dividend	(1,176)	(1,509)
(240)	(308)	Tax on dividend	(240)	(308)
9544	14,709	Surplus carried forward	9,094	14,239

The details of the Companyâs operations have been further discussed in detail in the Management Discussion and Analysis Report.

Dividend

The Company declared two interim dividends for the FY 2017-18, the details of which are as follows:

S. No.	Date of Board Meeting	Date of payment	Interim dividend declared per equity share of face value of Rs.2/- each (in Rs.)
1.	7 August 2017	23 August 2017	1.25
2.	6 February 2018	22 February 2018	7.00
Total			8.25

The total dividend pay-out amounted to Rs.1,509.34 million (excluding dividend distribution tax) resulting in a pay-out of 21.62% of the standalone profit after tax of the Company.

The two Interim Dividends have been paid to all eligible shareholders and no further dividends are proposed/ recommended by the Board. Accordingly your Directors recommend that the above two interim dividend amounts be treated as the final dividend of the Company for the Financial Year 2017-18. The Companyâs Dividend Distribution Policy is attached as âAnnexure VIMâ to this Boardâs Report.

Transfer to Reserves

The Company has not transferred any amount to the general reserve for the financial year ended 31 March 2018.

Share Capital

During the year under review, 1,00,00,000 equity shares were issued and allotted under Qualified Institutional Placement (QIP) and 1,85,600 equity shares were issued and allotted under Employee Stock Option Schemes (ESOP-NATSOP 2015 & NATSOP 2016). Accordingly, the issued and subscribed share capital of the Company as on 31 March 2018 stood at Rs.369 million divided into 18,44,93,400 equity shares of Rs.2/- each as against Rs.349 million divided into 17,43,07,800 equity shares of Rs. 2/- each as on 31 March 2017.

Deposits

During FY 2017-18, the Company did not accept any fixed deposit within the meaning of sections 73 and 74 of the Companies Act, 2013 read together with the Companies (Acceptance of Deposits) Rules, 2014 and therefore no amount of principal or interest was outstanding, as on the date of balance sheet.

Change in the nature of Business, if any

During the year, there was no change in the nature of business of the Company or any of its subsidiaries.

Subsidiaries

The Company has five (5) international subsidiaries (excluding one (1) step down subsidiary) as on 31 March 2018. The consolidated financial statement of the Company and all its subsidiaries prepared under Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 form part of this annual report. Further, a statement containing the salient features of the financial statement of our subsidiaries in the prescribed Form AOC-1, is attached as âAnnexure Iâ to the Boardâs Report. This statement also provides the details of the performance and financial position of each subsidiary. In accordance with Section 136 of the Companies Act, 2013, the audited financial statements and related information of the subsidiaries, where applicable, will be available for inspection during regular business hours at the Companyâs registered office in Hyderabad, Telangana.

Particulars of Loans, Guarantees and Investments

The Company provides investments, loans and guarantees to its subsidiaries for their business purpose. Details of loans, guarantees and investments covered under Section 186 of the Companies Act, 2013, form part of the notes to the financial statements provided in this Annual Report.

Corporate Governance and additional Shareholders Information

Pursuant to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (âListing Regulationsâ), a detailed report on the corporate governance systems and practices of the Company is given under Corporate Governance Report which is part of this Annual Report. Similarly, other detailed information for shareholders is provided in the chapter Additional Shareholdersâ Information.

A certificate from CS P Renuka, Company Secretary in Practice (C.P.No. 3460) on the compliance with the conditions of corporate governance is attached to this Annual Report.

Management Discussion and Analysis

A detailed report on the Management Discussion and Analysis is provided as a separate chapter in this Annual Report.

Board of Directors

In accordance with the provisions of the Companies Act, 2013, Dr. D.Linga Rao (DIN: 07088404) is liable to retire by rotation and being eligible offers himself for reappointment at the ensuing Annual General Meeting of the Company.

Mr. Vivek Chhachhi (DIN: 00496620) resigned as a Non-Executive and Non-Independent Director w.e.f. 23 May 2018 due to professional obligations and other preoccupations. Board had accepted his resignation.

Mr. Sridhar Sankararaman (DIN: 06794418) was appointed as a Non-Independent and Non-Executive Additional Director by the Board of Directors of the Company w.e.f. 23 May 2018 in accordance with the provisions of the Companies Act, 2013 who holds office up to the date of this Annual General Meeting. He was also inducted as a member of Audit Committee and Nomination and Remuneration Committee of your Company.

Board Evaluation

As per provisions of the Companies Act, 2013 and the Listing Regulations, an evaluation of the performance of the Board was undertaken. The contribution and impact of individual Directors were reviewed through a peer evaluation on parameters such as level of engagement and participation, flow of information, independence of judgement, conflicts resolution and their contribution in enhancing the Boardâs overall effectiveness. The feedback obtained from the interventions was discussed in detail and, where required, independent and collective action points for improvement were put in place.

Appointment of Directors and Remuneration Policy

The assessment and appointment of members to the Board is based on a combination of criterion that includes ethics, personal and professional stature, domain expertise, gender diversity and specific qualification required for the position. The potential independent Board member is also assessed on the basis of independence criteria defined in Section 149(6) of the Companies Act, 2013 and Regulation 16(1 )(b) of the Listing Regulations.

In accordance with Section 178(3) of the Companies Act, 2013, and on recommendations of Nomination and Remuneration Committee, the Board adopted a remuneration policy for Directors, Key Management Personnel (KMPs) and Senior Management which is available on the website of the Company www.natcopharma.co.in.

Declaration by Independent Directors

All Independent Directors of the Company have submitted requisite declarations confirming that they continue to meet the criteria of independence as prescribed under Section 149(6) of the Companies Act, 2013 and Regulation 16(1) (b) of the Listing Regulations. The Independent Directors have also confirmed that they have complied with the Companyâs Code of Conduct.

Committees of Board, Number of Meetings of the Board and Board Committees

The Board currently has six committees, namely. Audit Committee, Stakeholders Relationship Committee, Nomination and Remuneration Committee, Compensation Committee, Allotment Committee and Corporate Social Responsibility Committee. All the recommendations made by the Committees of Board including the Audit Committee were accepted by the Board. During the year the Board constituted a Committee of Directors for the purpose of Qualified Institutional Placement (QIP).

A detailed update on the Board, its composition, detailed charter including terms of reference of various Board Committees, number of Board and Committee meetings held during FY 2017-18 and attendance of the Directors at each meeting is provided in the Report on Corporate Governance, which forms part of this Annual Report.

Business Risk Management

Material changes and commitments affecting financial position between end of financial year and date of report

No material changes and commitments have occurred after the close of the year till the date of this report which may affect the financial position of the Company.

Business Responsibility Report

As mandated by the Securities and Exchange Board of India (SEBI), the Business Responsibility Report (BRR) forms part of this Annual Report. The BRR contains a detailed report on business responsibilities vis-a-vis the nine principles of the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business framed by the Ministry of Corporate Affairs.

Internal Financial Controls

The Company has in place adequate Internal Financial Controls commensurate with the business operations of the Company with reference to financial statements and such internal financial controls are operating effectively. Your Company has adopted policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Companyâs policies, the safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial disclosures.

Insurance

The Companyâs plant, property, equipment and stocks are adequately insured against all major risks. The Company also has appropriate liability insurance covers particularly for product liability and clinical trials. The Company has also taken Directorsâ and Officersâ Liability Policy to provide coverage against the liabilities arising on them.

Directors Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act, 2013 in relation to financial statements of the Company for the year ended 31 March 2018, the Board of Directors state that:-

a) The applicable accounting standards have been followed in preparation of the financial statements and there are no material departures from the said standards.

b) Reasonable and prudent accounting policies have been used in preparation of the financial statements and that they have been consistently applied and that reasonable and prudent judgements and estimates have been made in respect of items not concluded by the year end, so as to give a true and fair view of the state of affairs of the Company as at 31 March 2018 and of the 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 Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

d) The financial statements have been prepared on a going concern basis.

e) Proper internal financial controls were in place and were adequate and operating effectively and

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

Related Party Transactions

In accordance with Section 134(3)(h) of the Companies Act, 2013 and Rule 8(2) of the Companies (Accounts) Rules, 2014, the particulars of contract or arrangement entered into by the Company with related parties referred to in Section 188(1) in Form AOC-2 is attached as âAnnexure IIâ to this Boardâs Report.

The details of related party disclosures form part of the notes to the financial statements provided in this Annual Report.

Vigil Mechanism/Whistle Blower Policy

The Company believes in upholding professional integrity and ethical behaviour in the conduct of its business. To uphold and promote these standards, the Company has a Vigil Mechanism / Whistle Blower Policy which serves as a mechanism for its Directors and employees to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. The policy also provides access to the Chairperson of the Audit Committee under certain circumstances. The details of the procedures are also available on the website of the Company www.natcopharma.co.in.

A brief note on the Whistle Blower Policy is also provided in the Report on Corporate Governance, which forms part of this Annual Report.

Internal Complaints Committee

Green Initiative

To preserve environment, the Company has undertaken number of green initiatives which not only reduced burden on environment but also ensures secured dissemination of information. Such initiatives include energy saving, water conservation and usage of electronic mode in internal processes and control, statutory and other requirements.

Auditors Statutory Auditors

The shareholders at their 31st Annual General Meeting (AGM) held on 27 September 2014, approved the re-appointment of M/s. Walker Chandiok & Co LLP, Chartered Accountants (Firm Registration No.: 001076N/N500013), as statutory auditors of the Company, to hold office from the conclusion of the 31st AGM up to the conclusion of the 36th AGM to be held for the financial year 2018-2019.

Secretarial Auditor

Pursuant to Section 204 of the Companies Act, 2013 and the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, CS Balachandra Sunku (CP No. 12745) a, practicing Company Secretary conducted the secretarial audit of the Company for FY 2018. The Secretarial Audit Report in form No. MR-3 is attached as âAnnexure IIIâ to this Boardâs Report.

The Board has re-appointed CS Balachandra Sunku (CP No. 12745), a Practicing Company Secretary, as secretarial auditor of the Company for FY 2019.

Cost Auditors

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Amendment Rules, 2014, the Company maintains the cost audit records as specified by the Central Government in respect of its pharmaceutical business. The Board has, on the recommendation of the Audit Committee, appointed M/s. S.S. Zanwar& Associates (Firm Registration No.:100283) as cost auditors of the Company for FY 2018. The provisions also require that the remuneration of the cost auditors be ratified by the shareholders and accordingly the same is put forward to the shareholders in the ensuing AGM fortheir ratification. The cost audit report for the FY 2018 will be filed with the Central Government within the stipulated timeline and the relevant cost audit reports for FY 2017 were filed within the due date to the Central Government.

Significant and Material Orders Passed by the Courts/Regulators

During FY 2018, there were no significant and/or material orders, passed by any Court or Regulator or Tribunal, which may impact the going concern status or the Companyâs operations in future.

Corporate Social Responsibility Initiatives

The Board formulated a Corporate Social Responsibility (CSR) Policy which is in full force and operation and is subject to monitoring by the CSR Committee of Directors from time to time.

The details about the CSR initiatives taken during the FY 2018 are discussed in a separate chapter âEmpowering our Communitiesâ which forms a part of this Annual Report.

The Annual Report on CSR activities of the Company is attached as âAnnexure IVâ to this Boardâs Report.

Transfer of unpaid and unclaimed amounts to Investor Education and Protection Fund

Pursuant to the provisions of Section 124(5) of the Companies Act, 2013, the declared dividends and shares which remained unpaid or unclaimed for a period of seven years, have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 125 of the said Act the details of which are disclosed in the notice of ensuing Annual General Meeting of the Company.

Employees Stock Option Scheme

Details pertaining to the Employee Stock Option Schemes is disclosed in the Corporate Governance Report which forms a part of this Annual Report.

Credit Rating

ICRA has reaffirmed their rating âAAâ (which means high degree of safety regarding timely servicing of financial obligations and has very low credit risk) for various banking facilities enabling your Company to avail facilities from banks at attractive rates indicating a very strong degree of safety for timely payment of financial obligations such as payment of interest and repayment of principal, if any.

Particulars of Employees

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013, read with Rule 5(1), 5(2) & 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are attached as âAnnexure Vâ to this Boardâs Report.

Conservation of Energy, Research and Development, Technology Absorption, Foreign Exchange Earnings and Outgo

The details of Energy Conservation, Research and Development, Technology Absorption and Foreign Exchange Earnings and Outgo as required under section 134(3) (m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is annexed to this Boardâs Report as âAnnexure VIâ.

Extract of Annual Return

As required under sections 92(3) and 134(3)(a) of the Companies Act, 2013 read with Rule 12 of Companies (Management and Administration) Rules, 2014, the extract of Annual Return in Form MGT-9 forms part of this Boardâs Report as âAnnexure Vllâ.

Acknowledgements

The Board wish to place on record their appreciation to government authorities, banks, business partners, shareholders, medical practitioners and other stakeholders for the assistance, co-operation and encouragement extended to the Company. The Board also commend the continuing commitment and dedication of the employees at all levels, which has been critical for the Companyâs success. The Board look forward to their continued support in future.

For and on behalf of the Board of Directors

V. C. Nannapaneni

Chairman and Managing Director

Place: Hyderabad

Date: 8 August 2018

Mar 31, 2017

Dear Members,

The Directors have pleasure in presenting the Thirty-Fourth Annual Report along with the audited financial accounts of your Company for the financial year ended March 31, 2017.

FINANCIAL HIGHLIGHTS (AS PER IND AS)

Rs, in Millions, except share data

	Consolidated				Standalone
	2017	2016	Growth	2017	2016	Growth
Total Revenues	20789	10897	91%	20160	10721	88%
EBITDA	6973	2823	147%	7052	2936	140%
Profit after tax	4860	1571	209%	4948	1765	180%
Dividend (including Dividend Distribution Tax)	1416	262	-	1416	262	-
Transfer to General Reserve	-	110	-	-	110	-
Earnings Per Share-Basic	27.78	9.14	-	28.27	10.17	-

BRIEF REVIEW OF THE FINANCIAL YEAR

Revenues from formulations segment was the key driver of growth during the fiscal year constituting over 87% of total net revenue on standalone basis. This was largely driven by continued growth of domestic formulations segments of hepatitis C & oncology drugs, as well as the launch of generic Oseltamivir in the US market. API constituted just under 9% of total net revenue on standalone basis.

As of Mar 31st, 2017, the Company has 43 ANDA filings of which (i) 20 Para IV filings (ii) 22 approved

DIVIDEND:

The Board of Directors of your Company declared two interim dividends for the FY 2017, the details of which are as follows:

S. Date of Board Meeting No.	Date of payment	Interim Dividend Declared per equity share of face value Rs, 2/- each	Dividend Payout (including DDT) ('' in Millions)
1. 9th August 2016	31st August 2016	0.75	157.22
2. 14th February 2017	03rd March 2017	6.00	1,258.76
TOTAL		6.75	1,415.98

ANDAs (1 yet to be launched); which have been filed in collaboration with global pharmaceutical companies.

As of Mar 31st, 2017, the Company filed 37 DMFs with the USFDA across therapeutic segments such as oncology, CNS, anti-asthmatic, anti-depressant, anti-migraine, anti-osteoporosis and gastrointestinal disorders and are currently working on several more DMFs to be filed in near future.

The Interim Dividend had been paid to all eligible shareholders and no further dividends are proposed/ recommended by the Board. Accordingly your Directors recommend that the above two interim dividend amounts be treated as the final dividend of the Company for the Financial Year 2016-17. The Board adopted a Dividend Distribution Policy for the Company which is attached as âAnnexure IX" to this Board''s Report.

TRANSFER TO RESERVES

The Company has not transferred any amount to the general reserve during the current financial year.

SHARE CAPITAL

The paid-up share capital of your Company increased to '' 349 million in FY2017, due to allotment of 1,33,555 shares of face value '' 2 each to the eligible employees of the company under Employee Stock Option Scheme, 2015.

FIXED DEPOSITS

The Company has not accepted any deposits covered under Chapter V of the Companies Act, 2013. Accordingly no disclosure or reporting is required in respect of details relating to deposits covered under this Chapter

CHANGE IN THE NATURE OF BUSINESS, IF ANY

During the year, there was no change in the nature of business of the Company or any of its subsidiaries.

The Company has introduced a new segment, Cardiology and Diabetology (CnD) which will enhance our presence in India.

SUBSIDIARIES

The Company has five (5) international subsidiaries (excluding one (1) step down subsidiary) as on 31 March 2017The consolidated financial statement of the Company and all its subsidiaries prepared under Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act,2013 form part of the annual report. Further, a statement containing the salient features of the financial statement of our subsidiaries in the prescribed Form AOC-1, is attached as âAnnexure I" to the Board''s Report. This statement also provides the details of the performance and financial position of each subsidiary. In accordance with Section 136 of the Companies Act, 2013, the audited financial statements and related information of the subsidiaries, where applicable, will be available for inspection during regular business hours at the Company''s registered office in Hyderabad, India.

PARTICULARS OF INVESTMENTS, LOANS & ADVANCES

The Company makes investments, loans and advances to its subsidiaries for their business purpose. Details of loans, investments and advances covered under Section 186 of the Companies Act, 2013, form part of the notes to the financial statements provided in this annual report.

CORPORATE GOVERNANCE AND ADDITIONAL SHAREHOLDERS INFORMATION

A detailed report on the corporate governance systems and practices of the Company is given under Corporate Governance Report which is part of this Annual Report. Similarly, other detailed information for shareholders is provided in the chapter Additional Shareholders'' Information.

A certificate from CS P. Renuka, Company Secretary in Practice (C.P. No. 3460) on the compliance with the conditions of corporate governance is attached to this Annual Report.

MANAGEMENT DISCUSSION AND ANALYSIS

A detailed report on the Management Discussion and Analysis is provided as a separate chapter in the annual report.

BOARD OF DIRECTORS

In accordance with the provisions of the Companies Act, 2013, Mr. P. S. R. K. Prasad (DIN: 07011140), Director retires by rotation and being eligible offers himself for reappointment at the ensuing Annual General Meeting of the company.

Dr. B.S. Bajaj, who will be attaining 90 years of age this September and Dr.A.K.S.Bhujanga Rao who on superannuation requested the Company to relieve them as Directors. Accordingly, Board accepted their resignations.

BOARD EVALUATION

As per provisions of the Companies Act, 2013 and the Listing Regulations, an evaluation of the performance of the Board was undertaken.

The contribution and impact of individual Directors were reviewed through a peer evaluation on parameters such as level of engagement and participation, flow of information, independence of judgment, conflicts resolution and their contribution in enhancing the Board''s overall effectiveness. The feedback obtained from the interventions was discussed in detail and, where required, independent and collective action points for improvement put in place.

APPOINTMENT OF DIRECTORS AND REMUNERATION POLICY

The assessment and appointment of members to the Board is based on a combination of criterion that includes ethics, personal and professional stature, domain expertise, gender diversity and specific qualification required for the position. The potential Board member is also assessed on the basis of independence criteria defined in Section 149(6) of the Companies Act, 2013 and SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 (âListing Regulations").

In accordance with Section 178(3) of the Companies Act, 2013, and on recommendations of Nomination and Remuneration Committee, the Board adopted a remuneration policy for Directors, Key Management Personnel (KMPs) and Senior Management which is attached as âAnnexure VIIIâ to this Board''s Report.

DECLARATION BY INDEPENDENT DIRECTORS

The Company has received necessary declaration from each independent Director under Section 149(7) of the Companies Act, 2013, that he/she meets criteria of Independence laid down in Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of the Listing Regulations.

NUMBER OF BOARD MEETINGS

The Board of Directors met four times during the FY 2017. Details of Board meetings are laid out in Corporate Governance Report, which forms a part of this Annual Report.

BUSINESS RISK MANAGEMENT

The Company has a risk management mechanism in place to manage uncertainties through identification, analysis assessment, implementing and monitoring to reduce the impact of risks to the business which is discussed in detail in the Management Discussion and Analysis section.

INTERNAL FINANCIAL CONTROL

The Company has laid down certain guidelines, processes and structure, which enables implementation of appropriate internal financial controls across the organization. Such internal financial controls encompass policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of business, including adherence to its policies, safeguarding of its assets, prevention and detection of frauds and errors, the accuracy and completeness of accounting records and the timely preparation of reliable financial information. These include control processes both on manual and IT applications including the ERP application wherein the transactions are approved and recorded. Appropriate review and control mechanisms are built in place to ensure that such control systems are adequate and are operating effectively. Because of the inherent limitations of internal financial controls, including the possibility of collusion or improper management override of controls, material misstatements in financial reporting due to error or fraud may occur and not be detected. The evaluation of the internal financial controls are subject to the risk that the internal financial control may become inadequate because of changes in conditions, or that the compliance with the policies or procedures may deteriorate. The Company has, in all material respects, adequate internal financial controls over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31 March 2017, as stated in the Guidance Note on Audit of Internal Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

The Statutory Auditors of the Company has audited the IFC over Financial Reporting and their Audit Report is annexed to the Independent Auditors'' Report under Standalone Financial Statements and Consolidated Financial Statements.

INSURANCE

The Company''s plant, property, equipments and stocks are adequately insured against major risks. The Company also has appropriate liability insurance covers particularly for product liability and clinical trials. The Company has also taken Directors'' and Officers'' Liability Policy to provide coverage against the liabilities arising on them.

DIRECTORS RESPONSIBILITY STATEMENT

In terms of Section 134(3)(c) of the Companies Act, 2013 in relation to financial statements of the company for the year ended 31st March 2017, the board of directors state that:-

a) The applicable accounting standards have been followed in preparation of the financial statements and there are no material departures from the said standards.

b) Reasonable and prudent accounting policies have been used in preparation of the financial statements and that they have been consistently applied and that reasonable and prudent judgments and estimates have been made in respect of items not concluded by the year end, so as to give a true and fair view of the state of affairs of the company as at 31st March, 2017 and of the 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 Companies Act, 2013 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities.

d) The financial statements have been prepared on a going concern basis.

e) Proper internal financial controls were in place and were adequate and operating effectively; proper systems to ensure compliance with the provisions of applicable laws were in place and were adequate and operating effectively.

RELATED PARTY TRANSACTIONS

The details of related party disclosures form part of the notes to the financial statements provided in this Annual Report.

VIGIL MECHANISM / WHISTLE BLOWER POLICY

The Company has an Ombudsperson policy (Whistleblower/Vigil mechanism) to report concerns. Under this policy, provisions have been made to safeguard persons who use this mechanism from victimization. An

Audit Committee member is the Chief Ombudsperson. The policy also provides access to the Chairperson of the Audit Committee under certain circumstances. The details of the procedures are also available on the website of the Company www.natcopharma.co.in.

AUDITORS Statutory Auditors

The shareholders at their 31st Annual General Meeting (AGM) held on 27 September 2014, approved the re-appointment of M/s. Walker Chandiok & Co LLP, Chartered Accountants (Firm Registration No.: 001076N), as statutory auditors of the Company, to hold office from the conclusion of the 31st AGM up to the conclusion of the 36th AGM to be held for the year 2018-2019. In terms of first proviso of Section 139 of the Companies Act, 2013, the appointment of the auditors is subject to ratification by the shareholders at every subsequent AGM.

Accordingly, the appointment of M/s. Walker Chandiok

& Co LLP Chartered Accountants, as statutory auditors of the Company from the conclusion of the 34th AGM till the conclusion of the 35th AGM, is put forward to the shareholders in the ensuing AGM for their ratification.

Secretarial Auditor

Pursuant to Section 204 of the Companies Act, 2013 and the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, CS Balachandra Sunku (CP No. 12745) a, practicing Company Secretary conducted the secretarial audit of the Company for FY 2017. The Secretarial Audit Report in form No. MR-3 is attached as âAnnexure III" to this Board''s Report.

The Board has re-appointed CS Balachandra Sunku, a Practicing Company Secretary, as secretarial auditor of the Company for FY 2018.

Cost Auditors

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules,

2014 and the Companies (Cost Records and Audit) Amendment Rules, 2014, the Company maintains the cost audit records in respect of its pharmaceutical business. The Board has, on the recommendation of the Audit Committee, appointed M/s. S.S. Zanwar & Associates (Firm Registration No.:100283) as cost auditors of the Company for FY 2017. The provisions also require that the remuneration of the cost auditors be ratified by the shareholders and accordingly the same is put forward to the shareholders in the ensuing AGM for their ratification. The cost audit report for the FY 2017 will be filed with the Central Government within the stipulated timeline and the relevant cost audit reports for FY 2016 were filed within the due date to the Central Government.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE COURTS / REGULATORS

During FY2017, there were no significant and/or material orders, passed by any Court or Regulator or Tribunal, which may impact the going concern status or the Company''s operations in future.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

The Board formulated a Corporate Social Responsibility (CSR) Policy which is in full force and operation and is subject to monitoring by the CSR Committee of Directors from time to time.

The details about the CSR initiates taken during the FY 2017 are discussed in a separate chapter âEmpowering our Communities" which forms a part of this Annual Report.

The Annual Report on CSR activities of the Company is attached as âAnnexure IVâ to this Board''s Report.

TRANSFER OF UNPAID AND UNCLAIMED AMOUNTS TO INVESTOR EDUCATION AND PROTECTION FUND

Pursuant to the provisions of Section 124(5) of the Companies Act, 2013, the declared dividends, which remained unpaid or unclaimed for a period of seven years, have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 125 of the said Act the details of which are updated in the Company''s website âwww.natcopharma. co.in".

EMPLOYEES STOCK OPTION SCHEME

Details pertaining to the Employee Stock Option Schemes is disclosed in the Corporate Governance Report which forms a part of this Annual Report.

CREDIT RATING

ICRA has upgraded their rating for various banking facilities from AA- to AA enabling your company to avail facilities from banks at attractive rates indicating a very strong degree of safety for timely payment of financial obligations.

PARTICULARS OF EMPLOYEES

CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The particulars as prescribed under Section 134(3) (m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are attached as âAnnexure VIâ.

EXTRACT OF THE ANNUAL RETURN

The details forming part of the extract of the annual return for the FY 2017 in Form MGT-9 is attached as âAnnexure VIIâ to this Board''s Report.

ACKNOWLEDGEMENT

Your Directors place on record their sincere appreciation for the significant contribution made by our employees through their dedication, hard work and commitment, as also for the trust reposed on us by the medical fraternity and patients. We also acknowledge the support extended to us by the analysts, bankers, government agencies, media, customers, suppliers, shareholders and investors at large. We look forward to continued support in our Endeavour to help people lead healthier lives.

For and on behalf of the Board of Directors

V.C.Nannapaneni

Chairman and Managing Director

Place: Hyderabad

Date: 07.08.2017

Mar 31, 2016

Dear Members,

The Directors have pleasure in presenting the Thirty-Third Annual Report along with the audited financial accounts of your Company for the financial year ended 31 March, 2016.

Financial Highlights

Rs.in Lakhs

Consolidated Standalone

FY 16 FY 15 FY 16 FY 15

Revenue from operations (Net) 114162 82528 102142 71555

Other Income 1076 1490 1407 1357

Total Revenue 115238 84018 103549 72912

Profit before Exceptional Items and Tax 20662 14935 21947 16954

Less: Exceptional Items - (1513) - (1513)

Profit Before Tax 20662 13422 21947 15441

Less: Tax expense (4967) (3499) (4480) (3252)

Add / (Less):Deferred tax (312) 3104 (21) 3104

Profit after tax and before minority interest 15383 13027 17446 15293

Minority Interest 135 435 - -

Profit for the year 15518 13462 17446 15293

Add: Balance at the beginning of the year 46740 36380 49782 37592

Add / (Less): Pursuant to the scheme of Amalgamation (1900) (3597)

Less: Appropriations:

Interim Dividend (including tax on distributed Profits) (2620) (2002) (2620) (2002)

Transfer to General Reserve (1100) (1100) (1100) (1100)

Closing Surplus carried forward 56638 46740 59911 49782

Brief Review of the Financial Year

The Company''s standalone revenue for the year was Rs.103549 lakhs, up 42% from the previous year. Profit before tax for the year was Rs. 21947 lakhs, up 42% over the previous year.

The Company''s consolidated revenue for the year was Rs.115238 lakhs, up 37% from the previous year. Profit before tax for the year was Rs.20662 lakhs, up 54% over the previous year.

Revenue from formulations segment was the key driver of growth during thefiscal year constituting over 80% of total net revenue on standalone basis. This growth was largely driven by domestic formulations segments of hepatitis C & oncology drugs, especially the phenomenal growth of hepatitis C brand drugs of the company during the year. API constituted just under 16% of total net revenue on standalone basis.

As of March 31 2016, the Company has 38 ANDA filings of which (i) 16 are approved (including 4 tentative approvals); (ii) 21 filings are under review, which have been filed in collaboration with global pharmaceutical companies, such as, Mylan, Breckenridge, Alvogen, Actavis and Lupin.

As of March 31 2016, the Company filed 33 DMFs with the USFDA across therapeutic segments such as oncology, CNS, anti- asthmatic anti-depressant, anti-migraine, anti-osteoporosis and gastrointestinal disorders and are currently working on several more DMFs to be filed with USFDA in near future.

Dividend

On February 11, 2016, the Board of Directors declared an interim dividend of Rs. 1.25 (62.50%) per equity share for FY2016, entailing a pay-out of Rs. 2620 lakhs (including dividend distribution tax). The Interim dividend has been subsequently paid to all eligible shareholders and no further dividends are proposed/recommended by the Board. Accordingly your Directors recommend that this interim dividend be treated as the final dividend of the Company for FY2016.

Transfer to Reserves

The Company transferred Rs. 1100 lakhs to the general reserve during the current financial year.

Share Capital

The paid-up share capital of your Company increased to Rs. 3483.49 lakhs in FY2016, due to the qualified institutional placement of 16,00,000 equity shares of Rs.10 each, fully paid at a premium of Rs. 2120.55 per equity share.

Fixed Deposits

The Company has not accepted any deposits covered under Chapter V of the Companies Act, 2013. Accordingly no disclosure or reporting is required in respect of details relating to deposits covered under this Chapter

Change in the nature of Business, if any

During the year, there was no change in the nature of business of the Company or any of its subsidiaries.

Subsidiaries

The Company has five (5) international subsidiaries (excluding one (1) step down subsidiary) as on 31 March, 2016.The consolidated financial statements of the Company and all its subsidiaries prepared in accordance with Accounting Standards 21 and 27 as specified in the Companies (Accounts) Rules, 2014, form part of the annual report. Further, a statement containing the salient features of the financial statement of our subsidiaries in the prescribed Form AOC-1, is attached as "Annexure I" to the Board''s Report. This statement also provides the details of the performance and financial position of each subsidiary. In accordance with Section 136 of the Companies Act, 2013, the audited financial statements and related information of the subsidiaries, where applicable, will be available for inspection during regular business hours at the Company''s registered office in Hyderabad, India.

Natco Organics Limited (NOL) which was a wholly owned domestic subsidiary had ceased to be the subsidiary of the Company pursuant to the approval of Scheme of Amalgamation of NOL into the Company by the Hon''ble High Court of Judicature at Madras vide its orders dated 28.04.2016. This Scheme of Amalgamation is effective from 01.04.2015. The financials for the year ended 31.03.2016 are for the merged entity.

Particulars of Investments, Loans & Advances

The Company makes investments, loans and advances to its subsidiaries for their business purpose. Details of loans, investments and advances covered under Section 186 of the Companies Act, 2013, form part of the notes to the financial statements provided in this annual report.

Corporate Governance and additional Shareholders Information

A detailed report on the corporate governance systems and practices of the Company is given in a separate chapter of this annual report. Similarly, other detailed information for shareholders is provided in the chapter General Shareholders'' Information.

A certificate from the Secretarial Auditors of the Company on the compliance with the conditions of corporate governance is attached to the report.

Management Discussion and Analysis

A detailed report on the Management Discussion and Analysis is provided as a separate chapter in the Annual Report.

Board of Directors

In accordance with the provisions of the Companies Act, 2013, Dr. AKS Bhujanga Rao (DIN: 02742637 ) retires from his office by rotation and being eligible offers himself for reappointment at the ensuing Annual General Meeting of the Company.

Board Evaluation

As per provisions of the Companies Act, 2013 and the Listing Regulations, an evaluation of the performance of the Board and members was undertaken.

The contribution and impact of individual Directors were reviewed through a peer evaluation on parameters such as level of engagement and participation, flow of information, independence of judgment, conflicts resolution and their contribution in enhancing the Board''s overall effectiveness. The feedback obtained from the interventions was discussed in detail and, where required, Independent and collective action points for improvement put in place.

Appointment of Directors and Remuneration Policy

The assessment and appointment of members to the Board is based on a combination of criterion that includes ethics, personal and professional stature, domain expertise, gender diversity and specific qualification required for the position. New Board members are also assessed on the basis of independence criteria defined in Section 149(6) of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations").

In accordance with Section 178(3) of the Companies Act, 2013, and on recommendation of Nomination and Remuneration Committee, the Board adopted a remuneration policy for Directors, Key Management Personnel (KMPs) and Senior Management. The policy is attached as "Annexure VIII".

Declaration by Independent Directors

The Company has received necessary declaration from each Independent Director under Section 149(7) of the Companies Act, 2013, that he/she meets criteria of Independence laid down in Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of the Listing Regulations.

Number of Board Meetings

The Board of Directors met six times during the year. Details of Board meetings are laid out in Corporate Governance report, which forms a part of this Annual Report.

Business Risk Management

The Company has a risk management mechanism in place to manage uncertainties through identification, analysis assessment, implementing and monitoring to reduce the impact of risks to the business which is discussed in detail in the Management Discussion and Analysis section.

Internal Financial Control

The Company has laid down certain guidelines, processes and structure, which enables implementation of appropriate internal financial controls across the organisation. Such internal financial controls encompass policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of business, including adherence to its policies, safeguarding of its assets, prevention and detection of frauds and errors, the accuracy and completeness of accounting records and the timely preparation of reliable financial information. These include control processes both on manual and IT applications including the ERP application wherein the transactions are approved and recorded. Appropriate review and control mechanisms are built in place to ensure that such control systems are adequate and are operating effectively. Because of the inherent limitations of internal financial controls, including the possibility of collusion or improper management, override of controls, material misstatements in financial reporting due to error or fraud may occur and not be detected. Also, evaluation of the internal financial controls are subject to the risk that the internal financial control may become inadequate because of changes in conditions, or that the compliance with the policies or procedures may deteriorate. The Company has, in all material respects, adequate internal financial controls over financial reporting and such internal financial controls over financial reporting were operating effectively as at 31 March, 2016, as stated in the Guidance Note on Audit of Internal Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India.

Directors'' Responsibility Statement

In terms of Section 134 (3)(c) of the Companies Act, 2013, in relation to financial statements of the Company for the year ended 31st March, 2016, the Board of Directors state that:

a) the applicable Accounting Standards have been followed in preparation of the financial statements and there are no material departures from the said standards;

(b) reasonable and prudent accounting policies have been used in preparation of the financial statements and that they have been consistently applied and that reasonable and prudent judgments and estimates have been made in respect of items not concluded by the year end, so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2016 and of the profit for the year ended on that date;

(c) proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(d) the financial statements have been prepared on a going concern basis;

(e) proper internal financial controls were in place and were adequate and operating effectively; proper systems to ensure compliance with the provisions of applicable laws were in place and were adequate and operating effectively.

Related Party Transactions

In accordance with Section 134(3) (h) of the Companies Act, 2013 and Rule 8(2) of the Companies (Accounts) Rules, 2014, the particulars of contract or arrangement entered into by the Company with related parties referred to in Section 188(1) in Form AOC-2 is attached as "Annexure II".

The details of related party disclosures form part of the notes to the financial statements provided in this Annual Report.

Vigil Mechanism/ Whistle Blower Policy

The Company has an Ombudsperson policy (Whistle-Blower/ Vigil mechanism) to report concerns. Under this policy, provisions have been made to safeguard persons who use this mechanism from victimization. An Audit Committee member is the Chief Ombudsperson. The policy also provides access to the chairperson of the Audit Committee under certain circumstances. The details of the procedure are also available on the website of the Company www.natcopharma.com.

Auditors

Statutory Auditors

The shareholders at their 31st Annual General Meeting (AGM) held on September 27, 2014, approved the re-appointment of M/s. Walker Chandiok & Co LLR Chartered Accountants, as statutory auditors of the Company, to hold office from the conclusion of the 31st AGM up to the conclusion of the 36th AGM to be held for the year 2018-2019. In terms of first proviso of Section 139 (1) of the Companies Act, 2013, the appointment of the auditors is subject to ratification by the shareholders at every subsequent AGM.

Accordingly, the appointment of M/s. Walker Chandiok &Co LLP Chartered Accountants, as statutory auditors of the Company from the conclusion of the 33rd AGM till the conclusion of the 34th AGM, is put forward to the shareholders in the ensuing AGM for their ratification.

Secretarial Auditor

Pursuant to Section 204 of the Companies Act, 2013 and the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, CS Bala Chandra Sunku (CP No. 12745), a Practicing Company Secretary conducted the secretarial audit of the Company for FY2016. The secretarial audit report in Form No. MR-3 is attached as "Annexure III".

The Board has re-appointed CS Bala Chandra Sunku as Secretarial Auditor of the Company for FY 2017

Cost Auditors

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Amendment Rules, 2014, the Company maintains the cost audit records in respect of its pharmaceutical business. The Board has, on the recommendation of the Audit Committee, appointed M/s. S.S. Zanwar & Associates as cost auditors of the Company for FY2016. The provisions also require that the remuneration of the cost auditors be ratified by the shareholders and accordingly the same is put forward to the shareholders in the ensuing AGM for their ratification. The cost audit report will be filed with the Central Government within the stipulated timeline. As a matter of record, relevant cost audit reports for FY2015 were filed within the due date.

Significant and Material Orders passed by the Courts/Regulators

During FY2016, there were no significant and/or material orders, passed by any Court or Regulator or Tribunal, which may impact the going concern status or the Company''s operations in future.

Corporate Social Responsibility Initiatives

The Board formulated a Corporate Social Responsibility (CSR) Policy which is in full force and operation and is subject to monitoring by the CSR Committee from time to time.

The details about the CSR initiatives taken during the year are discussed in a separate chapter "Our commitment" which forms a part of this Annual Report.

The Annual Report on CSR is attached as "Annexure IV".

Transfer of unpaid and unclaimed amounts to Investor Education and Protection Fund

Pursuant to the provisions of Section 205A(5) of the Companies Act, 1956, the declared dividends, which remained unpaid or unclaimed for a period of seven years, have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 205C of the said Act the details of which are available in the website of the Company: Weblink: httpi/natcopharma.co.in/investors/shareholder-information/ unclaimed-dividend/

Employees Stock Option Scheme

The Company has instituted the NATCO Employee Stock Option Plan ''NATSOP-2015'' ("the Scheme") as per the special resolution passed in the Extraordinary General Meeting of the Company held on June 27 2015. The scheme is formulated in accordance with the Securities Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 issued by the Securities and Exchange Board of India ("SEBI"). Pursuant to the Scheme, the Board of the Directors of the Company have granted 750,000 options (post-split) to eligible employees on August 12, 2015. The terms of the Scheme provide that each option entitles the holder to one equity shares of Rs.2 each (post-split) and that the options can be settled only by way of issue of equity shares. The options vest on an annual basis over a period of 5 years from the date of grant and the options are entirely time-based with no performance conditions.

Particulars of Employees

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013, read with Rules 5(1), 5(2) & 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel)Rules, 2014 are attached as "Annexure V".

Conservation of Energy, Research and Development, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars as prescribed under Section 134(3)(m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are attached as "Annexure VI".

Extract of the Annual Return

The details forming part of the extract of the annual return in Form MGT-9 are attached as "Annexure VII".

Nomination and Remuneration Committee

Your Board of Directors had constituted Nomination and Remuneration Committee as per Section 178 of Companies Act, 2013, and Regulation 18 of the Listing Regulations. The Nomination and Remuneration Policy of the Company is attached as "Annexure VIII"

Acknowledgement

Your Directors place on record their sincere appreciation for the significant contribution made by our employees through their dedication, hard work and commitment, as also for the trust reposed on us by the medical fraternity and patients. We also acknowledge the support extended to us by the analysts, bankers, government agencies, media, customers, suppliers, shareholders and investors at large. We look forward to continued support in our endeavour to help people lead healthier lives.

For and on behalf of the Board of Directors

Place: Hyderabad V. C. Nannapaneni

Date : 09 August 2016 Chairman and Managing Director

Mar 31, 2015

Dear Members,

The Directors have pleasure in submitting the 32nd Annual Report together with the audited accounts of the Company for the year ended on 31st March, 2015.

Financial Results for the year ended 31st March, 2015

Rs.in lakhs

Consolidated Standalone

2014-15 2013-14 2014-15 2013-14

Revenue from operations (Net) 82528 73889 71555 62234

Other Income 1490 1671 1357 1571

Total Revenue 84018 75560 72912 63805

Profit before Exceptional Items and Tax 14935 12898 16954 14145

Less: Exceptional Items (1513) - (1513) -

Profit Before Tax 13422 12898 15441 14145

Less: Tax expense (3512) (3226) (3252) (3005)

Add / (Less)Deferred tax 3117 139 3104 (121)

Profit after tax and before minority interest 13027 9811 15293 11019

Minority Interest 435 463 - -

Profit for the year 13462 10274 15293 11019

Add: Opening Surplus brought forward from the previous year 36380 29142 37592 29607

Less: Appropriations: (2002) (1935) (2002) (1935)

Interim Dividend (including tax on distributed Profits)

Transfer to General Reserve (1100) (1100) (1100) (1100)

Closing Surplus carried forward 46740 36381 49783 37591

Company Affairs

The Company''s standalone revenue for the year was Rs.72912 lakhs, up 14% over the previous year. Earnings before interest, taxes, depreciation, amortisation and impairment (EBIDTA) before exceptional items increased by 20%toRs.24213 lakhs compared to previous year in value terms, or 33% of standalone revenue. Profit before taxes (PBT) was Rs. 15441 lakhs, up 9% over the previous year.

The Company''s consolidated revenue for the year was Rs.84018 lakhs, up 11% over the previous year. EBITDA before exceptional items grew by 16% as compared to previous in value terms, to Rs.22829 lakhs, or 27% of consolidated revenue. Profit before taxes (PBT) was Rs.13422 lakhs, an increase of 4% over the previous year.

Revenue from API''s constituted 30% of the revenue while formulations constituted 50% of the revenue. This growth was largely driven by domestic oncology segment, increase in market share in some of the key products and also contribution from new product launches in FY2015.

During the year, the Company got the unigue distinction of being the first company in India to launch the generic version of Gilead''s Sovaldi under its brand "Hepcinaf'' for the treatment of Hepatitis C.

As of Mar 31 st, 2015, the Company has made 35 ANDA filings of which (i) 14 are approved (including 2 tentative approvals); (ii) 14 are Paragraph IV filings, which have been filed in collaboration with global pharmaceutical companies, such as, Mylan, Breckenridge, Alvogen, Actavis and Lupin.

As of Mar 31st, 2015, the Company filed 31 DMFs with the USFDA across therapeutic segments such as oncology, CNS, anti-asthmatic, anti-depressant, anti-migraine, anti- osteoporosis and gastrointestinal disorders and are currently working on several more DMFs to be filed with USFDA in near future.

Dividend

Your Directors had recommended and paid an interim dividend of Rs.5.00 per equity share (last year- Rs.5.00 per equity share) during February, 2015. Your Directors recommend that this may be treated as the final dividend.

Transfer to Reserves

The Company transferred Rs.1100 lakhs to the general reserve during the current financial year.

Share Capital

The paid-up share capital of your Company increased to Rs.3323.49 lakhs in FY2015, due to the allotment of 161,775 equity shares of Rs.10 each fully paid at a premium of Rs.1190 per equity share to the erstwhile shareholders of Natco Organics Limited in exchange of 19,310,000 equity shares of Rs.10 each at face value held by them in Natco Organics Limited

Fixed Deposits

The Company has not accepted any deposits covered under Chapter V of the Companies Act, 2013. Accordingly no disclosure or reporting is required in respect of details relating to deposits covered under this Chapter

Change in the nature of Business, if any

During the year, there was no change in the nature of business of the Company or any of its subsidiaries.

Subsidiaries

The Company has one (1) domestic subsidiary and five (5) international subsidiaries (excluding one (1) step down subsidiary) as on 31 March 2015. During FY2015, Natco Organics Limited became a wholly owned subsidiary. The consolidated financial statement of the Company and all its subsidiaries prepared in accordance with Accounting Standards 21 and 27 as specified in the Companies (Accounts) Rules, 2014, form part of the annual report. Further, a statement containing the salient features of the financial statement of our subsidiaries in the prescribed Form AOC-1, is attached as "Annexure I" to the Board''s Report. This statement also provides the details of the performance and financial position of each subsidiary. In accordance with Section 136 of the Companies Act, 2013, the audited financial statements and related information of the subsidiaries, where applicable, will be available for inspection during regular business hours at the Company''s registered office in Hyderabad, India.

Particulars of Investments, Loans & Advances

The Company makes investments, loans and advances to its subsidiaries for their business purpose. Details of investments, loans and advances covered under Section 186 of the Companies Act, 2013, form part of the notes to the financial statements provided in this annual report.

Corporate Governance and additional Shareholders Information

A detailed report on the corporate governance systems and practices of the Company is given in a separate chapter of this annual report. Similarly, other detailed information for shareholders is provided in the chapter Additional Shareholders'' Information.

A certificate from the Secretarial Auditors of the Company on the compliance with the conditions of corporate governance is attached to the report.

Management Discussion and Analysis

A detailed report on the Management Discussion and Analysis is provided as a separate chapter in the annual report.

Board of Directors

Dr P. Bhaskara Narayana, Director and CFO passed away on 21st October, 2014. Your Board of Directors wishes to place on record the contribution made by him to the Company and place on record its deep sense of gratitude to him and conveyed the same to his family members Mr. Vivek Chhachhi is retiring at the ensuing Annual Genera Meeting and is eligible for re-appointment.

Shri P S R K Prasad has been appointed as an Additional Director effective 12th November 2014. Dr. D Linga Rao and Dr M U R Naidu were appointed as Additional Directors effective 11th February, 2015. These Directors are being appointed in the ensuing Annual General Meeting.

Board Evaluation

As per provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, an evaluation of the performance of the Board and members was undertaken.

The contribution and impact of individual Directors were reviewed through a peer evaluation on parameters such as level of engagement and participation, flow of information, independence of judgment, conflicts resolution and their contribution in enhancing the Board''s overall effectiveness. The feedback obtained from the interventions was discussed in detail and, where required, independent and collective action points for improvement put in place.

Appointment of Directors and Remuneration Policy

The assessment and appointment of members to the Board is based on a combination of criterion that includes ethics, personal and professional stature, domain expertise, gender diversity and specific qualification required for the position. The potential Board member is also assessed on the basis of independence criteria defined in Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

In accordance with Section 178(3) of the Companies Act, 2013, Clause 49(IV) (B) of the Listing Agreement and on recommendations of Compensation Committee, the Board adopted a remuneration policy for Directors, Key Management Personnel (KMPs) and Senior Management .The policy is attached as an annexure.

Declaration by Independent Directors

The Company has received necessary declaration from each independent Director under Section 149(7) of the Companies Act, 2013, that he/she meets criteria of Independence laid down in Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

Number of Board Meetings

The Board of Directors met four times during the year. Details of Board meetings are laid out in Corporate Governance report, which forms a part of this annual report.

Business Risk Management

The Company has a risk management mechanism in place which manage uncertainty and identify, assess, monitor to reduce the impact of risks to the business which is discussed in detail in the Management Discussion and Analysis section.

Adequacy of Internal Financial Control Systems

The Company has in place adequate internal financial controls with reference to financial statements. These controls ensure the accuracy and completeness of the accounting records and preparation of reliable financial statements.

Directors Responsibility Statement

In terms of Section 134(5) of the Companies Act, 2013, your Directors state that:

1. applicable accounting standards have been followed in the preparation of the annual accounts;

2. accounting policies have been selected and applied consistently. Judgments and estimates made 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 FY2015and of the profit of the Company for that period;

3. proper and sufficient care has been taken to maintain adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4. annual accounts have been prepared on a going concern basis;

5. adequate internal financial controls for the Company to follow have been laid down and these are operating effectively; and

6. proper and adequate systems have been devised to ensure compliance with the provisions of all applicable laws and these systems are operating effectively

Related Party Transactions

In accordance with Section 134(3) (h) of the Companies Act, 2013 and Rule 8(2) of the Companies (Accounts)Rules, 2014, the particulars of contract or arrangement entered into by the Company with related parties referred to in Section 188(1) in Form AOC-2 is attached as "Annexure II".

The details of related party disclosures form part of the notes to the financial statements provided in this annual report.

Vigil Mechanism /Whistle Blower Policy

The Company has an Ombudsperson policy (Whistle-Blower/ Vigil mechanism) to report concerns. Under this policy, provisions have been made to safeguard persons who use this mechanism from victimization. An Audit Committee member is the Chief Ombudsperson. The policy also provides access to the chairperson of the Audit Committee under certain circumstances. The details of the procedure are also available on the website of the Company, www.natcopharma. com.

Auditors

Statutory Auditors

The shareholders at their 31 st Annual General Meeting (AGM) held on 27 September 2014, approved the re-appointment of M/s. Walker Chandiok & Co LLP, Chartered Accountants, as statutory auditors of the Company, to hold office from the conclusion of the 31st AGM up to the conclusion of the 36th Annual General Meeting for the year 2018-2019. In terms of first proviso of Section 139 of the Companies Act, 2013, the appointment of the auditors is subject to ratification by the shareholders at every subseguent AGM. Accordingly, the statutory auditors, M/s. Walker Chandiok & Co LLP Chartered Accountants, have confirmed their eligibility under Section 141 of the Companies Act, 2013, Rule 4 of the Companies (Audit and Auditors) Rules, 2014 and Clause 41(1) (h) of the Listing Agreement.

The Audit Committee and the Board of Directors recommend the appointment of M/s. Walker Chandiok & Co LLP Chartered Accountants, as statutory auditors of the Company from the conclusion of the 32nd AGM till the conclusion of the 33rd AGM, to the shareholders for ratification.

Secretarial Auditor

Pursuant to Section 204 of the Companies Act, 2013 and the Companies (Appointment & Remuneration of Manageria Personnel) Rules, 2014, a, practicing Company Secretary was appointed to conduct the secretarial audit of the Company for FY2015.The secretarial audit report for FY2015 is attached as "Annexure III" Basing on the consent received from practicing Company Secretary and the recommendations of the Audit Committee, the Board has appointed CS Bala Chandra Sunku, a practicing Company Secretary, as secretarial auditor of the Company for FY2016.

Cost Auditors

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Amendment Rules, 2014, the Company maintains the cost audit records in respect of its pharmaceutical business. Your Board has, on the recommendation of the Audit Committee, appointed M/s. S.S. Zanvvar & Associates as cost auditors of the Company for FY2016.The provisions also require that the remuneration of the cost auditors be ratified by the shareholders accordingly your Board recommended the same. The cost audit report for the FY 2015 will be filed with the Central Government within the stipulated timeline. As a matter of record, relevant cost audit reports for FY2014 were filed within the due date.

Significant and Material Orders passed by the courts / regulators

During FY2015, there were no significant and/or material orders, passed by any Court or Regulator or Tribunal, which may impact the going concern status or the Company''s operations in future.

Corporate Social Responsibility Initiatives

As per Section 135 of the Companies Act, 2013, the Company has a Corporate Social Responsibility (CSR) Committee of its Board of Directors. The Committee comprises of 1. Shri G.S.Murthy 2. Shri V.C.Nannapaneni 3. Shri Rajeev Nannapaneni

The role & responsibilities of CSR Committee is:

(a) to formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII of Companies Act, 2013;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

(c) monitor the Corporate Social Responsibility Policy of the Company from time to time.

(d) Adhere to Section 135 of the Companies Act, 2013 & Companies (Corporate Social Responsibility Policy) Rules, 2014 (including any statutory modifications, amendments or re-enactments thereto for the time being in force).

(e) All other activities as informed or delegated by the Board of Directors from time to time.

The Company supported NATCO Trust, which continues to actively pursue its social welfare activities in the areas of education, health and hygiene, livelihood and employment generation, safe water and sanitation and need based community structure.

The Company''s in-house quarterly magazine "Spandana" continues to receive applauds.

The Report on CSR activities of the Company is attached as "Annexure IV".

Business Responsibility Report

A detailed Business Responsibility Report is available as a separate section in this annual report Transfer of unpaid and unclaimed amounts to Investor Education and Protection Fund

Pursuant to the provisions of Section 205A(5) of the Companies Act.1956, the declared dividends, which remained unpaid or unclaimed for a period of seven years, have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 205C of the said Act the details of which are available elsewhere in the Annual Report.

Employees Stock Option Schemes

No Employees Stock Option Scheme was in place in the reporting financial year.

Particulars of Employees

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013, read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are attached as "Annexure V".

Conservation of Energy, Research and Development, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars as prescribed under Section 134(3) (m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are attached as "Annexure VI".

Extract of the Annual Return

The details forming part of the extract of the annual return in Form MGT-9 is attached as "Annexure VII".

Nomination and Remuneration Committee

Your Board of Directors had framed Nomination and Remuneration Committee as per Section 178 of Companies Act 2013 and Clause 49 of the Listing Agreement. The Policy of the same is attached as "Annexure VIII"

Acknowledgement

Your Directors place on record their sincere appreciation for the significant contribution made by our employees through their dedication, hard work and commitment, as also for the trust reposed on us by the medical fraternity and patients. We also acknowledge the support extended to us by the analysts, bankers, government agencies, media, customers, suppliers, shareholders and investors at large. We look forward to continued support in our endeavour to help people lead healthier lives.

For and on behalf of the Board of Directors

Place: Hyderabad V. C. Nannapaneni

Date: 12-08-2015 Chairman and Managing Director

Mar 31, 2014

Dear Members,

The Directors are pleased to present the 31st Annua Report together with the audited accounts of the Company for the year ended on 31st March, 2014.

Operating Results:

You will be pleased to note that during the year under review, the consolidated turnover stood @ Rs.781 crore (previous year Rs.705 crore) an increase of 11% and the consolidated profit after tax @ Rs.103 crore (previous year Rs.72 crore) an increase of 43%.

The revenues from the finished dosages pharmaceutica formulations division) during the year stood at Rs.484 Crore against Rs.396 crore Crore last year, recording a 22% growth and this growth is driven by increase in exports to North America & South America in addition to increase in turnover from domestic Oncology division.

The following is a summary of the Company''s performance during the financial year 2013-2014:

In Rs. lakhs

Particulars of Revenues* 2013-14 2012-2013

API Division 20008 22426

Finished Dosage 48360 39611

Formulations Division

Job Work 1193 944

Other Operating Income 6891 6326

Other Income 1671 1241

Total 78123 70548

* Consolidated gross revenues.

The Company''s operations for the year resulted in a surplus of H14145 lakhs (as compared to Rs.11232 lakhs for the financial year 2012-2013). Your Directors have decided to make the following adjustments from out of the surplus:

In Rs. lakhs

2013-14 2012-13

Surplus after operational 14145 11232 expenditure

Provision for taxes 3005 2195

Provision for deferred tax 121 1223

Net surplus carried to 11019 7814 Balance Sheet

Interim Dividend declared 1654 1255 / paid

Tax on distribution of 281 204 income

Transfer to General Reserves 1100 800

Surplus carried to Balance 7984 5555 Sheet

Dividend:

Your Directors had recommended and paid an interim dividend of H5.00 per equity share (last year Â H4.00 per equity share) during February, 2014. Your Directors recommend that this may be treated as the final dividend and the recommendation / payment ratified.

Manufacturing facilities:

The manufacturing facilities continues to have all its approvals which it had earlier. All the plants are best kept and up- graded to meet all regulatory compliances.

The construction of the new finished dosage pharmaceutical formulations facility at Guwahati in the State of Assam is fast nearing completion and the unit is expected to go into production soon. This location is eligible for income-tax and excise duty benefits and establishment of this plant would enable the Company to continue to claim the tax benefits.

Contract Manufacturing: The revenues from contract manufacturing activity continue to be stable and the Company maintains and continues to serve its clients in this category to their complete satisfaction.

Subsidiaries:

The product registrations of the Company''s step-down subsidiary in Brazil is progressing well and the documents for registrations of two products are already filed. Applications for few more products would be done shortly. This step down subsidiary would also handle distribution of other company''s products and such arrangements are also in pipeline. The wet wipes distribution business which it is handling has stabilised well and outfit is expected to cash break even during 2015.

As mentioned earlier as a part of its strategy of establishing itself in new niche markets, the Company has set-up subsidiaries in Canada and Singapore and products registering process is in progress. In the next two years good number of products would be distributed by these companies both Natco''s as well as other companies.

Natco Organics Limited, which has a specialty small volume containment facility is stabilising its operations. There are atleast 7 products which are in pipeline and these APIs add good value for regulatory as well as domestic Oncology business in the coming years commencing 2014-15.

US Pharmacy business:

SaveMart Pharmacy, Lancaster, Pennsylvania, USA, - which was acquired through the Company''s wholly owned subsidiary, Natco Pharma Inc. Â had, for the year ended on 31st March, 2014, recorded a net profit, after tax, of Rs.503 lakhs (against H175 lakhs previous year). The business is expected to be stable with a marginal growth.

Active Pharmaceutical Ingredients (API) Annexure A to this report details the latest status on the regulatory filings for APIs.

Abbreviated New Drug Applications (ANDAs):

Annexure B to this report details the latest status on the abbreviated new drug applications filed by your Company.

The Company continues to commercially exploit the approvals that it has already received and has been receiving profit share from its constituents as per the agreements in force.

Research Efforts and Intellectual Property Annexure C to this report details the latest status on the various patent applications filed by the Company.

The Company''s R & D centre (Natco Research Centre Â NRC) continues to work on several compounds simultaneously, and is engaged in the development of molecules, processes, products and scaling-up.

Phase II clinical trials for the Company''s new chemical entity are in progress. Evaluation of other molecules for possible development is continuing. These include molecules for disease management and control, various analogues useful in the field of anti-cancer, anti-depressant and anti-ulcer therapies, and new drug delivery systems.

Corporate Social Responsibilities (CSR): The Company is proud to be associated with Natco Trust, which continues to actively pursue its social welfare activities. The Trust has expanded its activities to cover new geographical locations, situated near the Company''s manufacturing locations. Details on the activities of the Trust are available elsewhere in this Report.

The Company''s in-house quarterly magazine "Spandana" continues to receive applauds.

Financial Matters: During the year your Company completed the Preferential issue successfully by allotting 17 Lakh equity shares of Rs.10/- each to M/s. CX Securities Limited on a preferential basis at a price of H638.40.

Your Company has no derivative contracts outstanding as at 31st March, 2014.

Directors:

Shri Rajeev Nannapaneni, Dr. P. Bhaskara Narayana and Dr. A.K.S. Bhujanga Rao would be retiring at the ensuing Annual General Meeting and are eligible for re-appointment

Shri Nitish Jagannath Deshmukh had resigned from the Board on 28th January, 2014 owing to his pre-occupation. Your Directors place on record their sincere appreciation of the services rendered by Shri Nitish Jagannath Deshmukh during his tenure as a Director on the Board of the Company.

Shri D.G. Prasad has joined the Board as an Additional Director effective 13th February 2014. Shri D.G. Prasad is a Chartered Accountant and his last assignment was Chief General Manager, Export Import Bank of India. He brings with him enormous amount of experience relating to Finance, Banking and International Finance and your Directors opine that his addition to the Board would help the Company to reach newer heights of performance. A Notice has been received from a Member, along with requisite fee, proposing the name Shri D.G. Prasad for appointment as Director of the Company, who is an Independent Director.

Shri Vivek Chhachhi has joined the Board as an Additional Director effective from 7th January 2014, Vivek was a Director with Citi Venture Capital International (CVCI) and was with Citi''s private equity business for 14 years. During his tenure with CVCI, Vivek worked to identify & invest, manage and exit a large number of companies across a wide spectrum of industries including, amongst others, IT Enabled Services, Financial Services, Auto, Metals & Mining, Infrastructure, Pharma & Specialty Chemicals, Oil & Gas services, Media and Textiles. Vivek has worked in this capacity with several companies, such as Polaris

Software, Daksh, I-Flex solutions, Jubilant Organosys, HT Media, Techno Electric, IVRCL Infrastructure, Himadri Chemicals, SEW Construction, Sasken Technologies, among others. Shri Chhachhi received an MBA from the University of Jamnalal Bajaj Institute, Mumbai (1993) and a B.Sc. (Computer Science) from St. Stephen''s College, University of Delhi (1991). A Notice has been received from a Member, along with requisite fee, proposing the name Shri Vivek Chhachhi for appointment as Director of the Company.

Directors'' Responsibility Statement:

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

a) in the preparation of annual accounts, the applicable accounting standards have been followed;

b) the Directors have selected such accounting policies as mentioned in Schedule 18 of the Annual Accounts 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 and loss of the Company for that year;

c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the aforesaid Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

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

In respect of the qualification made by the statutory auditors in their reports dated 29th May, 2014 relating to non-availment of credit of Minimum Alternate Tax, the same would be examined and considered as and when the amounts are required for payment of tax.

Statutory Auditors:

M/s. Walker, Chandiok & Co., Chartered Accountants, Hyderabad, the statutory auditors of the Company hold office till the conclusion of the ensuing Annual General

Meeting, and are eligible for re-appointment. The Board recommends their reappointment.

Internal Auditors :

M/s. Seshachalam & Co., Chartered Accountants, Hyderabad, who have been appointed by your Board to carry-out internal audit of the Company last year will be continuing as internal auditors for this year as well.

Cost Audit:

The Government of India had prescribed maintenance of cost accounting records and ordered cost audit under the provisions of Section 141 and 148 of the Companies Act, 2013, in respect of your Company''s operations. Your Company is following the prescribed guidelines in maintaining the requisite records. The Board has appointed M/s. S S Zanwar & Associates, Cost Accountants, Hyderabad to carry out Cost Audit in respect of various products of the Company for the Financial year 2014-2015 for which an item of special business is annexed to the Notice of Annual General Meeting. Cost Audit Report for the 2012-2013 was filed with in the due date. The due date for the filing of Cost Audit Report for the year 2013-2014 is September 30th, 2014.

Particulars of Employees:

Statement of particulars of employee pursuant to the provision of Sec 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended.

Particulars regarding Energy conservation, etc.

Information on conservation of energy, technology absorption, foreign exchange earnings and outgo as required to be disclosed under the provisions of Section 217(1)(e) of the Companies Act, 1956 is enclosed and forms part of this report.

Listing Information

The securities of the Company are listed with and are traded in, dematerialised form on the Bombay Stock Exchange and the National Stock Exchange. The annual listing fees were paid to each of these exchanges for the year 2013- 2014. Facilities for dematerialisation have become fully operational. The ISIN No. of the Company is INE987B01018.

Fixed Deposits

There are no outstanding and overdue deposits as at 31st March, 2014. The Company had not accepted any deposits during the year.

Acknowledgements

Your Directors place on record their deep sense of gratitude for the support, cooperation and guidance received by the Company from various departments / agencies of the Central and State Governments and all its bankers. The Directors also thank the shareholders, officers and staff of the Company for their excellent cooperation and dedicated work.

For and on behalf of the Board Natco Pharma Limited

Hyderabad, V.C. Nannapaneni

12th August, 2014 Chairman & Managing Director

Mar 31, 2013

To the Members

The Directors are pleased to present the 30th Annual Report together with the audited accounts of the Company for the year ended on 31st March, 2013.

Operating Results:

You will be pleased to note that during the year under review, the API division exhibited an exemplary performance, establishing new records in revenues, which have grown by an aggregate of 51% over that of the previous year. The revenues from this division recorded Rs. 223 Crores (2011-12 :Rs. 148 Crores). This division continues to roll out good performance, thanks to our entry into niche markets.

The revenues from the finished dosages pharmaceutical formulations division during the year stood at Rs. 398 Crores against Rs. 370 Crores last year, recording a modest 7% growth. However, the exports from this segment recorded a revenue base of Rs. 103 Crores (Rs. 66 Crores during 2011-12), exhibiting a growth of over 56%.

The other business segments also performed well, resulting in an overall growth in revenues of 28%. The following is a summary of the company''s performance during the financial year 2012-2013 :

Rs. in lakhs

Particulars of Revenues* 2012-2013 2011-2012

API Division 22,636 14,798

Finished Dosage Formulations Division 39,836 37,047

Job Work 944 896

Other Income 7,873 3,168

TOTAL 71,290 55,909

*consolidated gross revenues.

The company''s operations for the year resulted in a surplus of Rs.11,232 lakhs (as compared to Rs.8,251 lakhs for the financial year 2011-2012). Your Directors have decided to make the following adjustments from out of the surplus :

Rs. in lakhs Particulars* 2012-2013 2011-2012

Surplus after operational expenditure 11,232 8,251

Provision for taxes 2,195 1,658

Provision for deferred tax 1,223 380

Net surplus carried to Balance Sheet 7,814 6,213

Interim Dividend declared / paid 1,255 934

Tax on distribution of income 204 152

Transfer to General Reserves 800 700

Surplus carried to Balance Sheet 5,555 4,427 *on standalone basis

Dividend:

Your Directors had recommended and paid an interim dividend of Rs. 4.00 per equity share (last year - Rs. 3.00 per equity share) during February, 2013. Your Directors recommend that this may be treated as the final dividend and the recommendation / payment ratified.

Review of 2013 performance:

API Division:

It is quite heartening to note the excellent performance of API division, which is reflected in the 51% growth in its revenues for the year 2012-13, as compared to the revenues during 2011-12. Your Directors are pleased to record that the API division has established an excellent growth of 40% during the year under review. While some amount of this growth is attributable to the volatile exchange rate fluctuations, it is a matter of comfort that the division could register a stellar performance during the year. Domestic sales of APIs remained stagnant at Rs. 32 Crores( Rs. 31 Crores in 2011-12) while exports at Rs. 191 Crores (2011-12 : Rs. 117 Crores) recorded a growth of 63%.

Having recognized the potential that this business segment offers, efforts are being made to further strengthen this segment by focusing on niche markets and new products. In view of the visible potential for this business segment, your management is examining the necessity for undertaking expansion - in terms of new blocks of manufacture and developing new molecules. As a part of this effort, your company continues to file Drug Master Files for different products in various regulatory and semi-regulatory markets. The table given in Annexure A to this report indicates the updated status relating to filing of Drug Master Files.

These filings would enable the company to reach out to international customers who are spread across the globe. While the revenue figures do not include the value of APIs used for captive consumption, the division''s contribution to the revenues of the finished dosage pharmaceutical formulations segment cannot be undermined.

Being a responsible corporate citizen, your company cares for the environment and the API manufacturing facility continues to enjoy the ISO:14001certification for its environmental management efforts. This is in addition to numerous regulatory approvals that the facility enjoys including, principally, those from US FDA and Australian TGA as well.

API Division :Out look for 2013-14 :

While the API division continues to churn out commendable performance, a significant challenge lies in sustaining and improving this performance. It is vital that the company concentrates on large governmental customers in niche markets (such as South American nations) and on new molecules and strive to achieve economies of scale in production of the existing molecules. Your management is exploring various options towards this end.

NATCO Organics Limited, which has gone into production during 2011-12, is gearing up to improve its performance and is expected to achieve cash break-even levels of operations during late 2013-14. Products from this unit are sure to help in reaching a wider range of international customers. For one of the Para IV challenges that the company has filed recently, the raw material is being sourced from NATCO Organics. Establishment of additional blocks of manufacture are being contemplated at this Plant to ensure that the growing demands are adequately met.

Finished Dosage Formulations Division :

The high-light of the division''s performance lies in its record growth - at Rs. 103 Crores of revenues - of over 56% in exports, thanks to the marketing approvals that the company received from US FDA, notably that of Lansoprazole. Between the last week of December, 2012 and 31st March, 2013, the company could garner a revenue base of Rs. 22 Crores from this product. While the market-share from this product was less than expectations, your management is sure that the product would stabilize and achieve a decent market share. The other products for which we had received approvals from the US FDA, and which have since been launched in the US markets have performed well.

The company has also received approvals for marketing of Rizatriptan tablets and shipments of this product have since commenced.

Revenues from the domestic oncology segment, however, remained stagnant at around Rs. 140 Crores, This segment has become severely competitive and some of the domestic players and a couple of multi-nationals as well have effected a down-ward revision in the prices of some of the products.

The generic version of Nexavar, for which your company was the first to receive a compulsory license, recorded a satisfactory level of sales. During the year under review, the Intellectual Property Appellate Bench has up-held the compulsory license granted to the Company for this product, while increasing the royalty payable to the innovator to 7%.

The growing competition, drying up of the product pipe-line and the regulations concerning pricing policy for domestic sales etc. are some factors which are causing a certain amount of anxiety for any possible growth in this segment. In spite of this, your company remains a strong player in the oncology segment, and one of the fastest growing companies in the pharma space..NATCO, itself being a research oriented company, respects intellectual property and rights associated therewith. NATCO has been and would always try to maintain a balance between the IP protection and the need to make available quality drugs at an affordable price. To this end in view, your company strongly believes generic companies - such as NATCO - should be encouraged by the Government by finding a solution within the available legal frame work.

A couple of products being manufactured and sold by the company have been subjected to pricing regulations in view of the Drugs Price Control Order and their prices have been revised downward in line with the Order. The impact of this reduction on the revenues and profitability is insignificant.

As far as the domestic market is concerned, your company assumes a demanding environment and to meet the challenges that are likely to be encountered, your company and management is engaged in a series of activities which would ultimately result in strategic moves. These strategies are expected to effectively counter the challenges that we expect to encompass in the coming years.

Finished Dosage Pharmaceutical Formulations Outlook for 2013-14 :

While due note is taken of the ever demanding challenges, your company expects to maintain a stable growth from this segment. A strong push is expected from an aggressive foray into regulated markets. The Directors would like to assure that despite these issues, the segment to do well and maintain its growth. In this context, your company is aiming to establish a strong base in the regulatory markets. Your company is moving towards a "ready" mode to take full advantage of the emerging opportunities.

The Company is contemplating establishment of a cyto-toxic injectable facility at Kothur.

Formulation Exports : Emerging scenario :

The year 2012-13 saw NATCO''s Lansoprazole (Rx) and Rizatriptan launches in the USA in collaboration with Breckenridge Pharmaceuticals and Actavis. Both the products have recorded a satisfactory level of sales.

The company expects to receive marketing authorizations for several key products / molecules in the coming years. As and when these are received and products launched, they are likely to result in enhanced revenues and profits.

The company has completed all major expansion plans and separate manufacturing blocks for Glatiramer Acetate (API) and Lansoprazole, Oncology Block, Lenalidomide block etc. have been completed.

The company received a favorable verdict from the Court of Appeals, relating to CopaxoneÂ®, which should clear the decks for its launch in May, 2014. The launch of this product is likely to push the company into big league, resulting in a significant increase in sales as well as profits.

Though the company has a number of marketing opportunities in terms of para IV challenges and First-to-File (FTF) status, the inordinate delay in granting approvals and efforts by the innovators to curtail and restrict the value of these opportunities has to be carefully dealt with.

A summary of these opportunities is given below :

Product Armodafinil Glatiramer Lanthanum

Acetate Carbonate

Current Mkt

Size (USD mn) 400 3400 115

Partner Breckinridge Mylan Lupin

FTF / Para IV Para IV Para IV Shared FTF

Lapatinib Lenalidomide Oseltamivir

Ditosylate Phosphate

125 3000 485

Lupin Watson Alvogen

Sole FTF Sole FTF Sole FTF

Sole FTFThe present legal status of each of these opportunities is as under :

Armodafinil :

Pending infringement suit against NATCO and Breckenridge Pharmaceuticals.

GlatiramerAcetate :

Federal Circuit Court had ruled in favor of NATCO / Mylan. Await ANDA approval for possible launch after May 24, 2014.

Lanthanum Carbonate :

ANDA yet to be approved. Presently, no litigation is existing.

LapatinibDitosylate :

Awaiting ANDA approval. Presently, no suit is pending against NATCO.

Lenaliodomide :

Depositions likely to begin during the third quarter of the calendar year 2013.

OseltamivirPhosphate :

Presently, under appeal before the Federal Circuit Court.

The Kothur facility would be dedicated exclusively for products meant for export to the US / European markets and the Company is dis-engaging itself from accepting new or continuing the existing contract manufacturing assignments ex- Kothur plant.

Branded Generics & Institutional Sales :

The company has exited from branded generics segment and is choosy about its participation in institutional tenders. The Institutional sales segment continues to suffer from severe competition. However, with supplies from duty free zones, efforts are being made to be competitive for bagging business from this segment. Dependence on this segment is being brought down, albeit, in a phased manner.

Subsidiaries :

Pending completion of the product registration formalities, the company''s step-down subsidiary in Brazil is engaged in distribution of wipes business, in addition to pharmaceutical formulations of local companies. The market response to these initiatives has been encouraging and we expect to break-even in due course.

As a part of its strategy of establishing itself in new niche markets, the Company has set-up subsidiaries in Canada and Singapore. These are yet to become operational. The company''s efforts to register its products in these countries in continuing.

NATCO Organics Limited, which is engaged in the business of manufacture and sale of cyto-toxic APIs has since become a subsidiary of the Company. The company intends to procure these products from NATCO Organics and convert them into finished dosage pharmaceutical formulations for ultimate sale.

US Pharmacy business:

SaveMart Pharmacy, Lancaster, Pennsylvania, USA, - which was acquired through the company''s wholly owned subsidiary, NATCO Pharma Inc. - had, for the year ended on 31st March, 2013, recorded a net profit, after tax, of Rs. 175 lakhs (against Rs. 79 lakhs previous year) after accounting for interest of Rs. 40 lakhs (previous year Rs. 59 lakhs) payable to the Company on the loans advanced by the parent company. The subsidiary has also repaid Rs.205 lakhs (Rs. 343 lakhs previous year) out of the loan advanced by the Company.

Supply & Distribution Agreements :

In addition to the existing supply and distribution agreements, agreements have been entered into for new products for marketing overseas. Your company has been consistently working towards taking the several supply and distribution agreements that it has executed with its marketing partners to their logical conclusion. These agreements are expected to evolve into revenue streams in the next couple of years.

Manufacturing facilities:

Both the units in Dehradoon in the State of Uttarkhand are fully functional. Together, products worth Rs. 141 Crores have been sold from these plants.

The construction of the new finished dosage pharmaceutical formulations facility at Guwahati in the State of Assam is fast nearing completion and the unit is expected to go into production soon. This location is eligible for income-tax and excise duty benefits and establishment of this plant would enable the company to continue to claim the tax benefits.

All the expansion plans at Kothur plant have since been completed and are in various stages of validation / trial runs. Modernization of the existing facilities at Nagarjuna Sagar is being planned.

Abbreviated New Drug Applications (ANDAs) :

Annexure B to this report details the latest status on the abbreviated new drug applications filed by your Company. The Company continues to commercially exploit the approvals that it has already received and has been receiving royalties from its constituents as per the agreements in force.

Research Efforts and Intellectual Property

Annexure C to this report details the latest status on the various patent applications filed by the Company.

The company''s R & D centre (NATCO Research Centre - NRC) continues to work on several compounds simultaneously, and is engaged in the development of molecules, processes, products and scaling-up.

Phase II clinical trials for the company''s new chemical entity have since commenced. Evaluation of other molecules for possible development is continuing. These include molecules for disease management and control, various analogues useful in the field of anti-cancer, anti-depressant and anti-ulcer therapies, and new drug delivery systems.

Contract Manufacturing:

The revenues from contract manufacturing activity continue to be stable and the company maintains and continues to serve its clients in this category to their complete satisfaction.

Corporate Social Responsibilities (CSR):

The company is proud to be associated with NATCO Trust, which continues to actively pursue its social welfare activities. The Trust has expanded its activities to cover new geographical locations, situated near the company''s manufacturing locations. Details on the activities of the Trust are available elsewhere in this Report.

The Company''s in-house quarterly magazine "Spandana" continues to receive applauds.

Financial Matters :

The Company has no derivative contracts outstanding as at 31st March, 2013.

Employees Stock Option Scheme :

In accordance with the provisions of NATSOP 2010 (NATCO Employees Stock Option Plan, 2010), the company had vested 225,122 options which have since been exercised and an equivalent number of shares (225,122) have been allotted to 1533 employees during the year. Appropriate amounts on account of these grants have been charged to the Profit & Loss account of the company for the year ended on 31st March, 2013.

There has not been any variation in the terms of options and no options are in force as at 31st March, 2013. A total of 33,900 options have been vested to and exercised by senior management personnel. The company has not used the intrinsic value of the stock options for calculating the employee compensation cost.

Directors :

Mr. Rajeev Nannapaneni, Dr. P. Bhaskara Narayana and Dr. A.K.S. Bhujanga Rao would be retiring at the ensuing Annual General Meeting and are eligible for re-appointment.

Dr. JastiSambasiva Rao had resigned from the Board on 7th May, 2013 owing to his pre-occupation. Your Directors place on record their sincere appreciation of the services rendered by Dr. Jasti S. Rao during his tenure as a Director on the Board of the Company.

Directors'' Responsibility Statement :

In compliance with the provisions of Section 217(2A) of the Companies Act, 1956, the Directors confirm that :

a) in the preparation of annual accounts, the applicable accounting standards have been followed;

b) the Directors have selected such accounting policies as mentioned in Schedule 18 of the Annual Accounts 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 and loss of the Company for that year;

c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the aforesaid Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

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

In respect of the qualification made by the statutory auditors in their reports dated 30th May, 2013 and 6th June, 2013, relating to non-availment of credit of Minimum Alternate Tax, the same would be examined after the outcome of the pending assessments are known.

Statutory Auditors :

M/s. Walker, Chandiok& Co., Chartered Accountants, Hyderabad, the statutory auditors of the Company hold office till the conclusion of the ensuing Annual General Meeting, and are eligible for re-appointment. The Board recommends their reappointment.

Internal Auditors :

M/s. Seshachalam& Co., Chartered Accountants, Hyderabad, who have been appointed by your Board to carry-out internal audit of the Company last year will be continuing as internal auditors for this year as well.

Cost Audit :

The Government of India had prescribed maintenance of cost accounting records and ordered cost audit under the provisions of Section 233B of the Companies Act, 1956 in respect of your Company''s operations. Your Company is following the prescribed guidelines in maintaining the requisite records.

Particulars of Employees :

The information required under Section 217(2A) of the Companies Act, 1956 and the Rules there under in respect of the employees who were in receipt of remuneration in accordance with the specified limits is attached to forms part of this report.

Particulars regarding Energy conservation, etc.

Information on conservation of energy, technology absorption, foreign exchange earnings and outgo as required to be disclosed under the provisions of Section 217(1)(e) of the Companies Act, 1956 is enclosed and forms part of this report.

Listing Information :

The securities of the Company are listed with and are traded in, dematerialized form on the Bombay Stock Exchange and the National Stock Exchange. The annual listing fees were paid to each of these exchanges for the year 2012-2013. Facilities for dematerialization have become fully operational. The ISIN No. of the Company is INE987B01018.

Fixed Deposits :

There are no outstanding and overdue deposits as at 31st March, 2013. The Company had not accepted any deposits during the year.

Acknowledgements :

Your Directors place on record their deep sense of gratitude for the support, cooperation and guidance received by the Company from various departments / agencies of the Central and State Governments, the consortium of banks led by Allahabad Bank as also to Axis Bank Limited, Export-Import Bank of India, Yes Bank Limited, and ICICI Bank Limited. The Directors also thank the shareholders, officers and staff of the Company for their excellent cooperation and dedicated work. for and on behalf of the Board

NATCO Pharma Limited

V.C. Nannapaneni

Chairman & Managing Director

Hyderabad, 14th August, 2013

Mar 31, 2012

The Directors are pleased to present the 29th Annual Report together with the audited accounts of the Company for the year ended on 31st March, 2012.

Operating Results:

You will be pleased to note that during the year under review, the API division exhibited a record growth in revenues, aggregating to forty percent as compared to 2011. The revenues from this division recorded an all-time high of Rs.148 Crores from Rs.106 Crores (2010-11). While a part of this absolute increase is attributable to the depreciation in the value of Indian Rupee vis-ÃÂ -vis the US Dollar, it cannot be denied that the division has turned out one of its best performances.

In competition with the API division, the oncology segment of the finished dosage formulation division has also recorded an impressive performance. The revenues from this division grew by 22%, from around Rs.121 Crores in 2011 to Rs.148 Crores in 2012. The exports of finished dosage pharmaceutical formulations also exhibited a robust growth of 30%, recording a revenue base of Rs.66Crores (2011-12) as against Rs.51 Crores (2010-11). The other business segments also performed well, resulting in an overall growth in revenues of 15%.

The following is a summary of the company's performance during the financial year 2011-2012:

Rs. in lakhs

Particulars of Revenues* 2011-2012 2010-2011

API Division 14,798 10,631

Finished Dosage Formulations Division 37,047 34,312

Job Work 896 1,098

Other Income 3,168 2,401

TOTAL 55,909 48,442

*consolidated revenues.

The company's operations for the year resulted in a surplus of Rs.8,251 lakhs (as compared to Rs.6,673lakhs for the financial year 2010-2011). Your Directors have decided to make the following adjustments from out of the surplus :

Rs. in lakhs

Particulars 2011-2012 2010-2011

Surplus after operational expenditure 8,251 6,673

Provision for taxes 1,658 1,496

Provision for deferred tax 380 -174

Net surplus carried to Balance Sheet 6,213 5,351

Interim Dividend declared / paid 934 563

Tax on distribution of income 152 94

Transfer to General Reserves 700 400

Surplus carried to Balance Sheet 4,427 4,294

Dividend:

Your Directors had recommended and paid an interim dividend of Rs.3.00 per equity share (last year - Rs.2.00 per equity share) during February, 2012. Your Directors recommend that this may be treated as the final dividend and the recommendation / payment ratified.

Review of 2012 performance:

API Division:

Your Directors are pleased to record that the API division has established an excellent growth of 40% during the year under review. While some amount of this growth is attributable to the volatile exchange rate fluctuations, it is a matter of comfort that the division could register a stellar performance during the year. Domestic salesgrew by 35% (from Rs.23 Crores in 2011 to Rs.31 Crores in 2012) while exports recorded a growth of 41% - from Rs.83 Crores in 2011 to Rs.117 Crores in 2012.

Your management views this segment as one of the growth drivers and therefore, continues to examine the feasibility of further strengthening the segment in terms of new products and identification of new markets and customers.

As a part of the capital expansion plans that were taken up during the last couple of years, construction of dedicated manufacturing blocks for Glatiramer Acetate have since been completed and are presently undergoing validation exercises.

Emphasis is laid on manufacture of high value niche and specialty APIs which would boost the revenues from this segment. To this end, several Drug Master Files are being filed in various countries which would enable the customers world-wide to access and procure quality products manufactured in this segment. Through captive consumption, the API division also contributes to the revenues of the finished dosage pharmaceutical formulations segment as well. This integration has resulted in a significant value addition to the business as a whole.

The manufacturing facilities of the Division continue to enjoy several regulatory approvals including those from US FDA, Australian TGA as well as ISO:14001certification for its environmental management efforts. Your management has always regarded the environment with utmost respect and each and every action is planned to ensure nil or least damage to the environment.

The Company continues to record satisfactory progress in the matter of regulatory filings. The table given in Annexure A to this report indicates the updated status relating to filing of Drug Master Files.

Establishment of both the dedicated manufacturing blocks planned for Mylan Inc., are since complete and are undergoing validation exercises. These blocks would be put to use in due course of time.

Finished Dosage Formulations Division :

Over-coming the flattish growth that this division recorded in 2011, the division exhibited an over-all growth of 22%. Among the several sub-segments, oncology segment grew by 22% (revenues of Rs.148 Crores during 2012 as against Rs.121 Crores during 2011), the non-oncology segment grew by 15% (revenues of Rs.24 Crores during 2012 as against Rs.21 Crores during 2011), and exports grew by 29% (revenues of Rs.66 Crores during 2012 as against Rs. 51 Crores during 2011), and third party sales grew by 41% - from a revenue base of Rs.17 Crores during 2011 to Rs.24 Crores during 2012. The aggregate revenues from this Division recorded Rs.283 Crores (as against Rs.232 Crores last year) - recording an increase of about 22%. These figures, however, do not include the revenues from the US retail business.

While your company has established itself as a strong player in the oncology segment, and as one of the fastest growing companies in the pharma space, the growing competition, drying up of the product pipe-line and impending regulations relating to price control etc. are some factors which are causing a certain amount of anxiety. As a research based company, NATCO respects intellectual property and rights associated therewith. Your company also strives to make available the latest generation medicines at an affordable price to the suffering masses. While generic companies - such as NATCO - can manufacture and sell equally effective and efficient drugs as compared to those of the innovator - albeit, at a fraction of the price of the innovator's drug - the patent protection afforded by the Indian laws does not permit launch of such drugs.

In respect of a molecule used in the treatment of kidney and liver cancers, your company had approached the innovator for a voluntary license to market its product in India. On its denial by the innovator, your company has invoked the relevant provisions of the Indian Patents Act and sought a compulsory license. The Director General of Patents and Trade Marks had heard the case and had granted your company a compulsory license to market the product in India. As a result, your company is able to market this drugat a price which is 97% cheaper than the innovator's price. Incidentally, your company became the first company in India to have been granted the compulsory license.

The pipeline of new drugs in the oncology segment is very thin. In addition, competition in this arena has been intense and severe. Of-late, competitors and some of the multi-national companies as well have began to look at price-cuts as a means of shoring up their market size.

The much awaited Drug Pricing Policy is expected to be announced and this may impose price restrictions on some of our products.

The forthcoming year 2012-13, viewed in the context of these factors, looks to be extremely demanding and tough. The grant of compulsory license does make available hitherto unexplored markets, but competition is catching up on this front as well.

Despite these issues, we expect the segment to do well and maintain its growth. In this context, your company is aiming to establish a strong base in the regulatory markets. To this end, the company needs to work closely with its marketing partners and ensure that the fruits of labor are properly received. This would, inter-alia, mean, readiness with manufacturing facilities, production capabilities, quality parameters and logistics. Simultaneously, your company also aims to sustain its leadership position in Oncology segment in the country. The Company needs to examine the possibility of fully exploiting the compulsory licensing mechanism and consider additional launches in the Oncology segment and other therapeutic segments to augment its revenues and profitability.

During the year under review, the Company launched Sorafenat 200 mg tablets, Desifer 100 and 400 mg tablets, Rasagin 0.5 and 1 mg. tablets and Dorinosa 500 mg. injection in lyophilized form.

Branded Generics & Institutional Sales :

Billing for the supplies (covering both manufacturing and billing) of branded generics and generics continue to be made from the duty free zones on contract manufacturing basis. It is the intention of the company to gradually exit from this not-so-lucrative business.

The company is looking towards establishing itself in new niche markets such as Brazil, Venezuela etc. The company has established a small distribution business in Brazil (through a step-down subsidiary called NATCO Farma Do Brasil) with an intention to effect product registrations and sell company's products in the region. While the registration of its products is being followed up, as an interim measure, the subsidiary has taken up the distribution of medicated wet wipes in Brazil. These products have been launched in April, 2012.

The Institutional sales segment continues to suffer from severe competition. However, with supplies from duty free zones, efforts are being made to be competitive for bagging business from this segment. Dependence on this segment is being brought down, albeit, in a phased manner.

Supply & Distribution Agreements :

Your company has been consistently working towards taking the several supply and distribution agreements that it has executed with its marketing partners to their logical conclusion. These agreements are expected to evolve into revenue streams in the next couple of years. Your company has completed the capital expansion required to meet the supplies arising out of these agreements.

Your company is also exploring the possibility of similar marketing ventures for other products as well.

Manufacturing facilities

Both the units in Dehradoon in the State of Uttarkhand are fully functional. Together, products worth Rs.120Crores have been sold from these plants.

The company has started exporting from its Dehradoon plant as well. During the year ended on 31st March, 2012, exports from both the Dehradoon plants would be around Rs.63 lakhs.

With the tax benefits available to these units being tapered off, the company proposes to establish a new manufacturing facility for the finished dosage pharmaceutical formulations at Gauhati in the State of Assam. This location is eligible for income-tax and excise duty benefits and establishment of this plant would enable the company to continue to claim the tax benefits. This plant is likely to be completed before end March, 2013.

All the expansion plans at Kothur plant have since been completed and are in various stages of validation / trial runs. Modernization of the existing facilities at NagarjunaSagar is being planned.

Issue of securities :

To part finance the capital investments that were being made at various manufacturing facilities, the Company has placed 30 lakh equity shares with qualified institutions. The shares have been placed at Rs.225/- each (including the face value of Rs.10/- per share). These shares have since been listed on the Stock Exchanges.

US Pharmacy business:

Save Mart Pharmacy, Lancaster, Pennsylvania, USA, - which was acquired through the company's wholly owned subsidiary, NATCO Pharma Inc. - had, for the year ended on 31st March, 2012, recorded a net profit, after tax, of Rs.79 lakhs (against Rs.176 lakhs previous year) after accounting for interest of Rs.59 lakhs (previous year Rs.80lakhs) payable to the Company on the loans advanced by the parent company. The subsidiary has also repaid Rs.343 lakhs (Rs.505 lakhs previous year) out of the loan advanced by the Company.

Abbreviated New Drug Applications (ANDAs) :

Annexure B to this report details the latest status on the abbreviated new drug applications filed by your Company.

In addition to the existing First-to-file opportunities, the Company filed an ANDA and obtained first to file status for the Lapatinib Ditosylate (Brand Name :TykerbÃÂ®) which could result in a 180-day exclusive marketing rights. As on date, the Company has five Para IV challenges, out of which, four have been accorded the first-to-file status. The company has entered into a tie-up with Lupin Limited for this molecule

The Company continues to sell Granisetron, Anastrazole and Ondansetron tablets in USA and Canada and has been receiving royalties from its constituents as per the agreements in force.

Research Efforts and Intellectual Property

Annexure C to this report details the latest status on the various patent applications filed by the Company.

The company's R & D centre (NATCO Research Centre - NRC) continues to work on several compounds simultaneously, and is engaged in the development of molecules, processes, products and scaling-up.

Having received all necessary approvals, Phase II clinical trials are about to begin for your company's new molecule - NRC 19. Another compound - NRC 2694 - is being evaluated for commissioning of Phase I clinical trials.

Work on evaluation of - (a) several compounds for their efficacy in disease management and control, (b) various analogues useful in the field of anti-cancer, anti-depressant and anti-ulcer therapies, and (c) new drug delivery systems - are continuously evaluated for taking up for further development.

Contract Manufacturing:

The revenues from contract manufacturing activity continue to be stable and the company maintains and continues to serve its clients in this category to their complete satisfaction.

Corporate Social Responsibilities (CSR):

The company is proud to be associated with NATCO Trust, which continues to actively pursue its social welfare activities. The Trust has expanded its activities to cover new geographical locations, situated near the company's manufacturing locations. Details on the activities of the Trust are available elsewhere in this Report.

The Company's in-house quarterly magazine "Spandana" continues to receive applauds.

Financial Matters :

The Company has no derivative contracts outstanding as at 31st March, 2012.

Employees Stock Option Scheme :

During the year, the company had framed NATSOP 2010 (NATCO Employees Stock Option Plan, 2010). The company had granted 236,551 options to certain employees (@ ' 10/- per each option, which, when vested and exercised, would result in allotment of one equity share per option) under the said Scheme during August, 2011. Pending completion of formalities relating to grant, no charge has been considered in the Profit & Loss Account for the year ended on 31st March, 2012.

NATCO Organics Limited :

NATCO Organics Limited has commenced production of cyto-toxic APIs at its manufacturing facility near Chennai. Under an arrangement, the company would procure these APIs from NATCO Organics Limited and would convert them into finished dosage pharmaceutical formulations for sale in the open markets.

In line with its commitment to this project, the company has opted to convert the advances made by it to NATCO Organics into equity shares of NATCO Organics Limited.

Directors :

Mr. G.S. Murthy, Dr. B.S. Bajaj and Dr. Jasti S. Rao would be retiring at the ensuing Annual General Meeting and are eligible for re-appointment.

During May, 2012, the Export Import Bank of India had nominated Mr. T.V. Rao as a Director on the Board of the Comnpany in place of Mr. C. P. Ravindranath. Your Directors place on record their sincere appreciation of the services rendered by Mr. C.P. Ravindranath during his tenure as a Director on the Board of the Company.

Mr. Nitin Jagannath Deshmukh has joined the Board as an additional Director effective 9th February, 2012. Mr. Deshmukh, who is the Chief Executive Officer - Private Equity of Kotak Investment Advisors Limited brings with him an enormous amount of experience relating to life sciences industry and your Directors opine that his addition to the Board would help the Company reach newer heights of performance.

A Notice has been received from a Member, along with requisite fee, proposing the name Mr. Nitin Jagannath Deshmukh for appointment as Director of the Company.

Directors' Responsibility Statement :

In compliance with the provisions of Section 217(2A) of the Companies Act, 1956, the Directors confirm that :

a) in the preparation of annual accounts, the applicable accounting standards have been followed;

b) the Directors have selected such accounting policies as mentioned in Schedule 18 of the Annual Accounts 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 and loss of the Company for that year;

c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the aforesaid Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

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

Item # 2 of Notes to the Accounts would adequately clarify the observations made by the Statutory Auditors in their report dated 28th May, 2012, pertaining to non-recognition of MAT credit available.

Statutory Auditors :

M/s. Walker, Chandiok&Co., Chartered Accountants, Hyderabad, the statutory auditors of the Company hold office till the conclusion of the ensuing Annual General Meeting, and are eligible for re-appointment. The Board recommends their reappointment.

Internal Auditors :

M/s. Seshachalam&Co., Chartered Accountants, Hyderabad, who have been appointed by your Board to carry-out internal audit of the Company last year will be continuing as internal auditors for this year as well.

Cost Audit :

The Government of India had prescribed maintenance of cost accounting records and ordered cost audit under the provisions of Section 233B of the Companies Act, 1956. in respect of your Company's operations. Your Company is following the prescribed guidelines in maintaining the requisite records.

Particulars of Employees :

The information required under Section 217(2A) of the Companies Act, 1956 and the Rules there under in respect of the employees who were in receipt of remuneration in accordance with the specified limits is attached to forms part of this report.

Particulars regarding Energy conservation, etc.

Information on conservation of energy, technology absorption, foreign exchange earnings and outgo as required to be disclosed under the provisions of Section 217(1)(e) of the Companies Act, 1956 is enclosed and forms part of this report.

Listing Information :

The securities of the Company are listed with and are traded in, dematerialized form on the Bombay Stock Exchange and the National Stock Exchange. The annual listing fees were paid to each of these exchanges for the year 2011-2012. Facilities for dematerialization have become fully operational. The ISIN No. of the Company is INE987B01018.

Fixed Deposits :

There are no outstanding and overdue deposits as at 31st March, 2012. The Company had not accepted any deposits during the year.

Acknowledgements :

Your Directors place on record their deep sense of gratitude for the support, cooperation and guidance received by the Company from various departments / agencies of the Central and State Governments, the consortium of banks led by Allahabad Bank as also toExport-Import Bank of India, Yes Bank Limited, and Axis Bank Limited. The Directors also thank the shareholders, officers and staff of the Company for their excellent cooperation and dedicated work.

for and on behalf of the Board N

ATCO Pharma Limited

V.C. Nannapaneni

Chairman & Managing Director

Hyderabad,

28th May, 2012

Mar 31, 2011

To the Members

The Directors have pleasure in presenting the 28th Annual Report together with the audited accounts of the Company for the year ended on 31st March, 2011.

Operating Results:

During the year under review, the API division performed well, recording a growth of 19%. The revenues from this division jumped from Rs.89 Crores (2009-10) to Rs.106 Crores (2010-11). The exports of finished dosage pharmaceutical formulations also exhibited a robust growth of 113%, recording a revenue base of Rs.51 Crores (2010-11) as against Rs.24 Crores (2009-10). The domestic oncology (finished dosage pharmaceutical formulations) business, however, remained stable, owing to lack of new launches and severe competition, which saw price erosions in respect of a couple of brands.

The following is a summary of the company's performance during the financial year 2010-2011 :

In Rs. Lakhs

Particulars of Revenues* 2010-2011 2009-2010

API Division 10,631 8,894

Finished Dosage Formulations Division 34,312 35,134

Job Work 1,098 1,032

Other Income 2,401 2,703

TOTAL 48,442 47,763

*consolidated revenues.

The company's operations for the year resulted in a surplus of Rs.6673 lakhs (as compared to Rs.6,238lakhs for the financial year 2009-2010). Your Directors have decided to make the following adjustments from out of the surplus :

In Rs. Lakhs

Particulars 2010-2011 2009-2010

Surplus after operational expenditure 6,673 6,238

Provision for taxes 1,496 1,092

Provision for deferred tax -174 274

Net surplus carried to Balance Sheet 5,351 4,872

Interim Dividend declared / paid 563 563

Tax on distribution of income 94 96

Transfer to General Reserves 400 400

Surplus carried to Balance Sheet 4,294 3,813

Dividend:

Your Directors had recommended and paid an interim dividend of Rs.2.00 per equity share (previous year - Rs.2.00 per equity share) during February, 2011. Your Directors recommend that this may be treated as the final dividend and the recommendation / payment ratified.

Review of 2011 performance:

API Division:

A robust growth of 19% was exhibited by the API business during the year under review in spite of continued pressure on realizations as well margins, together with some amount of volatility in the exchange rate of US $ vis-ÃÂ -vis Indian Rupee, which continued during a part of the year 2011. Domestic sales as well as exports from this segment recorded growth - domestic sales at Rs.23 Crores (as against Rs.13 Crores last year) and API exports at Rs.83 Crores (as against Rs.75 Crores last year). This segment could record a revenue base of Rs.106 Crores (as against Rs.89 Croreslast year).The depreciation in the value of the Indian Rupee against the US Dollar and other foreign currencies has been helpful in sustaining this division's performance.

Efforts would be made to enhance the efficiency, productivity and profitability of this segment during the fiscal 2011-12 as well.

Despite its foray into new products, the Revenues and margins on products from this division continue to experience pressure. The new cyto-toxic API facility being established by the Company's associate - NATCO Organics Limited - has commenced operations and is likely to throw up new avenues of growth, coupled with new products and new markets for this division.

However, your Directors are optimistic about the performance of this Division, with the expected Marketing Authorization approvals from US FDA which would result in large volume supplies to the company's marketing partners. The first mile-stone in this direction - the establishment of dedicated blocks for the manufacture of Glatiramer Acetate is expected to result in increased revenues from this segment and consequently, the performance is likely to record significant growth during the year 2012-13 onwards.

The business strategy for this segment continues to focus on concentrating on high value, low value specialty drugs. The API segment forms the life-line for the company's finished dosage pharmaceutical formulations business as well - as it supplies the raw material for almost all oncology drugs that the company manufactures and markets. This results in substantial cost savings and value addition.

The manufacturing facilities of the Division continue to enjoy US FDA, Australian TGA and ISO:14001 certification. Efforts continue to develop niche products and capture niche markets.

The Company continues to record satisfactory progress in the matter of regulatory filings. The table given in Annexure A to this report indicates the updated status relating to filing of Drug Master Files.

Capital Investments & Projects:

Mylan Inc., with whom the Company has a tie-up for the manufacture and supply of Glatiramer Acetate had asked the Company to set-up exclusive dedicated facilities for the product. Accordingly, the Company has initiated the establishment of a multi-production block for Mylan. The cost of this facility is estimated to be around Rs.9030 lakhs. While the validations and approvals for this block are expected to take some time, Mylan has asked the Company to make available an existing block for the manufacture of this product, with certain modifications. These modifications are expected to cost around Rs.2825 lakhs. Mylan has agreed to extend financial assistance to part-fund these projects. Work on these two blocks is progressing at a rapid pace, so as to be ready by the calendar year end 2011.

Finished Dosage Formulations Division :

The revenues from this division could not sustain the continued growth rates that it exhibited during the last several years. The aggregate revenues from this Division recorded Rs.232 Crores (as against Rs.202 Crores last year) - recording an increase of about 15%. These figures, however, do not include the revenues from the US retail business, which had dwindled owing to their sale during the year under review. The revenues from the oncology segment remained more or less flat, while the formulations exports have recorded a significant growth of around 113% from Rs.24 Crores during 2009-10 to Rs.51 Crores during the year under review.

The oncology segment had to face severe competition in the market place which was one of the reasons for the flat performance of this segment. Added to this, the company could not launch any new products in the segment

during the current year. As is always, the company makes a careful evaluation before launching a brand as to its utility and market opportunity

During the year under review, the Company launched anti-biotics - Zubact Injection and PT-Max Injection.

Supply & Distribution Agreements :

The company aims to target the US markets, whilst several of its applications for Marketing Authorizations are expected to be approved in the next couple of years. The company's applications have always been aimed at products with significant market size.

The company has filed Abbreviated New Drug Applications - five of which seek to challenge the existing patents. All these products have significant market size and have exhibited good growth during the last couple of years. Out of these five, your Company has obtained the First-to-File status for four products - which would result in a 180-days market exclusivity after the patent expiry, if the said ANDAs are approved. Briefly, these products are :

Molecule / Product Market Size (US $) Status Therapeutic Area

Glatiramer Acetate 2.5 Billion Second-to-file Multiple Sclerosis

Lenalidomide 2.0 Billion First-to-file Multiple Myeloma

Lanthanum Carbonate 100 Million First-to-file Kidney disease

Oseltamavir Phosphate 241 Million First-to-file Swine Flu

Lapatinib Ditosylate 115 Million First-to-file Breast cancer

The supply and distribution agreements entered into with Mylan Inc., Dr. Reddys' Laboratories Limited, Actavis, Breckinridge Pharmaceuticals, Watson Pharmaceuticals and Lupin Limited present substantial and significant market opportunities for the Company. This is the best way the company can explore and encash its technical abilities while using the vast marketing net work available to the partners. What is more important is that the company is insulated from any kind of litigation, mitigating the legal risks.

Realizing this is the best form suitable for un-locking the hidden value, the company is pursuing more of such opportunities. The existing arrangements are being pursued to their logical conclusion. However, benefits in terms of revenue growth or earnings could be expected only after fiscal 2012.

Up-gradation of Kothur Facility :

A new manufacturing block for liquids and pellets is being planned at Kothur. The cyto-toxic orals manufacturing facility has been commissioned.

During the year, the company's application for Abbreviated New Drug Applications (ANDA) in respect of Trihexyphenidyl Hcl 2 mg / 4 mg tablets, Chloroquine Phosphate 250/500 mg. tablets and Letrozole 2.5 mg. tablets have been approved by the US FDA authorities.

The company has launched some of these products in the USA through its marketing partners.

The applications for Marketing Authorizations which have been applied for would warrant significant amount of capital expenditure and creation of capacity. In view of this sizeable expansions are planned at various facilities as under :

In Rs. Lakhs

Particulars Estimated Cost

Lansoprazole Cap Block - Kothur 2003

New Tablet Section - Unit IV - Kothur 434

Sixty Kg. Oncology Block - Kothur 1311

Injectables Section - Kothur 250

Lenalidomide Section - Kothur 80

Powder Injection Section - Sagar 558

TOTAL 4636

Proposed issue of securities :

To part finance the capital investments required at the various manufacturing facilities, the Company is contemplating issue of securities not exceeding 30 lakh equity shares aggregating in value, up to INR 100 Crores. The Members of the company had, at an Extra-ordinary General Meeting held on 15th December, 2010, approved the issue. The company is exploring various options available for raising these resources.

US Pharmacy business:

On 6th December, 2010, K & C Pharmacy, a general partnership firm registered in the USA (in which the company is a major partner) had sold the assets and business of Nicks Drugs. With the several budgetary cuts imposed by the New Jersey Government in respect of Medicaid reimbursements, the business no longer remained profitable and hence was sold. The loss incurred on the sale of this business has duly been accounted in the books of accounts for the year ended on 31st March, 2011.

SaveMart Pharmacy, Lancaster, Pennsylvania, USA, which was acquired through the company's wholly owned subsidiary, NATCO Pharma Inc., USA also continues to do well and for the year ended on 31st March, 2011, the subsidiary has recorded a net profit, after tax, of Rs.176 lakhs(against Rs.111 lakhs previous year) after accounting for interest of Rs.80 lakhs (previous year Rs.129 lakhs) payable to the Company on the loans advanced by the parent company. The subsidiary has also repaid Rs.505 lakhs (Rs.496 lakhs previous year) out of the loan advanced by the Company.

Branded Generics & Institutional Sales :

In spite of lower margins and severe competition, business from these segments is quite satisfactory. The company has made in-roads into new markets in Sri Lanka, Myanmar, Nepal and Bangladesh. The Company has made an offer to the Government of India to set up generic medicine outlets in select government-run hospitals under the Jan Aushadi scheme.

Efforts are being made to introduce branded generics in new therapeutic areas.

Manufacturing facilities:

Finished dosage orals are being manufactured at both the manufacturing facilities situated at Dehradoon and these units continue to be eligible for income-tax and excise duty concessions. However, on and from the accounting year 2011-12, the first unit at Dehradoon would be eligible for a reduced income-tax benefit of 30%, while the profit from the second unit would be completely exempt from the income-tax.

Sales from the manufacturing facilities at Dehradoon, Uttarakhand, for the year ended on 31st March, 2011 amounted to Rs.10,093 lakhs as against Rs.11,621 lakhs last year.

Abbreviated New Drug Applications (ANDAs) :

Annexure B to this report details the latest status on the Abbreviated New Drug Applications filed by your Company.

The Company continues to sell Granisetron, Anastrazole and Ondansetron tablets in USA and Canada and has been receiving royalties from its constituents as per the agreements in force.

Research Efforts and Intellectual Property

Annexure C to this report details the latest status on the various patent applications filed by the Company.

The division continuously evaluates several compounds for their efficacy in disease management and control. Multiple teams would be working on several compounds simultaneously. These teams are typically engaged in the development of molecules, processes and products.

In respect of one molecule - NRC 19 - Phase I clinical trials are in their final stage and Phase II clinical trials are expected to commence shortly. Another compound - NRC 2694 - is being evaluated for commissioning of Phase I clinical trials.

Other molecules are continuously being evaluated for their efficacy. Various analogues useful in the field of anti-cancer, anti-depressant and anti-ulcer therapies, and new drug delivery systems are continuously evaluated for taking up for further development.

The revenues from contract manufacturing activity continue to be stable around Rs.1100 lakhs. The company has an impressive list of clients in this category.

Corporate Social Responsibilities (CSR):

The Company is proud to be associated with NATCO Trust, which continues to actively pursue its social welfare activities. The Trust has expanded its activities to cover new geographical locations, situated near the company's manufacturing locations.

The Company's in-house quarterly magazine "Spandana" continues to receive appreciation from all quarters - both from within and outside the Company.

Financial Matters :

The Company has no derivative contracts outstanding as at 31st March, 2011.

Employees Stock Option Scheme :

No further options have been exercised as at 31st March, 2011 and no fresh options have been granted during the year under review.

NATCO Organics Limited :

NATCO Organics Limited has commenced the trial runs of its cyto-toxic API manufacturing facility near Chennai. Under an arrangement with NATCO Organics Limited, the company would procure these APIs from NATCO Organics Limited and would convert them into finished dosage pharmaceutical formulations for sale in the open markets.

In line with its commitment to this project, the company has opted to convert the advances made by it to NATCO Organics into equity shares of NATCO Organics Limited.

NATCO Farma Do Brasil, Brazil:

The Company had acquired, during the year under review, a small distributing business - called Uniao Distributors, later renamed as NATCO Farma Do Brasil - in Brazil. The acquisition was undertaken by Time Cap Overseas Limited (TCOL), an entity registered in the Republic of Mauritius. While the Company owns 75% of TCOL, 25% is owned by Levomed Inc., USA. TCOL owns 90% of the outstanding quotas of NATCO Farma Do Brasil, while the rest 10% is owned by Mr. Lincoln Gomes, a Brazilian national. Thus, NATCO Farma Do Brasil is a step- down subsidiary of the Company. The company aims to register its products in Brazil and distribute them through this enterprise.

The step-down subsidiary is yet to commence full-scale operations.

Directors :

Mr. Rajeev Nannapaneni, Dr. P. Bhaskara Narayana and Dr. A.K.S. Bhujanga Rao would be retiring at the ensuing Annual General Meeting and are eligible for re-appointment.

Directors' Responsibility Statement :

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

a) in the preparation of annual accounts, the applicable accounting standards have been followed;

b) the Directors have selected such accounting policies as mentioned in Schedule 18 of the Annual Accounts 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 and loss of the Company for that year;

c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the aforesaid Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

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

Item # 4 of Notes to the Accounts would adequately clarify the observations made by the Statutory Auditors in their report dated 30th May, 2011, pertaining to non-recognition of MAT credit available.

Statutory Auditors :

M/s. Walker, Chandiok & Co., Chartered Accountants, Hyderabad, the statutory auditors of the Company hold office till the conclusion of the ensuing Annual General Meeting, and are eligible for re-appointment. The Board recommends their reappointment.

Internal Auditors :

M/s. Seshachalam & Co., Chartered Accountants, Hyderabad, who have been appointed by your Board to carry-out internal audit of the Company last year will be continuing as internal auditors for this year as well.

Cost Audit :

The Government of India had prescribed maintenance of cost accounting records and ordered cost audit under the provisions of Section 233B of the Companies Act, 1956 in respect of your Company's operations. Your Company is following the prescribed guidelines in maintaining the requisite records.

Particulars of Employees :

The information required under Section 217(2A) of the Companies Act, 1956 and the Rules there under in respect of the employees who were in receipt of remuneration in accordance with the specified limits is attached to and forms part of this report.

Particulars regarding Energy conservation, etc.

Information on conservation of energy, technology absorption, foreign exchange earnings and outgo as required to be disclosed under the provisions of Section 217(1)(e) of the Companies Act, 1956 is enclosed and forms part of this report.

Listing Information :

The securities of the Company are listed with and are traded in, dematerialized form on the Bombay Stock Exchange and the National Stock Exchange. The annual listing fees were paid to each of these exchanges for the year 2010-2011. Facilities for dematerialization have become fully operational. The ISIN No. of the Company is INE987B01018.

Fixed Deposits :

There are no outstanding and overdue deposits as at 31st March, 2011. The Company had not accepted any deposits during the year.

Acknowledgements :

Your Directors place on record their deep sense of gratitude for the support, cooperation and guidance received by the Company from various departments / agencies of the Central and State Governments, the consortium of banks led by Allahabad Bank as also to Export-Import Bank of India, Yes Bank Limited, and Axis Bank Limited. The Directors also thank the shareholders, officers and staff of the Company for their excellent cooperation and dedicated work.

for and on behalf of the Board

NATCO Pharma Limited

Hyderabad, V.C. Nannapaneni

12-08-2011 Chairman & Managing Director

Mar 31, 2010

The Directors have pleasure in presenting the 27th Annual Report together with the audited accounts of the Company for the year ended on 31st March, 2010.

Operating Results:

The domestic oncology (finished dosage pharmaceutical formulations) business has exhibited robust growth during the year under review. Buoyed by this growth, the company has been able to achieve a growth in revenues as well as profits. The other business segments (other than the active pharmaceutical ingredients - API - segment) had also contributed to the growth. The API segment had exhibited a de-growth of around five percent, as compared to fiscal 2009, essentially owing to reduced sales in the domestic market.

The following is a summary of the companys performance during the financial year 2009-2010 :

Rs. in lakhs

Particulars of Revenues* 2009-2010 2008-2009

API Division 8,894 9,362

Finished Dosage Formulations

Division 35,134 34,380

Job Work 1,032 1,041

Other Income 2,703 1,635

TOTAL 47,763 46,418

* consolidated revenues.

The companys operations for the year resulted in a surplus of Rs. 6,238 lakhs as compared to Rs. 5,526 lakhs for the financial year 2008-2009. Your Directors have decided to make the following adjustments from out of the surplus

Rs. in lakhs

Particulars of write offs etc. 2009-2010 2008-2009

Surplus after operational

expenditure 6,238 5,526

Provision for taxes 1,092 759

Provision for deferred tax 274 370

Net surplus carried to Balance Sheet 4,872 4,397

Interim Dividend declared / paid 563 351

Tax on distribution of income 96 60

Transfer to General Reserves 400 300

Surplus carried to Balance Sheet 3,813 3,686

Dividend:

Your Directors had recommended and paid an interim dividend of Rs. 2.00 per equity share (last year Ã Rs. 1.25 per equity share) during February, 2010. Your Directors recommend that this may be treated as the final dividend and the recommendation/payment ratified.

Review of 2010 performance:

API Division:

The API business witnessed continued pressure on realizations as well margins. While some amount of volatility in the exchange rate of US $ vis-ÃÂ -vis Indian Rupee (Rs.) continued during the year 2010, sales in the domestic market from this segment were below expectations. This segment could record a revenue base of Rs. 8894 lakhs as against Rs. 9362 lakhs recorded last year, thus representing a de-growth of 5%. Exports from this division amounted to Rs. 7537 lakhs as against Rs. 6896 lakhs last year. Revenues from domestic sale of APIs were at significantly lower at Rs. 1356 lakhs against Rs. 2467 lakhs during fiscal 2009.

Your Directors do not expect any significant improvement in this business segment during the fiscal 2010-11 as well.

The business strategy for this segment aims at concentrating on high value, low value specialty drugs. It is significant to note that this division supplies the raw material for the finished dosage pharmaceutical formulation segment - for almost all oncology drugs that the company manufactures and markets. This results in substantial cost savings and value addition.

The manufacturing facilities of the Division continue to enjoy US FDA, Australian TGA and ISO:14001 certification. Efforts continue to develop niche products and capture niche markets.

The Company continues to record satisfactory progress in the matter of regulatory filings. The table given in Annexure A to this report indicates the updated status relating to filing of Drug Master Files.

Projects :

Substantial investments - of the order of 90 Crores - spread over fiscal 2011 and 2012 are being made in API manufacturing facilities. A new production block is being planned in the Mekaguda facility exclusively dedicated for the manufacture of APIs for the treatment of stomach ailments. Another block is being established to exclusively produce Glatiramer Acetate for possible supplies to Mylan Inc.

Finished Dosage Formulations Division :

The revenues from this division exhibited continuous growth. The domestic oncology business has been the major growth driver.

The company continues to maintain its dominant position in the domestic oncology segment. This division, which has now crossed the Rs. 12 Crore a month mark in revenues, recorded revenues of Rs. 124 Crores during the year as against Rs. 97 Crores during the last year, recording a growth of 28%. Other segments in the division have turned out equally good performance.

During the year under review, the Company launched several new brands as detailed below, which have been well received in the market :

Brand Name Usage

Bendit injection Onco support therapy

Pegfil 6 mg (PFS) Onco support therapy

Erlonat 150 mg tablets - 30s

Erlonat 100 mg tablets - 30s Lung Cancer - 2nd line treatment

Erlonat 25 mg tablets - 10s

Natzold Infusion 100 ml Osteoporosis

Natflu 75 mg 10s capsules Swine flu

Careful evaluation is made before launching a brand as to its utility and market opportunity.

Supply & Distribution Agreements :

The supply and distribution agreements entered into with Mylan, Inc., Dr. Reddys Laboratories Limited and Lupin Limited present substantial and significant market opportunities for the Company. This is the best way the company can explore and encash its technical abilities while using the vast marketing net work available to the partners. What is more important is that the company is insulated from any kind of litigation, mitigating the legal risks.

Realizing this is the best form suitable for un-locking the hidden value, the company is pursuing more of such opportunities. The existing arrangements are being pursued to their logical conclusion. However, benefits in terms of revenue growth or earnings could be expected only during fiscal 2012.

Up-gradation of Kothur Facility :

A new manufacturing block for liquids and pellets is being planned at Kothur. The cyto-toxic orals manufacturing facility has been commissioned.

During the year, the companys application for abbreviated new drug application (ANDA) in respect of Anastrazole 1 mg. and Granisetron 1 mg. tablets has been approved by the US FDA authorities.

The company has launched both these products in the USA through its marketing partners.

US Pharmacy business:

The operations of the companys pharmacy retail stores in the US are stable. While the new US Health Bill is expected to bring in business for these stores in general, the monetary resources of the States and budgetary restrictions on the state governments are likely to result in a dampening effect.

Owing to the loss incurred on account of sale of one of the drug stores in the USA, K & C Pharmacy - the US based partnership firm in which the Company is a major partner - has reported a loss during the year. The companys share of loss for the year ended on 31st March, 2010 amounted to Rs. 231 lakhs (against Rs. 209 lakhs profit last year), after considering impairment of a part of good-will, in view of the economic down turn in the USA. However, the cumulative profits from this firm (Companys share) amounted to 1019 lakhs till fiscal 2010, recording a return on investment of a little over 12%.

SaveMart Pharmacy, Lancaster, Pennsylvania, USA, which was acquired through the companys wholly owned subsidiary, NATCO Pharma Inc. also continues to do well and for the year ended on 31st March, 2010, the subsidiary has recorded a net profit, after tax, of Rs. 111 lakhs (against 123 lakhs previous year) after accounting for interest of Rs. 129 lakhs (previous year Rs. 188 lakhs) payable to the Company on the loans advanced by the parent company. The subsidiary has also repaid Rs. 496 lakhs (Rs. 375 lakhs previous year) out of the loan advanced by the Company.

Branded Generics & Institutional Sales :

In spite of lower margins and severe competition, business from these segments is quite satisfactory. The company has made in-roads into new markets in Sri Lanka, Myanmar, Nepal and Bangladesh. The Company has made an offer to the Government of India to set up generic medicine outlets in select government-run hospitals under the Jan Aushadi scheme.

Manufacturing facilities :

The second unit set-up in Dehradoon has since been commissioned. Finished dosage orals are being manufactured at this facility and this unit would be eligible for income-tax and excise duty concessions.

Sales from the existing manufacturing facility at Dehradoon, Uttarakhand, for the year ended on 31st March, 2010 amounted to Rs. 11,621 lakhs against Rs. 8,082 lakhs last year.

During the year, the Company has taken up modernization and up-gradation of the parenterals facility at Nagarjuna Sagar to meet the US FDA standards. Estimated to cost over Rs. 200 Million, the up-gradation would reflect in the companys ability to attract remunerative contract manufacturing activities, in addition to shoring up its own manufacturing capabilities.

Abbreviated New Drug Applications (ANDAs) :

Annexure B to this report details the latest status on the abbreviated new drug applications filed by your Company.

The Company continues to sell Ondansetron 4 mg and 8 mg tablets in USA and Canada and has been receiving royalties from its constituents as per the agreements in force. Granisetron and Anastrazole tablets have been launched in the United States markets, through the companys marketing partners.

Research Efforts and Intellectual Property

Annexure C to this report details the latest status on the various patent applications filed by the Company.

The division continuously evaluates several compounds for their efficacy in disease management and control. Multiple teams would be working on several compounds simultaneously. These teams are typically engaged in the development of molecules, processes and products.

In respect of one molecule - NRC 19 - Phase I clinical trials are in their final stage and Phase II clinical trials are expected to commence shortly. Another compound - NRC 2694 - is being evaluated for commissioning of Phase I clinical trials.

Other molecules are continuously being evaluated for their efficacy. Various analogues useful in the field of anti-cancer, anti-depressant and anti-ulcer therapies, and new drug delivery systems are continuously evaluated for taking up for further development.

Contract Manufacturing:

The revenues from contract manufacturing activity continue to be stable around Rs. 1000 lakhs. The company has an impressive list of clients in this category.

Corporate Social Responsibilities (CSR):

The company is proud to be associated with NATCO Trust, which continues to actively pursue its social welfare activities. The Trust has expanded its activities to cover new geographical locations, situated near the companys manufacturing locations.

The Companys in-house quarterly magazine "Spandana" continues to receive appreciation from all quarters - both from within and outside the Company.

Financial Matters :

The Company has no derivative contracts outstanding as at 31st March, 2010.

Employees Stock Option Scheme :

No further options have been exercised as at 31st March, 2010 and no fresh options have been granted during the year under review.

NATCO Organics Limited :

NATCO Organics Limited has commenced the trial runs of its cyto-toxic API manufacturing facility near Chennai. Under an arrangement with NATCO Organics Limited, the company would procure these APIs from NATCO Organics Limited and would convert them into finished dosage pharmaceutical formulations for sale in the open markets.

In line with its commitment to this project, the company has opted to convert the advances made by it to NATCO Organics into equity shares of NATCO Organics Limited.

Directors :

Dr. B.S. Bajaj, Dr. Jasti Sambasiva Rao and Mr. G.S. Murthy would be retiring at the ensuing Annual General Meeting and are eligible for re-appointment. Notices have been received from members proposing the names of Dr. B.S. Bajaj, Dr. Jasti Sambasiva Rao and Mr. G.S. Murthy to the office of Directors.

Directors Responsibility Statement :

In compliance with the provisions of Section 217(2A) of the Companies Act, 1956, the Directors confirm that :

a) in the preparation of annual accounts, the applicable accounting standards have been followed;

b) the Directors have selected such accounting policies as mentioned in Schedule 23 of the Annual Accounts 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 and loss of the Company for that year;

c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the aforesaid Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

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

Item # 5 and 6 of Notes to the Accounts would adequately clarify the observations made by the Statutory Auditors in their report dated 25th June, 2010, pertaining to recognition of income from another company and non- availment of MAT credit available.

Statutory Auditors :

During the month of April, 2010 M/s. Brahmayya & Co., Chartered Accountants, Hyderabad, have resigned. Upon the recommendation of the Audit Committee and the Board of Directors, the shareholders have, at their extraordinary general meeting held on 18th May, 2010, appointed M/s. Walker, Chandiok & Company, Chartered Accountants, Hyderabad as the statutory auditors of the Company, to conduct the audit of accounts of the Company for the financial year ended on 31st March, 2010. They hold the office till the end of the ensuing Annual General Meeting and are eligible for re-appointment. The Board recommends their re-appointment.

Internal Auditors :

M/s. Seshachalam & Co., Chartered Accountants, Hyderabad, who have been qppointed by your Board to carry-out internal audit of the Company last year will be continuing as internal auditors for this year as well.

Cost Audit :

The Government of India had prescribed maintenance of cost accounting records and ordered cost audit under the provisions of Section 233B of the Companies Act, 1956. in respect of your Companys operations. Your Company is following the prescribed guidelines in maintaining the requisite records.

Particulars of Employees :

The statement of particulars required pursuant to Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) (Amendment) Rules, 2002, forms a part of this Report. However, as permitted by the Companies Act, 1956, the Report and Accounts are being sent to all Members and other entitled persons excluding the above statement. Those interested in obtaining a copy of the said statement may write to the Company Secretary at the Registered Office and the same will be sent by post. The statement is also available for inspection at the Registered Office, during working hours upto the date of the Annual General Meeting.

Particulars regarding Energy conservation, etc.

Information on conservation of energy, technology absorption, foreign exchange earnings and outgo as required to be disclosed under the provisions of Section 217(1)(e) of the Companies Act, 1956 is enclosed and forms part of this report.

Listing Information :

The securities of the Company are listed with and are traded in, dematerialized form on the Bombay Stock Exchange and the National Stock Exchange. The annual listing fees were paid to each of these exchanges for the year 2009- 2010. Facilities for dematerialization have become fully operational. The ISIN No. of the Company is INE987B01018.

Fixed Deposits :

There are no outstanding and overdue deposits as at 31st March, 2009. The Company had not accepted any deposits during the year.

Acknowledgements :

Your Directors place on record their deep sense of gratitude for the support, cooperation and guidance received by the Company from various departments / agencies of the Central and State Governments, the consortium of banks led by Allahabad Bank as also to Export-Import Bank of India, Yes Bank Limited, and Axis Bank Limited. The Directors also thank the shareholders, officers and staff of the Company for their excellent cooperation and dedicated work.

for and on behalf of the Board

NATCO PHARMA LIMITED

Place : HYDERABAD V.C. NANNAPANENI

Date :25th June, 2010 Chairman & Managing Director

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