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Notes to Accounts of Neuland Laboratories Ltd.

Mar 31, 2014

1. CORPORATE INFORMATION

Neuland Laboratories Limited ("the Company") is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The Company is engaged in the manufacturing and selling of bulk drugs. The Company caters to both domestic and international markets.

Contingent liabilities are disclosed after careful examination of the facts and legal aspects of the matter involved.

b. (i) During the current year, the Company had on January 21, 2014, issued and allotted 10,700 fully paid up equity shares of a face value of Rs. 10 each, to eligible employees pursuant to exercise of stock options granted under Employee Stock Option Scheme, 2008.

(ii) During the previous year, the Company had on April 27, 2012, allotted 22,48,523 equity shares of a face value of Rs. 10 each for cash at a price of Rs. 45 per equity share, including a Share Premium of Rs. 35 per equity share, aggregating to Rs. 1,011.84 lacs to the existing equity shareholders of the Company on a rights basis in the ratio of 5 shares for every 12 shares held. Expenses incurred by the Company in relation to Rights Issue activity aggregating to Rs. 58.08 lacs were adjusted to the securities premium account.

c. During the year, the Board of Directors of the Company at its meeting held on February 5, 2014 approved the issue of Equity Shares on rights basis up to Rs. 2,500 lacs and the Company has fled the Draft Letter of Offer dated March 26, 2014 with the Securities and Exchange Board of India (SEBI) on March 27, 2014. Subsequently, the Company had received in-principle approval from The National Stock Exchange of India Ltd. and BSE Ltd. in respect of the proposed Rights Issue of the Company.

Proceeds of the proposed Rights issue will be utilized (i) to meet incremental working capital requirement, and (ii) to meet issue expenses.

The Company has incurred expenses aggregating Rs. 6.36 lacs in relation to the proposed Rights Issue which have been disclosed as "Rights Issue Expenses" under "Other Assets" (Refer Note 15). These expenses will be charged to the securities premium account proposed to be received from the Rights Issue of the equity shares of the Company.

d. Terms / Rights attached to equity shares

The Company has only one class of equity shares having par value of Rs. 10 per share. Each shareholder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of Directors is subject to prior consent from the Banks and approval of the shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholder.

f. Employee Stock Option Scheme – 2008

Pursuant to the resolution passed by the Board of directors on July 20, 2007 and members of the Company at the Annual General Meeting held on July 20, 2007, the Company had introduced Employee Stock Option Scheme ("the scheme") for permanent employees and directors of the Company and of its subsidiaries, as may be decided by the Compensation Committee/Board. The scheme provides that the total number of options granted there under will be not more than 3% of the paid up capital. Each option, on exercise, is convertible into one equity share of the Company having face value of Rs. 10. Pursuant to a resolution passed by the Remuneration & Compensation Committee vide Circular Resolution dated November 17, 2008, 34,500 options have been granted at an exercise price of Rs. 104, which is the market price as on the date of the grant. Accordingly, the Company has not recognized any expense on account of grant of stock options.

2. SEGMENT REPORTING

(a) Company''s operations are predominantly related to the manufacture of Bulk drugs, as such there is only one primary reportable segment. Secondary reportable segments are identified taking into account the geographical markets available to the products, the differing risks and returns and internal reporting system.

(b) As a part of secondary reporting, in view of the management the Indian and export markets represent geographical segments.

The amount of Rs. 25.53 lacs (March 31, 2013: Rs. 58.44 lacs) being the provision for leave encashment is included in Salaries, Wages and Bonus under Note 23 forming part of the financial statements.

The estimates of future salary increases considered in Actuarial valuation takes into account the inflation rate on long term basis.

(c) Contribution to Provident Fund – Defend Contribution Plan

Amount recognised and included in Note 23 forming part of the financial statements - "Contribution to Provident and Other Funds" Rs. 153.66 lacs (March 31, 2013: Rs. 122.38 lacs).

31. In the opinion of the Board, all the assets other than fixed assets and non-current investments have a value on realisation in the ordinary course of business at least equal to the amount at which they are stated in the financial statements.

32. Disclosure required by Micro, Small and Medium Enterprises (Development) Act, 2006.

As per requirement of Section of 22 of Micro, Small & Medium Enterprises Development Act, 2006 following information is disclosed:

The above information regarding Micro, Small and Medium Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors.

3. Contingent Liability:

(a) Claims against the Company not acknowledged as debts

(i) Andhra Pradesh Gas Power Corporation Limited and its shareholders (including Neuland) have fled writ petition before the Division Bench of High Court of A.P, which has been admitted and favorable interim orders have been granted. The Company has been advised that it has a strong case to succeed in the pending appeal.

(ii) Certain disputes, for unascertained amounts, are pending in the Labor Courts, A.P. As the chances of appellants succeeding in their claims being remote, the Company expects no liability on this account.

(iii) Income Tax department has fled a writ petition before the Hon''ble High Court of Andhra Pradesh to set aside the Income Tax Appellate Tribunal orders for the Assessment Year 2001-2002 and 2002-2003 against the claim on deduction U/sec 80HHC. The Hon''ble High Court of Andhra Pradesh has admitted the appeal and the matter is pending. If there is an adverse ruling against our Company, the estimated financial impact on the Company would be Rs. 3.42 lacs and Rs. 14.15 lacs respectively.

(iv) Income Tax department has fled a writ petition before the Hon''ble High Court of Andhra Pradesh to set aside the Income Tax Appellate Tribunal order bearing TA No. 842/H/06 dated May 5, 2008 for the Assessment Year 2003-2004 against the allow ability of Employee''s contribution towards P F, ESI. The Hon''ble High Court of Andhra Pradesh has admitted the appeal on June 20, 2012 and the matter is pending. If there is an adverse ruling against our Company, the estimated financial impact on the Company would be Rs. 1.44 lacs.

(v) The Company has filed an appeal before Income Tax Appellate Tribunal against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 1998-1999 against the disallowance of Commission paid to Non- resident agents for not deducted at source u/s 40(a)(i) of Income Tax Act, 1961 and the matter is pending. If there is an adverse ruling against our Company, the estimated financial impact on the Company would be Rs. 6.34 lacs.

(vi) The Company has filed an appeal before Income Tax Appellate Tribunal against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2008-2009 and 2009-2010 against the disallowance of Commission paid to Non-resident agents and other payments to Non-residents for not deducted at source u/s 40(a)(i) of Income Tax Act, 1961 and the matter is pending. If there is an adverse ruling against our Company, the estimated financial impact on the Company would be Rs. 19.17 lacs and Rs. 16.82 lacs respectively.

(b) Unexpired Letters of Credit opened on behalf of the Company by Bank for the raw material amounting to Rs. 3,501.47 lacs (March 31, 2013: Rs. 3,521.30 lacs).

(c) Bank Guarantees given by the Company to Central Excise and Customs and other Government authorities amounting to Rs. 80 lacs (March 31, 2013: Rs. 95 lacs).

4. Capital and Other Commitments

(a) Estimated amounts of contracts on capital account to be executed and not provided for, net of advance Rs. 166.54 lacs (March 31, 2013: Rs. 128.20 lacs).

(b) Neuland Laboratories Limited in collaboration with Cato Research Israel Limited, (a wholly owned subsidiary of Cato Research Inc., a global contract research and development organization based in USA) formed a joint venture in India styled as Cato Research Neuland India Private Limited on May 14, 2008. Neuland''s share in the joint venture is 70%. The commitment towards initial share capital contribution is US $ 350,000- approximately Rs. 209.76 lacs (March 31, 2013: Rs. 190.05 lacs). The Company contributed Rs. 12.22 lacs (March 31, 2013: Rs. 12.22 lacs) towards share capital. The balance commitment as on March 31, 2014 is Rs. 197.53 lacs (March 31, 2013: Rs. 177.83 lacs).

5. The Company had entered into a Memorandum of Understanding ("MOU") with API Corporation, Japan ("APIC") on March 6, 2013, wherein the Company agreed to manufacture and supply various APIs and Intermediates as would be needed by APIC, for which the Company would carve out a dedicated area of manufacturing, within existing manufacturing unit at Pashamylaram.

As a part of overall arrangement, the Company, on behalf of APIC, agreed to procure and install necessary equipments as would be required to enable the facility to manufacture the products as desired by APIC. The Company has received an advance of Rs. 1,500 lacs for procuring the necessary equipment and as on March 31, 2014, the value of assets procured aggregating to Rs. 932.29 lacs are disclosed as assets held for sale (Refer Note 15). Capital advances include an amount of Rs. 197.35 lacs spent towards advances paid for purchase of equipments as per the arrangement.

6. Previous year numbers are rearranged and regrouped wherever considered necessary.

7. Pursuant to the reorganization of the Company, the previous year''s numbers are not comparable with that of the current year.


Mar 31, 2013

1. CORPORATE INFORMATION

Neuland Laboratories Limited ("the Company") is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are Listed on two stock exchanges in India. The Company is engaged in the manufacturing and selling of bulk drugs. The Company caters to both domestic and international markets.

Pursuant to the reorganization of shareholding of the Promoter Group, the Company has become a subsidiary Company of Neuland Health Sciences Private Limited (Formerly Sucheth and Saharsh Holdings Private Limited), in terms of section 4(l)(b)(ii) of the Companies Act, 1956.

Reorganization of the Company

Pursuant to the approval of the shareholders vide resolution dated May 30, 2012 passed through Postal Ballot, the Company has completed the business set out in the Postal Ballot Notice and discontinued the operations in the Contract Research and Peptide Research. Consequently, the Company has undertaken sale of land together with the Building thereon and the fixtures thereto situated at Sy. No 488/R and Sy No 489/A, situated at Bonthapally Village, Jinnaram Mandal, Medak district along with identified Intellectual Property rights to Neuland Pharma Research Private Limited. The Company has transferred its Peptide Research activities along with identified Intellectual Property rights to Neuland Health Sciences Private Limited. The Company has also leased certain identified movable assets to Neuland Pharma Research Private Limited. The Company has licensed certain Trade Marks and Copyrights on a non-exclusive basis to both Neuland Health Sciences Private Limited and Neuland Pharma Research Private Limited.

The Company has entered into an exclusive manufacturing arrangement with both Neuland Health Sciences Private Limited and Neuland Pharma Research Private Limited for their manufacturing requirements. Further the Company has entered into a Research Services Agreement for its Lab Scale research with Neuland Pharma Research Private Limited. The Company has entered into an arrangement where they are assured a cost plus 10 percent or such percentage as may be mutually agreed for the services rendered. The Company is subject to a non- compete undertaking with NHSPL and NPRPL in respect of the activities of those companies.

Neuland Health Sciences Private Limited is the Holding Company and Neuland Pharma Research Private Limited is a Fellow Subsidiary Company (Promoter Group Company). The Company has entered into a non-exclusive trademark agreement to use the brand "Neuland" by these companies.

The effective date of these agreements are November 22, 2012 and became operational from December 1, 2012.

2. SEGMENT REPORTING

(a) Company''s operations are predominantly related to the manufacture of Bulk drugs, as such there is only one primary reportable segment. Secondary reportable segments are identified taking into account the geographical markets available to the products, the differing risks and returns and internal reporting system.

(b) As a part of secondary reporting, in view of the management the Indian and export markets represent geographical segments. Sales by market- The following is the distribution of the Company''s sale by geographical market:

The estimates of future salary increases considered in Actuarial valuation takes into account the inflation rate on long term basis.

(c) Contribution to Provident Fund - Defined Contribution Plan

Amount recognised and included in Note 23 forming part of the financial statements - "Contribution to Provident and Other Funds" Rs.12.24 million (March 31, 2012: Rs.11.91 million).

3. In the opinion of the Board, all the assets other than fixed assets and non-current investments have a value on realisation in the ordinary course of business at least equal to the amount at which they are stated in the financial statements.

4. Disclosure required by Micro, Small and Medium Enterprises (Development) Act, 2006.

As per requirement of Section of 22 of Micro, Small & Medium Enterprises Development Act, 2006 following information is disclosed:

5. Contingent Liability:

(a) Claims against the Company not acknowledged as debts

(i) Customs duty demand of Rs.2.29 million including interest (March 31, 2012: Rs.2.29 million). The same was adjusted against the pre-deposit of Rs.4.00 million (March 31, 2012: Rs.4.00 million) made by the Company. The Company has filed an appeal against the demand before the Appellate Tribunal, Chennai, which is yet to be decided. Simultaneously the Company also filed an appeal before Honorable High Court of Madras for refund of balance of Pre-deposit together with interest. As the export obligations against the material imported under DEEC scheme have been completed, the Company expects the outcome in its favour.

(ii) Andhra Pradesh Gas Power Corporation Limited and its shareholders (including Neuland) have filed writ petition before the Division Bench of High Court of A.P, which has been admitted and favourable interim orders have been granted. The Company has been advised that it has a strong case to succeed in the pending appeal.

(ill) Certain disputes, for unascertained amounts, are pending in the Labour Courts, A.P. As the chances of appellants succeeding in their claims being remote, the Company expects no liability on this account.

(iv) The Company has made a claim of sales tax credit of a Rs.0.55 million before the Assessing Authority on April 26, 2005. However, the Assessing Authority, vide proceeding in Form VAT 126 dated September 29, 2005 restricted the sales tax credit to only Rs.0.43 million. The Company filed a tax appeal bearing TA No. 398 of 2009 in Form APP 401 before the Sales Tax Appellate Tribunal, Andhra Pradesh on May 23, 2009. The matter is pending. If there is an adverse ruling against the Company, the estimated financial impact on the Company would be approx Rs.0.43 million.

(v) Income Tax department has filed a writ petition before the Hon''ble High Court of Andhra Pradesh to set aside the Income Tax Appellate Tribunal order bearing TA No. 971/H/008 dated July 24, 2008 for the Assessment Year 2001-2002 against the claim on deduction U/sec 80HHC. The Hon''ble High Court of Andhra Pradesh has admitted the appeal on July 18, 2012 and the matter is pending. If there is an adverse ruling against our Company, the estimated financial impact on the Company would be Rs.4.34 million.

(vi) Income Tax department has filed a writ petition before the Hon''ble High Court of Andhra Pradesh to set aside the Income Tax Appellate Tribunal order bearing TA No. 842/H/06 dated May 5, 2008 for the Assessment Year 2003-2004 against the allowability of Employee''s contribution towards PF, ESI. The Hon''ble High Court of Andhra Pradesh has admitted the appeal on June 20, 2012 and the matter is pending. If there is an adverse ruling against our Company, the estimated financial impact on the Company would be Rs.1.83 million.

(vii) The Company has filed an appeal before Income Tax Appellate Tribunal against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2003-2004 against the disallowance of Commission paid to Non-resident agents for not deducted at source u/s 40(a)(i) of Income Tax Act, 1961 and the matter is pending. If there is an adverse ruling against our Company, the estimated financial impact on the Company would be Rs.1.81 million.

(b) Unexpired Letters of Credit opened on behalf of the Company by Bank for the raw material amounting to Rs.378.28 million (March 31, 2012: Rs.499.27 million).

(c) Bank Guarantees given by the Company to Central Excise and Customs and other Government authorities amounting to Rs.9.50 million (March 31, 2012: Rs.13.10 million).

6. Capital and Other Commitments

(a) Estimated amounts of contracts on capital account to be executed and not provided for, net of advance Rs.12.82 million (March 31, 2012: Rs.25.78 million).

(b) Neuland Laboratories Limited in collaboration with Cato Research Israel Limited, (a wholly owned subsidiary of Cato Research Inc., a global contract research and development organization based in USA) formed a joint venture in India styled as Cato Research Neuland India Private Limited on May 14, 2008. Neuland''s share in the joint venture is 70%. The commitment towards initial share capital contribution is US $ 350,000- approximately Rs.19.01 million (March 31, 2012: Rs.17.92 million). The Company contributed Rs.1.22 million (March 31, 2012: Rs.1.22 million) towards share capital. The balance commitment as on March 31, 2013 is Rs.17.78 million (March 31, 2012: Rs.16.70 million).

Basis of Preparation of Statement of Profit and Loss and Cash Flow for the Discontinued Operations of the Company

Profit and Loss Account

i) ALL the direct and specifically identifiable revenue and expense items such as Sales, Material Consumption, Employee Cost and other identifiable costs have been taken at actual based on accounting records.

ii) All Overheads have been allocated based on number of labs.

iii) Interest cost on working capital has been apportioned in proportion to the total expenses before depreciation.

iv) Profit on sale of Land and Building is considered as part of discontinuing operations.

v) Current tax expense is considered as Nil on account of losses incurred by the discontinuing operations.

Balance Sheet

The Company has not identified any assets and liabilities except for the Land together with the Building thereon and the fixtures thereto in relation to the discontinued operations.

Cash Flows

Cash Flow in respect of ordinary activities attributable to discontinued operations

Operating Activities Rs. (36.83) million {Previous Year: Rs. (76.72) million} Investing Activities Rs.70.00 million {Previous Year: Rs. (10.23) million} Financing Activities Rs. (3.10) million {Previous Year: Rs. (3.79) million}

7. During the current financial year, the Company has recognized MAT credit of Rs.53.50 million (including MAT credit relating to FY 2006- 2007 and FY 2007-2008 aggregating to Rs.23.32 million) available as an asset based on convincing evidence that the Company will pay normal income tax during the specified period, i.e., the period for which MAT credit is allowed to be carried forward in accordance with the Guidance Note on "Accounting for Credit Available in respect of Minimum Alternative Tax under the Income-tax Act, 1961". The Company reviews the "MAT credit entitlement" asset at each reporting date and writes down the asset to the extent the Company does not have convincing evidence that it will pay normal tax during the specified period.

8. Previous year numbers are rearranged and regrouped wherever considered necessary.

9. Pursuant to the reorganization of the Company, the previous year''s numbers are not comparable with that of the current year.


Mar 31, 2012

1. CORPORATE INFORMATION

Neuland Laboratories Limited ('the Company') is a public company domiciled in India and incorporated under the provisions of the Companies Act, 1956. Its shares are listed on two stock exchanges in India. The Company is engaged in the manufacturing and selling of bulk drugs. The Company caters to both domestic and international markets.

a. Terms/Rights attached to equity shares

The Company has only one class of equity shares having par value of Rs10 per share. Each shareholder of equity shares is entitled to one vote per share. The Company declares and pays dividend in Indian Rupees. The dividend proposed by the Board of Directors is subject to prior consent from the banks and approval of the shareholders in the ensuing Annual General Meeting.

In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholder.

b. Employee Stock Option Scheme - 2008

Pursuant to the resolution passed by the Board of Directors on July 20, 2007 and members of the Company at the Annual General Meeting held on July 20, 2007, the Company had introduced Employee Stock Option Scheme ('the scheme') for permanent employees and directors of the Company and of its subsidiaries, as may be decided by the Compensation Committee/Board. The scheme provides that the total number of options granted there under will be not more than 3% of the paid up capital. Each option, on exercise, is convertible into one equity share of the company having face value of Rs10. Pursuant to a resolution passed by the Remuneration & Compensation Committee vide Circular Resolution dated November 17, 2008, 34,500 options have been granted at an exercise price of Rs104, which is the market price as on the date of the grant. Accordingly, the Company has not recognized any expense on account of grant of stock options.

2. SHARE APPLICATION MONEY

As on March 31, 2012, the Company is in the process of issuing 2,248,523 equity shares of a face value of Rs10 each for cash at a price of Rs45 per equity share, including a Share Premium of Rs35 per equity share, aggregating to Rs101.18 million to the existing equity shareholders of the company on a rights basis in the ratio of 5:12 as on the Record Date i.e. March 23, 2012. The Issue opened on March 31, 2012 and closed on April 16, 2012. The Company has sufficient authorized share capital to cover the share capital amount on allotment of shares out of the Rights Issue.

The Share Application Money represents the collection received from the shareholders as on March 31, 2012. Since the Issue was open on March 31, 2012, the refundable portion of the Share Application Money is not identifiable as on the date of Balance Sheet.

Subsequently, the Rights Issue has been subscribed fully and 2,248,523 equity shares of a face value of Rs10 each have been allotted on April 27, 2012 to the eligible shareholders as per the Basis of Allotment approved by the designated stock exchange.

The Company has incurred the expenses in relation to Rights Issue activity which have been accounted for as 'Rights Issue Expenses' and grouped under Other Current Assets. These expenses will be charged to the securities premium account proposed to be received from the Rights Issue of the equity shares of the Company. The details

*Note: 1. The Company had opted to adopt the amendment to the Companies (Accounting Standards) Rules, 2006 effected by a notification dated March 31, 2009 issued by Ministry of Corporate Affairs, Government of India (applicability extended till March 31, 2020). Pursuant to this adoption, for the year ended March 31, 2012, an amount of (Rs26.70 million) (March 31, 2011: Rs4.74 million) being foreign exchange fluctuations gain/(loss) pertaining to foreign currency loan availed for acquisition of depreciable capital assets is adjusted to the cost of such assets.

2. Fixed assets include vehicles and machinery acquired under Hire Purchase Agreement amounting to Rs44.96 million as on March 31, 2012 (March 31, 2011: Rs52.52 million). The hire purchase charges have been charged to Statement of Profit and Loss. The hire purchase installment due within one year is Rs9.50 million (March 31, 2011: Rs12.62 million).

As at March 31, 2012 and March 31, 2011, as a result of carried forward losses the deferred tax calculations result into a Deferred Tax Asset (DTA). The Company has recognized the DTA of Rs18.50 million based on virtual certainty of profits in the next quarter backed by profitable binding orders on hand.

3. SEGMENT REPORTING

a. Company's operations are predominantly related to the manufacture of bulk drugs, as such there is only one primary reportable segment. Secondary reportable segments are identified taking into account the geographical markets available to the products, the differing risks and returns and internal reporting system.

b. As a part of secondary reporting, in view of the management the Indian and export markets represent geographical segments.

c. The Company does not track its assets and liabilities by geographical area.

4. RELATED PARTY TRANSACTIONS

Disclosure as required by the Accounting Standard - 18 are given below:

a. Name of the related parties and descriptions of relationships

Note: On April 27, 2012, the Board of Directors approved the Basis of Allotment and allotted 2,248,523 equity shares of face value of Rs10 each at a premium of Rs35 per equity share. Computation of Basic and Diluted Earnings per Share after considering the rights issue is as below:

The amount of Rs10.49 million being the provision for gratuity is included in Contribution to Provident and Other Funds under Note 24 forming part of the financial statements.

The estimates of future salary increases considered in Actuarial valuation takes into account the inflation rate on long term basis.

The amount of Rs0.88 million being the provision for leave encashment is included in Contribution to Provident and Other Funds under Note 24 forming part of the financial statements.

The estimates of future salary increases considered in Actuarial valuation takes into account the inflation rate on long term basis.

c. Contribution to Provident Fund - Defined Contribution Plan

Amount recognized and included in Note 24 forming part of the financial statements - 'Contribution to Provident and Other Funds' Rs11.91 million (March 31, 2011: Rs11.37 million).

5. In the opinion of the Board, all the assets other than fixed assets and non-current investments have a value on realization in the ordinary course of business at least equal to the amount at which they are stated in the financial statements.

6. DISCLOSURE REQUIRED BY MICRO, SMALL AND MEDIUM ENTERPRISES (DEVELOPMENT) ACT, 2006

As per requirement of Section 22 of Micro, Small and Medium Enterprises Development Act, 2006 following information is disclosed:

The above information regarding Micro, Small and Medium Enterprises has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the auditors.

7. The Company has entered into commercial leases on items of machinery.

*Note: Amount of additions to fixed assets was arrived after reducing capital work-in-progress claimed in previous year.

8. CONTINGENT LIABILITY

a. Claims against the Company not acknowledged as debts

i. Customs duty demand of Rs2.29 million including interest (March 31, 2011: Rs2.29 million). The same was adjusted against the pre-deposit of Rs4.00 million (March 31, 2011: Rs4.00 million) made by the Company. The Company has filed an appeal against the demand before the Appellate Tribunal, Chennai, which is yet to be decided. Simultaneously the Company also filed an appeal before Hon'ble High Court of Madras for refund of balance of pre-deposit together with interest. As the export obligations against the material imported under DEEC scheme have been completed, the Company expects the outcome in its favor.

ii. Andhra Pradesh Gas Power Corporation Limited and its shareholders (including Neuland) have filed writ petition before the Division Bench of Hon'ble High Court of Andhra Pradesh, which has been admitted and favorable interim orders have been granted. The Company has been advised that it has a strong case to succeed in the pending appeal.

iii. Certain disputes, for unascertained amounts, are pending in the Labour Courts, Andhra Pradesh. As the chances of appellants succeeding in their claims being remote, the Company expects no liability on this account.

b. Unexpired Letters of Credit opened on behalf of the Company by bank for the raw material amounting to Rs499.27 million (March 31, 2011: Rs537.79 million).

c. Bank Guarantees given by the Company to Central Excise and Customs and other government authorities amounting to Rs13.10 million (March 31, 2011: Rs13.59 million).

d. A demand of Rs36.61 million was raised by the Income Tax Department for the Assessment Year 2009-10, by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961. The Company filed an appeal with Hon'ble CIT (Appeals) against the Order.

9. CAPITAL AND OTHER COMMITMENTS

a. Estimated amounts of contracts on capital account to be executed and not provided for, net of advance Rs25.78 million (March 31, 2011: Rs1.28 million).

b. Neuland Laboratories Limited in collaboration with Cato Research Israel Limited, (a wholly owned subsidiary of Cato Research Inc., a global contract research and development organization based in USA) formed a joint venture in India styled as Cato Research Neuland India Private Limited on May 14, 2008. Neuland's share in the joint venture is 70%. The commitment towards initial share capital contribution is US $350,000- approximately Rs17.92 million. The Company contributed Rs1.22 million towards share capital as on March 31, 2012. The balance commitment as on March 31, 2012 is Rs16.70 million.


Mar 31, 2011

1. SEGMENT REPORTING

a. Company's operations are predominantly related to the manufacture of bulk drugs, as such there is only one primary reportable segment. Secondary reportable segments are identified taking into account the geographical markets available to the products, the differing risks and returns and internal reporting system.

b. As part of secondary reporting, in the view of the management, the Indian and export markets represent geographical segments.

2. RELATED PARTY TRANSACTIONS

Disclosures as required by the Accounting Standard - 18

d. Subsidiary Companies

i. Neuland Laboratories K.K., Japan Wholly owned subsidiary

ii. Neuland Laboratories Inc., USA Wholly owned subsidiary

iii. Cato Research Neuland India Private Limited Partly owned subsidiary

b. The computation of profit under Section 349 of the Companies Act, 1956 is not considered necessary as the managerial remuneration that is paid is minimum remuneration based on effective capital of the Company as prescribed under Schedule XIII of the said Act.

3. During the year 2008-09, the Company had opted to adopt the amendment to the Companies (Accounting Standards) Rules, 2006 effected by a notification dated March 31, 2009 issued by the Ministry of Corporate Affairs, Government of India. Pursuant to this adoption, an amount of Rs.55.43 million being foreign exchange fluctuations gain till date pertaining to foreign currency loan availed for acquisition of depreciable capital assets is adjusted to the cost of such assets.

The amount of Rs.10.28 million being the provision for gratuity and Rs.2.76 million being provision for leave encashment is included in payments and provisions to employees under Schedule 3 of the financials.

The estimates of future salary increases considered in actuarial valuation takes into account the inflation rate on long term basis.

4. EMPLOYEE STOCK OPTION SCHEME - 2008

Pursuant to the resolution passed by the Board of Directors on July 20, 2007 and Members of the Company at the Annual General Meeting held on July 20, 2007, the Company had introduced Employee Stock Option Scheme ('the scheme') for permanent employees and Directors of the Company and of its subsidiaries, as may be decided by the Compensation Committee/Board. The scheme provides that the total number of options granted there under will be not more than 3% of the paid up capital. Each option, on exercise, is convertible into one equity share of the Company having face value of Rs.10. Pursuant to a resolution passed by the Remuneration & Compensation Committee vide Circular Resolution dated November 17, 2008, 34,500 options have been granted at an exercise price of Rs.104, which is the market price as on the date of the grant. Accordingly, the Company has not recognized any expense on account of grant of stock options.

5. Revenue of Rs.35.51 million (including Rs.5.39 million for earlier periods) has been accounted under export incentives receivable under Focus Market Scheme as per notification dated August 27, 2009 by Director General of Foreign Trade.

6. CONTINGENT LIABILITY

a. Claims against the Company not acknowledged as debts:

i. Customs duty demand of Rs.2.29 million including interest (Previous Year - Rs.2.29 million). The same was adjusted against the pre-deposit of Rs.4.00 million made by the Company. The Company has filed an appeal against the demand before the Appellate Tribunal, Chennai, which is yet to be decided. Simultaneously the Company also filed an appeal before Hon'ble High Court of Madras for refund of balance of pre-deposit together with interest. As the export obligations against the material imported under DEEC Scheme have been completed, the Company expects the outcome in its favour.

ii. Andhra Pradesh Gas Power Corporation Limited and its shareholders (including Neuland) have filed writ petition before the Division Bench of the Hon'ble High Court of Andhra Pradesh, which has been admitted and favourable interim orders have been granted. The Company has been advised that it has a strong case to succeed in the pending appeal.

iii. Certain disputes, for unascertained amounts, are pending in the Labour Courts, Andhra Pradesh. As the chances of appellants succeeding in their claims being remote, the Company expects no liability on this account.

b. Unexpired Letters of Credit opened on behalf of the Company by bank for the raw material amounting to Rs.537.79 million (Previous year - Rs.438.25 million).

c. Estimated amounts of contracts on capital account to be executed and not provided for, net of advance Rs.1.28 million (Previous Year - Rs.11.48 million).

d. Bank guarantees given by the Company to Central Excise and Customs and other Government authorities amounting to Rs.13.59 million (Previous year - Rs.9.35 million).

e. A demand of Rs.31.84 million was raised by the Income Tax Department for the Assessment Year 2004-05, by the Assessing Officer by reopening the assessment under Section 148 of the Income Tax Act 1961. The Hon'ble CIT (Appeals) vide his order dated May 3, 2011 has upheld the Company's plea and adjudicated in favor of the Company stating the re-opening of the assessment as bad in law, and the reopened proceedings void ab initio.

7. Neuland Laboratories Limited in collaboration with Cato Research Israel Limited, (a wholly owned subsidiary of Cato Research Inc., a global contract research and development organization based in USA) formed a joint venture in India styled as Cato Research Neuland India Private Limited on May 14, 2008.

The joint venture company has received all permissions/approvals from authorities to begin its operations. Neuland's share in the joint venture is 70%. The commitment towards initial share capital contribution is US $ 350,000 - approximately Rs.14.07 million.

8. Fixed assets include vehicles and machinery acquired under Hire Purchase Agreement amounting to Rs.52.52 million as on March 31, 2011 (Previous year - Rs.32.97 million). The hire purchase charges have been charged to Profit and Loss Account. The hire purchase installment due within one year is Rs.12.62 million (Previous Year - Rs.10.36 million).

9. The Ministry of Corporate Affairs, Government of India vide its General Notification No. S.O.301(E) dated February 8, 2011 issued under Section 211(3) of the Companies Act, 1956 has exempted certain classes of companies from disclosing certain information in their Profit and Loss Account. The Company being an 'export oriented company' is entitled to the exemption. Accordingly, disclosures mandated by paragraphs 3(i)(a), 3(ii)(a), 3(ii)(b) and 3(ii)(d) of Part II, Schedule VI to the Companies Act,1956 have not been provided.

A. Production Data

1As certified by the management, being technical matter accepted by the auditors as correct.

2Note a. Including contract manufacturing.

b. Installed capacity is flexible as the plant is versatile, enabling the Company to produce in different capacities and therefore it varies depending on the product programme.

E. Earnings in foreign currency

i. Export of goods on FOB basis Rs.2869.53 million (Previous year - Rs.1966.63 million). ii. Product Development Charges Rs.32.23 million (Previous year - Rs.32.73 million).

10. Previous year figures have been regrouped and/or rearranged wherever necessary.


Mar 31, 2010

1. SEGMENT REPORTING

a. Companys operations are predominantly related to the manufacture of Bulk drugs, as such there is only one primary reportable segment. Secondary reportable segments are identified taking into account the geographical markets available to the products, the differing risks and returns and internal reporting system.

2. RELATED PARTY TRANSACTIONS

Disclosures as required by the Accounting Standard - 18

a. Name of the related parties and descriptions of relationships

Name Nature of Relationship

Sucheth & Saharsh Holdings Private Limited Other Related Party

b. Key Management Personnel

Name Nature of Relationship

Dr. D. R. Rao Chairman & Managing Director

Mr. D. Sucheth Rao Chief Executive Officer & Whole-time Director

& Son of Chairman & Managing Director

Mr. D. Saharsh Rao President - Contract Research &

Whole-time Director & Son of Chairman & Managing Director

c. Relatives of Key Managerial Personnel



Name Nature of Relationship

Mrs. D. Vijaya Rao Wife of Chairman & Managing Director

Mrs. D. Rohini Niveditha Rao Wife of Whole-time Director & Chief Executive Officer Mrs. K. Deepthi Rao Wife of Whole-time Director & President - Contract Research

d. Subsidiary Companies

i. Neuland Laboratories K.K., Japan Wholly owned subsidiary

ii. Neuland Laboratories Inc., USA Wholly owned subsidiary

iii. Cato Research Neuland India Private Limited Partly owned subsidiary

3. During the previous year pursuant to implementation of SAP ERP system certain cost formulas for inventory valuation have been changed. The impact of these changes is not material.

4. During the previous year, the Company had opted to adopt the amendment to the Companies (Accounting Standards) Rules, 2006 effected by a notification dated March 31, 2009 issued by Ministry of Corporate Affairs, Government of India. Pursuant to this adoption, amount of Rs.50.70 Million being foreign exchange fluctuations gain pertaining to foreign currency loan availed for acquisition of depreciable capital assets is adjusted to the cost of such assets.

5. CONTINGENT LIABILITY

a. Claims against the Company not acknowledged as debts.

i. Customs duty demand of Rs.2.29 Million including interest (Previous Year - Rs.2.29 Million). The same was adjusted against the pre-deposit of Rs.4 Million made by the Company. The Company has filed an appeal against the demand before the Appellate Tribunal, Chennai, which is yet to be decided. Simultaneously the Company also filed an appeal before Honble High Court of Madras for refund of balance of pre-deposit together with interest. As the export obligations against the material imported under DEEC scheme have been completed, the Company expects the outcome in its favour.

ii. Andhra Pradesh Gas Power Corporation Limited and its shareholders (including Neuland) have filed writ petition before the Division Bench of Honble High Court of Andhra Pradesh, which has been admitted and favourable interim orders have been granted. The Company has been advised that it has a strong case to succeed in the pending appeal.

iii. Certain disputes, for unascertained amounts, are pending in the Labour Courts, Andhra Pradesh. As the chances of appellants succeeding in their claims being remote, the Company expects no liability on this account.

b. Bills discounted amounting Rs. Nil (Previous Year - Rs.37.82 Million).

c. Unexpired Letters of Credit opened on behalf of the Company by Bank for the raw material amounting to Rs.438.25 Million (Previous year - Rs.256.69 Million).

d. Estimated amounts of contracts on capital account to be executed and not provided for net of advance Rs.11.48 Million (Previous Year - Rs.95.00 Million).

e. Bank guarantees given by the Company to Central Excise and Customs and other government authorities amounting to Rs.9.35 Million (Previous Year - Rs.10.33 Million).

6. Neuland Laboratories Limited in collaboration with Cato Research Israel Limited, (a wholly owned subsidiary of Cato Research Inc., a global contract research and development organization based in USA) formed a joint venture in India styled as Cato Research Neuland India Private Limited on May 14, 2008.

The joint venture company has received all permissions/approvals from authorities to begin its operations. Neulands share in the joint venture is 70%. The commitment towards initial share capital contribution is US $ 350,000 - approximately Rs.14.07 Million.

7. Prior period items Rs.11.97 Million (net) include -

a. Rs.29.48 Million being credit for Cenvat Clearing Account amounts which would have been credited to raw materials consumption.

b. Consequential MAT tax liability for earlier years of Rs.3.34 Million, and,

c. Foreign exchange losses of Rs.14.17 Million arising from mark to market valuation on derivatives contracts which materialized during the year.

8. Fixed Assets include vehicles acquired under Hire Purchase Agreement amounting to Rs.32.97 Million as on March 31, 2010. (Previous year - Rs.19.33 Million). The hire purchase charges have been charged to Profit and Loss Account. The hire purchase installment due within one year is Rs. 10.36 Million. (Previous year - Rs.5.40 Million).

H. Earnings in foreign currency

i. Export of Goods on FOB basis Rs.1966.63 Million (Previous year Rs.2534.35 Million). ii. Product Development Charges Rs.32.73 Million (Previous year Rs.29.37 Million).

9. Previous year figures have been regrouped and/or rearranged wherever necessary.

 
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