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Notes to Accounts of Strides Shasun Ltd.

Mar 31, 2015

CORPORATE INFORMATION

Strides Arcolab Limited (the 'Company' or 'Strides') is a pharmaceutical company headquartered in Bengaluru, India. Strides develops and manufactures a wide range of IP-led niche pharmaceutical products. The Company is listed on the Bombay Stock Exchange Limited and the National Stock Exchange of India Limited.

1(b) Detail of the rights, preferences and restrictions attaching to each class of shares outstanding Equity shares of Rs. 10/- each:

The Company has only one class of equity shares, having a par value of Rs.10/-. The holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to approval by the shareholders at the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive any of the remaining assets of the Company, after distribution to all other parties concerned. The distribution will be in proportion to number of equity shares held by the shareholders.

1(d) Details of aggregate number of equity shares allotted as fully paid-up pursuant to contract without payment being received in cash for the period of five years immediately preceding the balance sheet date:

Equity shares of Rs. 10/- issued pursuant to a scheme of amalgamation in 2009 - 13,524 shares

Pursuant to the transition provisions prescribed in Schedule II to the Companies Act, 2013, the Company has fully depreciated the carrying value of assets net of residual value, where the remaining useful life of the asset was determined to be nil as on April 1, 2014, and has adjusted an amount of Rs. 28.79 Million (net of deferred tax of Rs. 14.83 Million) against the opening Surplus balance in the Statement of Profit and Loss under Reserves and Surplus. The depreciation expense in the Statement of Profit and Loss for the year is higher by Rs. 28.49 Million consequent to the change in the useful life of the assets.

In accordance with the notification No. 496 dated August 29, 2014 from Ministry of Corporate Affairs, the Company has opted to comply with the requirement under sub-paragraph (a) of paragraph 4 of part 'C' of Schedule II of the Act from the financial year commencing on April 1, 2015.

(viii) During the previous period ended March 31, 2014, as part of the hive off of the entities into the manufacture of Specialties products business (refer Note 40.B), the Company also entered into a long term lease arrangement with Agila Specialties Private Limited for certain land and buildings (along with the related infrastructure). Consequent to the above, the difference between the present value of the lease rentals under the lease and the carrying value of the said assets has been adjusted against the Profit on sale of investments, as a transaction related expenditure, in the period then ended.

2. SCHEME of arrangement UNDER SECTION 391 - 394 OF THE COMPANIES ACT 1956

The Scheme of Restructuring approved by the shareholders on April 13, 2009 included a Scheme of Arrangement that envisaged the creation of a Reserve for Business Restructuring as set out in the Scheme. The Reserve was to be utilized by December 31, 2012 for specified purposes by either the Company or its subsidiaries. The balance of Rs. 3,846.38 Million identified under the Securities Premium Account represents amounts utilized by the subsidiaries of the Company from the Reserve prior to December 31, 2012 and have been earmarked for set off on consolidation.

3. SALE OF NON-CURRENT INVESTMENTS:

A. Sale of investment in Strides Pharmaceuticals (Holdings) Limited, Cyprus

In the current year, the Company has sold its investment in Strides Pharmaceuticals (Holdings) Limited, Cyprus ("SPHL'), a wholly owned subsidiary of the Company, having a carrying value of Rs. 2,956.98 Million to Strides Pharma Asia Pte Limited, Singapore, a wholly-owned subsidiary of the Company, for a consideration of USD 63.79 Million (Rs. 3,920.99 Million). Profit arising on such sale of investment amounting to Rs. 964.01 Million has been recognised in the Statement of Profit and Loss under Exceptional Items.

B. Sale of investments in Agila Specialties Private Limited

(i) In February 2013, the Company and its subsidiary Strides Pharma Asia Pte Limited ("Strides Pharma Asia") had entered into separate definitive agreements with Mylan Inc for hiving off the Specialty products business subject to receipt of regulatory approvals. The hive off of the Specialty products business by the Company and Strides Pharma Asia was by way of (i) sale of investments in Agila Specialties Private Limited ("ASPL"), which was then a wholly owned subsidiary of the Company, to Mylan Laboratories Limited ("MLL'), a subsidiary of Mylan Inc and (ii) sale of investments held by Strides Pharma Asia in Agila Specialties Global Pte Limited ("Agila Global") to Mylan Institutional Inc, a Mylan Group Company, respectively.

(ii) The sale of the investment in ASPL was recorded in terms of Share Purchase Agreement dated December 4, 2013 with MLL (the India SPA), for the sale of shares of ASPL for a consideration of USD 693.03 Million (Rs. 43,010.04 Million) as computed under the India SPA which was received in full by the Company on that date. The India SPA envisaged that an amount of Rs. 850.00 Million and USD 60.00 Million be transferred by MLL to two separate Escrow accounts (which are jointly controlled by both MLL and the Company for administrative purposes) for payment to certain specified senior management personnel of ASPL and its subsidiary, and for incurring certain regulatory expenses pertaining to ASPL respectively, as defined under the agreements entered into between the Company and MLL. Unutilized amounts in these Escrow accounts, if any, would be payable to the Company from the Escrow accounts in accordance with the terms of the agreements with MLL.

Exceptional items in the Statement of Profit and Loss for the period ended March 31, 2014, includes profit from sale of investments in ASPL to the extent of Rs. 31,600.28 Million net of transaction related expenditure.

(iii) The sale of investments in Agila Global by Strides Pharma Asia, was recorded in terms of another Share Purchase Agreement dated December 04, 2013, entered with Mylan Institutional Inc., (the "Global SPA").

(iv) As at March 31, 2014, Mylan Inc., USA was in discussions with the Company and Strides Pharma Asia with regard to matters relating to the assets and liabilities of the Specialties products business taken over and had raised certain claims on the Company under the India SPA and Strides Pharma Asia under the Global SPA. The Company and Strides Pharma Asia had also counter claimed certain additional amounts from Mylan Inc.

During the current year, the concerned parties have reached a settlement under which all the claims raised by Mylan Inc on the Company under the India SPA stand cancelled.

As stated in Note (ii) above, MLL had held back an amount of USD 60 Million which were due to be received by the Company in December 2014, net off any Regulatory expenses incurred by MLL. As at March 31, 2015, the Company had received details of Regulatory expenses incurred by MLL which it intended to adjust against the amount of USD 60 Million, which has been disputed by the Company. Pending resolution of the dispute, no amounts relating to the above have been received by the Company.

(v) The Company has given a corporate guarantee for USD 200 Million (Rs. 12,499 Million) to the Mylan Inc towards claims / liabilities, if any, relating to the period prior to December 4, 2013. As at March 31, 2015, the Company has evaluated the possible exposure on the guarantee and believes that it is more likely that there is no present obligation under the Guarantee. The said guarantee has been included in the amount quantified in note 43.1 as 'Contingent liability and Commitments'.

C. Sale of investments in Stelis Biopharma Private Limited

During the previous period ended March 31, 2014, the Company had sold its investment in Stelis Biopharma Private Limited, a wholly owned subsidiary of the Company having a carrying value of Rs. 10.13 Million to Inbiopro Solutions Private Limited, a wholly owned subsidiary of the Company for a consideration of Rs.17.77 Million. Profit arising on such sale of investment of Rs. 7.64 Million had been recognised in the Statement of Profit and Loss under Exceptional Items in the period ended March 31, 2014.

4. PURCHASE OF NON-CURRENT INVESTMENTS:

(a) In the current year, the Company has acquired 90% equity in Fagris Medica Private Limited, India (the "Fagris"), for total purchase consideration of Rs. 9.20 Million. As at March 31, 2015, an amount of Rs. 1.70 Million is payable towards the above.

(b) In the current year, the Company has invested Rs. 481.06 Million in Strides Healthcare Private Limited, India (formerly Strides Actives Private Limited, referred to as "Special Purpose Vehicle / SPV"), for 74% equity shares in SPV, to acquire the India Branded Generics Business of Bafna Pharmaceuticals Limited ("the Business") which is engaged in sales and marketing of branded pharmaceuticals products in certain niche therapeutic segments.

5. The Board of Directors in their meeting held on September 29, 2014 had approved a Scheme of Amalgamation between the Company and Shasun Pharmaceuticals Limited ('Shasun'). The Scheme of Amalgamation is under the framework of the Companies Act 1956 / 2013 and the relevant SEBI regulations, wherein Shasun will be amalgamated with and into the Company.

Pursuant to the Scheme of Amalgamation, each equity shareholder of Shasun will be entitled to receive 5 (five) equity shares of the Company in lieu of 16 (sixteen) equity shares held in Shasun.

The appointed date for the Scheme of Amalgamation is April 1, 2015. The approval for the Scheme of Amalgamation has been received from SEBI, the shareholders of both the Companies and Competition Commission of India. As on date of approval of the financial statements, approvals from the creditors of the Companies, FIPB, RBI and the Hon'ble High Courts of Bombay and Madras are awaited.

5. CONTINGENT LIABILITIES AND COMMITMENTS

5.1 The Company has given corporate guarantees upto Rs. 37,174.85 Million (As at March 31, 2014: Rs. 36,446.06 Million) to financial institutions and other parties, including on behalf of its subsidiaries. As at March 31, 2015, the subsidiaries have availed facilities from such financial institutions / were obligated to the parties referred above for an aggregate amount of Rs. 4,595.53 Million (As at March 31, 2014: Rs. 580.67 Million).

5.2 The Company has disputed income tax liabilities arising from assessment proceedings relating to earlier years amounting to Rs. 1,278.27 Million (Previous year Rs. 1,276.50 Million). The outflow, if any, on account of disputed taxes is dependent on completion of assessments.

5.3 The Company had preferred an appeal with the CESTAT against the order of the Commissioner of Central Excise disallowing transfer of CENVAT credit of Rs. 5.65 Million (Previous year Rs. 5.65 Million) as on the date of conversion of one of the units of the Company into a 100% EOU.

5.4 Other claims against the Company disputed by the Company Rs. Nil (Previous year Rs. 872.63 Million). Refer Note 40 B(iv) for more details.

6. EMPLOYEE STOCK OPTION PLAN (ESOP)

(a) In the extraordinary general meeting held on January 25, 2007, the shareholders approved the issue of 1,000,000 options under the Plan titled "Strides Arcolab ESOP 2006" (ESOP 2006). The ESOP 2006 allows the issue of options to employees of the Company and its subsidiaries (whether in India or abroad). Each option comprises one underlying equity share. As per the Plan, the Compensation committee grants the options to the employees deemed eligible. The exercise price of each option shall not be less than 85 per cent of the "Market Price" as defined in the Plan. The options granted vest over a period of 3 years from the date of the grant in proportions specified in the Plan. Options should be exercised within 30 days of vesting. No options were granted under this Plan during the current year.

(b) The ESOP titled "Strides Arcolab ESOP 2008" (ESOP 2008) was approved by the shareholders through postal ballot on June 18, 2008. 1,500,000 options are covered under the Plan for 1,500,000 equity shares. The options allotted under ESOP 2008 are convertible into equal number of equity shares. The vesting period of these options range over a period of three years. The options must be exercised with in a period of 30 days from the date of vesting. No options were granted under this Plan during the current year.

(c) The ESOP titled "Strides Arcolab ESOP 2008 (Directors)" (ESOP 2008 Directors Plan) was approved by the shareholders through postal ballot on January 12, 2009. 500,000 options are covered under the Plan for 500,000 equity shares. The options allotted under ESOP 2008 are convertible into equal number of equity shares. The vesting period of these options range over a period of three years. The options must be exercised with in a period of 30 days from the date of vesting. No options were granted under this plan during the current year.

(d) The ESOP titled "Strides Arcolab ESOP 2011" (ESOP 2011) was approved by the shareholders on May 30, 2011. 1,500,000 options are covered under the Plan for 1,500,000 equity shares. The options allotted under ESOP 2011 are convertible into equal number of equity shares. The vesting period of these options range over a period of three years. The options must be exercised with in a period of 30 days from the date of vesting. During the current year, the Remuneration Committee in its meetings held on February 2, 2015 has granted 100,000 options under the ESOP 2011 to eligible employees of the Company.

(e) In respect of the ESOP 2006 and all the other Employee Stock Option Plans detailed above, (i) the difference between the fair price of the share underlying the options granted, on the date of grant of option and the exercise price of the option, (being the intrinsic value of the option) representing stock compensation expense, is expensed over the vesting period, (ii) all unvested options will vest immediately in the case of merger, dissolution or change in management of the Company. Accordingly during the period ended March 31, 2014, due to sale of investments in Agila Specialties Private Limited, the Remuneration Committee in its meeting held on November 20, 2013 had approved for early vesting of all options outstanding prior November 20, 2013. Upon early vesting of these options, the balance unrecognised expense of the intrinsic value of option in respect of these outstanding options had been recognised in the Statement of Profit and Loss during the period then ended.

7. EMPLOYEE BENEFITS PLANS:

Defined contribution plan

The Company makes contributions to Provident Fund and Employee State Insurance Schemes which are defined contribution plans, for qualifying employees. Under the schemes, the Company is required to contribute a specified percentage of the payroll cost to fund the benefits. The Company recognised Rs. 54.72 Million (for the period ended March 31, 2014: Rs. 54.70 Million) for provident fund contributions and Rs. 1.79 Million (for the period ended March 31, 2014: Rs. 3.64 Million) for Employee State Insurance Scheme contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes.

(a) The discount rate is based on the prevailing market yields of Government of India securities as at the balance sheet date for the estimated term of the obligations.

(b) The estimate of future salary increases considered, takes into account the inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

(c) The above disclosure on gratuity and compensated absences is to the extent of information available with the Company and as per the actuarial valuation reports for gratuity and compensated absences.

(d) Composition of the plan assets as at March 31, 2015 is not made available by the fund manager. Hence, the same has not been disclosed.

8. Since the Company prepares consolidated financial statements, segment information has not been provided in these standalone financial statements.

9. RELATED PARTY TRANSACTIONS : LIST OF THE RELATED PARTIES

Wholly owned subsidiaries:

Direct Holding

Stelis Biopharma Private Limited, India (formerly Inbiopro Solutions Private Limited, India)

Strides Arcolab International Limited, U.K

Strides Pharma Asia Pte Limited, Singapore

Strides Pharma International Limited, Cyprus

Strides Pharmaceuticals (Holdings) Limited, Cyprus (upto October 6, 2014)

Strides Healthcare Private Limited (formerly known as Strides Actives Private Limited, India) (from June 19, 2014 upto September 30, 2014)

Indirect Holding

Altima Innovations Inc., USA (w.e.f. December 18, 2014)

Co-Pharma Limited, UK

Plus Farma ehf. Iceland (wound up on February 18, 2015)

Stelis Biopharma Private Limited, India (Court order dated November 10, 2014 and merged with Inbiopro

Solutions Private Limited, India Appointed date from April 1, 2014)

Stelis Biopharma (Malaysia) SDN BHD, Malaysia

Strides Africa Limited, British Virgin Islands

Strides Australia Pty Limited, Australia (wound up on November 23, 2014)

Strides CIS Limited, Cyprus (w.e.f. October 29, 2014)

Strides Emerging Markets Private Limited, India (w.e.f. July 24, 2014)

Strides Pharma (Cyprus) Limited, Cyprus (w.e.f. July 24, 2014)

Strides Pharma Global Pte Limited, Singapore

Strides Pharma Inc, USA

Strides Pharma Limited, Cyprus

Strides Pharmaceuticals (Holdings) Limited, Cyprus (w.e.f. October 6, 2014)

Strides S.A. Pharmaceuticals Pty. Limited, South Africa (wound up on October 28, 2014)

Strides Specialties (Holdings) Limited, Mauritius

Other Subsidiaries:

Direct Holding:

Fagris Medica Private Limited, India (w.e.f September 11, 2014)

Strides Healthcare Private Limited, India (formerly Strides Actives Private Limited) (w.e.f September 30, 2014)

Indirect Holding:

African Pharmaceuticals Development Company, Cameroon

Beltapharm S.p.A., Italy Congo Pharma SPRL, Congo

Societe De Repartition Pharmaceutique, Burkinofaso

SPC Co. Limited, Sudan

Strides CIS Limited, Cyprus (upto October 29, 2014)

Strides Emerging Markets Private Limited, India (upto July 24, 2014)

Strides Pharma (Cyprus) Limited, Cyprus (upto July 24, 2014)

Strides Pharma Botswana (Proprietary) Limited, Botswana

Strides Pharma Cameroon Limited, Cameroon

Strides Pharma Mozambique, SA

Strides Pharma Namibia Pty Limited, Namibia

Strides Vital Nigeria Limited, Nigeria

Joint venture: Akorn Strides LLC, USA

Associates:

Strides Healthcare Private Limited, India (formerly Strides Actives Private Limited) (upto June 19, 2014)

Key Management Personnel (KMP):

Arun Kumar (Executive Vice Chairman & Managing Director)

Badree Komandur (Chief Financial Officer & Company Secretary)

Relatives of KMP:

Aditya Arun Kumar

Anuradha Komandur

Deepalakshmi

Arun Kumar

Hemalatha Pillai

Padmakumar Karunakaran Pillai

Rajeshwari Amma

Rajitha Gopalkrishnan

Sajitha Pillai

Tarini Arun Kumar

Vineetha Mohana Kumar

Enterprises owned or significantly influenced by KMP and relative of KMP:

Agnus Capital LLP, India

Agnus Global Holdings Pte Limited, Singapore

Agnus Holdings Private Limited, India

Alivira Animal Health Limited, India

Amara Health Services Private Limited, India

Atma Enterprises LLP, India

Atma Projects, India

Chayadeep Properties Private Limited, India

Chayadeep Ventures LLP, India

Deesha Properties, India

Emerge Learning Services Private Limited, India

Karuna Ventures Private Limited, India

Latitude Projects Private Limited, India

Paradime Infrastructure Development Company, India

Patsys Consulting Private Limited, India

Pronomz Ventures LLP, India

Qualichem Remedies LLP, India

QuantMD LLC, US

Santo Properties Private Limited, India

Sequent Penems Private Limited, India

Sequent Scientific Limited, India

Skanray Healthcare Private Limited, India

Skanray Technologies Private Limited, India

Spire Technologies and Solutions Private Limited, India

Tenshi Assisted Living Private Limited, India

Triumph Venture Holdings LLP, India

Tulip Foods Private Limited, India

10 TRANSFER PRICING

The detailed Transfer Pricing regulations ('regulations') for computing the income from "domestic transactions" with specified parties and international transactions between 'associated enterprises' on an 'arm's length' basis is applicable to the Company. These regulations, inter alia, also require the maintenance of prescribed documents and information including furnishing a report from an Accountant which is to be filed with the Income tax authorities.

The Company has undertaken necessary steps to comply with the Transfer Pricing regulations. The Management is of the opinion that the transactions with associated enterprises and domestic transactions are at arm's length, and hence the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

11 EARLY ADOPTION OF AS-30:

FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT,ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

The Company has chosen to early adopt AS 30: 'Financial Instruments: Recognition and Measurement', (as announced by the Institute of Chartered Accountants of India (ICAI)) during the year ended December 31, 2008, with effect from January 1, 2008. However, pursuant to a notification issued by the ICAI on February 11, 2011, the Company has adopted AS 30 only to the extent they do not conflict with the other mandatory accounting standards notified under Section 133 of the Companies Act, 2013.

The impact of adoption of AS30 as mentioned above is as follows:

11.1 The financial assets and liabilities arising out of issue of corporate financial guarantees to third parties are accounted at fair values on initial recognition. Financial assets continue to be carried at fair values. Financial liabilities are subsequently measured at the higher of

the amounts determined under AS 29 or the fair values on the measurement date. At March 31, 2015 and March 31, 2014, the fair values of such financial assets and financial liabilities amount to Rs. Nil.

11.2 There are no open derivative positions as on March 31, 2015 not designated as hedging instruments and accordingly there is no gain / loss on fair valuation of such derivatives recognized in the Statement of Profit and Loss for the current period.

11.3 The Company has availed bill discounting facilities from Banks which do not meet the de-recognition criteria for transfer of contractual rights to receive cash flows from the respective trade receivables since they are with recourse to the Company. Accordingly, as at March 31, 2015, trade receivables balances include Rs. 270.69 Million (As at March 31, 2014: Rs. 792.56 Million) and the corresponding financial liability to the Banks is included as part of working capital loans under short-term borrowings (secured).

11.4 The Company has designated certain highly probable forecasted US dollar denominated sales transactions and certain forward contracts to sell US dollars as hedged items and hedging instruments respectively, in a Cash Flow Hedge to hedge the foreign exchange risk arising out of fluctuations between the India rupee and the US dollar. The exchange fluctuations arising from marking to market of the hedging instruments, to the extent relatable to the hedge being effective has been recognised in a Hedge reserve account in the Balance sheet. Accordingly exchange fluctuations gains/ (losses) amounting to Rs. 90.40 Million as at March 31, 2015 (At March 31, 2014: Rs. (81.18 Million)) have been recognized in the Hedge Reserve account. These exchange differences are considered in Statement of Profit and Loss as and when the forecasted transactions occur.

12 Details on Derivatives Instruments & Un-hedged Foreign Currency Exposures:

The following derivative positions are open as at March 31, 2015. These transactions have been undertaken to act as economic hedges for the Company's exposures to various risks in foreign exchange markets. These instruments are therefore classified as held for trading and gains/ losses recognized in the Statement of Profit and Loss except to the extent they qualified as Cashflow hedges in the context of the rigour of such classification under Accounting Standard 30.

I. The Company has entered into the following derivative instruments:

(a) Forward Exchange Contracts [being a derivative instrument], which are not intended for trading or speculative purposes, but for hedge purposes, to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

(c) Financial assets / liabilities held for trading are as follows:

Provisions / receivable carried towards mark to market losses / gains on forward exchange contracts Rs. 90.40 Million gain as at March 31, 2015 (Rs. 81.18 Million gain as at March 31, 2014).

(d) There are no other financial assets / liabilities in the following categories:

* Financial assets:

* Carried at fair value through profit and loss designated as such at initial recognition.

* Held to maturity

* Available for sale (other than investment in Subsidiaries & Joint Ventures)

* Financial liabilities:

* Carried at fair value through profit and loss designated as such at initial recognition.

12.5 Nature and extent of risks arising from financial instruments

The main financial risks faced by the Company relate to fluctuations in interest and foreign exchange rates, the risk of default by counterparties to financial transactions, and the availability of funds to meet business needs. The Balance Sheet as at March 31, 2015 is representative of the position through the period. Risk management is carried out by a central treasury department under the guidance of the Management.

Interest rate risk

Interest rate risk arises from long term borrowings. Debt issued at variable rates exposes the Company to cash flow risk. Debt issued at fixed rate exposes the company to fair value risk. In the opinion of the management, interest rate risk during the year under report was not substantial enough to require intervention or hedging through derivatives or other financial instruments. For the purposes of exposure to interest risk, the Company considers its net debt position evaluated as the difference between financial assets and financial liabilities held at fixed rates and floating rates respectively as the measure of exposure of notional amounts to interest rate risk. This net debt position is quantified as under:

Credit risk

Credit risk arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions. Credit risk also arises from trade receivables and other financial assets.

The credit risk arising from receivables is subject to concentration risk in that the receivables are predominantly denominated in USD and any appreciation in the INR will affect the credit risk. Further, the Company is not significantly exposed to geographical distribution risk as the counterparties operate across various countries across the Globe.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Company's reputation. Liquidity risk is managed using short term and long term cash flow forecasts.

Foreign exchange risk

The Company is exposed to foreign exchange risk principally via:

* Debt availed in foreign currency

* Net investments in subsidiaries and joint ventures in foreign currencies

* Exposure arising from transactions relating to purchases, revenues, expenses etc. to be settled in currencies other than Indian Rupees, the functional currency of the Company.

12.3 Sensitivity analysis as at March 31, 2015

Financial instruments affected by interest rate changes include Secured Long term loans from banks, Secured Long term loans from others, Secured Short term loans from banks and Unsecured Short term loans from banks. The impact of a 1% change in interest rates on the profit of an annual period will be Rs. 40.48 Million (for the year ended March 31, 2014 Rs.47.18 Million) assuming the loans as of March 31, 2015 continue to be constant during the annual period. This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.

Financial instruments affected by changes in foreign exchange rates include External Commercial Borrowings (ECBs), investments in subsidiaries, and loans to subsidiaries and joint ventures. The Company considers US Dollar (USD) to be principal currency which requires monitoring and risk mitigation. The Company is exposed to volatility in other currencies including the Great Britain Pounds (GBP) and the Australian Dollar (AUD).

13 The Board of Directors of the Company in the Meeting held on December 10, 2013 had approved change of financial year of the Company from January-December to that of April-March. Consequently, the previous financial period is for a period of 15 months i.e., from January 1, 2013 to March 31, 2014 and the figures for the current year are not strictly comparable with that of the previous period ended March 31, 2014.

14 Previous period's figures have been regrouped / reclassified wherever necessary to correspond with the current period's classification / disclosure.


Mar 31, 2014

CORPORATE INFORMATION

Strides Arcolab Limited (the ''Company'' or ''Strides'') is a pharmaceutical company headquartered in Bangalore, India. Strides develops and manufactures a wide range of IP-led niche pharmaceutical products. The Company is listed on the Bombay Stock Exchange Limited and National Stock Exchange of India Limited.

2.1 Service tax input credit

Service tax input credit is accounted for in the books in the period in which the underlying service received is accounted and when there is no uncertainty in availing / utilising the credits.

2.2 Operating cycle

As mentioned in para 1 above under ''Corporate information'', the Company is into development and manufacture of pharmaceutical products. Based on the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 3 years to 5 years and 12 months for the purpose of classification of its assets and liabilities as current and non-current for development and manufacturing of pharmaceutical products respectively.

3(a) Detail of the rights, preferences and restrictions attaching to each class of shares outstanding Equity shares of Rs. 10/- each:

The Company has only one class of equity shares, having a par value of Rs. 10/-. The holder of equity shares is entitled to one vote per share. The Company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to approval by the shareholders at the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive any of the remaining assets of the Company, after distribution to all other parties concerned. The distribution will be in proportion to number of equity shares held by the shareholders.

(iii) In 2008, the Company had entered into a lease cum sale agreement with Karnataka Industrial Area Development Board for purchase of land under a lease cum sale agreement where the lease period extended till year 2018. On completion of the lease period, the leasehold land will be transferred in the name of the Company.

(iv) The above assets are owned and used by the Company and the employees of the Company other than those assets which are given on lease to a step subsidiary of the Company. (Refer note (viii) below).

(v) Details of sums added on revaluation of assets during the preceding 5 years:

In 2009, pursuant to a court approved Scheme of Arrangement, the Company fair valued land and plant and machinery (refer note 40). The excess of fair value over the carrying values of the respective assets on December 31, 2009 were as follows:

- Land Rs. 754.32 Million

- Plant and machinery Rs. 281.25 Million

There were no other sums added to fixed assets on account of revaluation during the preceding 5 years.

(x) As part of the hive off of the entities into the manufacture of Specialties products business (refer Note 40.A), the Company also entered into a long term lease arrangement with Agila Specialties Private Limited for certain land and buildings (along with the related infrastructure). Consequent to the above, the difference between the present value of the lease rentals under the lease and the carrying value of the said assets has been adjusted against the Profit on sale of investments, as a transaction related expenditure.

FOREIGN CURRENCY CONVERTIBLE BONDS

The Company had issued zero coupon Foreign Currency Convertible Bonds (FCCB''s) (listed in the Singapore Exchange Securities Trading Limited, Singapore) to the extent of USD 100 Million (FCCB 100Million) during the year ended December 31, 2007 which were redeemable on June 27, 2012. In 2009, as permitted by RBI, the Company had bought back FCCB''s with a face value aggregating to USD 20 Million. During the year ended December 31, 2012, the Company redeemed the balance zero coupon Foreign Currency Convertible Bonds (FCCBs) of face value amounting USD 80 Million with an effective premium of USD 36.05 Million.

SCHEME OF ARRANGEMENT UNDER SECTION 391 - 394 OF The COMpANIES Act, 1956

3.1 The shareholders of the Company, in their meeting held on April 13, 2009 approved the Scheme of Restructuring that envisaged interalia a Scheme of Arrangement (the ''Scheme'') to be filed under Sections 391 to 394 of the Companies Act, 1956 covering the merger of some of the subsidiaries (Transferor companies) of the Company with itself (Transferee company), fair valuation of some of the assets of the Company and creation of a Reserve for Business Restructure (''BRR'') out of any surpluses arising from these, to be utilized as specified in the Scheme.

3.2 The Scheme filed by the Company had been approved by the High Courts of Judicature with an appointed date of January 1, 2009 and an effective date of December 31, 2009 (''the Effective Date''), being the date on which requirements under the Companies Act, 1956 had been completed.

In terms of the Scheme and upon the Scheme becoming effective, amongst other things:

- expenses incurred by the Company or its subsidiaries in the nature of impairment, diminution, loss, amortization and/ or write-off of assets/ investments/ intangibles, interest on borrowings for acquisitions, employee compensation expenses, additional depreciation charged or suffered by the Transferee Company on account of fair valuation, scheme expenses and other expenses or arising in the future as may be determined by the Board of Directors of the Transferee Company, shall be debited to the BRR.

The maximum amount that can be written off against the BRR instead of being debited to the Statement of Profit and Loss on or at any time after January 1, 2009 would be restricted to the balance in the BRR or upto December 31, 2012 and not beyond that. Any unutilized balance in the BRR is required to be transferred to Securities premium account by December 31, 2012.

- the balance in the Securities premium account, as appearing in the books of the Transferee Company may be transferred to BRR, to such extent as determined by the Board.

Accordingly, the following accounting treatment was given effect:

(a) The fair value of net assets acquired from the Transferor Companies in excess of the carrying value of investment in the subsidiaries and the value of equity shares issued to minority shareholders, amounting to Rs. 146.77 Million was credited to BRR during the year ended December 31, 2009.

(b) Upon the Scheme becoming effective, and based on legal advice received, the assets and liabilities of the Transferee Company had been fair valued as determined by the Board of Directors of the Company and the net surplus arising out of such fair valuation (over the carrying value of the respective assets and liabilities prior to the fair valuation) was credited to the BRR as follows during the year ended December 31, 2009.

Had the Scheme not prescribed the above accounting treatment, in terms of the Company''s accounting policies, these assets would continue to have been carried at cost.

(c) During the year ended December 31, 2012, in accordance with the Scheme;

(i) an amount of Rs. 65.16 Million has been transferred from Securities premium account to the BRR.

(ii) The following expenses have been adjusted against the BRR:

SALE OF NON-CURRENT INVESTMENTS

A. Sale of investments in Agila Specialties Private Limited

(a) In February 2013, the Company and its wholly owned subsidiary, Strides Pharma Asia Pte. Limited (Strides Pharma Asia), had entered into definitive agreements with Mylan Inc. ("Buyer") for hiving off the entities carrying out Specialty products business subject to receipt of regulatory approvals (''the Transaction''). The hive off of the Specialty products business was by way of sale of shares of (a) Agila Specialties Private Limited ("ASPL", which was then a wholly owned subsidiary of the Company) and (b) Agila Specialties Global Pte Ltd, ("Agila Global", which was then a wholly owned subsidiary of Strides Pharma Asia Pte. Limited, Singapore, a wholly owned subsidiary of the Company).

(b) The sale of the investment in ASPL was recorded in terms of Share Purchase Agreement (the India SPA) dated December 4, 2013 entered into with Mylan Laboratories Limited, (''MLL, a subsidiary of Mylan Inc.), India for a consideration of USD 693.03 Million ('' 43,010.04 Million) as computed under the India SPA that was received in full on that date. The India SPA envisages that an amount of Rs. 850.00 Million and USD 60.00 Million be transferred by MLL to two separate Escrow accounts (which are jointly controlled by both MLL and the Company) respectively for payment to certain specified senior management personnel of ASPL and its subsidiary, and for incurring certain regulatory expenses pertaining to ASPL as defined under the agreements entered into between the Company and MLL. Unutilized amounts in these Escrow accounts, if any, would be paid to the Company from the Escrow accounts in accordance with the terms of the agreements with MLL.

(c) Exceptional items in the Statement of Profit and Loss include profit from sale of investments in ASPL to the extent of Rs. 31,600.28 Million net of transaction related expenditure amounting to Rs. 1,393.68 Million and special transaction related bonus due to employees of the Strides Group (including employees in the disposed entities and their subsidiaries) amounting to Rs. 733.88 Million.

(d) Subsequent to the transaction, Mylan Inc., USA has been in discussions with the Company with regard to matters relating to the assets and liabilities of the Specialties business taken over and has raised certain claims on the Company under the India SPA. The Company has also claimed certain additional amounts from Mylan Inc., and as on date, is in discussions with them to resolve these matters. Based on the nature of the claims involved, the Company does not expect that the profit recognised on the sale of the investment in ASPL would be materially impacted and any adjustments required will be recorded on conclusion of these discussions.

(e) The Company has given a corporate guarantee for USD 200 Million (Rs. 12,028 Million) to the Buyer towards future claims / liabilities, if any, relating to the period prior to December 4, 2013.

(f) Consequent to the above, with effect from December 5, 2013, following entities would also cease to be the subsidiaries of the Strides Group:

a) Agila Jamp Canada Inc., Canada

b) Agila (NZ) Pty Ltd, New Zealand

c) Agila Australia Pty Limited, Australia

d) Agila Especialidades Farmaceuticas Ltda, Brazil

e) Agila Farmaceuticas Participacoes Ltda, Brazil

f) Agila Marketing e Distribuicao De Producos Hospitalares Ltda, Brazil

g) Agila Specialties (Holdings) Limited, Cyprus

h) Agila Specialties Americas Limited, Cyprus

i) Agila Specialties Global Pte Limited, Singapore

j) Agila Specialties Inc., USA

k) Agila Specialties Investments Limited, UK

l) Agila Specialties Polska Sp Zoo, Poland

m) Agila Specialties Pharma Corporation, Canada

n) Agila Specialties Private Limited, India,

o) Agila Specialties UK Limited, UK

p) Catalist Pty Limited, Australia

q) Farma Plus, Norway

r) Onco Laboratories Limited, Cyprus

s) Onco Therapies Limited, India

t) Sagent Agila LLC, USA

B. Sale of investments in Stelis Biopharma Private Limited

During the current period, the Company has sold its investment in Stelis Biopharma Private Limited, a wholly owned subsidiary of the Company having a carrying value of Rs. 10.13 Million to Inbiopro Solutions Private Limited, a wholly owned subsidiary of the Company for a consideration of Rs. 17.77 Million. Profit on sale arising on such sale of investment of Rs. 7.64 Million has been recognised in the Statement of Profit and Loss under the Exceptional Items.

C. During the year ended December 31, 2012:

a) The Company incorporated Strides Emerging Markets Private Limited (SEMPL) and transferred shares in SEMPL to Strides Pharma (Cyprus) Limited, Cyprus for total consideration of Rs. 0.47 Million. Profit on sale of such investments aggregating to Rs. 0.35 Million is recognised in the Statement of Profit and Loss under Exceptional Items as detailed in Note 30.

b) The Company sold its investment in Strides Africa Limited to Strides Pharmaceuticals (Holdings) Limited, Cyprus (formerly Agila Specialties Limited, Cyprus), a wholly-owned subsidiary of the Company, at cost of acquisition of USD 4.52 Million. Exchange gain arising on such sale of investment amounting to Rs. 47.09 Million was recognised in the Statement of Profit and Loss under Exceptional Items during the year ended December 31, 2012, as detailed in Note 30.

CONTINGENT LIABILITIES

41.1 The Company has given corporate guarantees upto Rs. 36,446.06 Million (As at December 31, 2012: Rs. 29,635.75 Million) to financial institutions and other parties, on behalf of its subsidiaries. As at March 31, 2014, the subsidiaries have availed facilities from such financial institutions/ were obligated to the parties referred above for an aggregate amount of Rs. 580.67 Million (As at December 31, 2012: Rs. 4,068.85 Million).

4.1 The Company has disputed income tax liabilities arising from assessment proceedings relating to earlier years amounting to Rs. 1,276.50 Million(Previous year Rs. 741.31 Million). The outflow, if any, on account of disputed taxes is dependent on completion of assessments.

4.2 The Company had preferred an appeal with the CESTAT against the order of the Commissioner of Central Excise disallowing transfer of CENVAT credit of Rs. 5.65 Million (Previous year Rs. 3.86 Million) as on the date of conversion of one of the units of the Company into a 100% EOU.

4.3 Other claims against the Company disputed by the Company Rs. 872.63 Million (Previous year Rs. Nil).

Employee stock option plan (esop)

(a) In the extraordinary general meeting held on January 25, 2007, the shareholders approved the issue of 1,000,000 options under the Plan titled "Strides Arcolab ESOP 2006" (ESOP 2006). The ESOP 2006 allows the issue of options to employees of the Company and its subsidiaries (whether in India or abroad). Each option comprises one underlying equity share. As per the Plan, the Compensation committee grants the options to the employees deemed eligible. The exercise price of each option shall not be less than 85 per cent of the "Market Price" as defined in the Plan. The options granted vest over a period of 3 years from the date of the grant in proportions specified in the Plan. Options should be exercised within 30 days of vesting. No options were granted under this Plan during the current period.

(b) The ESOP titled "Strides Arcolab ESOP 2008" (ESOP 2008) was approved by the shareholders through postal ballot on June 18, 2008. 1,500,000 options are covered under the Plan for 1,500,000 equity shares. The options allotted under ESOP 2008 are convertible into equal number of equity shares. The vesting period of these options range over a period of three years. The options must be exercised with in a period of 30 days from the date of vesting. No options were granted under this Plan during the current period.

(c) The ESOP titled "Strides Arcolab ESOP 2008 (Directors)" (ESOP 2008 Directors Plan) was approved by the shareholders through postal ballot on January 12, 2009.

500.000 options are covered under the Plan for 500,000 equity shares. The options allotted under ESOP 2008 are convertible into equal number of equity shares. The vesting period of these options range over a period of three years. The options must be exercised with in a period of 30 days from the date of vesting. No options were granted under this plan during the current period.

(d) The ESOP titled "Strides Arcolab ESOP 2011" (ESOP 2011) was approved by the shareholders on May 30, 2011. 1,500,000 options are covered under the Plan for

1.500.000 equity shares. The options allotted under ESOP 2011 are convertible into equal number of equity shares. The vesting period of these options range over a period of three years. The options must be exercised with in a period of 30 days from the date of vesting. During the current period, the Remuneration Committee in its meetings held on November 20, 2013 has granted 400,000 options under the ESOP 2011 to eligible employees of the Company.

(e) In respect of the ESOP 2006 and all the other Employee Stock Option Plans detailed above, (i) the difference between the fair price of the share underlying the options granted, on the date of grant of option and the exercise price of the option, (being the intrinsic value of the option) representing Stock compensation expense, is expensed over the vesting period, (ii) all unvested options will vest immediately in the case of merger, dissolution or change in management of the Company. Accordingly, due to sale of investments in Agila Specialties Private Limited, the Remuneration Committee in its meeting held on November 20, 2013 has approved for early vesting of all options outstanding prior to that date. Upon early vesting of these options, the balance unrecognised expense of the intrinsic value of option in respect of these outstanding options has been recognised in the Statement of Profit and Loss.

(f) Employee compensation costs of Rs. 12.77 Million relating to the above referred various Employee Stock Option Plans have been charged to the Statement of Profit and Loss. Such expense for the year ended December 31, 2012 amounting to Rs. 20.87 Million had been debited to BRR in accordance with the terms of the Scheme of arrangement (Refer note 39 for details).

EMPLOYEE BENEFITS PLANS:

Defined contribution plan

The Company makes contributions to Provident Fund and Employee State Insurance Schemes which are defined contribution plans, for qualifying employees. Under the schemes, the Company is required to contribute a specified percentage of the payroll cost to fund the benefits. The Company recognised Rs. 54.70 Million (for the year ended December 31, 2012: Rs. 35.56 Million) for provident fund contributions and Rs. 3.64 Million (for the year ended December 31, 2012: Rs. 3.84 Million) for Employee State Insurance Scheme contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes.

Defined benefit plan

The Company offers gratuity under its employee benefit scheme to its employees. The following table sets out the funded status of the defined benefit scheme and the amount recognised in the financial statements:

Since the Company prepares consolidated financial statements, segment information has not been provided in these financial statements.

RELATED PARTY TRANSACTIONS : LIST OF THE RELATED PARTIES

Wholly owned subsidiaries

Direct Holding

Inbiopro Solutions Private Limited (w.e.f June 14, 2013)

Stelis Biopharma Private Limited, India (formerly Agila Biotech Private Limited, India)(upto March 21, 2014)

Strides Arcolab International Limited, U.K (SAIL)

Strides Pharma Asia Pte Limited, Singapore (formerly Agila Specialties Asia Pte. Ltd., Singapore)

Strides Pharma International Limited, Cyprus

Strides Pharmaceuticals (Holdings) Limited, Cyprus (formerly Agila Specialties Limited)

Strides Technology & Research Private Limited, India (wound up on June 03, 2013)

Agila Specialties Private Limited, India (upto December 04, 2013) Arcolab Limited SA, Switzerland (wound up in October 2013) indirect Holding Co-Pharma Limited, UK Plus Farma ehf. Iceland

Inbiopro Solutions Private Limited (From March 18, 2013 to June 13, 2013)

Stelis Biopharma Private Limited, India (formerly Agila Biotech Private Limited, India)(w.e.f March 21, 2014)

Stelis Biopharma (Malaysia) SDN BHD, Malaysia (formerly Agila Biotech (Malaysia) SDN BHD, Malaysia)

Strides Africa Limited, British Virgin Islands Strides Australia Pty Limited, Australia

Strides Pharma Global Pte Limited, Singapore (w.e.f. August 21, 2013) Strides Pharma Inc., USA (w.e.f. June 11, 2013)

Strides Pharma Limited, Cyprus (formerly Linkace Limited)

Strides Pharmaceuticals (Holdings) Limited, Mauritius (wound up as on January 30, 2014)

Strides Pharmaceuticals (Mauritius) Limited, Mauritius (wound up as on January 30, 2014)

Strides S.A. Pharmaceuticals Pty. Limited, South Africa Strides Specialties (Holdings) Limited, Mauritius

Agila Pharma Canada Corporation, Canada (upto December 04, 2013)

Agila Specialties (Holdings) Cyprus Limited (formerly Strides Specialties (Holdings) Cyprus Limited, Cyprus) (upto December 04, 2013)

Agila Specialties Americas Limited, Cyprus (upto December 04, 2013)

Agila Specialties Global Pte. Limited, Singapore (upto December 04, 2013)

Agila Specialties Inc., USA (previously known as Strides Inc., USA) (upto December 04, 2013)

Agila Specialties Investments Limited, UK (upto December 04, 2013) Agila Specialties UK Limited, UK (upto December 04, 2013)

Agila Specialties Polska Sp. Z.o.o, Poland (upto December 04, 2013) Farma Plus AS, Norway (upto December 04, 2013)

Onco Laboratories Limited, Cyprus (upto December 04, 2013)

Onco Therapies Limited, India (upto December 04, 2013)

Scentia Pharmaceuticals Pty Limited, Australia (formerly Linkace Investments PTY Limited)

Other Subsidiaries:

Indirect Holding:

Strides Pharma (Cyprus) Limited, Cyprus

African Pharmaceuticals Development Company, Cameroon

Congo Pharma SPRL, Congo

Sorepharm SA, Burkinofaso

SPC Co. Limited, Sudan

Strides Emerging Markets Private Limited, India Strides Pharma Cameroon Limited, Cameroon Strides Pharma Namibia (Pty) Limited, Namibia Strides Vital Nigeria Limited, Nigeria Beltapharm S.p.A., Italy

Inbiopro Solutions Private Limited, India (upto March 17, 2013) Strides CIS Limited, Cyprus

Agila Australasia Pty Limited, Australia (upto December 04, 2013) Agila (NZ) Pty Limited, New Zealand (upto December 04, 2013)

Catalist Pty Limited, (w.e.f. January 01, 2013 & upto December 04, 2013)

Agila Farmaceuticas Participacoes Ltda, Brazil (formerly Strides Farmaceuticas Participacoes Ltda, Brazil) (upto December 04, 2013)

Agila Especialidades Farmaceuticas Ltda, Brazil (upto December 04, 2013)

Agila Marketing e distribicao de Productos Hospitalaries Ltda., Brazil (upto December 04, 2013)

Joint Ventures (JV):

Akorn Strides LLC, USA

Sagent Agila LLC, USA (upto December 04, 2013)

Agila Jamp Canada Inc., Canada (upto December 04, 2013)

Associates Strides Actives Private Limited (w.e.f June 17, 2013)

Key Management Personnel (KMP): Arun Kumar (Executive Vice Chairman & Managing Director)

Relatives of Key Management Personnel (KMP):

Rajeshwari Amma Deepalakshmi Arun Kumar Aditya Arun Kumar Tarini Arun Kumar Padmakumar Karunakaran Pillai Hemalatha Pillai Sajitha Pillai Rajitha Gopalkrishnan Vineetha Mohana Kumar Mohana Kumar Pillai

Enterprises owned or significantly influenced by key management personnel and relative of key management personnel

Atma Enterprises LLP, India

Atma Projects, India

Agnus Capital LLP, India

Agnus Holdings Private Limited, India

Agnus Global Holdings Pte Limited, Singapore

Agnus IPCO Limited, BVI

Chayadeep Properties Private Limited, India (upto February 7, 2014) Chayadeep Ventures LLP, India (upto February 7, 2014)

Mandala Valley Vineyards Private Limited, India

Mobme Wireless Solutions Limited

Nous Infosytems Private Limited, India

Patsys Consulting Private Limited, India

Santo Properties Private Limited, India

Sequent Scientific Limited, India

Sequent Research Limited, India

Sequent Penems Private Limited, India

Sequent Global Holdings Limited, Mauritius

Sequent Antibiotics (P) Limited, India

Sequent Oncolytics (P) Limited, India

Skanray Healthcare Private Limited, India

Karuna Ventures Private Limited, India

Paradime Infrastructure Development Company, India

Deesha Properties, India

Qualichem Remedies LLP, India

Triumph Venture Holdings LLP, India

Tulp Foods Private Limited, India

Keerthapathi Ravishankar - HUF

Pronomz Ventures LLP, India

DETAILS OF LEASING ARRANGEMENTS

The Company''s leasing arrangements are mainly in respect of factory buildings, residential and office premises. The aggregate lease rentals payable on these leasing arrangements charged to the Statement of Profit and Loss is Rs. 19.25 Million (Previous year Rs. 26.25 Million).

The Company had given on an operating lease for an initial term of 5 years, certain plant and machinery to its step down wholly owned subsidiary Agila Specialties Polska Sp. Z.o.o. Consequent to the sale of Specialty business, such plant and machinery given on lease has been sold during the current period.

TRANSFER PRICING

The detailed Transfer Pricing regulations (''regulations'') for computing the income from "domestic transactions" with specified parties and international transactions between ''associated enterprises'' on an ''arm''s length'' basis is applicable to the Company. These regulations, inter alia, also require the maintenance of prescribed documents and information including furnishing a report from an Accountant which is to be filed with the Income tax authorities.

The Company has undertaken necessary steps to comply with the Transfer Pricing regulations. The Management is of the opinion that the transactions with associated enterprises and domestic transactions are at arm''s length, and hence the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

EARLY ADOPTION OF AS-30: FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT, ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

The Company has chosen to early adopt AS 30: ''Financial Instruments: Recognition and Measurement'', (as announced by the Institute of Chartered Accountants of India (ICAI)) during the year ended December 31, 2008, with effect from January 1, 2008. However, pursuant to a notification issued by the ICAI on February 11, 2011, the Company has adopted AS30 only to the extent they do not conflict with the other mandatory accounting standards notified under Section 211(3C) of the Companies Act, 1956.

The impact of adoption of AS30 as mentioned above is as follows:

4.4 Foreign Currency Convertible Bonds (the ''FCCBs'' or the ''Bonds'') which were redeemed during the year ended December 31, 2012:

The FCCBs were split into two components comprising

(a) option component which represents the value of the option in the hands of the FCCB-holders to convert the bonds into equity shares of the Company and (b) debt component which represents the debt to be redeemed if the conversion option was not exercised by FCCB-holder, net of issuance costs.

The debt component was recognized and measured at amortized cost while the fair value of the option component was determined using a valuation model using the following assumptions.

Assumptions used to determine fair value of the options:

Valuation and amortization method — The Company estimates the fair value of stock options granted using the Black Scholes Merton Model and the principles of the Roll-Geske-Whaley extension to the Black Scholes Merton model. The Black Scholes Merton model along with the extensions above requires the following inputs for valuation of options:

Stock price as at the date of valuation — The Company''s share prices as quoted in the National Stock Exchange Limited (NSE), India have been converted into equivalent share prices in US Dollar terms by applying currency rates as at valuation dates. Further, stock prices have been reduced by continuously compounded stream of dividends expected over time to expiry as per the principles of the Black-Scholes Merton model with Roll Geske Whaley extensions.

Strike price for the option — has been computed in dollar terms by computing the redemption amount in US dollars on the date of redemption (if not converted into equity shares) divided by the number of shares which shall be allotted against such FCCBs.

Expected Term — The expected term represents time to expiry, determined as number of days between the date of valuation of the option and the date of redemption.

Expected Volatility — Management establishes volatility of the stock by computing standard deviation of the simple exponential daily returns on the stock. Stock prices for this purpose have been computed by expressing daily closing prices as quoted on the NSE into equivalent US dollar terms. For the purpose of computing volatility of stock prices, daily prices for the last one year have been considered as on the respective valuation dates.

Risk-Free interest Rate — The risk-free interest rate used in the Black-Scholes valuation method is the risk free interest rate applicable to the Company.

Expected Dividend — Dividends have been assumed to continue, for each valuation rate, at the rate at which dividends were earned by shareholders in the preceding twelve months before the date of valuation.

Measurement of Amortized cost of debt component:

For the purpose of recognition and measurement of the debt component, the effective yield has been computed considering the amount of the debt component on initial recognition, origination costs of the FCCB and the redemption amount if not converted into Equity Shares. To the extent the effective yield pertains to redemption premium and the origination costs, the effective yield has been amortized to the Securities Premium Account (along with related exchange fluctuations) as permitted under section 78 of the Companies Act, 1956. The balance of the effective yield is charged to the Statement of Profit and Loss.

Consequent to the above method of accounting of FCCBs, the following adjustments were made:

During the year ended December 31, 2012:

(a) Amortization of interest (net) Rs. 84.98 Million and redemption premium (net) on FCCBs amounting to Rs. 164.13 Million have been recorded in the Statement of Profit and Loss and in the Securities premium account respectively.

(b) Change in the fair values of option component in the FCCBs, being a gain of Rs. 2.09 Million has been recorded in the Statement of Profit & Loss under exceptional items.

49.2 The financial assets and liabilities arising out of issue of corporate financial guarantees to third parties are accounted at fair values on initial recognition. Financial assets continue to be carried at fair values. Financial liabilities are subsequently measured at the higher of the amounts determined under AS 29 or the fair values on the measurement date. At March 31, 2014 and December 31, 2012, the fair values of such financial assets and financial liabilities amount to Rs. Nil.

4.5 There are no open derivative positions as on March 31, 2014 not designated as hedging instruments and accordingly there is no gain / loss on fair valuation of such derivatives recognized in the Statement of Profit and Loss for the current period.

4.6 The Company has availed bill discounting facilities from Banks which do not meet the de-recognition criteria for transfer of contractual rights to receive cash flows from the respective trade receivables since they are with recourse to the Company. Accordingly, as at March 31, 2014, trade receivables balances include Rs. 792.56 Million (As at December 31, 2012: Rs. 515.99 Million) and the corresponding financial liability to the Banks is included as part of working capital loans under short-term borrowings (secured).

4.7 The Company has designated certain highly probable forecasted US dollar denominated sales transactions and certain forward contracts to sell US dollars as hedged items and hedging instruments respectively, in a Cash Flow Hedge to hedge the foreign exchange risk arising out of fluctuations between the India rupee and the US dollar. The exchange fluctuations arising from marking to market of the hedging instruments, to the extent relatable to the hedge being effective has been recognised in a Hedge reserve account in the Balance sheet. Accordingly exchange fluctuations gains / (losses) amounting to Rs. 81.18 Million as at March 31, 2014 (At December 31, 2012: Rs. (6.59 Million)) have been recognized in the Hedge Reserve account. These exchange differences are considered in Statement of Profit and Loss as and when the forecasted transactions occur.

DISCLOSURES RELATING TO FINANCIAL INSTRUMENTS TO THE EXTENT NOT DISCLOSED ELSEWHERE IN THE FINANCIAL STATEMENTS

5.1 Details on Derivatives Instruments & Un-hedged Foreign Currency Exposures:

The following derivative positions are open as at March 31, 2014. These transactions have been undertaken to act as economic hedges for the Company''s exposures to various risks in foreign exchange markets. These instruments are therefore classified as held for trading and gains/ losses recognized in the Statement of Profit and Loss except to the extent they qualified as Cashflow hedges in the context of the rigour of such classification under Accounting Standard 30.

I. The Company has entered into the following derivative instruments:

(a) Forward Exchange Contracts [being a derivative instrument], which are not intended for trading or speculative purposes, but for hedge purposes, to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

The following are the outstanding Forward Exchange Contracts entered into by the Company which qualified as Cashflow hedging instruments.

(b) Interest Rate Swaps to hedge against fluctuations in interest rate changes: No. of contracts: Nil (As at December 31, 2012: Nil)

(c) Currency Swaps (other than forward exchange contracts stated above) to hedge against fluctuations in changes in exchange rate. No. of contracts: Nil (As at December 31, 2012: Nil)

III. There were no outstanding option contracts as at March 31, 2014 and as at December 31, 2012.

5.2 Categories of Financial Instruments

(a) Loans and Receivables:

The following financial assets in the Balance Sheet have been classified as Loans and Receivables as defined in Accounting Standard 30. These are carried at amortized cost less impairment if any.

(c) Financial assets / liabilities held for trading are as follows:

i. During the year ended December 31, 2012, the option component of FCCBs has been classified as held for trading, being a derivative under AS 30. The carrying amount of the option component was Rs. Nil as at December 31, 2012 (since the FCCB''s were redeemed during 2012) and Rs. 2.09 Million as at December 31, 2011. The difference in carrying value between the two dates, amounting to Rs. 2.09 Million was considered as a gain in the Statement of Profit and Loss of the year ended December 31, 2012 in accordance with provisions of AS 30.

The fair value of the option component has been determined using a valuation model. Refer to Note 49.1 above on FCCBs for detailed disclosure on the valuation method.

ii. Provisions / receivable carried towards mark to market losses / gains on forward exchange contracts Rs. 81.18 Million gain as at March 31, 2014 (Rs. 6.59 Million losses as at December 31, 2012).

(d) There are no other financial assets / liabilities in the following categories:

- Financial assets:

- Carried at fair value through profit and loss designated as such at initial recognition.

-Held to maturity

- Available for sale (other than investment in Subsidiaries & Joint Ventures)

- Financial liabilities:

- Carried at fair value through profit and loss designated as such at initial recognition.

5.3 Nature and extent of risks arising from financial instruments

The main financial risks faced by the Company relate to fluctuations in interest and foreign exchange rates, the risk of default by counterparties to financial transactions, and the availability of funds to meet business needs. The Balance Sheet as at March 31, 2014 is representative of the position through the period. Risk management is carried out by a central treasury department under the guidance of the Management.

Interest rate risk

Interest rate risk arises from long term borrowings. Debt issued at variable rates exposes the Company to cash flow risk. Debt issued at fixed rate exposes the company to fair value risk. In the opinion of the management, interest rate risk during the year under report was not substantial enough to require intervention or hedging through derivatives or other financial instruments. For the purposes of exposure to interest risk, the Company considers its net debt position evaluated as the difference between financial assets and financial liabilities held at fixed rates and floating rates respectively as the measure of exposure of notional amounts to interest rate risk. This net debt position is quantified as under:

Credit risk

Credit risk arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions. Credit risk also arises from trade receivables and other financial assets.

The credit risk arising from receivables is subject to concentration risk in that the receivables are predominantly denominated in USD and any appreciation in the INR will affect the credit risk. Further, the Company is not significantly exposed to geographical distribution risk as the counterparties operate across various countries across the Globe.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company''s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Company''s reputation. Liquidity risk is managed using short term and long term cash flow forecasts.

Foreign exchange risk

The Company is exposed to foreign exchange risk principally via:

- Debt availed in foreign currency

- Net investments in subsidiaries and joint ventures in foreign currencies

- Exposure arising from transactions relating to purchases, revenues, expenses etc. to be settled in currencies other than Indian Rupees, the functional currency of the Company.

5.4 Sensitivity analysis as at March 31, 2014

Financial instruments affected by interest rate changes include Secured Long term loans from banks, Secured Long term loans from others, Secured Short term loans from banks and Unsecured Short term loans from banks. The impact of a 1% change in interest rates on the profit of an annual period will be Rs. 47.18 Million (for the year ending December 31, 2012Rs.63.35 Million) assuming the loans as of March 31, 2014 continue to be constant during the annual period. This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.

Financial instruments affected by changes in foreign exchange rates include FCCBs until redemption in 2012, External Commercial Borrowings (ECBs), investments in subsidiaries, and loans to subsidiaries and joint ventures. The Company considers US Dollar to be principal currency which requires monitoring and risk mitigation. The Company is exposed to volatility in other currencies including the Great Britain Pounds (GBP) and the Australian Dollar (AUD).

For the purposes of the above table, it is assumed that the carrying value of the financial assets and liabilities as at the end of the respective financial years remains constant thereafter. The exchange rate considered for the sensitivity analysis is the Exchange Rate prevalent as at March 31, 2014.

The Board of Directors of the Company in the Meeting held on December 10, 2013 has approved change of financial year of the Company from January-December to that of April-March. Consequently, the current financial year is for a period of 15 months i.e., from January 1, 2013 to March 31, 2014 and the figures for the current period are not strictly comparable with that of the previous year ended December 31, 2012.

Previous year''s figures have been regrouped / reclassified wherever necessary to correspond with the current period''s classification / disclosure.


Dec 31, 2012

CORPORATE INFORMATION

Strides Arcolab Limited (the ''Company'' or ''Strides'') is a pharmaceutical Company headquartered in Bangalore, India and is listed on the Bombay Stock Exchange Limited and National Stock Exchange of India Limited.

Strides develops and manufactures a wide range of IP-led niche pharmaceutical products. The Company has 13 manufacturing facilities across 5 countries and has presence in a number of countries comprising developed and emerging markets.

Note No 1

FOREIGN CURRENCY CONVERTIBLE BONDS

The Company had issued zero coupon Foreign Currency Convertible Bonds (FCCB''s) (listed in the Singapore Exchange Securities Trading Limited, Singapore) to the extent of USD 100 Million (FCCB 100 Million) during the year ended December 31, 2007 which were redeemable on June 27, 2012. During the term the FCCBs were outstanding, they were convertible at Rs. 461.55 per share with a fixed rate of exchange of Rs. 40.70 per USD on conversion. In 2009, as permitted by RBI, the Company had bought back FCCB''s with a face value aggregating to USD 20 Million. On the due date for redemption, FCCBs with a face value of USD 80 million were outstanding which were redeemed along with an effective premium of USD 36.05 million (net) in terms of the contract. The premium paid out to the FCCB holders has been subjected to withholding taxes (Rs. 236.84 Million) under the provisions of the Income tax Act.

SCHEME OF ARRANGEMENT UNDER SECTION 391 - 394 OF THE COMPANIES ACT, 1956

40.1 The shareholders ofthe Company, in their meeting held on April 13, 2009 approved the Scheme of Restructuring that envisaged interalia a Scheme of Arrangement (the ''Scheme'') to be filed under Sections 391 to 394 ofthe Companies Act, 1956 covering the merger of some of the subsidiaries (Transferor companies) of the Company with itself (Transferee company), fair valuation of some of the assets of the Company and creation of a Reserve for Business Restructure (''BRR'') out of any surpluses arising from these, to be utilised as specified in the Scheme.

40.2 The Scheme filed by the Company had been approved by the High Courts of Judicature with an appointed date of January 1, 2009 and an effective date of December 31, 2009 (''the Effective Date''), being the date on which the all requirements under the Companies Act had been completed.

In terms ofthe Scheme and upon the Scheme becoming effective, amongst other things:

- expenses incurred by the Company or its subsidiaries in the nature of impairment, diminution, loss, amortisation and/ or write-off of assets/ investments/ intangibles, interest on borrowings for acquisitions, employee compensation expenses, additional depreciation charged or suffered by the Transferee Company on account of fair valuation, scheme expenses and other expenses or arising in the future as may be determined by the Board of Directors of the Transferee Company, shall be debited to the BRR. The maximum amount that can be written off against the BRR instead of being debited to the Statement of Profit and Loss on or at anytime after January 1, 2009 would be restricted to the balance in the BRR or upto December 31, 2012 and not beyond that. Any unutilised balance in the BRR is required to be transferred to Securities premium account by December 31, 2012.

- the balance in the Securities premium account, as appearing in the books ofthe Transferee Company may be transferred to BRR, to such extent as determined by the Board.

2.1 The accounting treatment effected for the Scheme is as follows:

(a) The fair value of net assets acquired from the Transferor Companies in excess ofthe carrying value of investment in the subsidiaries and the value of equity shares issued to minority shareholders, amounting to Rs. 146.77 Million was credited to BRR during the year ended December 31, 2009.

(b) Upon the Scheme becoming effective, and based on legal advice received, the assets and liabilities of the Transferee Company had been fair valued as determined by the Board of Directors of the Company and the net surplus arising out of such fair valuation (over the carrying value ofthe respective assets and liabilities prior to the fair valuation) was credited to the BRR as follows during the year ended December 31, 2009.

Had the Scheme not prescribed the above accounting treatment, in terms ofthe Company''s accounting policies, these assets would continue to have been carried at cost.

(c) In accordance with the Scheme:

(i) During the current year, an amount of Rs. 65.16 Million has been transferred from Securities premium account to the BRR during 2012.

(ii) The following expenses have been adjusted against the BRR during the year ended:

Had the Scheme not prescribed the above accounting treatment, these expenses would have been included in the Statement of Profit & Loss for the respective years.

(iii) Had the Scheme not provided for the above accounting treatment, the effect of accounting as per the mandatory Accounting Standards issued under the Companies (Accounting Standards) Rules, 2006, would have been as under:

In 2011, the Company transferred its non-current investment in Onco Therapies Limited (''OTL''), a wholly owned subsidiary of the Company, to Agila Specialties Private Limited (''ASPL''), another wholly owned subsidiary of the Company for a total consideration of Rs. 2,344.12 Million which was receivable as at December 31, 2011. In 2012, Rs. 2,300 Million out of the consideration has been settled through allotment of equity shares in ASPL.

As of December 31,2011, the Company had remitted an amount of USD 162.83 Million in Agila Specialties Limited, Cyprus (''Agila Cyprus'', formerly known as Starsmore Limited) and USD 114.42 Million in Strides Arcolab International Limited (SAIL), both wholly owned subsidiaries of the Company. These remittances were towards subscription of shares of these entities and as at December 31, 2011, shares were pending allotment. Out of the above, monies aggregating to USD 99.00 Million (Rs. 5,273.70 Million) remitted to Agila Cyprus and USD 93.00 Million (Rs. 4,954.11 Million) remitted to SAIL have been considered as monetary items as the Company expected these to be refunded. Accordingly, these were restated in accordance with the requirements of Accounting Standard 11 ''The Effect of Changes in Foreign Exchange Rates'' as at December 31, 2011 and an unrealised exchange gain of Rs. 1,564 Million was included under exceptional items in the Statement of Profit and Loss. In 2012, the Company has received these monies and exchange fluctuations arising thereon have also been included under exceptional items in the Statement of Profit and Loss.

Note No. 3

CONTINGENT LIABILITIES

3.1 The Company has given corporate guarantees upto Rs. 26,298.57 Million (Previous year Rs. 4,572.94 Million) to financial institutions and other parties, on behalf of its subsidiaries. At December 31, 2012, the subsidiaries had availed facilities from such financial institutions/ were obligated to the parties referred above for an aggregate amount ofRs. 4,068.85 Million (Previous year Rs. 3,672.54 Million). The Company has additionally provided its fixed assets (under a paripassu second charge) as security in respect ofsome ofthese facilities.

3.2 The Company has disputed tax liabilities arising from assessment proceedings relating to earlier years from the income tax authorities amounting to Rs. 741.31 Million (Previous year Rs. 741.27). The outflow on account of disputed taxes is dependent on completion of assessments.

3.3 The Company has preferred an appeal with the CESTAT against the order of the Commissioner of Central Excise disallowing transfer of CENVAT credit ofRs. 3.86 Million (Previous year Rs. 3.86 Million) as on the date of conversion of one ofthe units ofthe Company into a 100% EOU. The outflow on account of disputed taxes is dependent on completion of assessments.

EMPLOYEE STOCK OPTION PLAN

(a) In the extraordinary general meeting held on January 25, 2007, the shareholders approved the issue of 1,000,000 options under the Plan titled "Strides Arcolab ESOP 2006" (ESOP 2006).

The ESOP 2005 allows the issue of options to employees of the Company and its subsidiaries (whether in India or abroad). Each option comprises one underlying equity share.

As per the Plan, the Compensation committee grants the options to the employees deemed eligible. The exercise price of each option shall not be less than 85 per cent of the "Market Price" as defined in the Scheme. The options granted vest over a period of 3 years from the date ofthe grant in proportions specified in the Plan. Options should be exercised within 30 days ofvesting. No options are granted under this plan in 2012.

In respect of the ESOP 2005 and all the other Employee Stock Option Plans detailed in this note, (i) the difference between the fair price of the share underlying the options granted, on the date of grant of option and the exercise price of the option, (being the intrinsic value of the option) representing Stock compensation expense, is expensed over the vesting period, (ii) all unvested options will vest immediately in the case of merger, dissolution or change in management ofthe Company.

(b) The ESOP titled "Strides Arcolab ESOP 2008" (ESOP 2008) was approved by the shareholders through postal ballot on June 18, 2008.1,500,000 options are covered under the scheme for 1,500,000 shares.

During the current year, the Remuneration Committee in its meetings held on January 20, 2012 has granted 100,000 options under the ESOP 2008 to eligible employees of the Company. The options allotted under ESOP 2008 are convertible into equal number of equity shares.

The vesting period of these options range over a period of three years. The options must be exercised with in a period of 30 days from the date of vesting.

(c) The ESOP titled "Strides Arcolab ESOP 2008 (Directors)" (ESOP 2008 Directors Plan) was approved by the shareholders through postal ballot on January 12, 2009. 500,000 options are covered under the scheme for 500,000 equity shares.

The Remuneration Committee of the Company, on July 27, 2012 has granted 50,000 options under the ESOP 2008 Directors Plan to some Directors ofthe Company. The shares covered by such options were 50,000 equity shares.

The vesting period of these options range over a period of three years. The options must be exercised with in a period of 30 days from the date of vesting.

(d) The ESOP titled "Strides Arcolab ESOP 2011" (ESOP 2011) was approved by the shareholders on May 30, 2011.

1,500,000 options are covered under the scheme for 1,500,000 shares. No options are granted under this plan in the current year.

(e) In terms of the Scheme of arrangement, employee compensation costs under the above referred various Employee Stock Option Plans may be recorded to BRR. Consequently, during the year, an amount ofRs. 20.87 Million (net) (Previous year Rs. 19.59 Million) as noted below has been debited to BRR.

EMPLOYEE BENEFITS PLANS

Defined contribution plan

The Company makes contributions to provident fund (a defined contribution plans) for qualifying employees. Under the schemes, the Company is required to contribute a specified percentage of the payroll cost to fund the benefits. The Company recognised Rs. 35.56 Million (Previous year Rs. 33.68 Million) for provident fund contributions. The contributions payable to these plans by the Company are at rates specified in the rules ofthe schemes.

Defined benefit plan

The Company offers gratuity under its employee benefit scheme to its employees. The following table sets out the funded status ofthe defined benefit scheme and the amount recognised in the financial statements:

Note:

(a) The discount rate is based on the prevailing market yields of Government of India securities as at the balance sheet date for the estimated term of the obligations.

(b) The estimate of future salary increases considered, takes into account the inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

(c) In the absence of information relating to category wise breakup of plan assets, the same has not been disclosed.

(d) The above disclosure on gratuity and compensated absences is to the extent of information available with the Company and as per the actuarial valuation reports for gratuity and compensated absences.

Note No. 4

Since the Company prepares consolidated financial statements, segment information has not been provided in these financial statements.

DETAILS OF LEASING ARRANGEMENTS

The Company''s significant leasing arrangements are mainly in respect offactory buildings, residential and office premises. The aggregate lease rentals payable on these leasing arrangements charged to the Statement of Profit and Loss is Rs. 26.25 Million (Previous year Rs. 37.14 Million).

The Company has entered into non-cancellable lease agreements for its facilities and office premises. The tenure of lease ranges from 3 years to 15 years. The said lease arrangements have an escalation clause wherein lease rental is subject to an increment ranging from 5% to 10%. Details ofthe lease commitment at the year end are as follows:

Note: for the purpose of computing diluted earnings per share, the existence of FCCB''s until the date of redemption has been considered in accordance with AS 20 (''Earnings per Share''). The FCCB''s are anti dilutive for 2011 and hence ignored for computing diluted EPS in 2011.

Note No.5

TRANSFER PRICING

The detailed Transfer Pricing regulations (''regulations'') for computing the income from transactions between ''associated enterprises'' on an ''arm''s length'' basis is applicable to the Company. These regulations, inter alia, also require the maintenance of prescribed documents and information including furnishing a report from an Accountant which is to be filed with the Income tax authorities.

The Company has undertaken necessary steps to comply with the regulations. The Management is of the opinion that the transactions are at arm''s length, and hence the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

Note No.6

EARLY ADOPTION OF AS-30: FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT, ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

The Company has chosen to early adopt AS 30: ''Financial Instruments: Recognition and Measurement'', (as announced by the Institute of Chartered Accountants of India (ICAI)) during the year ended December 31, 2008, with effect from January 1, 2008. However, pursuant to a notification issued by the ICAI on February 11, 2011, the Company has adopted AS30 only to the extent they do not conflict with the other mandatory accounting standards notified under Section 2H(3C) of the Companies Act, 1956.

The impact of adoption of AS30 as above is as follows:

6.1 Foreign Currency Convertible Bonds (the ''FCCBs'' orthe ''Bonds''):

The FCCBs were split into two components comprising (a) option componentwhich represents the value ofthe option in the hands of the FCCB-holders to convert the bonds into equity shares of the Company and (b) debt component which represents the debt to be redeemed if the conversion option was not exercised by FCCB-holder, net of issuance costs.

The debt component was recognised and measured at amortised cost while the fair value of the option component was determined using a valuation model using the following assumptions.

Assumptions used to determine fair value of the options:

Valuation and amortisation method— The Company estimates the fairvalue of stock options granted using the Black Scholes Merton Model and the principles ofthe Roll-Geske-Whaley extension to the Black Scholes Merton model. The Black Scholes Merton model along with the extensions above requires the following inputs for valuation of options:

Stock Price as at the date of valuation - The Company''s share prices as quoted in the National Stock Exchange Limited (NSE), India have been converted into equivalent share prices in US Dollar terms by applying currency rates as at valuation dates. Further, stock prices have been reduced by continuously compounded stream of dividends expected over time to expiry as per the principles ofthe Black-Scholes Merton model with Roll Geske Whaley extensions.

Strike price for the option— has been computed in dollar terms by computing the redemption amount in US dollars on the date of redemption (if not converted into equity shares) divided by the number of shares which shall be allotted against such FCCBs.

Expected Term— The expected term represents time to expiry, determined as number of days between the date of valuation of the option and the date of redemption.

Expected Volatility— Management establishes volatility of the stock by computing standard deviation of the simple exponential daily returns on the stock. Stock prices for this purpose have been computed by expressing daily closing prices as quoted on the NSE into equivalent US dollar terms. For the purpose of computing volatility of stock prices, daily prices for the last one year have been considered as on the respective valuation dates.

Risk-Free Interest Rate— The risk-free interest rate used in the Black-Scholes valuation method is the riskfree interest rate applicable to the Company.

Expected Dividend— Dividends have been assumed to continue, for each valuation rate, at the rate at which dividends were earned by shareholders in the last preceding twelve months before the date of valuation.

Measurement of Amortised cost of debt component:

For the purpose of recognition and measurement of the debt component, the effective yield has been computed considering the amount ofthe debt component on initial recognition, origination costs ofthe FCCB and the redemption amount if not converted into Equity Shares. To the extent the effective yield pertains to redemption premium and the origination costs, the effective yield has been amortised to the Securities Premium Account (along with related exchange fluctuations) as permitted under section 78 ofthe Companies Act, 1956. The balance ofthe effective yield is charged to the Statement of Profit and Loss.

Consequent to the above method of accounting of FCCBs, the following adjustments were made:

During the year ended December 31, 2011:

(a) Amortisation of interest of Rs. 147.48 Million (net) and redemption premium (net) on FCCBs amounting to Rs. 676.23 Million had been recorded in the Statement of Profit and Loss and in the Securities premium account respectively.

(b) Change in the fair values of option component in the FCCBs, being a gain ofRs. 188.85 Million had been recorded in the Statement of Profit & Loss under exceptional items.

During the year ended December 31, 2012:

(a) Amortisation of interest (net) Rs. 84.98 Million and redemption premium (net) on FCCBs amounting to Rs. 164.13 Million have been recorded in the Statement of Profit and Loss and in the Securities premium account respectively.

(b) Change in the fair values of option component in the FCCBs, being a gain ofRs. 2.09 Million has been recorded in the Statement of Profit & Loss under exceptional items.

6.2: The financial assets and liabilities arising out of issue of corporate financial guarantees to third parties are accounted at fair values on initial recognition. Financial assets continue to be carried at fair values. Financial liabilities are subsequently measured at the higher of the amounts determined under AS 29 or the fair values on the measurement date. At December 31, 2012 and December 31, 2011, the fair values of such financial assets and financial liabilities amount to Rs. Nil.

6.3 Gains/ losses on fair valuation of all the open derivative positions as on December 31, 2012 not designated as hedging instruments have been recognised in the Statement of Profit and Loss.

6.4 The Company has availed bill discounting facilities from Banks which do not meet the de-recognition criteria for transfer of contractual rights to receive cash flows from the respective trade receivables since they are with recourse to the Company. Accordingly, as at December 31, 2012, trade receivables balances include Rs. 515.99 Million (Previous year Rs. 1,130.70 Million) and the corresponding financial liability to the Banks is included as part of short-term secured loans.

6.5 The Company has designated certain highly probable forecasted US dollar denominated sales transactions and certain forward contracts to sell US dollars as hedged items and hedging instruments respectively, in a Cash Flow Hedge to hedge the foreign exchange risk arising out of fluctuations between the India rupee and the US dollar. The exchange fluctuations arising from marking to market ofthe hedging instruments, to the extent relatable to the hedge being effective has been recognised in a Hedge reserve account in the Balance sheet. Accordingly exchange fluctuations losses amounting to Rs. 6.59 Million as at December 31, 2012 (At December 31, 2011 Rs. 447.10 Million) have been recognised in the Hedge Reserve account. These exchange differences are considered in Statement of Profit and Loss as and when the forecasted transactions occur.

6.7 Details on Derivatives Instruments & Un-hedged Foreign Currency Exposures :

The following derivative positions are open as at December 31, 2012. These transactions have been undertaken to act as economic hedges for the Company''s exposures to various risks in foreign exchange markets. These instruments are therefore classified as held for trading and gains/ losses recognised in the Statement of Profit and Loss except to the extent they qualified as Cash flow hedges in the context ofthe rigour of such classification under Accounting Standard 30.

I. The Company has entered into the following derivative instruments:

(a) Forward Exchange Contracts [being a derivative instrument], which are not intended for trading or speculative purposes, but for hedge purposes, to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

(b) Interest Rate Swaps to hedge against fluctuations in interest rate changes: No. of contracts: Nil (Previous year: Nil)

(c) Currency Swaps (other than forward exchange contracts stated above) to hedge against fluctuations in changes in exchange rate. No. of contracts: Nil (Previous Year: Nil)

6.7 Categories of Financial Instruments :

(a) Loans and Receivables:

The following financial assets in the Balance Sheet have been classified as Loans and Receivables as defined in Accounting Standard 30. These are carried at amortised cost less impairment if any.

(c) Financial Liabilities Held for Trading are as follows:

i. The option component of FCCBs has been classified as held for trading, being a derivative under AS 30. The carrying amount of the option component was Rs. Nil as at December 31, 2012 (since the FCCB''s were redeemed during 2012) and Rs.2.09 Million as at December 31, 2011. The difference in carrying value between the two dates, amounting to Rs. 2.09 Million is considered as a gain in the Statement of Profit and Loss of the year in accordance with provisions of AS 30.

The fair value of the option component has been determined using a valuation model. Refer to Note 51.1 above on FCCBs for detailed disclosure on the valuation method.

ii. Provisions carried towards mark to market losses on forward exchange contracts Rs. 6.59 Million as at December 31, 2012 and Rs. 447.10 Million as at December 31, 2011.

(d) There are no other financial assets / liabilities in the following categories:

Financial assets:

- Carried at fair value through profit and loss designated as such at initial recognition.

- Held to maturity.

- Available for sale (other than investment in Subsidiaries & Joint Ventures).

Financial liabilities:

- Carried at fair value through profit and loss designated as such at initial recognition.

6.8 Nature and extent of risks arising from financial instruments:

The main financial risks faced by the Company relate to fluctuations in interest and foreign exchange rates, the risk of default by counterparties to financial transactions, and the availability of funds to meet business needs. The Balance Sheet as at December 31, 2012 is representative of the position through the year. Risk management is carried out by a central treasury department under the guidance of the Management.

Interest rate risk

Interest rate risk arises from long term borrowings. Debt issued at variable rates exposes the Company to cash flow risk. Debt issued atfixed rate exposes the company to fairvalue risk. In the opinion ofthe management, interest rate risk during the year under report was not substantial enough to require intervention or hedging through derivatives or other financial instruments. For the purposes of exposure to interest risk, the Company considers its net debt position evaluated as the difference between financial assets and financial liabilities held at fixed rates and floating rates respectively as the measure of exposure of notional amounts to interest rate risk. This net debt position is quantified as under:

Credit risk

Credit risk arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions. Credit risk also arises from trade receivables and other financial assets.

The credit risk arising from receivables is subject to concentration risk in that the receivables are predominantly denominated in USD and any appreciation in the INR will affect the credit risk. Further, the Company is not significantly exposed to geographical distribution risk as the counterparties operate across various countries across the Globe.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company''s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Company''s reputation. Liquidity risk is managed using shortterm and long term cash flow forecasts.

The following is an analysis of contractual cash flows payable under financial liabilities and derivatives as at December 31, 2012. (Figures in brackets relates to Previous Year)

Foreign exchange risk

The Company is exposed to foreign exchange risk principally via:

Debt availed in foreign currency

- Net investments in subsidiaries and joint ventures in foreign currencies

Exposure arising from transactions relating to purchases, revenues, expenses etc. to be settled in currencies other than Indian Rupees, the functional currency of the Company.

6.9 Sensitivity analysis as at December 31, 2012 :

Financial instruments affected by interest rate changes include Secured Long term loans from banks, Secured Long term loans from others, Secured Short term loans from banks and Unsecured Short term loans from banks. The impact of a 1% change in interest rates on the profit of an annual period will be Rs. 83.14 Million (Previous year Rs. 99.55 Million) assuming the loans as of December 31, 2012 continue to be constant during the annual period. This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.

Financial instruments affected by changes in foreign exchange rates include FCCBs untill redemption in 2012, External Commercial Borrowings (ECBs), investments in subsidiaries, and loans to subsidiaries and joint ventures. The Company considers US Dollar to be principal currency which requires monitoring and risk mitigation. The Company is exposed to volatility in other currencies including the Great Britain Pounds (GBP) and the Australian Dollar (AUD).

For the purposes ofthe above table, it is assumed that the carrying value ofthe financial assets and liabilities as at the end of the respective financial years remains constant thereafter. The exchange rate considered for the sensitivity analysis is the Exchange Rate prevalent as at December 31, 2012.

7. The Company has not received a written representation from Mr. K. R. Ravishankar, one ofthe directors ofthe Company as at December 31, 2012, confirming that he is not disqualified from being appointed as a director of the Company in terms of Section 274(l)(g) of the Companies Act, 1956.

8. The Revised Schedule VI (RSCH VI) has become effective from April 1,2011 for the preparation of financial statements and RSCH VI is applicable to the Company from the current year. This has significantly impacted the disclosure and presentation made in the financial statements. Previous year''s figures have been regrouped / reclassified wherever necessary to correspond with the current year''s classification / disclosure.

9. Post Balance Sheet Event :

The Company and its subsidiary, Agila Specialties Asia Pte. Ltd. (Agila Asia), have entered into definitive agreements with Mylan Inc. on February 27, 2013for the sale ofshares in the following subsidiaries ofthe Company:

- Agila Specialties Private Limited, and

- Agila Specialties Global Pte. Limited, a step subsidiary.

In terms ofthe agreements, the consideration is subject to certain retentions, post completion adjustments and deposit of escrow amounts as set out in the agreements. The completion of the sale is subject to various regulatory and corporate approvals as may be required and fulfillment of other terms and conditions agreed between the parties and set out in the agreements. Upon satisfaction of the terms and conditions and receipt of all regulatory and corporate approvals, the Company and its subsidiary will tender the shares to the buyer.


Dec 31, 2011

1. Capital Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for (Net of advances) is Rs 88.63 Million (Previous year Rs 168.45 Million).

2. Contingent Liabilities

2.1 As at December 31, 2011, the Company has given corporate guarantees upto Rs 4,572.94 Million (Previous year Rs 3,516.27 Million) to financial institutions and other parties, on behalf of its subsidiaries. At December 31, 2011, the subsidiaries had availed facilities from such financial institutions / were obligated to the parties referred above for an aggregate amount of Rs 3,672.54 Million (Previous year Rs 3,143.66 Million). The Company's fixed assets (paripassu second charge) and certain investments in the respective subsidiaries have been offered as security in respect of some of these facilities.

2.2 As at December 31, 2011, the Company has disputed tax liabilities arising from assessment proceedings relating to earlier years from the income tax authorities amounting to Rs 741.27 Million (Previous year Rs Nil)

2.3 The Company preferred appeal with the CESTAT against the order of the Commissioner of Central Excise for disallowing transfer of CENVAT credit of Rs 3.86 Million (Previous year Rs 3.86 Million) as on the date of conversion of one of the units of the Company into a 100% EOU.

3. Foreign currency convertible bonds

(a) During the accounting year ending December 31, 2007, the Company had issued Foreign Currency Convertible Bonds (FCCB), listed in the Singapore Stock Exchange, amounting to USD 100 Million (Rs 4,070 Million) (FCCB 100 Million) on June 26, 2007. These bonds carry zero coupon and are to be redeemed on June 27, 2012 (unless converted into Equity Shares) at 145.058 per cent of the Principal amount.

The bonds may be redeemed in whole, but not in part at the option of the Company at any time on or after July 18, 2010 and on and prior to June 20, 2012 with a redemption premium of 7.575 per cent (which is identical to the gross yield in case of redemption at maturity) calculated on a semi-annual basis. Any tax cost that may arise on the bond-holder on redemption is determinable on redemption and would need to be absorbed by the Company.

The Bonds are convertible at any time on or after August 6, 2007 and up to the close of business on June 20, 2012 by the holders of the Bonds into shares at the option of the Bondholder, at an initial conversion price of Rs 461.553 per share with a fixed rate of exchange of Rs 40.70 per USD on conversion. The bonds are listed on Singapore Exchange Securities Trading Limited, Singapore.

As permitted by the Reserve Bank of India (RBI), during the year 2009, the Company bought back FCCB's with a face value aggregating to USD 20 Million from the outstanding bonds issued under FCCB 100 Million, at a discount.

As at December 31, 2011, none of the outstanding bonds had been offered for conversion.

(b) The Company had issued FCCB's (listed in the Singapore Exchange Securities Trading Limited, Singapore) to the extent of USD 40 Million (FCCB 40 Million) during the year ended December 31, 2005. In the year 2009, as permitted by RBI, the Company had bought back FCCB's with a face value aggregating to USD 6 Million out of the FCCB's face value of USD 40 Million. In the year 2010, as per the term and conditions agreed with the holders of FCCB 40 Million, the Company had redeemed the balance outstanding FCCB's aggregating to USD 34 Million. The Company had paid in total USD 46.51 Million (Rs 2,062.50 Million) including USD 12.51 Million towards redemption premium. An amount of Rs 61.60 Million paid towards withholding taxes on redemption premium had been debited to Securities Premium Account in 2010.

4. Cumulative Redeemable Preference Shares

In May 2005, the Company had issued 491,606 6% Cumulative Redeemable Preference Shares (CRPS) of Rs 1,000 each fully paid to K V Pharmaceuticals, USA ('KV Pharma')(approximately USD 10.95 Million). The Preference shares were redeemable at par along with accrued unpaid dividend on or before December 31, 2012.

The Company, Strides Inc. (a step-subsidiary of the Company) and KV Pharma had also entered into a License and Supply agreement ('LSA') pursuant to which the Company and Strides Inc. had agreed to undertake certain development work for developing certain pharmaceutical products, subject to certain terms and conditions mentioned in LSA. In March 2009 due to certain adverse developments at KV Pharma, the Company terminated the said LSA. KV Pharma had approached the International Court of Arbitration disputing the termination of the LSA.

In the year 2010, pursuant to a negotiation for an out of court settlement, the Company had entered into a Settlement Agreement & Release (Settlement Agreement) with KV Pharma. In accordance with the Settlement Agreement, the rights and obligations of all parties under the LSA and those arising out of the subscription to the CRPS were settled on a net basis. Pursuant to the Settlement Agreement, the Company had paid out KV Pharma an amount of USD 7.25 Million in full and final settlement. Consequent to the net settlement, the dividend on the CRPS that were accrued for in 2005 through 2009 along with the related dividend distribution taxes to the extent unpaid, had been reversed in the year 2010 and the same had been credited under appropriations in the Profit and Loss Account and an amount of Rs 165.86 Million had been credited to the Reserve for Business Restructure ('BRR') being the extent attributable to recoveries of receivables under the LSA that were written off to the BRR in earlier years under a Scheme of Arrangement approved by the Honorable High Courts of Judicature (refer note 5 below).

Consequent to the redemption of the CRPS as referred above, the Company in the year 2010 had credited Capital Redemption Reserve to the extent of Rs 491.61 Million being the face value of CRPS redeemed.

5. Scheme of Arrangement under Section 391 - 394 of the Companies Act, 1956

5.1 During the year ending December 31, 2009, the shareholders of the Company, in their meeting held on April 13, 2009 approved the Scheme of Restructuring that envisaged interalia a Scheme of Arrangement (the 'Scheme') to be filed under Sections 391 to 394 of the Companies Act, 1956 covering the merger of some of the subsidiaries of the Company (Transferor companies) with itself (Transferee company), fair valuation of some of the assets of the Company and creation of a Reserve for Business Restructure ('BRR') out of any surpluses arising from these, to be utilised as specified in the Scheme.

5.2 The details of the Scheme are given below.

The Scheme filed by the Company had been approved by the High Courts of Judicature with an appointed date of January 1, 2009 and an effective date of December 31, 2009 ('the Effective Date'), being the date on which the all requirements under the Companies Act had been completed.

In terms of the Scheme and upon the Scheme becoming effective, amongst other things:

expenses incurred by the Company or its subsidiaries in the nature of impairment, diminution, loss, amortisation and / or write-off of assets / investments / intangibles, interest on borrowings for acquisitions, employee compensation expenses, additional depreciation charged or suffered by the Transferee Company on account of fair valuation, scheme expenses and other expenses or arising in the future as may be determined by the Board of Directors of the Transferee Company, have wwbeen / shall be debited to the BRR. The maximum amount that can be written off against the BRR instead of being debited to the Profit and Loss Account on or at any time after January 1, 2009 would be restricted to the balance in the BRR or upto December 31, 2012 and not beyond that.

the balance in the Securities Premium Account, as appearing in the books of the Transferee Company may be transferred to BRR, to such extent as determined by the Board.

5.3 The accounting treatment effected for the Scheme was as follows:

(a) The fair value of net assets acquired from the Transferor Companies in excess of the carrying value of investment in the subsidiaries and the value of equity shares issued to minority shares holders, amounting to Rs 146.77 Million was credited to BRR.

Had the Scheme not prescribed the above accounting treatment of crediting the excess of fair value of assets and liabilities over the carrying value of the investment in the Transferor Companies and the equity shares of the Transferee Company issued to the minority shareholders of the Transferor Companies to the BRR, this surplus of Rs146.77 Million would have been credited to Capital Reserve as required under the AS 14 'Accounting for Amalgamations'.

(b) Upon the Scheme becoming effective, and based on legal advice received, the assets and liabilities of the Transferee Company had been fair valued as determined by the Board of Directors of the Company and the net surplus arising out of such fair valuation (over the carrying value of the respective assets and liabilities prior to the fair valuation) was credited to the BRR as follows during the year ended December 31, 2009.

6. Share Warrants

As authorised by the shareholders of the Company in the Extra Ordinary General meeting held on May 13, 2009, 6,180,000 warrants were allotted to Net Equity Ventures Private Limited, a Promoter Group company and 20,000 warrants to relatives of the Promoters, on preferential basis which were convertible into an equivalent number of fully paid up equity shares of Rs 10 each at a price of Rs 91.15 per warrant. In the year 2010, the Company completed the allotment of equity shares against the Warrants.

7. In the year 2010, the Company had received Rs 4,550 Million on issue of 10,742,533 equity shares of Rs 10 each at a premium of Rs 413.55 per equity share to Qualified Institutional Buyers (QIB) in terms of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009. The purpose of the mentioned issue was to finance overseas acquisitions, repayment and prepayment of debt, investments and other uses, including capital expenditure, as permitted by applicable rules and regulations. The Company had completed the allotment of equity shares on October 1, 2010. Expense incurred in relation to QIP to the extent of Rs 108.96 Million had been debited to Securities Premium Account in 2010.

8. Early Adoption of AS-30: Financial Instruments: Recognition and Measurement, issued by Institute of Chartered Accountants of India (ICAI).

The Company had chosen to early adopt AS 30: 'Financial Instruments: Recognition and Measurement' during the year ended December 31, 2008, with effect from January 1, 2008. Contemporaneously with this, in the spirit of complete adoption, the Company had also implemented the consequential limited revisions in view of AS 30 to AS 2, 'Valuation of Inventories', AS 11'The Effect of Changes in Foreign Exchange Rates', AS 19 'Accounting for Leases', AS 21 'Consolidated Financial Statements and Accounting for Investments in Subsidiaries in Separate Financial Statements', AS 23 'Accounting for Investments in Associates in Consolidated Financial Statements', AS 26 'Intangible Assets', AS 27 'Financial Reporting of Interests in Joint Ventures', AS 28 'Impairment of Assets' and AS 29 'Provisions, Contingent Liabilities and Contingent Assets' as had been announced by the Institute of Chartered Accountants of India (ICAI).

On February 11, 2011, the ICAI had issued a notification stating that AS 30 can be adopted only to the extent the Accounting Standard does not conflict with other mandatory standards notified under section 211 (3C) of the Companies Act, 1956. In case of conflict, the mandatory standards will prevail. Consequently, in the year 2010, the Company had reversed an amount of Rs 695.68 Million being the cumulative gains recognised upto December 31, 2009, on restatement at period end rates of certain USD denominated investments in certain subsidiaries and a joint venture (including advances towards shares) that were designated as hedged items in a fair value hedge, since such restatement is not permitted under AS 13 'Accounting for Investment', a mandatory accounting standard. Such reversals have been classified under the head exceptional items, being the same head under which the gains on restatement were presented in the financial statements of earlier years.

Consequent to adoption of AS 30 to the extent it is permitted, the Company had changed the designation and measurement principles for all its significant financial assets and liabilities. The impact on account of the above measurement of these is as described below:

8.1 Foreign Currency Convertible Bonds (the 'FCCBs' or the 'Bonds')

The FCCBs are split into two components comprising (a) option component which represents the value of the option in the hands of the FCCB-holders to convert the bonds into equity shares of the Company and (b) debt component which represents the debt to be redeemed in the absence of conversion option being exercised by FCCB-holder, net of issuance costs.

The debt component is recognised and measured at amortised cost while the fair value of the option component is determined using a valuation model with the below mentioned assumptions.

Assumptions used to determine fair value of the options:

Valuation and amortisation method - The Company estimates the fair value of stock options granted using the Black Scholes Merton Model and the principles of the Roll-Geske-Whaley extension to the Black Scholes Merton model. The Black Scholes Merton model along with the extensions above requires the following inputs for valuation of options:

Stock Price as at the date of valuation - The Company's share prices as quoted in the National Stock Exchange Limited (NSE), India have been converted into equivalent share prices in US Dollar terms by applying currency rates as at valuation dates. Further, stock prices have been reduced by continuously compounded stream of dividends expected over time to expiry as per the principles of the Black-Scholes Merton model with Roll Geske Whaley extensions.

Strike price for the option - has been computed in dollar terms by computing the redemption amount in US dollars on the date of redemption (if not converted into equity shares) divided by the number of shares which shall be allotted against such FCCBs.

Expected Term - The expected term represents time to expiry, determined as number of days between the date of valuation of the option and the date of redemption.

Expected Volatility - Management establishes volatility of the stock by computing standard deviation of the simple exponential daily returns on the stock. Stock prices for this purpose have been computed by expressing daily closing prices as quoted on the NSE into equivalent US dollar terms. For the purpose of computing volatility of stock prices, daily prices for the last one year have been considered as on the respective valuation dates.

Risk-Free Interest Rate - The risk-free interest rate used in the Black-Scholes valuation method is the risk free interest rate applicable to the Company.

Expected Dividend - Dividends have been assumed to continue, for each valuation rate, at the rate at which dividends were earned by shareholders in the last preceding twelve months before the date of valuation.

Measurement of Amortised cost of debt component:

For the purpose of recognition and measurement of the debt component, the effective yield has been computed considering the amount of the debt component on initial recognition, origination costs of the FCCB and the redemption amount if not converted into Equity Shares. To the extent the effective yield pertains to redemption premium and the origination costs, the effective yield has been amortised to the Securities Premium Account (along with related exchange fluctuations) as permitted under section 78 of the Companies Act, 1956. The balance of the effective yield is charged to the Profit and Loss Account.

Consequent to the above method of accounting of FCCBs, the following adjustments were made:

For the year ended December 31, 2010:

(a) Amortisation of interest of Rs 146.81 (net) and redemption premium (net) on FCCBs amounting to Rs 395.06 Million had been recorded in the Profit and Loss Account and in the Securities Premium Account respectively.

(b) Change in the fair values of option component in the FCCBs, being a loss of Rs 15.63 Million had been recorded in the Profit & Loss Account.

for the year ended December 31, 2011:

(a) Amortisation of interest (net) Rs 147.48 Million and redemption premium (net) on FCCBs amounting to Rs 676.23 Million have been recorded in the Profit and Loss Account and in the Securities Premium Account respectively.

(b) Change in the fair values of option component in the FCCBs, being a gain of Rs 188.85 Million has been recorded in the Profit & Loss Account.

8.2 The financial assets and liabilities arising out of issue of corporate financial guarantees to third parties are accounted at fair values on initial recognition. Financial assets continue to be carried at fair values. Financial liabilities are subsequently measured at the higher of the amounts determined under AS 29 or the fair values on the measurement date.

8.3 Gains / losses on fair valuation of all the open derivative positions as on December 31, 2011 not designated as hedging instruments have been recognised in the Profit and Loss Account.

8.4 The Company has availed bill discounting facility from Banks which do not meet the de-recognition criteria for transfer of contractual rights to receive cash flows from the debtors since they are with recourse to the Company. Accordingly, as at December 31, 2011, sundry debtor balances include Rs 1,130.70 Million (Previous year Rs 480.35 Million) and the corresponding financial liability to the Banks is included as part of short term secured loans.

8.5 The Company has designated certain highly probable forecasted US dollar denominated sales transactions and certain forward contracts to sell US dollars as hedged items and hedging instruments respectively, in a Cash Flow Hedge ('CFH') to hedge the foreign exchange risk arising out of fluctuations between the India rupee and the US dollar. The exchange fluctuations arising from marking to market of the hedging instruments, to the extent relatable to the CFH being effective has been recognised in a Hedge reserve in the Balance sheet. Accordingly exchange fluctuations losses amounting to Rs 447.10 Million for the year ended December 31, 2011 have been recognised in the Hedge Reserve account. These exchange difference would be considered in Profit and Loss Account as and when the forecasted transactions is estimated to occur (i.e., over a period from January 2012 to September 2012).

9. Employee Stock Option Scheme

(a) In the extraordinary general meeting held on January 25, 2007, the shareholders approved the issue of 1,000,000 options under the Scheme titled "Strides Arcolab ESOP 2006" (ESOP 2006).

The ESOP 2006 allows the issue of options to employees of the Company and its subsidiaries (whether in India or abroad). Each option comprises one underlying equity share.

During the current year, the Remuneration Committee in its meeting held on February 24, 2011 has granted 500,000 options under the ESOP 2006 to few eligible employees of the Company. The options allotted under ESOP 2006 are convertible into equal number of equity shares.

As per the Scheme, the Compensation committee grants the options to the employees deemed eligible. The exercise price of each option shall not be less than 85 per cent of the "Market Price" as defined in the Scheme. The options granted vest over a period of 3 years from the date of the grant in proportions specified in the Scheme. Options may be exercised within 30 days of vesting.

In respect of the ESOP 2006 and all the other ESOP schemes detailed in this note, the difference between the fair price of the share underlying the options granted, on the date of grant of option and the exercise price of the option, (being the intrinsic value of the option) representing Stock compensation expense, is expensed over the vesting period.

(b) The ESOP scheme titled "Strides Arcolab ESOP 2008" (ESOP 2008) was approved by the shareholders through postal ballot on June 18, 2008. 1,500,000 options are covered under the scheme for 1,500,000 shares.

In the previous years, the Remuneration Committee of the Company had granted 1,382,500 options under the ESOP 2008 to few eligible employees of the Company. During the current year, the Remuneration Committee in its meetings held on February 24, 2011 and July 25, 201 1 has granted 180,500 and 9,000 options respectively under the ESOP 2008 to few eligible employees of the Company. The options allotted under ESOP 2008 are convertible into equal number of equity shares.

The vesting period of these options range over a period of three years. The options may be exercised with in a period of 30 days from the date of vesting.

(c) The ESOP scheme titled "Strides Arcolab ESOP 2008 (Directors)" (ESOP 2008 Directors) was approved by the shareholders through postal ballot on January 12, 2009. 500,000 options are covered under the scheme for 500,000 equity shares.

The Remuneration Committee of the Company, on March 16, 2009 had granted 300,000 options under the Strides Arcolab ESOP 2008 (Directors) scheme to few Directors of the Company. The shares covered by such options were 300,000 equity shares.

The vesting period of these options range over a period of three years. The options may be exercised with in a period of 30 days from the date of vesting.

(d) The ESOP scheme titled "Strides Arcolab ESOP 2011" (ESOP 2011) was approved by the shareholders on May 30, 2011.

1,500,000 options are covered under the scheme for 1,500,000 shares. No options are granted under this scheme in the current year.

10. The Company during 2009 had entered into a Subscription and Shareholders agreement with Aspen Group (Aspen) under which Aspen subscribed to 49% of the share capital of Onco Therapies Limited (ONCO), a subsidiary of the Company. Onco was set up to operate in the Oncology products line of business that the Company was in the process of building up.

In the year 2010, the Company had entered into a binding agreement with Aspen for purchase of their shares in ONCO for a consideration of USD 37.36 Million and had paid USD 36.95 Million (Rs1,649.04 Million) as advance towards purchase of shares in ONCO.As per the contractual terms the risk and economic benefit in the shares of ONCO held by Aspen has been transferred to the Company with effect from January 1, 2010. Pending completion of transfer of shares, purchase consideration paid was classified as advance towards purchase of shares as at December 31, 2010. In 2011, the shares were transferred in favour of the Company.

Further in the current year, as part of corporate restructuring initiatives of the Company, the investment in ONCO have been transferred to Agila Specialties Private Limited ('ASPL'), a wholly owned subsidiary of the Company at a consideration of Rs 2,344 Million, being the carrying value of investment in ONCO in the books of the Company.

11. In the year 2010, the Company had sold investment in equity shares of Strides Inc. a subsidiary of the Company, to Strides Pharma Limited (formerly Linkace Limited), a wholly owned step subsidiary of the Company and recognised a profit of Rs 6.20 Million on sale of such transfer.

Consequent to certain developments in Strides Inc. during 2010, the Company reversed provision for impairment against Preference shares issued by Strides Inc. amounting to Rs 183.87 Million. In the year 2011, the preference shares have been redeemed by Strides Inc.

12. Interest in Joint ventures

In the year 2010, the Company had transferred the ownership interest in Akorn Strides LLC, USA, a joint venture company with Akorn Inc., USA, to Strides Pharma Limited ('SPL') (formerly Linkace Limited, a wholly owned step subsidiary of the Company) for a consideration of USD 3.41 Million and a profit of Rs 88.20 Million on such transfer had been recognised in the Profit & Loss account in the same year.

13. As of December 31, 2011, the Company has invested an amount of USD 162.82 Million in Agila Specialties Limited, Cyprus ('Agila Cyprus', formerly known as Starsmore Limited) and USD 114.41 Million in Strides Arcolab International Limited (SAIL), both wholly owned subsidiaries of the Company. The investments were in the nature of subscriptions for shares of these entities and as at December 31, 2011, shares were pending to be allotted. Out of the above, monies aggregating to USD 99.00 Million (Rs 5,273.70 Million) invested in Agila Cyprus and USD 93.00 Million (Rs 4,954.11 Million) invested in SAIL have been considered as monetary items and have been restated in accordance with the requirements of Accounting Standard 11 'The Effect of Changes in Foreign Exchange Rates' and have been classified under Loans and advances to subsidiaries in these financial statements. The resultant unrealised exchange gain of Rs 1,564.00 Million has been recognised under Exceptional items in the Profit & Loss Account.

14. Unbilled revenue includes income recognised on development services contracts and contracts for production of dossiers, against which no invoices are raised, and are net of advances received against the respective contracts. Development income recognised in the Profit & Loss Account is net of unbilled revenue written off in the current year against development income recognised in the previous years.

15. Particulars of materials consumed and percentage to total consumption of Imported and Indigenous materials.

Since none of the individual items of raw materials and packing materials constitute more than 10% of the consumption, quantitative details in respect of the same have not been given.

*Note:

a) This includes purchases of dossiers of Rs 45 Million (Previous Year Rs 124.85 Million)

b) Consumption of Traded Items not included above is Rs 1,072.1 1 Million (Previous Year Rs 646.06 Million)

Note: Installed Capacities are as certified by the management and relied upon by the Auditors. The installed capacities serve multiple purposes and will vary according to product mix.

** Not applicable as the products have been de-licensed.

Note: The details of managerial remuneration stated in the above table exclude leave encashment and gratuity costs (for which separate actuarial valuation are not available).

Note:

Expenditure in foreign currency includes expenditure incurred by the Company on behalf of and in trust to Agila Specialties Private Limited (formerly known as Strides Specialties Private Limited), a wholly owned subsidiary of the Company.

16 . Taxation

(a) Provision for deferred tax has been made in accordance with the requirements of Accounting Standard 22 "Accounting for taxes on income".

Recognition of Deferred tax assets with respect to unabsorbed depreciation and tax losses has been done in cases where there is corresponding timing differences creating deferred tax liabilities and the amount of such assets recognised is restricted to the extent of such liabilities. Deferred Tax assets in respect of business losses are recognised based on the criteria of virtual certainty.

17. Equity dividend accrued in 2011 includes Rs 0.42 Million being dividends relating to the year ended December 31, 2010 on the incremental number of shares that were issued between December 31, 2010 and the date of the Annual General Meeting of the Company held on May 30, 201 1. Divided tax accrued in 2011 is net of excess provision made for the 2010 to the extent of Rs 0.27 Million.

As on December 31, 2011, no amount was due for transfer to the Investor Education and Protection Fund (IEPF) as required under Section 205(C) of the Companies Act, 1956.

18. Leases

The Company's significant leasing arrangements are mainly in respect of factory buildings, residential and office premises. The aggregate lease rentals payable on these leasing arrangements charged to the Profit and Loss Account is Rs 37.14 Million (Previous year Rs 43.73 Million).

The Company has entered in to non-cancelable lease agreements for its facilities and office premises. The tenure of lease ranges from 3 years to 15 years. The said lease arrangements have an escalation clause wherein lease rental is subject to an increment ranging from 6% to 10%. Details of the lease commitment at the yearend are as follows:

Note: The information regarding Micro and Small Enterprises and the disclosure in Schedule H.A (a) 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.

19. Transfer Pricing

The Finance Act, 2001, has introduced, with effect from assessment year 2002-03 (effective April 1, 2001), detailed Transfer Pricing regulations ('regulations') for computing the income from 'international transactions' between 'associated enterprises' on an 'arm's length' basis. These regulations, inter alia, also require the maintenance of prescribed documents and information including furnishing a report from an Accountant which is to be filed with the Income tax authorities.

The Company has undertaken necessary steps to comply with the Transfer Pricing regulations. The Management is of the opinion that the international transactions are at arm's length, and hence the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

20. Since the Company prepares consolidated financial statements, segment information has not been provided in these financial statements.

Note:

1. During 2011, FCCB's outstanding were anti-dilutive and hence not considered for computing diluted Earnings per Share.

2. In the year 2010, the Company had reversed the preference dividend along with dividend tax thereon accrued in earlier years amounting to Rs 148.54 Million, since such dividend was no longer payable consequent to the agreement with the preference shareholders. Consequent to reversal such amount is also available for distribution to the equity shareholders (refer Note B.4 above). The basic and diluted EPS for the year ended December 31, 2010 after considering the reversal of preference dividend and tax thereon was Rs 18.85 & Rs14.54 respectively.

21. Cash flow statement

(a) Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash flows from operating, investing and financing activities of the Company are segregated based on the available information.

Cash comprises of cash on hand and demand deposits with banks. Cash equivalents are short term (with an original maturity of three months or less from the date of acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Cash equivalents in the nature of investments are disclosed under Current investments.

(b) Interest paid is inclusive of and purchase of Fixed Assets excludes, interest capitalised Rs 6.13 Million (Previous year Rs 12.46 Million).

(c) Direct tax paid and Others in the Cash Flow Statement includes outflows on account of permitted utilisation from the BRR of Rs 34.45 Million (Previous Year Rs 69.80 Million) and Direct Taxes of Rs 189.41 Million (Previous Year Rs 102.23 Million)

(d) Reconciliation of Cash and Cash Equivalents to Cash and bank balances included in Schedule G.A.4.

Note:

1. The estimate of future salary increases considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

2. In the absence of information relating to category wise breakup of Plan Assets, the same has not been disclosed.

3. Disclosure on actuarial valuation experience adjustment is disclosed to the extent the details are available with the Company.

332 Details on Derivatives Instruments & Un-hedged Foreign Currency Exposures

The following derivative positions are open as at December 31, 2011. These transactions have been undertaken to act as economic hedges for the Company's exposures to various risks in foreign exchange markets. These instruments are therefore classified as held for trading and gains / losses recognised in the Profit and Loss Account except to the extent they qualified as Cash flow hedges in the context of the rigour of such classification under Accounting Standard 30.

I. The Company has entered into the following derivative instruments:

(a) Forward Exchange Contracts [being a derivative instrument], which are not intended for trading or speculative purposes, but for hedge purposes, to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

(b) Interest Rate Swaps to hedge against fluctuations in interest rate changes: No. of contracts: Nil (Previous year : Nil)

(c) Currency Swaps (other than forward exchange contracts stated above) to hedge against fluctuations in changes in exchange rate. No. of contracts: Nil (Previous Year: Nil)

III. There were no outstanding option contracts as at December 31, 2011.

IV. Loss on Forward Exchange Derivative contracts (Net) included in the Profit and Loss Account for year ended December 31, 2011 amounts to Rs 27.83 Million (Previous Year: Loss (Net) Rs 72.12 Million).

33.3 Categories of Financial Instruments (a) Loans and Receivables:

The following financial assets in the Balance Sheet have been classified as Loans and Receivables as defined in Accounting Standard 30. These are carried at amortised cost less impairment if any.

Note: Interest expense calculated using effective interest rate method as prescribed in AS 30 for financial liabilities that are carried at amortised cost is Rs 555.18 Million (Previous Year Rs 773.89 Million)

(a) Financial Liabilities Held for Trading

The option component of FCCBs has been classified as held for trading, being a derivative under AS 30. The carrying amount of the option component was Rs 2.09 Million as at December 31, 2011 and Rs190.95 Million as at December 31, 2010. The difference in carrying value between the two dates, amounting to Rs188.85 Million is considered as a gain in the Profit and Loss Account of the year in accordance with provisions of AS 30.

The fair value of the option component has been determined using a valuation model. Refer to Note B.8.1 above on FCCBs for detailed disclosure on the valuation method.

(b) There are no other financial assets / liabilities in the following categories:

Financial assets:

Carried at fair value through profit and loss designated as such at initial recognition.

Held to maturity

Available for sale (other than investment in Subsidiaries & Joint Venture)

Financial liabilities:

Carried at fair value through profit and loss designated as such at initial recognition.

33.5 Nature and extent of risks arising from financial instrument

The main financial risks faced by the Company relate to fluctuations in interest and foreign exchange rates, the risk of default by counterparties to financial transactions, and the availability of funds to meet business needs. The Balance Sheet as at December 31, 2011 is representative of the position through the year. Risk management is carried out by a central treasury department under the guidance of the Management.

Interest rate risk

Interest rate risk arises from long term borrowings. Debt issued at variable rates exposes the Company to cash flow risk. Debt issued at fixed rate exposes the Company to fair value risk. In the opinion of the management, interest rate risk during the year under report was not substantial enough to require intervention or hedging through derivatives or other financial instruments. For the purposes of exposure to interest risk, the Company considers its net debt position evaluated as the difference between financial assets and financial liabilities held at fixed rates and floating rates respectively as the measure of exposure of notional amounts to interest rate risk. This net debt position is quantified as under:

Credit risk

Credit risk arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions. Credit risk also arises from trade receivables and other financial assets.

The credit risk arising from receivables is subject to concentration risk in that the receivables are predominantly denominated in USD and any appreciation in the INR will affect the credit risk. Further, the Company is not significantly exposed to geographical distribution risk as the counterparties operate across various countries across the Globe.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Company's reputation. Liquidity risk is managed using short term and long term cash flow forecasts.

Foreign exchange risk

The Company is exposed to foreign exchange risk principally via:

Debt availed in foreign currency

Net investments in subsidiaries and joint ventures in foreign currencies

Exposure arising from transactions relating to purchases, revenues, expenses etc. to be settled in currencies other than Indian Rupees, the functional currency of the respective entities.

33.6 Sensitivity analysis as at December 31, 2011

Financial instruments affected by interest rate changes include Secured Long term loans from banks, Secured Long term loans from others, Secured Short term loans from banks and Unsecured Short term loans from banks. The impact of a 1% change in interest rates on the profit of an annual period will be Rs 99.55 Million (Previous year Rs 76.53 Million) assuming the loans as of December 31, 2011 continue to be constant during the annual period. This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.

Financial instruments affected by changes in foreign exchange rates include FCCBs, External Commercial Borrowings (ECBs), investments in subsidiaries, and loans to subsidiaries and joint ventures. The Company considers US Dollar and the Euro to be principal currencies which require monitoring and risk mitigation. The Company is exposed to volatility in other currencies including the Great Britain Pounds (GBP) and the Australian Dollar (AUD).

22. The previous year's figures have been regrouped in line with the current year.


Dec 31, 2010

1. Capital Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for (Net of advances) - Rs.168.45 Million (Previous year Rs.71.04 Million). Also refer Note 10.

2. Contingent Liabilities

2.1 As at December 31, 2010, the Company has given corporate guarantees upto Rs.5,015.78 Million (Previous year Rs.1,354.29 Million) to financial institutions and other parties, on behalf of its subsidiaries. At December 31, 2010, the subsidiaries had availed facilities from such financial institutions/were obligated to the parties referred above for an aggregate amount of Rs.4,643.16 Million (Previous year Rs.1,186.21 Million). The Companys fixed assets (paripasu second charge) and certain investments in the respective subsidiaries have been offered as security in respect of some of these facilities. Subsequent to the balance sheet date, the corporate guarantee has been reduced by Rs.1,499.13 Million.

2.2 As at the end of the year there are no disputed tax liabilities arising from assessment proceedings relating to earlier years from the Income Tax Authorities (previous year Rs.207.12 Million).

2.3 The Company preferred appeal with the CESTAT against the order of the Commissioner of Central Excise for disallowing transfer of cenvat credit of Rs.3.86 Million (Previous year Rs 3.86 Million) as on the date of conversion of one of the units of the Company into a 100% EOU.

3. Foreign currency convertible bonds

(a) During the accounting year ending December 31, 2007, the Company had issued Foreign Currency Convertible Bonds (FCCB) amounting to USD 100 Million (Rs.4,070 Million) (FCCB 100 Million) on June 26, 2007. These bonds carry zero coupon and are to be redeemed on June 27, 2012 (unless converted into Equity Shares) at 145.058 per cent of the Principal amount.

The bonds may be redeemed in whole, but not in part at the option of the Company at any time on or after July 18, 2010 and on and prior to June 20, 2012 with a redemption premium of 7.575 % (which is identical to the gross yield in case of redemption at maturity) calculated on a semiannual basis.

The Bonds are convertible at any time on or after August 6, 2007 and up to the close of business on June 20, 2012 by the holders of the Bonds into shares at the option of the Bondholder, at an initial conversion price of Rs.461.553 per share with a fixed rate of exchange of Rs.40.70 per USD on conversion. The bonds are listed on Singapore Exchange Securities Trading Limited, Singapore.

As permitted by the Reserve Bank of India (RBI), during the year 2009, the Company bought back FCCBs with a face value aggregating to USD 20 Million from the outstanding bonds issued under FCCB 100 Million at a discount.

As at December 31, 2010, none of the outstanding bonds had been offered for conversion.

(b) The Company had issued FCCBs (listed in the Singapore Exchange Securities Trading Limited, Singapore) to the extent of USD 40 Million (FCCB 40 Million) during the year ended December 31, 2005. In the year 2009, as permitted by RBI, the Company had bought back FCCBs with a face value aggregating to USD 6 Million out of the FCCBs face value of USD 40 Million.

(c) During the year, as per the terms and conditions agreed with the holders of FCCB 40 Million, the Company had redeemed the balance outstanding FCCBs aggregating to USD 34 Million. The Company paid in total USD 46.51 Million (Rs.2,062.50 Million) including USD 12.51 Million towards redemption premium. An amount of Rs.61.60 Million paid towards withholding tax on payment of premium on FCCB redemption value has been debited to Securities Premium Account.

4. Cumulative Redeemable Preference Shares

In May 2005, the Company had issued 491,606 6% Cumulative Redeemable Preference Shares (CRPS) of Rs.1,000 each fully paid to K V Pharmaceuticals, USA (`KV Pharma) (Approximately USD 10.95 Million). The Preference shares were redeemable at par along with accrued unpaid dividend on or before December 31, 2012.

The Company, Strides Inc. (a subsidiary of the Company) and KV Pharma had also entered into a License and Supply Agreement (`LSA) pursuant to which the Company and Strides Inc had agreed to undertake certain development work for developing certain pharmaceutical products, subject to certain terms and conditions mentioned in LSA. In March 2009 due to certain adverse developments at KV Pharma, the Company terminated the said LSA. KV Pharma had approached the International Court of Arbitration, disputing the termination of the LSA.

In the current year, pursuant to a negotiation for an out of court settlement, the Company has entered into a Settlement Agreement & Release (Settlement Agreement) with KV Pharma. In accordance with the Settlement Agreement, the rights and obligations of all parties under the LSA and those arising out of the subscription to the CRPS were settled on a net basis. Pursuant to the Settlement Agreement, the Company has paid out KV Pharma an amount of USD 7.25 Million in full and final settlement as referred above. Consequent to the net settlement:

- The dividend on the CRPS that were accrued for in 2005 through 2009 along with the related dividend distribution taxes to the extent unpaid, were reversed in the current year and the same has been credited under appropriations in the Profit and Loss account

- An amount of Rs.165.86 Million has been credited to the Reserve for Business Restructure (`BRR) (refer Note B.5 below) being the extent attributable to recoveries of receivables under the LSA that were written off to the `BRR in earlier years.

Consequent to the redemption of the CRPS as referred above, the Company has credited Capital Redemption Reserve to the extent of Rs.491.61 Million being the face value of CRPS redeemed.

5. Scheme of Arrangement under Section 391-394 of the Companies Act, 1956

5.1 During the year ending December 31, 2009, the shareholders of the Company, in their meeting held on April 13, 2009 approved the Scheme of Restructuring that envisaged, inter alia:

(a) A Scheme of Arrangement (`the scheme) to be filed under Sections 391 to 394 of the Companies Act, 1956 covering the merger of some of the subsidiaries of the Company with itself, fair valuation of some of the assets of the Company and creation of a Reserve for Business Restructure (BRR) out of any surpluses arising from these, to be utilized as specified in the Scheme.

(b) Transfer of the Specialty Pharmaceuticals business along with Research and Development (R&D) to Strides Specialties Private Limited (SSPL), a wholly owned subsidiary of the Company;

5.2 The details of the Scheme are given below.

In terms of the Scheme, Global Remedies Limited (GRL), Quantum Remedies Private Limited (QRPL), Grandix Pharmaceuticals Limited (GPL) and Grandix Laboratories Limited (GLL), all subsidiaries of the Company (referred to as Transferor Companies), were merged with the Company (Transferee Company), upon which the undertaking and the entire business, including all assets and liabilities of the Transferor Companies stood transferred to and vested in the Transferee Company at their fair value as determined by the Board of Directors of the Transferee Company.

QRPL and GRL were engaged in the manufacture of Pharmaceutical formulations and were predominantly acting as a captive manufacturer for the Company and catering to the African Markets. Both GPL and GLL were engaged in the marketing of Branded pharmaceutical products.

The Scheme filed by the Company had been approved by the High Courts of Judicature with an appointed date of 1 January 2009 and an effective date of December 31, 2009 (the Effective Date), being the date on which the all requirements under the Companies Act had been completed.

In terms of the Scheme and upon the Scheme becoming effective:

- the assets and liabilities of the Transferor Companies and the Transferee Company, whether recorded or not, have been recorded at their fair values as determined by the Board of Directors of the Transferee Company;

- the carrying amount of investments in the shares of the Transferor Companies to the extent held by the Transferee Company and Inter-Company balances stand cancelled;

- the face value of the equity shares of the Transferee Company issued to the minority shareholders of GPL and GLL has been credited to the equity share capital account in the books of the Transferee Company.

- the surplus arising out of the excess of assets over the liabilities of the Transferor Companies acquired and recorded by the Transferee Company over the aggregate of carrying amount of investments in the shares of the Transferor Companies to the extent held by the Transferee Company and the face value of the equity shares of the Transferee Company issuable to the minority shareholders of GPL and GLL, and the excess of the fair value of assets and liabilities of the Transferee Company over their previously recorded carrying values, has been credited to the BRR in the books of the Transferee Company.

- the balance in the Securities Premium Account, as appearing in the books of the Transferee Company may be transferred to BRR, to such extent as determined by the Board.

- expenses incurred by the Company or its subsidiaries in the nature of impairment, diminution, loss, amortization and/or write-off of assets/investments/intangibles, interest on borrowings for acquisitions, employee compensation expenses, additional depreciation charged or suffered by the Transferee Company on account of fair valuation, scheme expenses and other expenses or arising in the future as may be determined by the Board of Directors of the Transferee Company, have been/shall be debited to the BRR. The maximum amount that can be written off against the BRR instead of being debited to the Profit and Loss Account on or at any time after January 1, 2009 would be restricted to the balance in the BRR or upto December 31, 2012 and not beyond that.

5.3 The accounting treatment effected for the Scheme was as follows:

(b) Upon the Scheme becoming effective, and based on legal advice received, the assets and liabilities of the Transferee Company had been fair valued as determined by the Board of Directors of the Company and the net surplus arising out of such fair valuation (over the carrying value of the respective assets and liabilities prior to the fair valuation) was credited to the BRR as follows during the year ended December 31, 2009.

5.4 Transfer of the Specialties Business along with R&D to Agila Specialties Private Limited (ASPL) (formerly Strides Specialties Private Limited (SSPL)), a wholly owned subsidiary of the Company.

During the year ended December 31, 2009, pursuant to the approval of the shareholders and other authorities as required, the Company had transferred the Specialties Business along with R&D to ASPL on a slump sale basis with effect from the close of business on December 30, 2009 for a consideration of Rs.3,286.46 Million. Out of the mentioned purchase consideration, a sum of Rs.1,000 Million was to be settled by issue of shares of ASPL and the balance consideration of Rs.2,286.46 Million was included under the head Loans and Advances in Schedule G.

During the current year, the shares of ASPL to the extent of Rs.1,000 Million were issued to the Company and the balance considerations were settled by ASPL.

6. Share warrants

As authorized by the shareholders of the Company in the Extra Ordinary General meeting held on May 13, 2009, 6,180,000 warrants were alloted to Net Equity Ventures Private Limited, a Promoter Group company and 20,000 warrants to relatives of the Promoters, on preferential basis which are convertible into an equivalent number of fully paid up equity shares of Rs.10 each at a price of Rs.91.15 per warrant. These warrants are convertible, in one or more tranches, at any time within a period of 18 months from the date of issue. During the year, the Company has allotted 6,200,000 equity shares of Rs.10 each at a premium of Rs.81.15 per equity share upon conversion of equal number of warrants which was allotted to Promoter Group Company and relatives of the Promoters.

7. During the year, the Company has received Rs.4,550 Million on issue of 10,742,533 equity shares of Rs.10 each at a premium of Rs.413.55 per equity share to Qualified Institutional Buyers (QIP) in terms of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009. The purpose of the mentioned issue is to finance overseas acquisitions, repayment and prepayment of debt, investments and other uses, including capital expenditure, as permitted by applicable rules and regulations. The Company has completed the allotment of equity shares on October 1, 2010. Expense incurred in relation to QIP to the extent of Rs.108.96 Million has been debited to Securities Premium Account.

8. Early Adoption of AS-30: Financial Instruments: Recognition and Measurement, issued by Institute of Chartered Accountants of India

The Company had chosen to early adopt AS 30: Financial Instruments: Recognition and Measurement during the year ended December 31, 2008, with effect from January 1, 2008. Contemporaneously with this, in the spirit of complete adoption, the Company had also implemented the consequential limited revisions in view of AS 30 to AS 2, Valuation of Inventories, AS 11 The Effect of Changes in Foreign Exchange Rates, AS 19 Accounting for Leases, AS 21 Consolidated Financial Statements and Accounting for nvestments in Subsidiaries in Separate Financial Statements, AS 23 Accounting for Investments in Associates in Consolidated Financial Statements, AS 26 Intangible Assets, AS 27 Financial Reporting of Interests in Joint Ventures, AS 28 Impairment of Assets and AS 29 Provisions, Contingent Liabilities and Contingent Assets as had been announced by the Institute of Chartered Accountants of India (ICAI).

On February 11, 2011, the ICAI has issued a notification stating that AS 30 can be adopted only to the extent the Accounting Standards does not conflict with other mandatory standards notified under section 211 (3C) of the Companies Act, 1956. In case of conflict, the mandatory standards will prevail. Consequently, during the year, the Company has reversed an amount of Rs.695.68 Million being the cumulative gains recognized upto December 31, 2009, on restatement at period end rates of certain USD denominated investments (including advances towards shares) in certain subsidiaries and a joint venture that were designated as hedged items in a fair value hedge, since such restatement is not permitted under AS 13, Accounting for Investment: a mandatory accounting standard. Such reversals have been classified under the head exceptional items, being the same head under which the gains on restatement were presented in the financial statements of earlier years. In accordance with the provisions of AS 11, The effect of changes in Foreign currency rates, the Company restated the advances paid towards shares and recognised a net gain of Rs.680.02 Million and has included the same under Exceptional items.

Consequent to adoption of AS 30 to the extent it is permitted, the Company has changed the designation and measurement principles for all its significant financial assets and liabilities. The impact on account of the above measurement of these is as described below:

8.1 Foreign Currency Convertible Bonds (the FCCBs or the Bonds)

The FCCBs are split into two components comprising (a) option component which represents the value of the option in the hands of the FCCB-holders to convert the bonds into equity shares of the Company and (b) debt component which represents the debt to be redeemed in the absence of conversion option being exercised by FCCB-holder, net of issuance costs.

The debt component is recognized and measured at amortized cost while the fair value of the option component is determined using a valuation model with the below mentioned assumptions.

Assumptions used to determine fair value of the options:

Valuation and amortization method - The Company estimates the fair value of stock options granted using the Black Scholes

Merton Model and the principles of the Roll-Geske-Whaley extension to the Black Scholes Merton model. The Black Scholes Merton model along with the extensions above requires the following inputs for valuation of options:

Stock Price as at the date of valuation – The Companys share prices as quoted in the National Stock Exchange Limited (NSE), India have been converted into equivalent share prices in US Dollar terms by applying currency rates as at valuation dates. Further, stock prices have been reduced by continuously compounded stream of dividends expected over time to expiry as per the principles of the Black-Scholes Merton model with Roll Geske Whaley extensions.

Strike price for the option - has been computed in dollar terms by computing the redemption amount in US dollars on the date of redemption (if not converted into equity shares) divided by the number of shares which shall be allotted against such FCCBs.

Expected Term - The expected term represents time to expiry, determined as number of days between the date of valuation of the option and the date of redemption.

Expected Volatility- Management establishes volatility of the stock by computing standard deviation of the simple exponential daily returns on the stock. Stock prices for this purpose have been computed by expressing daily closing prices as quoted on the NSE into equivalent US dollar terms. For the purpose of computing volatility of stock prices, daily prices for the last one year have been considered as on the respective valuation dates.

Risk-Free Interest Rate - The risk-free interest rate used in the Black-Scholes valuation method is as applicable to the Company.

Expected Dividend - Dividends have been assumed to continue, for each valuation rate, at the rate at which dividends were earned by shareholders in the last preceding twelve months before the date of valuation.

Measurement of Amortized cost of debt component:

For the purpose of recognition and measurement of the debt component, the effective yield has been computed considering the amount of the debt component on initial recognition, origination costs of the FCCB and the redemption amount if not converted into Equity Shares. To the extent the effective yield pertains to redemption premium and the origination costs, the effective yield has been amortized to the Securities Premium Account as permitted under section 78 of the Companies Act, 1956. The balance of the effective yield is charged to the Profit and Loss Account.

Consequent to the above method of accounting of FCCBs, the following adjustments were made:

During the year ended December 31, 2009:

(a) Amortization of interest (net) and redemption premium (net) on FCCBs amounting to Rs.168.10 Million and Rs.348.68 Million respectively have been recorded in the Profit and Loss account and in the Securities Premium Account.

(b) Change in the fair values of option component in the FCCBs, being a loss of Rs.41.12 Million has been recorded in the Profit & Loss Account.

During the year ended December 31, 2010:

(a) Amortization of interest (net) and redemption premium (net) on FCCBs amounting to Rs.146.81 Million and Rs.395.06 Million respectively have been respectively recorded in the Profit and Loss account and in the Securities Premium Account.

(b) Change in the fair values of option component in the FCCBs, being a loss of Rs.15.63 Million has been recorded in the Profit & Loss Account.

8.2 The financial assets and liabilities arising out of issue of corporate financial guarantees to third parties are accounted at fair values on initial recognition. Financial assets continue to be carried at fair values. Financial liabilities are subsequently measured at the higher of the amounts determined under AS 29 or the fair values on the measurement date. At December 31, 2010, the fair value of such financial assets are equal to such liabilities and have been set off in the financial statements.

8.3 As required under the Companies Act, 1956, Redeemable Preference Shares are included as part of share capital and not as debt and dividend on the preference shares is accounted as dividend as part of appropriation of profits and have not been accrued as interest cost.

8.4 The Company has availed bill discounting facility from Banks which do not meet the de-recognition criteria for transfer of contractual rights to receive cash flows from the debtors since they are with recourse to the Company. Accordingly, as at December 31, 2010, sundry debtor balances include Rs.480.35 Million (Previous year Rs.1,044.46 Million) and the corresponding financial liability to the Banks is included as part of short term secured loans.

8.5 Gains/losses on fair valuation of all the open derivative positions as on December 31, 2010 not designated as hedging instruments have been recognized in the Profit and Loss Account.

9. Employee Stock Option Scheme

(a) In the extraordinary general meeting held on January 25, 2007, the shareholders approved the issue of 1,000,000 options under the Scheme titled "Strides Arcolab ESOP 2006" (ESOP 2006).

The ESOP 2006 allows the issue of options to employees of the Company and its subsidiaries (whether in India or abroad). Each option comprises one underlying equity share.

As per the Scheme, the Compensation committee grants the options to the employees deemed eligible. The exercise price of each option shall not be less than 85 per cent of the "Market Price” as defined in the Scheme. The options granted vest over a period of 3 years from the date of the grant in proportions specified in the Scheme. Options may be exercised within 30 days of vesting.

The difference between the fair price of the share underlying the options granted, on the date of grant of option and the exercise price of the option (being the intrinsic value of the option) representing Stock compensation expense, is expensed over the vesting period.

(b) The ESOP scheme titled "Strides Arcolab ESOP 2008” (ESOP 2008) was approved by the shareholders through postal ballot on June 18, 2008. 1,500,000 options are covered under the scheme for 1,500,000 shares.

In the previous years, the Remuneration Committee of the Company had granted 1,007,500 options under the ESOP 2008 to few eligible employees of the Company. During the current year, the Remuneration Committee in its meeting held on January 22, 2010, June 14, 2010 and September 03, 2010 has granted 137,500, 100,000 and 137,500 options respectively under the ESOP 2008 to few eligible employees of the Company. The options allotted under ESOP 2008 are convertible into equal number of equity shares.

The vesting period of these options range over a period of three years. The options may be exercised with in a period of 30 days from the date of vesting.

(c) The ESOP scheme titled "Strides Arcolab ESOP 2008 (Directors)” (ESOP 2008 Directors) was approved by the shareholders through postal ballot on January 12, 2009. 500,000 options are covered under the scheme for 500,000 equity shares.

The Remuneration Committee of the Company, on March 16, 2009 had granted 300,000 options under the Strides Arcolab ESOP 2008 (Directors) scheme to few Directors of the Company. The shares covered by such options were 300,000 equity shares.

The vesting period of these options range over a period of three years. The options may be exercised with in a period of 30 days from the date of vesting.

10. The Company during the year ending 2009 had entered into a Subscription and Shareholders agreement with Aspen Group (Aspen) under which Aspen subscribed to 49% of the share capital of Onco Therapies Limited (Onco), a subsidiary of the Company. Onco is set up to operate in the Oncology products line of business that the Company was in the process of building up.

In 2009, the Company has entered into another Agreement with Onco to set up an Oncology manufacturing facility in Bangalore, for a consideration of USD 32.50 Million (payable by Onco in equivalent Indian Rupees). Under this agreement the Company had:

- transferred the moveable and immoveable assets relating to the Oncology manufacturing facility and the contracts awarded to various suppliers in connection with the facility; and

- undertaken the obligations of completing the facility, including all financial obligations related thereto.

During the year ended December 31, 2010, the Company entered into a binding agreement with Aspen for purchase of their shares in Onco for a consideration of USD 37.36 Million. The Company has paid USD 36.95 Million (Rs.1,649.04 Million) during the year. Pending transfer of shares in the name of the Company, the amount paid to Aspen has been included in Loans & Advances in the financial statements. On completion of the transfer of shares, the Onco will become a wholly owned subsidiary of the Company. As per the contractual terms the risk and economic benefit in the shares of Onco held by Aspen has been transferred to the Company with effect from January 1, 2010.

11. During the year ended December 31, 2010, the Company sold investment in equity shares of Strides Inc. a subsidiary of the Company, to Linkace Limited, a wholly owned step subsidiary of the Company and recognized a profit of Rs.6.20 Million on sale of such transfer.

In the year 2008, the Company had provided for provision for impairment of investment in Strides Inc. Considering the state of affairs of Strides Inc. as at December 31, 2010 and its ability to redeem the Preference Share Capital, the Company during the year, has reversed the provision for impairment of investments in preference share capital to the extent of Rs.183.87 Million.

12. Interest in Joint ventures

The Company, with effect from December 22, 2010, has transferred the ownership interest in Akorn Strides LLC, USA, a joint venture company with Akorn Inc, USA, to Linkace Limited (a wholly owned step subsidiary of the Company) for a consideration of USD 3.41 Million. Consequently, profit of Rs.88.20 Million on such transfer has been recognized in the Profit & Loss account.

13. Unbilled revenue includes income recognised on development services contracts and contracts for production of dossiers, against which no invoices are raised, and are net of advances received against the respective contracts.

14. Particulars of materials consumed and percentage to total consumption of Imported and Indigenous materials.

Since none of the individual items of raw materials and packing materials constitute more than 10% of the consumption, quantitative details in respect of the same have not been given.

15. Particulars of Traded Goods

None of the items individually account for more than 10% of the total value of the purchases, stock or turnover, hence quantitative details have not been furnished.

16. Other information

16.1 Managerial remuneration

Note:

(a) During the year, the Company has got the approval of Central Government for excess managerial remuneration to the extent of Rs.17.86 Million against total excess managerial remuneration paid in earlier years of Rs.24.39 Million. Consequently, the amount of Rs.6.53 Million has been returned by the managing director.

During the year ended December 31, 2009, the Company received the approval of the Central Government in respect of excess managerial remuneration relating to the year ended December 31, 2007 amounting to Rs.27.05 Million, which was charged to the Profit & Loss Account for the year ended December 31, 2009.

(b) The details of managerial remuneration stated in the above table exclude leave encashment and gratuity costs (for which separate actuarial valuation are not available).

16.3 Expenditure in foreign currency

Note:

(i) Expenditure in foreign currency includes expenditure incurred by the Company on behalf of and in trust to Agila Specialties Private Limited (formerly known as Strides Specialties Private Limited), a wholly owned subsidiary of the Company.

(ii) Interest accrued on FCCBs has not been included in the above disclosure.

17. Taxation

(a) Provision for deferred tax has been made in accordance with the requirements of Accounting Standard 22 "Accounting for taxes on income”.

(b) The net deferred tax liability comprises the tax impact arising from timing differences on account of

Recognition of Deferred tax assets with respect to unabsorbed depreciation and tax losses have been done only in cases where there are corresponding timing differences creating deferred tax liabilities and the amount of such assets recognised is restricted to the extent of such liabilities. Deferred Tax assets in respect of business losses are recognized based on the criteria of virtual certainty.

The Company has a MAT credit of Rs.154.58 Million during the year which has not been recognised on grounds of prudence.

18. Related Party Transactions:

Name of the related parties:

wholly owned subsidiaries: Direct Holding

Arcolab Limited SA, Switzerland

Strides Technology & Research Pvt Ltd, India

Agila Specialties Pvt Limited (formerly Strides Specialties Pvt Ltd.), India

Starsmore Limited, Cyprus

Strides Africa Limited, British Virgin Islands

Strides Arcolab International Limited, U.K. (SAIL)

Onco Therapies Ltd, India (w.e.f. January 01, 2010) (Refer Note 10 above)*

Indirect Holding

Pharma Strides Canada Corporation, Canada

Linkace Limited, Cyprus

Linkace Investments PTY Ltd, Australia (w.e.f. December 14, 2010)

Plus Farma ehf, Iceland

Farma Plus AS , Norway (w.e.f. July 01, 2010)

Strides Specialties (Holdings) Limited, Mauritius

Strides Specialties (Holdings) Cyprus Limited (formerly known as Powercoast Limited), Cyprus

Strides Pharmaceuticals (Holdings) Limited, Mauritius (w.e.f. January 27, 2010)

Strides Pharmaceuticals (Mauritius) Limited, Mauritius (w.e.f. January 27, 2010)

Strides Specialty (Cyprus) Limited, Cyprus

Co Pharma Ltd, U.K. (w.e.f. July 01, 2010)

Strides Arcolab Polska Sp.z o.o, Poland

Strides Arcolab UK Limited, U.K.

Agila Specialties (Malaysia) SDN BHD, Malaysia (w.e.f. September 22, 2010)

Agila Especialidades Farmaceuticas Ltda, Brazil (w.e.f. June 11, 2010)*

Onco Laboratories Limited (formerly Powercliff Ltd.), Cyprus ( w.e.f. January 01, 2010)*

Strides Australia Pty Limited, Australia

Strides Inc, USA (w.e.f. December 21, 2010)

Strides Farmaceutica Participacoes Ltda, Brazil (w.e.f. July 01, 2010)

Strides Pharma (Cyprus) Limited, Cyprus

Other Subsidiaries:

Direct Holding:

Strides Inc. USA (upto December 20, 2010)

Onco Therapies Ltd, India (upto December 31, 2009)

Indirect Holding:

Ascent Pharmahealth Limited, Australia

Ascent Pharmahealth Asia Pte Limited, Singapore

Beltapharm S.p.A., Italy

Drug Houses of Australia (Asia) Pte. Limited, Singapore

Co Pharma Ltd, UK (upto June 30, 2010)

Formule Naturelle (Pty) Limited , South Africa (up to June 30, 2010)

Ascent Pharma Pty Limited (formerly known as Genepharm Pty Limited), Australia

Pharmasave Australia Pty Ltd., Australia

Strides S.A. Pharmaceuticals Pty. Limited, South Africa

Inbiopro Solutions Private Limited, India (w.e.f. November 25, 2010)

Ascent Pharmacy Services Pty Limited, Australia (w.e.f. January 29,2010)

Ascent Pharmaceuticals Limited (formerly known as Genepharm (New Zealand) Limited), New Zealand

African Pharmaceutical Development Company, Cameroon (w.e.f. January 01, 2010)

Green Cross Pharma Pte Ltd., Singapore (up to 1st January 2010)

Ascent Pharmahealth Asia (Hong Kong) Limited (formerly known as Strides Arcolab Hong Kong Limited), Hong Kong

Ascent Pharmahealth Asia (Malaysia) SDN BHD (formerly known as Strides Arcolab Malaysia SDN. BHD), Malaysia

Ephos - 106 Produtos Hospitalaries Ltda Me, Brazil (w.e.f. November 2010)*

Ascent Pharmahealth Asia (B) SDN BHD (formerly known as Strides Arcolab SDN BHD, Brunei)

Strides CIS Limited, Cyprus (formerly known as Raycom Limited)

Strides Vital Nigeria Limited, Nigeria

Joint Ventures (JV): Akorn Strides LLC, USA

Onco Laboratories Limited (formerly Powercliff Ltd.)- up to December 31, 2009

Sagent Strides LLC, USA

Key Management Personnel: Mr. Arun Kumar (Vice Chairman & Managing Director)

Mr. V.S. Iyer (Executive Director) w.e.f. January 19, 2010

Enterprises owned or significantly influenced : by key management personnel and relatives of key management personnel

Agnus Global Holdings Pvt Limited, India

Arcolab (India) Private Limited (merged with Agnus Holdings Pvt Ltd w.e.f. March 24, 2010)

Atma Projects, India

Higher Pharmatech Private Limited, India

Caryl Pharma Private Limited (merged with Agnus Holdings Pvt Ltd w.e.f. March 24, 2010)

Chayadeep Properties Private Limited, India

Agnus Global Holdings Pte Limited, Singapore

Agnus Holdings Private Limited, India

Fraxis Life Sciences Limited, India

Atma Enterprises LLP, India

Chayadeep Ventures LLP, India

Qualichem Capital LLP, India

Agnus Capital LLP, India

Triumph Ventures LLP, India

Mrs. Deepa Arun Kumar

Net Equity Ventures Private Limited (merged with Agnus Holdings Pvt Ltd w.e.f. March 24, 2010)

Nous Infosytems Private Limited, India

Patsys Consulting Private Limited, India

Sequent Scientific Limited, India

Sequent Research Limited , India

Sequent Global Holdings Limited, Mauritius

Sequent Scientific Limited

Vedic Elements Private Limited

Sequent Antibiotics (P) Limited, India

Sequent Oncolytics (P) Limited, India

Triumph Fincap Holdings Private Limited, India

Agnus IPCO Limited, BVI

Santo Finco Ltda, Madeira

Strides Italia srl, Italy

Keerthapathi Ravishankar - HUF

Mrs. K. Saraswathi

Mr. G.P. Pillai

Mr. Mohana Kumar Pillai

Associates Aspen Venezuela CA

Aspen Pharma Industria Farmaceutica, Brazil (formerly known as Cellofarm Ltda)

Pharmalatina Holdings Limited, Cyprus

Solara SA De CV, Mexico

Strides Latina, SA, Uruguay

Aspen Labs SA De CV, Mexico

Note:

*Pending certain regulatory approvals, the transfer of shares in these entities in favour of Strides group is yet to happen as at December 31, 2010.

**Related parties are as identified by the Company and relied upon by the Auditors.

19. Equity dividend accrued in 2010 includes Rs.4.97 Million being dividends relating to the year ended December 31, 2009 on the incremental number of shares that were issued between December 31, 2009 and the date of the Annual General Meeting of the Company held on May 31, 2010.

As required under Section 205(C) of the Companies Act, 1956 the Company has transferred Rs. NIL (Previous Year Rs.0.09 Million) to the Investor Education and Protection Fund (IEPF) during the year. As on December 31, 2010, no amount was due for transfer to the IEPF.

20. Leases

The Companys significant leasing arrangements are mainly in respect of factory buildings, residential and office premises. The aggregate lease rentals payable on these leasing arrangements charged to the Profit and Loss account is Rs.43.73 Million (Previous year Rs.88.70 Million).

21. The information disclosed in Schedule H.A (a) to the financial statements with regard to Micro and Small enterprises is based on information collected by the management based on enquiries made with the creditors which have been relied upon by the auditors.

22. Transfer Pricing

The Finance Act, 2001, has introduced, with effect from assessment year 2002-03 (effective April 1, 2001), detailed Transfer Pricing regulations (regulations) for computing the income from international transactions between associated enterprises on an arms length basis. These regulations, inter alia, also require the maintenance of prescribed documents and information including furnishing a report from an Accountant which is to be filed with the Income tax authorities.

The Company has undertaken necessary steps to comply with the Transfer Pricing regulations. The Management is of the opinion that the international transactions are at arms length, and hence the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

23. Since the Company prepares consolidated financial statements, segment information has not been provided in these financial statements.

24. Earnings per Share

Note:

(a) The amount of preference dividend for 2009 does not include the amount of any preference dividend accrued in the Profit & Loss Account during the year in respect of previous years since the same was considered for determining Earning per share in respective years.

(b) During the year ending December 31, 2010 the Company has reversed the preference dividend along with dividend tax thereon accrued in earlier years amounting to Rs.148.54 Million, since such dividend is no longer payable consequent to the agreement with the preference shareholders. Consequent to reversal such amount is also available for distribution to the equity shareholders. The basic and diluted EPS for the year ended December 31, 2010 after considering the reversal of preference dividend and tax thereon is Rs.18.85 & Rs.14.54 respectively.

25. Cash flow statement

(a) The Cash Flow Statement has been prepared under the indirect method as set out in the Accounting Standard - 3 on "Cash Flow Statements” issued under Section 211(3C) of Companies Act, 1956.

(b) Interest paid is inclusive of and purchase of Fixed Assets excludes, interest capitalised Rs.12.46 Million (Previous year Rs.100.59 Million).

(c) Direct tax paid and Others in the Cash Flow Statement includes outflows on account of permitted utilization from the BRR of Rs.69.80 Million (Previous Year Rs.49.03 Million) and Direct Taxes of Rs.102.23 Million (Previous Year Rs.49.47 Million)

(d) Reconciliation of Cash and Cash Equivalents to Cash and bank balances included in Schedule G.A.4.

26. Employee Benefits (Gratuity):

Note:

1. The estimate of future salary increases considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market.

2. In the absence of information relating to category wise breakup of Plan Assets, the same has not been disclosed.

26.2 Details on Derivatives Instruments & Un-hedged Foreign Currency Exposures

The following derivative positions are open as at December 31, 2010. While these transactions have been undertaken to act as economic hedges for the Companys exposures to various risks in foreign exchange markets, they have not qualified as hedging instruments in the context of the rigour of such classification under Accounting Standard 30. These instruments are therefore classified as held for trading and gains/losses recognized in the Profit and Loss Account.

I. The Company has entered into the following derivative instruments

(a) Forward Exchange Contracts [being a derivative instrument], which are not intended for trading or speculative purposes, but for hedge purposes, to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

(b) Interest Rate Swaps to hedge against fluctuations in interest rate changes: No. of contracts: Nil (Previous year : Nil)

(c) Currency Swaps (other than forward exchange contracts stated above) to hedge against fluctuations in changes in exchange rate. No. of contracts: Nil (Previous Year: Nil)

III. There were no outstanding option contracts as at December 31, 2010.

IV. Loss on Forward Exchange Derivative contracts (Net) included in the Profit and Loss account for year ended December 31, 2010 amounts to Rs.72.12 Million (Previous Year: Loss (Net) Rs.117.87 Million)

27 Categories of Financial Instruments

(c) Financial Liabilities Held for Trading

The option component of FCCBs has been classified as held for trading, being a derivative under AS 30. The carrying amount of the option component was Rs.190.95 Million as at December 31, 2010 and Rs.175.32 Million as at December 31, 2009. The difference in carrying value between the two dates, amounting to Rs.15.63 Million is taken as oss to the Profit and Loss Account of the year in accordance with provisions of AS 30.

The fair value of the option component has been determined using a valuation model. Refer to Note B.8.1 above on FCCBs for detailed disclosure on the valuation method.

(d) There are no other financial assets/liabilities in the following categories:

- Financial assets:

- Carried at fair value through profit and loss designated at such at initial recognition.

- Held to maturity

- Available for sale (other than investment in Subsidiaries & Joint Venture)

- Financial liabilities:

- Carried at fair value through profit and loss designated as such at initial recognition.

31.5 Nature and extent of risks arising from financial instrument

The main financial risks faced by the Company relate to fluctuations in interest and foreign exchange rates, the risk of default by counterparties to financial transactions, and the availability of funds to meet business needs. The Balance Sheet as at December 31, 2010 is representative of the position through the year. Risk management is carried out by a central treasury department under the guidance of the Management.

Credit risk

Credit risk arises from cash and cash equivalents, financial instruments and deposits with banks and financial institutions. Credit risk also arises from trade receivables and other financial assets.

The credit risk arising from receivables is subject to concentration risk in that the receivables are predominantly denominated in USD and any appreciation in the INR will affect the credit risk. Further, the Company is not significantly exposed to geographical distribution risk as the counterparties operate across various countries across the Globe.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Companys approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to Companys reputation. Liquidity risk is managed using short term and long term cash flow forecasts.

The following is an analysis of undiscounted contractual cash flows payable under financial liabilities and derivatives as at December 31, 2010. (Figures in brackets relates to Previous Year)

Foreign exchange risk

The Company is exposed to foreign exchange risk principally via:

- Debt availed in foreign currency

- Net investments in subsidiaries and joint ventures in foreign currencies

- Exposure arising from transactions relating to purchases, revenues, expenses etc to be settled in currencies other than ndian Rupees, the functional currency of the respective entities.

31.6 Sensitivity analysis as at December 31, 2010

Financial instruments affected by interest rate changes include Secured Long term loans from banks, Secured Long term loans from others, Secured Short term loans from banks and Unsecured Short term loans from banks. The impact of a 1% change in interest rates on the profit of an annual period will be Rs.76.53 Million (Previous year Rs 80.69 Million) assuming the loans as of December 31, 2010 continue to be constant during the annual period. This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.

Financial instruments affected by changes in foreign exchange rates include FCCBs, External Commercial Borrowings (ECBs), investments in subsidiaries, loans in foreign currencies to erstwhile subsidiaries and loans to subsidiaries and joint ventures. The Company considers US Dollar and the Euro to be principal currencies which require monitoring and risk mitigation. The Company is exposed to volatility in other currencies including the Great Britain Pounds (GBP) and the Australian Dollar (AUD).

32. The previous years figures have been regrouped in line with the current year.


Dec 31, 2009

1. The shareholders of the Company, in their meeting held on April 13, 2009 approved the Scheme of Restructuring that envisaged, inter alia:

(a) A Scheme of Arrangement to be fled under Sections 391 to 394 of the Companies Act, 1956 covering the merger of some of the subsidiaries of the Company with itself, fair valuation of some of the assets of the Company and creation of a Reserve for Business Restructuring out of any surpluses arising from these, to be utilised as specified in the Scheme.

(b) Transfer of the Specialties business along with Research and Development (R&D) to Strides Specialties Private Limited (SSPL), a wholly owned subsidiary of the Company;

The details of the scheme of restructuring are given below.

2. Scheme of Arrangement under Sections 391- 394 of the Companies Act, 1956

2.1 In terms of the Scheme of Arrangement (the Scheme), Global Remedies Limited (GRL), Quantum Remedies Private Limited (QRPL), Grandix Pharmaceuticals Limited (GPL) and Grandix Laboratories Limited (GLL), all subsidiaries of the Company (referred to as ‘Transferor Companies’), have been merged with the Company (Transferee Company), upon which the undertaking and the entire business, including all assets and liabilities of the Transferor Companies stands transferred to and vested in the Transferee Company at their fair value as determined by the Board of Directors of the Transferee Company.

QRPL and GRL were engaged in the manufacture of Pharmaceutical formulations and were predominantly acting as a captive manufacturer for the Company and catering to the African Markets. Both GPL and GLL were engaged in the marketing of Branded pharmaceutical products.

The Scheme of Arrangement fled by the Company has been approved by the Honorable High Courts of Judicature at Mumbai, Chennai and Bangalore with an appointed date of January 1, 2009 and an effective date of December 31, 2009 (‘the Effective Date’), being the date on which all the requirements under the Companies Act have been completed.

In terms of the Scheme and upon the Scheme becoming effective:

(a) the assets and liabilities of the Transferor Companies and the Transferee Company, whether recorded or not, have been recorded at their fair values as determined by the Board of Directors of the Transferee Company;

(b) the carrying amount of investments in the shares of the Transferor Companies to the extent held by the Transferee Company and Inter-Company balances stand cancelled;

(c) the face value of the equity shares of the Transferee Company (amounting to Rs.0.14 Million) issued to the minority shareholders of GPL and GLL has been credited to the equity share capital account in the books of the Transferee Company. Since such shares have been allotted on January 19, 2010, such amount has been considered as Share Application Money Pending Allotment in these financial statements.

(d) the surplus arising out of the excess of assets over the liabilities of the Transferor Companies acquired and recorded by the Transferee Company over the aggregate of carrying amount of investments in the shares of the Transferor Companies to the extent held by the Transferee Company and the face value of the equity shares of the Transferee Company issuable to the minority shareholders of GPL and GLL, and the excess of the fair value of assets and liabilities of the Transferee Company over their previously recorded carrying values, has been credited to the Reserve for Business Restructure (BRR) in the books of the Transferee Company.

(e) the balance in the Securities Premium Account, as appearing in the books of the Transferee Company may be transferred to BRR, to such extent as determined by the Board.

(f) expenses incurred by the Company or its subsidiaries in the nature of impairment, diminution, loss, amortisation and/ or write-off of assets/ investments/ intangibles, interest on borrowings for acquisitions, employee compensation expenses, additional depreciation charged or suffered by the Transferee Company on account of fair valuation, scheme expenses and other expenses incurred or arising in the future as may be determined by the Board of Directors of the Transferee Company, have been/ shall be debited to the BRR. The maximum amount that can be written off against the BRR instead of being debited to the Profit and Loss Account on or at any time after January 1, 2009 would be restricted to the balance in the BRR or upto December 31, 2012 and not beyond that.

2.3 Had the Scheme not provided for recording fair value of assets and liabilities of the Transferee Company and charging the expenses to the BRR, the effect of accounting as per the Accounting Standards issued under the Companies (Accounting Standards) Rules, 2006, would have been as under:

1. Capital Commitments

Estimated amount of contracts remaining to be executed on capital account and not provided for (Net of advances) - Rs.71.04 Million (Previous year Rs.283.99 Million). Also refer Note 9.

2. Contingent Liabilities

2.1 The Company has given the corporate guarantees to financial institutions and other parties towards credit facilities/ advances, on behalf of subsidiaries up to Rs.1,354.29 Million (Previous Year Rs.1,592.39 Million). However the subsidiaries have used facilities to an extent of Rs.1,186.21 Million (Previous Year 1,296.52 Million) as at the year end. The Company’s fixed assets (pari-passu second charge) and some of investments in the respective subsidiaries have been offered as security in respect of some of these facilities.

2.2 The Company has, arising from the assessment proceedings relating to earlier years, received demands totaling to Rs.207.12 Million (Previous year Rs.245.49 Million) from the income tax authorities on account of certain disallowances considered by them. The Company has disputed the disallowances and has, preferred appeals against these demands. Pending resolution of the same, no provision has been made in the accounts for such disputed amounts.

2.3 The Company preferred appeal with the CESTAT against the order of the Commissioner of Central Excise for disallowing transfer of cenvat credit of Rs.3.86 Million (Previous year Rs 3.86 Million) as on the date of conversion of one of the units of the Company into a 100% EOU.

3. Foreign currency convertible bonds

(a) During the accounting year ending December 31, 2007, the Company had issued Foreign Currency Convertible Bonds (FCCB) amounting to USD 100 Million (Rs.4,070 Million) on June 26, 2007. These bonds carry zero coupon and are to be redeemed on June 27, 2012 (unless converted into Equity Shares) at 145.058% of the Principal amount.

The bonds may be redeemed in whole, but not in part at the option of the Company at any time on or after July 18, 2010 and on and prior to June 20, 2012 with a redemption premium of 7.575% (which is identical to the gross yield in case of redemption at maturity) calculated on a semiannual basis. Up to December 31, 2007, Premium payable on maturity (along with related exchange fluctuation) was transferred from Securities Premium on a pro-rata basis to Debenture Redemption Reserve Account. However, consequent to the early adoption of AS 30 since 2008, the amortisation of redemption premium have been included in the carrying value of the FCCB’s. Consequently the entire balance of redemption premium carried in the Debenture Redemption Reserve was transferred back to Securities Premium Account during the year ended December 31, 2008.

The Bonds are convertible at any time on or after August 6, 2007 and up to the close of business on June 20, 2012 by the holders of the Bonds into Shares at the option of the Bondholder, at an initial conversion price of Rs.461.553 per Share with a fixed rate of exchange of Rs.40.70 per USD on conversion. The bonds are listed on Singapore Exchange Securities Trading Limited, Singapore.

(b) During the accounting year ending December 31, 2005, the Company had issued Foreign Currency Convertible Bonds (listed in the Singapore Exchange Securities Trading Limited, Singapore) to the extent of USD 40 Million. These bonds carry an interest rate of 0.5 % p.a. and are to be redeemed on April 19, 2010 (unless converted into Equity Shares) at 136.78% of the Principal amount.

The Bonds may be redeemed in whole, but not in part, at the option of the Company at any time on or after April 18, 2008 but prior to April 19, 2010 with a redemption premium of 6.8% p.a. (which is identical to the gross yield in case of redemption at maturity), calculated on bi-annual basis.

The Bonds are convertible by the Bond holders into shares at any time on or after May 18, 2005 at an initial price of Rs.358.70 per share with a fixed conversion rate of Rs.43.7767 = USD 1.00. The initial conversion price will be subject to adjustment by the Company for Bonus issue, division, consolidation and reclassification of shares etc., as defined in the terms of issue of the Bonds.

In 2005, a reserve for the entire amount of premium payable on redemption was created under Debenture Redemption Reserve with a corresponding adjustment to Securities Premium Account. However, consequent to the early adoption of AS 30 since 2008, the amortisation of redemption premium has been included in the carrying value of the FCCB’s. Consequently the entire balance of redemption premium carried under Debenture Redemption Reserve was transferred back to Securities Premium Account during the year ended December 31, 2008.

(c) As permitted by the Reserve Bank of India (RBI), during the year 2009, the Company bought back FCCB’s aggregating to USD 6.00 Million and USD 20 Million from the outstanding bonds issued under FCCB 2005 and FCCB 2007 respectively, at a discount. In terms of such buyback and cancellation / extinguishment of FCCBs, the Financial Statements for the year ended December 31, 2009 include the following:

- A gain of Rs.291.17 Million (net of expenses associated with the Buy-back) is recognised in the Profit & Loss account.

- Interest accrued from the beginning of the year 2009 till the buyback date amounting to Rs.79.96 Million is reversed and credited to the Profit and Loss Account.

- Consequential adjustments required to reverse the accrual for redemption premium (including issue expenses) have been recorded in the Securities premium account amounting to Rs.254.82 Million.

(d) As at December 31, 2009, none of the outstanding bonds had been offered for conversion.

4. Cumulative Redeemable Preference Shares

During the year ending December 31, 2005, the Company had issued 491,606 Cumulative Redeemable Preference shares of Rs.1,000/- each fully paid to K V Pharmaceuticals, USA (KV). The Cumulative Redeemable Preference shares carry dividend of 6% (Rs.60 per share) p.a. The Preference shares are redeemable at par along with accrued unpaid dividend on or before December 31, 2012. If any of these shares are not redeemed on the said date, the redemption price subsequent to December 31, 2012 shall contain an increasing default premium which shall be 10%, if redemption occurs in the year 2013 and an additional 10% per each year thereafter in which the shares are redeemed. These shares are entitled to dividends at the rate of 15%, (Rs.150 per share) after 2012.

During the year ended December 31, 2009, preference dividend pertaining to 2007, 2008 and 2009 amounting to Rs.88.49 Million has been accrued. Preference Dividend unpaid as at December 31, 2009 represents dividends on these preference shares for the years 2005 to 2009. While these dividends have been declared, in accordance with the Share Purchase Agreement with KV, they are due and payable only on or after December 31, 2010, without interest thereon.

5. Share Warrants

As authorised by the share holders of the Company in the Extra Ordinary General meeting held on May 13, 2009, the Board of Directors resolved on May 27, 2009 to allot 6,180,000 warrants to Netequity Ventures Private Limited, a Promoter Group company and 20,000 warrants to relatives of the Promoters, on preferential basis which are convertible into an equivalent number of fully paid up equity shares of Rs.10 each at a price of Rs.91.15 per warrant. These warrants are convertible, in one or more tranches, at any time within a period of 18 months from the date of issue.

An amount of Rs.141.36 Million is included as Monies Pending Allotment in the Balance Sheet as at December 31, 2009 for the upfront monies received towards the allotment of 6,200,000 warrants.

During 2008, as authorised by the shareholders of the Company in the Extra-Ordinary General meeting held on May 3, 2007,

the Company had issued 5,600,000 warrants convertible into an equivalent number of fully paid up equity shares of Rs.10 each at a price of Rs.342.10 per warrant, on preferential basis to Agnus Holdings Private Limited, a promoter group company. These warrants were convertible in one or more tranches, at any time within a period of 18 months from the date of issue. On July 5, 2007, the Company allotted 50,000 shares to Agnus Holdings Private Limited, pursuant to conversion of an equivalent number of warrants. Agnus Holdings Private Limited had not exercised its right for conversion of balance 5,550,000 warrants within the time stipulated under the preferential allotment guidelines. Accordingly, the aforesaid 5,550,000 warrants stood lapsed and upfront money of Rs.189.87 Million received against these warrants were forfeited and credited to Capital Reserve Account.

6. Early Adoption of Accounting Standard-30: Financial Instruments: Recognition and Measurement, issued by Institute of Chartered Accountants of India

Arising from the Announcement of the Institute of Chartered Accountants of India (ICAI) on March 29, 2008, the Company had chosen to early adopt Accounting Standard (AS) 30: ‘Financial Instruments: Recognition and Measurement’ during the year ended December 31, 2008, with effect from January 1, 2008. Coterminous with this, in the spirit of complete adoption, the Company had also implemented the consequential limited revisions in view of AS 30 to AS 2, ‘Valuation of Inventories’, AS 11’The Effect of Changes in Foreign Exchange Rates’, AS 19, ‘Leases’, AS 21 ’Consolidated Financial Statements and Accounting for Investments in Subsidiaries in Separate Financial Statements’, AS 23 ‘Accounting for Investments in Associates in Consolidated Financial Statements’, AS 26 ‘Intangible Assets’, AS 27 ‘Financial Reporting of Interests in Joint Ventures’, AS 28 ’Impairment of Assets’ and AS 29 ‘Provisions, Contingent Liabilities and Contingent Assets’ as have been announced by the ICAI.

Consequent to adoption of AS 30 and its transitional provisions from the year ended December 31, 2008, the Company has changed the designation and measurement principles for all its significant financial assets and liabilities. The impact on account of the above measurement of these is as described below:

6.1 Foreign Currency Convertible Bonds (the ‘FCCBs’ or the ‘Bonds’)

On adoption of AS 30, the FCCBs are split into two components comprising (a) option component which represents the value of the option in the hands of the FCCB-holders to convert the bonds into equity shares of the Company and (b) debt component which represents the debt to be redeemed in the absence of conversion option being exercised by FCCB-holder, net of issuance costs.

The debt component is recognised and measured at amortised cost while the fair value of the option component is determined using a valuation model with the below mentioned assumptions.

Assumptions used to determine fair value of the options:

Valuation and amortisation method — The Company estimates the fair value of stock options granted using the Black Scholes Merton Model and the principles of the Roll-Geske-Whaley extension to the Black Scholes Merton model. The Black Scholes Merton model along with the extensions above requires the following inputs for valuation of options:

Stock Price as at the date of valuation – The Company’s share prices as quoted in the National Stock Exchange Limited (NSE), India have been converted into equivalent share prices in US Dollar terms by applying currency rates as at valuation dates. Further, stock prices have been reduced by continuously compounded stream of dividends expected over time to expiry as per the principles of the Black-Scholes Merton model with Roll Geske Whaley extensions.

Strike price for the option - has been computed in dollar terms by computing the redemption amount in US dollars on the date of redemption (if not converted into equity shares) divided by the number of shares which shall be allotted against such FCCBs.

Expected Term — The expected term represents time to expiry, determined as number of days between the date of valuation of the option and the date of redemption.

Expected Volatility — Management establishes volatility of the stock by computing standard deviation of the simple exponential daily returns on the stock. Stock prices for this purpose have been computed by expressing daily closing prices as quoted on the NSE into equivalent US dollar terms. For the purpose of computing volatility of stock prices, daily prices for the last one year have been considered as on the respective valuation dates.

Risk-Free Interest Rate — The risk-free interest rate used in the Black-Scholes valuation method is assumed at 7%.

Expected Dividend — Dividends have been assumed to continue, for each valuation rate, at the rate at which dividends were earned by shareholders in the last preceding twelve months before the date of valuation.

Measurement of Amortised cost of debt component:

For the purpose of recognition and measurement of the debt component, the effective yield has been computed considering the amount of the debt component on initial recognition, origination costs of the FCCB and the redemption amount if not converted into Equity Shares. To the extent the effective yield pertains to redemption premium and the origination costs, the effective yield has been amortised to the Securities Premium Account as permitted under section 78 of the Companies Act, 1956. The balance of the effective yield is charged to the Profit and Loss Account.

Consequent to the above method of accounting of FCCBs, the following adjustments were made:

During the year ended December 31, 2008:

(a) Rs.934.71 Million being the previously accrued Debenture Redemption Reserve out of the Securities Premium Account was credited back to Securities Premium Account during the year ended December 31, 2008.

(b) a sum of Rs.124.68 Million being the amount of FCCB issue expenses previously debited to Securities Premium Account were reversed.

(c) Rs.443.20 Million and Rs.546.41 Million were debited to Securities Premium Account as at December 31, 2007 and during the year 2008 respectively, towards the amortised interest attributable to the effective yield pertaining to the redemption premium and FCCB issue expenses.

(d) Rs.202.00 Million being the excess of amortised interest chargeable to Profit and Loss Account as per the policy adopted by the Company over the previously recognised interest cost upto December 31, 2007 was debited to General Reserve Account.

(e) The difference between the fair value of the option component on the date of issue of the FCCBs and December 31, 2007 amounting to Rs.427.10 Million was credited to the General Reserve Account.

(f) Rs.63.31 Million being the incremental exchange difference upto December 31, 2007 arising out of the accounting treatment of FCCBs described above was debited to General Reserve Account.

During the year ended December 31, 2009:

(a) Amortisation of interest (net) and redemption premium (net) on FCCBs amounting to Rs.168.10 Million and Rs.348.68 Million have been respectively recorded in the Profit and Loss account and in the Securities Premium Account.

(b) Change in the fair values of option component in the FCCBs, being a loss of Rs.41.12 Million has been recorded in the Proft and Loss Account.

6.2 Hedge Accounting:

The Company has designated certain portion of its investments in Starsmore Limited, Cyprus, Strides Africa Limited, British Virgin islands and Akorn Strides LLC, USA, whose functional currency is US dollars as hedged items in a fair value hedge and to the extent of the hedge items, designated FCCB’s availed in US dollars as hedging instruments, to hedge the risk arising from fluctuations in the foreign exchange rate between the Indian Rupee and the US dollar. The carrying values of the designated hedged items and the hedging instruments as at December 31, 2009 is USD 30.55 Million (Previous Year USD 100.55 Million).

Accordingly, applying the fair value hedge accounting principles, the exchange gains/ losses on the hedging instrument is recognised in Profit and Loss Account along with the associated exchange gains/ losses on the restatement of the designated portion of the investments, to the extent the hedges are considered effective.

The exchange fluctuations on restatement of designated portion of the USD denominated investments as referred above have been dealt with in the Profit and Loss account of the respective years of 2009 and 2008 as mentioned below:

- Exchange losses of Rs.107.01 Million during the year ended December 31, 2009

- Exchange gains of Rs.923.40 Million during the year ended December 31, 2008

Under the transitional provisions of the AS 30, the impact of exchange loss arising on restatement of designated portion of the USD denominated investments as of December 31, 2007 amounting to Rs.120.42 Million was debited to the General Reserve Account during year ended December 31, 2008.

6.3 The financial assets and liabilities arising out of issue of corporate financial guarantees to third parties are accounted at fair values on initial recognition. Financial assets continue to be carried at fair values. Financial liabilities are subsequently measured at the higher of the amounts determined under AS 29 or the fair values on the measurement date. At December 31, 2009, the fair values of such financial assets are equal to such liabilities and have been set off in the financial statements.

6.4 As required under the Companies Act, 1956, Redeemable Preference Shares are included as part of share capital and not as debt and dividend on the preference shares is accounted as dividend as part of appropriation of profits and have not been accrued as interest cost. Due to inadequate profits, preference dividends were not accrued for in the years 2007 and 2008. During 2009, preference dividend pertaining to 2007, 2008 and 2009 amounting to Rs.88.49 Million has been accrued along with the related Dividend distribution taxes.

6.5 The Company has availed Bill Discounting facility from Banks which do not meet the de-recognition criteria for transfer of contractual rights to receive cash flows from the Debtors since they are with recourse to the Company. Accordingly, as at December 31, 2009, Sundry Debtor balances include Rs.1,044.46 Million (Previous year Rs.974.61 Million) and the corresponding financial liability to the Banks is included as part of short term secured loans.

6.6 Gains/ losses on all the open derivative positions as on December 31, 2009 not designated as hedging instruments have been recognised in the Profit and Loss Account.

7. Employee Stock Option Scheme

(a) In the extraordinary general meeting held on January 25, 2007, the shareholders approved the issue of 1,000,000 options under the scheme titled “Strides Arcolab ESOP 2006”.

The Strides Arcolab ESOP 2006 allows the issue of options to employees of the Company and its subsidiaries (whether in India or abroad). Each option comprises one underlying equity share.

As per the Scheme, the Compensation committee grants the options to the employees deemed eligible. The exercise price of each option shall not be less than 85% of the “Market Price” as defined in the Scheme. The options granted vest over a period of 3 years from the date of the grant in proportions specified in the Scheme. Options may be exercised within 30 days of vesting.

The difference between the fair price of the share underlying the options granted, on the date of grant of option and the exercise price of the option (being the intrinsic value of the option) representing Stock compensation expense, is expensed over the vesting period.

(b) The ESOP scheme titled “Strides Arcolab ESOP 2008” was approved by the shareholders through postal ballot on June 18, 2008. 1,500,000 options are covered under the scheme for 1,500,000 shares.

The Remuneration Committee of the Company, on July 22, 2008 has granted 665,000 options under the Strides Arcolab ESOP 2008 scheme to few eligible employees of the Company. The shares covered by such options were 665,000 equity shares.

During the current year, the Remuneration Committee in its meeting held on March 16, 2009 and August 28, 2009 has granted 100,000 and 242,500 options respectively under the Strides Arcolab ESOP 2008 Scheme to few eligible employees of the Company.

The vesting period of these options range over a period of three years. The options may be exercised with in a period of 30 days from the date of vesting.

(c) The ESOP scheme titled “Strides Arcolab ESOP 2008 (Directors)” was approved by the shareholders through postal ballot on January 12, 2009. 500,000 options are covered under the scheme for 500,000 equity shares.

The Remuneration Committee of the Company, on March 16, 2009 has granted 300,000 options under the Strides Arcolab ESOP 2008 (Directors) scheme to few Directors of the Company. The shares covered by such options were 300,000 equity shares.

The vesting period of these options range over a period of three years. The options may be exercised with in a period of 30 days from the date of vesting.

(d) During the year, the Shareholders of the Company through postal ballot on June 23, 2009 have accorded to re-price the terms of the unexercised Employee Stock Options (ESOPs) issued under the Strides Arcolab ESOP 2006 and Strides Arcolab ESOP 2008 Schemes to the extent that such re-price/ re-pricing formula is not less than 85% of the closing market price of shares as on the date of re-pricing.

8. During the year, the Company received compensation amounting to Rs.20 Million (included in Other Income) for breach of non-compete arrangements entered into with the erstwhile promoter of Grandix Pharmaceuticals Limited, an entity that was acquired by the Company in 2007 and merged into the Company in 2009.

9. During the year 2007, the Company entered into a Subscription and Shareholders agreement with Aspen Pharmacare Holdings Limited (Aspen) under which Aspen subscribed to 49% of the share capital of Onco Therapies Limited (Onco), a subsidiary of the Company. Onco is set up to operate in the Oncology products line of business that the Company is in the process of building up.

In accordance with the agreement referred above, the Company has assigned the voting rights relating to 1% of the share capital of Onco to Aspen under a Voting Rights assignment agreement. Under this agreement, the voting rights in respect of such 1% of the total issued and outstanding share capital of Onco shall be exercised by Aspen from the date of signing of such Voting Rights agreement, in a manner which deem ft.

The Company had entered into another Agreement with Onco to set up an Oncology manufacturing facility in Bangalore, for a consideration of USD 32.50 Million (payable by Onco in equivalent Indian Rupees). Under this agreement the Company had:

- transferred the moveable and immoveable assets relating to the Oncology manufacturing facility and the contracts awarded to various suppliers in connection with the facility; and

- undertaken the obligations of completing the facility, including all financial obligations related thereto.

As at December 31, 2009, the Company has estimated the financial commitment to complete the Oncology facility to be about Rs.228.35 Million (Previous year Rs.333.59 Million)

An amount of Rs.110.00 Million (Previous year Rs.10.00 Million) representing Project management fees & profit recognised on partial completion of the facility under the above arrangement has been accrued under Other Income.

During the year ended December 31, 2009, the Company transferred certain Product Dossiers to Onco in lieu of Preferred Supply Agreement for certain products, entered between the Company and Onco.

10. Other Income (Item ‘c’ under Schedule J) for the year ended December 31, 2008 comprises the following:

a. Company transferred its shareholding in Strides Latina SA, Uruguay to Lakerose Limited, Cyprus, then a step down subsidiary, for a consideration of USD 30.10 Million (equivalent to Rs.1,193.55 Million) and recorded a profit on sale of investment of Rs.2.21 Million.

b. Company sold certain supply contracts in respect of customers in South East Asian markets to Ascent Pharmahealth Pte Limited, a step down subsidiary, at a consideration of Rs.208.15 Million.

11. Interest in Joint ventures

In terms of the Joint Venture agreement entered into between the Company and Akorn Inc., USA, the Company holds 50% of the total share capital of the joint venture, Akorn Strides LLC, USA.

12. Unbilled revenue includes income recognised on development services contracts and contracts for production of dossiers, against which no invoices are raised, and are net of advances received against the respective contracts. However, during the current year, pursuant to hive off of Research & Development business to SSPL, unbilled revenue balance as at December 30, 2009 is transferred to SSPL. Refer note A.2 of Schedule P.

13. Particulars of materials consumed and percentage to total consumption of Imported and Indigenous materials.

Since none of the individual items of raw materials and packing materials constitute more than 10% of the consumption, quantitative details in respect of the same have not been given.

14. Particulars of Traded Goods

None of the items individually account for more than 10% of the total value of the purchases, stock or turnover, hence quantitative details have not been furnished.

15. Related Party Transactions :

Names of Related Parties:

Wholly owned subsidiaries :

Direct Holding:

Arcolab Limited SA, Switzerland

Global Remedies Limited, India (merged with the Company w.e.f January 1, 2009)

Strides Technology & Research Pvt Ltd.,

Strides Specialties Pvt Limited (formerly Quantum Life Sciences Pvt Ltd.)

Starsmore Limited, Cyprus

Strides Africa Limited, British Virgin Islands

Strides Arcolab International Limited, U.K (SAIL)

Medgene Pharmaceuticals Pvt Ltd. India (Upto April 24, 2009)

Indirect Holding:

Pharma Strides Canada Corporation

Linkace Limited, Cyprus

Plus Farma ehf (w.e.f 30.12.2009)

Farma Plus AS (w.e.f 30.12.2009)

Quantum Remedies Private Limited (merged with the Company w.e.f January 1, 2009)

Strides Specialties (Holdings) Limited, Mauritius

Strides Specialties (Holdings) Cyprus Limited (previously known as Powercoast Limited).

Strides Pharmaceuticals (Holdings) Limited, Mauritius

Strides Specialty (Cyprus) Limited

Strides Arcolab Polska Sp.z o.o, Poland

Strides Arcolab UK Limited, UK

Strides Australia Pty Limited, Australia

Medgene Pharmaceuticals Pvt Ltd. India ( From April 24, 2009)

Strides Pharma (Cyprus) Limited, Cyprus

Other Subsidiaries:

Direct Holding:

Strides Inc. USA

Onco Therapies Ltd, India

Grandix Pharmaceutical Limited, India (merged with the Company w.e.f January 1, 2009)

Indirect Holding:

Ascent Pharmahealth Limited, Australia

Strides S.A. Pharmaceuticals Pty. Limited, South Africa

Ascent Pharmahealth Asia Pte Limited, Singapore

Beltapharm S.p.A., Italy

Drug Houses of Australia (Asia) Pte. Limited, Singapore

Co Pharma Ltd, UK

Formule Naturelle (Pty) Limited , South Africa

Genepharm Newzealand Limited, Newzealand

Genepharm Pty Limited, Australia

Grandix Laboratories Limited, India (merged with the Company w.e.f January 1, 2009)

Pharmasava Australia Pty Ltd., Australia

Green Cross Pharma Pte Ltd., Singapore

Strides Arcolab Hong Kong Limited, Hong Kong

Strides Arcolab Malaysia SDN. BHD, Malaysia

Strides Arcolab SDN BHD, Brunei

Strides CIS Limited, Cyprus (Previously known as Raycom Limited)

Strides Vital Nigeria Limited, Nigeria

Joint Ventures (JV):

Akorn Strides LLC, USA

Farma Plus AS, Norway (Upto December 29, 2009)

Laboratorios Domac Spain (Upto December 30, 2009)

Plus Farma ehf, Iceland (Upto December 29, 2009)

Onco Laboratories Limited, Cyprus (formerly Powercliff Ltd.)

Sagent Strides LLC, USA

Key Management Personnel: Enterprises owned or significantly influenced by key management personnel and relatives of key management personnel

Mr. Arun Kumar (Vice Chairman & Managing Director)

Agnus Global Holdings Pte Limited

Agnus Holdings Private Limited

Agnus IPCO Limited, BVI

Arcolab (India) Private Limited

Atma Projects

Caryl Pharma Private Limited

Chayadeep Properties Private Limited

Everron Systems (India) Limited

Fraxis Life Sciences Limited

Keerthapathi Ravishankar – HUF

Mrs. Deepa Arunkumar

Mrs. K Saraswathi

Netequity Ventures Private Limited

Nous Infosytems Private Limited

Patsys Consulting Private Limited

Sequent Scientifc Limited (previously PI Drugs & Pharmaceuticals Limited ), India

Sequent Research Limited , India

Sequent European Holdings Limited

Sequent Global Holdings Limited, Mauritius

Sequent Scientifc Limited

Vedic Elements Private Limited

Mr. G.P Pillai

Mr. Mohan Kumar Pillai

Associates

Aspen Venezuela CA (formerly Casa de Representaciones Sumifarma CA), Venezuela

Cellofarm Ltda, Brazil

Pharmalatina Holdings Limited (formerly Lakerose Ltd.), Cyprus

Solara SA De CV, Mexico

Strides Latina, SA, Uruguay

Aspen Labs SA De CV (formerly Strides Mexicana SA De CV), Mexico

Note: Related parties are as identified by the Company and relied upon by the Auditors.

16. Leases

The Company’s significant leasing arrangements are mainly in respect of factory buildings, residential and office premises. The aggregate lease rentals payable on these leasing arrangements charged to the Profit and Loss account is Rs.88.69 Million (Previous year Rs.51.36 Million).

17. Loans and advances include amounts due from Directors, Rs.24.71 Million (Previous year Rs.51.76 Million). Maximum amount due during the year Rs.51.76 Million (Previous year Rs.51.76 Million).

The above amount includes due from Directors of Rs.24.39 Million (Previous year Rs.51.44 Million), being excess managerial remuneration of earlier years, referred in clause 17.1 above.

18. The information disclosed in Schedule H.A (a) to the financial statements with regard to Micro and Small enterprises is based on information collected by the management based on enquiries made with the creditors which have been relied upon by the auditors.

19. Transfer Pricing

The Finance Act, 2001, has introduced, with effect from assessment year 2002-03 (effective April 1, 2001), detailed Transfer Pricing regulations (‘regulations’) for computing the income from ‘international transactions’ between ‘associated enterprises’ on an ‘arm’s length’ basis. These regulations, inter alia, also require the maintenance of prescribed documents and information including furnishing a report from an Accountant which is to be fled with the Income tax authorities.

The Company has undertaken necessary steps to comply with the Transfer Pricing regulations. The Management is of the opinion that the international transactions are at arm’s length, and hence the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation.

20. Since the Company prepares consolidated financial statements, segment information has not been provided in these financial statements.

21. As required under Section 205(C) of the Companies Act, 1956 the Company has transferred Rs.0.09 Million (Previous Year Rs.0.08 Million) to the Investor Education and Protection Fund (IEPF) during the year. As on December 31, 2009, no amount was due for transfer to the IEPF.

22. Cash flow statement

(a) The Cash Flow Statement has been prepared under the indirect method as set out in the Accounting Standard – 3 on “Cash Flow Statements” issued under Section 211(3C) of Companies Act, 1956.

(b) Interest paid is inclusive of and purchase of Fixed Assets excludes, interest capitalised Rs.100.59 Million (Previous year Rs.26.87 Million).

22.1 Details on Derivatives Instruments & Un-hedged Foreign Currency Exposures

The following derivative positions are open as at December 31, 2009. While these transactions have been undertaken to act as economic hedges for the Company’s exposures to various risks in foreign exchange markets, they have not qualified as hedging instruments in the context of the rigour of such classification under Accounting Standard 30. These instruments are therefore classified as held for trading and gains/ losses recognised in the Profit and Loss Account.

I. The Company has entered into the following derivative instruments

(a) Forward Exchange Contracts [being a derivative instrument], which are not intended for trading or speculative purposes, but for hedge purposes, to establish the amount of reporting currency required or available at the settlement date of certain payables and receivables.

(b) Interest Rate Swaps to hedge against fluctuations in interest rate changes: No. of contracts: Nil (Previous year : Nil )

(c) Currency Swaps (other than forward exchange contracts stated above) to hedge against fluctuations in changes in exchange rate. No. of contracts: Nil (Previous Year: Nil)

22.2 Categories of Financial Instruments (a) Loans and Receivables:

The following financial assets in the Balance Sheet have been classified as Loans and Receivables as defined in Accounting Standard 30. These are carried at amortised cost less impairment if any.

(c) Financial Liabilities Held for Trading

The option component of Foreign Currency Convertible Bonds (FCCBs) has been classified as held for trading, being a derivative under Accounting Standard 30. Refer Note B.6 of Schedule P on FCCBs. The carrying amount of the option component was Rs.175.32 Million as at December 31, 2009 and Rs.134.20 Million as at December 31, 2008. The difference in carrying value between the two dates, amounting to Rs.41.12 Million is taken as loss to the Profit and Loss Account of the year in accordance with provisions of Accounting Standard 30.

The fair value of the option component has been determined using a valuation model. Refer to Note B.6 above on FCCBs for detailed disclosure on the valuation method.

(d) There are no financial assets / liabilities in the following categories:

- Financial assets:

o Carried at fair value through profit and loss designated at such at initial recognition.

o Held to maturity

o Available for sale (other than investment in Subsidiaries & Joint Venture)

- Financial liabilities:

o carried at fair value through profit and loss designated as such at initial recognition.

22.3 Nature and extent of risks arising from financial instruments

The main financial risks faced by the Company relate to fluctuations in interest and foreign exchange rates, the risk of default by counterparties to financial transactions, and the availability of funds to meet business needs. The Balance Sheet as at December 31, 2009 is representative of the position through the year. Risk management is carried out by a central treasury department under the guidance of the Management.

Interest rate risk

Interest rate risk arises from long term borrowings. Debt issued at variable rates exposes the Company to cash flow risk. Debt issued at fixed rate exposes the Company to fair value risk. In the opinion of the management, interest rate risk during the year under report was not substantial enough to require intervention or hedging through derivatives or other financial instruments. For the purposes of exposure to interest risk, the Company considers its net debt position evaluated as the difference between financial assets and financial liabilities held at fixed rates and floating rates respectively as the measure of exposure of notional amounts to interest rate risk. This net debt position is quantified as under:

Foreign exchange risk

The Company is exposed to foreign exchange risk principally via:

- Debt availed in foreign currency

- Net investments in subsidiaries and joint ventures in foreign currencies

- Exposure arising from transactions relating to purchases, revenues, expenses etc to be settled in currencies other than Indian Rupees, the functional currency of the respective entities.

22.4 The Company has designated its investments in certain subsidiaries whose functional currency is US dollars as hedged items in a fair value hedge and certain loans availed in US dollars as hedging instruments to hedge the risk arising from fluctuations in the foreign exchange rate between the Indian Rupee and the US dollar. The carrying values of the financial liabilities designated as hedging instruments as at December 31, 2009 is Rs.1,421,19 Million (Previous year Rs.4,897.97 Million).

22.5 The (loss)/ gain arising on the dollar loans designated as hedging instruments recognised in the Profit and Loss Account during the year ended December 31, 2009 is Rs.107.01 Million [Previous year (Rs.923.40 Million)]. The (loss)/ gain arising from investments in certain subsidiaries designated as hedged items as much as is attributable to the hedged foreign exchange risk recognised in the Profit and Loss Account for the year ended December 31, 2009 is Rs.(107.01) Million ( Previous year Rs.923.40 Million).

22.6 Sensitivity analysis as at December 31, 2009

Financial instruments affected by interest rate changes include Secured Long term loans from banks, Secured Long term loans from others, Secured Short term loans from banks and Unsecured Short term loans from banks. The impact of a 1% change in interest rates on the profit of an annual period will be Rs.121.35 Million ( Previous year Rs.108.29 Million) assuming the loans as of December 31, 2009 continue to be constant during the annual period. This computation does not involve a revaluation of the fair value of loans as a consequence of changes in interest rates. The computation also assumes that an increase in interest rates on floating rate liabilities will not necessarily involve an increase in interest rates on floating rate financial assets.

For the purposes of the above table, it is assumed that the carrying value of the financial assets and liabilities as at the end of the respective financial years remains constant thereafter. The exchange rate considered for the sensitivity analysis is the Exchange Rate prevalent as at December 31, 2009.

In the opinion of the management, impact arising from changes in the values of trading assets (including derivative contracts, trade receivables, trade payables, other current assets and liabilities) is temporary and short term in nature and would vary depending on the levels of these current assets and liabilities substantially from time to time and even on day to day basis and hence are not useful in an analysis of the long term risks which the Company is exposed to.

23. Consequent to the merger of certain subsidiaries into the Company and the Hiveoff of certain business during the year (Refer Note A, Schedule ‘P’), the figures for the current year are not comparable with those of the previous year. To the extent relevant the previous year’s figures have been regrouped in line with the current year.

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