PROJECT on DIVIS LABORATORIES LTD.

Submitted in partial fulfilment of the requirements for Post Graduate Diploma in Management (PGDM)

Submitted to: Mrs. Nidhi Sahore

Submitted by: Mehul Yadav Rohan Bahri Naina Arora Aditi Ahuja Class of 2012 Section - B

Bharatiya Vidya Bhavans Usha & Lakshmi Mittal Institute of Management Copernicus Lane, Kasturba Gandhi Marg New Delhi-110001

October 2012

INDUSTRY OUTLOOK
The Pharmaceutical industry in India is the world's third-largest in terms of volume and stands 14th in terms of value. According to Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total turnover of India's pharmaceuticals industry between 2008 and September 2009 was US$ 21.04 billion. While the domestic market was worth US$ 12.26 billion. Sale of all types of medicines in the country is expected to reach around US$ 19.22 billion by 2012. Exports of pharmaceuticals products from India increased from US$ 6.23 billion in 2006-07 to US$ 8.7 billion in 2008-09 a combined annual growth rate of 21.25%. According to Price Waterhouse Coopers (PWC) in 2010, India joined among the league of top 10 global pharmaceuticals markets in terms of sales by 2020 with value reaching US$ 50 billion. The number of purely Indian pharma companies is fairly low. Indian pharma industry is mainly operated as well as controlled by dominant foreign companies having subsidiaries in India due to availability of cheap labour in India at lowest cost. Most pharma companies operating in India, even the multinationals, employ Indians almost exclusively from the lowest ranks to high level management. Mirroring the social structure, firms are very hierarchical. In terms of the global market, India currently holds a modest 1-2% share, but it has been growing at approximately 10% per year. India gained its foothold on the global scene with its innovatively engineered generic drugs and active pharmaceutical ingredients (API), and it is now seeking to become a major player in outsourced clinical research as well as contract manufacturing and research.

DIVIS LABORATORIES LTD

Established in the year 1990, with Research & Development as its prime fundamental, Divis Laboratories focused on developing new processes for the production of Active Pharma Ingredients (APIs) & Intermediates. The company in a matter of short time expanded its breadth of operations to provide complete turnkey solutions to the domestic Indian pharmaceutical industry. With five years of experience, expertise and a proven track-record of helping many companies with its turn-key and consulting strengths, Divis Laboratories established its first manufacturing facility in 1995. Built on a 500 acre site at Hyderabad (Unit-I). the plant comprises of 13 multi-purpose production blocks and has space for further growth and expansion. Divis Laboratories set up its second manufacturing facility at Visakhapatnam (Unit-II). in the year 2002 on a 350 acre site. The site has 14 multipurpose production blocks.

Both the facilities are primarily engaged in the manufacture of: Active Pharmaceutical Ingredients (APIs) & Intermediates for Generics. Custom Synthesis of API's and Advanced intermediates for discovery compounds for pharma giants. Building blocks for Peptides. Building blocks for Nucleotides. Carotenoids. Chiral ligands.
Complete CGMP guidelines are complied with in both the plants. Our Unit1 at Hyderabad was successfully inspected by the US FDA during September 2000, in April 2004 and in February 2008. Our Unit-2 at Visakhapatnam was successfully inspected by the US FDA during November 2006 and in April 2009. Divis also undertakes FTE/Contract Research on process development for discovering new compounds for leading MNCs across the world and partners with them for the supply of APIs. The company is global in its outlook and benchmarks its quality

standards to the best in the world.

Vision & Mission

A Vision To Excel

To maintain leadership in custom synthesis of APIs and Intermediates for health care and life sciences industry and to be one of the top companies world-wide in the domain. To develop generic APIs for the late life cycle needs of the Industry. A Mission To Serve To be a good corporate citizen and not only add value in our core competency areas of Pharma but also serve the community at large through social, educational and environmental initiatives that would establish strong foundations for a better tomorrow.

Directors Report
Certification of Chairman and Managing Director and Chief Financial Officer pursuant to Clause 49 of the Listing Agreement
Dr. Murali K. Divi, Chairman and Managing Director appointed in terms of the Companies Act, 1956 and Mr. L.Kishore Babu, Chief Financial Officer of the Company to the best of our knowledge and belief, certify that: a. We have reviewed balance sheet and statement of profit and loss (consolidated and unconsolidated) and notes on accounts as well as the cash flow statements and the directors report : i. ii. do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading. together present a true and fair view of the companys affairs and are in compliance with existing accounting standards, applicable laws and regulations.

b. There are no transactions entered into by the company during the year which are fraudulent, illegal or volatile of the companys code of conduct.

c. We accept responsibility for establishing and maintaining internal controls for financial reporting and that we have evaluated the effectiveness of internal control systems of the company pertaining to financial reporting and we have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which we are aware and the steps we have taken or propose to take to rectify these deficiencies.

d. We have indicated to the auditors and the Audit committee:

i.

Significant changes in internal control over financial reporting during the year;

ii.

Significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and

iii.

instances of significant fraud of which we have become aware and the involvement therein, if any, of the management or an employee having a significant role in the companys internal control system over financial reporting for Divis Laboratories Limited.

Significant Accounting Policies

Accounting Convention:

The financial statements are prepared under historical cost convention on the accrual basis of accounting in accordance with generally accepted accounting principles in India and the Accounting Standards issued under the relevant provisions of the Companies Act, 1956.

Fixed Assets and Depreciation: i. Fixed assets are stated at cost of acquisition including freight, duties and installation expenses and expenditure during construction where applicable and net of CENVAT and Value Added Tax credit availed against Tax or cess paid on such items. ii. Depreciation on Fixed Assets is provided under Straight Line Method at the rates and in the manner specified in Schedule XIV of the Companies Act, 1956. iii. Depreciation is provided at one hundred per cent for assets costing less than Rs.5,000/iv. Depreciation on Fixed Assets used for the Project under construction is included under Unallocated Expenditure Pending Capitalization. v. Revenue Expenditure incurred during the construction period of the Project is shown under Unallocated Expenditure Pending Capitalization till the commencement of the commercial production or their intended use and the same is being capitalized by allocating to relevant assets in the ratio of their direct costs.

Impairment of Assets: The carrying amounts of the assets are being tested on annual basis for impairment so as to determine the provision required for impairment loss if any or for reversal of the provision, if any, required on account of impairment loss recognized in previous periods.

Investments: i. ii. iii. Investments are classified into current and Long-term investments. Current investments are valued at lower of cost and fair value. Long-term investments are valued at cost of acquisition. Provision is made for decline, other than temporary, in the value of investments. iv. On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the statement of profit and loss.

Inventories: Inventories are valued at lower of cost and net realizable value. The Cost of inventories is being determined under weighted average cost method

Research and Development: Revenue Expenditure incurred for Research and Development is written off in the same year. Capital expenditure on Research and Development is shown as additions to Fixed Assets.

Excise Duty:

Excise Duties recovered are included in "Gross Sales". Excise duty on despatches is shown as an item of expense and deducted from Gross Sales. The value of closing stock of finished goods includes excise duty paid / payable on such stocks wherever applicable.

Employee Stock Option Scheme:

In accordance with the Securities and Exchange Board of India guidelines, the excess of the market price of the shares, at the date of grant of option under the employee stock option scheme, over the exercise price is treated as employee compensation and the same is amortized over the vesting period of the stock options.

Foreign Exchange Transactions: i. Transactions in Foreign Exchange, other than those covered by forward contracts are accounted for at the exchange rate prevailing on the date of transactions. Exchange differences arising on foreign currency transactions settled during the year are recognized in the Statement of Profit and Loss.

ii.

Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date other than those covered by forward contracts are translated at the yearend rates. The resultant exchange differences are recognized in the statement of profit and loss.

iii.

Non-monetary assets and liabilities are recorded at the rates prevailing on the date of the transaction.

Employee Benefits:

i.

Short-Term Benefits: Short Term Employee Benefits, at the undiscounted amount in the year in which the services have been rendered, are charged off to the Statement of Profit and Loss.

ii.

Long-Term Benefits: The contributions to Provident Fund and Employee State Insurance Schemes, which are defined contribution schemes, to the relevant funds administered and managed by the Central Government of India, are charged off to the Statement of Profit and Loss as and when incurred. The Company has no further obligations under these plans beyond its monthly contributions.

iii.

Gratuity: The Company makes contribution to a scheme administered by the Life Insurance Corporation of India to discharge the gratuity liabilities to the employees. Annual Contribution to the fund as determined by the Life Insurance Corporation of India is expensed in that year of contribution.

iv.

Leave Encashment: The Company records its unveiled leave liability based on actuarial valuation using projected unit credit method. Actuarial gains / losses arising during the year are recognized in the Statement of Profit and Loss.

Taxes on Income: i. Tax Expense: Tax expense is the aggregate of current year income tax, deferred income tax charged or credited to the Statement of Profit and Loss.

ii.

Current Year Income Tax: The Provision for taxation is based on assessable profits of the company as determined under the Income Tax Act, 1961. The Company also provides for such disallowances made on completion of assessment pending appeals, as considered appropriate depending on the merits of each case.

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iii.

Deferred Income Tax: Deferred Income Taxes are recognized for the future tax consequences attributable to timing differences between the financial statement determination of income and their recognition for tax purposes. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognized and carried forward only to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realised.

iv.

Minimum Alternate Tax (MAT) Credit: MAT credit is recognized, as an Asset only when and to the extent there is convincing evidence that the Company will pay Normal income tax during the specified year. In the year in which the Minimum Alternative tax (MAT) credit becomes eligible to be recognized as an asset in accordance with the recommendation contained in Guidance Note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the statement of profit and loss and shown as MAT Credit Entitlement. The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that Company will pay Normal Income Tax during the specified period.

Export Benefits: Advance Licenses and Duty Entitlements against exports made by the company are accounted in the books on their utilization / disposal. However, the value of unutilized unconditional customs duty credit granted against Exports under Duty Entitlement Pass Book Scheme is being provided in the Books of Account.

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Directors Report
Dear Shareholders, Your Directors have pleasure in placing before you the Twenty first Annual Report of the Company together with the Audited Accounts for the year ended 31st March 2011. FINANCIAL RESULTS (Rs. in Crores) Particulars Net Sales Other operating income Other income Total Income Expenditure PBDIT Finance charges Depreciation Profit before tax (PBT) Provision for tax Current Tax MAT Credit Utilisation Deferred Tax Profit after tax (PAT) Earnings per Share (EPS) a) Basic b) Diluted 32.90 32.88 26.40 26.35 2010-11 1305.44 13.08 25.52 1344.04 809.46 534.58 2.18 53.35 479.05 39.20 1.28 3.00 435.57 2009-10 929.29 17.36 13.33 959.98 517.43 442.55 2.76 51.45 388.34 31.20 9.60 3.34 344.20 TAXATION We made a provision of Rs. 40.48 crores towards Income-tax this year (including MAT credit utilization of Rs.1.28 crores. Provision for last year amounted to Rs.40.80 crores including a MAT credit utilization of Rs.9.60 crores. An amount of Rs. 3.00 crores has been provided towards Deferred Tax Liability during the year as against Rs. 3.34 crores during the previous year. EQUITY CAPITAL During the year, we allotted 4,50,965 equity shares of Rs.2 each to employees on exercise of their stock options. As a result of the the allotment of shares under ESOP scheme, the paid-up equity capital of the company has increased by Rs.0.09 crores to Rs.26.52 crores and an addition of Rs. 7.59 crores to the Share Premium Account. EMPLOYEE STOCK OPTION SCHEME The Employee Stock Option Scheme (ESOP 2006) approved by the company provided for vesting of stock options in 4 tranches. The fourth/last tranche under this Scheme was vested on 13th March, 2010 and a majority of the options have been exercised by the employees. There are 1,39,180 outstanding options yet to be exercised as at the end of the year. As per the provisions of Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines, 1999, disclosures with respect to Scheme are given in the Annexure - I to this report. SUBSIDIARIES Your company has two wholly owned subsidiaries viz., M/s. Divis Laboratories (USA) Inc., in USA and M/s. Divis

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During the year, Divi achieved a turnover of Rs.1305 crores as against Rs.929 crores during the previous year resulting in a growth of 41%. Exports constituted 93% of total turnover as against 91% during the last year. Profit after Tax (PAT) for the year amounted to Rs.436 crores as against Rs. 344 crores during the last year, a growth of 27%. Business has grown satisfactorily across all the segments, especially during the second half. The issue of destocking of inventory at our customers seen during the last year is done with and we see normal flow of business across the product portfolio of the company. DIVIDEND Your Directors are pleased to recommend a dividend of Rs.10/per equity share of Rs.2/- each, i.e., 500% for the year 2010-11 subject to approval of members.

Laboratories Europe AG in Switzerland for marketing its nutraceutical products and a greater reach to customers within these regions. While loss for current year at Divis Laboratories (USA) is Rs.0.63 crores, the loss at Divis Laboratories Europe is Rs.5.66 crores. Auditors of these subsidiaries have observed that they have negative networth and suffer from deficiency of cash for continuing operations as a going-concern without the support of the parent. The losses in the subsidiaries are on account of low level of operations at the subsidiaries. With the expected increase in the level of operations, the subsidiaries would be getting into cash profits shortly. During the year, we have enhanced the equity capital in Divis Laboratories (USA) Inc., by converting Rs.2.23 crores from out of the loans given to the subsidiary into equity capital. We would also be increasing the equity capital of Divis Laboratories Europe AG during the next fiscal.

Auditors Report
To The Members of DIVIS LABORATORIES LIMITED

1.

We have audited the attached Balance Sheet of DIVIS LABORATORIES LIMITED (the Company) as at 31st March 2011, the Profit and Loss Account and also the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

2.

We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit

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includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes as evaluating the overall financial assessing the accounting principles used and significant estimates made by management, as well statement presentation. We believe that our audit provides a

reasonable basis for our opinion.

3.

As required by the Companies (Auditors Report) Order, 2003 ( the Order) issued by the Central Government of India in terms of Section 227(4A) of the Companies Act, 1956 ( the Act), we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. Further to our comments in the Annexure referred to above, we report that:

i.

We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit. In our opinion, proper books of account as required by Law have been kept by the Company so far as appears from our examination of these books.

ii.

The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account.

iii.

In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in Section 211 (3C) of the Act, 1956 to the extent applicable.

iv.

On the basis of the written representations received from the directors, as on 31.03.2011, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31 st March, 2011 from being appointed as director in terms of

14

clause (g) of sub-section (1) of section 274 of the Companies Act, 1956. v. In our opinion and to the best of our information and according to the explanations given to us, the said accounts read in conjunction with the notes and accounting policies thereon give the information required by the Act, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

a) in the case of Balance Sheet, of the state of affairs of the Company as at 31st March, 2011; b) in the case of Profit and Loss Account, of the profit for the year ended on that date; and c) in the case of Cash Flow Statement, of the cash flows for the year ended on that date.

Management Discussion and Analysis

Overview The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956 and Generally Accepted Accounting Principles (GAAP) in India. The management of Divis Laboratories accepts responsibility for the integrity and objectivity of these financial statements as well as for various estimates and judgments used therein. These estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the statements reflect, in a true and fair manner, the state of affairs and profits for the year. This report may also contain certain statements that the company believes are or may be considered to be forward looking statements which are

15

subject to certain risks and uncertainties.

Industry and Structure The value of the global pharmaceutical market is expected to grow 5-7 percent in 2011, to US$880 billion, compared with a 4-5 percent pace this year, according to IMS Health. IMS expect the pharmerging markets to continue their rapid expansion next year and remain strong sources of growth, and also see the potential for several significant innovative treatment options that are becoming available for patients. Divergent growth rates are expected for developed and pharmerging markets. As countries recover from the global economic crisis at different rates, there is growing divergence in the pace of pharmaceutical growth among major markets. IMS Health is predicting that emerging markets will expand by $90 billion during 2009-13, contributing about 48% of annual pharmaceutical market growth in 2013. This comes at a time when the global multinational pharma firms are looking to these markets - with their rising GDPs, expanding access to healthcare and improving intellectual property and regulatory regimes - to fill the revenue gap felt in mature markets. By 2011, IMS expects the eight emerging markets will have taken their place in the top 20 pharma world rankings. In the emerging global competitive environment, the company is well positioned to cater to the growing supply opportunities to the big pharma.

Company Infrastructure Divi operates from its Headquarters and Registered Office at Hyderabad. The company has three multi-purpose manufacturing facilities with a total reactor capacity of 4,500 cu.m., with all support infrastructure like Utilities, environment management and safety systems. The 1st Facility at village Lingojigudem, Choutuppal Mandal, Nalgonda district, about 60 KM from Hyderabad.

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The 2nd Facility is a 100% Export Oriented Unit at village Chippada, Bheemunipatnam Mandal, Visakhapatnam Dist. about 30 KM from the port city of Visakhapatnam on the east coast.

The 3rd facility is an SEZ Unit at village Chippada, Bheemunipatnam Mandal, Visakhapatnam Dist.

A new facility called DSN SEZ Unit is being set up at our Pharma SEZ at village Chippada, Bheemunipatnam Mandal, Visakhapatnam Dist., at an estimated cost of Rs.200 crores. This facility has commissioned trial runs during the first quarter of the year 2011-12.

The company has 4 Research Centres with the well defined functional focus on custom synthesis, contract research for MNC companies as also future generics involving processes like route design, route selection, establishing gram scale process and structural confirmation, process optimization, impurity profile, pilot studies, pre-validation batches, validation of process and transfer of technology to Plant, review efficiency of processes and ongoing process. The company has constantly been augmenting capacities to cater to increasing business needs.

Internal Control systems The Company maintains a system of well established policies and procedures for internal control of operations and activities, and these are continually reviewed for effectiveness. The internal control system is supported by qualified personnel and a continuous program of internal audit. The prime objective of such audits is to test the adequacy and effectiveness of all internal control systems laid down by the management and to suggest improvements. We believe that the companys overall system of internal control is adequate given the size and nature of operations and effective implementation of internal control self assessment procedures and ensure compliance to policies, plans and statutory requirements. Divi encourages and recognizes improvements in work practices. The internal control system of the company is also reviewed by the Audit Committee periodically. The Management duly

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considers and takes appropriate action on the recommendations made by the statutory auditors, internal auditors and the independent Audit Committee.

Risks and Concerns Divi lays emphasis on risk management and has an enterprise-wide approach to risk management, which lays emphasis on identifying and managing key operational and strategic risks. Through this approach, the company strives to identify opportunities that enhance organisational values while managing or mitigating risks that can adversely impact its future performance. Divi is engaged in manufacture of generic APIs, custom synthesis of active ingredients for innovator companies and other specialty chemicals like peptides and nutraceuticals. The company constantly reviews its policies and procedures to adhere to conformity to the various regulatory approvals for its manufacturing facilities, its commitment to IPR. The company is very selective in its product portfolio with a focus on export markets within the domain of its capabilities and does not transgress in unrelated expansions, diversification or acquisitions. The companys risk management and control procedures involve prioritization and continuing assessment of these risks and devise appropriate controls, evaluating and reviewing the control mechanism and redesigning it from time to time in the light of its effectiveness.

Corporate Governance

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Report in line with the requirements of the stock exchanges under clause 49 of the Listing Agreement, on the practices followed by the company and other voluntary compliances is furnished below : Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a company is directed, administered or controlled. It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers. Corporate governance is based on principles such as conducting the business with all integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions, complying with all the laws of the land, accountability and responsibility towards the stakeholders and commitment to conducting business in an ethical manner. Your Company adheres to the principles of corporate governance and commits itself to accountability and fiduciary duty in the implementation of guidelines and mechanisms to ensure its corporate responsibility to the members and other stakeholders.

Shareholding Pattern
As on 31.03.2011 Category No. of Shares % to share capital Promoters Mutual Funds and UTI Banks/Financial institutions Foreign Institutional Investors Private Corporate Bodies Indian Public Non-Resident Indians / Overseas Corporate Bodies Clearing Members Trusts Directors (Not having control over the Company) Grand Total 69222900 17492497 834652 20306327 11535922 11114870 1164758 190626 1098 731460 132595110 52.21 13.19 0.63 15.31 8.70 8.39 0.88 0.14 0.00 0.55 100 No. of Shares % to share capital 69195600 18190891 313519 20453970 9763127 11978397 1335086 59889 1456 852210 132144145 52.36 13.77 0.24 15.48 7.39 9.06 1.01 0.05 0.00 0.64 100 As on 31.03.2010

Balance Sheet:

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Mar 2012 (Rs Cr)

SOURCES OF FUNDS :
Share Capital Reserves Total Equity Share Warrants Equity Application Money Total Shareholders Funds Secured Loans Unsecured Loans Total Debt Other Liabilities Total Liabilities

Mar 2011 (Rs Cr) 26.52 1801.53 0.00 0.00 1828.05 15.80 7.24 23.04 12.43 1863.52 885.34 295.61 0.00 589.73 0.00 104.33 0.00 528.46 543.07 392.78 12.80 59.55 1008.20

Mar 2010 (Rs Cr) 26.43 1515.65 0.00 0.00 1542.08 29.85 3.00 32.85 0.00 1574.93 832.65 242.98 0.00 589.67 0.00 23.76 0.00 441.86 479.57 234.44 12.87 104.33 831.21

Mar 2009 (Rs Cr) 12.95 1248.84 0.00 0.00 1261.79 49.52 3.12 52.64 0.00 1314.43 782.49 192.82 0.00 589.67 0.00 19.50 0.00 172.39 395.91 283.50 12.87 99.67 791.95

Mar 2008 (Rs Cr) 12.91 861.07 0.00 0.00 873.98 82.96 3.12 86.08 0.00 960.06 641.92 145.05 0.00 496.87 0.00 63.08 0.00 56.15 275.65 214.24 12.61 77.05 579.55

26.55 2148.25 0.00 0.00 2174.80 50.20 5.24 55.44 7.90 2238.14 1091.63 353.44 0.00 738.19 0.00 181.99 0.00 479.86 650.97 534.47 21.82 67.05 1274.31

APPLICATION OF FUNDS :
Gross Block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment Capital Work in Progress Producing Properties Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions

289.33 208.21

221.78 167.92

163.24 96.43

161.60 48.91

157.82 36.47

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Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Other Assets Total Assets Contingent Liabilities

497.54 776.77 0.00 1.58 68.87 -67.29 128.62 2238.14 172.92

389.70 618.50 0.00 3.21 58.12 -54.91 77.41 1863.52 160.29

259.67 571.54 0.00 1.81 53.71 -51.90 0.00 1574.93 134.34

210.51 581.44 0.00 1.15 49.72 -48.57 0.00 1314.43 105.66

194.29 385.26 0.00 1.17 42.47 -41.30 0.00 960.06 125.22

Profit loss account:

Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08

Income
Operating income 1,844.82 1,309.71 931.63 1,193.35 1,035.39

Expenses
Material consumed Manufacturing expenses Personnel expenses Selling expenses Administrative expenses Expenses capitalised Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT 787.89 108.52 145.16 50.06 56.10 1,147.73 697.09 37.83 734.92 4.34 62.03 668.55 543.17 78.31 112.06 28.62 47.07 809.23 500.48 31.10 531.57 2.19 53.35 476.04 310.99 55.44 93.22 18.31 34.95 512.91 418.72 24.72 443.44 2.76 51.45 389.23 459.26 60.28 89.34 18.19 39.04 666.12 527.23 20.32 547.56 7.23 47.82 492.51 426.24 48.77 65.92 23.58 34.33 598.84 436.55 11.44 447.99 10.18 35.65 402.17

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Mar ' 12 Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Earnings before appropriation Equity dividend Preference dividend Dividend tax Retained earnings 148.05 520.50 26.51 -1.11 545.91 1,967.05 172.55 27.99 1,766.50

Mar ' 11 43.48 432.55 3.02 -0.01 435.57 1,650.25 132.60 21.51 1,496.14

Mar ' 10 44.14 345.09 -0.78 -0.10 344.20 1,360.14 79.29 13.17 1,267.68

Mar ' 09 34.09 458.42 -34.17 0.16 424.41 1,104.46 38.91 6.62 1,058.93

Mar ' 08 29.54 372.63 -17.48 -1.59 353.56 746.26 25.82 4.39 716.05

Cash Flow Statement:

TURNOVER & PROFIT OPERATING INCOME MATERIAL COSUMED MANUFACTURING PERSONAL SELLING ADMINISTRATIVE COST OF SALES OPERATING PROFIT OTHER RECURRING INCOME ADJUSTED PBDIT FINANCIAL EXPENSES DEPRECIATION 734.92 4.34 62.03 531.57 2.19 53.35 38.25% 98.17% 16.26% 2011-2012 1844.82 787.89 108.52 145.16 50.06 56.10 1147.7 697.09 37.83 2010-2011 1309.71 543.17 78.31 112.06 28.62 47.07 809.23 500.48 31.10 GROWTH 41% 45.05% 38.5% 29.5% 74.91% 19.18% 41.82% 39.28% 21.6%

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ADJUSTED PBT TAX CHARGES ADJUSTED PAT

668.55 148.05 520.50

476.04 43.48 432.55

40.43% 240.5% 20.33%

Dividend, Share Capital & Capital Employed:

2011-2012 172.55 6.49 .38 .62 26.55 2148.25 50.20 2.56 1091.63 738.19 1335.53 760.12 2227.56 575.41 2010-2011 132.60 5 .35 .65 26.52 1801.53 20.16 2.88 885.34 589.73 1063.84 603.58 1851.09 460.26 GROWTH 30.12%

DIVIDEND DIVIDEND RATE DIVIDEND PAYOUT RATIO RETENTION RATIO EQUITY SHARE RESERVE & SURPLUS SECURED lOANS UNSECURED LOANS GROSS FIXED ASSET NET FIXED BLOCK GROSS CURRENT ASSET NET CURRENT ASSET TOTAL ASSET CURRENT LIABILITY & PROVISIONS

.113% 19.24% 149% (-11.11)% 23.3% 25.17% 25.5% 25.93% 20.33% 25.01%

Earnings before Depreciation, Interest and Taxes (EBIDTA) The EBIDTA of the company is increased from 531.56 to 734.92, it increased almost by 38.25%.

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Equity Capital The equity capital of the company is increased from 26.52 to 26.55. Depreciation The depreciation of the company is increased from 53.35 to 62.03 due to which there is difference between cash operating margin & operating margin. Reserves The reserves & surplus of the company is increased from 1801.53 to 2148.25. This shows that the company is at the growing stage because of this the retention ratio of the company is high. Taxation The taxation of the company is increased from 43.48 to 148.05. the tax charges of the company is increased by the great numbers due to which instead of large operating income the PAT of the company is decreased. Profit after Tax The PAT of the company is increased from 432.55 to 520.50. The PAT of the company is not increased much as a proportion of the operating income due to high tax charges. EPS The EPS of the company is increased from 32.66 TO 39.22. Dividend The dividend of the company is increased from 132.60 to 172.55. But the dividend pay-out ratio of the company is less as compared to the retention ratio which shows that the company is at growing stage. Fixed Assets The fixed asset of the company is increased from 885.34 to 1091.63.

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Current Asset The current asset of the company is increased from 1063.84 to 1335.53. Liabilities The liabilities of the company are increased from 460.26 to 575.41. Long-Term Loans and Advances The loans & advances of the company is increased from 23.04 to 52.46 which shows that the company has increased its borrowed funds. Investment The investment of the company is increased from 479.86 to 528.45 which indicate that the company is investing its funds on either in bonds or in its sisters concerns. Inventories The inventories of the company are increased from the 543.07 to 650.97. The capital work in progress is increased from 104.33 to 181.99. Trade Receivables The trade receivables of the company are increased from 392.78 to 534.47. This indicates that the companys large amount of money is blocked.

The company is at the growing stage that is why the retention ratio of the company is higher than the dividend payout ratio.

Key Financial Indicators:

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EPS = 2011-12: 2010-11: 2009-10:

PAT- Preference Dividend Weighted Average No. of Equity Shares Outstanding 520.50/13.25 = Rs. 39.28 432.55/13.25 = Rs. 32.64 345.09/13.25 = Rs. 26.04 Long Term Debt Total NW (Equity Shareholders Funds+ Preference Capital)

Debt Equity Ratio = 2011-12: 2010-11: 2009-10: 55.44/2174.80 = 0.025 times 23.04/1828.05 = 0.012 times 32.85/1542.08 = 0.021 times 2011-2012 Rs. 39.28 0.025 times

EPS DEBT EQUITY RATIO

2010-2011 Rs. 32.64 0.012 times

2009-2010 Rs. 26.04 0.021 times

Profitability Ratios: Gross Profit Margin = 2011-12: 2010-11: 2009-10: GP X 100 Net Sales (697.09*100)/1844.82 = 37.78% (500.48*100)/1309.71 = 38.21% (418.72*100)/931.63 = 44.94% Operating Income x 100 Net Sales 2011-12: 2010-11: 2009-10: (668.55*100)/1844.82 = 36.24% (476.04*100)/1309.71 = 36.35% (389.23*100)/931.63 = 41.78% PBT x 100

Operating Margin =

Pre Tax Margin =

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Net Sales 2011-12: 2010-11: 2009-10: (668.55*100)/1844.82 = 36.2% (476.04*100)/1309.71 = 36.3% (389.23*100)/931.63 = 41.78% PAT X 100 Net Sales 2011-12: 2010-11: 2009-10: (520.50*100)/1844.82 = 28.2% (432.55*100)/1309.71 = 33.02% (345.09*100)/931.63 = 37.04% 2011-2012 37.78% 36.24% 36.2% 28.2% 2010-2011 38.21% 36.35% 36.3% 33.02% 2009-2010 44.94% 41.78% 41.78% 37.04%

Net Margin =

GROSS PROFIT MARGIN OPERATING MARGIN PRE TAX MARGIN NET MARGIN

The difference between gross margin & cash operating income is due to the increase in the other operating expenses. The difference between cash operating & operating margin is due to amortization & depreciation. The difference between operating margin & pre-tax margin is less due to the absent of interest & finance charges. The difference between pre-tax margin & net margin is due to the presence of tax charges. Although the operating income of the company is increasing by 41% but pat is increasing by a very short difference due to the increase in the material consumed, manufacturing expense, personal expense, selling expense & administrative expense and also because of the increase in cost of goods sold. The company is not relying much on the borrowed funds.

Liquidity Ratios: Current Ratio = Current Assets, Loans & Advances + Short-term Investments

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Current Liabilities + Provisions + Short-term Debt 2011-12: 2010-11: 2009-10: (1274.31+479.86)/497.54 = 2.32 (1008.20+528.46)/389.70 = 2.31 (831.21+441.86)/259.67 = 2.45

Quick Ratio = Current Assets, Loans & Advances - Inventories + Short-term Investments Current Liabilities + Provisions + Short-term Debt Net of Working Capital Limits 2011-12: 2010-11: 2009-10: (1274.31-650.97+479.86)/497.54 = 2.15 (1008.20-543.07+528.46)/389.70 = 2.55 (831.21-479.57+441.86)/259.67 = 3.05
2011-2012 2.32 2.22 2010-2011 2.31 2.55 2009-2010 2.45 3.05

CURRENT RATIO QUICK RATIO

The current ratio of the company is good (2.32 & 2.31) and almost same in both the years which indicate the adequacy of short term assets to meet the short term obligations of the firm. The quick ratio and the current ratio of the company are almost identical due to negligible inventory. Asset Utilization Ratios: Total Asset Turnover Ratio = Net Sales NW (Equity Capital + Reserves & Surplus Misc. Exp. not Written Off) 2011-12: 2010-11: 2009-10: 1844.82/2174.80 = 0.82 times 1309.71/1828.05 = 0.70 times 931.63/1542.08 = 0.60 times

Fixed Assets Turnover Ratio = 2011-12: 2010-11: 1844.82/1091.63 = 1.68 times 1309.71/885.34 = 1.48 times

Net Sales Net Block of Fixed Assets

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2009-10:

931.63/832.65 = 1.12 times Cost of Goods Sold (COGS) Average Inventory

Inventory Turnover Ratio = 2011-12: 2010-11: 2009-10:

1147.73/650.97 = 1.76 times 809.23/543.07 = 1.49 times 512.91/479.57 = 1.07 times Inventory x 365 Cost of Goods Sold (COGS)

Average Holding Period = 2011-12: 2010-11: 2009-10:

(650.97*365)/1147.73 = 207.02 = 207 days (543.07*365)/809.23 = 244.94 = 245 days (479.57*365)/512.91 = 341.27 = 341 days Net Credit Sales Average Accounts Receivables

Debtor Turnover Ratio = 2011-12: 2010-11: 2009-10: 1844.82/534.47 = 3.45 times 1309.71/392.78 = 3.33 times 931.63/234.44 = 3.97 times

Day Sales Outstanding = 2011-12: 2010-11: 2009-10:

Receivables x 365 Credit Sales

(534.47*365)/1844.82 = 105.74 = 106 days (392.78*365)/1309.71 = 109.46 = 110 days (234.44*365)/931.63 = 91.85 = 92 days

TOTAL ASSET TURNOVER RATIO FIXED ASSET TURNOVER RATIO INVENTORY TURN OVER RATIO AVERAGE HOLDING PERIOD

2011-2012 0.82 times 1.68 times 1.76 times 207 days

2010-2011 0.70 times 1.48 times 1.49 times 245 days

2009-2010 0.60 times 1.12 times 1.07 times 341 days

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DEBTORS TURNOVER RATIO DAYS SALES OUTSTANDING

3.45 times 106 days

3.33 times 110 days

3.97 times 92 days

The fixed asset ratio, current ratio & inventory turnover ratio is good which indicates firm is better utilizing its assets. But the average holding period & the days outstanding is much higher which indicates that the inventories are not converted into the sales much frequently & also the collection period of the company is much higher which is a negative indication.

Return Ratios: Net Asset Value (NAV) = 2011-12: 2010-11: 2009-10: Equity Shareholders Funds No. of Equity Shares Outstanding 2174.80/13.25 = 164.14 1828.05/13.25 = 137.97 1542.08/13.25 = 116.38 (PATPreference Dividend) x 100 Net Worth 2011-12: 2010-11: 2009-10: (520.50*100)/2174.80 = 23.93% (432.55*100)/1828.05 = 23.66% (345.09*100)/1542.08 = 22.38%
2011-2012 Rs.164.14 23.93% 2010-2011 Rs.137.97 23.66% 2009-2010 Rs.116.38 22.38%

Return on Equity (ROE) =

NAV ROE

The ROE of the company is 23.93 % which indicates better utilization by the company to generate return on shareholders fund & the company takes the better advantages of the financial leverages.

Du Pont Analysis: RONW = Net Profit Margin x NW Turnover

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(PATPreference Dividend) x 100 Net Worth 2011-12: (520.50*100)/2174.80 23.93% 2010-11: (432.55*100)/1828.05 23.66% 2009-10: (345.09*100)/1542.08 22.28%

= (PAT - Preference Dividend) x 100 Net Sales = = = = = = (520.50*100)/1844.82 28.21% (432.55*100)/1309.71 33.02% (345.09*100)/931.63 37.04% x x x x x x

Net Sales Net Worth

1844.82/2174.80 0.85 times 1309.71/1828.05 0.72 times 931.63/1542.08 0.60 times

2009-2010 37.04% * 0.60 times 22.22%

(PROFITABILITY)*(EFFICIENCY)

2011-2012 28.2% * 0.85 times 23.97%

2010-2011 33.02% * 0.72 times 23.77%

DUPONT analysis of the company is same for both the year. The DUPONT analysis indicates the breakdown of the ROE. This shows that the ROE of the company is increasing due to the three important factors that is the profitability, efficiency & leverages. The profitability of the company is increased & the efficiency of the company has also increased but the leverages of the company has decreased.

Key Profitability Indicators:

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EPS:

Reserves & Surplus:

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2200 2100 2000 1900 1800 1700 1600 RESERVE & SURPLUS

Series 1 Series 2

Conclusion:
The ROE of the company is 23.93 % which indicates better utilization by the company to generate return on shareholders fund & the company takes the better advantages of the financial leverages. The company is gaining higher returns every year showing increased returns. The ROE of the company is increasing due to the three important factors that is the profitability, efficiency & leverages. The profitability of the company is increased & the efficiency of the company has also increased but the leverages of the company has decreased. The company is not relying much on the borrowed funds. Firm is utilizing its assets very good. But the average holding period & the days outstanding is much higher which indicates that the inventories are not converted into the sales much frequently & also the collection period of the company is much higher which is a negative indication.

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Overall Divis Laboratories Ltd. is enjoying strong and profitable position of the company in the market.

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