A K Kocchar & Associates

Chartered Accountants

Due Diligence Report of Thyrocare Laboratories Ltd.

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Chartered Accountants

INDEX

Sr. No. Contents Page No.

I Objective 3

II Executive Summary 4

II Company Background 5

III Income Statement Analysis 6

IV Balance Sheet Analysis 8

V Tax Matters 10

VI Other Matters 12

VII Caveats 13

Appendix A – Engagement Letter 15

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I-OBJECTIVE

Our objective of preparing this Due Diligence Report is to elucidate the findings of
our comprehensive inspection / audit of lawfulness and commercial attractiveness
of Thyrocare Laboratories Limited (“TLL”) for the last eight years (i.e. Starting
from 01/04/2002 to 31/03/2010 so as to evaluate all advantages and
disadvantages of the said transaction and revelation of all possible risk i.e. financial
/ tax / any other risk connected to purchase of the company.

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II – E X E C U T I V E S U M M A R Y

TLL is a Public Limited Company listed on Bombay Stock Exchange (“BSE”) and
incorporated in the State of Maharashtra. TLL is in healthcare industry and
expertising in the diagnostics division of healthcare industry.

TLL does not have any business transaction for the last eight years, the main
source of income for TLL during the last eight years have been only by way of
interest income / Income from investments in shares and securities and there had
been no kind of trading activities carried on by TLL during the period under due
diligence.

Share Holding Pattern of Thyrocare Laboratories Limited for the last two years is as
given below.

Type of Shareholder As on As on
31/03/2010 31/03/2009
Promoter & Promoter’s Group 72.02 % 72.02 %
Public – non Institutional 27.98 % 27.98 %
Total 100 % 100 %

It has also been noted that the shares of the company are very thinly traded on
the stock exchange.

The Key Management Personnel of TLL are:

• Mr. A Sundararaju (Chairman & Non-Executive Director).

• Mr. G S Hegde (Non-Executive Director).

• Mrs. V Sumathi (Non-Executive Director).

• Mr. Rao Rajgopal J K (Non-Executive Director).

Bankers of TLL are Axis bank.

Auditors of TLL are S D khanolkar & Co.

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III – C O M P A N Y B A C K G R O U N D

Thyrocare Laboratories Limited (TLL) was formerly known as Ganapati Udyog

Limited (“GUL”) which was initially incorporated in State of West Bengal on 09
March 1983.

GUL was listed at Calcutta Stock Exchange (CSE), Uttar Pradesh Stock Exchange
(UPSE) and Bombay Stock Exchange (BSE), main objects GUL was trading in fabric
and electrodes.

Post Take over the name of GUL was changed to TLL on 20 th May 2003 also the
state of incorporation was changed from West Bengal to Maharashtra and the
main objects of the company were altered accordingly.

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IV – I N C O M E S T A T E M E N T A N A L Y S I S

We have set out the below audited income statement for the period under review.

Particulars Year Ended Year Ended Year Ended Year Ended

31/03/2006 31/03/2007 31/03/2008 31/03/2009
Operating Income Nil Nil Nil Nil
Add : Income From Other Sources 10,48,059/- 12,03,312/- 9,86,149/- 3,93,020/-
Less : Total Expenses 3,76,228/- 1,15,755/- 82,598/- 1,55,049/-
Profit Before Taxes 6,71,831/- 10,87,557/- 9,03,551/- 2,37,971/-
Less : Prior Period Items and
Extraordinary Items (10,200)/- Nil Nil 76,787/-
Less : Taxes Including Deferred
Tax 2,38,530/- 52,840/- 2,33,444/- 73,533/-
Profit After Taxes 4,43,501/- 10,34,717/- 6,70,107/- 87,651/-

From the above Income statement it may be noted that the company does not
have any Income from its operating Business, the only source of income for the
company is Interest Income and Income from Investments.

It has also been noticed that though the company does not have any income from
operating business every year there is some amount of money spent towards
advertising expenses.

During Assessment Years 2006-2007, 2007-2008, and 2008-2009 TLL had traded
in shares and securities apart from receiving Interest on loan, hence the reasons
for incomparable revenues in March 2009.

We further set out unaudited income statements for the year ended 31/03/2010:

Particulars Year Ended

31/03/2010
Operating Income Nil
Income From Other Sources 3,00,000/-
Less : Total Expenses 1,41,271/-
Profit Before Taxes 1,58,729/-

For the year ended 31/03/2010 the company has received compensation of Rs.
3,00,000/- towards advance against property of Rs. 50,00,000/- which was
outstanding in the books of the company as on 31/03/2003. The advance of Rs.
50,00,000/- against property was repaid back during 2004-2005 for which the
company received compensation during 2009-2010. We have been provided with
the documentation as regards compensation received. However, we documentation

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for advance given of Rs. 50,00,000/- towards purchase of property has been
requested for from the Management which is yet to be received.

Note: The audited figures given above are taken from the audited financials of the
company.

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IV – B A L A N C E S H E E T A N A L Y S I S

We have set out the below audited balance sheet for the period under review.

Particulars As On As On As On As On
31/03/2006 31/03/2007 31/03/2008 31/03/2009
Application of Funds
Cash & Bank Balances 46,64,515/- 20,48,761/- 31,65,426/- 48,02,428/-
Advance recoverable in cash or kind 2,44,879/- 40,25,000/- 41,83,800/- 26,70,334/-
Income Tax 81,117/- 3,50,059/- 4,60,402/- 2,38,805/-
Misc. Expenses 1,00,800/- 67,200/- 33,600/- Nil
Deferred tax Asset 41,770/- 41,770/- 6,550/- 6,550/-

Source of Funds
Share Capital 24,50,000/- 24,50,000/- 24,50,000/- 24,50,000/-
Retained Earnings 31,91,276/- 42,25,994/- 48,96,103/- 49,83,754/-
Sundry creditors 2,33,275/- 9,927/- 14,081/- 9,773/-
Provision For Taxes 2,38,530/- 2,91,370/- 4,89,594/- 2,71,757/-

Advance receivable in cash and kind refers to amount given as loans & advances to
certain parties on which interest was charged by TLL.

There are no investments seen in the Balance sheet as the investments made by
the company were disposed of before 31st March of every year to be precise the
company had made only short term investments.

Cash & Bank Balance as on 31/03/2009 also includes Fixed Deposit of Rs.
42,16,306/-, in all other years the company had never deposited any amount in
fixed deposit.

We further set out unaudited Balance Sheet as on 31/03/2010:

Particulars As On 31/03/2010
Application of Funds
Cash & Bank Balances 35,95,386-
Advance recoverable in cash or kind 40,25,000/-
Income Tax 2,38,805/-
Deferred tax Asset 6,550/-

Source of Funds
Share Capital 24,50,000/-
Retained Earnings 51,42,484/-
Sundry creditors 1,500/-
Provision For Taxes 2,71,757/-

The above balance sheet as on 31/03/2010 is unaudited as produced before us, we

are not able to comment on the true and fair nature of the same.

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We further like to bring to notice that the company had not received any interest
on loans and advances during March 2010 unlike interest received in the previous
financial years.

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V–TAX MATTERS

Background & Organizational Tax history

TLL came into existence on 20/05/2003 under tax records (Please note before that
it was known as GUL).

TLL has filed its Income Tax returns till 31/03/2009, sales tax returns till
31/03/2010.

Income Tax

We set out various Income Tax details of TLL.

Particulars 31/03/2006 31/03/2007 31/03/2008 31/03/2009

Applicability of Tax Audit No No No No
Whether MAT Applicable No Yes Yes No
Amount of MAT Payable Nil 1,22,025/- 93,066/- Nil
Total MAT Credit Available 2,178/- 1,24,203/- 2,17,269/- 2,05,529/-
Refund Due 27,894/- Nil Nil 47,624/-
Date of Filing Tax returns 16/11/2006 27/10/2007 25/09/2008 24/09/2009
Due Date of Filing Tax returns 30/11/2006 15/11/2007 30/09/2008 30/09/2009
Whether Refund Orde/143(1) No No Yes No
Received
Was there any scrutiny No No No No
assessment
Carry Forward of Business 1,82,438/- 1,82,438/- 65,036/- Nil
Loss

We would like to bring to notice that the earliest last scrutiny assessment by
income tax department on TLL was for the Assessment Year 2002-2003. The case
had gone till ITAT stages ultimately after which the case was disposed of in TLL’s
favour.

TLL has not yet filed its income tax returns for 31st march 2010 i.e. A Y 2010–
2011, any tax liability for A Y 2010-2011 shall be the burden of TLL’s old
management.

It is also recommended that TLL recovers all its refund dues from Income Tax
department before take over transaction is executed.

In A Y 2010-2011 TLL had received compensations of Rs. 3,00,000/- which the

management is treating as Business Income inspite of the same not being in line

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with the main object clause of TLL’s MOA as TLL is neither a investment company
nor a real estate company the same can be treated Income From Other Sources
by Income tax Department creating a point of litigation in future which may lead to
a reasonable amount of tax liability.

Sales Tax

TLL has filed all its sales tax returns on time till date, we would like to bring to light
that TLL had never actually done any operating business and hence there has
actually no sales tax liability on TLL.

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VI – O T H E R M A T T E R S

Software Package

The company is currently using Tally.ERP9 for maintenance of its books of

accounts.

IT Policy

We understand that the Company does not have formal/ documented IT policy in
place. Management states that, no IT related fraud or theft had taken place during
the period under review.

Human Resource Manuals & Policies

The Company does not have an documented HR manual and policies in place.

Internal Audit

The Company does not have an internal audit system in place.

Committee

The Company does not have audit committee, remuneration committee and
investor committee. Operational decisions are concentrated only in the hands of
promoters.

Authorization Matrix

All documents are authorized by one of the promoters.

Contingent Liabilities

Management states that, there are no contingent liabilities outstanding as at March

31, 2010.

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VI – C A V E A T S

Source of Information

The information contained in this Report has been obtained primarily from
reviewed financial statements of the Company for year ended March 31, 2003 to
March 31, 2009, and unaudited books of accounts for the year ended March 31,
2010.

The books of account and other records of the Company as made available to us
during our field visit.

Discussions with the relevant personnel of the Company and third party
discussions.

For purposes of our due diligence fieldwork, we visited the office of S D Khanolkar
& Co. Chartered Accountants, 210, jolly Bhawan No. 2, 51 New marine Lines, Opp
Nirmala Niketan, Churchgate, Mumbai – 400 020.

Our report is based on the discussion and information received from Mr Sadashiv
Khanolkar – Chartered Accountant (Auditor of Company).

Scope of Work

Our review of the affairs of the Company and its books and accounts does not
constitute an audit in accordance with Auditing Standards and no verification work
has been carried out by us. We have relied on explanations and source information
provided by the Management of the Company. Consequently, we do not express an
opinion on the figures included in this Report.

The scope of our work has been limited both in terms of the areas of the business
and operations which we have reviewed and the extent to which we have reviewed
them. There may be matters, other than those noted in this Report, which might
be relevant in the context of the transaction and which a wider scope might
uncover.

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Limitation of Liability

Our maximum liability relating to services rendered under this assignment

(regardless of form of action, whether in contract, negligence or otherwise) shall
be limited to the fees paid to us for the portion of our services or work products
giving rise to the liability. In no event shall we be liable for consequential,
special, incidental or punitive loss, damage or expense (including without
limitation, lost profits, opportunity costs, etc.) even if we have been advised of
their possible existence. This provision shall apply even after termination of our
assignment.

The Company also agrees to hold harmless A K Kocchar & Associates and its
employees against all actions, claims, proceedings, losses, damages, costs and
expenses, whatsoever and howsoever caused, incurred, sustained or arising
from, or in connection with, the provision of services. This provision shall apply
even after the termination of the engagement for any reason.

Confidential

A K Kocchar & Associates shall hold in strict confidence all information provided
to us by the management, directors, employees and advisors of Thyrocare
Laboratories Limited shall not divulge the same to anyone, unless required by
law, without the express or written consent of the Company. This provision shall
apply even after completion of our assignment.

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APPENDIX A–ENGAGEMENT LETTER

Our work and summary of procedures to be performed in connection with the

limited scope accounting and financial due diligence review on Thyrocare
Laboratories Limited (‘TLL’) is set out below. We will cover the matters set out
below, but our report will not necessarily cover all of those matters because in the
interests of clearer reporting, we will not report on matters that we do not believe
to be significant. Financial information will be reviewed for the latest period for
which audited accounts are available (‘period’). The scope of work for the
accounting and financial due diligence review of the Company for the period would
be limited to:

General

• Review significant accounting policies, specifically covering revenue recognition,

depreciation, write-downs, research and development expenditure, provisions
and any other notable policies, currently applied by the target to understand
whether these policies are in accordance with relevant GAAP .
• Review internal audit reports, audit committee reports, statutory auditors’
management letters and significant issues or weaknesses identified for the
period under review.
• Review on the appropriateness of TLL’s insurance arrangements.
• Review on the nature of the target’s pension arrangements.
• Review on major operational agreements / arrangements with third parties.
• Review on intra-group transactions and agreements / arrangements.
• Review and comment on the financial statements of the TLL for the 8 years
ended March 31, 2010.
• Review of the operational management structure.
• Review of employment contracts.

Other assets and liabilities

• Review of fixed assets.

• Review of ownership documents for fixed assets and financial commitments
attached to the assets.
• Understand TLL’s general terms of business with major customers.
• Understand the credit policies and credit control measures adopted.
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• Review ageing and composition of accounts receivable as at March 31, 2010.

• Review adequacy of reserve for doubtful debts considering historical ageing
trends and known exposures.
• Review significant loans and advances and other current assets as at March 31,
2010.
• Review current liabilities/provisions including employee related liabilities as at
March 31, 2010.
• Review the provisioning policy of the target
• Review of contracts remaining to be executed on capital account and not
provided for as at March 31, 2010, advances made there against and any
claims for damages, penalty, interest.

We acknowledge that this Due Diligence Report has been made by us so as to

evaluate all advantages and disadvantages of the said transaction and revelation of
all possible risk i.e. financial / tax / any other risk connected to purchase of the
company and the same may not be relied upon by any other person for any other
purpose nor it be quoted in any public document.

For A K Kocchar & Associates

Chartered Accountants

Arun Kocchar
Partner
Membership No. 108245

Mumbai, 27th August, 2010

Due Diligence Report of Thyrocare Laboratories Ltd.