MIRA INFORM REPORT

Report Date :

23.02.2008

IDENTIFICATION DETAILS

Name :	DIVI’S LABORATORIES LIMITED
Formerly Known As :	DIVI'S RESEARCH CENTRE PRIVATE LIMITED
Registered Office :	Divi Towers, 3^rd Floor, 7-1-77/E/1/303, Dharam Karan Road, Ameerpet, Hyderabad 500 016, Andhra Pradesh
Country :	India
Financials (as on) :	31.03.2007
Date of Incorporation :	12.10. 1990
Com. Reg. No.:	01-11854
CIN No.: [Company Identification No.]	L24110AP1990PLC011854
TAN No.: [Tax Deduction & Collection Account No.]	HYDD00549D
Legal Form :	A public limited liability company. The company’s shares are listed on the Stock Exchanges.
Line of Business :	Manufacturers of Bulk Drugs and Intermediates like Naproxen, Dextra Methorphane Hydro Bromide, Diltiazem Hydro Chloride, Nabomethone, Ipamidol, etc.

RATING & COMMENTS

MIRA’s Rating :

Aa

RATING			STATUS		PROPOSED CREDIT LINE
71-85		Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums		Large
	Maximum Credit Limit :			USD 21681804
	Status :			Good
	Payment Behaviour :			Regular
	Litigation :			Clear
	Comments :			Subject is a well-established company having fine track. Available information indicates high financial responsibility of the company. Financial position is good. Payments are usually correct and as per commitments. The company can be considered good for any normal business dealings at usual trade terms and conditions.

LOCATIONS

Registered Office / Corporate Office :	Divi Towers, 3^rd Floor, 7-1-77/E/1/303, Dharam Karan Road, Ameerpet, Hyderabad 500 016, Andhra Pradesh, India
Tel. No.:	91-40-23731318 / 23731760 / 23731761
Fax No.:	91-40-23733242
E-Mail :	divis@hd1.vsnl.net.in info@divislaboratories.com mail@divislaboratories.com cs@divislaboratories.com
Website :	http://www.divislaboratories.com
Area :	296 sq. fts.
Location :	Rented
Factory 1 :	unit i [Choutuppal]: Lingojigudem Village, Choutuppal Mandal, Nalgonda District - 508 252, Andhra Prades, India
Tel. No.:	91-8694-272092/ 272260
Fax No.:	91-8694-272685
Factory 2 :	eou unit & SEZ Unit(chippada) : Chippada Village, Bheemunipatnam Mandal, Vishakhapatnam District - 531162, Andhra Pradesh, India
Tel. No.:	91-8922-245166
Fax No.:	91-8922-245165
R & D Centers :	· C-26, Industrial Estate, Sanathnagar, Hyderabad – 500018, Andhra Pradesh Tel. 91-40-23704657 · Lingojigudem Village, Choutuppal Mandal, Nalgonda District, Andhra Pradesh Tel. 91-40-272092/272260 · Chippada Village, Bheemunipatnam Mandal, Visakhapatnam District – 531162, Andhra Pradesh · DRC – Vizag Village Chippada, Bheemunipatnam, Vishakapatnam – 530 010, Andhra Pradesh
Overseas Office:	US Office: Divis laboratories , USA Inc, 31^st market Street (2^nd floor), Morristown NJ 07960, USA Tel No: +1 (877) 3484522 Fax No: +1 (973) 993 1070 Email : usmail@divislaboratories.com Swiss Office: Divis Laboratories Europe AG, Gempenstrasse 12 4008 Basel Tel No: +41 61 361 67 53 Fax No: +41 61 361 67 55 Email: eumail@divislaboratories.com

DIRECTORS

Name :	Dr. Murali K. Divi
Designation :	Chairman & Managing Director
Date of Birth/Age :	55 years
Qualification :	M. Pharm. Ph.D.
Experience :	31 years
Date of Appointment :	10.10.1994
Previous Employment	Cheminor Drugs Limited - Managing Director
Name :	Mr. N. V Ramana
Designation :	Executive Director
Date of Birth/Age :	48 years
Qualification :	B.Sc.(Chem.)
Experience :	21 years
Date of Appointment :	26.12.1994
Previous Employment	Enmark Exim Services Private Limited - President
Name :	Mr. Madhusudhana Rao Divi
Designation :	Director - NRI (Kuwait) (Projects)
Date of Birth/Age :	62 years
Qualification :	M.E. (Structural Engineering)
Experience :	37 years
Date of Appointment :	14.10.1994
Previous Employment	Sadah General Trading and Construction Company, Kuwait – Executive Director
Name :	Mr. Kiran S. Divi
Designation :	Director (Business Development)
Date of Birth/Age :	30 years
Qualification :	B. Pharm.
Experience :	05 year
Date of Appointment :	10.08.2001
Name :	Dr. P Gundu Rao
Designation :	Director (R & D)
Name :	Dr. K. Satyanarayana
Designation :	Non Executive Director
Name :	Mr. G. Venkata Rao
Designation :	Non Executive Director
Name :	Prof. C. Ayyana
Designation :	Non Executive Director
Name :	Mr. S. Vasudev
Designation :	Director (IDBI Nominee)
Name :	Mr. G. Suresh Kumar
Designation :	Non Executive Director
Name :	Dr. P. Gundu Rao
Designation :	Director [R & D]
Date of Birth/Age :	70 years
Qualification :	M. Pharm., Ph.D.
Experience :	50 years
Date of Appointment :	10.02.1995
Previous Employment	College of Pharmacy, Manipal – Principal

KEY EXECUTIVES

Name :	Mr. L. Kishore Babu
Designation :	Chief Financial Officer
Date of Birth/Age :	54 years
Qualification :	B.Com, FICWA
Experience :	33 years
Date of Appointment :	01.03.1995
Previous Employment	Nagarjuna Fertilizers and Chemicals Limited - Finance Manager
Name :	Mr. A. Narendra
Designation :	Company Secretary
Name :	Mr. Vara Prasad
Designation :	Purchasing Manager

MAJOR SHAREHOLDERS / SHAREHOLDING PATTERN

Names of Shareholders	No. of Shares	Percentage of Holding
Indian Promoters	6920441	53.99
Mutual Funds and DTI	1114360	8.69
Banks	8645	0.07
Flls	2339030	18.25
Private Corporate Bodies	604094	4.71
Indian Public	1503424	11.73
NRIs/OCBs	185618	1.45
Clearing Members	91408	0.71
Trusts	430	0.00
Directors (Independent and not in control of the Company)	51250	0.40

BUSINESS DETAILS

Line of Business :

Manufacturers of Bulk Drugs and Intermediates like Naproxen, Dextra Methorphane Hydro Bromide, Diltiazem Hydro Chloride, Nabomethone, Ipamidol, etc.

Products :

Product Description	Item Code Number
Dextromethorphan HBR	2922.14
Naproxen	2942.00
Lopamidol	2942.00

v Dimethylmethoxybenzylpyridinethylenediamine for pharmaceuticals

v Diphenylthiourea for pharmaceuticals

v Gentisic acid/2, 5-dihydroxybenzoic acid and derivatives

v Herparin and derivatives

v Narceine

v Safflower oil (carthamus)

v Tryptophan/ amino indolpropionic and acid

v Tyrosine

v Diaphoretics

Exports :

Countries :

Europe, United States, UK, Switzerland, Canada, USA, Mexico and Germany

Imports :

Countries :

Germany

PRODUCTION STATUS (as on 31.03.2007):-

Particulars	Unit	Installed Capacity	Actual Production
Active Pharma Ingredients and Intermediates	MTs	3500.00	2056.50

GENERAL INFORMATION

Suppliers:

· Godavari Plasto Containers Private Limited

· GPC Flow Instruments Private Limited

· Costal Ammonia Private Limited

· Sri Sairam Polymers

· Durga Industries

· Super Olefins Private Limited

· Coastal Plasto Containers (P) Limited

· SPP Poly Pack Private Limited

· Yen Plas Private Limited

No. of Employees :

300

Bankers :

v State Bank of India, Overseas Branch, ABIDS, Hyderabad, Andhra Pradesh

v State Bank of Hyderabad, IFC Branch, Panjagutta, Hyderabad, Andhra Pradesh

v The Lakshmi Vilas Bank Limited, K. P. H. B. Colony, Kukatpally, Hyderabad, Andhra Pradesh

v Industrial Development Bank of India, Hyderabad, Andhra Pradesh

v IDBI Bank Limited, Hyderabad, Andhra Pradesh

v UTI Bank Limited, Hyderabad, Andhra Pradesh

v Bank of Nova Scotia

Facilities :

SECURED LOANS:	31.03.2007	31.03.2006
	(Rs. In millions)
Term Loans : From Banks Foreign Currency Term Loans (Secured by equitable mortgage of specified immovable properties of the Company and further secured by first charge of all the movables (Save and except book-debts) including movable machinery, machinery spares, tools and accessories, present and future subject to prior charge created and / or to be created in favour of the bankers on the stocks for working capital requirements)	702.845 183.330	361.341 200.000
WORKING CAPITAL LOANS:
From Banks (Secured by hypothecation of stocks, book debts and receivable and further secured by second charge on specified fixed assets of the company)	621.918	894.784
Other Loans :
From Banks (Secured by hypothecation of Vehicles acquired against the Loan)	0.000	2.281
Total	1508.093	1458.406
UNSECURED LOANS:
Deferred Sales Tax Credit	31.465	43.394
Total	31.465	43.394

Banking Relations :	Good
Auditors :
Name :	P.V.R.K. Nageswara Rao & Co. Chartered Accountants
Address :	109, Metro Residency, 6-3-1247, Rajbhavan Road Hyderabad - 500 082.
Associates :	Cheminor Drugs Limited
Subsidiaries :	v Divis Laboratories (USA) Inc., New Jersey, USA v Div’s Laboratories Europe AG Basel, Switzerland

CAPITAL STRUCTURE

Authorised Capital :

No. of Shares	Type	Value	Amount
15000000	Equity Shares	Rs 10/- each	Rs. 150.000 millions
500000	Redeemable Preference Shares	Rs. 100 each	Rs. 50.000 millions
	Total		Rs. 200.000 millions

Issued Capital :

No. of Shares	Type	Value	Amount
13000000	Equity Shares	Rs 10/- each	Rs. 130.000 millions

Subscribed & Paid-up Capital :

No. of Shares	Type	Value	Amount
12911420	Equity Shares	Rs 10/- each	Rs. 129.114 Millions

Notes:

(Of the above 150000 Equity shares of Rs. 10/- each have been allotted as Bonus Shares on Capitalisation of General Reserve).

FINANCIAL DATA

[all figures are in Rupees Millions]

ABRIDGED BALANCE SHEET

SOURCES OF FUNDS		31.03.2007	31.03.2006	31.03.2005
SHAREHOLDERS FUNDS
1] Share Capital		129.114	128.187	128.187
2] Share Application Money		0.000	0.000	0.000
3] Reserves & Surplus		5291.337	3279.978	2708.412
4] (Accumulated Losses)		0.0000	0.000	0.000
NETWORTH		5420.451	3408.165	2836.599
LOAN FUNDS
1] Secured Loans		1508.093	1458.406	628.796
2] Unsecured Loans		31.465	43.394	32.108
TOTAL BORROWING		1539.558	1501.800	660.904
DEFERRED TAX LIABILITIES		295.313	281.639	250.323
TOTAL		7255.322	5191.604	3747.826
APPLICATION OF FUNDS
FIXED ASSETS [Net Block]		3811.919	2147.738	1815.439
Capital work-in-progress		250.256	602.708	4.157
Unallocated Expenditure pending capitalization		7.195	39.677	0.000
Advance for Capital Works		125.020	160.346	6.727
INVESTMENT		5.836	3.975	0.000
DEFERREX TAX ASSETS		0.000	0.000	0.000
CURRENT ASSETS, LOANS & ADVANCES
	Inventories	2100.458	1838.588	1390.488
	Sundry Debtors	1644.614	1074.422	1021.692
	Cash & Bank Balances	172.210	101.471	44.878
	Other Current Assets	2.060	1.799	1.371
	Loans & Advances	394.454	530.072	258.222
Total Current Assets		4313.796	3546.352	2716.651
Less : CURRENT LIABILITIES & PROVISIONS
	Current Liabilities	1239.349	1151.630	678.216
	Provisions	19.351	157.562	116.932
Total Current Liabilities		1258.700	1309.192	795.148
Net Current Assets		3055.096	2237.160	1921.503
MISCELLANEOUS EXPENSES		0.000	0.000	0.000
TOTAL		7255.322	5191.604	3747.826

PROFIT & LOSS ACCOUNT

PARTICULARS		31.03.2007	31.03.2006	31.03.2005
Sales Turnover		7244.245	3811.107	3473.783
Other Income		136.083	106.248	171.465
Total Income		7380.328	3917.355	3645.248
Profit/(Loss) Before Tax		2267.037	1069.112	1023.142
Provision for Taxation		349.587	364.398	362.830
Profit/(Loss) After Tax		1917.450	704.714	660.312
Earnings in Foreign Currency :
	Export Earnings	6712.078	3347.954	3015.919
	Other Earnings	30.448	35.855	66.042
Total Earnings		6742.526	3383.809	3081.961
Imports :
	Raw Materials	1579.506	1074.601	640.371
	Stores & Spares	0.796	7.665	3.436
	Capital Goods	128.521	14.426	35.641
Total Imports		1708.823	1096.692	679.448
Expenditures :
	Manufacturing Expenses	438.098	331.726	327.414
	Raw Material Consumed	3230.992	1698.161	1583.826
	Salaries, Wages, Bonus, etc.	515.751	181.987	150.963
	Finance Charges	105.739	55.832	42.989
	Depreciation & Amortization	223.286	148.159	150.668
	Other Expenditure	599.425	432.378	365.246
Total Expenditure		5113.291	2848.243	2621.106

QUARTERLY RESULTS

PARTICULARS	30.06.2007	30.09.2007	31.12.2007
Type	1^st Quarter	2^nd Quarter	3^rd Quarter
Sales Turnover	2280.700	2425.100	2842.200
Other Income	34.400	15.400	45.100
Total Income	2315.100	2440.500	2887.300
Total Expenditure	1438.100	1375.000	1721.300
Operating Profit	877.000	1065.500	1166.000
Interest	33.700	31.500	18.300
Gross Profit	843.300	1034.000	1147.700
Depreciation	86.100	78.200	90.600
Tax	48.900	1.000	61.700
Reported PAT	672.800	912.500	1006.600

KEY RATIOS

Year	31.03.2007	31.03.2006	31.03.2005
Debt-Equity Ratio	0.34	0.35	0.26
Long Term Debt-Equity Ratio	0.17	0.10	0.02
Current Ratio	1.68	1.50	1.53
TURNOVER RATIOS
Fixed Assets	1.84	1.39	1.47
Inventory	3.71	2.39	2.85
Debtors	5.37	3.68	3.72
Interest Cover Ratio	22.45	20.16	24.79
Operating Profit Margin(%)	35.58	33.02	34.64
Profit Before Interest And Tax Margin(%)	32.52	29.17	30.35
Cash Profit Margin(%)	29.34	22.12	23.09
Adjusted Net Profit Margin(%)	26.28	18.28	18.80
Return On Capital Employed(%)	39.98	26.76	33.06
Return On Net Worth(%)	43.44	22.57	25.75

LOCAL AGENCY FURTHER INFORMATION

History

Subject was established in 1990 as a Research and Development company to develop processes for API and Intermediates and to provide turnkey solutions to the industry. In 1994 the name of the company was changed to Divi's Laboratories Limited. The company is headed by Murali K Divi as Chairman and Managing Director. In 1995, the company's first manufacturing unit was built on a 300 acre site comprising of 11 multi-purpose production blocks. 

The company's plant at Choutuppal Mandal, Nalgonda District is having 11 multi-purpose production blocks primarily manufacturing active pharmaceutical ingredients and intermediates for generics, advanced intermediates for discovery compounds, cartenoids, protecting agents and building blocks for peptide chemistry and nucleotide chemistry. 

During 1991 the company successfully developed commercial processes for intermediates and bulk actions and supply to manufacturing enterprises. In 2000 the company was awarded ISO 9001 certification by SGS-Yarsley. 

The Company product portfolio has about 90 products covering Generic Products and New Chemistries comprising Custom Synthesis of APIs and Intermediates for MNC, Peptide Building Overseas and Carotenoids etc. The company is the first company to develop and manufacture synthetic carotenoids and also the largest manufacturer of some peptide reagents and protected amino acids world-wide. 

The company has taken up a development of a new site in 2002 at Chippada village 35 KM from Visakhapatnam. The commercial production is slated to commence by March 2003. The total estimated outlay on this facility was Rs.402.200 Millions . The above plant will not only increase the capacity of API and also provide comfort to the company's multinational customers for assured supply of products. 

The company is coming out with an IPO through book building route and the offer size is 3.205 Millions equity shares of Rs.10 each comprising fresh issue of 1.270 Millions shares and an offer for sale of 1.935 Millions shares. The floor price has been fixed at Rs.130 per share and the issue is open from February 17,2003 to February 21,2003. After the public issue the total equity has increased to Rs.128.200 Millions from Rs 115.500 Millions  

The company has increased its installed capacity of Active Pharma Ingredients and Intermediates by 200 MTs and with this expansion the total installed capacity of Active Pharma Ingredients and Intermediates has increased to 2000 MTs. 

The company has invested an amount of Rs.303.521 Millions towards capital expenditure at its manufacturing facilities at Choutuppal (Unit-I) and Chippada (Unit-II) for additional machinery installed at both Unit-I and Unit-II for enhancing he production capacity. Further the company has commissioned a new pilot plant at Unit-2 and also a new Research Centre with 60 work stations, which became fully operational during the year. The company has also installed additional Laboratory instruments at the Research centres.  

The company is in the process of setting up an Export Oriented Unit with a capital investment of Rs.350 millions at its Unit-2.

DIRECTOR REPORT:

PERFORMANCE AND OPERATIONS REVIEW 

During the year, Divi's achieved a turnover of Rs.7244.200 millions as against Rs. 3811.100 millions during the previous year reflecting a growth of 90%. As has been the norm for the company, exports constituted 93% of total turnover and exports to advanced markets comprising Europe and America accounted for 75% of business. Other Income earned during the year stood at Rs.136.100 millions as against Rs. 106.200 millions in the previous year. Expenses for the year included a charge of Rs.241.100 millions on account of stock options granted to employees. Profit after Tax (PAT) grew by about 172% to Rs.1917.400 millions as against Rs. 704.700 millions during the previous year. 

Earnings Per Share for the year works out to Rs.149.54 per share as against Rs. 54.98 last year on absolute basis and to Rs.147.77 per share as against Rs. 53.94 last year on diluted basis. 

They could achieve this substantial growth due to the continued pursuit of their strategy to work with multi-national innovator companies developing compounds under custom synthesis besides a strategic positioning on their range of generic products in international domain duly supported by their capital expenditure programs. 

The newly commissioned SEZ Unit has also contributed to business during the year. This structure is able to provide a convenient mechanism for big pharma companies for sourcing their custom compounds, as it is an efficient platform for international business. Investments made during the year, with multi-purpose capacities created supporting improved safety and environment management capabilities, are able to attract greater business in custom synthesis business. Divi's is now recognised as a strategic long term supplier by some of the leading innovator companies. This would ensure a continuing flow of opportunities to Divi's. The strategic size reached in some of the generic APIs has made Divi's a supplier of choice for major customers including branded generic manufacturers, which ensures business from these customers on a long term basis. With the marketing arms in place in Europe and USA, they will be able to have a wider reach in the advanced markets, meet supply chain requirements of customers in these markets and enhance their business. 

TAXATION 
They made a provision of Rs.333.200 millions for Income-tax this year as against Rs. 331.600 millions during the previous year. They are eligible for tax exemptions for profits from their EOU and SEZ Units. An amount of Rs.13.700 millions has been provided during the year towards Deferred Tax Liability for the year as required under Accounting Standard AS-22 relating to 'Accounting for Taxes on Income'. Deferred Tax Liability provision during the previous year was Rs. 31.300 millions. 

CAPITAL EXPENDITURE 

During the year, the company has spent an amount of Rs.2308.400 millions on capital expenditure (net of capital work-in-progress) towards enhancing production capacities. They have set up new production as well as utility facilities in SEZ and EOU Units, and enhanced existing capacities at Unit-1. Capital Work-in-Progress includes a nutraceutics project being implemented at their SEZ with an estimated investment of Rs.350.000 millions which is expected to be completed by middle of next year. 

SPECIAL ECONOMIC ZONE and EXPORT ORIENTED UNIT 

The company has developed an SEZ titled Divi's Pharma SEZ' on a 250-acre site at village Chippada, Bheemunipatnam Mandal, Visakhapatnm Dist., and has set up its SEZ Unit after obtaining approvals. Total capex incurred on their SEZ would be Rs.1019.400 millions. First phase of the SEZ Unit was commissioned and commercial operations commenced from 27th October, 2006.

As the company is predominantly into exports, this SEZ structure would help the company to be internationally competitive on a level playing field with its peers in Europe, Brazil, China and Singapore.

The company's 2nd Manufacturing Site at village Chippada, Bheemunipatnam Mandal has been converted into Export Oriented Unit (EOU) and started operations as EOU from 1st June, 2006. 

CHANGES IN SHARE CAPITAL 

The company has allotted 92720 equity shares during the year at the par value of Rs. 10/- each to employees upon exercise of options under its Employee stock option scheme. Consequently, the paid up capital of the company as on 31st March, 2007, stands increased by Rs.0.900 millions to Rs.129.100 millions. The new shares rank pari passu in all respects with the existing equity shares of the company. Approval has been obtained from NSE and BSE for listing of the new shares on the stock exchanges. 

SUBSIDIARIES 
The company incorporated, during late last year, two 100% subsidiaries viz., M/s. Divis Laboratories (USA) Inc., in USA and M/s. Divi's Laboratories Europe AG in Switzerland for marketing its products and a greater reach to customers within these regions. The low level of operations of the subsidiaries during the year resulted in net loss, mainly a result of salaries and administrative expenses. The subsidiaries would undertake full scale marketing operations with the ensuing commencement of commercial operations of the nutraceutics project. 

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 Divi's 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 subject to certain risks and uncertainties. 

Industry and structure 

The company is engaged in manufacture of generic APIs, custom synthesis of active ingredients and intermediates for innovator companies and other speciality chemicals like peptide building blocks and Nutraceuticals.

During 2006, the global pharmaceutical market grew by 7% to US $643 billion which includes prescription and OTC drugs. US market accounts for a little over 50% of the total market. The component for the Active Pharmaceutical Ingredients business (API) is estimated about 5 to 7% of the pharma market i.e, between US $ 32 to 45 billion. The US generic market, which represents over 50% of the global revenues, is witnessing increased pressures about rising healthcare costs. This market stands amongst the highest in terms of healthcare spends compared to other countries. 

Over the last 3 decades, the Indian pharmaceutical industry has gained considerable expertise and skills in handling complex chemical reactions and manufacture under cGMP conditions and now ranks fourth globally in terms of output volume and thirteenth in value terms. The onset of full compliance to patent regime in place in India effective 2005, and with the cost-competitive structure and intricate chemistry handling capabilities that Indian companies have demonstrated, there will be a more conducive atmosphere for outsourcing by big pharma companies resulting in major opportunities to Indian pharma companies committed to intellectual property rights (IPR) and playing a complementary role to the innovators. 

Company infrastructure 

Divi's operates from its Headquarters and Registered Office at Hyderabad.

The company has three manufacturing facilities: 

· The 1st Facility at village Lingojigudem, Choutuppal Mandal, Nalgonda district, about 60 KM from Hyderabad. 

· The 2nd Facility has been converted during the year as an 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., which was commissioned and commenced commercial operations during the year. 

The company has 4 Research Centers with 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 and review efficiency of processes. 

Internal Control systems 

The company has well laid-out internal control systems which are continually reviewed for effectiveness and is augmented by written policies, careful selection of qualified personnel and a continuous programme of internal audit. They believe that the company's overall system of internal control is adequate given the size and nature of operations and effective implementation of internal control self assessment procedures.

The Company encourages and recognizes improvements in work practices. 

The internal control system of the company is also reviewed by the Audit Committee of the Board periodically, and suggestions and recommendations of the Committee are carried out. 

Risks and Concerns 

From the very inception of manufacturing operations, the company committed itself to respecting intellectual property and playing a complementary role to its innovator customers thus ensuring a consistent business in custom synthesis. The company constantly reviews its policies and procedures to adhere to conformity to the various regulatory approvals for its manufacturing facilities. With a diverse product portfolio, the company has a unique de-risked business model. The company ensures adequate risk coverage for its assets. 

Business distribution 

Among well distributed products range, the largest product accounts for 21% of sales and the top 5 products contributed around 60% of revenues and the top 5 customers stand at 50% of its revenues.

The company operates predominantly in export markets and has a broad product portfolio under generics and custom synthesis. The company has a substantial exposure to foreign exchange risk due to its exports. 93% of turnover of the company comprises exports and about 45% of its raw material consumption is also met from imports. The company constantly strives to protect itself from foreign exchange and various other business risks and concerns and takes appropriate measures to address the same. The company's current and fixed assets are adequately insured against various risks. 

AWARDS:

During the year, Divi's has received the following awards: 

· ICC award for Excellence in Management of Health, Safety and Environment. 

· National Award for Excellence in Water Management from Confederation of Indian Industry. 

Other Income 

Other Income mainly comprised Contract Research fee and sale / transfer of some of the export benefits like DEPB Credits and drawbacks available to the company. Other Income for the year amounted to Rs.136.100 millions as against Rs. 106.200 millions for the previous year.

Income on Export benefits for the year came to at Rs.74.700 millions as against Rs. 44.600 millions during the last year. Income on contract research accounted for Rs.26.900 millions during the year as against Rs. 34.800 millions during the last year. 

Material costs 

Raw material consumption for the year was Rs.3111.200 millions as against Rs. 1829.200 millions for the previous year. Closing Inventory of Raw materials was Rs. 789.300 millions as against Rs. 554.500 millions. 

Work-in-Process at the year end amounted to Rs..917.700 millions and finished goods (net of duties) to Rs.300.100 millions as against Work-in- Process of Rs. 1099.800 millions and Finished Goods of Rs.136.300 millions respectively during the previous year. 

The company now operates from 3 manufacturing sites. Increased levels of raw materials will support the increasing volumes of business and diverse product portfolio at the company's 3 manufacturing sites.

Manufacturing Expenses 

Manufacturing expenses comprising of Power and Fuel, Repairs to Plant and stores consumption came to Rs.438.100 millions for the year as against Rs. 331.700 millions for the last year. These expenses account for about 6% of income and is lower as compared to 8% of previous year, due to a combination of product mix and economies of scale. 

MANAGEMENT AND DISCUSSION ANALYSIS:

Other Expenses 

Major components of Other Expenses comprise Managerial Remuneration, Rates and taxes, Travelling, Insurance premium, R and D expenses, Freight and handling charges, Factory upkeep, Sales commission and general expenses.

Other Expenses for the year amounted to Rs.599.400 millions as against Rs.430.000 millions. The increase is on account of increase in managerial remuneration, charge on account of stock options to directors, travel, Factory upkeep and general expenses besides other expenses that are operations related. As a proportion of total income, Other Expenses have account for 8% of income during last year to 11% during the year. 

Finance charges 

Interest and Finance charges during the year have increased to Rs.105.700 millions as against Rs. 55.800 millions during the previous year due to availing term loans for capex needs besides higher level of operations. Higher interest expense is also due to increase in LIBOR rates as also in local interest rates. 

Community Development activities 

Divi's continues to be associated with various community development activities in the villages around the company's Manufacturing Facilities.

Divi's contributed for the several community development programs either on its own or through voluntary / Government organizations. 

The company is in trade terms with :

v Atofina

v La Defence 10, Cedex 42, 92091, Paris, La Defence, France

v Bayer AG

v Ch-M/GF 30, D-51368 Leverkusen Bayerwerk, Germany

v DSM Fine Chemicals Austria GmbH

v St. Peter Strabe 25, P. O. Box 296, A-4021, Linz, Austria

v Great Lakes Sales (Europe) GmbH

v Juchstrabe 45, Ch-8501, Frauenfeld, Switzerland

v Hawk Petroleum Pte Limited

v Level 36, Hong Leong Building, 16, Raffles Quay, Singapore 048581

v Nagase and Company Limited

v 5-1, Nihonbashi, Kobunacho, Chou-Ku, Tokyo 103, Japan

v Rohm and Hass B.V.

v P. B. 32, NL 3800 AA Amersfoort, The Netherlands

v Saurefbrik Schweizerhall (Switz)

v Ch-4133 Prattein 1, Switzerland

v SQM Europe N.V.

v Sint Pietersvlier 7, Bus 8, Precambuilfing 2000, Antwerpen 1, Belgium

v Sinochem Jiangsu Imp. and Exp. Corporation

v 50 Zhonghua Road, Nanjing, China

Subject has been accredited with ISO 9001 and ISO 14001 Certifications.

Fixed Assets

v Land and development

v Buildings

v Plant and machinery

v Laboratory equipments

v Furniture and fixtures

v Data processing equipments

v Vehicles

OTHER INFORMATION:

CONTINGENT LIABLITIES:	31.03.2007	31.03.2006
	(Rs. in millions)
On account of Letters of Credit and bank guarantees issued by the bankers.	756.395	228.624
On account of Foreign bills discounted with banks	0.000	7.807
On account of Bonds and / or legal agreements executed with Central Excise/ Customs authorities/ Development Commissioners	825.000	200.000
Demands being disputed / contested by the Company	8.719	5.010

· Business Segments:
N V Ramana
Executive Director
Phone: +91 (40) 2375 2921.
+Fax: 91 (40) 2375 4252
Email: marketing@divislaboratories.com

· US Generics:
Kiran S Divis
Director (Business Development)
Email: Kiran@divislaboratories.com

· Raw Materials:
P R Rao
GM Raw Materials
Email: chemicals@divislaboratories.com

· Engineering Materials:
D M Rao
GM Engineering
Email:purchase@divislaboratories.com

· Administration:
N Lakshmana Rao
GM P & A
Email: nlr@divislaboratories.com

MILESTONES

2003

The company receives Certificate of Substantiability from the council of European Countries.

Appointed Mr. A. Narendra as Company Secretary and compliance officer of the company (in place of outgoing Company Secretary Mr. M. P. Sudarshan) who has joined the organisation.

2004

The company has informed that the manufacturing facility of company choutuppal near Hyderabad was successfully inspected by US-FDA in May 2001.

Achievements

v It has grown multi-fold from the time of its inception.

v It has been the recipient of prestigious awards over the past years.

v IDMA 1996 (Indian Drug Manufacturers Association) For Excellence in Quality

v It had been inspected by USFDA in September, 2000

v ISO 14001 Certified in the year 2000

v ISO 9001 Certified in the year 1998

v The Director General of Foreign Trade rated the company first among the top 10 exporters from Andhra Pradesh in the year 1996-97.

v FAPCCI 1997 (Federation of Andhra Pradesh Chambers of Commerce and Industry) (For Best Export Effort in the State of Andhra Pradesh)

v FAPCCI 1996 (Federation of Andhra Pradesh Chambers of Commerce and Industry) (For Best Technological Development in Research and Development by an Industrial / Scientific Organisation)

v ICMA 1996 (Indian Chemical Manufacturers Association) (For Achieving Outstanding Quantum of Exports)

v IDMA 1996 (Indian Drug Manufacturers Association) (For Excellence in Quality)

WEBSITE DETAILS:

Established in the year 1990, with Research and Development as its prime fundamental, subject focussed on developing new processes for the production of Active Pharma Ingredients (APIs) and Intermediates.

With five years of experience, expertise and a proven track-record of helping many companies with its turn-key and consulting strengths, subject established its first manufacturing facility in 1995.

Built on a 300 acre site at Hyderabad (Unit-I). The plant comprises of 13 multi-purpose production blocks and has space for further growth and expansion.

Subject set up its second manufacturing facility at Visakhapatnam (Unit-II). in the year 2002 on a314 acre site. The site has 7 multi purpose production blocks.

Both the facilities are primarily engaged in the manufacture of:

v Active Pharmaceutical Ingredients (APIs) and Intermediates for Generics

v Custom Synthesis of API's and Advanced intermediates for discovery compounds for
pharma giants

v Building blocks for Peptides

v Building blocks for Nucleotides

v Carotenoids

v Chiral ligands

Complete cGMP guidelines are complied to in both the plants. The Unit-1 at Hyderabad was successfully inspected by the US FDA during September 2000 and again in April 2004. The Unit-2 at Visakhapatnam was successfully inspected by the US FDA during November 2006. 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.

PRESS CLIPPING

Divi’s Labs Q3 total income grows by 38% to Rs.1520 millions

Divi’s Laboratories has clocked a total income of Rs.1520 millions and a PAT of Rs.310 millions on a consolidated basis for the 3rd Quarter ending 31st December, 2006. Income and PAT for the corresponding previous quarter during last year were Rs. 1100 millions and Rs.190 millions respectively. While income grew by 38%, PAT grew by 66%.

Results of the current quarter include operations from the SEZ Unit at Chippada, Bheemunipatnam. During the quarter, the company had a successful inspection by the US-FDA for its EOU and SEZ Units, and a Drug Master file was also filed with USFDA for a generic product.

For the current 9-month period, Divi’s earned a total income of Rs.4820 millions and a PAT of Rs. 870 millions as against an income of Rs.262 millions and a PAT of Rs.480 millions during the corresponding previous period. Growth in total income for the period is 84% while the growth in PAT is 81%. An amount of Rs.180 millions has been charged as expense during the current 9-month period on account of Stock options.

Divi’s Laboratories is glad to announce that it has had a successful inspection by the US – FDA, without any observations, for its Unit 2 (comprising both EOU and SEZ Units) at village Chippada, Bheemunipatnam Mandal near Visakhapatnam during this month. The purpose of this inspection was for product pre approvals and general cGMP (Current Good Manufacturing Practices).

Divi`s gets commerce ministry's nod for special SEZ

May 24, 2006

Hyderabad-based Divi’s Laboratories Limited has informed that the company has received letter of approval from Ministry of Commerce, Government of India, for setting up a sector-specific special economic zone (SEZ) for pharmaceutical ingredients at Chippada, Bheemunipatnam in Visakhapatnam.

The pharmaceutical company will be investing around Rs 2000 million for this purpose.

Speaking to Business Standard, Kishore Babu, chief financial officer of Divi’s Laboratories, said, “We will be investing Rs 1200 million initially and later invest Rs 800 million. The total investment for the 250-acre SEZ will be spread over four years.”

The company will be raising funds for the investment via foreign currency loan.

“This will involve a debt of around $15 million. The remaining investment will be via internal accruals,” Babu said.

Divi's gets nod for pharma SEZ

Hyderabad, May 23

Divi's Laboratories Limited has informed the stock exchanges that it has received a letter of approval from the Union Ministry of Commerce for setting up and development of a sector specific Special Economic Zone for pharmaceutical ingredients at Chippada near Bheemunipatnam in Andhra Pradesh. The details of land were notified in the Gazette of India on May 16, the company said.

CMT REPORT (Corruption, Money Laundering & Terrorism]

The Public Notice information has been collected from various sources including but not limited to: The Courts, India Prisons Service, Interpol, etc.

1] INFORMATION ON DESIGNATED PARTY

No records exist designating subject or any of its beneficial owners, controlling shareholders or senior officers as terrorist or terrorist organization or whom notice had been received that all financial transactions involving their assets have been blocked or convicted, found guilty or against whom a judgement or order had been entered in a proceedings for violating money-laundering, anti-corruption or bribery or international economic or anti-terrorism sanction laws or whose assets were seized, blocked, frozen or ordered forfeited for violation of money laundering or international anti-terrorism laws.

2] Court Declaration :

No records exist to suggest that subject is or was the subject of any formal or informal allegations, prosecutions or other official proceeding for making any prohibited payments or other improper payments to government officials for engaging in prohibited transactions or with designated parties.

3] Asset Declaration :

No records exist to suggest that the property or assets of the subject are derived from criminal conduct or a prohibited transaction.

4] Record on Financial Crime :

Charges or conviction registered against subject: None

5] Records on Violation of Anti-Corruption Laws :

Charges or investigation registered against subject: None

6] Records on Int’l Anti-Money Laundering Laws/Standards :

Charges or investigation registered against subject: None

7] Criminal Records

No available information exist that suggest that subject or any of its principals have been formally charged or convicted by a competent governmental authority for any financial crime or under any formal investigation by a competent government authority for any violation of anti-corruption laws or international anti-money laundering laws or standard.

8] Affiliation with Government :

No record exists to suggest that any director or indirect owners, controlling shareholders, director, officer or employee of the company is a government official or a family member or close business associate of a Government official.

9] Compensation Package :

Our market survey revealed that the amount of compensation sought by the subject is fair and reasonable and comparable to compensation paid to others for similar services.

10] Press Report :

No press reports / filings exists on the subject.

CORPORATE GOVERNANCE

MIRA INFORM as part of its Due Diligence do provide comments on Corporate Governance to identify management and governance. These factors often have been predictive and in some cases have created vulnerabilities to credit deterioration.

Our Governance Assessment focuses principally on the interactions between a company’s management, its Board of Directors, Shareholders and other financial stakeholders.

CONTRAVENTION

Subject is not known to have contravened any existing local laws, regulations or policies that prohibit, restrict or otherwise affect the terms and conditions that could be included in the agreement with the subject.

FOREIGN EXCHANGE RATES

Currency	Unit	Indian Rupees
US Dollar	1	Rs.40.05
UK Pound	1	Rs.78.15
Euro	1	Rs.37.32

SCORE & RATING EXPLANATIONS

SCORE FACTORS	RANGE	POINTS
HISTORY	1~10	8
PAID-UP CAPITAL	1~10	8
OPERATING SCALE	1~10	8
FINANCIAL CONDITION
--BUSINESS SCALE	1~10	9
--PROFITABILIRY	1~10	7
--LIQUIDITY	1~10	9
--LEVERAGE	1~10	9
--RESERVES	1~10	8
--CREDIT LINES	1~10	8
--MARGINS	-5~5	---
DEMERIT POINTS
--BANK CHARGES	YES/NO	YES
--LITIGATION	YES/NO	NO
--OTHER ADVERSE INFORMATION	YES/NO	NO
MERIT POINTS
--SOLE DISTRIBUTORSHIP	YES/NO	YES
--EXPORT ACTIVITIES	YES/NO	YES
--AFFILIATION	YES/NO	YES
--LISTED	YES/NO	YES
--OTHER MERIT FACTORS	YES/NO	YES
TOTAL		74

This score serves as a reference to assess SC’s credit risk and to set the amount of credit to be extended. It is calculated from a composite of weighted scores obtained from each of the major sections of this report. The assessed factors and their relative weights (as indicated through %) are as follows:

Financial condition (40%) Ownership background (20%) Payment record (10%)

Credit history (10%) Market trend (10%) Operational size (10%)

RATING EXPLANATIONS

RATING		STATUS	PROPOSED CREDIT LINE
>86	Aaa	Possesses an extremely sound financial base with the strongest capability for timely payment of interest and principal sums	Unlimited
71-85	Aa	Possesses adequate working capital. No caution needed for credit transaction. It has above average (strong) capability for payment of interest and principal sums	Large
56-70	A	Financial & operational base are regarded healthy. General unfavourable factors will not cause fatal effect. Satisfactory capability for payment of interest and principal sums	Fairly Large
41-55	Ba	Overall operation is considered normal. Capable to meet normal commitments.	Satisfactory
26-40	B	Unfavourable & favourable factors carry similar weight in credit consideration. Capability to overcome financial difficulties seems comparatively below average/normal.	Small
11-25	Ca	Adverse factors are apparent. Repayment of interest and principal sums in default or expected to be in default upon maturity	Limited with full security
<10	C	Absolute credit risk exists. Caution needed to be exercised	Credit not recommended
NR		In view of the lack of information, we have no basis upon which to recommend credit dealings	No Rating

PRIVATE & CONFIDENTIAL : This information is provided to you at your request, you having employed MIPL for such purpose. You will use the information as aid only in determining the propriety of giving credit and generally as an aid to your business and for no other purpose. You will hold the information in strict confidence, and shall not reveal it or make it known to the subject persons, firms or corporations or to any other. MIPL does not warrant the correctness of the information as you hold it free of any liability whatsoever. You will be liable to and indemnify MIPL for any loss, damage or expense, occasioned by your breach or non observance of any one, or more of these conditions