Regd. Office

‘Orchid Towers’ 313, Valluvar Kottam High Road, Nungambakkam, Chennai 600034, India

Tel : (91)-44-28211000 Fax : (91)-44-28211002 e-mail: corporate@orchidpharma.com

Website: www.orchidpharma.com Health portal: www.healthorchid.com

Orchid Chemicals& Pharmaceuticals Limited

Annual Report 2008-09

3mm Spine20901409_Orchid_AR_2k8-2k9_Ordinary_Cover:Layout 2 03/09/09 7:08 PM Page 1

3mm Spine

A PRODUCTinfo@trisyscom.com

FORWARD-LOOKING STATEMENTIn this Annual Report we have disclosed forward-looking

information to enable investors to comprehend our prospects and

take informed investment decisions. This report and other

statements that we periodically make contain forward-looking

statements that set out anticipated results based on the

management’s plans and assumptions. We have tried wherever

possible to identify such statements by using words such as

‘anticipate’, ‘estimate’, ‘expects’, ‘projects’, ‘intends’, ‘plans’,

‘believes’, ‘targets’ and words of similar substance in connection

with any discussion of future performance.

We cannot guarantee that these forward-looking statements will

be realized, although we believe we have been prudent in our

assumptions. The achievement of results is subject to risks,

uncertainties and estimates taken as assumptions. Should known

or unknown risks or uncertainties materialize, or should underlying

assumptions prove inaccurate, actual results could vary materially

from those anticipated, estimated or projected.

CONTENTS

Corporate information 01 Strategic review 02 Directors’ Report 04 Corporate Governance Report 13

General shareholders’ information 20 Management discussion and analysis 26 Financial section 31

20901409_Orchid_AR_2k8-2k9_Ordinary_Cover:Layout 2 03/09/09 7:08 PM Page 2

1Annual Report 2008-09

CORPORATE INFORMATION

Board of DirectorsChairmanShri R Narayanan

Managing DirectorShri K Raghavendra Rao

Deputy Managing DirectorDr C Bhaktavatsala Rao

DirectorsDr M R Girinath

Dr I Seetharam Naidu

Shri Deepak Vaidya

Shri S Jeyakumar (IDBI Nominee)

Shri Anil Thadani

Chief Financial OfficerMr S Krishnan

Company SecretaryMrs Bhoomijha Murali

Management TeamDr B Gopalan Executive Director

Mr Ashutosh Ojha President & Chief Executive - Domestic Formulations

Dr Gautam Kumar Das President – Technical (API)

Dr R Buchi Reddy Senior Vice President - Chemical Development (NPNC)

Mr S Chandan Kumar Senior Vice President - Manufacturing (API)

Ms Edna Braganza Senior Vice President - International Marketing & Procurement

Mr Kalidindi V Raju Senior Vice President - Manufacturing (Formulations)

Mr S Mani Senior Vice President - Safety, Health & Environment & CSR

Mr S Nammalvar Senior Vice President - Projects & Engineering Services (API)

Mr S Sridharan Senior Vice President - Information Technology

Mr S Arun Kumar Vice President - Regulatory Affairs (Formulations)

Mr P N Deshpande Vice President - Production & Technical (API)

Mr C R Dwarakanath Vice President - Corporate Safety, Health & Environment

Mr Gurmeet Singh Vice President - Commercial (API)

Dr P Y Naidu Vice President - Analytical Research & Quality Control

Mr V S Padalkar Vice President - Projects & Maintenance (API)

Mr K C Pathak Vice President - PPIC & Outsourcing (API)

Mr M S Rangesh Vice President - Human Resources

Mr Satish Haribhau Joshi Vice President - Quality Assurance (Formulations)

Dr U P Senthil Kumar Vice President - Chemical Development

Mr B M Sundaram Vice President - International Marketing (Latin America & Africa)

Mr A Suresh Babu Vice President - Corporate Affairs

BankersAllahabad Bank Andhra Bank Axis Bank Bank of Baroda

Bank of India Canara Bank Federal Bank ICICI Bank Limited

IDBI Bank Limited IFCI Limited Indian Bank Punjab National Bank

Punjab & Sind Bank SICOM Limited South Indian Bank Limited

State Bank of Hyderabad State Bank of India Syndicate Bank

Union Bank of India

AuditorsStatutory AuditorsSNB Associates

Chartered Accountants

No 12, 3rd Floor, Gemini Parsn Complex

121, Anna Salai , Chennai 600 006

Tamil Nadu, India

Cost AuditorsShri V Kalyanaraman

Cost Accountant

No.4 (Old No.12), Second Street, North Gopalapuram

Chennai 600 086, Tamil Nadu, India

The fiscal 2008-09 was challenging for us. In an environment of global

financial meltdown, we encountered additional constraints with key product

approvals delayed, capex programmes increasing debt and interest as well as

an unprecedented currency fluctuation denting profitability. Consequently,

revenue growth was muted and margins declined.

Despite the odds we completed our asset build-up and the current year will

mark the beginning of a new growth wave centred around product

diversification leading to higher returns.

Strategic direction I must briefly recap some developments. In our initial growth phase, we

achieved a dominant status as a global cephalosporin antibiotic API player.

The more recent phase saw us diversify our asset base to cover not only APIs

but also finished dosage forms (FDFs) and extend beyond cephalosporins into

penicillins and carbapenems in the antibiotics range and several non-penicillin,

non-cephalosporin products in the lifestyle product range. We established a

strong presence in the US cephalosporin generics market and are poised to

replicate our success in other antibiotic and non-antibiotic areas.

Over five years, we invested significant funds to strengthen capabilities, create

facilities and expand capacities. A large part of these investments was funded

by debt so that the Company could capitalise on market opportunities with

speed. The reliance on debt has no doubt translated into a temporarily higher

interest liability but will be mitigated once our product diversification strategy

starts paying off.

Our investments are focused on global scale capabilities in four verticals –

cephalosporins – orals and injectables, penicillin injectables, carbapenems and

non-antibiotics, several of them as Para IV FTF applications. Currently, 85-90%

of the Company’s turnover is still derived from cephalosporins, even as we

committed investments in other verticals. This created a significant stress on

our operations last fiscal. With the recent and envisaged product approvals

and the resulting product-market diversification, the revenue contribution is

anticipated to change.

Cephalosporins: We enjoy a dominant status in the US cephalosporin generics

market, in the form of marketing partnerships with Apotex and a leading

distribution house. We are poised to extend our coverage to the EU with two

major pan-European alliances with Actavis and Hospira. Plans are also afoot

to launch novel dosage forms in this segment, to ensure continued niche

positioning.

Penicillins: Revenues from this segment commenced with the launch of

Piperacillin-Tazobactam injections in Australia, Europe and Canada in 2008-09.

We anticipate a launch in the US in 2009-10 based on likely regulatory

approval. In each of the markets, the Company hopes to carve out a significant

share.

Carbapenems: Carbapenems is another futuristic segment where your

Company has a unique development and manufacturing position globally, on

an end-to-end basis in APIs and dosage forms. The revenue from this segment

are anticipated to accrue from this fiscal and increase subsequently.

Other product segments: Orchid has developed a significant product pipeline

covering other lifestyle categories such as central nervous system,

cardiovascular, anti-emetic, gastro-intestinal and pain management drugs. A

few approvals have already been received and there will be significant product

launches in this segment in this fiscal and beyond.

Although each segment will continue to grow, the relative contribution from

cephalosporins will progressively decline while that from penicillin injections,

carbapenems and oral non-cephalosporins will increase. As our investments

begin yielding significant returns, our financial profile will get deleveraged and

profitability strengthened.

Key growth engines Product pipeline: Orchid’s robust pipeline is expected to catalyse growth in the

following ways:

We expect to launch around a dozen products in the cephalosporin and

other categories in the US and the EU in 2009-10 with an estimated market

size of US$2.6 billion (pre-patent expiry).

The already launched high value products namely Cefdinir and Cefepime

among others, in the US will continue to generate sizeable revenue from

2009-10.

The pipeline of carbapenems represents a major first mover opportunity and

could improve with newer carbapenems getting added.

As we extend our marketing alliances to cover additional products and

additional markets, we will enhance product-market scope.

The recently completed second antibiotic injectables line for certain niche

dosage forms will help us access an attractive market segment.

Our launch of Piperacillin-Tazobactam injections in Australia, Europe and

Canada in 2008-09 should significantly grow our business and profitability

in the coming years

API alliances: Apart from ensuring continued growth in API business, we also

entered into agreements with select corporations to supply select antibiotic

bulk actives on a long-term basis. These APIs will be sourced by them after

22 Orchid Chemicals & Pharmaceuticals Ltd.

THE NEXT GROWTH WAVEStrategic review

K Raghavendra Rao, Managing Director shares his perspectives on Orchid’s future growth

Dear Shareholders,

approvals by the regulatory authorities for site variation. This arrangement

will enhance our asset utilisation and improve our revenue as well as

profitability.

Paragraph IV first-to-file products: Within a short span of entering the non-

antibiotic product range, Orchid filed 7 ANDAs with US FDA as Paragraph IV,

first-to-file (FTF) filings out of a total of 21 non-antibiotic ANDA filings in the

US. We are also working on additional Para IV FTF applications for products

with a large estimated market. These Para IV FTF products should drive a

greater share of our business.

Japan – new focusWe have also embarked on a new initiative to diversify our presence in the

exacting Japanese market.

Japan is the second largest pharmaceutical market and the second highest

healthcare spender. The pharmaceutical sales in the Japanese market increased

by 3% from US$66.6 bn in 2007 to US$68.6 bn in 2008. The Japanese

government is committed to increase the share of generics from the current

low of 4% to as high as 30% in the years to come. Orchid, with its balanced

coverage of antibiotic and lifestyle products, is well suited to meet the

requirements of the Japanese society, which is marked by an ageing population

and spiralling healthcare costs.

During fiscal 2009, we established Orchid Pharma Japan to support our foray

into Japan. We have so far filed three DMFs for Japan with more in the pipeline

in 2009-10 and beyond. While continuing discussions on potential API sales,

we are discussing an initial basket of generic dosage form products with

potential partners.

Innovation – new chemical entitiesThe Company reinforced its drug discovery focus with an acceleration of

discovery and development activities in the selected therapeutic areas of

diabetes, pain management, oncology and anti-infective products. A rich

compound library was developed in these areas with several interesting

discovery hits and pre-clinical leads. Two new chemical entities in the

inflammatory and oncology areas are undergoing regulatory toxicology studies

and could be positioned for Phase I studies upon successful conclusion.

We are also undertaking the development and manufacture of an anti-

coagulant drug candidate initially discovered and developed through Phase I

by Merck & Co., Inc, US. We invested in Diakron Pharmaceuticals Inc, which has

an exclusive license agreement with Merck for the compound. Our investment

in Diakron will eventually result in majority control. The compound is a novel

investigational oral anticoagulant drug with considerable potential.

We also entered into a major collaboration and licencing agreement with

Merck & Co., Inc for the discovery of novel anti-infective drugs. Under the

agreement, Orchid will identify and develop novel anti-bacterial and anti-

fungal compounds as clinically validated drug candidates. We will undertake

discovery and candidate development through Phase II a human clinical trials.

Merck will consider late stage clinical development and subsequent

commercialisation based on regulatory approvals. The alliance with the global

pharma major for research-based novel discovery not only provides attractive

milestone and royalty payments but also enhances Orchid’s brand as an

innovation-led organisation.

The multi-pronged strategy of proprietary drug discovery, collaborative drug

discovery and fee-for-service projects will ensure that the risk-reward

equations inherent in the complex drug discovery processes are balanced for

optimal value.

CRAMSApart from generics and proprietary discovery initiatives, we are also

introducing our unique abilities of undertaking custom research and

manufacturing services to select innovator companies. Orchid, with its world-

class multi-therapeutic, R&D and manufacturing infrastructure and

competencies covering the total spectrum of pharmaceutical value chain, is

attractively positioned to undertake wide ranging development and

manufacturing projects covering discovery, optimisation, pre-clinical, clinical

and commercial supplies. Our strategy will be to work with fewer partners but

on a broader and deeper spectrum to provide a total complement of products

and services for such preferred partners.

We are now at the cusp of the next growth phase, which will result in

substantial business development and robust year-on-year growth across all

our high-value verticals.

I wish to take this opportunity to thank the shareholders and all our other

stakeholders for their continued support to our growth plans.

Regards,

K Raghavendra Rao

33Annual Report 2008-09

44 Orchid Chemicals & Pharmaceuticals Ltd.

Your Directors have pleasure in presenting the 17th Annual Report of your Company along with the audited statement of accounts for the financial year ended

March 31, 2009. The Report also includes the Management’s Discussion and Analysis Report in accordance with the guidelines on Corporate Governance and the

consolidated financial statements.

The highlights of the financial results for 2008-09 are given below

PerformanceDuring 2008-09, your Company achieved a turnover and operating income of

Rs. 1191.44 crore compared to Rs. 1238.92 crore in 2007-08. Earnings before

interest and tax (EBIT) was at Rs. 51.03 crore compared to Rs. 248.40 crore of

last fiscal.

After providing for interest expenses of Rs. 155.19 crore (Rs. 81.13 crore previous

fiscal) and depreciation of Rs. 129.97 crore (Rs. 97.67 crore previous fiscal), the

loss before tax of the Company was Rs. 36.85 crore, compared to the previous

year’s profit before tax of Rs. 238.54 crore. Net loss after tax stood at Rs. 52.17

crore, compared to the net profit after tax of Rs. 184.54 crore in the previous

fiscal. The profitability figures reflect the impact of adoption of the modified AS

11 accounting treatment and the impact of buyback (and cancellation) of

Foreign Currency Convertible Bonds (FCCBs) of the face value of US$37.80

million aggregate face value of the 2012 Bonds and US$2.25 million aggregate

face value of the 2010 Bonds, both at applicable discounts.

Your Company’s active pharmaceutical ingredients are increasingly being

supplied to the Company’s own generic formulations, representing an

integrated pharmaceutical operation.

Pharmaceuticals businessYour Company’s formulations business was at Rs. 627.49 crore during the fiscal,

compared to Rs. 682.50 crore in 2007-08. A large part of this business was

contributed by the US generics business. The consolidated turnover of all the

five divisions of the domestic formulations segment grew by 23.81% to

Rs. 92.78 crore compared to the previous financial year of Rs. 74.94 crore. Your

Company also sold Rs. 540.87 crore of active pharmaceutical ingredients (APIs)

during the fiscal, compared to Rs. 520.37 crore in the previous fiscal. This

excludes the captive sale to the Company’s formulations business.

DIRECTORS’ REPORT

(Rs. lakh)

Particulars Year ended March 31, 2009 Year ended March 31, 2008

Sales and operating income 119144.04 123891.62

Other income 2284.88 124.20

Total expenditure 103328.46 89408.94

Gross profit 18100.46 34606.87

Interest and finance charges 15518.60 8112.63

Gross profit after interest but before depreciation and taxation 2581.86 26494.24

Depreciation 12997.21 9766.78

Profit/(Loss) from ordinary activities before exceptional items (10415.35) 16727.46

Exceptional item 6730.53 7126.67

Profit / (Loss) before tax (3684.82) 23854.13

Provision for taxation

- Current and deferred tax 1371.65 5250.52

- Fringe benefit tax 161.00 150.00

Profit / (Loss) after tax (5217.47) 18453.61

Add: Surplus brought forward 8157.47 4010.15

Surplus available 2940.00 22463.78

Appropriations:

- Transfer to general reserve -- 12000.00

- Excess provision of dividend for earlier year written back (963.71) (1129.82)

- Dividend 915.84 2936.99

- Tax on distributed profits 155.65 499.14

Balance carried to balance sheet 2832.22 8157.47

55Annual Report 2008-09

A highlight of the performance this year includes the introduction of its

premium Piperacillin-Tazobactam injection product in Canada in distribution

partnership with Apotex and in Europe, Australia and New Zealand in

distribution partnership with Hospira based on respective regulatory approvals.

However, the regulatory approval for the product in the US is yet to be

accorded by US FDA due to the ongoing review of the innovator’s Citizen

Petition. The US generics business and the overall formulations business

turnover would have been higher had the Company received the approval for

this key injectable product. The review of the ANDAs for the product is however

making progress. Orchid has been impressing upon FDA the need to accord

speedy approval for the product.

DividendYour Directors recommend a 10% dividend (Re. 1 per equity share of Rs. 10

each) for the year ended March 31, 2009 subject to the approval of

shareholders at the ensuing Annual General Meeting. Under the Income Tax

Act, 1961, the receipt of dividend is tax-free in the hands of the shareholders.

Regulatory filings and approvalsYour Company achieved significant progress in the filing of DMFs (Drug Master

Files) and ANDAs (Abbreviated New Drug Applications). Till date, your Company

has filed 72 US DMFs and 58 ANDAs (29 in the cephalosporin segment, 21 in

NPNC (non-penicillin, non-cephalosporin) segment, 5 in the penicillin segment

and 3 in the carbapenems segment to support its US generics thrust. With 26

ANDAs for cephalosporin products already approved, the Company ranks the

highest in terms of approval record in the antibiotics space.

In the EU market, Orchid increased its dossier registrations and marketing

authorisations (MAs) to 29 (23 in cephalosporin segment, 3 in the NPNC

segment, 2 in the carbapenems segment and 1 in the penicillin segment). A few

dossiers are also in the advanced stages of submission.

The total count of ANDAs approved till date increased to 31, out of which 26

are in the cephalosporin segment and 5 in the NPNC segment.

AlliancesDuring 2008-09, your Company extended certain of its generics partnership

arrangements to include additional products and additional regions. These new

arrangements will provide significant revenue boost in the years to come.

During the year, your Company undertook the development and manufacture

of an anti-coagulant drug candidate initially discovered and developed through

Phase I by Merck & Co., Inc., USA (“Merck”). Towards this end, your Company

invested in Diakron Pharmaceuticals Inc. (“Diakron”), a US based drug discovery

and development company which has an exclusive license agreement with

Merck for the compound. This investment in Diakron, through a combination

of services and cash at competitive valuation, will eventually result in a

majority control for your Company.

Your Company and Merck & Co., Inc, USA, established a strategic research

collaboration and license agreement focused on the discovery, development

and commercialisation of novel agents for the treatment of bacterial and

fungal infections. Under this agreement, Orchid would discover and develop

New Chemical Entities (NCEs) upto Phase II (a) proof-of-concept stage beyond

which the NCEs will be developed through larger Phase II and Phase II(a)

human clinicals by Merck and commercialised based on regulatory approvals.

Your Company will receive success milestone linked payments and also

royalties upon commercialisation.

Your Company also strengthened its relationship with Pfizer, Inc. in both animal

health and human health fields in terms of a number of projects in Custom

Research and Manufacturing Services (CRAMS) domain.

Drug discoveryOrchid’s core proprietary programmes cover the areas of diabetes,

inflammation, oncology and anti-infective therapeutic programmes. Newer

programmes in obesity and CNS are being contemplated. Over 10 lead

compounds are in various stages of pre-clinical and clinical development. In the

area of inflammation, new compounds in PDE IV area are making progress

while in the oncology area new HDAC inhibitor compounds are showing

significant promise. It is proposed to take one lead each from these areas to

regulatory toxicology studies this year and position them for first-in-man

dosing studies next fiscal.

Orchid is also engaged in discussions with select innovator companies for

further collaboration arrangements and prospective licensing opportunities.

AwardsDuring the year, your Company’s sterile carbapenem API facility at Aurungabad

was conferred with the Facility of the Year 2009 award for Regional Excellence

by Interphex. Orchid was also facilitated with TERI Corporate Environmental

Award in appreciation of its efforts for source reduction of pollutants by

process transformation. The Company also received recognition for its

initiatives in the field of corporate social responsibility.

Intellectual propertyDuring the year, Orchid continued to accelerate the IPR work on a number of

products. The total number of patent applications filed by Orchid in various

national and international patent offices so far was 644 (including process,

formulation, NCE, NDDS, biotech and nanotech areas). As of March 31, 2009,

371 patent applications were published while 99 patents were granted

cumulatively.

GDRs and FCCBsYour Company issued FCCBs during November 2005, which were listed on the

Luxembourg Stock Exchange and during February 2007, which are listed on

the Singapore Exchange Limited. The FCCBs due in 2010 are termed 2010 Bonds

and those due in 2012 are termed 2012 Bonds.

In terms of the Reserve Bank of India’s A.P. (DIR Series) Circular No. 39 dated

December 08, 2008, the Company explored the possibilities of buying back the

FCCBs.

During the year, the Company bought back 2012 Bonds to the extent of

US$37.80 million and 2010 Bonds worth US$2.25 million at applicable

reasonable discounts. The total outstanding of 2010 Bonds after the buyback

was US$17.46 million and that of 2012 Bonds was US$137.20 million. The

status of FCCBs after the said buyback was as follows

66 Orchid Chemicals & Pharmaceuticals Ltd.

Description 2010 Bonds 2012 Bonds

FCCB value US$42.50 million US$175 million

Conversion into equity done so far US$22.79 million Nil

Redemption value (%) of the book value 147.17% 142.77%

FCCBs bought back so far 2.25 million 37.80 million

Issue of warrantsThe 50,00,000 warrants issued to Promoter/Promoter Group(s) in March 2007were convertible into equity shares within 18 months from the date ofallotment (i.e. till August 31, 2008).

During the year, 45,60,000 warrants were converted into shares, by the warrantholders. The Allotment Committee of the Board approved the conversions at itsmeetings held on August 13, 2008 and August 29, 2008. The balance 4,40,000warrants were not converted within the stipulated time. Hence, the 10%advance paid by the allottees on the unexercised warrants amounting to Rs. 89.14 lakh was forfeited.

Employees stock option planDuring the year, your Company allotted 31,300 equity shares of Rs. 10 each,pursuant to exercise of options granted under the ‘ORCHID - ESOP 1999’ and‘ORCHID - ESOP 2005’ schemes to the employees of the Company. The detailsof options granted to employees and the status of such options as on March31, 2009 are given in Annexure V to this Report.

Your Company also formulated a stock option plan viz., Orchid - ESOP 2007 forgrant of 5,00,000 options to the employees of subsidiary companies eitherworking in India or overseas, or a Director of the Company (excluding thePromoter Directors). The said scheme was approved by the shareholders at theAnnual General Meeting held on July 19, 2007. As of March 31, 2009, yourCompany did not grant any options under this scheme.

Listing of equity shares Your Company's equity shares are presently listed on the National Stock

Exchange of India Limited (NSE), Bombay Stock Exchange Limited (BSE) and the

Madras Stock Exchange Limited (MSE). The Company has got listing approval

from the above stock exchanges for the listing of 45,91,300 equity shares

issued during the year. The convertible bonds issued during 2005-06 are listed

on the Luxembourg Stock Exchange and the London Stock Exchange. The

convertible bonds issued by the Company during 2006-07 are listed on the

Singapore Stock Exchange.

Overseas joint venturesNCPC Orchid Pharmaceuticals Company Limited, ChinaYour Company’s 50:50 joint venture in China, NCPC Orchid Pharmaceuticals

established for manufacture of sterile cephalosporin APIs continued to perform

well. The joint venture is profitable with a significant sales turnover of

US$44.13 million during the year in the Chinese market. The Company

maintained its considerable share for its key injectable cephalosporin API

products in the Chinese markets.

SubsidiariesOrchid Research Laboratories Limited, India (ORLL) ORLL achieved progress in the therapeutic areas of anti-infective, anti-

inflammation, anti-cancer and anti-diabetes drug discovery. The new lead

molecules in inflammation and cancer areas are in various stages of discovery

and pre-clinical development. The selected molecules from the applicable

therapeutic areas will be taken up for GLP regulatory toxicology studies this

year and are likely to be taken up for human clinical studies during the next

fiscal.

ORLL established a world-class integrated infrastructure for discovery and

development of new drug candidates. Apart from pursuing own proprietary

drug discovery programmes, ORLL is also open to collaborate with innovative

companies and specialist discovery companies on their targets and programmes

to discover and develop new medicines to meet global healthcare needs. The

Company's state-of-the-art infrastructure, diversified NCE pipeline and

approach of strategic partnerships will make ORLL a formidable drug discovery

entity in the global pharma space.

Bexel Pharmaceuticals, Inc., USA (Bexel)In continuation of the planned work, Bexel, during the year, completed in

respect of its anti-diabetes molecule BLX-1002, Phase II (a) proof-of-concept

studies in human volunteers. Also studies conducted by a reputed overseas

research institute in animal models indicated certain underlying mechanistic

properties of the drug. An agreement was drawn up with the institute to

conduct further studies which will throw light on the mechanism of action of

this compound.

Orchid Pharmaceuticals, Inc. - USAOrchid Pharmaceuticals, Inc., is a wholly-owned Delaware-based subsidiary of

the Company and is also the 100% holding company of Orgenus Pharma, Inc.

Orgenus reported a satisfactory year in the US market. Orgenus continued to

support the Company in its current business relationships and also provided the

required services with respect to ground operations and regulatory processes.

It also continued to explore new strategic business expansion opportunities

for the Company.

Orchid Europe Limited, United Kingdom Orchid Europe Limited (OEL) was incorporated to support the generic foray into

the EU market. During 2008-09, the DCP application of Tazobactum Piperacillin

was successfully completed and the product was launched in the EU market in

distribution partnership with Hospira. OEL also received marketing

authorisations for its products in Italy and France. The Company’s partners also

received three marketing approvals for certain cephalosporin and non-

cephalosporin products.

During the year, OEL and the Company signed dossier licensing deals with

certain additional partners. OEL is well established on the path of supporting

the generics plans of Orchid in Europe.

Orchid Pharmaceuticals (South Africa) Pty Ltd., South AfricaYour Company’s wholly-owned subsidiary, Orchid Pharmaceuticals (SouthAfrica) Pty Ltd, was incorporated to register and market bulk drugs andformulations. As Orchid’s facilities were successfully audited by MCC andreceived the approval for cephalosporin and penicillin injectable dosage formfacilities, the registration activities of the South African subsidiary would behelpful.

Orchid Pharmaceuticals (South Africa) Pty Ltd received approval for a

7

cephalosporin injectable generic product. A number of cephalosporin products

were also submitted to the regulatory authority and the approvals in respect

of the same are awaited.

The Company entered into an exclusive marketing tie-up for five antibiotic

products with a local distribution partner. The dossiers for the same were

submitted to MCC and are at different stages of the registration process. The

Company reached an advanced stage of negotiations for marketing four

products from its non-antibiotic range. During the financial year 2009-10, the

Company expects to obtain few more approvals for its products, the dossiers

for which are already submitted.

Orchid Pharma Japan KKThe Company made good progress in finalising an initial basket of generic

dosage form products for Japan filings and developing detailed activity plans

for three prioritised injectable dosage form products targeted for filing in 2010.

In addition, a broader list of potential products was also developed, for

progressive development and filing. The Company is also exploring the

arrangements for API marketing.

Your Company received the approval under Section 212(8) of the Companies

Act, 1956, from the Ministry of Corporate Affairs seeking exemption from

attaching the Annual Report of subsidiary companies with the Annual Report

of the Company and to provide the accounts in the same manner as certified

by overseas auditors in the respective countries where the subsidiaries are

situated. The statement as required under Section 212 was prepared and the

same is given as part of the consolidated accounts in the Report.

The consolidated financial statements of the subsidiaries duly audited are

presented along with the accounts of your Company. The annual accounts of

subsidiary companies are kept at the Company’s registered office and also at

the respective registered office of the subsidiaries for inspection and shall be

made available to the members seeking such information.

Fixed depositThe Company did not accept any fixed deposits and as such, no amount of

principal or interest was outstanding as of the balance sheet date.

Directors’ responsibility statementIn accordance with the provisions of Section 217 (2AA) of the Companies Act,

1956, your Directors confirm:

That in preparation of the annual accounts for 2008-09, the applicable

accounting standards were followed along with proper explanation relating to

material departures, if any.

That the Directors selected such accounting policies and applied them

consistently and made judgments and estimates that were reasonable and

prudent so as to give a true and fair view of the state of affairs of the Company

at the end of the financial year (March 31, 2009) and of the profit or loss of

the Company for that period (2008-09).

That the Directors took proper and sufficient care to maintain adequate

accounting records in accordance with the provisions of the Companies Act,

1956, for safeguarding the assets of the Company and for preventing and

detecting fraud and other irregularities.

That the Directors prepared the annual accounts for 2008-09 on a going

concern basis.

Safety excellence journeyAt Orchid, safety is accorded the highest importance by the top management

and is cascaded all the way down. The Company formed a Central Safety

Committee (CSC) chaired by the Managing Director, which is responsible for

steering the Company on its safety excellence journey.

Continuous efforts with respect to safety, training and education are Orchid’s

commitment to the safety management programme. Orchid’s safety journey

includes not only employees but also contractors. A system of reporting and

investigating all near-miss incidents helps in preventing incidents by

identifying root causes and implementing the appropriate corrective and

preventive actions. Learnings from these incidents are shared with all

employees across locations.

Considerable progress was made in the process safety area also. Significant

numbers of scientists, engineers and operating personnel are trained in hazard

analysis and risk reduction techniques. Your Company made significant

progress in the safety excellence journey by competency building and

developing several safety standards and procedures and implementing them.

Corporate social responsibilityWith the mission of developing a sustainable society, Orchid Trust was

registered for the community development activities of Orchid. In recognition

of its activities, Tamil Nadu Government selected Orchid’s initiative as the best

Corporate Social Responsibility (CSR) initiative for the year 2008-09.

As a part of its CSR activities, Orchid established educational facilities in a

nearby village to cater to the needs of children. Orchid Trust intends to support

various educational activities.

Orchid also evolved strategies to prepare the unemployed rural youth to realise

their dreams. Activities like educational rally, sports events and women

empowerment by imparting income generating skills including skill training

like tailoring classes were also taken up.

Conservation of energyYour Company has always been striving hard in the field of energy

conservation. Several measures to conserve energy and to reduce associated

costs were taken during 2008-09 as well. The particulars in respect to

conservation of energy as required under Section 217 (1) (e) of the Companies

Act, 1956, are given in Annexure I to this Report.

Foreign collaborationThe particulars in respect of R&D/technology absorption, as required under

Section 217 (1)(e) of the Companies Act, 1956, are given in Annexure II to this

Report.

Foreign exchange earnings and outgoThe particulars in respect of foreign exchange earnings and outgo, as required

under Section 217 (1)(e) of the Companies Act, 1956, are given in Annexure III

to this Report.

Particulars of employeesInformation as per Section 217(2A) of the Companies Act, 1956, read with

7Annual Report 2008-09

88 Orchid Chemicals & Pharmaceuticals Ltd.

Companies (Particulars of Employees) Rules, 1975 forms a part of this Report.

However, as per the provisions of Section 219(1)(b)(iv) of the Companies Act,

1956, the report and accounts are being sent to all members of the Company

excluding the aforesaid information. Any member interested in obtaining a

copy of the particulars may write to the Secretary at the Company’s registered

office.

Corporate governanceThe spirit of good Corporate Governance remains integral to the Company’s

corporate philosophy. The Company follows the code of Corporate Governance

issued by the stock exchanges for listed companies. For 2008-09, all

information relating to Corporate Governance is given in Annexure IV to this

Report. A compliance certificate from the statutory auditors is appended to

this Report. General shareholders information is given in Annexure VI.

DirectorsResignation of Dr. Anzaghi Piergiorgio and Shri S. Andi

Dr. Anzaghi Piergiorgio, who has been a Director of Orchid, resigned from the

Board during October 2008. The Board places on record its appreciation for

the contributions made by Dr. Anzaghi Piergiorgio as a Director.

The IDBI Bank Limited withdrew the nomination of Shri S. Andi and nominated

Shri S. Jeyakumar as its nominee in his place. The Board places on record its

appreciation for the contribution made by Shri S. Andi and welcomes Shri S.

Jeyakumar.

Retirement of Directors by rotationIn accordance with the provisions of the Companies Act, 1956, and the Articles

of Association of the Company, Dr. I. Seetharam Naidu and Dr. M. R. Girinath

retire by rotation at the ensuing Annual General Meeting and being eligible

offer themselves for re-appointment.

AuditorsThe existing statutory auditors, M/s SNB Associates, Chartered Accountants,

retire at the forthcoming Annual General Meeting, and being eligible, offer

themselves for re-appointment.

Auditor’s report Note No. 30 in the notes on accounts of Schedule ‘Q’ to the Standalone

Financial Statements explains the point referred to in point 5(b) of the Auditor’s

Report on Standalone accounts.

Cost auditThe Central Government prescribed that an audit of the cost accounts

maintained by the Company in respect of bulk drugs and formulations be

conducted under Section 233B of the Companies Act, 1956. Consequently, your

Company appointed Shri V. Kalyanaraman, B.Sc., FICWA, as Cost Auditor for

2008-09, with the consent of the Central Government, for the audit of cost

accounts maintained by the Company in respect of both bulk drugs and

formulations.

AcknowledgementsYour Directors are thankful to the Bank of India, IDBI Bank Limited, State Bank

of India, Axis Bank Limited, ICICI Bank Limited, Indian Bank, Union Bank of

India, Allahabad Bank, Canara Bank, Punjab National Bank, Bank of Baroda

and other public sector and private sector banks and institutions for meeting

the long-term and working capital needs of the Company’s expanding

operations and also to the holders of FCCBs and GDRs for their support.

The Directors are grateful to the Central and State Governments and the

Central DCGI and State FDAs for their continued support to the Company’s

expansion plans. Your Board places on record its appreciation of the support

provided by the customers, suppliers and equipment vendors to the Company.

Your Directors are also thankful to the vendors, distributors and agents for

their continued support.

Your Directors are thankful to the esteemed shareholders for their support and

encouragement. The Directors acknowledge the commitment and contribution

of all employees to the growth of the Company.

For and on behalf of the Board

Place: Chennai R. NarayananDate: June 29, 2009 Chairman

Sl. Particulars Orchid Europe Orgenus Orchid Bexel Orchid Pharma Orchid Orchid

No. Limited, Pharmaceuticals Pharmaceuticals Pharmaceuticals Japan KK Pharmaceuticals Research

United Kingdom Inc., USA Inc., USA Inc., USA Japan SA (Proprietary) Laboratories

Limited Ltd., India

South Africa

Financial year of the April - March April - March April - March Jan-Dec April - March March - Feb April - MarchSubsidiary

£ Rs. $ Rs. $ Rs. lakh $ Rs. Jpy Rs. lakh S. A. Rs. Rs. Rs. lakh

lakh lakh lakh Rand lakh

1 Capital 10000.00 7.24 100000.00 50.65 200100 101.36 18374777 9307.28 30000000 153.98 230033 11.78 148766000 1487.66

2 Reserves (678158.00) (490.75) 55458.00 28.09 (896) (0.45) (23969611) (12141.21) (131542) (0.68) (204996) (10.50) (463756554) (4637.57)

3 Other Liabilities 832618.00 602.52 126526.00 64.09 -- -- 5780719 2928.08 135000 0.69 25 0.00 424430091 4244.30

4 Total Liabilities 164460.00 119.01 281984.00 142.83 199204 100.90 185885 94.16 30003458 153.99 25061 1.28 109439537 1094.40

5 Total Assets 164460.00 119.01 281984.00 142.83 199204 100.90 185885 94.16 30003458 153.99 25061 1.28 109439537 1094.40

6 Details of investment -- -- -- -- -- -- -- -- -- -- -- -- 59908750 599.09

7 Turnover 520014.00 376.31 710542.00 359.91 -- -- -- -- -- -- -- -- 24347088 243.47

8 Profit /(Loss) before Taxation (128403) (92.92) (27934.00) (14.15) (196) (0.10) (904527) (458.17) 3458 0.02 (118349) (6.06) (150134367) (1501.34)

9 Provision for Taxation 30752 22.25 5431.00 2.75 -- -- -- -- 135000 0.69 -- -- 625000 6.25

10 Profit /(Loss) after Taxation (97651) (70.67) (33365.00) (16.90) (196) (0.10) (904527) (458.17) (131542) (0.68) (118349) (6.06) (150759367) (1507.59)

11 Proposed Dividend -- -- -- -- -- -- -- -- -- -- -- -- -- --

12 The net aggregate of profit/(loss) for the current period of the Subsidiary so far as it concerns the members of the holding Company

a) Dealt with or (70.67) (16.90) (0.10) (458.17) (0.68) (6.06) (1,507.59)provided for in the accounts of the holding company

b) Not dealt with Nil Nil Nil Nil Nil Nil Nil or provided for in the accounts of the holding company

13 The net aggregate of profit/(loss) for previous financial years of the Subsidiary so far as it concerns the members of the holding company

a) Dealt with or provided (356.65) 35.07 7.09 (5,133.81) (0.68) (4.66) (3,129.97)

for in the accounts of

the holding company

b) Not dealt with or Nil Nil Nil Nil Nil Nil Nil

provided for in the

accounts of the

holding company

Note:i) Indian equivalent of figures have been arrived at by applying the year end rate 1£ = Rs. 72.365, 1 South African Rand = Rs. 5.12, 1 Japanese Yen = Re.0.51 and 1US$ = Rs. 50.65 and do not form part of the reports of OrchidEurope Limited, Orchid Pharmaceuticals Inc., Bexel Pharmaceuticals Inc., Orchid Pharma Japan KK and Orchid Pharmaceuticals SA (Proprietary) Limited

ii) Holding Company’s interest is as stated in the Schedule Q Notes to accounts 26(a).

iii) Shares held by the holding company in the subsidiary is as stated in the Schedule E of the audited accounts

99Annual Report 2008-09

STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956, RELATING TO SUBSIDIARY COMPANIES

On behalf of the BoardK. Raghavendra Rao

Managing Director

Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduDeputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

1010 Orchid Chemicals & Pharmaceuticals Ltd.

Year ended March 31, 2009 Year ended March 31, 2008A Power and fuel consumption1 Electricity

a) PurchasedUnit 89802147 62438009Total amount (Rs. lakh) 3372.83 2502.89Rate per unit (Rs.) 3.76 4.01

b) Own generationi) Through diesel generator

Units 5709853 4626973Units per litre of diesel oil 3.28 3.45 Cost per unit (Rs.) 9.09 7.52

ii) Through furnace oil generatorUnits 8049144 31431684Units per litre of fuel oil 4.24 4.25 Cost per unit (Rs.) 5.48 3.98

2 CoalQuantity (tonnes) 15944.20 NilTotal cost (Rs. lakh) 693.65 NilAverage rate per tonne (Rs.) 4350.50 Nil

Information under Section 217(1)(e) of the Companies Act, 1956, read with

Companies (Disclosure of Particulars in the Report of Board of Directors) Rules,

1988 and forming part of Directors’ Report for the year ended March 31, 2009.

Annexure I – Conservation of Energya) Energy conservation measures takenThe following energy conservation measures were taken at the manufacturing

plants :

Utilisation of grid power and wheeling instead of captive power plant

resulted in reduction of cost/unit by 10%

The coal fired boiler was commissioned. Oil fired boiler was less utilised and

kept as a stand-by. This resulted in an appreciable reduction in the

cost/tonne of steam

Energy efficient compact fluorescent lamps were installed

For condensing solvent vapors, CT water was used instead of “+10” water

Air cooled screw chillers were replaced by water cooled centrifugal ones,

resulting in 10-15% reduction in specific energy consumption

The chiller set points were optimised to save energy

Reduction of effluents by usage of water from sparkler filter and hot water

In-house process development resulted in reduction of solvent/water

quantity, thereby reducing energy consumption in recovering solvents

Conversion of batch distillation to continuous distillation to avoid the batch

start/stop energy losses

Timers were installed in selected blowers to optimise the energy

consumption

By active energy conservation awareness campaign, 30 suggestions were

implemented, resulting in savings of Rs. 25 lakh

b) Additional investments and proposals, if any, being implementedfor reduction of consumption of energySome proposals that are considered / being implemented for saving energy

are:

Implementation of feasible energy conservation suggestions selected from

employee suggestion scheme, with a saving potential of around Rs. 100 lakh

Reduction of effluents, by reusing the evaporator condensate as the make-

up water for chiller cooling towers

Reduction of steam consumption in the effluent treatment plants

Minimising the usage of energy intensive solvents to reduce the energy

consumption

Using CT water instead of energy intensive +10 water for condensing

solvents

Routine energy audits to avoid avoidable losses like air and nitrogen leaks,

among others

c) Impact of the measures (a) and (b) above for reduction of energyconsumption and consequent impact on the cost of production ofgoodsDue to the various energy conservation activities implemented, mentioned in

(a) above, there was a reduction in power consumption by around 20,000 units

per day and 33 tonnes of steam per day, leading to a saving of around

Rs. 1,119 lakh annually which includes benefits of coal fired boiler.

Further, the energy conservation measures proposed to be taken up by the

Company as mentioned in (b) above are expected to bring in savings of around

Rs. 490 lakh annually.

d) Total energy consumption and energy consumption per unit of production

ANNEXURE TO THE DIRECTORS’ REPORT

1111Annual Report 2008-09

Year ended March 31, 2009 Year ended March 31, 20083 Furnace oil

Quantity (KL) 10775.15 21784.32

Total cost (Rs. lakh) 2684.10 3698.85

Average rate (Rs. per KL) 24910.06 16979.41

4 Others / internal generation

i) Windmills *

Quantity (in units) 1401063 1599451

Cost per unit (Rs.) 2.70 2.70

ii) Gas based *

Quantity (in units) 38592091 26060118

Cost per unit (Rs.) 2.85 2.95

B Consumption per unit of production

Products with details

Bulk drugs - oral and sterile (in MT) 688 680

Electricity (Rs. lakh per MT) 5.11 5.02

Furnace oil (Rs. lakh per MT) 3.62 5.25

Coal (Rs. lakh per MT) 1.01 Nil

Others Nil Nil

* Units generated are wheeled to our manufacturing facilities

Annexure II - Technology AbsorptionI. Research and Development1. Specific areas in which research and development activities have beencarried out by the Company during the year. The Company carries out research and development in the areas of

Cephalosporins and Carbapenems as well as Non-Penicillin, Non-Cephalosporin

(NPNC) products.

R&D also works on the cost reduction of various molecules to continue to stay

competitive in the dynamic international markets.

Orchid’s process research division has also undertaken a custom research

project for a major MNC, to carry out synthesis of NCEs (New Chemical

Entities) required for its Drug Discovery Project. R&D has also undertaken

development of manufacturing technology for a new drug substance for

subsequent collaborative supply to the innovator. In another important project,

R&D has carried out the synthesis and profiling of impurities for a Japanese

Company.

R&D has also undertaken CRAMS project on betalactams and supplied

Kilogram quantities of a monobactam made as per customer’s requirement.

2. Benefits derived as a result of the above R&D activities.Cost reduction processes developed for various molecules would provide

competitive advantage and bring in financial benefits to the Organization in

several regulated and emerging markets.

New molecules developed under custom research project would strengthen

the relationship with the MNCs’ discovery units.

New products developed and implemented in respective manufacturing

locations on betalactam class of drugs would help in filing the dossiers with

regulatory agencies in various potential markets, for subsequent approval and

business development.

The development of manufacturing technology for a new drug substance would

position the Company formidably in partnering the innovator on value chain

development.

New filings in Japan or preparations for filing in Japan are achieved with the

studies and developments made at R&D. Initiatives with Japanese Companies

in the CRAMS area will lead to progressive toeholds in this challenging market.

3. Future plan of action.

It is proposed to continue development of new generic APIs, with new non-

infringing patentable processes, to support generics thrust. Emphasis will be

placed on high quality cost-effective development with a goal of faster time-

to-market.

It is also proposed to take up more Custom Research Projects from Innovator

companies and establish relationships for developing CRAMS and discovery

projects in different therapeutic groups.

The biotech group has been focusing on biotransformation technologies for

more efficient manufacture of intermediates and APIs. The group could

commercialize the enzymatic manufacture of select APIs which not only

improved the overall yield but also reduced level of effluent generation.

Several technologies are in advanced stages of development and which would

elevate biotech contribution significantly and facilitate effective environmental

management. Biotech group has broadened its focus recently on NPNC

molecules in addition to Ceph APIs. Effective advancement of these initiatives

and technologies would enhance the innovative profile of our organization.

1212 Orchid Chemicals & Pharmaceuticals Ltd.

b) Total foreign exchange earnings and outgo (Rs. lakh)

Year ended March 31, 2009 Year ended March 31, 2008

1. Earnings in foreign exchange during the year

F.O.B value of exports 93202.59 100855.60

Export of services (net of TDS) 2714.89 4123.10

2. C.I.F. value of imports (on cash basis)

Raw materials 28214.51 19598.04

Capital goods 8175.49 7064.07

Spare parts, components and consumables 5953.24 4174.66

3. Expenditure in foreign currency during the year (on cash basis)

Travelling expenses 256.23 139.12

Interest and bank charges 2071.04 783.07

Consultancy fees 1899.67 1431.43

Royalty / technical knowhow 103.93 201.50

Others 3277.12 3130.60

4. Dividend remittances in foreign currency during the year

Net dividend 105.45 425.68

5. Total foreign exchange used (2+3+4) 50056.68 36948.17

4. Expenditure on R&D

The R&D outlay was as follows

(Rs. lakh)

Year ended Year ended March 31, 2009 March 31, 2008

a) Capital 812.15 2564.00

b) Recurring 4633.46 4519.07

c) Total 5445.61 7083.07

d) Total R&D expenditure as a 4.53% 5.67%

percentage of the total turnover

II Technology absorption, adaptation and innovationI. Research and Development1. Efforts in brief, made towards technology absorption, adaptation andinnovation.

Orchid has established considerable in-house strengths in the areas of its

research with enhanced capabilities which add value in the global research

arena. World-class infrastructure has been established for the purpose.

Chemistry, Biology and other disciplines are reinforced from time to time.

Orchid’s research personnel attend overseas conferences periodically to

showcase their developments and also to gain insights into contemporary

scientific and technological developments. They are also encouraged to patent

their inventions and publish their works, where appropriate.

2. Benefits derived as a result of the above efforts, e.g. product improvement,cost reduction, product development, import substitution, etc.

As a result of the various R&D and technology innovation efforts, your

Company has been able to develop over 25 APIs in various therapeutic areas

in R&D and upscale then in various API plants. An increasing number of them

have been in the areas of lifestyle diseases covering pain management,

cardiovascular, central nervous system, anti-emetic, anti-diabetic and other

categories. Several formulations have also been developed covering these areas.

The Company has also conducted custom research and pre-clinical/clinical

supply activities for multinational companies. Research in biotechnology has

been helpful in introducing certain cost-effective and environmental friendly

processes in the API field.

3. Imported technology (imported during the last 5 years reckoned fromthe beginning of the financial year):

a) Technology No new technology has been

imported by Orchid during

the year.

b) Year of import Not applicable.

c) Has this technology been fully absorbed Not applicable.

d) If not fully absorbed, areas where this Not applicable.

has not taken place, reasons thereof

and future plans of action.

Annexure III - Foreign exchange earnings & outgoa) Activities relating to exports, initiatives taken to increase exports,development of new export markets for products and services, and exportplans.

With an emphasis on the regulated generic markets, the Company is focusing

in an increasing measure on the sale and distribution of APIs and generics in

regulated markets including the United States, Canada, Europe, Japan, and

Australia, as applicable.

1. Company's philosophy on code of CorporateGovernanceOrchid has been committed to high standards of Corporate Governance

practices. The Company believes that a sound Corporate Governance policy

drives healthy business growth and is an important instrument of enhancing

investor confidence. Orchid complies with the Corporate Governance code

enshrined in Clause 49 of the Listing Agreement.

2. Board of DirectorsThe Chairman of the Board of Directors is a Non-Executive, Independent

Director. The Board has a composition of two Executive Directors and six Non-

Executive Directors. Four out of eight Directors are Independent Directors.

Composition and category of Directors as of March 31, 2009 was as follows:

1313Annual Report 2008-09

CORPORATE GOVERNANCE REPORTAnnexure IV to the Director’s Report

Sl Name(s) of Director(s) Category Number of Directorships Number of Board Committee

no. held in other Indian companies @ memberships held in other companies*

1 Shri R. Narayanan Non-Executive – Independent 11 5

2 Shri K. Raghavendra Rao Promoter and Executive Director 1 None

3 Dr C. Bhaktavatsala Rao Executive Director 1 None

4 Dr M. R. Girinath Non-Executive – Independent None None

5 Dr I. Seetharam Naidu Non-Executive – Independent None None

6 Shri S. Jeyakumar Non-Executive – Independent

(IDBI Nominee) None None

7 Shri Deepak Vaidya Non-Executive 6 5

8 Shri Anil Thadani / Non-Executive

Shri Raj Rajkumar is an Alternate 1 None

Director to Shri Anil Thadani

@ Excludes foreign companies, private limited companies and alternate directorships. * Includes only membership in Audit and Investor Grievance Committee.

None of the Directors are related to each other.

Board meetingsAttendance Record of the DirectorsFive Board meetings were held during the year from April 01, 2008 to March 31, 2009. The dates on which the meetings were held were April 13, May 29, July

30, and October 30 in 2008 and on January 28, 2009. The attendance records of all Directors are as under:

Name(s) of Director(s) Number of Board meetings Last AGM attendance

Held Attended

Shri R. Narayanan 5 5 Present

Shri K. Raghavendra Rao 5 5 Present

Dr C. Bhaktavatsala Rao 5 4 Present

Dr M. R. Girinath 5 4 Present

Dr I. Seetharam Naidu 5 5 Present

Shri Deepak Vaidya 5 2 Present

Shri Subramanian Andi1 3 2* Not present

Shri S. Jeyakumar1 2 2 Not present

Dr Anzaghi Piergiorgio2 3 1 Not present

Shri Anil Thadani / Shri Raj Rajkumar 5 4 Not present

1 Industrial Development Bank of India Limited (IDBI) withdrew the nomination of Shri Subramanian Andi and appointed Shri S. Jeyakumar, as its nominee on

the Board with effect from September 08, 2008.

2 Resigned from the Board with effect from October 03, 2008.

* At the request of IDBI, Shri A. U. Ashok Katara attended the meeting held on July 30, 2008 on behalf of Shri Subramanian Andi

1414 Orchid Chemicals & Pharmaceuticals Ltd.

3. Audit CommitteeThe Company constituted an Audit Committee consisting of Non-Executive

Directors during 1998. The terms of reference of the Audit Committee include

a. Review of:Financial statements before submission to the Board

Draft financial statements and Auditors' Report (before submission to theBoard)

Accounting policies and practices

Risk management policies and practices

Compliance with stock exchange and legal requirements concerningfinancial statements

Related party transactions

The internal control systems and internal audit reports and their compliancethereof

Compliance with accounting standards, and

b. Recommending the appointment of auditors and fixing their fee.Four meetings were held during the year from April 01, 2008 to March 31,

2009 i.e on May 29, July 30, October 30 in 2008 and on January 28 in 2009.

The constitution of the Committee and the attendance of each member of the

Committee as on March 31, 2009 are given below:

Name Category Number of meetings

Held Attended

Shri R. Narayanan, Non-Executive 4 4

Chairman – Independent

Dr M. R. Girinath Non-Executive 4 3

– Independent

Dr I. Seetharam Non-Executive 4 4

Naidu – Independent

Shri Deepak Vaidya* Non-Executive 4 3

Shri Subramanian Non-Executive 2 1@

Andi1 – Independent

Shri S. Jeyakumar1 Non-Executive 2 2

– Independent

* Shri Raj Rajkumar attended the meeting held on January 28, 2009 on behalf

of Shri Deepak Vaidya

@ At the request of IDBI, Shri A. U. Ashok Katara attended the meeting held

on July 30, 2008 on behalf of Shri Subramanian Andi

1 Industrial Development Bank of India Limited (IDBI) withdrew the

nomination of Shri Subramanian Andi and appointed Shri S. Jeyakumar, as

its nominee on the Board with effect from September 08, 2008.

The Chairman of the Audit Committee, Shri R. Narayanan was present at the

Annual General Meeting of the Company held on September 29, 2008.

The Company Secretary is the Secretary of the Audit Committee.

4. Remuneration CommitteeThe Remuneration Committee determines and recommends the remuneration

payable to the Executive Directors on the basis of their performance as well as

Company’s performance, subject to consents as may be required.

The Non-Executive Directors are not paid any remuneration except for the

sitting fees for attending the Board meetings /Committee meetings.

The remuneration to the Executive Directors comprises a fixed salary and other

perquisites. The leave travel allowance is paid as per the Company rules.

Provident Fund and Superannuation are provided for as per the Company's

policy. Wherever applicable the perquisites are considered a part of

remuneration and taxed as per Income Tax laws. The commission recommended

by the Remuneration Committee to the Board is paid to the Managing Director

in accordance with the provisions of the Companies Act, 1956.

The Remuneration Committee comprises Shri R. Narayanan, Chairman, Dr M.

R. Girinath, Dr I. Seetharam Naidu, Shri Deepak Vaidya and Shri S. Jeyakumar,

all Non-Executive Directors. The Committee deals with all elements of

remuneration package, stock options, service contracts, etc. of all whole-time

directors. One meeting of Remuneration Committee was held during the year

2008-09 on May 29, 2008 and all the members of the committee attended

the meeting.

Details of remuneration paid to Directors for the year 2008-09 are given below:

(Rs. lakh)

Name(s) of Director(s) Remuneration paid during the year 2008-09

Salary Commission/ Sitting Totalbonus / fees

incentive

Shri R. Narayanan,

Chairman – – 5.40 5.40

Shri K. Raghavendra

Rao 202.57 0.10 – 202.67

Dr C. Bhaktavatsala

Rao 140.67 0.10 – 140.77

Dr M. R. Girinath – – 2.20 2.20

Dr I. Seetharam Naidu – – 2.80 2.80

Shri Deepak Vaidya – – 1.00 1.00

Shri Subramanian Andi,

Nominee – IDBI1 – – 0.80 0.80*

Shri S. Jeyakumar,

Nominee – IDBI1 – – 0.80 0.80*

Dr Anzaghi Piergiorgio2 – – 0.20 0.20

Shri Anil Thadani /

Shri Raj Rajkumar – – 1.00 1.00

* Sitting fees of Rs. 1.60 lakh paid directly to IDBI Limited.

1 Industrial Development Bank of India Limited (IDBI) withdrew thenomination of Shri Subramanian Andi and appointed Shri S. Jeyakumar, asits nominee on the Board with effect from September 08, 2008.

2 Resigned from the Board with effect from October 03, 2008.

1515Annual Report 2008-09

8. Details of Annual/Extraordinary General meetingsLocation and start time of the General Meetings held in the past three years

Year AGM / EGM Location Special resolutions passed Date Time

2008 AGM Kalaignar Arangam 1. Reappointment of September 29, 2008 10.00 AM

“Anna Arivalayam” Deputy Managing Director

367-369, Anna Salai

Teynampet

Chennai – 600 018

The Company has made an application to Central Government to approve the

remuneration paid to the Managing Director and Deputy Managing Director,

as the minimum remuneration payable, on account of inadequacy of profits, for

the Financial Year 2008-09. Approval is awaited.

The shares held by Directors as on March 31, 2009 are given below:

Name(s) of Director(s) Number of Shares

Shri R. Narayanan 26,697

Shri K. Raghavendra Rao 69,25,173

Dr C. Bhaktavatsala Rao 15

Dr M. R. Girinath 4,80,934

Dr I. Seetharam Naidu 3,32,430

Shri Deepak Vaidya Nil

Shri S. Jeyakumar Nil

Shri Anil Thadani Nil

Shri Raj Rajkumar 70,000

5. Compensation CommitteePursuant to the SEBI (Employee Stock Option Scheme and Employee StockPurchase Scheme) Guidelines, 1999, a Compensation Committee wasconstituted in 1999 to consider the following:

1. Quantum of options to be granted to each employee and in aggregate.

2. The conditions under which options vested in employees may lapse in caseof termination of employment due to misconduct.

3. The exercise period within which the employee should exercise the optionand that option would lapse on failure to exercise the option within theexercise period.

4. The specified time period within which the employee shall exercise thevested options in the event of termination or resignation of an employee.

5. The right of an employee to exercise all the options vested in him at onceor at various points of time within the exercise period.

6. The procedure for making a fair and reasonable adjustment to the numberof options and to the exercise price in case of rights issue, bonus issues andother corporate actions.

7. The grant, vest and exercise of option in case of employees who are on longleave.

8. The procedure for cashless exercise of options, if any.

The Compensation Committee comprises Shri R. Narayanan, Shri K.Raghavendra Rao and Shri Subramanian Andi and the Committee met once

during the year 2008-09 on April 26, 2008 to discuss and revise the exerciseperiod of options granted from two to three years under Employee Stock OptionSchemes 1999 and 2005.

6. Allotment CommitteeThe Allotment Committee of the Board was constituted in 2001. The purpose

of this committee is to consider allotment of equity shares whenever the need

arises. The Committee comprises Shri R. Narayanan, Shri K. Raghavendra Rao,

Dr C. Bhaktavatsala Rao, Dr M. R. Girinath and Dr I. Seetharam Naidu. The

Committee met four times during the year from April 01, 2008 to March 31,

2009, on April 26, May 29, August 13 and August 29 in 2008 to discuss and

consider the allotment of equity shares under Employee Stock Option 1999

and 2005 Schemes and to discuss and consider the allotment of equity shares

on conversion of warrants issued to promoters.

7. Share Transfer and Investor’s Grievance CommitteeThe Company’s shares are compulsorily traded in dematerialised form. During

the year 2008-09, the Committee met 12 times to consider the transfers in the

physical segment.

Name(s) of Director(s) Number of meetings

Held Attended

Shri R. Narayanan, Chairman 12 12

Shri K. Raghavendra Rao 12 12

Dr C. Bhaktavatsala Rao 12 11

The Board has designated Smt. Bhoomijha Murali, Company Secretary as the

Compliance Officer.

The following table shows the nature of complaints received from shareholders

during 2008-09 and 2007-08, all of which were responded within one month.

Sl. Nature of complaints Received and answered

no. 2008-09 2007-08

1. Non-receipt of share certificates sent 9 13

for transfer/bonus shares

2. Non-receipt of dividend warrants 25 20

3. Complaints from SEBI, Stock exchanges 6 3

and Government departments

Total 40 36

Year AGM / EGM Location Special resolutions passed Date Time

2007 AGM Kamaraj Memorial Hall 1. Reappointment of Managing Director July 19, 2007 10.30 AM

New No.492 2. Revision in the salary of Deputy Managing Director

Old No.573, 574-A 3. Alteration of Articles of Association

Anna Salai 4. ORCHID ESOP 99 Scheme – Variation in terms by revising the price

Chennai – 600 006 5. Employee stock option scheme – 2007

2007 EGM Kamaraj Memorial Hall 1. Issue of warrants convertible into equity February 14, 2007 10.00 AM

New No.492

Old No.573, 574-A,

Anna Salai

Chennai – 600 006

2006 AGM Kamaraj Memorial Hall 1. Raising of long term funds June 02, 2006 10.00 AM

New No.492 2. Alteration of Memorandum of Association

Old No.573, 574-A 3. Alteration of Articles of Association

Anna Salai

Chennai – 600 006

All the resolutions including the special resolutions set out in the respective notices were passed by the shareholders unanimously.

None of the resolutions passed at the above meetings were required to be passed through postal ballot.

Postal ballotThe Board of directors at their meeting held on January 28, 2009 proposed to conduct postal ballot for obtaining the approval of the shareholders under Section

293 (1)(a) & (d) with respect to the increase in the borrowing powers and the power to create mortgage in favour of the lending institutions.

Ms. S. Lalitha, MA, BGL, FCS, practising Company Secretary, acted as Scrutiniser for conducting the postal ballot process in a fair and transparent manner. Both

the resolutions were approved by the members as ordinary resolutions and the postal ballot result in respect of the same was declared by the Chairman on March

07, 2009, in terms of the rules. Following was the voting pattern in respect of the above resolutions :

Particulars Resolution number 1 Resolution number 2

Total number of postal ballot forms received 1370 1370

Total number of votes polled 26066749 26066749

Number of invalid votes 8557 8557

Number of valid votes 26058192 26058192

Votes and percentage in favour of the resolution 25753220 (98.83%) 25747117 (98.81%)

Votes and percentage against the resolution 304972 (1.17%) 311075 (1.19%)

9. Disclosures- No transaction of material nature conflicting with the Company’s interest

was entered into by the Company with related parties i.e. Company’s

subsidiaries, Directors or management or relatives.

- Transactions with the related parties are disclosed in Note 16 of Schedule “Q”

to the financial statements in the Annual Report.

- There were no instances of non-compliance by the Company on any matter

related to capital markets during the preceding three years. Hence, there were

no penalties, strictures imposed by SEBI / Stock Exchanges or any other

statutory authorities against the Company.

- Presently the Company does not have a whistleblower policy. No employee

has been denied access to approach the Audit Committee to report any serious

concerns.

- No differential treatment from the accounting standards was followed in

preparation of the financial statements of the Company.

- The Company complies with all mandatory requirements and also adopted

some of the non-mandatory requirements as detailed below.

10. Means of communication- Financial results are published by the Company in Business Standard,

Dinamani, Financial Express and Makkal Kural.

- Results are also displayed in URL www.orchidpharma.com. Official news

releases are also updated in the site.

1616 Orchid Chemicals & Pharmaceuticals Ltd.

- Presentations made during the year are available on the Company’s website

www.orchidpharma.com.

- The Company has an internal news magazine called ECHO.

- Key developments are communicated to the Stock Exchanges and media as

and when they occur.

11. General shareholder information and Management’sdiscussion and analysis Appended to this Report.

12. CEO / CFO certificationAs required under Clause 49 of the Listing Agreement, a certificate duly signed

by CEO, Shri K. Raghavendra Rao and CFO, Shri S. Krishnan was placed at the

meeting of the Board of Directors held on June 29, 2009.

13. Auditors certificate on compliance of conditions ofCorporate GovernanceCertificate from the Auditors is enclosed along with this Report.

Non-mandatory requirements1. Chairman’s officeThe Company maintains an office for the Chairman at its registered office at

‘Orchid Towers’, 313, Valluvarkottam High Road, Nungambakkam, Chennai –

600 034, Tamil Nadu, India and also reimburses the expenses incurred in

performance of his duties.

2. Remuneration CommitteeThe Company constituted a Remuneration Committee. The terms of reference

of the Committee are described at Serial No.4 herein above.

3. Compensation CommitteeThe Company constituted a Compensation Committee. The terms of reference

of the Committee are described at Serial No.5 herein above.

4. Allotment CommitteeThe Company constituted an Allotment Committee. The terms of reference of

the Committee are described at Serial No.6 herein above.

5. Shareholders’ rightsThe quarterly financial results are published in the newspapers as mentioned

in Serial No.10 above. The results are also displayed on the Company’s website.

The Board of Orchid Chemicals & Pharmaceuticals Limited laid down a code of conduct for all Board members and senior management. The code of conduct has

been posted in the Company’s website www.orchidpharma.com. All the Board members and the senior management affirmed compliance to the code for the year

2008-09.

Place: Chennai K. Raghavendra RaoDate: June 29, 2009 Managing Director

17

CODE OF CONDUCT CERTIFICATION

17Annual Report 2008-09

To

The Members of

ORCHID CHEMICALS & PHARMACEUTICALS LIMITED

We have examined the compliance of conditions of Corporate Governance by

Orchid Chemicals & Pharmaceuticals Limited (the Company), for the year ended

on March 31, 2009, as stipulated in Clause 49 of the Listing Agreement of the

said Company with the stock exchanges.

The compliance of conditions of Corporate Governance is the responsibility of

the management. Our examination was limited to procedures and

implementation thereof, adopted by the Company to ensure compliance with

the conditions of the Corporate Governance. It is neither an audit nor an

expression of opinion on the financial statements of the Company.

In our opinion and to the best of our information and according to the

explanations given to us, we certify that the Company has complied with the

conditions of Corporate Governance as stipulated in Clause 49 of the above-

mentioned Listing Agreement.

We further state that such compliance is neither an assurance as to the future

viability of the Company nor the efficiency or effectiveness with which the

management has conducted the affairs of the Company.

For SNB ASSOCIATESChartered Accountants

Place: Chennai (B. Mahalingam)Date: June 29, 2009 Partner

Membership No. 210408

AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE

ANNEXURE V TO DIRECTORS' REPORT DETAILS OF OPTIONS GRANTED TO EMPLOYEES UNDER ORCHID – ESOP 1999 &ESOP 2005 SCHEME.

1818 Orchid Chemicals & Pharmaceuticals Ltd.

Options granted ORCHID – ESOP 1999 Scheme

During 2006-2007, 300,000 options were granted

In the year 2005-2006, 292,075 options were granted

In the year 2003-2004, 307,925 options were granted

In the year 1999-2000, 600,000 options were granted

ORCHID – ESOP 2005 Scheme During 2006-2007, 610,000 options were granted

The above Options are convertible into equity shares of Rs. 10/- each.

The pricing formula The price being the closing price of shares of Orchid on the date on which the options were grantedby the Compensation Committee of the Board of Directors.

ORCHID – ESOP 1999 Scheme

2006-2007 - Rs. 339.25 *

2005-2006 - Rs. 300.65

2003-2004 - Rs. 252.00

1999-2000 - Rs. 243.35

Subsequent to the Bonus Issue, the number of options outstanding and the price were adjusted by

the Board. Accordingly, the revised price applicable for the options allotted during various years prior

to bonus issue were revised as follows:

2005-2006 – Rs. 200.44

2003-2004 – Rs. 168.00

1999-2000 – Rs. 162.24

* For the options granted during April 2006 at a price of Rs. 339.25, the Compensation Committee

has revised the price of the options from Rs. 339.25 to Rs. 193.25 (as per the closing price of Orchid’s

scrip on August 11, 2006, being the date of Compensation Committee Meeting in which repricing was

considered), and the same was approved by the shareholders at the Annual General Meeting held on

July 19, 2007.

ORCHID – ESOP 2005 Scheme2006-2007 – Rs. 193.25

Options Vested during the year Nil under 1999 Scheme

Nil under 2005 Scheme

Options exercised during the year 31,300 options (including the adjusted options that were exercised by the employees,

subsequent to the Bonus issue)

Total no. of shares arising out of Exercise of options 31,300 shares

Options lapsed 1,416,226 options (748,910 options have lapsed out of the original 1,500,000 options granted and

147,241 options have lapsed out of the options arising out of the adjustment due to bonus issue,

under Orchid ESOP 1999 Scheme. 520,075 options have lapsed under Orchid ESOP 2005 Scheme.)

1919Annual Report 2008-09

Variations of terms of Options ORCHID ESOP 1999 Scheme

An adjustment in share price/the number of options outstanding was made by the Company in respect

of the Employee Stock Options granted but not exercised by the Employees due to the issue of bonus

shares during October 2005. Accordingly, the total numbers of options outstanding (so as to be

multiplied by 3/2) as well as the price at which each option may be exercised (so as to be multiplied

by 2/3) were adjusted.

For the 300,000 options granted during April 2006 at a price of Rs. 339.25, the Compensation

Committee of the Board of Directors revised the price of the options in the interest of the employees,

due to the fall in the price of the shares of the Company and accordingly approved a repricing of the

options from Rs. 339.25 to Rs. 193.25 as per the closing price of Orchid at National Stock Exchange

on August 11, 2006, and the same was approved by the shareholders at the Annual General Meeting

held on July 19, 2007.

Total no. of options in force 1,010,478 options are in force.

Employee wise details of options granted to

i) Senior Managerial Personnel No options were granted to Senior Managerial Personnel during the year.

ii) Employees holding 5% or more of the total number of options granted during the year NIL

iii) Employees who were issued shares equal to or exceeding 1% of the issued capital NIL

Consideration received against the no. of shares issued during the year Rs. 62.40 lakh

Earnings per share (Diluted) Rs. (7.61)

Where the Company has calculated the employee The Company has granted the options to the employees on the closing price of shares of Orchid on

compensation cost using the intrinsic value of the November 22, 1999, January 20, 2004, April 27, 2005 & April 28, 2006 under ORCHID ESOP-1999

stock options, the difference between the employee Scheme and on August 11, 2006 under ORCHID ESOP-2005 Scheme and not on the intrinsic value.

compensation so computed and the employee Hence, the difference between the employee compensation and the employee compensation cost

compensation cost that shall have been recognized that shall have been recognized if it had used the fair value of the options, may not be applicable.

if it had used the fair value of the options, shall be disclosed. The impact of this difference on profits and on EPS of the Company shall also be disclosed.

Weighted – average exercise price The weighted average exercise price (26 weeks preceding the date of grant) was Rs. 183.42 for the

options granted on November 22, 1999, Rs. 199.31 for the options granted on January 20, 2004,

Rs. 299.30 for the options granted on April 27, 2005 and Rs. 282.14 for the options granted on April

28, 2006 under ORCHID ESOP-1999 Scheme and Rs. 267.89 for the options granted on August 11,

2006 under ORCHID ESOP-2005 Scheme.

1 Registered Office 'Orchid Towers', 313, Valluvar Kottam High Road, Nungambakkam,

Chennai - 600 034, Tamil Nadu, India.

2 Date, time and venue of 17th Annual General Meeting (AGM) Wednesday, September 30, 2009, 10.00 am at Kalaignar Arangam, “Anna

Arivalayam”, 367-369, Anna Salai, Teynampet, Chennai-600018

3 Dividend Payment Date for fiscal 2009 Second Week of October 2009 subject to approval of shareholders.

4 Dates of book closure September 19, 2009 to September 30, 2009 (both days inclusive)

5 Financial CalendarFinancial reporting for

Quarter ending June 30, 2009 Last week of July 2009

Quarter ending September 30, 2009 Last week of October 2009

Quarter ending December 31, 2009 Last week of January 2010

Year ending March 31, 2010 Last week of May 2010

6 The equity shares of Rs. 10/- each are listed at Madras Stock Exchange LimitedExchange Building, Post Box No.183

New No.30 (Old No. 11), Second Line Beach

Chennai - 600 001, Tamil Nadu, India

Tel : 91-44-25228951, Fax : 91-44-25244897

National Stock Exchange of India LimitedRegd Office : "Exchange Plaza", Bandra-Kurla Complex

Bandra (East), Mumbai - 400 051, Maharashtra, India

Tel : 91-22-26598100, 66418100, Fax : 91-22-26598120

Bombay Stock Exchange LimitedFloor 25, Phiroze Jeejeebhoy Towers, Dalal Street, Fort

Mumbai - 400 001, Maharashtra, India

Tel : 91-22-22721233, 22721234, Fax : 91-22-22721919

7 Foreign Currency Convertible Bonds (FCCBs) Aggregating to US$ 42.5 million issued in Luxembourg Stock ExchangeNovember 2005 and due November 2010 are Bourse de Luxembourg

listed at Siège social, 11, avenue de la Porte-Neuve L-2227 Luxembourg

Tel : +352 47 79 36-1; Telefax : +352 47 32 98

Aggregating to US$ 175 million issued in February Singapore Exchange Limited2007 and due February 2012 are listed at 2 Shenton Way #19-00 SGX Centre 1, Singapore 068804

Tel : (65) 62368888, Fax : (65) 65356994

8 Listing Fees Listing Fees have been paid for all the above Stock Exchanges

for 2008-2009 and 2009-2010

2020 Orchid Chemicals & Pharmaceuticals Ltd.

ANNEXURE VI TO DIRECTORS' REPORT GENERAL SHAREHOLDERS' INFORMATION

2121Annual Report 2008-09

9 Stock Market dataa) Monthly high and low quotations along with the volume of shares traded at NSE and BSE for 2008-2009 are:

Month NSE NSE S&P BSE

High Low Volume of CNX 500 High Low Volume of BSE 500(Rs.) (Rs.) Shares (Nos) INDEX (Avg) (Rs.) (Rs.) Shares (Nos) INDEX (Avg)

Apr-08 343.35 156.20 368083842 3976 330.00 156.00 208944476 6458

May-08 292.80 234.25 66716711 4100 286.40 234.00 36994161 6729

Jun-08 264.70 201.00 35077763 3590 265.00 215.10 19079391 5879

Jul-08 270.00 201.00 19629582 3283 268.90 219.00 10432978 5281

Aug-08 267.85 235.00 4163769 3540 267.25 239.00 1838865 5693

Sep-08 255.50 197.55 2680838 3329 255.10 198.15 992197 5355

Oct-08 224.00 81.15 6596097 2483 218.90 93.25 2869177 3948

Nov-08 134.50 67.15 7361362 2196 134.80 66.85 3245232 3483

Dec-08 104.80 75.00 5251674 2223 104.30 76.00 2115947 3490

Jan-09 109.35 70.60 5708865 2214 108.80 70.10 2314911 3458

Feb-09 76.00 65.00 3410464 2165 75.80 64.95 1452742 3344

Mar-09 84.00 56.25 9427080 2133 84.20 56.50 4062826 3260

TOTAL 534108047 294342903

b) Graphical representation of Volume of Shares traded of Orchid during April 2008 - March 2009

c) Comparison of broad based indices with share price of Orchid

2222 Orchid Chemicals & Pharmaceuticals Ltd.

10 Stock Exchange Security Code and other related information

Madras Stock Exchange Limited OCL

Bombay Stock Exchange Limited 524372

National Stock Exchange of India Limited ORCHIDCHEM

Luxembourg Stock Exchange US68572Y2090

Singapore Exchange Limited XS0287742653

Depository ISIN No. INE191A01019

Corporate Identification Number (CIN) L24222TN1992PLC022994

2323Annual Report 2008-09

11 Distribution of Shareholding as on

No of equity 31st March 2009 31st March 2008

shares held No. of No. of % of No. of No. of % of shares Shareholders Shareholders shares Shareholders Shareholders

1-500 5528064 54947 94.33 7254530 63186 92.19

501-1000 1437197 1874 3.22 2268877 2881 4.20

1001-2000 1125866 779 1.34 1819890 1223 1.78

2001-3000 502953 197 0.34 1006622 391 0.57

3001-4000 304109 86 0.15 597083 166 0.24

4001-5000 413920 90 0.15 809778 173 0.25

5001-10000 778362 103 0.18 1674258 230 0.34

10001 & above 60351605 167 0.29 50419738 292 0.43

TOTAL 70442076 58243 100.00 65850776 68542 100.00

12 Dematerialization of SharesThe shares of the Company are in compulsory demat segment and are available for trading in both the depository systems, namely, National Securities Depository

Limited and Central Depository Services (India) Limited. Shares dematerialised upto March 31, 2009 are :

No. of Shares % of Shares No. of Shareholders % of Shareholders

69973680 99.34 55814 95.83

13 a) Shareholding Pattern as on March 31, 2009

Category No of Shares Held Percentage of Shareholding

A Promoter Holding1 Promoters

a) Indian Promoters 14916172 21.18

b) Foreign Promoters Nil Nil

2 Persons acting in concert Nil Nil

Sub-Total (1+2) 14916172 21.18

B Non-Promoter Holding3 Institutional Investors

a) Mutual Funds 2814108 3.99

b) Banks, Financial Institutions, Insurance Companies 7577386 10.76

(Central / State Govt. Institutions / Non-government Institutions)

c) Foreign Institutional Investors (FIIs) 3916213 5.56

Sub-Total (3) 14307707 20.31

4 Othersa) Private Corporate Bodies 22473235 31.90

b) Indian Public (Resident Individuals) 14339678 20.36

c) Non Resident Indians / Overseas Corporate Bodies 342705 0.49

d) Foreign Companies 4062579 5.76

Sub-Total (4) 41218197 58.51

Grand Total (1+2+3+4) 70442076 100.00

15 Legal ProceedingsThere are a few pending cases relating to the disputes on the title of the

shares. The Company has been made a party to the disputes but these, however,

are not material in nature.

16 Share Transfer System M/s Integrated Enterprises (India) Limited are the Registrar and Share

Transfer Agents for servicing activities relating to both Physical and Electronic

segments. The share transfer committee met 12 times during the year

2008-2009.

17 Unclaimed DividendsPursuant to Section 205 A of the Companies Act, 1956, the unclaimed dividend

for the financial year 2000-2001 was transferred to the Investor Education

and Protection Fund (IEPF) in September 2008.

Dividend for the financial year 2001-2002 is due for transfer to IEPF in

September 2009.

The dividends for the years from 2001-2002 onwards, which remain unclaimed

for seven years will be transferred to Investor Education and Protection Fund

established by the Central Government under Section 205 C of the Companies

Act, 1956 as and when due. Shareholders who have not encashed their

dividends for these periods are requested to contact the Company immediately.

18 ECS MandateTo service its investors better, the Company requests all shareholders who hold

shares in electronic form to update their bank particulars with their respective

depository participants immediately. Shareholders holding shares in physical

form may kindly forward the bank particulars to the Company's Registrar and

Share Transfer Agent.

19 Plant Locationsa) Active Pharmaceutical Ingredient Facilitiesi) Alathur WorksPlot Nos.85-87, 98-100, 126-131, 138-151 and 159-164

SIDCO Industrial Estate, Alathur, Kancheepuram Dist, Pin 603 110

Tamil Nadu, India

b) Shareholding Pattern Chart

2424 Orchid Chemicals & Pharmaceuticals Ltd.

Foreign Companies,

FIIs, NRIs and others

11.81%

Resident Individuals

20.36%

Institutional Investors

14.75%

Promoters

21.18%

Bodies Corporate

31.90%

14 Outstanding FCCBs and conversion dates Name of the Instrument Total Converted as on Bought Back as on Outstanding as on Likely Conversion

Issued March 31, 2009 March 31, 2009 March 31, 2009 Date

a) Foreign Currency Convertible Bonds USD 4,25,00,000 * USD 2,27,90,000 * USD 22,50,000 * USD 1,74,60,000 * On or before

(FCCBs) (issued during 2005-06) November 03, 2010

b) Foreign Currency Convertible Bonds USD 17,50,00,000 * NIL USD 3,78,00,000 * USD 13,72,00,000 * On or before

(FCCBs) (issued during 2006-07) February 28, 2012

* FCCBs are represented in value till the time they are converted into equity shares.

ii) Aurangabad WorksL-8 & L-9, MIDC Industrial Area

Waluj, Aurangabad Dist., Pin 431 136

Maharashtra, India

b) Formulations (Finished Dosage Form) Facilitiesi) A10/A11, SIDCO Industrial Estate

Alathur, Kancheepuram Dist., Pin 603 110

Tamil Nadu, India

ii) Plot Nos.B3–B6, B11–B14 and B15–B18

SIPCOT Industrial Park, Irungattukottai, Sriperumbudur (Tk.), Pin 602 105

Tamil Nadu, India

iii) B-77, SIDCO Industrial Estate

Alathur, Kancheepuram Dist., Pin 603 110

Tamil Nadu, India

20 Research and Development Centresa) Plot No.476/14, Old Mahabalipuram Road, Sholinganallur

Chennai 600 119, Tamil Nadu, India

b) Plot Nos.B21–B23 & B31–B33, SIPCOT Industrial Park, Irungattukottai

Sriperumbudur (Tk.), Pin 602 105, Kancheepuram Dist

Tamil Nadu, India

21 Investor Contactsa) Corporate Communications & Investor Relations

Mr Ch.RamHead, Corporate Communications & Investor Relations

Phone : 91-44-28244908; Fax: 91-44-28211002

E-mail : ram@orchidpharma.com

b) Investor Correspondence / Compliance Officer

Mrs Bhoomijha MuraliGeneral Manager - Legal & Company Secretary

Phone : 91-44-28284232; Fax : 91-44-28275960

E-mail : bhoomija@orchidpharma.com

c) Registrar and Share Transfer AgentIntegrated Enterprises (India) Limited

2nd Floor, Kences Towers, No.1 Ramakrishna Street,

North Usman Road

T.Nagar, Chennai - 600 017, Tamil Nadu, India

Tel : 91-44-28140801 - 03, Fax : 91-44-28142479

E-mail : corpserv@iepindia.com

2525Annual Report 2008-09

2626 Orchid Chemicals & Pharmaceuticals Ltd.

MANAGEMENT DISCUSSION AND ANALYSIS

Global pharmaceutical industry The global pharmaceutical sales reached US$ 773 billion in 2008; however,the growth rate moderated from 6.6% in 2007 to 4.8% in 2008. Thepharmaceuticals market had to contend with a number of forces includingdecline in new product approvals and the global economic recession, markedin particular by a sharp downturn in the world’s largest economies of USA andEU. However, the pharmaceutical market scenario was also characterized by agrowth in the emerging markets. The table below tracks the growth of thepharmaceutical sector over the last 5 years.

Global pharmaceuticals sales (US$ bn)

[Source: IMS Health Market Prognosis (includes IMS Audited and Unaudited markets)]

Global pharmaceutical sales are expected to grow at around 5% p.a to exceed$810 billion in 2009. The shift towards pharmaceuticals for lifestyle diseasesis expected to continue. The top five therapeutic segments in 2008 werecholesterol and triglyceride regulators, anti-ulcerants, anti-depressants, anti-psychotics and anti-epileptics. These therapies are growing in emergingmarkets as well although these markets are still dominated by acute therapiessuch as anti-infective and gastro-intestinal categories.

The table below highlights regional distribution of sales and growth rates.

(US$ bn)

Countries 2008 2007 Growth (%)

North America 225.2 220.8 2.0

Europe (top five) 114.3 112.1 2.0

Japan 68.6 66.6 3.0

Latin America (top three) 24.2 22.0 10.0

Australia/New Zealand 7.8 7.1 9.9

Selected countries 440.1 428.6 2.7

[Source: IMS Data, December 2008, data for year ending December]

US marketThe US pharmaceutical market which constitutes around 47% of the globalmarket, grew only marginally - from US$ 206.5 bn in 2007 to US$ 208.6 bn in2008. The US pharmaceutical industry is expected to grow modestly in 2009owing to the plateau in new product approvals, lower demand for the newlyintroduced products and the adverse change in the economic climate.Notwithstanding this, a large number of blockbuster drugs going off patent inthe coming years will continue to open up opportunities for genericpharmaceutical companies. The new US government has outlined healthcare

reforms in 2010 budget plan which are expected to benefit the genericsindustry.

European markets The five major European pharmaceutical markets (Germany, France, Italy, UKand Spain) grew by 2% - from US$ 112.1 bn in 2007 to US$ 114.3 bn in 2008.The aggregate demand of the top five European Union countries is projectedto grow by 3 to 4% in the coming year backed by the increase in the ageingpopulation and rising demand for preventive care. Large governmental tendersand government policies on pricing and reimbursement are influencing thecompetitive intensity in the European pharmaceuticals market.

Japan Japan is the second single largest pharmaceutical market after US and thesecond highest spender in the world for healthcare. The pharmaceutical salesin the Japanese market increased by 3% from US$ 66.6 bn in 2007 to US$68.6 bn in 2008. Generic drugs currently have a low share of the totalpharmaceutical market in Japan. The market is expected to grow to over US$86 bn in 2012, supported by a high promotion of generic drugs, liberalizationof over-the-counter (OTC) drug sales as well as the government’s efforts toimprove launch conditions for novel products. The opening up of the genericssector by the government has been attracting foreign generic companies intothe country.

Emerging markets The emerging markets of China, Brazil, India, Mexico, Turkey and Russia, tomention a few, are forecast to grow faster at a combined 14 to 15% pace toreach US$ 105 to 115 billion in 2009. Along with the new-found focus of theinnovator companies on generics, greater government spending on healthcare,and broader public and private healthcare funding will drive greater access to,and demand for, innovative as well as generic medicines in these markets.

Global generics market The generics market thus remains a major growth segment of the globalpharmaceuticals market in both developed and emerging markets. The growthwill continue to be driven by greater availability of quality generic medicineson one hand and by healthcare spending by the governments on the other.While the emerging markets have traditionally been generics oriented,regulated markets such as US, EU and Japan would witness a continuinggrowth in the generics markets, opening up a large market space for genericsplayers.

CRAMSGiven the current plateauing in new product approvals, pressures from genericsubstitution and the raising regulatory bar on new drug approvals, innovatorcompanies are seeking to improve R&D productivity by outsourcing R&D workand also in-licensing new drug candidates for pipeline expansion. There is alsoan increasing trend to outsource the requirements of pre-clinical and clinicalquantities of new chemical entities (NCEs).

The global opportunity for Custom Research and Manufacturing Services(CRAMS), which is essentially innovation driven, is estimated at around $40billion and is expected to register a healthy growth rate of 15%. Skilledmanpower, diversity of services and cost-competitiveness are enabling India toemerge as a favoured destination for contract research in the world. Indiawould also become a major player in bioequivalence studies for generic drugs

27

and human clinical studies for innovator drugs. Clinical trials in India costsignificantly less than the costs in the advanced countries. India also offersthe advantage of a vast drug-naïve patient pool.

Indian pharmaceutical industry

The Indian pharmaceutical market is estimated at US$ 10.76 bn in 2008,growing at a robust pace. Presently the Indian industry ranks 4th in volumeterms and 13th in value terms globally.

The Indian pharmaceutical industry caters to both domestic demand andoverseas demand in terms of finished dosage forms as well as activepharmaceutical ingredients (APIs). The overseas market further comprisescontract research and manufacturing services (CRAMS) as well as collaborativeand proprietary drug licensing opportunities.

The Indian pharmaceutical exports surged by 22% from US$ 6.9 bn in the firstnine months of 2007-08 to US$ 8.44 bn in the first nine months of 2008-09.US, Russia, Austria, Germany and the UK are the top five export destinationsfor India’s pharmaceuticals, which cater to over 75 countries. The spurt inoverseas demand is largely due to the high level of regulatory filings and costcompetitiveness of the Indian generics. The Indian generic product exports areexpected to grow at an even higher clip over the next few years, given thenumber of drugs going off patent in the coming years.

Indian companies continue to be increasingly active in the US market. From anaverage of 25 ANDA approvals in the early 2007, the number of ANDAapprovals spurted to around 50, reaching 134 in 2008. In the first quarter of2009, Indian companies achieved 50 ANDA approvals, reflecting the continuedpace of ANDA filings and approvals. This regulatory thrust will lead to greateravailability of generic medicines and will result in increased competitivepressures.

Stronger GDP growth, higher emphasis on healthcare and a global costadvantage would result in the continued growth of the Indian pharmaceuticalindustry. The industry is likely to grow to around US$ 50 bn in 2015-16 witha CAGR of around 14%. Exports, driven by generics and contract research, areexpected to grow at a CAGR of 16.2% while the domestic market is expectedto grow by 12.5%, India would also emerge as a favoured destination forCRAMS. [Source: Indian Pharmaceutical industry - Vision - 2015].

Orchid’s initiatives in 2008-09

Orchid’s strategy, which is based on the twin drivers of generics and innovationbusinesses is geared to cater to the diversified global pharmaceutical canvas.

Given the competition in the generics space, Orchid has focused on nicheantibiotic products and complex non-antibiotic products for more exclusivepositioning in the market space. Orchid also established world-classdevelopment and manufacturing facilities in the cephalosporin, penicillin andcarbapenem areas, as well as non-penicillin, non-cephalosporin areas, coveringboth APIs and dosage forms and also catering to oral and sterile products asapplicable. To support the innovation strategy, Orchid has also establishedstate-of-the-art drug discovery and development facilities which meet theneeds of proprietary and collaborative drug discovery.

During the year under review, Orchid continued several strategic initiatives tostrengthen its position in the global pharmaceutical space. Some of theseinitiatives are:

Consolidated its presence in US generics market with cephalosporininjectable and dosage forms which contributed significantly to the revenuebasket.

Launched Piperacillin-Tazobactam a premium, life saving antibiotic in theCanadian and Australian markets. Orchid has been the first generic companyto launch the product in Canada and Australia.

Received progressively multiple MA (Marketing Authorisation) approvals forPiperacillin-Tazobactam in the EU market.

Received MA approvals for cephalosporin products licensed to thedistribution partner in EU.

Forayed into the non-penicillin, non-cephalosporin (NPNC) space with thelaunch of Granisetron in the US market, with other approvals on the anvil.

Orchid’s business development canvas and growth initiatives are supported bya large pipeline of global regulatory filings and robust infrastructuralcapabilities. During the year under review, Orchid achieved several regulatorymilestones.

Cumulative ANDA filings count reached 58 in US, of which 29 were inCephalosporins, 5 in Penicillins, 3 in Carbapenems and 21 in the NPNC segment(of which 7 are Para IV FTFs).

Marketing Authorisation filings in EU reached 29, of which 23 were in thecephalosporin segment, 1 in Penicillins, 2 in Carbapenems and 3 in the NPNCsegment.

DMF filings in the API segment peaked to 72 which include 26 in thecephalosporin segment and 33 in NPNC segment, 2 in Penicillins segment and11 in the carbapenems segment.

Increased DMFs filed in Japan to 3, all of which in the cephalosporin field.

On the infrastructural front, Orchid continued to add selectively to itscapabilities to augment capacity, expand product range and cater to morediversified demand. Completion of the Carbapenem dosage forms facility andcreation of a second line for cephalosporin products for certain innovativeproducts were some of the key accomplishments.

In the area of drug discovery and development, some of the key initiativesincluded:

Acquired a significant stake in the US based drug discovery and developmentcompany, Diakron Pharmaceuticals to develop a novel investigational oralanticoagulant drug, in-licensed by Diakron from Merck & Co., Inc., post-PhaseI. The target will be to develop the compound as a novel oral anticoagulantwith a new formulation and position it uniquely.

Entered into a strategic research collaboration and license agreement withMerck & Co Inc to discover, develop and commercialize novel agents for thetreatment of bacterial and fungal infections. Orchid will undertake discoveryand candidate development through Phase IIa human clinical trials, after whichMerck will assure responsibility for further development and commerciallaunch.

Accelerated Orchid’s proprietary drug discovery business by developingseveral additional hits and leads in the therapeutic areas of inflammation,oncology, diabetes and anti-infectives.

27Annual Report 2008-09

2828 Orchid Chemicals & Pharmaceuticals Ltd.

Financial review

Revenues

Orchid’s total revenue for the fiscal under review (excluding excise duty &exchange rate gain on FCCB), stood at Rs. 121,429 lakh in 2008-09 comparedto Rs. 124,016 lakh in 2007-08. Delay in approval by US FDA of Piperacillin-Tazobactam injection has contributed to the plateau in sales relative to thegrowth expectations. Several initiatives are, however, culminating well andwill lead to a robust growth pattern going forward. During the year underreview, Orchid forayed into the Penicillin injections segment by securing theapproval for Tazobactam-Piperacillin in the Canadian, ANZ and Europeanmarkets. This is the 3rd product segment for Orchid after Cephalosporins andNon-antibiotics. This would lead to an increased utilisation of the Company’sasset base resulting in greater unlocking of value.

Steady market penetration of Cefepime, an injectable product, for which Orchidwas the sole generic player and Cefdinir capsules, an oral product, supportedgenerics revenue growth. Other sterile products such as Cefazolin, Cefoxitinand Ceftriaxone injections and oral solid dosage forms such as Cefadroxylcapsules and oral suspension products also supported the sales performance inthe US generics market in 2008-09.

With the increased competition in the generics business and delay in approvalsfor its premium products, the share of formulations business in the totalbusiness was 54%, as compared to 58% in previous fiscal. However, API salesmoved upto 46% of the total revenue in fiscal 2009, compared to 42% in theprevious fiscal.

Expenses

The Company’s expense component comprised material costs, staff costs andwelfare expenses, power and fuel costs, other manufacturing, selling and otherexpenses, R&D, interest and depreciation expenses. The following tableprovides the break-up for the various expense components as a % of totalrevenues

Figures in %

Fiscal years 2008 2009

Operating expenses:

Material costs 35.0 42.0

Staff costs and welfare expenses 8.1 10.1

Power and fuel 5.6 6.0

Other manufacturing selling and Other expenses 19.7 23.1

Sub total 68.5 81.2

R&D expenses 3.6 3.8

Interest and finance charges 6.5 12.8

Depreciation and miscellaneous Expenses written off 7.9 10.7

Taxes:

Provision for current/fringe benefit tax 2.5 0.1

Provision for deferred tax 1.9 1.1

While with increasing scale of operations and general inflationary trends,escalation in operational costs were inevitable during the year, a series of costcontainment measures ensured prudent cost management. Even thoughoperations had to be geared up for higher levels of development andmanufacturing activity in the months to come, the cost profile of theoperations continues to be competitive.

Operating expensesImported raw materials, Pen-G, 7-ACA and intermediates used in themanufacture of relevant Orchid products, principally constituted theCompany’s material costs. Staff costs and welfare expenses comprised wages,salaries, bonus and other expenses for our employees, employee provident fund,medical and other funds. Power and fuel expenses involved the cost ofelectricity, diesel and furnace oil for our manufacturing facilities. The principalcomponents of other manufacturing, selling and other expenses comprisedselling commission, insurance charges, factory maintenance expenses,consumption of stores, spares and chemicals and travelling expenses.

The Company’s R&D expenses included regular operating expenses, projectcosts and expenses for research and infrastructure programs. While R&Drevenue expenditures were expensed when incurred, R&D capital expenditureswere added to assets and depreciated. Interest and finance charges comprisedinterest on long-term and working capital borrowings, bill discounting andother bank charges. Depreciation and miscellaneous charges comprised a majorportion of our operating expenses.

Material costs: Due to new operational facilities, higher production volumes,increased batches to support growing global filings and an increase in theaverage price of certain key inputs contributed to the increase in material costto Rs. 51,031 lakh for fiscal ended 2009 compared to Rs. 43,465 lakh for thefiscal ended 2008. As a percentage of total revenue, the material costs grewfrom 35% to 42%.

Staff costs and welfare expenses: With the expanding scale of operations andnew units coming on stream, the demand for technical and quality man-powerhas pushed the manpower cost upwards for the fiscal ended 2009. Theemployee cost during fiscal 2009 increasing to Rs. 12,227 compared with Rs. 9,990 lakh in 2007-08. As a percentage of total revenue, the staff andwelfare costs increased from 8.1% to 10.1%.

Power and fuel costs: Increased oil and gas prices and higher powerconsumption to support growing production volumes impacted power and fuelcosts, which increased by 5.6% from Rs. 6,958 lakh in 2008 to Rs. 7,345 lakhin 2009. As a percentage of total revenue, the power and fuel costs increasedmarginally from 5.6% to 6.0%.

Other manufacturing, selling and other expenses: Increased scale of operationsand geographic expansion, increased other manufacturing, selling and otherexpenses by 14.8% from Rs. 24,477 lakh in 2007-08 to Rs. 28,092 lakh in2008-09. As a percentage of total revenue, the share was 23.1 %, comparedwith 19.7 % in 2007-08.

R&D costs: An increased trend of all other cost components like employee cost,maintenance and other operating costs was also seen at the research anddevelopment side. As a result the R&D costs increased by 2.5% from Rs. 4,519lakh for fiscal 2008 to Rs. 4,633 for fiscal 2009. As a percentage of totalrevenue, R&D costs were higher at 3.8 %, compared to 3.6 % in 2007-08.

EBIDTA: Delay in launch of envisaged new products coupled with a significantchange in the generic landscapes of certain key products and pressure onselling prices of select generics in the regulated markets saw the direct impact

on EBIDTA which decreased by 40.5% from Rs. 41,734 lakh in 2007-08 to Rs. 24,831 lakh in 2008-09. EBIDTA margin as percentage of total revenuedecreased from 33.7 % in fiscal 2008 to 20.4% in fiscal 2009.

Interest: The interest costs grew by 91.3% at Rs. 15,519 lakh in 2008-09compared with Rs. 8,113 lakh in 2007-08. As a percentage of total revenue,interest costs in 2008-09 were higher at 12.8 %, compared to 6.5% in 2007-08. Higher borrowings were required to complete the projects on hand andsupport extended working capital cycles in a recessionary environment.

Depreciation and amortization expenses: An increase in operations and anadded asset base led to a 33.1% increase in depreciation from Rs. 9,767 lakhin fiscal 2008 to Rs. 12,997 lakh in fiscal 2009. As a percentage of totalrevenue, depreciation was higher at 10.7 % in 2008-09, compared to 7.9 % in2007-08.

Profit before taxation and exceptional items: The Company’s profit beforetaxation and exceptional items de-grew by 162.3% from Rs. 16,727 lakh forfiscal 2008 to -Rs. 10,415 lakh for fiscal 2009. Provision for taxation stood atRs. 1,533 lakh in fiscal 2009 compared with Rs. 5,401 lakh in fiscal 2008.Exceptional items accounted for the notional foreign exchange gains theCompany experienced due to rupee appreciation. Gains on exceptional itemsin fiscal 2009 was Rs. 5,162 lakh net of tax compared with Rs. 6,377 lakh infiscal 2008.

Profit after tax: Profit after tax (PAT) reduced to Rs. 5,217 lakh for fiscal 2009as against Rs. 18,454 lakh for fiscal 2008. The PAT margin, as a percentage oftotal revenue, decreased from 14.9% in 2007-08 to a negative -4.3% in 2008-09, as a carryover effect of the factors discussed above.

Cash Profit after tax : Exclusive of the notional book entries of deferred taxprovision and depreciation the revised cash profit for fiscal 2009 was Rs. 9,151lakh as compared to Rs. 30,562 lakh in 2008. Though there was a de-growthin profitability, operating costs and a decrease in turnover growth, severalmeasures for cost constraint and revenue growth that have been fructifyingtowards the end of fiscal 2009 would have a positive impact during the currentyear.

Internal control and adequacyThe internal control systems and procedures were designed to assist in theidentification and management of risks, the procedure-led verification of allcompliance as well as an enhanced control consciousness.

The Company’s internal control system provides for adequate documentationof policies, guidelines, authorities and approval procedures covering all theimportant functions at the Company. It has a proper and adequate system ofinternal control commensurate with the size and nature of its business. Thedeployment of an ERP covers most of its operations supported by a definedon-line authorization protocol.

The Company has introduced operating procedures (SOPs) across all functions,covering the daily operations of the business. Many SOPs were designed tomeet the GMP, FDA, ISO, management and other statutory requirements. TheCompany continuously monitors with procedures and has been intruding newsystems from time to time.

The highlights of the internal control weaknesses and internal audit reportsare placed before each Audit Committee meeting along with therecommendations and responses of the management. The members of theBoard deliberate and advise the management on improvements/compliance.Besides, statutory auditors also present their suggestions to the members forimprovements or developments.

Human resourcesOrchid’s 4040 employees (as of March 31, 2009) represent a huge motivatedforce, which works tirelessly to drive corporate performance.

The Company’s significant HR initiatives in 2008-09 comprised:

Sourcing talent for critical positions in India and overseas, includingscientific professionals returning from the US inducted into the R&D team atsenior levels

Creating new roles and functions to meet emerging business needs, viz.,NDDS (Novel Drug Delivery Systems), Medical Affairs, Orchid Japan team andBusiness Development team

Restructuring the HR function to align with business units andadding/modifying the corporate HR structure to sharpen HR focus

Launching knowledge sharing forums to encourage informal learning amongemployees

Initiating a forum for senior executives (Leadership Excellence throughPerformance or LEAP) to discuss and resolve common organizational issues

Theme-based employee development programmes to suit various levels ofemployees

Information technologyInformation Technology plays a key role in enabling business to be moreeffective and responsive. They key areas of focus this year have beenautomation of process flows reinforcing collaborative working among variousdepartments, enabling aggressive cost reductions and enhancing service levelsto users. Some of the key interventions are as below.

Product Development: The entire Business process for approval of newproduct introduction for specific geographies was automated through a work-flow solution spanning across various key functions involved. Right from theinitiator to the final approver, the documents travel electronically step-by-stepthrough departments with provision for adding data and comments. This hasreplaced the paper based process completely and more than 150 products havebeen processed in a short time after implementation.

eTeam Rooms: In our pursuit to continually improve collaboration amongvarious functions we have launched electronic team-rooms. Notable ones arefor eTeam rooms for senior management interactions, corporate safety andproduction planning. These teams share documents and work on themcollaboratively in a centralized manner through the facilities available in theteam room like document repository, blogging, adding comments on a post,calendaring etc.

ESG (FDA) Integration: Closely on the heels of going live on a world-classeCTD package in the previous year, Orchid has integrated with FDA-ESG(Electronic Submission Gateway). By this, our electronic dossiers are directlyuploaded onto FDA’s server with digital signatures and other authentications.We are one of the early movers in India to utilize this facility.

IT Service Desk Automation: A package was implemented so that users canregister their calls for IT services online and get them resolved faster andeffectively. User calls once entered, are assigned to service personnelelectronically and monitored throughout their life cycle. Performance againstSLA’s are measured, escalations are automated and information on progresscontinuously made available to end users.

Policy Enforcement: Quite a lot of IT policies in the areas like energyconservation, data integrity, uniform desktop environment, etc. have beenautomated this year leading to less manual intervention on enforcement.

Office Communication Server (OCS): In line with emerging unified

2929Annual Report 2008-09

communication trends, OCS was implemented for key personnel. They can havecalls within our network on one-on-one basis or on conference mode. It alsohas features like instant messaging, presence awareness, document sharingfacility etc. Considerable cost reduction has been achieved in travel andcommunication besides the key aspect of improved collaborative working.

Cost Management: Numerous measures have been taken this year towardsreducing the IT cost through measures like introduction of ‘Pay-per-use’ modelin printing, enhanced outsourcing, aggressive win-win agreements with ITvendors, cost-effective software alternatives etc.

Customer Satisfa ction Index: A process has been instituted to measureinternal user satisfaction on various IT services through appropriate services inregular intervals and to work on measures to improve them continuously basedon end-user feedback. Orchid will continue to focus on the latest trends in IT and adopt theappropriate ones for leveraging its competitive advantage.

Risk managementLike all businesses, the pharmaceutical industry has its risks. The risks that theCompany faces may be classified as risks relating to the business, the currencyand capital markets and the operations. The Company has appropriate policiesand strategies to manage the risks. Some of the key risks and mitigationstrategies are detailed herein.

Product-market factors

The Company currently derives a significant portion of its revenue fromcephalosporins and a smaller portion from penicillins and non-penicillin, non-cephalosporins. The Company currently also derives a significant portion of itsrevenues from regulated markets. Envisaged product diversification andincreases in such revenues arising from newer product groups, includingcarbapenems are tied to regulatory approvals and patent expiries, especially inregulated markets. Any material adverse developments in such product-marketstrategies and regulatory approvals could therefore have an adverse materialeffect on the revenues and profitability. An increase in the intensity ofcompetition in any of its products and markets and any constraints faced bycustomers in making timely payments could also have a material adverseimpact on the performance of the Company. The Company has implementedstrategies to diversify its product range and ramp up sales in non-cephalosporintherapeutic areas to address such concerns. The company accords considerableimportance to the implementation of its well-integrated and well-diversifiedproduct development plans and launch strategies to mitigate the product-market risks.

Supply factors

The Company depends on its suppliers for its key raw materials, intermediatesand other packaging materials. For the regulated markets, some of these inputsare sourced from US FDA approved suppliers. While the Company hascontractual arrangements in places with the existing suppliers and also hasalternative suppliers to cater to supply deficiencies, the possibility of any supplyconstraints affecting the Company’s performance cannot be ruled out. TheCompany conducts a continuous review of its supply and outsourcingoperations to ensure adequate and timely supplies.

Safety factors

Pharmaceutical operations involve handling of hazardous raw materials andprocesses. Any untoward accident can disrupt operations and business. Orchidhas worked with DuPont, the world leader in industrial safety, to implementseveral initiatives for achieving excellence in safety. Utmost importance is givento the behavioural and scientific aspect of safety management. A CentralSafety Committee, supported by several sub-committees coordinates andmonitors safety management in the Company.

Financial factors

As the Company implemented an aggressive and time-bound multi-therapeuticproduct strategy expanding its manufacturing base from cephalosporins toinclude penicillins, carbapenems and NPNCs, a significant portion of theinvestment had to be financed out of debt. The high level of debt, and theconsequent interest burden would constitute a risk in the event of marketdownturn. The Company’s product-market diversification is intended tostrengthen revenue and profitability base to counter the pressures of highleverage.

Exports constitute a dominant share of the Company’s business. Some of thefinancial products (FCCBs and derivative instruments) are exchange rate linked.Risks of exchange rate fluctuation could have profit implications as peraccounting standards. The exchange rate risk is hedged to a significant extentby imports. The Company has been exploring options to reduce the level ofdebt and has during the year under review bought back FCCBs at a significantdiscount and cancelled a portion of FCCB debt. The Company would continueto adopt risk mitigation policies in aspects related to exchange rate risk,including maintenance of appropriate systems and procedures.

Intellectual property

The Company’s regulated market strategy is based on introducing genericversions after the products go off patent, based on non-infringing processes.Some of the products are Paragraph IV, First-to-File ANDA applications, whichinvolve legal challenges. The Company also files and seeks to obtain patents fornew drugs and novel drug delivery systems under development. Patents andlitigation in select cases, are therefore significant to the Company. The successof the Company depends, in part, on its ability to protect and defend itsproprietary and intellectual property information and obtain patents andoperate without infringing on the proprietary rights of others.

The Company takes all reasonable steps to ensure that its products, includingthe generic products manufactured and sold by it, do not infringe valid third-party intellectual property rights. The Company also takes due care indefending its litigation in respect of legal challenges. The Company relies onthe diligence and opinions as well as services of internal scientific staff andexternal attorneys to ensure that intellectual property matters are wellmanaged and well defended.

The Company accords utmost importance to retention of employees byproviding a conducive work environment and implementing appropriate talentmanagement policies. The Company has also in place confidentialityagreements with its employees to protect confidentiality of proprietaryinformation.

3030 Orchid Chemicals & Pharmaceuticals Ltd.

AUDITORS’ REPORT

1. We have audited the attached Balance Sheet of Orchid Chemicals &

Pharmaceuticals Limited (the Company) as at March 31, 2009 and also

the Profit and Loss Account of the Company for the year ended on that

date annexed thereto and the Cash Flow Statement for the year ended on

that date. These financial statements are the responsibility of the

Company’s 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 includes

examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements. An audit also includes assessing

the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement

presentation. We believe that our audit provides a reasonable basis for our

opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 issued by the

Central Government of India in terms of sub-section (4A) of Section 227

of the Companies Act, 1956, we annexe hereto a statement on the matters

specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above, we report

that:

a. We have obtained all the information and explanations, which to the

best of our knowledge and belief were necessary for the purposes of

our audit;

b. 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 those

books;

c. The Balance Sheet, Profit and Loss Account and Cash flow statement

dealt with by this report are in agreement with the books of account;

d. In our opinion, the Balance Sheet, Profit and Loss Account and Cash

Flow Statement dealt with by this report comply with the accounting

standards as referred to in sub-section (3C) of Section 211 of the

Companies Act, 1956;

e. On the basis of written representations received from the directors,

as on March 31, 2009, and taken on record by the Board of Directors,

we report that none of the directors is disqualified as on March 31,

2009 from being appointed as a director in terms of clause (g) of sub-

section (1) of Section 274 of the Companies Act, 1956;

5. a. The company has made an application to the Central Government for

approval of the remuneration amounting to Rs.343.45 lakhs paid to

the Managing Director and whole time Director as the minimum

remuneration payable in case of inadequacy of profit and the approval

of the same is still awaited.

b. Debtors are subject to confirmation. Refer Note No. 30 of Schedule

‘Q’.

6. In our opinion and to the best of our information and according to the

explanations given to us, subject to Para 5(a) & (b) above, the said

accounts read with notes thereon, specifically Note No.2 (i) (4) regarding

adoption of amended Accounting Standard (AS-11) and the impact of the

same on the loss for the year of the company, give the information

required by the Companies Act, 1956, in the manner so required and give

a true and fair view in conformity with the accounting principles generally

accepted in India:

i. In the case of the Balance Sheet, of the State of affairs of the

Company as at 31st March 2009;

ii. In the case of the Profit and Loss Account, of the Loss for the year

ended on that date; and

iii. In the case of Cash Flow Statement, of the cash flows for the year

ended on that date.

For SNB Associates

Chartered Accountants

B. Mahalingam

Place: Chennai Partner

Date: June 29, 2009 Membership No. 210408

Report of the Auditors to the Members

3131Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

ANNEXURE TO AUDITORS’ REPORT

1. The Company has maintained proper records showing full particulars

including quantitative details and situation of its fixed assets. According

to the information and explanations given to us, most of the fixed assets

have been physically verified by the Management during the year. In our

opinion, the frequency of such physical verification is reasonable having

regard to the size of the Company and the nature of its assets. No material

discrepancies were noticed on such verification as compared to the

available records. There was no substantial disposal of fixed assets during

the year.

2. Physical verification of Inventory has been conducted by the Management

at reasonable intervals. The procedures for physical verification of stocks

followed by the Management are reasonable and adequate in relation to

the size of the Company and nature of its business. The Company is

maintaining proper records of inventory and no material discrepancies

were noticed on physical verification.

3. a. The Company has not taken any loans, secured or unsecured from

companies, firms or other parties covered in the register maintained

under Section 301 of the Companies Act, 1956.

b. As informed to us, the Company any loans, secured or unsecured from

companies, firms or other parties for which entries are required to be

made under Section 301 of the Companies Act, 1956.

4. In our opinion and according to the information and explanation given to

us, there is adequate internal control system commensurate with the size

of the Company and the nature of its business for the purchase of

inventory and fixed assets and for the sale of goods and services. During

the course of our audit, no major weakness has been noticed in the

internal control system.

5. In our opinion and according to the information and explanation given to

us, the particulars of contracts or arrangements referred to in Section 301

of the Companies Act, 1956 have been entered in the register required to

be maintained under that section.

The transactions made in pursuance of such contracts or arrangements

have been made at prices which are reasonable having regard to the

prevailing market prices / Joint venture agreements at the relevant time.

6. The Company has not accepted any deposits from the public.

7. In our opinion, the Company has an internal audit system commensurate

with the size and nature of its business.

8. We have broadly reviewed the books of account maintained by the

Company, pursuant to the rules made by the Central Government for the

maintenance of the Cost Records under Section 209(1)(d) of the

Companies Act, 1956 and are of the opinion that prima facie the

prescribed accounts and records have been made and maintained.

9. The Company is generally regular in depositing undisputed Statutory Dues

including Provident fund, Investor Education and Protection Fund,

Employees’ State Insurance, Income-Tax, Sales-Tax, Wealth-Tax, Service-

Tax, Custom duty, Excise duty, Cess and any other statutory dues applicable

to it with the appropriate authorities.

10 According to the information and explanations given to us, no undisputed

amounts payable in respect of sales-tax, Income-Tax, Wealth Tax, Service

Tax, Custom duty, Excise duty and Cess were outstanding at the year end

for a period of more than six months from the date they became payable.

11. According to the records of the Company, there are no disputed amounts

that have not been deposited with appropriate authorities on account of

Income Tax, Sales-Tax, Wealth Tax, Service-Tax, Custom duty, Excise duty

and Cess except the following:

Referred to in Paragraph 3 of our Report of even date:

32 Orchid Chemicals & Pharmaceuticals Ltd.

PROFIT AND LOSS ACCOUNT for the year ended March 31, 2009

Annexure to Auditors’ Report

12. The Company has no accumulated losses at the end of the financial yearand it has not incurred any cash losses in the current and in theimmediately preceding financial year.

13. Based on our audit procedures and on the information and explanationsgiven by the management, the Company has defaulted in certainrepayments of principal and interest to banks as per details given in NoteNo. 29 of Schedule ’Q’. The Company does not have any borrowings byway of debentures.

14. The Company has not granted any loans and advances on the basis ofsecurity by way of pledge of shares, debentures and other securities.

15. In our opinion and according to the information and explanations givento us, the nature of activities of the Company does not attract any specialstatute applicable to chit fund and nidhi / mutual benefit fund/societies.

16. Based on our examination of records and the information andexplanations given to us, the Company has not dealt / traded in any shares,securities, debentures and other investments during the year.

17. According to the information and explanations given to us, the Companyhas not given any guarantee for loans taken by others from banks orfinancial institutions.

18. The term loans obtained by the Company were applied only for thepurposes for which the loans were obtained.

19. According to the Cash Flow Statement and other records examined by usand the information and explanations given to us on an over all basis, the

funds raised on short-term basis, prima facie, have not been used duringthe year for long-term investment other than temporary deploymentpending application.

20. The Company has made preferential allotment of 4965000 warrants, topromoters covered in the register maintained under Section 301 of theCompanies Act, 1956, each warrant convertible into one equity share ofRs.10 each within 18 months from the date of issue. The above issue ofwarrant is in accordance with SEBI guidelines.

21. The Company did not have any outstanding debentures / bonds during theyear for which creation of securities is required.

22. The Company has not raised any money through public issue during theyear. The end use of the money raised through Foreign CurrencyConvertible Bonds in the earlier years has been disclosed and verified.

23. Based on the audit procedures performed and information andexplanations given by the management, we report that no fraud on or bythe Company has been noticed or reported during the course of our audit.

For SNB AssociatesChartered Accountants

B. MahalingamPlace: Chennai PartnerDate: June 29, 2009 Membership No. 210408

33Annual Report 2008-09

Name of the Statute Nature of Period to which the Amount Forum where the dispute is pendingDues amount relates Rs in Lacs

Central Excise Act1944, Excise Duty 1999-00 to 2000-01 111.95 Customs, Excise and Service Tax Appellate Tribunal Chennai

2000-01 &2001-02 37.12 Customs, Excise and Service Tax Appellate Tribunal Chennai2004-05 124.77 Commission of Central Excise, Chennai2004-05 0.55 Customs, Excise and Service Tax Appellate Tribunal Chennai2005-06 0.59 Customs, Excise and Service Tax Appellate Tribunal Chennai2005-06 91.53 Commissioner of Central Excise Chennai2005-06 11.57 Joint Commissioner of Central Excise, Chennai2006-07 9.36 Joint Commissioner of Central Excise, Chennai2006-07 1.92 Customs, Excise and Service Tax Appellate Tribunal Chennai2006-07 223.18 Commissioner of Central Excise, Chennai2006-07 243.41 Commissioner of Central Excise, Aurangabad2007-08 1.64 Commissioner of Central Excise (Appeals), Chennai2007-08 3.92 Commissioner of Central Excise, Chennai2007-08 12.21 Commissioner of Central Excise, Chennai2007-08 274.77 Commissioner of Central Excise, Aurangabad2007-08 32.19 Additional Commissioner of Central Excise, Aurangabad2008-09 1.75 Assistant Commissioner of Central Excise, Chennai

Finance Act, 1994 Service - Tax June 1997 to 2001-02 42.26 Assistant Commissioner of Central Excise, Chennai(Chapter V) 2006-07 4.74 Commissioner of Central Excise (Appeals), Chennai

2006-07 9.24 Additional Commissioner of Central Excise, Chennai2007-08 13.15 Commissioner of Central Excise (Appeals), Chennai2007-08 10.95 Additional Commissioner of Central Excise, Chennai2007-08 14.78 Assistant Commissioner of Central Excise, Chennai2008-09 8.04 Assistant Commissioner of Central Excise, Chennai

Income Tax Act, 1961 Income tax AY 1997-98 53.82 Income tax Appellate Tribunal- ChennaiAY 1997-98 & 98-99 68.88 Commisioner of Income tax, ChennaiAY 2005-06 45.12 Commisioner of Income tax, Chennai

Orchid Chemicals & Pharmaceuticals Ltd.

BALANCE SHEET as at March 31, 2009

Schedule 31.03.2009 31.03.2008

I SOURCES OF FUNDS

A. Shareholders’ Funds

Share Capital A 7044.21 6585.08

Reserves and Surplus B 59977.30 62224.45

B. Loan Funds

Secured Loans C 169500.96 96246.14

Unsecured Loans

From Banks 11004.01 21000.00

Foreign Currency Convertible Bonds ( Refer Note 6 ) 79170.45 78098.18

C. Deferred Tax Liability (Refer Note 19(a) of Schedule Q) 12949.20 11577.55

Total 339646.13 275731.40

II. APPLICATION OF FUNDS

D. Fixed Assets D

Gross Block 253559.21 196056.58

Less : Depreciation 66924.52 54675.91

Net Block 186634.69 141380.67

Capital Work in Progress 38815.97 38052.58

Advance for capital items 15762.66 23580.03

241213.32 203013.28

E. Investments E 12236.81 11382.00

F. Foreign currency Monetary item Translation difference Account 8357.94 –

G. Current Assets, Loans And Advances

Inventories F 74368.79 63318.64

Sundry Debtors G 65903.57 52256.38

Cash and Bank Balances H 4152.04 2284.84

Other Current Assets I – 13.18

Loans and advances J 15958.68 14642.67

160383.08 132515.71

H. Less Current Liabilities and Provisions K 82545.02 71179.59

77838.06 61336.12

Total 339646.13 275731.40

Notes on accounts Q

On behalf of the Board

As per our report of even date

For SNB Associates K. Raghavendra RaoChartered Accountants Managing Director

B. Mahalingam Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduPartner Deputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

(Rs. lakh)

34 Orchid Chemicals & Pharmaceuticals Ltd.

PROFIT AND LOSS ACCOUNT for the year ended March 31, 2009

On behalf of the Board

As per our report of even date

For SNB Associates K. Raghavendra RaoChartered Accountants Managing Director

B. Mahalingam Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduPartner Deputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

Schedule 31.03.2009 31.03.2008

I. INCOME

Sales & Operating Income L 120321.43 125018.14

Less : Excise Duty 1177.39 119144.04 1126.52 123891.62

Other Income M 9015.41 7250.87

128159.45 131142.49

II. EXPENDITURE

Material Cost N 51030.99 43464.90

Manufacturing, Selling & Other Expenses O 52297.47 45944.05

Interest and Finance charges P 15518.60 8112.63

Depreciation / Amortisation 12997.21 9766.78

131844.27 107288.36

III. PROFIT /(LOSS)

Profit/(Loss) for the year before tax (3684.82) 23854.13

Less : Provision for tax

Current Taxes – 2908.97

Fringe Benefit Tax 161.00 150.00

Deferred Taxes (Refer Note 19(a)) 1371.65 1532.65 2341.55 5400.52

Profit/(Loss) for the year after tax (5217.47) 18453.61

Balance brought forward 8157.47 4010.17

Balance Available for Appropriation 2940.00 22463.78

IV. APPROPRIATIONS

Excess provision of dividend & tax thereon of earlier year written back (963.71) (1129.82)

Proposed Dividend 915.84 2936.99

Tax on proposed dividend 155.65 1071.49 499.14 3436.13

Transfer to General Reserve – 12000.00

Balance carried to Balance Sheet 2832.22 8157.47

V. EARNINGS PER SHARE (Face value of Rs. 10/-each)

Basic (Rs.) (7.61) 28.03

Diluted (Rs.) (7.61) 18.85

Notes on Accounts Q

(Rs. lakh)

35Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS as at March 31, 2009

31.03.2009 31.03.2008

Authorized10,00,00,000 (Previous year 10,00,00,000) Equity Shares of Rs. 10/- each 10000.00 10000.00Issued, Subscribed and Paid-up7,04,42,076 (Previous year - 6, 58,50,776) equity Shares of Rs.10/- each fully paid. 7044.21 6585.08Of the above:

1,73,76,940 Equity shares of Rs.10/- each were allotted as fully paid

bonus shares by capitalisation of reserves.

Schedule “A” SHARE CAPITAL

(Rs. lakh)

All Rupee Term Loans and Foreign Currency Term Loans from Banks/Financial Institutions are secured by Pari Passu charge by way of joint mortgage on immovable

and movable assets situated at Factory premises at SIDCO Industrial Area, Alathur, MIDC Industrial Area, Aurangabad,SIPCOT Industrial Park, Irungattukottai and

R&D premises at Sholinganallur and current assets, subject to prior charges created/ to be created on current assets in favour of bankers and financial institutions

for securing working capital borrowings. Total term loans aggregating Rs. 82,927 lakh are additionally secured by personal guarantee of Shri K.Raghavendra Rao,

Managing Director of the Company.

Packing Credit and Advances against bills from Banks and Working Capital Loans from Banks are secured by first charge on all current assets namely, Stocks

of Raw materials, Semi-finished & Finished Goods, Stores and Spares not relating to Plant & Machinery (Consumable Stores and Spares), Bills Receivable, Book

Capital Reserve– Opening Balance 805.54 805.54

– Additions during the year 89.14 894.68 – 805.54

Securities Premium Account– Opening Balance 24780.45 21635.37

– Additions during the year* (Refer Note 6 (c) of Schedule Q) 8336.90 3145.08

33117.35 24780.45

Deductions during the year– Provision for premium on redemption of FCCB – –

– GDR/FCCB issue expenses adjustment – 33117.35 – 24780.45

General Reserve– Opening Balance 28480.99 17091.49

– Less : Adjustment for Retirement Benefits** – (610.50)

– Less : Adjustment for AS11 (5347.94)

– Add : Transfers during the year – 23133.05 12000.00 28480.99

**(Refer Note.1(h) of Schedule Q)

Surplus in Profit & Loss Account 2832.22 8157.47

59977.30 62224.45

(* includes Exchange rate gain/(loss) on provision for premium on redemption of FCCB Rs. (7414.30) lakh (Previous year Rs. 3079.69 lakh))

Schedule “B” RESERVES & SURPLUS

From Banks

– Rupee Term Loans 92064.85 36115.13

– Foreign Currency Term Loans 24261.25 13,646.40

– Rupee & Foreign Currency Packing Credit/Cash credit & Advance against Bills 53021.00 46298.51

169347.10 96060.04

Hire Purchase Finance 153.86 186.10

169500.96 96246.14

Schedule “C” SECURED LOANS

36 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS as at March 31, 2009

Debts & all other movable property both present and future excluding such movables as may be permitted by the banks/ financial institutions from time to time

and by second charge on immovable properties after charges created/ to be created on immovable assets in favour of Financial Institutions/Banks for securing

Term Loans. The borrowings from banks are additionally secured by personal guarantee of Shri. K. Raghavendra Rao, Managing Director of the Company.

Hire purchase Loans are secured by the assets acquired through such loans.

Schedule “D” FIXED ASSETS

Gross Block (At Cost) Depreciation/Amortization Written Down Value

SL Asset Description As at Additions Deletions As at Up to For On Up to As at As at

No. 1.4.2008 during during 31.3.2009 31.3.2008 the year Deletions 31.3.2009 31.3.2009 31.3.2008

the year the year

1. Freehold Land &

Site Development@ 3180.04 – – 3180.04 – – – – 3180.04 3180.04

2. Leasehold Land@ 2581.52 11.59 – 2593.11 46.84 9.24 – 56.08 2537.03 2534.68

3. Buildings 23612.67 16078.90 – 39691.57 2948.77 851.03 – 3799.80 35891.77 20663.90

4. Plant & Machinery 143027.24 38315.28 731.51 180611.01 43544.17 10751.86 521.21 53774.82 126836.19 99483.07

5. Factory Equipment 1454.93 263.62 0.88 1717.67 660.83 142.34 0.54 802.63 915.04 794.10

6. Laboratory Equipment 8505.49 3180.25 18.04 11667.70 1757.37 468.91 9.21 2217.07 9450.63 6748.12

7. Office Equipment 2009.49 494.97 163.29 2341.17 1092.33 200.82 132.84 1160.31 1180.86 917.16

8. Furniture & Fittings 1597.58 188.33 11.87 1774.04 526.79 97.80 6.49 618.10 1155.94 1070.79

9. Vehicles 720.65 84.69 189.41 615.93 199.78 57.99 78.32 179.45 436.48 520.87

10 Intangible Assets

Acquired

Brands & Trademarks * 2778.16 – – 2778.16 2335.38 115.63 – 2451.01 327.15 442.78

Internally Generated

DMF & ANDA ** 6588.81 – – 6588.81 1563.65 301.60 – 1865.25 4723.56 5025.16

Total 196056.58 58617.63 1115.00 253559.21 54675.91 12997.22 748.61 66924.52 186634.69 141380.67

Previous Year's Figures 143181.65 52974.33 99.40 196056.58 44940.05 9766.78 30.92 54675.91 141380.67

As at As at 31.3.2009 31.3.2008

Rs. lakh Rs. lakh@ Assets acquired pending for registration in favour of the Company.

Freehold Land 59.09 59.09

Leasehold Land – 1756.54

Fixed Assets include assets on Hire Purchase (Gross Block) 306.10 294.74

* Represents value of registrations and value of applications filed Pending registration

** Refer Note 1 (b) (iv) of Schedule Q

(Rs. lakh)

37Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS as at March 31, 2009

31.03.2009 31.03.2008Nos. Rs. lakh Nos. Rs. lakh

(at cost)

LONG TERM

Trade, UnQuoted

Subsidiary Companies

Orchid Europe Limited, UK

Common stock of GBP 1 each fully paid up 10000 6.42 10000 6.42

Less : Provision for diminution in value (6.42) (6.42)

– –

Ogna Farma, Brazil@

Common stock – 134.42

Less : Provision for diminution in value – (134.42)

– –

Orchid Pharma Japan KK

Common stock JPY 50000 each fully paid up 600 122.49 –

Orchid Pharmaceuticals Inc., USA

Common stock of US$ 1 each fully paid up 200000 85.07 200000 85.07

Less : Provision for diminution in value (40.21) (40.21)

44.86 44.86

Bexel Pharmaceutical Inc.**

9,999,990 Series A & 48,93,750 Series B Convertible Preferred Stock 23894830 8883.24 23894830 8883.24

par value USD 0.001 per share and 9,001,090 Common

stock of par value USD 0.001 per share

Orchid Pharmaceuticals SA(Proprietary)Limited.South Africa 230033 13.11 139965 8.48

10000 shares each fully paid up

Orchid Research Laboratories Ltd.

Fully paid up equity shares of Rs. 10 each 14876600 1487.66 14876600 1487.66

Less : Provision for diminution in value (1487.66) (1487.66)

– –

9063.70 8936.58

Joint Venture Companies

Diakron Pharmaceuticals, Inc. USA

Series A Preferred stock and common stock representing 40% interest 3229859 727.69 –

NCPC Orchid Pharmaceuticals Company Ltd, China 2364.24 2364.24

Common stock representing 50% interest in the Company

3091.93 2364.24

Schedule “E” INVESTMENTS

38 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS as at March 31, 2009

31.03.2009 31.03.2008Nos. Rs. lakh Nos. Rs. lakh

Others

– Trade, Unquoted

Sai Regency Power Corporation Pvt. Ltd.

Fully paid up equity shares of Rs. 10/- each 450000 45.00 450000 45.00

– Non-Trade, Unquoted

Madras Stock Exchange

Fully paid up equity shares of Re. 1/– each 911430 23.98 47970 23.98

MSE Financial Services Ltd.

Fully paid up equity shares of Rs. 10/- each 31936 3.83 31936 3.83

Non - Trade, Quoted

Bank of India -

Fully paid up equity shares of Rs. 10/- each 18600 8.37 18600 8.37

81.18 81.18

Total Value of Investments 12236.81 11382.00

Market Value for quoted investment is Rs. 40.81 Lakhs. (Previous year Rs. 47.04 Lakhs)

Aggregate value of unquoted investment is Rs. 12228.44 lakh (Previous year Rs. 11373.63 lakh)

Units bought and sold during the year:

Chola Mutual Fund 10000000 units valued at Rs. 1000 lakh

** Each Series A & B Preferred stock is convertible into One Common stock, at any time, at the option of the Company and will have voting rights

equal to one common stock and has the same value as common stock.

@ deleted as the Company is wound up

Schedule “E” INVESTMENTS (Contd.)

31.03.2009 31.03.2008

Raw Materials 15997.28 11221.29

Stores and Spare parts 2532.80 2877.69

Chemicals and Consumables 1001.40 1084.68

Packing Materials 1515.77 1551.83

Intermediates & WIP 42669.70 36420.24

Finished Goods 9842.02 9613.16

Traded Goods 809.82 549.75

74368.79 63318.64

Schedule “F” INVENTORIES (Refer Note 1(f), Schedule “Q”)

(Rs. lakh)

Debts more than 6 months (Unsecured)

Considered Good 48017.26 21300.17

Considered Doubtful 1615.11 1615.11

Other Debts (Considered Good)

Secured 217.94 233.81

Unsecured 17668.37 30722.40

67518.68 53871.49

Less: Provision for Doubtful Debts 1615.11 1615.11

65903.57 52256.38

Schedule “G” SUNDRY DEBTORS

39Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS as at March 31, 2009

31.03.2009 31.03.2008

Cash In Hand 9.79 9.25

Balances With Scheduled Banks OnCurrent account 1317.26 871.34

Term Deposit account 2100.82 713.52

Margin money deposit 645.80 604.08

Share Application money and Dividend account 55.21 52.61

Balances with other Banks on :Current account (Ref Note 12 of Schedule Q) 23.16 34.04

4152.04 2284.84

Schedule “H” CASH AND BANK BALANCES

(Rs. lakh)

Interest accrued on deposits and advances * 21.07 34.25

21.07 34.25

Less: Provision for Doubtful Interest accrued 21.07 21.07

*Includes dues from subsidiary Rs. 21.07 lakh (Previous Year 21.07 lakh) – 13.18

Schedule “I” OTHER CURRENT ASSETS

Considered GoodAdvances recoverable in cash or kind or for value to be received 6320.57 6258.71 Advance Payment of Tax 4100.88 3987.29 Loans to Subsidiaries 4405.33 3382.36 Deposits– With Government authorities 508.78 342.24 – Others 623.12 672.07 Considered Doubtful– Loan to Subsidiary 3211.59 1710.25 - Others 205.33 2039.06

19375.60 18391.98 Less: Provision for Doubtful Advances/Loans to Subsidiaries 3416.92 3749.31

15958.68 14642.67

Schedule “J” LOANS AND ADVANCES (Unsecured)

Acceptances 73.78 1389.02 Sundry creditors (other than Micro, Small & Medium Scale Enterprises) for– Capital Items 5669.71 4346.70 – Other supplies 21621.85 18228.10 – Expenses [Includes due to Directors - Rs. 21 lakh (Previous year - Rs. 400 lakh)] 9288.97 3685.15 Investor Education and Protection Fund shall be credited by the following amounts namely :*– Unclaimed Dividend 55.21 52.61 – Share Application Money Refundable 5.42 5.42 Premium payable on redemption of FCCBs (Ref Note 6(c)) 34254.36 33750.35 Other liabilities [Refer Note 18. (b) of Schedule Q] 1918.43 1888.22 Provisions For– Retirement Benefits 1231.37 1043.47 – Rebates/Discounts 4000.00 –– Taxation 3354.43 3354.42 – Proposed Dividend 915.84 2936.99 – Tax on Proposed Dividend 155.65 499.14 * Represents balances in those accounts as of 31st March. Actual amount to be transferred to the Investor Education and Protection Fund will be determined on due dates. 82545.02 71179.59

Schedule “K” CURRENT LIABILITIES AND PROVISIONS

40 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS for the year ended March 31, 2009

31.03.2009 31.03.2008

Sales 116835.64 120287.72

Less : Excise Duty 1158.68 115676.96 1123.64 119164.08

Operating Income

Income from services rendered

Technical & Consultancy Fees (TDS - Rs. Nil (Previous year - Rs. Nil)) 30.58 2.88

Contract Research & Development 149.58 239.40

Sale of Other Materials 472.93 321.50

Less : Excise Duty 18.71 454.22 2.88 318.62

Development Fee 1938.09 3206.67

Licence Fee 713.23 860.82

Other Operating Income 181.38 99.15

119144.04 123891.62

Schedule “L” SALES & OPERATING INCOME

(Rs. lakh)

Income from Investments

Dividend (Refer Note 8 of Schedule Q) 301.85 1.80

Exchange Rate Gain on FCCBs – 7126.67

Gain on cancellation of FCCBs–net 6730.53 –

Provision for doubtful debts written back 1833.73 –

Profit on sale of fixed assets 2.92 1.90

Miscellaneous Income 146.38 120.50

9015.41 7250.87

Schedule “M” OTHER INCOME

Raw Materials Consumed 50407.82 39049.41

Cost of Traded Goods 3367.60 53775.42 2610.12 41659.53

Less: (Accretion to) / Depletion in Stocks

Closing Stock of Intermediates, WIP & Finished Goods 52511.72 46033.40

Opening Stock of Intermediates, WIP & Finished Goods 46033.40 (6478.32) 44099.62 (1933.78)

Consumption of Packing Materials 3733.89 3739.15

51030.99 43464.90

Schedule “N” MATERIALS COST

Power and Fuel 7344.64 6957.85

Conversion Charges 1760.00 2100.82

Consumption of Stores, Spares & Chemicals 2547.67 3480.19

Factory Maintenance 2281.65 1972.41

Salaries and Wages 10250.63 8173.83

Contribution to Provident & other funds 1002.08 723.93

Staff Welfare 1035.71 1092.00

Rent 18.98 18.06

Rates & Taxes 160.14 127.63

Insurance 1201.17 1355.14

Postage, Telephone & Telex 151.26 154.66

Printing & Stationery 233.58 241.99

Vehicle Maintenance 57.54 68.47

Research & Development Expenses (Refer Note 25) 4633.46 4519.07

Schedule “O” MANUFACTURING, SELLING AND OTHER EXPENSES

41Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS for the year ended March 31, 2009

31.03.2009 31.03.2008

Schedule “O” MANUFACTURING, SELLING AND OTHER EXPENSES (CONTD.)

(Rs. lakh)

Advertisement 17.92 28.63

Recruitment expenses 155.41 259.25

Auditors' Remuneration

Statutory Auditors [Refer Note 7 of Schedule Q] 67.00 66.00

Cost Auditors 11.24 11.06

Travelling and Conveyance 1383.77 1151.12

Directors' Remuneration & perquisites (Refer Note 9) 343.44 707.75

Directors' travelling

Inland 13.53 11.28

Overseas 29.62 62.04

Directors' sitting fees 14.20 15.20

Loss on sale of fixed asset/written off 214.05 13.97

Freight outward 2364.24 2097.42

Commission on Sales 950.34 1253.70

Business Promotion and Selling Expenses 1367.14 1177.15

Consultancy & Professional Fees 3119.87 2457.91

Exchange Rate Loss/ (Gain) 1568.35 749.97

Provision for Rebates/Discounts 4000.00 –

Provision for Diminution in value of Investments – 134.42

Provision for Losses of subsidiary companies 1501.34 1822.66

Provision for doubtful advances – 1547.96

Miscellaneous expenses 2497.50 1390.51

52297.47 45944.05

Interest on Term Loans 5122.19 1801.17

Other Interest & Finance Charges 10396.41 6311.46

15518.60 8112.63

Schedule “P” INTEREST AND FINANCE CHARGES (Refer Note 10)

On behalf of the Board

As per our report of even date

For SNB Associates K. Raghavendra RaoChartered Accountants Managing Director

B. Mahalingam Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduPartner Deputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

42 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS

43Annual Report 2008-09

1. Significant Accounting Policiesa) Accounting Convention

The Financial Statements are prepared under historical cost convention. Revenues are recognised and expenses are accounted on their accrual with

necessary provisions for all known liabilities and losses.

b) Fixed Assetsi) Fixed Assets are stated at the original cost inclusive of inward freight, incidental expenses related to acquisition and related pre-operational

expenses and technical knowhow fees where applicable.

ii) Machinery spares which can be used only in connection with specific fixed assets and the use of which are irregular, are charged over the period

of the life of such fixed asset, in accordance with Accounting Standard (AS 10 ).

iii) Brands represent brands acquired by the Company and includes IPR & Licences purchased for a consolidated consideration.The cost of brands,

patents and trademarks are amortised over a period of 60 months from the month of acquisition.

iv) INTERNALLY GENERATED INTANGIBLE ASSETS - DMF & ANDA

DMF and ANDA costs represent expenses incurred on development of processes and compliance with regulatory procedures of the US FDA, in

filing Drug Master Files("DMF") and Abbreviated New Drug Applications("ANDA"), in respect of products for which commercial value has been

established by virtue of third party agreements/arrangements. This is in accordance with the requirements of Accounting Standard 26.

The cost of each DMF/ANDA is amortised to the extent of recovery of developmental costs applicable as per terms of agreement or over a period

of five years from the date on which the product covered by DMF/ANDA is commercially marketed, whichever is earlier.

v) Assets are depreciated on straight line basis at the rates specified in Schedule XI of the Companies Act, except in respect of the following assets,

where the useful lives reckoned in computing the depreciation for the year are different from those derived from the rates specified in Schedule

XI of the Companies Act, 1956. The revised useful life of the assets have been determined by the Management based on technical assessment.

Asset Categories Useful lifeReactors, Pipes, Pipe fittings, Valves, Motors, Pumps, Nitrogen Plant, Gear Boxes, 9 years

Cables and Centrifuges Evaporator (indigenous), Jet aeration system (indigenous),

Ventilation & Exhaust system, HCL column, ETP (indigenous), scrubber, incinerator (indigenous)

& Instrumentation items.

Depreciation is provided at rate arrived based on useful life or Schedule XI rates whichever is higher.

vi) Leasehold assets cost is amortised over the period of the Lease.

vii) Depreciation on assets added/disposed off during the year is provided on pro-rata basis from the month of addition or up to the month of disposal,

as applicable.

viii) Impairment of assets:

Management periodically assesses using external and internal sources whether there is an indication that an asset may be impaired. An impairment

occurs where the carrying value exceeds the present value of future cash flows expected to arise from the continuing use of the assets and its

eventual disposal. The impairment loss to be expensed is determined as the excess of the carrying amount over the higher of the asset's net sales

price or present value as determined above.

c) Borrowing CostsInterest cost on qualifying asset being an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, is capitalised

at the weighted average rate of the funds borrowed and utilised for acquisition of such assets.

d) Treatment of expenditure during construction period.Expenditure during construction period is included under capital work-in-progress and the same is allocated to the respective fixed assets on the

completion of construction.

e) InvestmentsInvestments considered long term are shown at cost. Diminution in the value of investments other than temporary are provided for. Current investments

are valued at lower of cost and market value.

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

As at 31.03.2009 As at 31.03.20083. Estimated amounts of contracts remaining to be executed on capital account

(net of advances) and not provided for. 10712.57 13063.43

4. a. Other monies for which company is contingently liable :

– Bills Discounted 21402.71 21395.61

– Unexpired Letters of Credit 13295.03 15217.56

– Bank Guarantees outstanding 518.89 946.82

– Claims against the Company not acknowledged as debts

Excise demands under dispute pending before Excise authorities 1182.43 861.50

Service Tax dispute pending before High Court of Chennai 103.16 56.03

b. Provision and contigencies in accordance with AS 29 :

Opening Balance – –

Additions during the year 4000.00 –

Closing Balance 4000.00 –

(Rs. lakh)

f) Inventoriesi) Stores & Spares – At weighted average cost.

ii) Raw Materials – At annual weighted average cost

iii) Finished Goods @ – At Lower of cost & net realisable value

iv) Work in Progress & Intermediates @ – At Lower of cost & net realisable value

@ After adjustment of unrealised profits on inter division transfer.

g) Revenue RecognitionSales are recognised on despatch of goods from the factory/ warehouse and price differentials are accounted for at the end of each quarter as per the

terms of marketing arrangement. Sales are net of returns, discounts and inter-division transfers. Service income is recognised as per contractual terms.

In respect of composite contracts involving development and other activities, income is recognised on the basis of contractual terms after considering

the quantum of work completed.

h) Retirement BenefitsRetirement Benefits are accounted on acturial valuation carried out at the end of the year. The Company's liability towards the gratuity of employees is

covered by a group gratuity policy with LIC and ICICI Prudential Life Insurance Company Ltd and the contribution to the fund is based on actuarial

valuation carried out yearly as at 31st March as per the revised AS15. Provision for Leave Encashment has been made based on actuarial valuation as at

the year end as per revised AS15.

i) Translation of Foreign Currency items1) Non - Monetary foreign currency items are carried at cost.

2) All inter-related transactions are recognised at common rates.

3) Transactions denominated in foreign currencies are recorded at the exchange rate prevailing on the date of transaction.

4) Monetary items denominated in foreign currencies at the year end are restated at year end rates. In case of items which are covered by forward

exchange contracts, the difference between the year end rate and the rate on the date of the contract is recognised as exchange difference

and the premium paid on forward contracts is recognised over the life of the contract.

The Company has exercised the option provided under the amendment to the Companies (Accounting Standards) Amendment Rules, 2006 dated

March 31, 2009, AS 11. The exercise of the above option has resulted in (a) Rs. 5347.94 lakh relating to previous year adjusted in General Reserve

(b) amount remaining unamortised in the financial statements as on March 31, 2009 is Rs. 8357.94 lakh (c) The value of fixed assets adjusted

for exchange loss is Rs. 2994.32 lakh resulting in depreciation amount being more by Rs. 33.73 lakh (d) loss for the year is lower by

Rs. 16666.46 lakh.

j) Subsidy on Fixed AssetsSubsidy received on fixed assets is credited to the cost of respective fixed assets.

2. Sales tax recoverable has been recorded on the basis of the claims submitted or in the process of being submitted, as per rules relating to EOU and which in

the opinion of the Company are recoverable.

44 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

5. The Company has filed an appeal against the demand made by the Income Tax department amounting to Rs. 98.94 lakh-(Previous year Rs. 53.82 lakh). No

provision has been made as the Company is confident of winning the appeal. No provision has also been made for demand of interest amounting to Rs. 68.88

lakh (Previous year Rs. 68.88 lakh) as petition has already been filed for waiver of interest.

6. Foreign Currency Convertible Bonds (FCCBs) :a) The Company raised FCCBs during 2006-07 aggregating to USD 175 million (Rs. 77358.75 lakh) with an option to the investor to convert the FCCBs into

equity shares of the Company at an initial conversion price of Rs. 348.335 per share at a fixed rate of exchange on conversion Rs. 43.93 = USD 1, at any

time after April 9, 2007 and prior to February 18, 2012. Further the Company has an option of early redemption of these FCCBs in whole at any time on

or after February 28, 2010 and prior to February 21, 2012, subject to certain conditions. Unless previously converted, redeemed or repurchased and

cancelled, the FCCBs will be redeemed on February 28, 2012 at 142.77% of their principal amount.

During the year 2008-09, the Company bought FCCBs and cancelled to the extent of USD 37.80 million and the outstanding FCCBs as at March 31, 2009

is USD 137.20 million.

b) The Company raised FCCBs during the year 2005-06 aggregating to USD 42.50 million (Rs. 19284.50 lakh) including a green shoe option of USD 5 million

(Rs. 2289.50 lakh) with an option to the investor to convert the FCCBs into equity shares or global depository receipts at an initial conversion price of

Rs. 243.80 per share at a fixed rate of exchange on conversion Rs. 44.94 = USD 1. Out of the above, FCCBs amounting to USD 22.79 million (Rs. 10241.82

lakh) have been so far converted.

Further, the Company has an option of early redemption of these FCCBs at any time after November 03,2006 subject to certain conditions. Unless

previously converted, redeemed or repurchased and cancelled, the FCCBs will be redeemed on November 03, 2010 at 147.1688% of their principal

amount.

During the year 2008-09, the Company bought FCCBs to the extent of USD 2.25 million and the outstanding FCCBs as at March 31, 2009 is USD 17.46

million.

The current status of above FCCBs conversion into equity is as follows:

c) Provision has already been made for the entire premium payable on redemption of FCCBs amounting to Rs. 36830.08 lakh by debiting the Securities

Premium Account (SPA). In the event that the conversion option is exercised by the holder of FCCBs in the future, the amount of premium charged to

SPA will be suitably adjusted in the respective years.

The debit to share premium account for premium on FCCBs and for issue expenses have been made on the gross value without adjusting any tax impact.

Tax benefits accruing to the Company on account of claiming such expenses will be credited to the SPA account in the year in which the benefit is enjoyed

by the Company.

The provision for premium on redemption of FCCBs debited to SPA is being restated at the exchange rate prevailing at the year end and the gain/(loss)

of (Rs. 7414.30 lakh) on account of such restatement is adjusted to the security premium account.

d) Even though the Company has provided for the premium on redemption of FCCBs as per note [c] above, the Company also makes provision for dividend

in the books of account on the equity shares to be allotted upon conversion of FCCBs outstanding as at respective year end. Since the Company is

obliged, as per SEBI guidelines, to pay dividend to those FCCBs holders who convert their FCCBs into equity after adoption of the financial statements

and upto the book closure date.

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

Particulars FCCBs Value Number of Increase in Increase in Security

Shares Equity Premium

US$ million in lakh Rs. lakh Rs. lakh

Conversion effected up to March 31, 2009 22.79 42.00 420.09 9821.71

22.79 42.00 420.09 9821.71

45Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

As at 31.03.2009 As at 31.03.2008e) Usage of funds raised through FCCBs

Opening Balance 6.85 10,117.21

Funds received – –

Add: Interest received – –

Less: Expenses of Issue/Exchange fluctuations (0.96) 168.24

7.81 9,948.97

Repayment of Loans – –

Capital Expenditure/ Advances/ ANDA filings – 9,942.12

Balance 7.81 6.85

(Rs. lakh)

Year ended Year ended31.03.2009 31.03.2008

7. Auditors' remuneration include the following:

Audit fee 50.00 50.00

Tax Audit fee 7.50 7.50

For certification & other matters 9.50 8.5067.00 66.00

8. Dividend includes the followingTrade 297.84 –

Non-trade 4.00 1.80

301.84 1.80 9. Directors' Remuneration (including Managing Director's Remuneration)

– Salaries 228.00 204.00

– Contribution to funds 55.08 48.60

– Other Perquisites 60.36 55.15

– Commission – 400.00

343.44 707.75 Net Profit for Computation of Managing Director's CommissionProfit /(Loss) for the year before taxation as per Profit & Loss Account (3684.82) 23854.13

Add : Directors' Remuneration 343.44 707.75

Loss on sale of Investments – –

Loss on sale of Fixed Assets 231.98 16.95

Exchange rate losses on FCCB 2839.17

Provision for Rebates/discounts 4000.00

Provision for Doubtful debts / Advances – 1547.96

Provision for Diminution in value of investment – 134.42

Losses of Subsidiary companies 1501.34 1822.66

5231.11 28083.87

Less : Profit on sale of Investments – –

Provision for Doubtful advances written back 1833.73

Exchange rate gain on FCCB – 7126.67

Gain on FCCB cancellation 6730.53

Profit on sale of Fixed Assets 2.92 1.90

8567.18 7128.57

Net Profit/(Loss) (3336.07) 20955.30

The Company has made an application to Central Government to approve the remuneration paid to the Managing Director and whole time director,as the

minimum remuneration payable in case of inadequacy of profit. Approval for the same is awaited and the above remuneration is subject to such approval.

(Rs. lakh)

46 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

Year ended Year ended31.03.2009 31.03.2008

10. a) Other Interest and Finance Charges is after crediting interest receipts 100.83 38.92 TDS on interest receipts 15.32 6.98

b) Amount of interest capitalised 4541.23 3979.13 11. a) Factory Maintenance includes

– Repairs & Maintenance - Plant & Machinery 732.40 516.94 – Repairs & Maintenance - Building 140.22 139.79

b) Consumption of Stores, Spares and Chemicals include Stores & Spares issued for maintenance 596.61 824.50

(Rs. lakh)

2008-09 2007-0812. Balance as at the end of the year and maximum amount outstanding at any time

during the year with banks other than Scheduled Banks.

Barclays Bank, London Balance as at March 31 1.39 –

Maximum amount outstanding 10127.00 –

Citibank NA, New York Balance as at March 31 5.38 4.96

amount outstanding 5.38 6.26

JSC Vneshtorgbank, Moscow Balance as at March 31 4.61 24.76

Maximum amount outstanding 69.88 52.60

Bank of India, New Jersey Balance as at March 31 2.41 1.88

Maximum amount outstanding 2.41 10110.95

Industrial Investment Bank, Ukraine Balance as at March 31 – 0.12

Maximum amount outstanding 27.84 33.83

Eco Bank, Ghana Balance as at March 31 6.60 0.30

Maximum amount outstanding 21.78 5.17

JS ATF Bank, Kazak Balance as at March 31 0.22 2.02

Maximum amount outstanding 18.41 23.72

Private Bank, Ukraine Balance as at March 31 2.54 –

Maximum amount outstanding 28.69 –

13. Amounts Due to Micro, Small and Medium EnterprisesThe Identification of Micro, Small and Medium Enterprises Suppliers as defined under "The Micro, Small and Medium Enterprises Development Act 2006" is

based on the Information available with the management. As certified by the Management, the amounts overdue as on March 31, 2009 to Micro, Small

and Medium Enterprises on account of principal amount together with interest, aggregate to Rs. Nil (Previous year Nil).

14. Derivative Instruments and Unhedged Foreign Currency Exposure:

a) Derivative instruments

b) The purpose for which the instruments have been acquired is for hedging the foreign currency exposures.

Sl No. Particulars As at As at 31.03.2009 31.03.2008

1. Currency Swap 17221.85 21649.40

(Rs. lakh)

47Annual Report 2008-09

48 Orchid Chemicals & Pharmaceuticals Ltd.

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

2008-09 2007-08Currency Foreign Rs. lakh Foreign Rs. lakh

Currency Currency

i) Receivables OutstandingUSD 123217942 52941.99 122525472 48572.06 EURO 448782 300.54 595724 286.42 AUD 161626 56.39 – –

ii) Payables Outstanding USD 18610098 9166.18 29694024 11934.03 EUR 706015 506.72 4063999 2584.70 JPY 1847128 7.95 28418597 114.73 Others – 27.37 – 48.41

iii) Advance Paid GBP 272591 229.34 707210 562.41 SGD 11280 3.29 11280 3.29 USD 5357900 2719.40 4670000 1845.58 EUR 10247544 7014.70 566045 352.87 CHF 130390 60.03 – –

iv) FCCBs USD 154660000 79170.45 194710000 78098.18 v) Loans USD 47394502 24261.25 62098487 24887.03

c) The Foreign Currency Exposures that are not hedged by a derivative instrument or otherwise

16. a) Related Party TransactionsIn accordance with Accounting Standard 18, the disclosure required is given below:

Nature of Transaction Subsidiary Joint venture Key Management Relatives of Key Personnel Management

Personnel/ Companiesin which they exercise

significant influence

Finance – Equity Contribution 127.12 727.69 – – (63.41) (–) (–) (–)

– Loans & Advances 2524.31 – – – (3647.11) (–) (–) (–)

– Shares allotted – – – 9166.75 (–) (–) (–) (–)

– Warrants allotted – – – – (–) (–) (–) (–)

– Forfeiture of advance on warrants – – – 89.14 (–) (–) (–) (–)

Sale of goods – 3232.39 – – (–) (4140.49) (–) (–)

Rendering of Services / Interest income/rent 120.67 354.14 – – (120.50) (–) (–) (–)

Transfer of IPR – – – – (–) (–) (–) (–)

Availment of Services/Rent 495.44 – – 425.64 (452.11) (–) (–) (136.41)

– Remuneration – – Ref Note 9 – Amounts due at the end of the year – Debit 7637.99 349.13 – 10.83

(5113.68) (124.06) (–) (111.10)Amounts due at the end of the year – Credit – – – –

(–) (–) (–) (–)

(Figures in brackets are for previous year)

(Rs. lakh)

The MTM loss amounting to Rs. 3934.46 lakh on the derivatives outstanding as on March 31, 2009 has been recognised in the accounts and included underexchange rates loss/(gain) account

15. Excise duty on finished goods has been accounted on removal of goods from factory,wherever applicable. Finished goods at factory have been valued at costexclusive of excise duty and no provision has been made for excise duty on such goods. The above treatment has no impact on Profit & Loss account.

49Annual Report 2008-09

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

Names of the related parties and description of relationship.

1. Subsidiary Orchid Europe Limited, UK

Orchid Pharmaceuticals Inc., USA

Orgenus Pharma, Inc., USA (Subsidiary of Orchid Pharmaceuticals Inc., USA)

Orchid Research Laboratories Ltd., India

Orchid Pharmaceuticals SA (Proprietary) Limited, South Africa

Bexel Pharmaceuticals, Inc., USA

Orchid Pharma Japan KK

2. Joint Venture NCPC Orchid Pharmaceuticals Company Limited, China

Diakron Pharmaceuticals, Inc., USA

3. Key Management Personnel Mr. K Raghavendra Rao, Managing Director

Dr. C Bhaktavatsala Rao, Deputy Managing Director

4. Relatives of Key Management Personnel Mrs. R Vijayalakshmi (wife of Mr. K Raghavendra Rao)

Ms R Divya and Ms R Sowmya (daughters of Mr.K.Raghavendra Rao)

5. Companies in which relatives of Key Spectrasoft Technologies Limited, India.

Management personnel exercise significant influence.

All whole time directors have been considered as Key Management Personnel as they are involved in planning, directing and controlling the activities of the

reporting enterprise.

b) Information on Loans & Advances as Balance Maximum amount

per Clause 32 of the Listing Agreement as on 31-03-2009 outstanding

during the year

Subsidiary – Orchid Europe Limited, UK 596.10 811.60

Orchid Pharmaceuticals, Inc., USA 64.15 64.15

Bexel Pharmaceuticals, Inc., USA 2655.25 2655.25

Orchid Research Laboratories Ltd., India 4244.30 4244.30

Joint Venture - NCPC Orchid Pharmaceuticals Company Ltd., China 349.13 349.13

(Rs. lakh)

17. In terms of the resolution passed by the Company at the EGM dated October 21,1999 Employee Stock Option Scheme was extended to the employees of the

Company. Accordingly options totalling 15,00,000 Nos were given to the employees as per the scheme formulated under “ORCHID-ESOP 99" scheme by the

Compensation committee of the Board of Directors. Each option is convertible into one equity share of Rs. 10/- each at a price of Rs. 243.35 including

premium for 6,00,000 Nos, Rs. 252 including premium for 3,07,925 Nos, Rs. 300.65 including premium for 2,92,075 Nos and Rs. 339.25 for 3,00,000 Nos.

No entries were passed in the books as the options were given at the market prices prevailing on the date of issuance of options.

A fair and reasonable adjustment in share price/ the number of options outstanding was made by the Company in respect of the Employee Stock Options

granted but not exercised by the Employees due to the corporate action of issue of bonus shares during October 2005. The total number of options outstanding

and the price was adjusted so that the total value and options available to each option holder remained the same.

Consequently the revised and adjusted prices per share are Rs. 162.24 (Rs. 243.35), Rs. 168.00 (Rs. 252.00) and Rs. 200.44 (Rs. 300.65) respectively for

6,00,000 Nos, 3,07,925 Nos and 2,92,075 Nos of options granted by the Company.

For the 3,00,000 options granted during April 2006 at a price of Rs. 339.25, the Compensation Committee of the Board of Directors considered repricing of

the options in the interest of the employees, due to the fall in the price of the shares of the Company and accordingly approved a repricing of the options

from Rs. 339.25 to Rs. 193.25 as per the closing price of Orchid at National Stock Exchange on August 11, 2006. The revision in the price has been approved

by the shareholders at the Annual General Meeting held on July 19, 2007.

Pursuant to the exercise of options by employees, the Allotment Committee of the Board at its meeting held on April 26, 2008, May 29, 2008 and August

13, 2008 allotted 7,525, 16,175, and 3,000 equity shares respectively to the employees under ORCHID ESOP 99 Scheme. 536,153 Options were outstanding

as at March 31, 2009 including the additional number of options adjusted, due to the bonus issue.

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

In terms of the resolution passed by the Company at the AGM dated July 18, 2005 the shareholders approved the scheme formulated under “ORCHID-ESOP

2005”for allotting 10,00,000 Nos. Accordingly 6,10,000 options were given to the eligible directors and employees by the compensation committee of the

Board of Directors at a meeting held on August 12, 2006. Each option is convertible into one equity share of Rs. 10/- each at a price of Rs. 193.25 per share

including premium.

Pursuant to the exercise of options by employees, the Allotment Committee of the Board at its meeting held on April 26, 2008, May 29, 2008, August 13,

2008 and August 29, 2008 allotted 1,900, 200, 1,000 and 1,500 equity shares respectively to the employees and 84,325 Options were outstanding as at March

31, 2009 under ORCHID ESOP 2005 Scheme.

18. a) In terms of the resolution passed by the Company on February 14, 2007, 50,00,000 warrants were allotted to the Promoter /Promoter Group(s), the

relative(s) of the Promoter on March 01, 2007. These warrants are eligible for conversion at the option of the Warrants holders, into equity shares of the

Company at a price of Rs. 202.58 per share within a period of 18 months of the date of allotment.

During the year, pursuant to the exercise of option by the warrant holders, the Allotment Committee of the Board at its meeting held on August 13, 2008

and August 29, 2008 have allotted 381,000 and 41,79,000 equity shares respectively. The balance 440,000 warrants were not exercised within the

stipulated period. Hence on September 01, 2008 the 10% advance paid by them amounting to Rs. 89.14 lakh on the unexercised warrants was forfeited

and credited to capital reserve.

b) Other liabilities include Rs. Nil (Previous year Rs. 1,012.90 lakh) being the amount received as advance against the warrants issued to the promoter

group, including Rs. Nil (Previous year Rs. 7.09 lakh) from a Director.

19. a) Provision for Deferred tax for the year Rs. 1371.65 lakh (Previous year Rs. 2341.55 lakh)

Deferred Tax liability represents the following:

As at 31.03.2009 As at 31.03.2008

Timing Difference on account of Depreciation 21655.01 18911.28

Timing Difference on account of Losses (8705.81) (7333.73)

In accordance with clause 29 of Accounting Standard (AS22) Deferred tax Assets and Deferred tax Liabilities have been set off.

20. Segmental ReportingThe Company was disclosing segment information classifying the business as Bulk drugs and Formulations till the financial year 2004-05. However in view

of integration of bulk actives and formulations business, with the commissioning of Generics formulation facilities from the financial year 2005-06, the

Company considers the business as one interrelated and integrated business of "Pharmaceutical products" and hence no separate segmental reporting is

provided.

(Rs. lakh)

21. Additional information pursuant to the provisions of Paragraph 3, 4C & 4D of Part II of Schedule VI of the Companies Act, 1956

A) Licensed & Installed Capacity (as certified by the management)

Class of Goods Regd/ Licensed Installed Regd/ Licensed Installed2008-09 2008-09 2007-08 2007-08

Bulk Drugs and Intermediates

Oral & Sterile MT 990 990 900 800

Dosage Forms

Vials Nos Millions 20 20 20 20

Tablets Nos Millions 576 576 576 576

Capsules Nos Millions 139 139 139 139

Dry syrups/Powders Nos Millions 13 13 13 13

Installed Capacities are calculated based on a typical product mix, and applicable shift operations.

50 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

B) Value of Raw Materials, Spare Parts and Components consumed during the year

Year ended 31.03.2009 Year ended 31.03.2008

Percentage Amount Percentage Amount

Rs. lakh Rs. lakh

Raw Materials

Imported 79.35% 39996.78 79.25% 30947.55

Indigenous 20.65% 10411.04 20.75% 8101.86

100.00% 50407.82 100.00% 39049.41

Spare Parts, Consumables & Packing Material

Imported 39.78% 2499.09 47.14% 3403.15

Indigenous 60.22% 3782.47 52.86% 3816.19

100.00% 6281.56 100.00% 7219.34

2008-09 2007-08C) Earnings In Foreign Exchange during the year

F.O.B. Value of Exports 93202.59 100855.60

Export of Services including royalty/ knowhow (net of withholding tax) 2714.89 4123.10

D) C.I.F Value of Imports (on cash basis)Raw Materials 28214.51 19598.04

Capital Goods 8175.49 7064.07

Spare Parts, Components, Consumables & Packing materials 5953.24 4174.66

E) Expenditure in Foreign Currency (on cash basis)Travelling Expenses 256.23 139.12

Interest & Bank Charges 2071.04 783.07

Professional/Consultancy Fees 1899.67 1431.43

Royalty/Technical knowhow 103.93 201.50

Others 3277.12 3130.60

F) Dividend Remittances in Foreign Currency during the yearYear to which dividend relates 2007-08 Final 2006-07 Final No of Non Resident Share Holders 2 3

No of Shares held by Non Resident Share Holders 3515000 14189367

Gross Dividend (Rs. lakh)* 105.45 425.68

Net Dividend (Rs. lakh)* 105.45 425.68

* represents only shares in respect of which dividend is remitted in foreign currency by the Company

(Rs. lakh)

22. Reconciliation of Basic and Diluted shares used in computing Earnings Per Share (Equity shares of Rs.10/- each fully paid-up)

Year ended Year ended31.03.2009 31.03.2008

Profit After Tax Rs. (5217.47) 18453.61

No of Shares Outstanding Nos. 70442076 65850776

Weighted Average Number of shares Nos. 68579472 65832234

Earning per Share - Basic Rs. (7.61) 28.03

No of warrants & options allotted Nos. 21141785 32048733

Total No of Equity shares to compute diluted EPS Nos. 89721257 97880967

Earning per Share - Diluted Rs. (7.61) 18.85

51Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

23. Disclosure as per requirements of Accounting Standard 26

As at As at31.03.2009 31.03.2008

ACQUIRED– Brands & Trademarks Useful life 5 Years 5 Years

Gross Carrying Amount (Rs. in lakh) Opening 442.78 888.41

Additions – –

Amortisation 115.63 445.63

Closing 327.15 442.78

INTERNALLY GENERATED- DMF & ANDA(Refer Note 1(b)(iv) of Schedule Q)Useful life 5 Years 5 Years

Gross Carrying Amount (Rs. in lakh) Opening 5025.16 4465.97

Additions - 868.87

Amortisation 301.60 309.68

Closing 4723.57 5025.16

24. a) Details of Group Companies

Name of Subsidiary/Joint Venture Country Type of Percentage Nature of Nature of holding of Holding Relationships Business

Orchid Europe Limited UK Equity 100% Subsidiary Marketing NCPC Orchid Pharmaceuticals Company Limited China Equity 50% Joint Venture Manufacturing Bexel Pharmaceuticals Inc.* USA Convertible @68.48% Subsidiary Research

Preferred stock with equal voting rights as Common stock and Common stock

Orchid Pharmaceuticals Inc. USA Common stock 100% Subsidiary ServicesOrgenus Pharma Inc. USA Subsidiary of Services

OrchidPharmaceuticalsInc.,

Orchid Research Laboratories Ltd. India Equity 100% Subsidiary Research Orchid Pharmaceuticals SA (proprietary) Limited South Africa Equity 100% Subsidiary Marketing

Orchid Pharma Japan KK Japan Equity 100% Subsidiary Marketing

Diakron Pharmaceuticals Inc. USA Convertible 40% Joint Venture ResearchPreferred stockand Common stock

* Preferred stock has been considered as common stock for the purpose of calculating the percentage of holding since Preferred stock has the same voting rights as common stock.

@ excluding 31.52% held through a wholly owned subsidiary

52 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

b) The Company's share of interest in Assets, Liabilities, Income and Expenses of Joint Venture companies

As at 31.03.2009 As at 31.03.2008

Fixed Assets 4014.20 2889.25

Current Assets 6229.88 4452.57

Current Liabilities 3955.62 3005.36

Loans 1910.00 1710.00

Income 11941.72 8244.30

Expenses 11026.84 7707.81

(Rs. lakh)

25. Expenditure on Research and Development

Year ended Year ended31.03.2009 31.03.2008

Capital expenditure 812.15 2564.00

Revenue expenditure charged to the Profit & Loss account 4633.46 4519.07

5445.61 7083.07

Such Capital expenditure for the year 2006-07, 2005-06 & 2004-05 are

Rs. 3934.25 lakh, Rs. 3474.14 lakh & Rs. 3262.56 lakh and revenue expenditures

for the year 2006-07, 2005-06 & 2004-05 are Rs. 3963.13 lakh, Rs. 2662.10 lakh &

Rs.1958.12 lakh respectively.The above information has been provided as required by

Department of Scientific and Industrial Research.

Revenue Research and Development Expenses include :

Power and Fuel 211.27 208.64

Conversion Charges 1.32 –

Consumption of Stores, Spares & Chemicals 945.15 1234.01

Salaries, Wages and Bonus 1841.17 1243.98

Contribution to Provident & other funds 137.43 142.67

Staff Welfare 157.31 121.01

Rates & Taxes 2.30 13.77

Insurance 13.98 20.95

Postage, Telephone & Telex 11.61 27.23

Printing & Stationery 29.76 29.73

Vehicle Maintenance 5.60 3.92

Recruitment expenses 18.22 23.48

Travelling and Conveyance 32.04 54.50

Loss on Sale of Asset 17.94 2.98

Testing Charges 564.65 895.81

Consultancy & Professional Fees 305.41 52.46

Others 338.29 443.93

4633.46 4519.07

53Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

26. A. Defined Contribution Plan

i) The Company contributes 12% of the salary for all eligible employees towards provident fund managed by the Central Government.

ii) The Company also contributes a certain percentage of salary for all eligible employees in managerial cadre towards Superannuation Funds

managed by Life Insurance Corporation of India

B. Defined Benefit Plan

As at As at As at As at31.03.2009 31.03.2008 31.03.2009 31.03.2008

Gratuity Leave Encashment(funded) (unfunded)

1) Reconciliation of opening and closing balances

of Defined Benefit obligationDefined Benefit Obligation at the

beginning of the year 819 813 734 538

Current Service Cost 132 168 101 106

Interest Cost 62 65 52 39

Acturial (gain)/ loss (260) (212) (147) 154

Benefits paid (93) (14) (169) (102)

Defined Benefit Obligation at the year end 660 819 571 734

2) Reconciliation of opening and closing balances of fair value of plan assetsFair Value of plan assets at the beginning of the year 344 406

Expected return on plan assets 38 41

Acturial gain / (loss) 54 (113)

Employer contribution 155 25

Benefits paid (93) (14)

Fair value of plan assets at year end 497 344

Actual return on plan assets (91) (72)

3) Reconciliation of fair value of assets and obligationsFair value of plan assets 497 344 – –

Present value of obligation 660 819 571 734

Amount recognised in Balance Sheet 163 475 571 734

4) Expense recognised during the year Current Service Cost 132 168 101 106

Interest Cost 62 65 52 39

Expected return on plan assets (38) (41) – –

Acturial (gain) / loss (313) (99) (147) 154

Net Cost (157) 92 6 299

5) Investment Details % Invested Funds Managed by Insurer 100% 100%

6) Acturial assumptionsDiscount rate (per annum) 8% 8% 8% 8%

Expected rate of return on plan assets (per annum) 10% 10% – –

Rate of escalation in salary (per annum) 5% 10% 5% 10%

The estimates of rate of escalation in salary considered in actuarial valuation, take into account inflation, seniority, promotion and other relevant

factors including supply and demand in the employment market. The above information is certified by the actuary.

(Rs. lakh)

54 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE ACCOUNTS

Schedule “Q” NOTES ON ACCOUNTS (Contd.)

27. On completion of winding up process of Joint Venture/Subsidiary company the value of investments amounting to Rs.134.42 lakhs (Previous year Rs.112.13lakhs) written off has been adjusted against the provision already made in earlier year amounting to Rs.134.42 lakhs (Previous year Rs.112.13 lakhs).

28. The Central Government by an order under Section 211(4) of the Companies Act,1956 dt. 23.04.2009 has exempted the Company from the disclosure ofquantitative details in compliance of para 3(i)(a), 3(ii)(a), 3(ii)(b) and 3(ii)(d) of Part II of Schedule VI of the Companies Act, 1956 for the financial year ending31-03-2009.

31. Previous year's figures have been re-grouped wherever necessary to conform to current year's classification.

(Rs. lakh)

On behalf of the BoardAs per our report of even dateFor SNB Associates K. Raghavendra RaoChartered Accountants Managing Director

B. Mahalingam Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduPartner Deputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

29. There have been certain delays in repayment of principal and interest to the banks as below :

Bank Principal Interest Due Date Date PaidFederal Bank 383.78 13-Aug-08 4-Sep-08

22.84 31-Oct-08 26-Feb-09451.40 13-Nov-08 25-Feb-09

24.48 30-Nov-08 26-Feb-09467.84 13-Feb-09 26-Mar-09

South Indian Bank 785.89 31-Mar-09 2-Jun-09Allahabad Bank 2500.00 31-Jul-08 27-Aug-08

2500.00 31-Aug-08 10-Oct-08250.00 13-Sep-08 10-Oct-08250.00 27-Sep-08 10-Oct-08

2500.00 30-Sep-08 10-Oct-08250.00 13-Dec-08 25-Feb-09250.00 27-Dec-08 26-Mar-09250.00 13-Mar-09 26-Mar-09

Bank of Baroda 500.00 30-Sep-08 19-Jan-09500.00 31-Dec-08 28-Jan-09500.00 31-Mar-09 30-May-09

Federal Bank 28.47 30-Sep-08 29-Nov-08767.05 30-Sep-08 31-Dec-08

30.14 31-Oct-08 28-Jan-0929.50 30-Nov-08 26-Feb-0930.52 30-Nov-08 26-Feb-09

767.05 30-Nov-08 26-Mar-09767.05 31-Mar-09 30-May-09

IDBI Bank 417.00 30-Sep-08 31-Dec-08417.00 31-Dec-08 26-Mar-09417.00 31-Mar-09 30-May-09

Indian Bank 250.00 30-Sep-08 4-Oct-08250.00 31-Dec-08 26-Mar-09250.00 31-Mar-09 2-Jun-09

Punjab and Sind Bank 88.06 31-Dec-08 24-Feb-09Syndicate Bank 250.00 31-Dec-08 26-Mar-09

250.00 31-Mar-09 30-May-09IDBI Bank 97.89 30-Nov-08 25-Feb-09

55Annual Report 2008-09

30. Sundry Debtors shown in the Balance sheet are subject to confirmations. The Company has sent confirmation letters to all the debtors. In view of therecessionary trend, some of the debtors have been requesting for discounts and the Company is in the process of negotiations with such customers. TheCompany has made adequate provisions for such estimated claims under the head “Provision for Rebates / Discounts”.

Orchid Chemicals & Pharmaceuticals Ltd.

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

Public Issue

Bonus Issue

3 1 0 3

Registration No.

Balance Sheet Date

I. Registration Details

II. Capital Raised during the year (Amount in Rs. Thousands)

Total Liabilities

III. Position of Mobilization and Deployment of Funds (Amount in Rs. Thousands)

2 0 0 9

Date Month Year

Private Placement

Paid-up Capital

Sources of Funds

Total Assets

Reserves & Surplus

IV. Performance of Company (Amount in Rs. Thousands)

Item Code No. (ITC Code) Product DescriptionV. Generic Names of Three Principal Products/Services of Company (as per monetary terms)

Net Fixed Assets Investments

Turnover Total Expenditure

Application of Funds

3 3 9 6 4 6 1 3

2 9 4 1 . 1 0 B U L K C E P H A L O S P O R I N S

3 0 0 4 . 1 0 P H A R M A P R O D U C T S

2 9 4 2 . 0 0 O T H E R B U L K D R U G S

2 2 9 9 4

7 0 4 4 2 1

1 1 9 1 4 4 0 4

Other Income 9 0 1 5 4 1

Profit/Loss before Tax – 3 6 8 4 8 2 Profit/Loss after Tax – 5 2 1 7 4 7

1 3 1 8 4 4 2 7

Earnings Per Share in Rs. Dividend– 7 . 6 1 1 0 %

2 4 1 2 1 3 2 1 2 2 3 6 8 1

Net Current Assets Misc. Expenditure7 7 8 3 8 0 6 N I L

Accumulated Losses N I L

4 5 6 0 0

Rights Issue N I L

State Code 1 8

N I L

3 1 3

3 3 9 6 4 6 1 3

5 9 9 7 7 3 0

Secured Loans Unsecured Loans1 6 9 5 0 0 9 6 9 0 1 7 4 4 6

Deferred Tax Liability 1 2 9 4 9 2 0

On behalf of the Board

K. Raghavendra RaoManaging Director

Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduDeputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

56 Orchid Chemicals & Pharmaceuticals Ltd.

CASH FLOW STATEMENT for the year ended March 31, 2009

31.03.2009 31.03.2008A. CASH FLOW FROM OPERATING ACTIVITIES

Net Profit before taxation and extraordinary item (3684.82) 23854.13

Adjustment for

Depreciation 12997.21 9766.78

Dividend Income (301.85) (1.80)

Provision for doubtful advances written back (1833.73) –

Provision for diminution in value of investments – 325.03

Provision for discounts/Rebates 4000.00 –

Gain on cancellation of FCCBs-net (6730.53) –

Loss of subsidiary companies 1501.34 1632.06

Loss / (profit) on sale of Fixed Assets 229.06 15.05

Foreign Exchange Rate Fluctuations - Unrealised (3469.02) (5474.73)

Interest Expense 15518.60 8112.63

Provision for doubtful debts – 1547.96

Operating Profit before Working Capital Changes 18226.26 39777.11

Adjustments for:

Trade and other Receivables (6631.13) (18929.19)

Inventories (11050.15) (3091.41)

Trade Payables 3209.40 7101.03

Cash generated from Operations 3754.38 24857.54

Income Taxes Paid (274.59) (3218.98)

Net Cash from Operating Activities 3479.79 21638.56

B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (46210.84) (55287.70)

Proceeds from Sale / Deletion of Fixed Assets 137.32 53.44

Investments in Subsidiaries (854.81) (136.22)

Dividends received 301.85 1.80

Net cash used in Investing Activities (46626.48) (55368.68)

(Rs. lakh)

57Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

CASH FLOW STATEMENT (Contd.) for the year ended March 31, 2009

31.03.2009 31.03.2008C. CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issuance of Share Capital (net of expenses) 10951.54 67.88

Proceeds from /(Repayment)Working Capital Borrowings 6722.49 16433.04

Proceeds from Long Term Borrowings 92250.93 43868.13

Repayment of Long Term Borrowings (29422.58) (33143.14)

Proceeds /cancellation of FCCBs (net of expenses) (5632.39) –

Proceeds from / (Repayment of) Short Term Borrowings (9995.99) 12000.00

Proceeds from /(Repayment of) HP Finance (29.23) (20.95)

Interest paid (19503.59) (12091.76)

Dividend paid including dividend distribution tax (2472.41) (2310.46)

Net cash from Financing Activities 42868.77 24802.74

D. NET INCREASE IN CASH AND CASH EQUIVALENTS (277.92) (8927.38)

Cash and Cash equivalents at the beginning of period 1628.15 10555.53

Cash and Cash equivalents at the end of period 1350.21 1628.15

Reconciliation Statement

Cash and bank Balances as per Balance sheet 4152.04 2284.84

Less : Margin Money Deposit 2746.62 604.08

Unclaimed Dividend 55.21 52.61

Cash and cash Equivalents as per cash flow 1350.21 1628.15

(Rs. lakh)

On behalf of the Board

As per our report of even date

For SNB Associates K. Raghavendra RaoChartered Accountants Managing Director

B. Mahalingam Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduPartner Deputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

58 Orchid Chemicals & Pharmaceuticals Ltd.

CONSOLIDATED AUDITORS’ REPORT

1. We have audited the attached Consolidated Balance Sheet of OrchidChemicals & Pharmaceuticals (the “Company”) and its subsidiaries andjoint ventures (together the “Group”), as at March 31, 2009 and theConsolidated Profit and Loss Account and the Consolidated Cash Flowstatement for the year then ended. These financial statements are theresponsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements basedon our audit.

2. We conducted our audit in accordance with the generally acceptedauditing standards in India. These standards require that we plan andperform the audit to obtain reasonable assurance about whether thefinancial statements are prepared, in all material respects, inaccordance with an identified financial reporting framework and arefree of material misstatements. An audit includes, examining on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principlesused and significant estimate made by management, as well asevaluating the overall financial statements presentation. We believethat our audit provides a reasonable basis for our opinion.

3. a) The financial statements of a subsidiary which represents as atMarch 31, 2009, total liabilities (net) of Rs. 585.80 lakh (Previousyear Rs. 422.07 lakh) and total revenue for the year ended of Rs. 151.97 lakh (Previous year Rs. 447.18 lakh) has been audited byother auditors and we have relied upon such audited financialstatements for the purpose of our audit of the ConsolidatedFinancial Statements and our opinion, insofar as it relates to theamounts included in respect of such subsidiary is based solely onthe report of the other auditors.

b) The audited financial statements for the year ended March 31, 2009were not available in respect of four subsidiaries and two jointventures of the Company. Consequently, such subsidiaries and jointventures have been accounted for in the Consolidated FinancialStatements, on the basis of unaudited financial statementsprovided by the management of such subsidiaries and jointventures. The total assets (net) of Rs. 1994.51 lakh as at March 31,2009 (Previous year Rs. 699.78 lakh) and total revenue for the yearthen ended of Rs. 12307.83 lakh (Previous year Rs. 8244.30 lakh)in respect of such subsidiaries and share of joint ventures areincluded in the Consolidated Financial Statements.

Our opinion, in so far as it relates to the amounts included inrespect of such subsidiaries and joint ventures, is based solely onthe accounts as approved by the management of such subsidiariesand joint ventures.

4. The company has made an application to Central Government forapproval of the remuneration amounting to Rs.343.45 lakhs paid to theManaging Director and whole time Director as the minimumremuneration payable in case of inadequacy of profit and the approval

of the same is still awaited.

5. Debtors are subject to confirmation. Refer Note No. 23 of Schedule ‘P’to the Consolidated Financial Statements.

6. Subject to our remark in Para 3 (b) and 5 above:

a. We report that the consolidated financial statements have been prepared by the company in accordance with the requirements of Accounting standards –

AS – 21 - Consolidated financial statements

AS – 27 - Financial Reporting of Interests in Joint ventures, on thebasis of the separate audited financial statements of OrchidChemicals & Pharmaceuticals Limited and a subsidiary and theaudited/unaudited financial statements of subsidiary companiesand joint venture companies as mentioned above, considered inthe consolidated financial statements.

b. In our opinion, on the basis stated in paragraph (2) above, and onthe consideration of separate audit reports on and managementapproved accounts of individual financial statements of thecompany, its aforesaid subsidiaries and joint ventures, theconsolidated financial statements give a true and fair view inconformity with the accounting principles generally accepted inIndia:

i. In the case of the Consolidated Balance Sheet, oftheconsolidated state of affairs of the Group as at 31st March2009;

ii. In the case of the Consolidated Profit and Loss Account, of theconsolidated results of operations of the Group for the yearended on that date; and

iii. In the case of the Consolidated Cash Flow Statement, of theconsolidated cash flows of the Group for the year ended onthat date.

7. a. Attention is drawn to the remarks of the Auditors of a subsidiarycompany given in the Note No. 7 of Schedule ‘P’ to theConsolidated Financial Statements.

b. Attention is drawn to Note No. 2 (J) (4) of Schedule P to theConsolidated Financial Statements regarding adoption of amendedAccounting Standard (AS-11) and the impact on the same on theloss for the year of the company.

For SNB Associates

Chartered Accountants

B. Mahalingam

Place: Chennai Partner

Date: June 29, 2009 Membership No. 210408

To The Board of DirectorsOrchid Chemicals & Pharmaceuticals Limited

Auditors’ Report on Consolidated Financial Statements of Orchid Chemicals & Pharmaceuticals Limited and its Subsidiaries, and JointVentures

59Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

CONSOLIDATED BALANCE SHEET as at March 31, 2009

Schedule 31.03.2009 31.03.2008

I. SOURCES OF FUNDS

A. Shareholders’ Funds

Share Capital A 7044.21 6585.08

Reserves and Surplus B 56335.59 59912.92

B. Loan Funds

Secured Loans C 171410.97 97956.15

Unsecured Loans – –

From Banks 11004.01 21000.00

Foreign Currency Convertible Bonds (Refer Note 8) 79170.45 78098.18

C. Deferred Tax Liability (Refer Note 16 (a) of Schedule P) 12846.91 11490.53

Total 337812.14 275042.86

II. APPLICATION OF FUNDS

D. Fixed Assets D

Gross Block 269566.33 209812.30

LESS Depreciation 68815.62 55816.98

Net block 200750.71 153995.32

Capital Work in Progress 38907.09 38354.91

Advance for capital items 15762.66 255420.51 23657.04 216007.27

E. Investments 81.19 81.19

F. Foreign currency Monetary item Translation difference Account 8357.94 –

G. Current Assets, Loans And Advances

Inventories E 76825.38 64915.45

Sundry Debtors F 67254.12 53793.57

Cash and Bank Balances G 5250.68 3103.90

Other Current Assets H – 13.18

Loans and advances I 10205.71 10508.39

159535.89 132334.49

H. Less Current Liabilities and Provision J 85583.39 73380.09

73952.50 58954.40

Total 337812.14 275042.86

Notes on accounts P

On behalf of the Board

As per our report of even date

For SNB Associates K. Raghavendra RaoChartered Accountants Managing Director

B. Mahalingam Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduPartner Deputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

(Rs. lakh)

60 Orchid Chemicals & Pharmaceuticals Ltd.

CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended March 31, 2009

On behalf of the Board

As per our report of even date

For SNB Associates K. Raghavendra RaoChartered Accountants Managing Director

B. Mahalingam Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduPartner Deputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

Schedule 31.03.2009 31.03.2008

I. INCOME

Sales & Operating Income K 130862.28 131222.91

Less : Excise Duty 1177.39 129684.89 1126.52 130096.39

Other Income L 8605.40 7130.37

138290.29 137226.76

II. EXPENDITURE

Material Cost M 58561.90 47931.81

Manufacturing, Selling & Other Expenses N 54065.78 48170.56

Interest and Finance charges O 15645.01 8200.05

Depreciation / Amortisation 13399.25 10067.84

141671.94 114370.26

III. PROFIT/(LOSS)

Profit/(Loss) for the year before tax (3381.65) 22856.50

Less : Provision for tax

Current Taxes 0.69 2908.98

Fringe Benefit Tax 167.25 159.00

Deferred Taxes (Refer Note 16 (a) of Schedule P) 1349.40 1517.34 2254.53 5322.51

Profit/(Loss) for the year after tax (4898.99) 17533.99

Balance brought forward 1126.98 (2100.70)

Balance Available for Appropriation (3772.01) 15433.29

IV. APPROPRIATIONS

Excess provision of dividend & tax thereon of earlier year written back (963.71) (1129.82)

Proposed Dividend 915.84 2936.99

Tax on proposed dividend 155.65 1071.49 499.14 3436.13

Transfer to General Reserve – 12000.00

Balance carried to Balance Sheet (3879.79) 1126.98

V. EARNINGS PER SHARE (Face value of Rs. 10/-each)

Basic (7.14) 26.93

Diluted (7.14) 17.91

Notes on Accounts P

(Rs. lakh)

61Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS as at March 31, 2009

31.03.2009 31.03.2008

Authorized10,00,00,000(Previous year 10,00,00,000) Equity Shares of Rs. 10/- each 10000.00 10000.00Issued, Subscribed and Paid-up7,04,42,076(Previous year - 6,58,50,776) equity Shares of Rs. 10/- each fully paid. 7044.21 6585.08Of the above:

1,73,76,940 Equity shares of Rs. 10/- each were allotted as fully paid

bonus shares by capitalisation of reserves.

Schedule “A” SHARE CAPITAL

(Rs. lakh)

All Rupee Term Loans and Foreign Currency Term Loans from Banks & Financial Institutions are secured by Pari Passu charge by way of joint mortgage on immovable

and movable assets situated at Factory premises at SIDCO Industrial Area, Alathur, MIDC Industrial Area, Aurangabad, SIPCOT Industrial Park, Irungattukottai and

Capital Reserve– Opening Balance 805.54 805.54

– Additions during the year 89.14 894.68 – 805.54

Securities Premium Account– Opening Balance 24780.46 21635.38

– Additions during the year* (Ref Note 8 (c) of Schedule P) 8336.90 3145.08

33117.36 24780.46 Deductions during the year– Provision for premium on redemption of FCCBs – –

– GDR/FCCB issue expenses adjustment – 33117.36 – 24780.46

General Reserve– Opening Balance 28060.01 16670.51

– Less : Adjustment for Retirement Benefits** – (610.50)

– Less : Adjustment for AS11 (5347.94) –

– Add : Transfers during the year **(Refer Note.2(i) of Schedule P) – 22712.07 12000.00 28060.01

Foreign Currency Fluctuation Reserve– Opening Balance (69.86) (128.88)

Adjustments 719.64 649.78 59.02 (69.86)

Surplus in Profit & Loss Account (3879.79) 1126.98

Adjustment on consolidation 2841.49 (1038.30) 5209.79 6336.77

(* includes Exchange rate gain/(loss) on provision for premium on redemption of

FCCB Rs. (7414.30) lakh (Previous year Rs. 3079.69 lakh)) 56335.59 59912.92

Schedule “B” RESERVES & SURPLUS

From Banks

– Rupee Term Loans 92064.85 36115.13

– Foreign Currency Term Loans 24261.25 13,646.40

– Rupee & Foreign Currency Packing Credit/Cash credit & Advance against Bills 53021.00 46298.51

169347.10 96060.04

From Financial Institutions

Foreign Currency

– Term Loans 1910.00 1710.00

– Working Capital Loans – 1910.00 – 1710.00

Hire Purchase Finance 153.87 186.11

171410.97 97956.15

Schedule “C” SECURED LOANS

62 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS as at March 31, 2009

R&D premises at Sholinganallur and current assets, subject to prior charges created/ to be created on current assets in favour of bankers and financial institutions

for securing working capital borrowings. Total term loans aggregating Rs. 82,927 lakh are additionally secured by personal guarantee of Shri K. Raghavendra Rao,

Managing Director of the Company.

Packing Credit and Advances against bills from Banks and Working Capital Loans from Banks and financial institutions are secured by first charge on all current

assets namely, Stocks of Raw materials, Semi-finished & Finished Goods, Stores and Spares not relating to Plant & Machinery (Consumable Stores and Spares),

Bills Receivable, Book Debts & all other movable property both present and future excluding such movables as may be permitted by the banks/ financial institutions

from time to time and by second charge on immovable properties after charges created/ to be created on immovable assets in favour of Financial Institutions/Banks

for securing Term Loans. The borrowings from banks are additionally secured by personal guarantee of Shri. K. Raghavendra Rao, Managing Director of the

Company.

Hirepurchase Loans are secured by the assets acquired through such loans.

Schedule “D” FIXED ASSETS

Gross Block (At Cost) Depreciation/Amortization Written Down ValueSL Asset Description As at Additions Deletions As at Up to For On Up to As at As atNo. 1.4.2008 during during 31.3.2009 31.3.2008 the year Deletions 31.3.2009 31.3.2009 31.3.2008

the year the year

1. Goodwill On Consolidation* 9482.32 – – 9482.32 – – – – 9482.32 9482.32

2. Freehold Land &

Site Development@ 3180.04 – – 3180.04 – – – – 3180.04 3180.04

3. Leasehold Land@ 2581.52 11.59 – 2593.11 46.84 9.24 – 56.08 2537.03 2534.68

4. Buildings 24166.41 16162.91 – 40329.32 3027.54 881.64 – 3909.18 36420.14 21138.87

5. Plant & Machinery 145966.30 39486.31 731.51 184721.10 44402.52 10997.90 227.49 55172.93 129548.17 101563.78

6. Factory Equipment 1454.93 263.62 0.88 1717.67 660.83 142.34 0.55 802.62 915.05 794.10

7. Laboratory Equipment 9079.09 3608.88 18.04 12669.93 1883.20 551.81 17.41 2417.60 10252.33 7195.89

8. Office Equipment 2067.53 524.18 163.29 2428.42 1131.54 219.23 131.93 1218.84 1209.58 935.99

9. Furniture & Fittings 1717.31 289.18 21.53 1984.96 563.63 149.28 8.84 704.07 1280.89 1153.68

10. Vehicles 749.88 99.12 189.41 659.59 201.85 62.47 78.32 186.00 473.59 548.03

11. Intangible Assets

Acquired

Brands & Trademarks ** 2778.16 – – 2778.16 2335.38 115.63 – 2451.01 327.15 442.78

Patents & Registrations – 432.90 – 432.90 – 32.04 – 32.04 400.86 –

Internally Generated

DMF & ANDA *** 6588.81 – – 6588.81 1563.65 301.60 – 1865.25 4723.56 5025.16

Total 209812.30 60878.69 1124.66 269566.33 55816.98 13463.18 464.54 68815.62 200750.71 153995.32

Previous Year Figures 156337.91 53629.07 154.68 209812.30 45797.56 10067.84 48.42 55816.98 153995.32

As at As at 31.3.2009 31.3.2008

Rs. lakh Rs. lakh@ Assets acquired pending for registration in favour of the Company.

Freehold Land 59.09 59.09

Leasehold Land – 1,756.54

Fixed Assets include assets on Hire Purchase (Gross Block) 306.10 294.74

* Refer Note 2 (e) of Schedule - P

** Represents value of registrations and value of applications filed Pending registration

*** Refer Note 2 (b) (v) of Schedule - P

(Rs. lakh)

63Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

Debts more than 6 months (Unsecured)

Considered Good 48017.26 21284.68

Considered Doubtful 1615.11 1666.24

Other Debts (Considered Good)

Secured 217.94 233.81

Unsecured 19018.92 32275.08

68869.23 55459.81

Less: Provision for Doubtful Debts 1615.11 1666.24

67254.12 53793.57

Schedule “F” SUNDRY DEBTORS

Cash In Hand 10.27 9.69

Balances With Scheduled Banks On:Current account 1330.83 891.66

Term Deposit account 2100.82 713.52

Margin money deposit 645.80 604.08

Share Application money and Dividend account 55.21 52.61

Balances With Other Banks On:Current account 23.16 34.04

Others 1084.59 798.30

5250.68 3103.90

Schedule “G” CASH AND BANK BALANCES

Interest accrued on deposits and advances – 13.18

– 13.18

Schedule “H” OTHER CURRENT ASSETS

SCHEDULES TO THE CONSOLIDATED ACCOUNTS as at March 31, 2009

31.03.2009 31.03.2008

Raw materials 16436.06 11669.64

Stores and Spare parts 2558.15 2898.26

Chemicals and Consumables 1129.30 1115.90

Packing Materials 1515.77 1551.85

Intermediates & WIP 43721.48 36748.99

Finished Goods 10654.80 10381.06

Traded Goods 809.82 549.75

76825.38 64915.45

Schedule “E” INVENTORIES (Refer Note 2 (g), Schedule "P")

(Rs. lakh)

64 Orchid Chemicals & Pharmaceuticals Ltd.

31.03.2009 31.03.2008

Acceptances 541.34 2028.26

Sundry creditors (other than Micro, Small & Medium Scale Enterprises) for

– Capital Items 5949.06 4423.44

– Other supplies 24583.97 21015.20

– Expenses [Includes due to Directors - Rs. 21 lakh (Previous year - Rs. 400 lakh)] 7935.31 2156.58

Investor Education and Protection Fund shall be credited

by the following amounts namely: *

– Unclaimed Dividend 55.21 52.61

– Share Application Money Refundable 5.42 5.42

Premium payable on redemption of FCCBs (Ref Note 8 c) 34254.36 33750.35

Other liabilities [Refer Note 15 (b)] 2600.74 2114.20

PROVISIONS FOR

– Retirement Benefit 1231.37 1043.47

– Rebates/Discounts 4000.00 –

– Taxation 3355.12 3354.43

– Proposed Dividend 915.84 2936.99

– Tax on Proposed Dividend 155.65 499.14

85583.39 73380.09

* Represents balances in those accounts as of 31st March, Actual amount to be transferred to the Investor Education and Protection Fund will be determined

on due dates.

Schedule “J” CURRENT LIABILITIES AND PROVISIONS

(Rs. lakh)

SCHEDULES TO THE CONSOLIDATED ACCOUNTS as at March 31, 2009

31.03.2009 31.03.2008

Considered Good

Advances recoverable in cash or kind or for value to be received 4972.24 5506.74

Advance Payment of Tax 4100.88 3987.29

Deposits

– With Government authorities 508.83 342.29

– Others 623.76 672.07

Considered Doubtful

– Others 205.33 2039.06

10411.04 12547.45

Less: Provision for Doubtful Advances 205.33 2039.06

10205.71 10508.39

Schedule “I” LOANS AND ADVANCES (Unsecured)

(Rs. lakh)

65Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS for the year ended March 31, 2009

31.03.2009 31.03.2008

Sales 127161.16 126461.78

Less : Excise Duty 1158.68 126002.48 1123.64 125338.14

Operating Income

Income from services rendered

– Technical & Consultancy Fees (TDS - Rs. Nil (Previous year - Rs. NiI)) 30.58 2.88

Contract Research & Development 393.05 272.79

Sale of Other Materials 472.93 321.51

Less : Excise Duty 18.71 454.22 2.88 318.63

Development Fee 1938.09 3206.67

Licence Fee 713.23 860.82

Other Operating Income 153.24 96.46

129684.89 130096.39

Schedule “K” SALES & OPERATING INCOME

(Rs. lakh)

Income from Investments

Dividend (Refer Note 10 of Schedule P) 4.00 1.80

Exchange Rate Loss/ (Gain) on FCCB – 7126.67

Gain on cancellation of FCCBs-net 6730.53 –

Provision for doubtful debts written back 1833.73 –

Profit on sale of fixed assets 2.92 1.90

Miscellaneous Income 34.22 –

8605.40 7130.37

Schedule “L” OTHER INCOME

Raw Materials Consumed 58623.82 44055.58

Cost of Traded Goods 3367.60 61991.42 2610.12 46665.70

Less: (Accretion) / Depletion to Stocks

Closing Stock of Intermediates, WIP & Finished Goods 54376.28 47130.05

Opening Stock of Intermediates, WIP & Finished Goods 47130.05 (7246.23) 44599.57 (2530.48)

Consumption of Packing Materials 3816.71 3796.59

58561.90 47931.81

Schedule “M” MATERIALS COST

66 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS for the year ended March 31, 2009

31.03.2009 31.03.2008

Power and Fuel 7755.35 7290.17

Conversion Charges 1760.00 2100.82

Consumption of Stores, Spares & Chemicals 2806.81 3902.74

Factory Maintenance 2594.74 2184.19

Salaries and Wages 11499.63 9727.16

Contribution to Provident & other funds 1083.49 795.09

Staff Welfare 1162.94 1191.93

Rent 194.85 112.68

Rates & Taxes 177.98 153.20

Insurance 1216.48 1403.17

Postage, Telephone & Telex 168.10 174.16

Printing & Stationery 252.69 261.67

Vehicle Maintenance 64.98 75.19

Research & Development (Refer Note 20 of Schedule P) 4647.76 4877.53

Advertisement 36.49 41.33

Recruitment expenses 160.47 313.97

Auditors' Remuneration

Statutory Auditors [Refer Note 9 of Schedule P] 85.34 98.08

For certification & other matters 0.28 –

Cost Auditors 11.24 11.06

Travelling and Conveyance 1429.81 1258.30

Directors' Remuneration & perquisites 343.44 707.75

Directors' travelling

Inland 13.53 11.28

Overseas 29.62 62.04

Directors' sitting fees 14.20 15.20

Loss on sale of fixed asset 214.05 13.98

Freight outward 2400.74 2122.77

Commission on Sales 1049.00 1304.82

Business Promotion and Selling Expenses 1585.02 1587.66

Consultancy & Professional Fees 2721.09 2205.96

Exchange Rate Loss/(Gain) 1592.69 770.94

Provision for Rebates/Discounts 4000.00 –

Provision for doubtful debts & advances – 1552.39

Bad debts and advances written off – –

Miscellaneous expenses 2992.97 1843.32

54065.78 48170.56

Schedule “N” MANUFACTURING, SELLING AND OTHER EXPENSES

(Rs. lakh)

Interest on Term Loans 5245.90 1887.57

Other Interest & Finance Charges 10399.11 6312.48

15645.01 8200.05

Schedule “O” INTEREST AND FINANCE CHARGES (Refe Note 11)

67Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

1. a) The Company and description of businessOrchid Chemicals & Pharmaceuticals Limited was incorporated in India in July 1992 and started commercial production in February 1994. The Company

manufactures and sells active pharmaceuticals ingredients and finished dosage forms (formulations) as applicable under 100% export oriented unit

scheme(s) in export and domestic markets. The Company also has full fledged R & D facilities. The Company has invested in the following companies :

a) Orchid Europe Limited, a company formed in the United Kingdom initially to market neutraceuticals through mail order/ direct marketing in the

United Kingdom and Europe, and now to support the Company’s generics foray in UK and Europe.

b) NCPC Orchid Pharmaceuticals Company Limited incorporated in China, engaged in the business of manufacture and sale of bulk drugs.

c) Bexel Pharmaceuticals, Inc., USA engaged in pharmaceutical research and development.

d) Orchid Pharmaceuticals, Inc., USA to provide services in USA. It has a wholly owned subsidiary "Orgenus Pharma Inc, USA" which provides services

in USA.

e) Orchid Research Laboratories Limited, India engaged in pharmaceutical research and development.

f) Orchid Pharmaceuticals SA (Proprietary) Limited, South Africa to register and market formulations in South Africa

g) Orchid Pharma Japan KK, to support marketing of bulk drugs and formulations in Japan

h) Diakron Pharmaceuticals Inc., USA engaged in Pharmaceutical research and development

The Company, its Subsidiaries and its Joint Ventures are collectively referred as "the Group".

b) ConsolidationThe Company's consolidated financial statement has been prepared on the following basis.

c) Convenience TranslationThe accounts of the subsidiary companies and Joint Venture companies have been prepared in their respective currencies.. For the purpose of

convenience the balances are translated into Indian currency, being the reporting currency in the consolidated financial statements, at the closing

rate as at March 31.

Schedule “P” NOTES ON ACCOUNTS

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

Name of Subsidiary/ Joint venture Country Type of Percentage Nature of Accounting

Holding of holding relationship standard adopted

for consolidation

of accounts

Orchid Europe Limited U.K Equity 100% Subsidiary A S 21*

Orchid Pharmaceuticals, Inc. USA Common stock 100% Subsidiary A S 21*

Orgenus Pharma Inc. USA Subsidiary of Orchid

Pharmaceuticals Inc.

Orchid Research Laboratories Ltd. $ India Equity 100% Subsidiary A S 21*

Orchid Pharmaceuticals SA (Proprietary) Limited South Africa Equity 100% Subsidiary A S 21**

NCPC Orchid Pharmaceuticals Company Limited China Equity 50% Joint Venture A S 27**

Bexel Pharmaceuticals, Inc.*** $ USA Convertible Preferred $68.48% Subsidiary A S 21**

stock with equal voting

rights as Common stock

and Common stock

Orchid Pharma Japan KK Japan Equity 100% Subsidiary A S 21*

Diakron Pharmaceuticals, Inc. USA Convertible Preferred 40% Joint Venture A S 27**

stock and Common stock

* based on the Audited accounts

** based on the Management approved accounts

*** Preferred stock has been considered as common stock for the purpose of calculating the percentage of holding since Preferred stock has the same voting rights as commonstock.

$ Excluding 31.52% held through a wholly owned subsidiary.

68 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

2. Group Significant Accounting Policiesa) Accounting Convention

The Financial Statements are prepared under historical cost convention. Revenues are recognised and expenses are accounted on their accrual withnecessary provisions for all known liabilities and losses.

b) Fixed Assetsi) Fixed Assets are stated at the original cost inclusive of inward freight, incidental expenses related to acquisition and related pre-operational

expenses and technical knowhow fees where applicable.

ii) Machinery spares which can be used only in connection with specific fixed assets and the use of which are irregular, are charged over the periodof the life of such fixed asset, in accordance with Accounting Standard (AS 10).

iii) Brands represent brands acquired by the Company and includes IPR & Licences purchased for a consolidated consideration. The cost of brands,patents and trademarks are amortised over a period of 60 months from the month of acquisition.

iv) The cost of patents / registrations acquired by subsidiaries / joint venture are amortised over their useful life after they are put to use.

v) INTERNALLY GENERATED INTANGIBLE ASSETS - DMF & ANDADMF and ANDA costs represents expenses incurred on development of processes and compliance with regulatory procedures of the US FDA, in filingDrug Master Files("DMF") and Abbreviated New Drug Applications("ANDA"), in respect of products for which commercial value has been establishedby virtue of third party agreements/arrangements. This is in accordance with the requirements of Accounting Standard 26. The cost of eachDMF/ANDA is amortised to the extent of recovery of developmental costs as applicable per terms of agreement or over a period of five years fromthe date on which the product covered by DMF/ANDA is commercially marketed, whichever is earlier.

vi) Assets are depreciated on straight line basis at the rates specified in Schedule XI of the Companies Act, except in respect of the following assets,where the useful lives reckoned in computing the depreciation for the year are different from those derived from the rates specified in ScheduleXI of the Companies Act, 1956. The revised useful life of the assets have been determined by the Management based on technical assessment.Depreciation in the books of Subsidiaries/Joint Ventures have not been restated, since the differences are not material.

Asset Categories Useful lifeReactors, Pipes, Pipe fittings, Valves, Motors, Pumps, Nitrogen Plant, Gear Boxes, Cables and Centrifuges 9 yearsEvaporator(Indigenous), Jet aeration system(indigenous), Ventilation & Exhaust system, HCL column,ETP(indegenous), scrubber, incinerator (indigenous) & Instrumentation items.

Depreciation is provided at rate arrived based on useful life or Schedule XI rates whichever is higher.

vii) Leasehold assets cost is amortised over the period of the Lease.

viii) Depreciation on assets added/disposed off during the year is provided on pro-rata basis from the month of addition or up to the month of disposal,as applicable.

ix) Impairment of assets:Management periodically assesses using external and internal sources whether there is an indication that an asset may be impaired. An impairmentoccurs where the carrying value exceeds the present value of future cash flows expected to arise from the continuing use of the assets and itseventual disposal. The impairment loss to be expensed is determined as the excess of the carrying amount over the higher of the asset's net salesprice or present value as determined above.

c) Borrowing CostsInterest cost on qualifying asset being an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, is capitalisedat the weighted average rate of the funds borrowed and utilised for acquisition of such assets.

d) Treatment of expenditure during construction period.Expenditure during construction period is included under capital work-in-progress and the same is allocated to the respective fixed assets on thecompletion of construction.

e) The excess of cost to the Company of its interest in subsidiaries / joint ventures over its share of net assets of such subsidiaries / joint ventures at thedate of acquisition of interest is recognised as goodwill on consolidation.Goodwill arising on consolidation is not amortised.

Schedule “P” NOTES ON ACCOUNTS (Contd.)

69Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

f) InvestmentsInvestments considered long term are shown at cost. Diminution in the value of investments other than temporary are provided for. Current investmentsare valued at lower of cost and market value.

g) Inventoriesi) Stores & Spares – At weighted average cost.ii) Raw Materials – At annual weighted average costiii) Finished Goods @ – At Lower of cost & net realisable valueiv) Work in Progress & Intermediates @ – At Lower of cost & net realisable value

@ After adjustment of unrealised profits on inter division transfer.

h) Revenue RecognitionSales are recognised on despatch of goods from the factory/ warehouse and price differentials are accounted for at the end of each quarter as per theterms of marketing arrangements. Sales are net of returns, discounts and inter-division transfers. Service income is recognised as per contractual terms.In respect of composite contracts involving development and other activities, income is recognised on the basis of contractual terms after consideringthe quantum of work completed.

i) Retirement BenefitsRetirement Benefits are accounted on acturial valuation carried out at the end of the year. The Company's liability towards the gratuity of employees iscovered by a group gratuity policy with LIC and ICICI Prudential Life Insurance Company Ltd and the contribution to the fund is based on actuarialvaluation carried out yearly as at 31st March as per the revised AS15. Provision for Leave Encashment has been made based on actuarial valuation as atthe year end as per revised AS15.

j) Translation of Foreign Currency items1) Non - Monetary foreign currency items are carried at cost2) All inter-related transactions are recognised at common rates.3) Transactions denominated in foreign currencies are recorded at the exchange rate prevailing on the date of transaction.4) Monetary items denominated in foreign currencies at the year end are restated at year end rates. In case of items which are covered by forward

exchange contracts, the difference between the year end rate and the rate on the date of the contract is recognised as exchange difference andthe premium paid on forward contracts is recognised over the life of the contract.

The Company has exercised the option provided under the amendment to the Companies (Accounting Standards) Amendment Rules, 2006 dated March31, 2009 AS 11. The exercise of the above option has resulted in (a) Rs. 5347.94 lakh relating to previous year adjusted in General Reserve (b) amountremaining unamortised in the financial statements as on March 31, 2009 is Rs. 8357.94 lakh (c) The value of fixed assets adjusted for exchange loss isRs. 2994.32 lakh resulting in depreciation amount being more by Rs. 33.73 lakh (d) loss for the year is lower by Rs. 16666.46 lakh.

k) Subsidy on Fixed AssetsSubsidy received on fixed assets is credited to the cost of respective fixed assets.

3. Sales tax recoverable have been recorded on the basis of the claims submitted or in the process of being submitted, as per rules relating to EOU and whichin the opinion of the Company are recoverable.

Schedule “P” NOTES ON ACCOUNTS (Contd.)

As at 31.03.2009 As at 31.03.20084. Estimated amounts of contracts remaining to be executed on 10712.57 13063.43

capital account (net of advances) and not provided for.5. a. Other monies for which company is contingently liable :

– Bills Discounted 21402.71 21395.61 – Unexpired Letters of Credit 13295.03 15217.56 – Bank Guarantees outstanding 518.89 946.82 – Claims against the Company not acknowledged as debts – – Excise demands under dispute pending before Excise authorities 1182.43 861.50 Service Tax dispute pending before High Court of Chennai 103.16 56.03

b. Provision and contigencies in accordance with AS 29 :Opening Balance – – Additions during the year 4000.00 – Closing Balance 4000.00 –

(Rs. lakh)

70 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

Schedule “P” NOTES ON ACCOUNTS (Contd.)

Particulars FCCBs Value Number of Increase in Increase in Security

Shares Equity Premium

US$ million in lakh Rs. lakh Rs. lakh

Conversion effected up to March 31, 2009 22.79 42.00 420.09 9821.71

22.79 42.00 420.09 9821.71

71Annual Report 2008-09

6. The Company has filed an appeal against the demand made by the Income Tax department amounting to Rs. 98.94 lakh (Previous year Rs. 53.82 lakh). No

provision has been made as the Company is confident of winning the appeal. No provision has also been made for demand of interest amounting to Rs. 68.88

lakh (Previous year Rs. 68.88 lakhs) as petition has already been filed for waiver of interest.

7. In the financial statements for the year ended December 31, 2008 of Bexel, prepared as a Development Stage Enterprise, the auditors of the Company have

referred to Note 2 to the financial statements and expressed an opinion that the successful completion of the Company's development program and ultimately

the attainment of profitable operations is dependant upon future events, including maintaining adequate financing to fulfil its development activities and

achieving a level of revenues adequate to support the Company's cost structure. The text of Note 2 referred to is reproduced below.

"The financial statements of the Company have been prepared in conformity with Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting

and Reporting by Development Stage Enterprises, and assume the Company will continue as a going concern. As a development stage company, with no

commercial operating history, the Company is subject to all of the risks and expenses inherent in the establishment of a new business enterprise. To address

these risks and expenses, the Company must, among other things, respond to competitive developments, attract, retain and motivate qualified personnel and

support the expense of marketing new products based on innovative technology. To date, the Company has incurred expenses in research and development

activities without generating sufficient revenues to offset those expenses. As a result the Company has incurred losses and negative cash flow from operating

activities, and as of December 31, 2008, the Company had accumulated net losses of USD 22,246,475. There can be no assurance that management will achieve

the intended results".

8. Foreign Currency Convertible Bonds (FCCBs):a) The Company raised FCCBs during the year 2006-07 aggregating to USD 175 million (Rs. 77358.75 lakh) with an option to the investor to convert the

FCCBs into equity shares of the Company at an initial conversion price of Rs. 348.34 per share at a fixed rate of exchange on conversion Rs. 43.93 = USD

1, at any time after April 9, 2007 and prior to February 18, 2012. Further the Company has an option of early redemption of these FCCBs in whole at any

time on or after February 28, 2010 and prior to February 21,2012, subject to certain conditions. Unless previously converted, redeemed or repurchased

and cancelled, the FCCBs will be redeemed on February 28, 2012 at 142.77 % of their principal amount.

During the year 2008-09, the Company bought FCCBs to the extent of USD 37.80 million and the outstanding FCCBs as at March 31, 2009 is USD 137.20

million.

b) The Company raised FCCBs during the year 2005-06 aggregating to USD 42.50 million (Rs. 19284.50 lakh) including a green shoe option of USD 5 million

(Rs. 2289.50 lakh) with an option to the investor to convert the FCCBs into equity shares or global depository receipts at an initial conversion price of

Rs. 243.80 per share at a fixed rate of exchange on conversion Rs. 44.94 = USD 1. Out of the above, FCCBs amounting to USD 22.79 million (Rs. 10241.82

lakh) have been so far converted.

Further, the Company has an option of early redemption of these FCCBs at any time after November 03,2006 subject to certain conditions. Unless

previously converted, redeemed or repurchased and cancelled, the FCCBs will be redeemed on November 03,2010 at 147.1688% of their principal amount.

During the year 2008-09, the Company bought FCCBs to the extent of USD 2.25 million and the outstanding FCCBs as at March 31, 2009 is USD 17.46

million.

The current status of above FCCBs conversion into equity is as follows:

c) Provision has already been made for the entire premium payable on redemption of FCCBs amounting to Rs. 36830.08 lakh by debiting the Securities

Premium Account (SPA). In the event that the conversion option is exercised by the holder of FCCBs in the future, the amount of premium charged to

SPA will be suitably adjusted in the respective years.

The debit to share premium account for premium on FCCBs and for issue expenses have been made on the gross value without adjusting any tax impact.

Tax benefits accruing to the Company on account of claiming such expenses will be credited to the SPA account in the year in which the benefit is enjoyed

by the Company.

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

Schedule “P” NOTES ON ACCOUNTS (Contd.)

As at 31.03.2009 As at 31.03.2008

e) Usage of funds raised through FCCBs

Opening Balance 6.85 10117.21

Funds received – –

Add: Interest received – –

Less: Expenses of Issue/Exchange fluctuations (0.96) 168.24

7.81 9948.97

Repayment of Loans – –

Capital Expenditure/ Advances/ ANDA filings – 9942.12

Balance 7.81 6.85

(Rs. lakh)

Year ended Year ended31.03.2009 31.03.2008

9. Auditors' remuneration include the following:

Statutory – Audit fee 50.00 50.00

– Tax Audit fee 7.50 7.50

For certification & other matters 9.50 8.50

Others 18.34 32.08

85.34 98.08

10. Dividend includes the following

Non-trade 4.00 1.80

4.00 1.80

11. a) Other Interest and Finance Charges is after crediting interest receipts 100.83 38.92

TDS on interest receipts 15.32 6.98

b) Amount of interest capitalised 4541.23 3979.13

12. Excise duty on finished goods has been accounted on removal of goods from factory, wherever applicable. Finished goods at factory have been valued at

cost exclusive of excise duty and no provision has been made for excise duty on such goods. The above treatment has no impact on Profit & Loss account.

(Rs. lakh)

The provision for premium on redemption of FCCBs debited to SPA is being restated at the exchange rate prevailing at the year end and the gain/(loss)

of (Rs. 7414.30) lakh on account of such restatement is adjusted to the security premium account.

d) Even though the Company has provided for the premium on redemption of FCCBs as per note [c] above, the Company also makes provision for dividend

in the books of account on the equity shares to be allotted upon conversion of FCCBs outstanding as at respective year end. since the Company is obliged,

as per SEBI guidelines, to pay dividend to those FCCBs holders who convert their FCCBs into equity after adoption of the financial statements and upto

the book closure date.

72 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

Schedule “P” NOTES ON ACCOUNTS (Contd.)

13. Related Party TransactionsIn accordance with Accounting Standard 18, the disclosure required is given below:

Nature of Transaction Subsidiary Joint venture Key Management Relatives of Key Personnel Management

Personnel/ Companiesin which they exercise

significant influence

– Share Application money pending allotment – – – – (–) (–) (–) (–)

– Loans (Including Interest accrued) – – – – (–) (–) (–) (–)

– Shares allotted – – – 9166.75 (–) (–) (–) (–)

– Warrants allotted – – – – (–) (–) (–) (–)

– Forfeiture of advance on warrants – – – 89.14 (–) (–) (–) (–)

Sale of goods – 1616.19 – – (–) (2070.25) (–) (–)

Rendering of Services / Royalty / Interest income – – – – (–) (–) (–) (–)

Services Received / Rent Paid – – – 425.64 (–) (–) (–) (136.41)

Remuneration – – 343.44 – (–) (–) (707.75) (–)

Availment of services – – – – (–) (–) (–) (–)

Amounts Due at the end of the year – Debit – 63.17 – 10.83 (–) (63.17) (–) (111.10)

Amounts Due at the end of the year – Credit – – – – (–) (–) (–) (–)

Figures in brackets are for previous year

(Rs. lakh)

Names of the related parties and description of relationship.

1. Subsidiary Orchid Europe Limited, UK

Orchid Pharmaceuticals, Inc., USA

Orgenus Pharma Inc., USA (Subsidiary of Orchid Pharmaceuticals Inc., USA.)

Orchid Research Laboratories Ltd., India

Orchid Pharma Japan KK

Orchid Pharmaceuticals SA (Proprietary) Limited, South Africa

Bexel Pharmaceuticals, Inc., USA

2. Joint Venture NCPC Orchid Pharmaceuticals Company Limited, China

Diakron Pharmaceuticals, Inc., USA

3. Key Management Personnel Mr. K Raghavendra Rao, Managing Director

Dr. C Bhaktavatsala Rao, Deputy Managing Director

4. Relatives of Key Management Personnel Mrs. R Vijayalakshmi (wife of Mr. K Raghavendra Rao)

Ms R Divya and Ms R Sowmya (daughters of Mr. K. Raghavendra Rao)

5. Companies in which relatives of Key Spectrasoft Technologies Limited, India.

Management Personnel exercise significant influence.

All whole time directors have been considered as Key Management Personnel as they are involved in planning, directing and controlling the activities of the

reporting enterprise.

73Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

Schedule “P” NOTES ON ACCOUNTS (Contd.)

b) Information on Loans & Advances as Balance Maximum amountper clause 32 of the Listing Agreement as on 31-03-2009 outstanding

during the year

Joint Venture - NCPC Orchid Pharmaceuticals Company Ltd. 174.57 174.57

(Rs. lakh)

14. In terms of the resolution passed by the Company at the EGM dated October 21,1999 Employee Stock Option Scheme was extended to the employees of theCompany. Accordingly options totalling 15,00,000 Nos were given to the employees as per the scheme formulated under “ORCHID-ESOP 99" scheme by theCompensation committee of the Board of Directors. Each option is convertible into one equity share of Rs. 10/- each at a price of Rs. 243.35 includingpremium for 6,00,000 Nos, Rs. 252 including premium for 3,07,925 Nos, Rs. 300.65 including premium for 2,92,075 Nos and Rs. 339.25 for 3,00,000 Nos. Noentries were passed in the books as the options were given at the market prices prevailing on the date of issuance of options.

A fair and reasonable adjustment in share price/ the number of options outstanding was made by the Company in respect of the Employee Stock Optionsgranted but not exercised by the Employees due to the corporate action of issue of bonus shares during October 2005. The total number of options outstandingand the price was adjusted so that the total value and options available to each option holder remained the same.

Consequently the revised and adjusted prices per share are Rs. 162.24 (Rs. 243.35), Rs. 168.00 (Rs. 252.00) and Rs. 200.44 (Rs. 300.65) respectively for 600000Nos, 307925 Nos and 292075 Nos of options granted by the Company.

For the 300,000 options granted during April 2006 at a price of Rs. 339.25, the Compensation Committee of the Board of Directors considered repricing ofthe options in the interest of the employees, due to the fall in the price of the shares of the Company and accordingly approved a repricing of the optionsfrom Rs. 339.25 to Rs. 193.25 as per the closing price of Orchid at National Stock Exchange on August 11, 2006. The revision in the price has been approvedby the shareholders at the Annual General Meeting held on July 19, 2007.

Pursuant to the exercise of options by employees, the Allotment Committee of the Board at its meeting held on April 26, 2008, May 29, 2008 and August13, 2008 allotted 7,525, 16,175, and 3,000 equity shares respectively to the employees under ORCHID ESOP 99 Scheme. 536,153 Options were outstandingas at March 31, 2009 including the additional number of options adjusted, due to the bonus issue.

In terms of the resolution passed by the Company at the AGM dated July 18, 2005 the shareholders approved the scheme formulated under “ORCHID-ESOP2005”for allotting 10,00,000 Nos. Accordingly 610,000 options were given to the eligible directors and employees by the compensation committee of the Boardof Directors at a meeting held on August 12, 2006. Each option is convertible into one equity share of Rs. 10/- each at a price of Rs. 193.25 per shareincluding premium.

Pursuant to the exercise of options by employees, the Allotment Committee of the Board at its meeting held on April 26, 2008, May 29, 2008, August 13,2008 and August 29, 2008 allotted 1,900, 200, 1,000 and 1,500 equity shares respectively to the employees and 84,325 Options were outstanding as at March31, 2009 under ORCHID ESOP 2005 Scheme.

15. a) In terms of the resolution passed by the Company on February 14, 2007, 50,00,000 warrants were allotted to the Promoter /Promoter Group(s), therelative(s) of the Promoter on March 01, 2007. These warrants are eligible for conversion at the option of the Warrants holders, into equity shares of theCompany at a price of Rs. 202.58 per share within a period of 18 months of the date of allotment.

During the year, pursuant to the exercise of option by the warrant holders, the Allotment Committee of the Board at its meeting held on August 13, 2008and August 29, 2008 have allotted 381,000 and 41,79,000 equity shares respectively. The balance 440,000 warrants were not exercised within thestipulated period. Hence on September 01, 2008 the 10% advance paid by them amounting to Rs. 89.14 lakh on the unexercised warrants was forfeitedand credited to capital reserve.

b). Other liabilities include Rs. Nil (Previous year Rs. 1,012.90 lakh) being the amount received as advance against the warrants issued to the promotergroup, including Rs. Nil (Previous year Rs. 7.09 lakh) from a Director.

16. a) Provision for Deferred tax for the year Rs. 1349.4 lakh (Previous year Rs. 2254.53 lakh)

Deferred Tax liability represents the following:

As at 31.03.2009 As at 31.03.2008

Timing Difference on account of Depreciation 21655.01 18911.28

Timing Difference on account of Losses (8815.09) (7420.75)

In accordance with clause 29 of Accounting Standard (AS22) Deferred tax Assets and Deferred tax Liabilities have been set off.

(Rs. lakh)

74 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

Schedule “P” NOTES ON ACCOUNTS (Contd.)

17. Segmental ReportingThe Company was disclosing segment information classifying the business as Bulk drugs and Formulations till the financial year 2004-05. However in view

of integration of bulk actives and formulations business, with the commissioning of Generics formulation facilities from the financial year 2005-06, the

Company considers the business as one interrelated and integrated business of "Pharmaceutical products" and hence no separate segmental reporting is

provided.

18. Reconciliation of Basic and Diluted shares used in computing Earnings Per Share (Equity shares of Rs. 10/- each fully paid-up)

Year ended Year ended31.03.2009 31.03.2008

Profit After Tax Rs. In lakh (4898.99) 17534.01

No of Shares Outstanding Nos. 70442076 65850776

Weighted Average Number of shares Nos. 68579472 65832234

Earning per Share - Basic Rs. (7.14) 26.63

No of warrants & options allotted Nos. 21141785 32048733

Total No of Equity shares to compute diluted EPS Nos. 89721257 97880967

Earning per Share - Diluted Rs. (7.14) 17.91

19. Disclosure as per requirements of Accounting Standard 26

As at As at31.03.2009 31.03.2008

ACQUIRED– Brands & Trademarks Useful life 5 Years 5 Years

Gross Carrying Amount (Rs. in lakh) Opening 442.78 895.31

Additions/Adjustments 432.90 (6.90)

Amortisation 147.68 445.63

Closing 728.00 442.78

INTERNALLY GENERATED– DMF & ANDA(Refer Note 2(b)(iv) of Schedule P)Useful life 5 Years 5 Years

Gross Carrying Amount (Rs. in lakh) Opening 5025.16 4465.97

Additions – 868.87

Amortisation 301.60 309.68

Closing 4723.57 5025.16

75Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

Schedule “P” NOTES ON ACCOUNTS (Contd.)

20. Expenditure on Research and Development

Year ended Year ended31.03.2009 31.03.2008

Capital expenditure 812.15 2564.00

Revenue expenditure charged to the Profit & Loss account 4647.75 4877.53

5459.90 7441.53

Such Capital expenditure for the year 2006-07, 2005-06 & 2004-05 are Rs. 3934.25 lakh,

Rs. 3474.14 lakh & Rs. 3262.56 lakh and revenue expenditures for the year 2006-07,

2005-06 & 2004-05 are Rs. 3963.13 lakh, Rs. 2662.10 lakh & Rs. 1958.12 lakh

respectively.The above information has been provided as required by

Department of Scientific and Industrial Research.

Revenue Research and Development Expenses include :

Power and Fuel 211.27 208.64

Conversion Charges 1.32 –

Consumption of Stores, Spares & Chemicals 945.15 1234.01

Salaries, Wages and Bonus 1841.17 1243.98

Contribution to Provident & other funds 137.43 142.67

Staff Welfare 157.31 121.01

Rates & Taxes 2.30 13.77

Insurance 13.98 20.95

Postage, Telephone & Telex 11.61 27.23

Printing & Stationery 29.76 29.73

Vehicle Maintenance 5.60 3.92

Recruitment expenses 18.22 23.48

Travelling and Conveyance 32.04 54.50

Loss on Sale of Asset 17.94 2.98

Testing Charges 578.95 1254.27

Consultancy & Professional Fees 305.41 52.46

Others 338.29 443.93

4647.75 4877.53

21. Derivative Instruments and unhedged Foreign currency Exposure : a) Derivative instruments

Sl. No. As at As at31.03.2009 31.03.2008

1. Currency Swap 17221.85 21649.40

76 Orchid Chemicals & Pharmaceuticals Ltd.

SCHEDULES TO THE CONSOLIDATED ACCOUNTS

Schedule “P” NOTES ON ACCOUNTS (Contd.)

2008-09 2007-08Currency Foreign Rs. Foreign Rs.

Currency Currency

i) Receivables OutstandingUSD 123217942 52941.99 122525472 48572.06 EURO 448782 300.54 595724 286.42 AUD 161626 56.39

ii) Payables Outstanding USD 18610098 9166.18 29694024 11934.03 EUR 706015 506.72 4063999 2584.70 JPY 1847128 7.95 28418597 114.73 Others – 27.37 48.41

iii) Advance Paid GBP 272591 229.34 707210 562.41 SGD 11280 3.29 11280 3.29 USD 5357900 2719.40 4670000 1845.58 Eur 10247544 7014.70 566045.48 352.87 CHF 130390 60.03

iv) FCCB USD 154660000 79170.45 194710000 78098.18 v) Loans availed USD 47394502 24261.25 62098487 24887.03

(Rs. lakh)

d) The MTM loss amounting to Rs. 3934.45 lakh on the derivatives outstanding as on March 31, 2009 has been recognised in the accounts and includedunder exchange rates loss/(gain) account

22. The Board of Directors of Ogna Farma have decided to close the operations and filed application with the appropriate authorities for Liquidation. Accordinglythe accounts of the Company have not been prepared on going concern basis. The consolidated accounts also have been prepared accordingly.

23. Sundry Debtors shown in the Balance sheet are subject to confirmations. The Company has sent confirmation letters to all the debtors. In view of therecessionary trend, some of the debtors have been requesting for discounts and the Company is in the process of negotiations with such customers. TheCompany has made adequate provisions for such estimated claims under the head “Provision for Rebates / Discounts”.

24. Previous year's figures have been regrouped wherever necessary to conform to current year's classification.

b) The purpose for which the instruments have been acquired is for hedging the foreign currency exposures.

c) The Foreign Currency Exposures that are not hedged by a derivative instrument or otherwise

On behalf of the Board

As per our report of even date

For SNB Associates K. Raghavendra RaoChartered Accountants Managing Director

B. Mahalingam Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduPartner Deputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

77Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

CONSOLIDATED CASH FLOW STATEMENT for the year ended March 31, 2009

31.03.2009 31.03.2008A. CASH FLOW FROM OPERATING ACTIVITIES

Net Profit before taxation and extraordinary item (3381.65) 22856.50

Adjustment for:

Depreciation 13399.25 10067.84

Dividend Income (4.00) (1.80)

Loss/ (Profit) on sale of Fixed Assets 229.06 15.05

Gain on cancellation of FCCBs-net (6730.53) –

Provision for doubtful advances written back (1833.73) –

Foreign Exchange Rate Fluctuations - Unrealised (4726.79) (6590.87)

Interest Expense 15645.00 8200.05

Provision for Rebates/Discounts 4000.00 –

Provision for doubtful debts – 1552.39

Operating Profit before Working Capital Changes 16596.61 36099.16

Adjustments for:

Trade and other Receivables (3905.77) (13998.50)

Inventories (11909.93) (3754.09)

Trade Payables 4090.08 5910.36

Cash generated from Operations 4870.99 24256.93

Income Taxes Paid (280.84) (3227.98)

Net Cash from Operating Activities 4590.15 21028.95

B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets (48132.03) (54560.49)

Proceeds from Sale / Deletion of Fixed Assets 431.08 91.20

Purchase / Sale of Investments – (72.82)

Dividends received 4.00 1.80

Net cash used in Investing Activities (47696.95) (54540.31)

(Rs. lakh)

78 Orchid Chemicals & Pharmaceuticals Ltd.

CONSOLIDATED CASH FLOW STATEMENT (Contd.) for the year ended March 31, 2009

31.03.2009 31.03.2008C. CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issuance of Share Capital (net of expenses) 10951.54 67.88

Proceeds from Working Capital Borrowings 6722.49 16433.04

Proceeds from Long Term Borrowings 93007.15 43889.14

Repayment of LongTerm Borrowings (29422.62) (33143.14)

Proceeds from issue /cancellation of FCCBs (net of expenses) (5632.39) –

Proceeds from / (Repayment of) Short Term Borrowings (9995.99) 12000.00

Proceeds from HP Finance (29.23) (20.95)

Interest paid (20186.24) (12179.18)

Dividend paid (2306.31) (2310.46)

Net cash from Financing Activities 43108.41 24736.33

D. NET INCREASE IN CASH AND CASH EQUIVALENTS 1.60 (8775.03)

Cash and Cash equivalents at the beginning of period 2447.21 11222.24

Cash and Cash equivalents at the end of period 2448.84 2447.21

Reconciliation statement

Cash and bank Balances as per Balance sheet 5250.67 3103.90

Less : Margin Money Deposit 2746.62 604.08

Unclaimed Dividend 55.21 52.61

Cash and cash Equivalents as per cash flow 2448.84 2447.21

(Rs. lakh)

On behalf of the Board

As per our report of even date

For SNB Associates K. Raghavendra RaoChartered Accountants Managing Director

B. Mahalingam Dr C. Bhaktavatsala Rao Dr M. R. Girinath Dr I. Seetharam NaiduPartner Deputy Managing Director Director Director

Place: Chennai S. Krishnan Bhoomijha MuraliDate: June 29, 2009 Head-Finance & Business Planning GM-Legal & Company Secretary

79Annual Report 2008-09

Orchid Chemicals & Pharmaceuticals Ltd.

S. N

0Pa

rtic

ular

s20

08–0

920

07–0

820

06–0

720

05–0

620

04–0

520

03–0

420

02–0

320

01–0

220

00–0

119

99–0

0

A)Fi

nanc

ial R

esul

ts S

umm

ary

1To

tal

Sale

s &

Ope

ratin

g In

com

e12

2155

12

5018

93

418

8887

7 68

929

7134

1 54

141

4255

2 37

125

3595

5

2O

ther

Inco

me

451@

124@

156

133

82

123

111

75

131

377

3To

tal I

ncom

e12

2606

12

5142

93

574

8900

9 69

012

7146

4 54

253

4262

8 37

256

3633

2

4EB

IDTA

2483

1 41

734

2913

7 26

060

1631

1 15

049

1096

3 97

72

1016

5 11

086

5Pr

ofit/

(Los

s) A

fter

Tax

-521

718

454

9663

82

90

3101

31

03

1954

63

1 35

76

3859

6Pa

id-u

p Eq

uity

Sha

re C

apita

l70

44

6585

65

82

6462

34

13

3238

32

38

2800

28

00

2800

7Sh

areh

olde

rs’ N

et w

orth

79

971

8038

7 59

361

8650

9 54

568

4969

0 48

049

3701

7 39

765

3742

3

B)Ke

y Ra

tios

& P

aram

eter

s

(I)Pr

ofita

bilit

y re

late

d Ra

tios

& P

aram

eter

s

1EB

IDTA

Mar

gin

- %

20.2

533

.35

31.1

429

.28

23.6

421

.06

20.2

122

.92

27.2

830

.51

2N

et P

rofit

Mar

gin

- %

-4.2

614

.75

10.3

39.

314.

494.

343.

601.

489.

6010

.62

(II)

Shar

ehol

der

rela

ted

Ratio

s &

Par

amet

ers

1EP

S-Rs

./Sha

re-7

.61

28.0

3 14

.70

14.8

59.

559.

586.

612.

2512

.77

18.6

7

2Bo

ok V

alue

- R

s./Sh

are

#11

5.05

122.

0790

.19

133.

8815

9.87

153.

4514

8.38

132.

2014

2.00

133.

66

(III)

Grow

th r

elat

ed R

atio

s &

Par

amet

ers

1G

row

th in

Tot

al In

com

e -

%-2

.03

33.7

45.

1328

.98

-3.0

032

.00

27.0

014

.42

2.54

8.18

2G

row

th in

EBI

DTA

- %

-40.

5043

.23

11.8

159

.77

8.00

37.0

012

.00

-3.8

7-8

.30

26.7

8

3G

row

th in

PAT

- %

-128

.27

90.9

716

.56

167.

33–

59.0

021

0.00

-82.

37-7

.34

8.58

# Ra

tio c

alcu

late

d as

(Fre

e Re

serv

es &

Sur

plus

+ D

efer

red

Tax

Liab

ility

) ove

r Equ

ity S

hare

Cap

ital

@ D

oes

not

incl

ude

exch

ange

rate

gai

n on

FCC

Bs

(Rs.

lakh

)Ke

y Fi

nanc

ial P

aram

eter

s an

d Ra

tios

at a

Gla

nce

80 Orchid Chemicals & Pharmaceuticals Ltd.

3mm Spine

A PRODUCTinfo@trisyscom.com

FORWARD-LOOKING STATEMENTIn this Annual Report we have disclosed forward-looking

information to enable investors to comprehend our prospects and

take informed investment decisions. This report and other

statements that we periodically make contain forward-looking

statements that set out anticipated results based on the

management’s plans and assumptions. We have tried wherever

possible to identify such statements by using words such as

‘anticipate’, ‘estimate’, ‘expects’, ‘projects’, ‘intends’, ‘plans’,

‘believes’, ‘targets’ and words of similar substance in connection

with any discussion of future performance.

We cannot guarantee that these forward-looking statements will

be realized, although we believe we have been prudent in our

assumptions. The achievement of results is subject to risks,

uncertainties and estimates taken as assumptions. Should known

or unknown risks or uncertainties materialize, or should underlying

assumptions prove inaccurate, actual results could vary materially

from those anticipated, estimated or projected.

CONTENTS

Corporate information 01 Strategic review 02 Directors’ Report 04 Corporate Governance Report 13

General shareholders’ information 20 Management discussion and analysis 26 Financial section 31

20901409_Orchid_AR_2k8-2k9_Ordinary_Cover:Layout 2 03/09/09 7:08 PM Page 2

Regd. Office

‘Orchid Towers’ 313, Valluvar Kottam High Road, Nungambakkam, Chennai 600034, India

Tel : (91)-44-28211000 Fax : (91)-44-28211002 e-mail: corporate@orchidpharma.com

Website: www.orchidpharma.com Health portal: www.healthorchid.com

Orchid Chemicals& Pharmaceuticals Limited

Annual Report 2008-09

3mm Spine20901409_Orchid_AR_2k8-2k9_Ordinary_Cover:Layout 2 03/09/09 7:08 PM Page 1