DIVI'S LABORATORIES LIMITED
ANNUAL REPORT 2008-2009
Ladies and Gentlemen,
Good Morning. I extend a hearty welcome to you all, to this 19th Annual
General Meeting of the Company.
The Directors Report and the Audited Accounts for the year 2008-09have
already been circulated, and with your permission I take themas read.
I am glad to report that the performance of your company in the year 2008-
09 has been satisfactory, despite the economic slowdownwhich started off in
the advanced countries with a consequent effecton other countries as well.
Operations for the year 2008-09
It is now my pleasure to present our company's financial results forthe
year. Some of the highlights are:
* Achieved a total income of Rs.1214 crores during the year asagainst
Rs.1047 crores during the previous year, reflecting agrowth of 16%.
* Profit before Tax of Rs.458 crores as against Rs. 385 croresduring the
* Tax provision of Rs.34 crores for the year as against Rs.31crores during
the previous year.
* Profit after Tax (PAT) for the year of Rs.424 crores as against Rs. 354
crores during the previous year.
The year has seen very high fluctuations in foreign currencies. Due tothe
substantial export business that it has, the company has hedgedsome of its
exposure and also undertaken some foreign exchangederivative transactions.
There was a net loss of Rs.31 crores duringthe year on account of forex
fluctuation losses on these treasuryoperations including the Mark-to-market
losses on the outstandingderivative contracts as against a net loss of Rs.
10 crores during last year.
We have fully provided for all foreign currency translation losses as well
as MTM losses on forex forward contracts, short or long termand have not
exercised the option available in respect of exchange difference on long
term monetary items under clause 46 of Accounting Standard -11 notified by
the Ministry of Company Affairs under the Companies Accounting Standards
Taxation of profits of EOU/SEZ
As you all know, the company has three manufacturing facilities, Unit-1
near Hyderabad, EOU and SEZ Units near Visakhapatnam. In therecent budget,
the Government has extended the income-taxexemption for export profits from
the EOU Units upto 31st March, 2011. Our Divis Pharma SEZ notified under
the Special Economic Zone Act, 2005 is eligible for income-tax exemption
under Section 10AA of the Income-tax Act, 1961 at 100% of export profits
for thefirst five years of commercial operations, 50% for the succeeding
fiveyears and thereafter for a further period of 5 years for an amount
notexceeding 50% of its export profits subject to certain conditions
However, there is an anomaly in the drafting of Section 10AA(7) of the
Income-tax Act and the wording and interpretation of the sectionis
restricting the quantum of exemption and created a discriminationbetween
companies having Units in SEZs as well as outside vis-a-vis companies
having Units only or exclusively in SEZ. The industry hasrepresented the
matter to the Government and several statementswere made in the press as
well as in the parliament by theGovernment that it has been decided to
remove this anomaly.Although the Union Budget for 2009-10 adopted by the
Parliamenthas removed the anomaly by amendment to the Income-tax Act, but
ithas been made only prospective that is effective 1st April, 2009 - thus
denying the benefit of 100% exemption of export profits for theprevious
financial years to companies like us.
Operations of Quarter ending 30th June, 2009
While the various industry associations and bodies have againrepresented on
the anomaly of SEZ taxation to the Government, wehad to provide for the
shortfall of tax provision for the previous yearsin our accounts for the
first quarter ended 30th June, 2009 in view ofthis amendment by Parliament.
The impact of the ongoing economic slowdown and financial crisis inthe
developed markets has forced our customers work on leanoperations and
destocking of inventories across their supply chains. This has resulted in
lower sales for your company during the current year. Internationally, the
effect of slowdown on pharma businessduring the current quarter is also
seen on several of our peers or competitors.
The last year has seen unprecedented global economic slowdownwith its
effect on almost all markets be it commodities, crude, financialor
currency. This has resulted in serious turmoil across the globewith varying
severity across industry segments.
Although pharmaceutical and healthcare sector is considered adefensive
sector - nevertheless appears to have been impacted,albeit lesser than
other sectors. Traditionally, the big pharmas usedto focus on regulated
markets in developed countries like US,Europe, Japan for increasing their
business. The recent trend is thatthese big pharmas are looking at emerging
markets like India, China. To achieve this, the big pharmas are either
acquiring or getting intostrategic relationships with Indian companies for
developing businessin emerging markets.
As part of their efforts to conserve resources in the current
economicsituation, many of our customers have been undertaking
leaninventory management and destocking inventories across all theirsupply
chains covering their plants, warehouses, distributors, stockists as well
Primary demand still remains intact and the long term outlook for thecustom
synthesis business is robust and expected to grow. The MNCs are continuing
to sell or shut-down their manufacturingfacilities, which confirms their
continuing strategy for outsourcing their API needs. In the immediate and
near term, though there is aslowdown in our sales due to the customers
tightening their workingcapital cycles, the long-term outlook looks
Our R&D and manufacturing teams have been constantly strivingtowards
achieving continuous improvements, minimizing wastes, optimizing processes
in order to stay competitive. We also lay agreat stress on sustainability
of scarce resources and have beeninstalling large reverse osmosis plants,
energy efficient equipmentsand best manufacturing practices.
During the year, we have submitted 5 Drug Master Files taking thetotal
number of DMFs filed to 37 and we have Certificate of Suitabilitywith
European Directorate for 10 products. There are a number ofsmall molecules
coming out of patent giving opportunity to generic API players.
Ladies and Gentlemen, I take this opportunity to express my sincerethanks
to all of you for reposing trust and confidence in theManagement of the
company. I also appreciate and place on recordthe valuable contribution
made by the employees of the company.Your directors also acknowledge the
continued support extended byour customers, suppliers, banks and various
Government Bodies andStatutory Authorities.
With warm regards,
Dr. Murali K. Divi
Date: 17th August, 2009
Dated : 25th September, 2009