MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Your Directors have pleasure in brsenting the management discussion and analysis report for the year ended on March 31,2015.

1. INDUSTRY STRUCTURE AND DEVELOPMENTS:

During the year under review, both domestic and international economies have been under strain due to various reasons. Fall in commodity and oil prices, ongoing war situation in Eastern Europe had their impact on slowdown of international businesses. Domestic pharmaceutical industry had also slowed down due to control on pricing of finished formulations and slowing exports. Despite these challenges, your company has been able to increase its' sales turnover by 15%, however PBT could grow only by 1.5 %. Company is hopeful of accelerating rate of growth in the coming years.

2. OPPORTUNITIES AND THREATS:

a) Opportunities

i) Opening of export opportunities in francophone countries & Latin American countries.

ii) Expansion of the existing markets for' Vege capsules within the country.

iii) New dosage formulations using hard capsules

 b) Threats:

i) Expansion of capacities by other major players and entry of new players.

ii) Overcapacity may lead to drop in sales realization,

iii) Conversion of Gelatine capsules products into other dosage forms.

iv) Slowdown in exports due to slowing international economy

3. RISKS AND CONCERNS

Risk of competition and exchange fluctuations may have an adverse impact on the projections.

4. INDIAN PHARMACEUTICAL INDUSTRY DURING FY 2014-15

• FY15 was challenging on the domestic front. The companies witnessed sluggish growth on the back of pricing policy. The companies faced strikes from the wholesales on margin issues due to reduction in prices of overall drugs.

• MNC pharma companies continued to witness subdued growth during FY14/CY13. It is important to note, the growth of the MNC players was below the domestic pharma companies. The pricing policy had a negative impact on the company's revenues. Over and above, these companies were also impacted by the increasing competition, drug launches by other companies before patent expiry, through compulsory licensing and patent infringements. Only couple of companies exhibited better growth. The margins of these companies remained subdued due to increasing expenses and slower top line growth.

• In the US, generic companies witnessed mixed growth. While some of the companies benefited from the low competition launches, others got impacted due to delay in approvals. Though there were not many blockbuster launches during the year, various companies did manage to display better growth. On the other hand, the companies witnessed growth brssures in several regions of Europe, Latin America and some other geographies due to increasing efforts by governments to reduce their healthcare burden and delay in approvals.

• Pharma exports to most of developing markets saw a decline during the second half of the FY15, due to fall in commodity prices which slowed the economies of these countries.

• The industry continued to face challenges on the regulatory front. During the year, there were few Indian companies that faced issues from the USFDA, as they lacked good manufacturing practices (GMP). Because of this, there were instances of import alerts being issued, drug recalls, warning letters and so on. The regulators have become more stringent now and have also been conducting surprise checks.

5. PROSPECTS FOR INDIAN PHARMA MARKET

•The Indian Pharma Market size is expected to grow to US$ 85 bn by 2020. The growth in Indian domestic market will be boosted by increasing consumer spending, rapid urbanization, increasing healthcare insurance and so on.

•The life style segments such as cardiovascular, anti-diabetes, anti-debrssants and anti-cancers will continue to be lucrative and fast growing owing to increased urbanisation and change in lifestyle patterns. Going forward, better growth in domestic sales will depend on the ability of companies to align their product portfolio towards these chronic therapies as these diseases are on the rise. -In various global markets, the government has been taking several cost effective measures in order to bring down healthcare expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will benefit Indian pharma companies. However, despite this huge promise, intense competition and consequent price erosion would continue to remain a cause for concern. Over and above this, following GMP will be an important criteria for companies in order to grow in the global markets. -For the US market, Indian companies are developing niche portfolios in various segments. High margin injectables, dermatology, respiratory, biogenerics, complex generics etc. have become an area of interest. Most of the Indian pharma companies have been working on these niche drugs in order to optimize growth and margins. Thus, post patent cliff, the companies which have developed their product basket in the niche category will be ahead in the curve. Moreover, generic penetration in the US is expected to peak out at 86-87% over the next couple of years from 83% currently.

6. OUTLOOK:

Based on the company's performance up to the date of this report, orders on hand and realizing the full capacity of new machines at Pondicherry, company is hopeful of achieving a turnover of around Rs. 70 to 72 crores in the current year. However due to increase in input cost of capsules and apbrciation in Indian Rupee, company may have to face stagnation in profits.

7. DISCUSSION OF FINANCIAL PERFORMANCE:

During the year under review the company had discharged all its institutional repayment liabilities on time. Over and above of this, the company has ploughed back Rs. 409.97 lacs for Capital Investment at Pondicherry for the expansion Project.

8. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has engaged the services of an independent Chartered Accountant to carry out the internal audit and ensure that recording and reporting are adequate and proper, the internal controls exist in the system and that sufficient measures are taken to update the internal control system. The system also ensures that all transaction are appropriately authorised, recorded and reported. Exercises for safeguarding assets and protection against unauthorized use are undertaken from time to time. The company has also installed an extensive CCTV Surveillance system to cover the entire factory brmises. All these measures are continuously reviewed by the management and as and when necessary improvements are affected.

9. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance during the year under reference has been imbrssive in terms of sales. Even though there has been a decent increase in the turnover, the volume of profits before tax has increased less than the proportionate increase in sales. At the same time profit after tax has increased at a higher rate than the increase in sales.

10. CORPORATE SOCIAL RESPONSIBILITY.

The management of your company is of the opinion that the company's contribution to the society should be of its own volition and not out of compulsion.

Hence, even before it was mandated by law, the company had initiated measures for past several years to help the poor and downtrodden section of the society by contributing to various social causes and to local communities in the immediate vicinity of its factory.

11. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED.

As on March 31, 2015 the company had 150 permanent employees at its manufacturing plants and administrative office. The company recognizes the importance of human value and ensures that proper encouragement both moral and financial is extended to employees to motivate them. The company has provided rent free accommodation to all its staff & workers adjacent to the factory brmises of the company. The company enjoyed excellent relationship with workers and staff during the last year.

Cautionary Statement

The statements in the "Management Discussion and Analysis Report" section describes the Company's objectives, projections, estimates, expectations and brdictions, which may be "forward looking statements" within the meaning of the applicable laws and regulations. The annual results can differ materially from those exbrssed or implied, depending upon the economic and climatic conditions, Government policies and other incidental factors.