Management Discussion Report FY

Index Key Financial Numbers Operating Margins Balance Sheet Summary Performance Highlights Business Operations & Outlook

Key Financial Numbers Q DF Net Sales Rs 45 Cr  Due to VAT impact, sales loss of approx. 6 weeks  VAT adjusted growth (on net sales basis) – 11% - Consolidated Net Exports Rs 44 Cr  Growth mainly due to improved performance from Brazil & Asia / Africa  First supply of generic to Europe commenced - PAT Rs 3 Cr  Stand-alone PAT de-growth Rs. 6 Cr

Key Financial Numbers Year DF Net Sales Rs 290 Cr  2% Growth  VAT adjusted growth (on net sales basis) – 10% -Consolidated Exports Rs 130 Cr  Growth Rs 63 Cr & 95 %; -PAT Rs 53 Cr ; Consolidated PAT Rs 49 Cr  Stand-alone PAT de-growth Rs 11 Cr  Consolidated PAT de-growth Rs 6 Cr

Operating Margins – Q4 Rs in lacs Particulars Growth Net Sales & Op. Income % Operating Profits (PBIDT)* % Operating Margin %6.3 % 17.8%-11.5% PBT(before exceptional item) % PBT %-2.1%13.0% -15.1% Income-tax expense(547) % Tax as % of PBT26.0% PAT(before exceptional item) % PAT %3.2%9.6% -6.5% EPS for the quarter % * PBIDT excludes discovery expenditure & other income & is after R&D development costs for EU/US market of Rs. 718 lacs. Jan-Mar

Operating Margins – FY Particulars Gwth Net Sales & Op. Income (Adj.) # % Operating Profits (PBIDT)* % Operating Margin %18.9%25.7%-6.8% PBT(before exceptional item) % PBT %12.6%20.5% -7.9% Income-tax expense % Tax as % of PBT13.1%27.7 % -14.6% PAT(before exceptional item) % PAT %10.9%14.8% -3.9% EPS % Consolidated EPS % Apr - Mar # Excludes research income from Novartis - Rs lacs for * PBIDT excludes discovery expenditure & other income & is after R&D development costs for EU / US for Rs.2000 lacs. Rs in lacs

Balance Sheet Summary Source of Funds: Shareholders’ Fund Loan Funds Net Deferred Tax Liability: % 34% 7% % 0% 12% Total % % Application of Funds: Net Fixed Assets Long Term Investments Current Investments % 6% 24% % 10% 6% Working Capital: Inventories Cash & Bank Balances Debtors Other Current Assets Loans & Advances Less Current Liabilities & Prov % 1% 10% 1% 6% 20% % 3% 12% 1% 8% 27% Net Current Assets: %843624% Total % % Rs in lacs

Performance Highlights One-off items affecting the top line and bottom line: –De-stocking by stockists due to uncertainty in VAT implementation  Sales loss in domestic expected to be recouped in the first quarter of –Stricter implementation of NDPS Act by Narcotics Department  Retailers and wholesalers stopped fresh purchases  Subsequent amendment in NDPS rules in Feb 05 restored things to normalcy –Withdrawal of Toroxx following withdrawal by the innovator  Resulting in to sales and margin loss  Loss to be nearly recouped through launch of Toroxx A / AP (Aceclofenac/ Paracetamol Combination) and re-launch of Diclomax in April / May 05

Performance Highlights Other major reasons for lower profitability are: –Higher R & D expenditure in nature of investments Aimed at strengthening product pipe line for regulated markets (e.g. EU & US) Fully charged to P & L, pursuant to conservative accounting policy Higher R & D expenditure eligible for weighted deduction under Income Tax law, bringing down tax out-go significantly –Increased marketing infrastructure resulting in higher staff cost Field force taking time to stabilize Lower productivity & higher lead time of field force due to initial phase of learning curve

Business Operations And Outlook Domestic Market: –Maintained 14 th rank in domestic market even in cut-throat competition –Introduced 22 new products (including line extensions) –Pace of new introductions to continue during this year as well –NPPA driven price reductions likely to affect contribution –Baddi operations will provide excise / income tax benefits from Q3 onwards

Business Operations And Outlook International Market: –Geographical expansion to continue to drive growth and profitability in Brazil –New product launches & higher export revenue expected from EU market –Received marketing authorisation in Netherlands for Lamotrigine & completed first MRP registration in UK & Germany –Received plant approval from UK MHRA for oral solid formulations –First DMF with US FDA filed in Apr. ’05 –First ANDA expected to be filed with US FDA in the current quarter

Business Operations And Outlook R & D initiative: –Received USD 3 million as license income from Novartis for out- licensing AGE breaker compound –Signed a collaborative research agreement with AstraZeneca for novel drug discovery in the area of hyper tension –R & D expansion already under way to ramp up the R & D infrastructure to support product pipeline of regulated markets

Thus, strategic investments like increased marketing expense owing to increased field force and higher R&D investments during FY shall benefit the company in the medium to long term. Also, readiness to enter the US markets, commencement of exports to EU and good performance in other international markets like Brazil and Russia, are expected to boost the Company’s performance in near future.

Torrent Pharmaceuticals Limited Ready for tomorrow

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