LETTER OF OFFER
(For private circulation to Equity Shareholders/Beneficial Owners of the Company only)
BAL PHARMA LIMITED
(Incorporated on 19th May, 1987 as Bal Pharma Private Limited, in the State of Karnataka under the Companies Act, 1956 and subsequently converted into a Public Limited Company with effect from 9th August, 1994) REGISTERED OFFICE 21 & 22, Bommasandra Industrial Area, Hosur Road, Bangalore - 560099 Tel No: +91 –80- 7833156, Fax No: +91 -80-7835482 Email: balpharma@vsnl.com website: www.balpharma.com. Contact Person: Mr K.Mahadevan CORPORATE OFFICE 5 floor, Laxmi Narayan Complex, 10/1, Palace Road, Bangalore – 560 052. Tel No.- +91-80-51379500, Fax No.- +91-80-22354057
ISSUE OF 39,18,000 EQUITY SHARES OF Rs. 10/- EACH FOR CASH AT A PREMIUM OF Rs.20/- PER SHARE (“THE ISSUE”) AGGREGATING TO Rs.11,75,40,000 ON A “RIGHTS” BASIS TO THE EXISTING EQUITY SHAREHOLDERS/BENEFICIAL OWNERS OF THE COMPANY IN THE RATIO OF 3 EQUITY SHARES FOR EVERY 5 EQUITY SHARES (RESULTING FRACTIONAL ENTITLEMENTS, IF ANY, ROUNDED OFF TO THE NEXT HIGHER INTEGER) HELD AS ON 15, APRIL 2005 i.e., RECORD DATE. THE FACE VALUE OF THE EQUITY SHARES IS RS. 10 PER SHARE AND THE ISSUE PRICE IS THREE TIMES THE FACE VALUE.
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GENERAL RISKS Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in this issue, unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For taking an investment decision, investors must rely on their own examination of the Issuer and the Offer including the risks involved. The securities have not been recommended or approved by the Securities and Exchange Board of India nor does the Securities and Exchange Board of India guarantee the accuracy or adequacy of this document. Specific attention of the investors is invited to the Risk Factors on Page Nos. ii and 62 of this LoO. ISSUER’S ABSOLUTE RESPONSIBILITY The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this LoO contains all information with regard to Bal Pharma Limited and the Issue, which is material in the context of the Issue, that the information contained in this LoO is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. LISTING The equity shares of the Company are listed on The Stock Exchange, Mumbai (“BSE”). The in-principle approval for listing the rights equity shares has been obtained from BSE (Designated Stock Exchange) vide letter dated 23 February, 2005.
LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE
Karvy Investor Services Limited “Karvy House”, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad – 500 034 SEBI Registration No. INM/000008365 Tel: +91 40 2337 4714/2332 0752 Fax: +91 40 23374714 e-mail: mbd@karvy.com. Website: www.karvy.com ISSUE OPENS ON LAST DATE FOR RECEIPT OF REQUESTS FOR SPLIT APPLICATION FORMS ISSUE CLOSES ON
Tata Share Registry Limited Army & Navy Building, 148, M.G.Road, Fort, Mumbai – 400001 SEBI Registration No.:- INR000000197 Tel: 022-56568484 Fax: 022 – 56568494 e-mail: csg-unit@tatashare.com Website: www.tatashare.com 27th APRIL, 2005 11th MAY, 2005 26th MAY, 2005
TABLE OF CONTENTS
DEFINITIONS AND ABBREVIATIONS ..................................................................................................................................................................... i RISK FACTORS ENVISAGED BY THE MANAGEMENT ........................................................................................................................................ ii I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV. X V. XVI. GENERAL INFORMATION ..................................................................................................................................................................................... 1 CAPITAL STRUCTURE OF THE COMPANY .......................................................................................................................................................... 5 TERMS OF THE PRESENT ISSUE ......................................................................................................................................................................... 9 TAX BENEFITS FOR THE COMPANY AND THE SHAREHOLDERS .................................................................................................................... 16 PARTICULARS OF THE ISSUE ............................................................................................................................................................................ 18 HISTORY OF THE COMPANY, PRESENT BUSINESS AND THE MANAGEMENT ................................................................................................ 24 PROMOTERS AND THEIR BACKGROUND ......................................................................................................................................................... 29 THE BOARD OF DIRECTORS OF THE COMPANY .............................................................................................................................................. 34 FINANCIAL AND OTHER INFORMATION ............................................................................................................................................................ 39 MANAGEMENT DISCUSSION AND ANALYSIS .................................................................................................................................................. 54 BASIS OF ISSUE PRICE ...................................................................................................................................................................................... 55 OUTSTANDING LITIGATIONS, DEFAULTS, ADVERSE EVENTS AND MATERIAL DEVELOPMENTS ................................................................. 56 STOCK MARKET DATA ...................................................................................................................................................................................... 60 RISK FACTORS ENVISAGED BY THE MANAGEMENT ...................................................................................................................................... 62 MATERIAL CONTRACTS AND INSPECTION OF DOCUMENTS .......................................................................................................................... 66 DECLARATION ................................................................................................................................................................................................... 66
DEFINITIONS AND ABBREVIATIONS
API Articles AS AY Board of the Company BSE/Designated Stock Exchange CAF CAGR CDSL Demat DEPB DGFT EGM EPS EXIM Bank FDA FEMA FI FII FY GoI / Govt. Guidelines IPR Issue/Offer IT Act Lead Manager to the Issue/Karvy LoO LIBOR Ltd., Memorandum NAV NCE NR NRE NRI NRO NSDL OCB(s) Pvt. R&D RBI RTA Record Date Registrar to the Issue RoC SEBI The Act The Company/ Bal Pharma USD or $ or US $ USP USFDA WTO Active Pharmaceutical Ingredients Articles of Association of the Company Accounting Standard, issued by the Institute of Chartered Accountants of India Assessment Year The Board of Directors of the Company The Stock Exchange, Mumbai Composite Application Form Compounded Annualised Growth Rate Central Depository Services (India) Limited Dematerialised (Electronic/Depository as the context may be) Duty Entitlement Passbook Scheme Director General of Foreign Trade Extra-ordinary General Meeting Earnings per Share Export Import Bank of India Food and Drug Administration Foreign Exchange Management Act, 1999, and subsequent amendments thereof Financial Institution Foreign Institutional Investor Financial Year Government of India Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000, and subsequent amendments thereof Intellectual Property Rights The present Rights Issue of equity shares to the existing equity shareholders/Beneficial Owners of the Company Income Tax Act, 1961, and subsequent amendments thereof Karvy Investor Services Limited Letter Of Offer London Inter Bank Offer Rate Limited Memorandum of Association of the Company Net Asset Value New Chemical Entity Non Resident as defined under FEMA, 1999 Non Resident External as defined under FEMA, 1999 Non Resident Indian as defined under FEMA, 1999 Non Resident Ordinary as defined under FEMA, 1999 National Securities Depository Limited Overseas Corporate Bodies Private Research and Development Reserve Bank of India Registrar and share Transfer Agent The relevant date which is reckoned for determining the rights entitlement to the Members i.e.,15 April, 2005 Tata Share Registry Limited Registrar of Companies Securities and Exchange Board of India The Companies Act, 1956, and subsequent amendments thereof. Bal Pharma Limited United States Dollar Unique Selling Proposition United States Food and Drugs Administration World Trade Organisation
In this LoO, any discrepancies in any table between total and the sums of the amount listed are due to rounding off. All references to “Rs.” or “INR” refer to Rupees, the lawful currency of India. References to the singular also refer to the plural and one gender also refers to any other gender wherever applicable.
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RISK FACTORS ENVISAGED BY THE MANAGEMENT
The investors should consider the following risk factors together with all other information included in this LoO carefully in evaluating the Company and its business before making any investment decision. Any projections, forecasts and estimates contained herein are forward looking statements that involve risks and uncertainties. Such statements use forward looking terminologies like “may”, “believes”, “will”, “expect”, “anticipate”, “estimate”, “plan” or other similar words. The Company’s actual results could differ from those anticipated in these forward looking statements as a result of a number of factors including those, which are set forth in the “Risk Factors” as appearing on Page ii & 62 Internal Factors: 1. Non-receipt or delay in receipt of approvals for the new project: The Company is in the process of applying for/obtaining certain approvals for the proposed new facilities. With respect to the formulations manufacturing facility proposed to be located in Himachal Pradesh, the Company is in the process of identifying the land. The following approvals are required: a) b) c) d) e) f) g) h) i) j) k) l) Sales Tax registration granted by the Assessing Authority, Himachal Pradesh under Rule 6 of the Himachal Pradesh General Sales Tax Rules, 1970; Grant of Consent from Pollution Control Management Environmental Engineer, Baddi; Licence to work as a Factory - From Inspector of Factories; Approval of factory plan under Factories Act 1948; Letter from State Electricity Board for supply of electric power; Approval from Municipality/corporation for water connection; Manufacturing Licence from FDA, Consent from State pollution control board (Air, water, hazardous waste); Approval by Industrial safety and health authority; Central Excise Registration Certificate; Licence for purchase, possession and use of Inflammable and explosive material; Contract Labour Registration Certificate if required; Customs/Registration certification if required;
With respect to the APIs manufacturing facility proposed to be located in Bangalore, the Company has received a letter from the Karnataka Udyog Mitra under its State Level Single Window Clearance Scheme, for its project with infrastructural facilities. In this regard the Company is in the process of initiating the application and receipt of other approvals like clearance from BMRDA (Bangalore Metropolitan Rural Development Authority), Ministry of Environment and Forests, Government of India, approval from Factories and Boilers Department, factory licence, electricity and water approval, pollution board consent, etc. Non-receipt or delay in receipt of such approvals may delay the implementation of the projects and may have an adverse impact on the operations and performance of the Company. Management perception The Management has drawn up a time bound plan for implementation of the projects. The approval has been received from the Karnataka Udyog Mitra under the State level Single Window Clearance scheme for setting up of multipurpose API facility at Bangalore. The application will be made for the requisite approvals for setting up the Formulations Unit. The Company will also be making applications to all the statutory authorities for obtaining necessary registrations and approvals and the Management is confident of getting the clearances. 2. Project not appraised: The proposed project is not being appraised by any bank or financial institution and the deployment of funds raised through the present Rights Issue is not being monitored by any financial institution. Management Perception: The Management of the Company has estimated the requirement of funds. The Management shall ensure that the funds raised for the intended purpose will be judiciously utilised. 3. Quotations for cost estimates/arrangements with architects: The Company is yet to invite quotes for many items of the plant and machinery related to the project. The Company has not placed any orders with any supplier for the plant and machinery relating to the project. The Company has not paid any advance to any of the suppliers. The Company has not obtained any performance guarantee for the supply of the equipment. No arrangement/agreement has yet been made with architects/engineers for the civil work, facilities and fixtures for the proposed units. Management perception: The cost estimates have been worked based on the experience of the Company and verbal enquiries of the production unit with the suppliers. The appropriate quotes will be obtained from the reputed suppliers and project implementation committee will place the orders at the appropriate time. The delivery of plant and machinery will be over the period of project and will take around three to six months from the date of placing the purchase orders. 4. Deployment/utilization of funds: Deployment/utilization of funds may not be in productive assets, which may not result in returns for the Company in the short and medium term. Management Perception: The Company is professionally managed with over ten years of experience in the pharmaceutical business and has estimated the funds requirement based upon its business plans. The Company is confident of utilizing the proceeds judiciously and meeting the time schedule for implementation. 5. The Company is dependent on the full subscription to the Rights Issue. Under subscription to the issue may have an adverse material impact on the implementation of the project and consequently on the future performance of the Company. Management Perception: In the event of any under subscription to the issue, some of the Promoters intend to subscribe to the issue beyond their entitlement. In such a case, the acquisition of additional shares by Promoters shall be exempt from making an open offer in terms of Regulation 3(1) (b) (ii) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. The acquisition will not result in a change in the control of the Management of the Company. 6. Equity Dilution: The present issue of equity shares on Rights basis will increase the paid up capital of the Company and this is likely to reduce the EPS. Management perception: The Company is making fresh investments out of proceeds of the present issue and this investment is expected to yield significant return, which will have a positive impact on EPS. ii
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Outstanding Litigations (As per details given on Page 56-60 of the LoO) Cases filed against the Company: 3 Trademark and Patent infringement/passing off cases 1 Labour related case cannot be quantified and 2 labour related cases 1 Regulatory case Cases/appeals filed by the Company: 4 Trademark cases 1 Civil case 3 Criminal Cases 4 Excise Claim Cases 2 Income Tax Claim Cases 1 Sales Tax Claim Case 3 Commercial cases 1 Entry Tax case The outstanding litigations involving the promoter group companies are as follows: Micro Labs Limited: 1 Excise dispute Brown and Burk Pharmaceuticals Limited: 1 Excise case The details of the Contingent Liabilities of the Company, not provided for, as on October 31, 2004, are as under: (Rs. in lakhs) a) Guarantees issued by Company’s bankers b) Letters of Credit issued by Company’s bankers c) Estimated value of contracts remaining to be executed on capital account and not provided for in the Accounts 85.72 395.83 137.65 Rs.17.97 lakhs Rs. 14.79 lakhs Not quantified Not quantified Not quantified Rs 29.32 lakhs Rs 1.69 lakhs Rs 3.33 lakhs Rs 35.30 lakhs Not quantified Not quantified Rs 0.64 lakhs Not quantified
It is to be noted that if the Company becomes subject to significant legal action, it may incur substantial costs related to litigation. The Company currently carries no products liability insurance. If the Company improperly handles any dangerous materials used in its business and accidents result, the Company could face significant liabilities that would lower its profits. 8. Domestic formulation Industry is growing at a slow rate: The Company’s presence in the Pharmaceutical Industry is largely in the domestic formulations business. However, the domestic formulation Industry is growing at slow rate and this could impact the profitability of the Company 9. Inability to manage growth: Any inability to manage its growth by the Company could adversely affect its business prospects and reduce its profitability. Management Perception: The Company‘s formulations business in the specific therapeutic segments are growing faster than growth of Industry and further aggressive marketing and distribution will enable the Company to gain increased market share in the Industry. 10. Raw materials- Price volatility: The raw materials/solvents consumed by the Company are susceptible to volatility in prices. Such volatility may adversely affect the profitability of the Company. Management Perception: The Company has successfully adopted appropriate procurement strategies to meet similar challenges in the past and the Management is equipped to meet such situations in the future. 11. Restrictive covenants: There are restrictive covenants in agreements the Company has entered into with the Banks/Financial Institutions for its short term and long-term borrowings. These restrictive covenants require the Company to seek their prior permission on corporate matters like declaration of dividends, alteration of capital structure, raising of fresh capital etc., Besides the Promoter Directors have executed Personal Guarantee for the said borrowings. Management Perception: The Management is confident that the lending institutions may not impose unreasonable restrictions as long as their interests are protected. 12. Concentration of facilities: The location of the Company’s facilities is concentrated and disruption affecting the Company’s sites could have a material adverse effect on the Company’s business, financial position and results of operations. 13. Manpower requirement/ Attrition of key employees: The Company needs skilled manpower to maintain its performance as well as for the new project. Attrition of key employees and man power, iii
particularly those in the research and development, marketing and specialized functional areas may affect the performance of the Company. Management Perception: The Company is taking effective steps to reduce the attrition at all levels of technical and managerial personnel. Its HR Policy and employee compensation schemes are likely to bring down the attrition rate. 14. Employees Stock Option Scheme to lead to Equity Dilution: Shareholders of the Company in their meeting held on 23rd September, 2004, approved the introduction of Employees Stock Option Scheme in the Company with an overall ceiling of 5% of the issued capital of the Company. Implementation of the scheme is likely to reduce the EPS. Management Perception: The scheme, when implemented is likely to enhance the motivation level of the Option Holder and consequently improve the performance of the Company. 15. Promises vs Performance The Company’s promises made in the initial public issue and the performance were as under: (Rs.in lakhs) Particulars Expected Sales PBIDT Depreciation PBT PAT Share capital Reserves and Surplus EPS Book value Dividend (%) Management perception In the year 1995, there was a market glut in the Pharma sector that forced many pharma companies to close down. The Company survived the onslaught of the glut on account of its prudent policy and business strategies and this had an impact on the business and financial performance of the Company and hence, the variation. 16. Possibilty of conflict of interest Two of the promoter companies, Micro Labs Ltd., and Surana Pharmaceuticals Pvt Ltd., were incorporated with the same objects as that of the Company and are engaged in the manufacture of formulations. Management perception The Company has identified its niche area of operations in the pharmaceutical formulations arena which ensures that there is no conflict of interest with both the promoter Companies. Further more, the focus of Bal Pharma Limited is also on Active Pharmaceutical Ingredients (APIs), Contract Research on APIs and Parenterals, where the other promoter companies do not have any presence. 17. Subsidiary yet to commence operations: Novosynth Research Labs Pvt. Ltd., a wholly owned subsidiary of the Company engaged in the business of Research and Development has not yet commenced operations. Management perception It is the firm assessment of the Management that India is becoming a favourable destination for contract research at competitive costs and to take advantage of this business potential, the subsidiary has been promoted with focus on contract research. With the revised patent regime in place from 01 January,2005, the operations are expected to commence soon. 18. Relationship of the beneficiaries of the loans and advances and sundry debtors of the Company with the promoters. Some of the beneficiaries of the loans and advances and sundry debtors of the Company, namely Micro Labs Limited, Micro Nova Private Limited and Eros Pharma Limited are related to the promoters of the Company. (Details on Page No 53 of this LoO) 19. Non provision for quoted investments of the Company in its books of accounts. Management perception For the quoted investments, in the absence of any trading no market quotations are available, hence, no provision has been made in the books of accounts for the diminution in the value if any of such investments. External Factors Business Risks: 1. The Company operates in a globally competitive business environment. The competition in the pharmaceutical industry is intense with more than 250 large companies trying to get the share of the market. Growing competition may force the Company to reduce the prices of its products which may reduce the revenues and margins and/or decrease the market share of the Company, either of which could have a materially adverse effect on the business, financial conditions and operations of the Company. The Company faces growing and new competition that may adversely affect the Company’s competitive position and profitability. If changes in technology or therapeutic preferences make the Company’s products obsolete, its product sales and revenues will decline. Management Perception: Bal Pharma, with its aggressive market strategy has positioned itself among the better performing listed companies and is confident of pushing itself iv 757.53 284.04 10.00 237.24 201.65 573.00 722.00 15.37 22.60 20.00 1994 – 95 Actual 777.28 243.82 5.01 215.89 196.89 320.00 197.74 6.15 14.96 25.00 Variance 19.75 (40.22) (4.99) (21.35) (4.76) (253.00) (524.26) (9.22) (7.64) 5.00 Expected 3726.46 962.65 112.00 639.65 433.68 573.00 1155.68 7.57 30.17 20.00 1995 - 96 Actual 1072.12 167.43 9.57 98.72 98.72 573.00 769.31 0.97 21.01 7.5 Variance (2654.34) (795.22) (102.43) (540.93) (334.96) Nil 386.37 (6.6) (10.16) (12.5) Expected 4854.44 1001.89 85.80 694.89 471.13 573.00 1626.82 8.22 38.39 25.00 1996 - 97 Actual 1660.77 152.81 13.32 83.91 69.92 573.00 839.23 1.22 23.98 Nil Variance (3193.67) (849.08) (72.48) (610.98) (401.21) Nil (787.59) (7.00) (14.41) (25.00)
up in the top 100 companies. The companies who have developed niche products through their research and development efforts over a period of time are able to withstand the competition. Balpharma has a well equipped Research & Deveopment Center recognised by Government of India wherein newer processes and products are being developed. As the company’s products are well established with the medical profession and trade, the company will be able to withstand the competition. Regulatory Risks: 2. The pharmaceutical industry in India is highly regulated by the Government of India under its Drug Price Control Order (DPCO). Therefore, any adverse change in the Government Policy in terms of margins or prices of the products would affect the Company’s performance. Governmental regulations may restrict the Company’s ability to sell it’s products, which could result in a loss of revenues. Introduction of MRP (Maximum Retail Price) based excise duty for all allopathic formulations; both patented and otherwise, with effect from January 08,2005 and the introduction of Value Added Tax (VAT) from April 01, 2005 would affect the business and performance of the Company. India has adopted product patents under the World Trade Order (WTO) regime with effect from January 2005. The pharmaceutical industry is required to comply with Trade Related Intellectual Property Rights (TRIPS). The pharmaceutical industry will no longer be able to take advantage of the launch of the products before the expiry of product patent. Government of India announced gradual elimination of some of the Income-Tax exemptions and DEPB scheme that are available to the Indian Exporters. Non-availability of these tax exemptions and incentives will increase the future tax liability and decrease profits of the Company. Any change in policies by countries in terms of tariff and non-tariff barriers, from which the Company imports raw materials and/or exports products to, will have an impact on its profitability. There is no assurance or guarantee that the Government or Statutory authority will not ban a bulk drug that is used by the Company in their formulations or for trading. In such an event the business and profitability of the Company may be affected. If the Company fails to comply with environmental laws and regulations or faces environmental litigation, it’s results of operation may be adversely affected. The strengthening of the Rupee, particularly with respect to the US Dollar, could adversely impact the profitability of the Company.
3. 4.
5. 6. 7. 8.
Foreign Exchange Risk: 9. Increasing employee compensations: 10. Increasing employee compensation in India may erode some of the competitive advantage and may reduce the Company’s profit margins. Conflicts and Instability: 11. Terrorist attacks and other acts of violence or war involving India, the United States and other countries could adversely affect the financial markets, result in a loss of business confidence and adversely affect the Company’s business, results of operations and financial condition. Regional conflicts in South Asia could adversely affect the Indian economy; disrupt the Company’s operations and cause it’s business to suffer. The performance of the Company is linked to the stability of policies and political situation in India. Management Perception: These are general risks applicable to every player in the industry. They have already been reckoned in the operational strategies of the Company. The proactive pricing and costing strategies being pursued by the Management reckons acute competition in the industry and as such the Management is confident of meeting the above challenges and minimizing such adverse effects. Notes to Risk Factors
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Investors are advised to refer to “Basis of Issue Price” on Page 55 before investing in this issue; Investors are advised to refer to “Notes to Accounts” before investing in this issue; Net worth of the Company before the issue as on 31st October,2004, was Rs.1647.14 lakhs. The Net worth of the Company as on 31st March, 2004, was Rs.1601.94 lakhs; The NAV of the equity shares of the Company as on 31st October, 2004 was Rs.23.88 per share. The NAV of the equity shares of the Company as on 31 March, 2004, was Rs.20.98 per share; The present issue is of equity shares of Rs. 10 each for cash at a premium of Rs.20 per equity share, i.e., at a price of Rs. 30 per equity share on a rights basis to the existing equity shareholders of the Company in the ratio of 3 equity shares for every 5 equity shares held on the Record Date, 15 April, 2005 i.e., aggregating to Rs. 1175.40 lakhs. The issue price is three times the face value; The Promoters, Directors and their relatives have undertaken the following transactions in the shares of the Company during the last 6 months: Sl No 1. 2. 3. Name of the Promoter / Director/Relative Mr. Jivi Dheerajmal Siroya Mrs.Anita Chandraprakash Siroya M/s Micro Labs Limited No of Shares Bought Nil Nil 2,85,000 No of shares sold 5,000 9,106 Nil Average Price per share 75.30 76.88 39.00
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In adition to the above, 10,000 shares were transferred by Mrs. Anita Chandraprakash Siroya by way of a gift. None of the Promoters, Directors or their relatives have undertaken any transactions in the shares of the Company, in the last 6 months, except as stated above.
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As per AS 18, the Company’s related parties are given below: a. b. c. Wholly Owned Subsidiary Company Others Enterprises over which the above persons exercise significant influence and with which the Company has transactions during the year: Nil : : Novosynth Research Labs Private Limited i. M/s. Desa Marketing International ii. M/s.Siroya Trading Company Private Limited
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The Company’s transactions with the above Related Parties for the period ending 31.10.2004 and the last five financial years are given below: Rs. in Lakhs 31.10.2004 1. Subsidiary Company: (100% owned) Novosynth Research Labs Pvt Ltd., Advance Paid 2. Company/Firm in which Director(s) are interested (i) (ii) 3. Desa marketing International Commission on Sourcing sales /imports Siroya Trading Company Pvt.Ltd., 0.66 1.40 1.49 3.21 3.30 Interest on loan Directors Interest on Loan: Mr. Shailesh Siroya Mr.Shrenik Siroya 4. Key Managerial Personnel Salary to Managing Director/Whole Time Director Mr.Shailesh Siroya Dr. S Prasanna Mr.Shrenik Siroya Important Information
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31.3.2004
31.3.2003
31.3.2002
31.3.2001
31.3.2000
—
—
1.17
0.29
—
10.84
3.12
0.23
— 0.12
1.55 7.94
3.73 17.18
7.74 12.39
2.45 6.85
16.83 6.54 —
28.90 11.24 0.52
12.89 3.84 5.76
12.81 3.84 5.76
10.60 3.84 3.84
This Issue is applicable to those equity shareholders whose names appear as beneficial owners as per the list to be furnished by the Depositories in respect of the shares held in the electronic form and on the Register of Members of the Company at the close of business hours on the Record Date i.e., 15, April 2005 Your attention is drawn to the section on “Risk Factors” appearing on Page ii & 62 of this LoO. Please ensure that you have received the CAF with this LoO. Please read the LoO and the instructions contained herein and in the CAF carefully before filling in the CAF. The instructions contained in the CAF are an integral part of this LoO and must be carefully followed. Application is liable to be rejected for any non-compliance of the LoO or the CAF. All enquiries in connection with this LoO or accompanying CAF and requests for Split Application Forms must be addressed (quoting the Registered Folio Number/ DP and Client ID no., the CAF number and the name of the first equity shareholder as mentioned on the CAF and superscribed “Bal Pharma Rights Issue” on the envelope) to the Registrar to the Issue at the following address: Tata Share Registry Limited Army & Navy Building, 148, M.G.Road, Fort, Mumbai – 400001 Tel: 022-56568484 (215) Fax: 022 – 56568494 E-mail:csg-unit@tatashare.com
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The Lead Manager and the Issuer shall make all information in respect of the present issue available to the public and investors at large and no selective or additional information would be made available to a section of the investors in any manner whatsoever including at road shows, presentations, in research or sales report etc., The Company and the Lead Manager will keep the public informed of any material changes till the commencement of the listing and trading of the equity shares issued through the LoO. In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will issue a duplicate CAF on request of the applicant who should furnish the registered folio number, DP and Client ID no. and his/ her full name and address to the Registrar to the Issue. Please note that those who are making the application on duplicate form should not utilize the original CAF for any purpose including renunciation, even if it is received subsequently. If the applicant violates any of these requirements, he/she shall face the risk of rejection of both the applications. The Issue will be kept open for a minimum period of 30 days but not more than 60 days.
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BAL PHARMA LIMITED (Incorporated on 19th May, 1987, as Bal Pharma Private Limited, in the State of Karnataka under the Companies Act, 1956, and subsequently converted into a Public Limited Company with effect from 9th August, 1994) REGISTERED OFFICE: 21 & 22, Bommasandra Industrial Area, Hosur Road, Bangalore - 560099 Tel No: +91 -80 7833156, Fax No: +91 -80-7835482 e-mail: balpharma@vsnl.com website: www.balpharma.com. Contact Person: Mr K.Mahadevan CORPORATE OFFICE 5th floor, Laxmi Narayan Complex, 10/1, Palace Road, Bangalore – 560 052. Tel No.- +91-80-51379500, Fax No.- +91-80-22354057 Dear Equity Shareholder(s), The present Rights Issue is pursuant to the resolution passed by the shareholders of the Company at the Annual General Meeting held on 23.09.2004 and subsequently amended by postal ballot on 28.01.2005. ISSUE OF 39,18,000 EQUITY SHARES OF Rs. 10/- EACH FOR CASH AT A PREMIUM OF Rs.20/- PER SHARE (“THE ISSUE”) AGGREGATING TO Rs.11,75,40,000 ON A “RIGHTS” BASIS TO THE EXISTING EQUITY SHAREHOLDERS/BENEFICIAL OWNERS OF THE COMPANY IN THE RATIO OF 3 EQUITY SHARES FOR EVERY 5 EQUITY SHARES (FRACTIONAL ENTITLEMENTS, IF ANY, ROUNDED OFF TO THE NEXT HIGHER INTEGER) HELD AS ON 15 APRIL, 2005 i.e., RECORD DATE. THE FACE VALUE OF THE EQUITY SHARES IS RS. 10 PER SHARE AND THE ISSUE PRICE IS THREE TIMES THE FACE VALUE. I. GENERAL INFORMATION Statutory Declaration i. The Issuer Company accepts full responsibility for the accuracy of the information given in this LoO and confirms that to the best of its knowledge and belief, there are no other facts, the omission of which make any statement in this LoO misleading and further confirm that they have made all reasonable inquiries to ascertain such facts. The Issuer further declares that the Stock Exchange to which an application for listing has been made do not take any responsibility for the financial soundness of this Offer or for the price at which the equity shares are offered, or for the correctness of the statements made or opinions expressed in this LoO. In the opinion of the Directors of the Company, there are no circumstances that have arisen since the date of the last financial statement disclosed in the LoO, that materially or adversely affect or are likely to affect the performance or profitability of the Company or value of its assets or its ability to pay its liabilities, within the next twelve months. The funds received against the Rights Issue will be kept in a separate bank account(s) and the Company will not have any access to such funds unless it satisfies BSE (the Designated Stock Exchange) with suitable documentary evidence that the minimum subscription of 90 per cent of the Issue has been received by the Company.
ii.
iii.
DISCLAIMER CLAUSE AS REQUIRED, A COPY OF THE LETTER OF OFFER HAS BEEN SUBMITTED TO SEBI. IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THE LETTER OF OFFER TO SEBI SHOULD NOT, IN ANY WAY, BE DEEMED / CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE LETTER OF OFFER. THE LEAD MANAGER, KARVY INVESTOR SERVICES LIMITED HAS CERTIFIED THAT THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT, WHILE THE ISSUER IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE LETTER OF OFFER, THE LEAD MANAGER IS EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE COMPANY DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE, THE LEAD MANAGER, KARVY INVESTOR SERVICES LIMITED, HAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED 3 FEBRUARY, 2005 IN ACCORDANCE WITH SEBI (MERCHANT BANKERS) REGULATIONS, 1992, WHICH READS AS FOLLOWS: 1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO LITIGATION LIKE COMMERCIAL DISPUTES, PATENT DISPUTES, DISPUTES WITH COLLABORATORS ETC., AND OTHER MATERIALS IN CONNECTION WITH THE FINALISATION OF THE LETTER OF OFFER PERTAINING TO THE SAID ISSUE; ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE COMPANY, ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE, PROJECTED PROFITABILITY, PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS AND OTHER PAPERS FURNISHED BY THE COMPANY, WE CONFIRM THAT: A) B) C) 3. THE LETTER OF OFFER FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE; ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE GUIDELINES, INSTRUCTIONS, ETC., ISSUED BY SEBI, THE GOVERNMENT AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY COMPLIED WITH; AND THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE TRUE, FAIR AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE.
2.
WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE LETTER OF OFFER ARE REGISTERED WITH SEBI AND TILL DATE SUCH REGISTRATION IS VALID.
THE FILING OF THE LETTER OF OFFER DOES NOT, HOWEVER, ABSOLVE THE COMPANY FROM ANY LIABILITIES UNDER SECTION 63 OF THE COMPANIES ACT, 1956, OR FROM THE REQUIREMENT OF OBTAINING SUCH STATUTORY OR OTHER CLEARANCES AS MAY BE REQUIRED FOR THE PURPOSE OF THE PROPOSED ISSUE. SEBI, FURTHER RESERVES THE RIGHT TO TAKE UP, AT ANY POINT OF TIME, WITH THE LEAD MANAGER ANY IRREGULARITIES OR LAPSES IN THE LETTER OF OFFER.
1
The Directors viz., Mr..Shailesh Siroya, Dr.S.Prasanna, Mr.Shrenik Siroya, Dr.G.S.R.Subba Rao, Mr.N.D.Prabhu and Dr.C.N.Manjunath,declare and confirm that no information/material likely to have a bearing on the decision of investors in respect of the shares/debentures/securities offered in terms of this LoO has been suppressed/withheld and/or incorporated in the manner that would amount to mis-statement/mis-representation and in the event of its transpiring at any point of time allotment/refund, as the case may be, that any information/material has been suppressed/withheld and/or amounts to a mis-statement/mis-representation, the Promoters/Directors undertake to refund the entire application monies to all the subscribers within 7 days thereafter without prejudice to the provisions of Section 63 of the Companies Act, 1956. CAUTION The Company and the Lead Manager accept no responsibility for any statements made otherwise than in the LoO or in the advertisement or any other material issued by or at the instance of the Company and that anyone placing reliance on any other source of information would be doing so at his own risk. All information shall be made available by the Lead Manager and the Issuer to the shareholders and no selective or additional information would be made available for a section of the shareholders or investors in any manner whatsoever including at presentations, research or sales reports etc., The Lead Manager and the Company shall keep the shareholders informed of any material changes till the listing and trading commencement. Disclaimer Clause of BSE BSE has scrutinized this LoO for its limited internal purpose of deciding on the matter of granting the aforesaid permission to the Company. BSE has given its permission vide its letter dated 23rd February, 2005, to this Company to use the Exchange’s name in this LoO as the Stock Exchange on which this Company’s securities are proposed to be listed. The Exchange has scrutinised this LoO for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Company. BSE does not in any manner (a) warrant, certify, or endorse the correctness or completeness of any of the contents of this LoO, or (b) warrant that the Company’s securities will be listed or will continue to be listed on the Exchange or (c) take any responsibility for the financial or other soundness of this Company, its Promoters, its Management, or any scheme, or project of this Company. It should not, for any reason, be deemed or construed that the LoO has been cleared or approved by BSE. Every person who desires to apply for or otherwise acquire any securities of this Company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the BSE whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/ acquisition whether by reason of anything stated or omitted to be stated herein or any other reason whatsoever. Disclaimer in Respect of Jurisdiction This Rights Issue is made in India subject to Indian laws. Any dispute arising out of this Offer will be subject to the jurisdiction of appropriate court(s) in Bangalore only. Filing A copy of the LoO has been filed with the Southern Regional Office of Securities and Exchange Board of India at Chennai and SEBI has given its observations. The final LoO has been filed with the Stock Exchange, Mumbai, as per the requirements of the law. All the legal requirements applicable till the date of filing the Letter of Offer with the stock exchanges have been complied with. Listing The Company’s existing equity shares are listed on BSE. The Company has paid the current annual listing fees to the Stock Exchange, Mumbai. The Observation Letter dated 23rd February, 2005, from BSE in respect to the Rights Issue has been received. In case the permission to deal in and for an official quotation of the equity shares now being offered by the Company through this LoO is not granted by BSE, the Company shall forthwith repay without interest all monies received from applicants in pursuance of the LoO and if any such money is not repaid within eight days after the Company is liable to repay (i.e., 42 days from the closure of the issue), the Company will pay interest as prescribed under Section 73 (2)/(2A) of the Companies Act, 1956. Consequent to the Rights Issue and if Promoters of the Company subscribe to the unsubscribed portion of rights offer, the non-promoter holding will not fall below the minimum requirement stipulated under Clause 40A of the listing agreement. The Company has complied with the provisions of listing agreement more particularly Corporate Governance. Trading in Dematerialized Form The equity shares of the Company have been under compulsory dematerialized trading for all investors with effect from 30th July, 2001, vide BSE notification No.92812/2001 dated 17.07.2001. The Company has an agreement with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) and its equity shares bear the ISIN No. INE083D01012. Trading of securities upon listing shall only be in dematerialized form. However, the investors have an option to hold the shares in physical form or demat form. Denomination of shares The present denomination of the equity shares of the Company is Rs 10/- and the Company undertakes that at any given time there will be only one denomination for the equity shares of the Company. Market Lot / Disposal of Odd lots With effect from 30th July, 2001 vide BSE notification No.92812/2001 dated 17.07.2001 as per the directives from SEBI, the trading of the equity shares of the Company is in demat mode only. The market lot for the equity shares of the Company is one. The investors opting to receive certificates in physical form would be issued one consolidated certificate for all the equity shares allotted under physical mode. Upon request from the shareholders, the Company will arrange for splitting of share certificates without any charges, within 7 days of receipt of the request. Fictitious Applications Attention of the applicants is specifically drawn to the provisions of sub-section (1) of Section 68A of the Companies Act, 1956, which is reproduced below: “Any person who – a) b) makes in a fictitious name an application to a Company for acquiring, or subscribing for, any shares therein, or otherwise induces a Company to allot, or register any transfer of shares therein to him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years.”
Minimum Subscription If the Company does not receive the minimum subscription of 90% of the Issue, the entire subscription shall be refunded to the applicants within forty two days from the date of closure of the Issue. If there is delay in the refund of subscription by more than 8 days after the Company becomes liable to repay the subscription amount (i.e. forty two days after closure of the Issue), the Company will pay interest for the delayed period, at prescribed rates in sub-sections (2) and (2A) of Section 73 of the Companies Act, 1956.
2
The Issue will become under-subscribed, if the number of shares applied for falls short of the number of shares offered, after considering the number of shares applied for as per the entitlement plus additional shares. The under-subscribed portion can be applied for only after the close of the Issue. The Promoters can subscribe to such under-subscribed portion as per relevant provisions of law. If any person presently in control of the Company desires to subscribe to such under-subscribed portion and if disclosure is made pursuant to SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, such allotment of the under-subscribed portion will be governed by the provisions of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. The above is subject to the terms mentioned under the “Basis of Allotment” on Page 14 of the LoO. Some members of the promoter group intend to subscribe to additional shares beyond their entitlement if the issue is under-subscribed. The acquisition of additional securities in such an event shall be exempt from making an open offer in terms of proviso to Regulation 3(1)(b)(ii) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. Further this acquisition will not result in change of control of the management of the Company. Underwriting agreement / Standby arrangement by the Issuer The present issue is not underwritten. Allotment and Refund Orders Letters of Allotment/Share Certificates and/or regret letters together with the refund orders, if any, will be despatched at the applicant’s sole risk to the sole/first applicant within 6 weeks from the date of closure of the Issue. The Company shall ensure despatch of refund orders of value of upto Rs.1,500/- under certificate of posting and share certificate/allotment advice and /or regret letters together with refund orders over Rs.1,500/- by Registered Post only and adequate funds will be made available to the Registrars to the Issue. The Company, as far as possible, will allot the equity shares within 42 days from the date of closure of the issue and shall pay interest @ 15% per annum, if the allotment of the equity shares has not been made and/ or the refund orders have not been despatched to the investors within 42 days, for the period of delay beyond 42 days. The Company will issue and despatch letters of allotment/securities certificates and or regret letters along with refund orders or credit the allotted securities to the respective beneficiary accounts, if any, within a period of 6 weeks from the date of closure of the issue. If any monies required to be refunded to any equity shareholder are not repaid within 8 days from the day the Company becomes liable to pay it i.e.,42 days after the issue closing date, the Company shall pay interest as stipulated under section 73(2) and 73 (2A) of the Act. The Company undertakes to despatch share certificates/refund orders, complete demat credits and submit the allotment and listing documents to the Stock Exchange within 2 working days of the finalisation of the basis of allotment. Further, the Company undertakes to ensure that all steps for completion of the necessary formalities for listing and commencement of trading at the Stock Exchange where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment. The Company will make available adequate funds to the Registrars to the Issue for the purpose of despatch of Letters of Allotment/Share Certificates/ Refund Orders as stated above. Eligibility of the Company to come out with the Issue The Company’s shares are listed on the BSE. This Issue, being a Rights Issue, is exempt from the eligibility norms in terms of Clause 2.4.1 (iv) of the SEBI (Disclosure and Investor Protection) Guidelines, 2000, and amendments thereto. The Company, its Promoter(s), its Directors, group companies and companies/firms with which the Directors are associated have not been prohibited from accessing the capital market under any order or direction passed by SEBI nor has SEBI initiated any action against the said entities. The Company further confirms that none of the Directors or persons in control of the Company has been prohibited from accessing the capital market under any order or direction passed by SEBI. Government Approvals The Company has received all the necessary permissions and approvals from the Government and other agencies for conducting its existing businesses. No further approvals are required by the Company, save and except those approvals, which may be required in the ordinary course of business from time to time. It must be understood that in granting the above approvals, the Government of India and the Reserve Bank of India do not undertake any responsibility for the financial soundness of any of the statements or opinions expressed in this regard. However, no industrial licence is required for the proposed activities since it pertains to a delicensed industry. With regard to the formulations manufacturing facility proposed to be located in Himachal Pradesh, the Company is in the process of identifying the land and applying/ getting the entire approvals in this regard. The following are the approvals that are required: a) b) c) d) e) f) g) h) i) j) k) l) Sales tax registration granted by the Assessing Authority, Himachal Pradesh under Rule 6 of the Himachal Pradesh General Sales Tax Rules, 1970; Grant of consent from Pollution Control Management Environmental Engineer, Baddi; Licence to work as a Factory - From Inspector of Factories; Approval of factory plan under Factories Act 1948; Letter from State Electricity Board for supply of electric power; Approval from Municipality/Corporation for water connection; Manufacturing Licence from FDA, Consent from State Pollution Control Board (Air, water, hazardous waste); Approval by Industrial safety and health; Central Excise Registration Certificate; Licence for purchase, possession and use of Inflammable and explosive material; Contract Labour Registration Certificate; Customs/Registration certification, if required;
With regard to the APIs manufacturing facility proposed to be located in Bangalore, the Company has received a letter No.KUM/SLSWCC/AD/175/2004 dated 17th January, 2005, from the Karnataka Udyog Mitra under the State Level Single Window Clearance scheme, for its project with infrastructural facilities. In this regard, the Company is in the process of applying for the following approvals: a. b. c. d. e. f. Clearance from BMRDA (Bangalore Metropolitan Rural Development Authority) under Section 10 of the BMRD Act; Clearance from Ministry of Environment and Forests, Government of India; The requisite factory approvals/licence; Approvals for water and power; Consent from State Pollution Control Board; Sales Tax and Excise Registration;
Save and except those mentioned above, no further Government approvals are required by the Company to undertake the activities proposed by it. The Company is confident of getting the requisite approvals within the stipulated time. However, in case there is a delay in obtaining any of the above approvals, the Company, is confident of making up for the time and monetary loss incurred due to the delay by deploying its extra efforts and human resources.
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Credit Rating This being a Rights Issue of equity shares, no credit rating is required. Issue Programme The Subscription List for the Issue will open at the commencement of banking hours on 27th April, 2005, and close at the close of banking hours on 26th May, 2005, or on such extended date (subject to a maximum of 60 days) as may be decided at the discretion of the Company. ISSUE OPENS ON LAST DATE FOR RECEIPT OF REQUESTS FOR SPLIT APPLICATION FORMS ISSUE CLOSES ON Issue Management Team REGISTERED OFFICE OF THE COMPANY Bal Pharma Limited, 21 & 22, Bommasandra Industrial Area, Hosur Road, Bangalore – 560 099 Tel No: +91 080 7833156, Fax No:+91 080 7835482 e-mail: balpharma@vsnl.com COMPANY SECRETARY AND COMPLIANCE OFFICER Mr. K.Mahadevan, Bal Pharma Limited, 5th Floor, Lakshmi Narayan Complex, 10/1, Palace Road, Bangalore – 560 052, India. Ph:91-80-51379528 Fax:91-80-22354057 e-mail: mahadevan@balpharma.com Investors’ attention is invited to contact the Compliance Officer in case of any Pre-Issue/Post-Issue related problems such as non-receipt of letters of allotment/share certificates/refund orders etc. LEAD MANAGER TO THE ISSUE Karvy Investor Services Limited, Merchant Banking Division, “Karvy House”, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad – 500 034 SEBI Registration No. INM/000008365 Tel: +91 40 23374714/23320752 Fax: +91 40 23374714 e-mail: mbd@karvy.com Website: www.karvy.com REGISTRAR TO THE ISSUE Tata Share Registry Limited Army & Navy Building, 148, M.G.Road, Fort, Mumbai – 400001 SEBI Registration No.:- INR 000000197 Tel: 022-56568484 Fax: 022 – 56568494 e-mail: csg-unit@tatashare.com Website: www. tatashare.com AUDITOR OF THE COMPANY M/s. Ostawal & Jain Chartered Accountants 34, Keshava Nivas, 3rd Floor, 1st Main, Gandhi Nagar, Bangalore 560009, Tel: 91-80-22356135/37 Telefax. :91-80-22356136 27th APRIL, 2005
11th MAY, 2005 26th MAY, 2005
BANKERS TO THE ISSUE 1. Canara Bank No 25, M G Road, Bangalore-560001 Tel: 080-25599254/257 Fax: 080-25599108 ICICI Bank Limited Capital Markets Branch, 30, Mumbai Samachar Marg Mumbai – 400 001 Tel: (022) 226 55285, Fax: (022) 226 11138
2.
BANKERS TO THE COMPANY 1. Canara Bank Corporate Services Branch, 25, M.G.Road, Bangalore – 560 001. ICICI Bank Limited ICICI Bank Towers, CIBD, 1st Floor, West Wing, 1, Commissariat Road, Bangalore – 560 001 Small Industries Development Bank of India Khanija Bhawan East Wing, 5th Floor, Race Course Road 4. Industrial Development Bank of India IDBI House, 58,Mission Road, Bangalore – 560 027. Punjab National Bank 34, K.G.Road, Bangalore – 560 009 Export Import Bank of India Ramanashree Arcade, 4th floor, 18,M.G.Road, Bangalore – 560 001. UTI Bank No.9, M.G.Road, Bangalore – 560 001
2.
5.
6.
3.
7.
4
Bangalore – 560 001 Prohibition by SEBI The Company, its Subsidiaries, its Directors, its Promoters, other companies/entities promoted by the Promoter and companies/entities with which the Company’s Directors are associated as Directors have not been prohibited from accessing/operating in the capital markets under any order or direction passed by SEBI. None of the Company’s Directors or the persons in control of the Company has been prohibited from accessing the capital markets under any order or direction passed by SEBI. Utilisation of Issue proceeds The Board of Directors declare that: 1. 2. 3. The funds received against the Rights Issue of equity shares will be transferred to a separate bank account other than the bank account referred to in sub-section (3) of Section 73 of the Act; Details of all monies utilised out of the issue shall be disclosed under an appropriate separate head in the Balance Sheet of the Company indicating the purpose for which such monies has been utilised; Details of all such unutilised monies out of the issue, if any, shall be disclosed under an appropriate separate head in the balance sheet of the Company indicating the form in which such unutilised money have been invested.
The funds received against this Rights Issue will be kept in a separate bank account and the Company will not have any access to such funds unless it satisfies the BSE (Designated Stock Exchange) with suitable documentary evidence that the minimum subscription of 90% of the issue has been received by the Company. II. CAPITAL STRUCTURE OF THE COMPANY Share Capital A Authorised 1,10,00,000 Equity shares of Rs. 10 each 4,00,000 Redeemable Preference shares of Rs.100 each B Issued, Subscribed and Paid-up Capital 65,30,000 Equity share of Rs. 10 each 12.5% 88,000 Redeemable Preference shares of Rs.100 each. D Now offered in terms of this LoO 39,18,000 Equity shares of Rs.10 each. E F Paid up Equity Capital after the Present Issue 1,04,48,000 Equity shares of Rs.10 each Share Premium Before the issue After the issue Notes to Capital Structure i. ii. iii. As this is a Rights Issue, the Issuer is exempt from the requirements of Promoter’s contribution as specified in Clause 4.10.1(c) of the Securities and Exchange Board of India (Disclosure and Investors Protection) Guidelines, 2000; There are no buyback, standby or similar arrangement for purchase of securities offered through this LoO by the Promoters, Directors and the Lead Manager; The Promoters/Directors of the Company have not extended any guarantees except Mr.Shailesh Siroya, Managing Director and Mr.Shrenik Siroya, Non-Executive Director, who have extended personal guarantee for the term loan and working capital loan extended by the Financial institutions to the Company; As on the date, there are no partly paid up shares Build up of Equity Share Capital Date of allotment 19.05.1987 03.04.1992 31.12.1992 21.07.1993 25.07.1994 01.04.1995 Date when fully paid 19.05.1987 03.04.1992 31.12.1992 21.07.1993 25.07.1994 01.04.1995 Consideration Cash Cash Cash Cash N.A. Cash No. of Shares 20 800 500 280 30,40,000 25,30,000 Face Value (Rs.) 1000 1000 1000 1000 10 10 Issue Price (Rs.) Remarks Lock – in Nil Nil Nil Nil Nil Nil 692,60,388 14,76,20,388 10,44,80,000 3,91,80,000 11,75,40,000 6,53,00,000 88,00,000 11,00,00,000 4,00,00,000 Nominal Value (Rs.) Aggregate value (Rs.)
iv. v.
07.10.2004
07.10.2004
Cash
8,00,000
10
1000 Subscribers to Memorandum 1000 Regular Allotment 1000 Regular Allotment 1000 Regular Allotment 10 Bonus issue (1:19) 23,20,000 Public issue shares at Rs.30 each and 2,10,000 shares at Rs.40 each. 39 Preferential Allotment
For 1 year from 07.10.2004 to 07.10.2005
TOTAL
65,30,000
Note: (a) At the time of IPO, the face value of the equity shares was revised from Rs.1000 to Rs.10. (b) All the above shares are listed and trading permission has been obtained from the Stock Exchange, Mumbai.
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vi.
Shareholding Pattern Before and After the Offer Pre- Issue Category A. Promoter’s Holding 1.Promoters Indian Promoters Foreign 2.Persons acting in Concert B. Non Promoters Holding 3. Institutional Investors FIIs Mutual Funds and UTI Banking/Financial Institutions, Insurance Companies (Central/State, Government institutions, Non-Government institutions) 4.Others Private corporate Bodies Indian Public NRIs/OCBs Total 2,17,795 21,76,422 1,26,263 65,30,000 3.34 33.32 1.93 100.00 3,48,472 34,82,275 2,02,021 1,04,48,000 3.34 33.32 1.93 100.00 5,15,000 500 7.89 0.01 8,24,000 800 7.89 0.01 34,92,220 Nil Nil 53.48 Nil Nil 55,87,552 Nil Nil 53.48 Nil Nil No. of shares % of shares held Post Issue No. of shares % of shares held
1,800
0.03
2,880
0.03
Note: The shareholding pattern after the present Right Issue indicated above is on the assumption that all the shareholders in respective categories will subscribe to their full entitlement. However, this may change on the subscription and allotment of equity shares under each category. vii. Details of Holding of Promoters Names 1. Mr. G.C.Surana 2. Mr. Shailesh Siroya 3. Mr. Shrenik Siroya 4. Mr. Dilip Surana 5. Mr. Anand Surana 6. M/s Surana Pharmaceuticals Private Limited 7. M/s Micro Labs Limited 8. Relatives Total Details of the holding of the main promoters Names Total no. of Equity shares Held pre issue 219000 527000 Number of shares held 219000 250 475000 27000 3. Mr. Shrenik Siroya 374700 200 Date of allotment 25.07.1994 15.07.1993 25.07.1994 11.02.1995 21.07.1993 Nature of allotment Bonus Purchase amongst promoters Bonus IPO subscription Direct allotment Price per share(Rs) N.A. 1000 N.A. 30 1000 25300 shares disposed Remarks No. of equity shares held pre issue 219000 527000 374700 211400 302945 358200 433091 1065884 3492220 % of pre issue Capital 3.35 8.07 5.74 3.24 4.64 5.49 6.63 16.32 53.48 No. of equity shares held post issue 350400 843200 599520 338240 484712 573120 692946 1705414 5587552 % of post issue Capital 3.35 8.07 5.74 3.24 4.64 5.49 6.63 16.32 53.48
1. Mr. G.C.Surana 2. Mr. Shailesh Siroya
380000 4. Mr. Dilip Surana 5. Mr. Anand Surana 6. M/s Surana Pharmaceuticals Private Limited 211400 302945 204000 7400 8500 294445 358200 285000 73200 7. M/s Micro Labs Limited 433091 285000 148091
25.07.1994 25.07.1994 Aug – Sept 1999 11.02.1995 2000 – Sept. 2003 25.07.1994 1997 07.10.2004 2003 – Aug 2004
Bonus Bonus Purchase from market IPO Purchase from market Bonus Purchase from market Preferential allotment Purchase from market
N.A. 23.3 30 23.96 N.A. 11.82 39 35.07
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viii. Details of shares held by Directors and their relatives Name of the Shareholder 1. Mr. Shailesh Siroya 2. Mr. Shrenik Siroya 3. Mrs. Anita Siroya 4. Mr.Chandraprakash Dheerajmal Siroya 5. Mrs. Sangeeta S Chopra 6. Mrs. Siroya Anita C 7. Mr. Jivi Dheerajmal Siroya 8. Mrs. Anita Chandraprakash Siroya Total x. Top Ten Shareholders of the Company As on the date of filing with BSE Name of the Shareholder 1.Mr. Shailesh Siroya 2.Taib Securities Mauritius Ltd. 3.Micro Labs Limited 4.Mr. Harsha Sanjay Siroya 5.Mr. Shrenik D Siroya 6.Surana Pharmaceuticals Pvt Ltd 7.Mrs. Anita Siroya 8.Mr. Anand Surana 9.Mrs.Hasumati Pravin Siroya 10.Mr. G C Surana As on ten days prior to filing with BSE Name of the Shareholder 1.Mr.Shailesh Siroya 2.Taib Securities Mauritius Limited 3.Micro Labs Limited 4.Mr.Harsha Sanjay Siroya 5.Mr.Shrenik Siroya 6.Surana Pharmaceuticals Pvt Ltd 7.Mrs.Anita Siroya 8.Mr.Anand Surana 9.Mrs.Hasumathi Pravin Siroya 10.Mr.G C Surana As on two years prior to the date of filing with BSE Names of the Shareholders 1.Mr.Shailesh Siroya 2.Mr.Harsha Sanjay Siroya 3.Mr.Shrenik Siroya 4.Surana Pharmaceuticals Pvt Ltd 5.Mrs.Anita Siroya 6.Mrs.Hasumathi Pravin Siroya 7.Mr.Anand Surana 8.Mr.G C Surana 9.Mr.Dilip Surana 10.Mrs.Archana Surana x. Subscription by the Promoters Of the total equity capital of Rs. 6,53,00,000/-, the Promoters hold 53.48 %. In the present Rights Issue, the Promoters will be entitled to equity shares. The resulting fractional entitlement of the shareholders will be rounded off to the next higher integer. The Promoters have confirmed their intention to subscribe to their Rights entitlement in full and also retain the option of subscribing to additional shares beyond their entitlement. Number of shares 520000 441100 373100 358200 325800 283500 223798 219000 211400 95000 % 9.08 7.70 6.51 6.25 5.69 4.95 3.91 3.82 3.69 1.66 No of shares 527000 515000 433091 407801 374700 358200 328300 302945 283500 219000 % to Capital 8.07 7.89 6.63 6.25 5.74 5.49 5.03 4.64 4.34 3.35 No of shares 527000 515000 433091 407801 374700 358200 328300 302945 283500 219000 % to Capital 8.07 7.89 6.63 6.25 5.74 5.49 5.03 4.64 4.34 3.35 No of shares 527000 374700 328300 23500 5000 100 33800 80894 1373294 % to Capital 8.07 5.74 5.03 0.36 0.08 0.00 0.52 1.24 21.03
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The promoters will comply with the provisions of SEBI (Substantial Acquisition of shares and takeover) Regulations, 1997 in regard to the acquisition of such additional shares. Acquisition of additional securities by one or more Promoters shall be exempt from making an open offer in terms of proviso to Regulation 3(1)(b)(ii) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. Further, this acquisition will not result in change of control of the Management of the Company. The present issue is not underwritten. However, some of the Promoters intend to subscribe to additional shares beyond their entitlement if the issue is under-subscribed. The acquisition of additional securities by the Promoters in such an event shall be exempt from making an open offer in terms of proviso to Regulation 3(1)(b)(ii) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. Further, this acquisition will not result in change of control of the Management of the Company. The promoter group undertakes that in case the subscription by the promoter group to the unsubscribed portion results in the public shareholding falling below the “permissible minimum level” on the basis of which the shares of the Company continue to be listed then the promoter group shall make an offer for sale of their holdings so that the public shareholding is raised to the “permissible minimum level” within a period of three months from the date of allotment of the proposed issue in the manner specified as per sub-clause 17.1 and 17.2 of SEBI (Delisting of Securities) Guidelines, 2003 or as per any amendment thereto. If the Company does not receive the minimum subscription of 90% of the Issue, the entire subscription shall be refunded to the applicants within 42 days from the date of closure of the Issue. If there is a delay in the refund of subscription by more than 8 days after the Company becomes liable to repay the subscription amount, the Company will pay interest for the delayed period at prescribed rates in sub-sections (2) and (2A) of Section 73 of the Companies Act, 1956. xi. The details of the sales and purchases of equity shares in the Company by Promoters and Directors during the preceding sixmonth period from the date of this LoO. Name of the Promoter Number of shares Bought 1.Mr.Jivi Dheerajmal Siroya 2.Mrs.Anita Chandra Prakash Siroya 3.M/s Micro Labs Limited Nil Nil 285000 (Preferential allotment) In adition to the above, 10,000 shares were transferred by Mrs. Anita Chadraprakash Siroya by way of a gift on 02.11.2004. The above acquisition was by way of preferential allotment. The sales were executed on the Stock Exchange, Mumbai. None of the Promoters and Directors, who are having shareholding in the Company, have sold or purchased the equity shares of the Company, except as per the particulars shown above. xii. The Company undertakes that there shall be no further issue of capital whether by way of issue of bonus shares, preferential allotment, Rights Issue or public issue or in any other manner, during the period commencing from the submission of the LoO to SEBI for Rights Issue till the securities referred in the LoO have been listed or application moneys refunded on account of failure of the Issue. xiii. There are no bridge loans or any other financial arrangements made for incurring expenditure on the project, which will be repaid out of the proceeds of the current issue. xiv. The number of equity shareholders/beneficial owners of the Company as on 08.04.2005 is 7415. xv. The Company has no proposal, intention, negotiations, consideration to alter the capital structure by way of split/consolidation of the denomination of the shares, or issue of shares on a preferential basis or issue of bonus or rights or further public issue of shares or any other securities, within a period of 6 months from the date of opening of the present issue. xvi. The Company undertakes that at any given time, there shall be only one denomination for the shares of the Company and the Company shall comply with such disclosure and accounting norms specified by SEBI from time to time. xvii. Details of increase in authorized share capital of the Company are as under: Sl. No. Date of Increase in Authorised Capital From (in Rs.) To (in Rs.) Sold 5000 9106 Nil Average price per share (Rs.) 75.30 76.88 39.00 Maximum price Date 17.12.2004 21.12.2004 N.A. Price (Rs.) 82.44 88.01 N.A. Minimum price Date 10.12.2004 26.10.2004 N.A. Price (Rs.) 68.15 65.75 N.A.
1. 2. 3. 4. 5. 6. 7. 8.
19.05.1987 (Incorporation of the Company) 12.02.1992 12.02.1993 15.07.1994 31.03.1999 22.09.1999 17.09.2004 23.09.2004 5,00,000 25,00,000 75,00,000 6,50,00,000 8,00,00,000 10,00,00,000 12,00,00,000 5,00,000 25,00,000 75,00,000 6,50,00,000 8,00,00,000 10,00,00,000 12,00,00,000 15,00,00,000
xviii. The shareholders of the Company do not hold any warrants/options/convertible loans or debentures, which would entitle them to acquire further shares in the Company. xix. The Company has in October 2004, allotted on preferential allotment basis as per SEBI Guidelines, 8,00,000 equity shares of Rs.10/- each at a premium of Rs.29/- per share. Details of the allotment: Shares allotted to: 285000 shares to M/s Micro Labs Ltd., 515000 shares to M/s Taib Securities Mauritius Ltd.,
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Objects of the Issue: Redemption of 2,00,000 14% Redeemable Preference shares of Rs 100 each and 2,00,000 12.5% Redeemable Preference Shares of Rs 100 each, totalling to Rs 400 lakhs. Deployment vis-à-vis objects: The entire proceeds out of preferential allotment of shares amounting to Rs.312 lakhs has been utilised for redeeming preference shares. The Company has complied with all the Disclosure and Investor Protection Guidelines for the equity shares allotted on preferential basis as per Chapter XIII of DIP Guidelines and SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. All formalities with regard to the listing and trading of these shares are complete. The Statutory Auditors of the Company have vide their letter dated 21.09.2004 issued a certificate in terms of Chapter XIII Guidelines under SEBI(Disclosure and Investor Protection) Guidelines 2000, the extracts of which are reproduced below: The Company has complied with all provisions/guidelines issued by Securities and Exchange Board of India under the Preferential Issue Guidelines vide Chapter XIII Guidelines for Preferential Issue under SEBI(Disclosure and Investor Protection) Guidelines, 2000. The Company has also complied with all the legal and statutory formalities and no statutory authority has restrained the Company from issuing the proposed shares. The Company has complied with the lock in provision as required under clause 13.3.1(g) of Chapter XIII Guidelines for preferential issues under SEBI(Disclosure and Investor Protection) Guidelines 2000)” xx. The Company has not issued any Equity Shares out of revaluation reserves in the past. xxi. Please refer to “Promoters and their background” on page 29 of this LoO for the names of natural persons who are in control (holding 10% or more voting rights) or who are on the board of directors. xxii. The Company confirms that all the existing shares of the Company are allotted and trading permission has been obtained from the Stock Exchange, Mumbai, for all of the existing shares. III. TERMS OF THE PRESENT ISSUE The equity shares now being issued are subject to the terms and conditions of this LoO, the enclosed CAF, the Memorandum and Articles of Association, the Government approvals, FIPB approvals, RBI approvals, if applicable, the provisions of the Companies Act, 1956, Guidelines issued by SEBI, Listing Agreement with the Stock Exchange, Mumbai, and such other notifications and regulations as may be issued by statutory authorities in this regard, from time to time. Authority for the Issue The present Rights Issue is pursuant to the resolution passed by the shareholders of the Company at the Annual General Meeting held on 23.09.2004 and subsequently amended by postal ballot on 28.01.2005. Basis of the Issue The equity shares of Rs. 10/- each for cash at a premium of Rs.20 per share are being offered on a Rights basis in the ratio of 3 equity shares for every 5 equity shares held (resulting fractional entitlements, if any, being rounded off to the next higher integer) to those equity shareholders whose names appear on the Register of Members of the Company and the names of the beneficial equity owners as provided by the Depositories at the close of business hours on 15th April, 2005, being the Record Date fixed by the Board of the Company in consultation with the BSE. Rights Entitlement As your name appears in the Register of Members as an equity shareholder/Beneficial Owner (as per the list provided by the Depositories) of the Company on the Record Date i.e.15th April, 2005, you are entitled to the number of equity shares by way of Rights as shown in Part A of the enclosed CAF on the basis mentioned above. Principal Terms of the Offer The equity shares now being offered are subject to the terms of this LoO, the CAF, the Memorandum and Articles of the Company, approvals under the Foreign Direct Investment Scheme of Government of India, FEMA, if applicable, Guidelines issued by SEBI, the Act, the guidelines, notifications and regulations for the issue of capital and for the listing of securities issued by the Government, RBI and/or other statutory authorities and bodies from time to time and such terms and conditions as may be incorporated in the Letter of Allotment/Share Certificate or any deed or document executed by the Company regarding the Rights Issue. The principal terms and conditions of the Offer are as follows: i. Present Issue: The present Issue of equity shares of Rs. 10/- each for cash at a premium of Rs.20 per share are being offered on Rights basis in the ratio of Three equity shares for every Five equity shares held (fractional entitlements, if any, rounded off to the next higher integer) in terms of the LoO. Face Value: Each equity share shall have the face value of Rs.10 /-. Issue Price: Each equity share is being offered at Rs. 30 per Share (including premium of Rs.20) Terms of Payment: Entire amount of Rs.30 per equity share will be payable on application. v. vi. Listing: The equity shares allotted pursuant to the Rights Issue are proposed to be listed on BSE. Ranking of equity shares: The equity shares allotted pursuant to this LoO shall rank pari-passu in all respects with the existing equity shares of the Company including in respect of dividend, if any, declared by the Company for the financial year, in which these equity shares are allotted.
ii. iii. iv.
vii. Fractional entitlement: Any fractional entitlement will be rounded off to the next integer. viii. Rights of the equity shareholders The holders of the equity shares arising out of the present Issue shall be entitled to the following Rights: a. b. c. Right to receive dividend, if declared; Right to attend general meeting and exercise voting rights, unless prohibited by law; and Right to vote either personally or through proxy. Note: Only the registered equity shareholders or in case of joint holders, the one whose name appears first in the Register of equity shareholders shall be entitled to the above mentioned rights. The shares issued in the Rights Issue shall be pari passu with the existing shares in all respects.
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d.
The equity shares shall be transferable and transmittable in the same manner and to the same extent and be subject to the same restrictions and limitations as applicable to the existing equity shares of the Company. The provisions relating to the transfer and transmission and other related matters in respect of the shares of the Company contained in the Articles and the Act shall apply mutatis mutandis to these equity shares also. Only the registered equity shareholders or in the case of joint-holders, those shareholders whose name(s) appear first in the Register of equity shareholders shall be entitled to vote in respect of such equity share, either in person or through proxy, at any meeting of the concerned equity shareholders and every such holder shall be entitled to one vote on a show of hands and on a poll, his/her voting rights shall be in proportion to the paid up value of the equity shares held by him/her on every resolution placed before such meeting of the equity shareholders. The quorum for such meetings shall be at least five equity shareholders present in person. Save as otherwise provided in this LoO, the provisions contained in Annexure C and/or Annexure D to the Companies (Central Government’s) General Rules and Forms, 1956, as prevailing and to the extent applicable, will apply to any meeting of the equity shareholders, in relation to matters not otherwise provided for in terms of the Issue of the equity share. The equity shareholders will be entitled to their equity Share free from encumbrances and/or cross claims by the Company against the original or any intermediate holders thereof.
e.
f.
g. ix.
Acceptance of Offer You may accept and apply for the equity shares hereby offered to you wholly or in part by filling Part A of the enclosed CAF and submit the same along with the application money to the Bankers to the Issue or to any of their designated branches as mentioned on the reverse of the CAF before the close of business hours on 26th May, 2005. The Board or Committee of Directors authorised in this behalf by the Board of Directors will have the power to extend the last date for receipt and acceptance of the CAF for such period as it may deem fit but in no case will the Offer for subscribing to the Issue be kept open for more than 60 (sixty) days. If for any reason whatsoever, the CAF together with the amount payable is not received by the Bankers to the Issue or by any of their designated branches as mentioned on the reverse of the CAF on or before the close of business hours on 26th May, 2005 or such extended date as may be determined by the Board or Committee of Directors authorised in this behalf by the Board of Directors, the Offer contained in the LoO shall be deemed to have been declined. The Company will not be liable for any postal delays and any application received by mail after closure of the Issue date will be returned to the applicants. The date of mailing by the applicant will not be the criteria for acceptance. Applicants in centers not covered by the branches of collecting banks can send their CAF along with the cheque/demand draft drawn on a local bank at Mumbai (net of demand draft and postal charges) payable at Mumbai to the Registrars to the Issue by Registered Post.
x. Additional equity shares You are also eligible to apply for additional equity shares over and above the number of equity shares offered to you provided you have applied for all the equity shares offered to you without renouncing them in whole or in part in favour of any other person(s). In case of non-resident shareholders, the allotment of additional equity shares shall be subject to the approval of the Reserve Bank of India, if any. The application for additional equity shares shall be considered and allotment shall be made at the absolute discretion of the Board or Committee of Directors authorised in this behalf by the Board having the power to reject any such application for additional equity shares without assigning any reasons and in the event of over subscription, the allotment will be subject to the clause mentioned under ‘Basis of Allotment’ and, if necessary, shall be made in consultation with The Designated Stock Exchange. The allotment of additional equity shares will be made as far as possible on an equitable basis with reference to the number of equity shares held by you on the Record Date. If you desire to apply for additional equity shares, please indicate your requirement by filling in the number of additional equity shares in Block IV of Part A of the enclosed CAF. xi. Renunciation As an equity shareholder, you have the right to renounce your entitlement to the Rights shares, wholly or in part in favour of any other person(s) subject to the approval of the Board. Such renouncees can only be Indian Nationals (including minor through their natural/legal guardian), Limited Companies incorporated under/governed by the Companies Act, 1956, Statutory Corporations/Institutions, Trust (registered under the Indian Trust Act, 1882), Societies (registered under the Societies Registration Act, 1860, or any other applicable law) and provided that such Trust/ Society is authorised under its constitution/rules/bye-laws to hold equity shares in a Company and cannot be a Partnership Firm, HUF and not more than 3 persons including joint holders or Foreign nationals or nominees of any of them (unless approved by RBI or the relevant authorities) any other persons not approved by the Board. Any renunciation from a Resident shareholder(s) to Non Resident shareholder(s) or from Non Resident shareholder(s) to Resident or NonResident Indians is subject to the renouncer(s) or renouncee(s) obtaining the necessary permission of RBI, if applicable, and the same shall be attached to the CAF. Applications not accompanied by the aforesaid approval are liable to be rejected. A request for the allotment of the equity shares by the renouncee(s) in whose favour renunciation has been exercised shall be subject to the condition that the Board or Committee of Directors of the Company authorised in this behalf by the Board shall have absolute discretion to reject such request for allotment, without assigning any reasons thereof. Renouncees are also eligible to apply for additional shares provided they apply for all the Equity Shares renounced in their favour. Part A of the CAF must not be used by any person(s) other than those in whose favour this Offer has been made. If used, this will render the application invalid. Submission of the enclosed CAF to the Bankers to the Issue at their Collection Centres specified on the reverse of the CAF with the Form of Renunciation (Part B of the CAF) duly filled in, shall be conclusive evidence in favour of the Company, of the person(s) applying for the equity shares in part C to receive allotment of such equity shares. Part A must not be used by the renouncee(s) as this will render the application invalid. Renouncee(s) will have no further right to renounce any equity shares in favour of any other person. a. To renounce in whole: If you wish to renounce this Offer in whole, please complete Part B of the CAF. In case of joint holdings, all joint holders must sign this part of CAF in the same order as per the specimen signatures recorded with the Company. The renouncee i.e. the person in whose favour this Offer has been renounced, should complete and sign Part C of the CAF. In case of joint renouncees, all joint renouncees must sign this part of CAF. To renounce in part: If you wish to accept this Offer in part and renounce the balance or renounce the entire Offer in favour of one or more renouncees, the CAF must first be split by applying to the Registrar to the Issue. Please indicate your requirement for the split forms in the space provided for this purpose in Part D of the CAF and return the entire CAF to the Registrar to the Issue so as to reach them on or before 11th May, 2005. On receipt of the required number of split forms from the Registrar, the procedure as mentioned in the para (a) above should be followed.
b.
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c.
Change and/or introduction of additional holders: If you wish to apply for equity shares jointly with any other person(s) (upto2), who is/are not already joint holder(s) with the applicant, it would amount to renunciation. Even a change in the sequence of the joint holders shall amount to renunciation and the procedure for renunciation as stated above would apply viz. Parts B and C of the CAF will have to be filled in. Renouncee(s): The person(s) in whose favour the equity shares are renounced should fill in and sign Part C of the CAF and submit the same to the Bankers to the issue on or before the issue closing date alongwith the application money. Split forms cannot be re-split; Only the person to whom the Offer is made and not the renouncee(s) shall be entitled to obtain split forms; Requests for split forms should be sent to the Registrars to the Issue, not later than 11th May, 2005 by filling in Part D of the CAF; The Registrar shall process the requests for split forms and issue the split forms immediately on the receipt of request for split;
d.
xii. Split Forms
q q q q
Option to receive the Rights equity shares in Dematerialised form Applicants have the option to hold the equity shares of the Company in the electronic form under the Depository System. The Company has signed agreements with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL), which enable an investor to hold and trade in securities in dematerialized (Electronic) form, instead of holding equity shares in the form of physical certificates. In the Rights Issue, an option is being provided to the shareholders to receive their Rights equity shares in the form of an electronic credit to their beneficiary account with any of the Depository Participant (NSDL/CDSL) instead of receiving these equity shares in the form of physical certificates. Investor can opt for this facility by filling up the relevant particulars in the CAF. With effect from 30th July, 2001, the Company’s equity shares are being traded only in dematerialized form by all the investors in accordance with the directive from SEBI. Applicants may note that they have the option to subscribe to the Rights equity shares in demat or physical form, or partly in demat and partly in physical form, in the same application. In case of partial allotment, allotment will be first done in demat form for the shares sought in demat and the balance, if any, will be allotted in physical form. However, the investors may note that the equity shares of the Company can be traded on the Stock Exchanges only in demat form. Procedure for opting for this facility for allotment of equity shares arising out of this Issue in electronic form is as under. i. Open a Beneficiary Account with any Depository Participant (Care should be taken that the Beneficiary Account should carry the name of the holder in the same manner as is exhibited in the records of the Company). In case of joint holding, the Beneficiary Account should be opened carrying the names of the holders in the same order as with the Company. In case of investors having various folios in the Company with different joint holders, the investor will have to open separate accounts for such holdings. This step need not be adhered to by those shareholders who have already opened such Beneficiary Account(s). For holding shares in dematerialised form as on the record date, the beneficiary account number shall be printed on the CAF. For those who open accounts later or those who change their accounts and wish to receive their Right equity shares by way of credit to such account, the necessary details of their Beneficiary Account should be filled in the space provided in the CAF. It may be noted that the allotment of equity shares arising out this Issue can be received in a Dematerialized Form even if the original equity shares of the Company are not dematerialized. Nonetheless, it should be ensured that the Depository Account is in the name(s) of the equity shareholder and the names are in the same order as in the records of the Company. Responsibility for correctness of applicant’s age and other details given in the CAF vis-à-vis those with the Applicant’s Depository Participant would rest with the Applicants. Applicants should ensure that the names of the sole/all the applicants and the order in which they appear in CAF should be same as registered with the Applicant’s Depository Participant. If incomplete/incorrect Beneficiary Account details are given in the CAF or where the investor does not opt for the option to receive the Rights equity shares in dematerialized form, the Company will issue equity shares in the form of physical certificate(s) The Rights equity shares allotted to investor opting for dematerialized form would be directly credited to the Beneficiary Accounts as given in the CAF after verification. Allotment Advice/Refund Order (if any) would be sent directly to the Applicant by the Registrar to the Issue. The confirmation of the credit of the Right equity shares to the Applicant’s Depository Account will be provided to the Applicant by the Applicant’s Depository Participant. Renouncees can also exercise the option to receive equity shares in the dematerialized form by indicating in the relevant space and providing the necessary details about the beneficiary accounts.
ii.
iii.
iv. v.
vi.
No separate application for demat and physical is to be made. If such applications are made, the application for physical shares will be treated as multiple applications and rejected accordingly. Few reasons for technical rejections a) b) c) d) e) f) g) If the signature is not matching with the signatures already registered with the Company; In case of joint holders, if the signatures are not made in the same order as registered with the Company; If cash above Rs.20,000/- is remitted toward share application money; PAN/GIR No. is not mentioned if the value of the application is more than Rs.50,000/-; Amount paid does not tally with the amount payable for; Bank account details are not given; Applications not duly signed by sole/joint applicants
Consolidated Share Certificate Shareholders opting to receive equity shares in physical mode will be issued a consolidated equity Share certificate for all the equity shares allotted to them in this Offer. Upon request from the Shareholders, the Company will arrange for splitting of the share certificates without any charges, within 7 days of receipt of the request. Instructions for the shareholders for making valid Application i. How to Apply The enclosed CAF for equity shares should be completed in all respects in its entirety before submission to the Bankers to the Issue or their designated branches as they appear in the CAF. The forms of the CAF should not be detached under any circumstances otherwise the application is liable to be rejected.
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OPTIONS A B C D Accept your entitlement to all the equity shares offered to you Accept your entitlement to all the equity shares offered to you and apply for additional shares Accept only a part of your entitlement of the equity shares offered to you (without renouncing the balance) Renounce your full entitlement of the equity shares offered to you to one person (renouncee) (Joint Renouncees not exceeding three are considered as one Renouncee) Accept a part of your entitlement of the equity shares offered to you and then renounce the balance to one Renouncee
ACTION REQUIRED Fill and sign ‘ Part A’ of the CAF (All joint holders must sign) Fill and sign ‘Part A’ of the CAF after indicating in Block IV the number of additional equity shares applied for Fill and sign ‘Part A’ of the CAF Fill and sign ‘Part B’ of the CAF indicating the number of equity shares renounced and hand over the entire CAF to the renouncee. The renouncee must fill and sign Part ’ C’ of the CAF Fill and sign ‘Part D’ of the CAF for Split Forms after indicating the required number of Split Application Forms and send the entire CAF to the Registrar to the Issue so as to reach them on or before the last date for receiving requests for Split Forms indicated in the CAF. On receipt of the Split Forms take action as indicated below: (i) (ii) For the equity shares, if any, which you want to accept fill in and sign ‘Part A’ of one Split Composite Application Form For the equity shares you want to renounce, fill in and sign ‘Part B’ in the required number of Split Composite Application Forms indicating the number of equity shares renounced to each renouncee Each of the renouncee(s) should then fill in and sign ‘Part C’ of the respective Split Composite Application Form for the equity shares accepted by the renouncee.
E
(iii)
F
Renounce your entitlement of the equity shares offered to you, to more than one Renouncee
Follow the procedure stated in (E) above for obtaining the required number of Split Composite Application Forms and on receipt of Split Composite Application Forms follow the procedure as stated in (E) (ii) and (iii) above. This will be treated as a renunciation. Fill in and sign Part B and the renouncees must fill in and sign Part C.
G.
Introduce a joint holder or change the sequence of joint holders
Notes:
q q
Part A of the CAF must not be used by any person(s) in whose favour this entitlement has been renounced. While applying for or renouncing equity shares joint holders must sign in the same order and as per the specimen signatures registered with the Company.
Procedure for Application on Plain Paper Where the shareholders have neither received the original CAF nor are in a position to obtain a duplicate CAF, they may apply on plain paper giving particulars such as: i. ii. iii. iv. v. vi. Name in full (including names of joint-holders in the same order as the records of the Company) Address of Sole/First Holder DP ID No. Client ID No. Registered Folio Number Number of shares held on the Record Date i.e. 15th April, 2005.
vii. Distinctive Numbers & Share certificate numbers (if held in physical form) viii. Number of equity shares to which entitled ix. x. xi. Number of additional equity shares applied for, if any. Total number of equity shares applied for and total amount paid on application. Particulars of Cheque/ Demand Draft
xii. Permanent Account No./GIR No. and Income-tax Circle / Ward / District in case applications for equity shares for value of Rs 50,000/- or more for the applicant and for each applicant in case of joint names. xiii. Bank Account No. and Name of Bank and Branch for refund purposes. xiv. In case of the Non-Resident Shareholder(s) the details of the NRE/FCNR/NRO account along with the name and address of the Bank and branch. xv. Such applicants should send the application signed by all the holders of the shares in the same sequence and order as they appear in the Register of Members of the Company by Registered Post along with the Cheques/ Demand Drafts net of demand draft and postal charges payable at Mumbai only to the Registrar to the Issue at the under mentioned address to reach on or before the last date for submission of the CAF. The Company and the Registrar to the Issue shall not be responsible for any postal delay or loss in transit. The Cheque/Demand Draft should be drawn in favour of “Name of the Bank - Bal Pharma- Rights Issue” and crossed “A/c Payee only”. In case the original CAF is not received or is misplaced, the Registrar may issue duplicate, on the request of the applicant and subject to such terms and conditions as may be decided by the Board from time to time in conformity with the Companies Act, 1956. Attention of the shareholders is drawn to the fact that the Shareholders making application otherwise than on the CAF shall not be entitled to renounce their Rights and should not utilise CAF for any purpose including renunciation even if it is received subsequently. In case both the original and duplicate CAF are lodged or if any shareholder violates any of these requirements, the Company will have the absolute right to reject any one
12
or both the applications and refund the application money received. However, the Company is not liable to pay any interest whatsoever on amount refunded. Mode of Payment Section 269SS of the Income-tax Act, 1961 Having regard to the provisions of Section 269SS of the Income-tax Act, 1961, payment against application should not be made in cash if the amount payable is Rs.20,000 or more. In case the payment is made in contravention of this, the application is liable to be rejected and the amount will be returned without interest. i. Resident Shareholders a. b. Payment should be made in cash or by cheque or by bank draft. Money orders/ postal orders/outstation/post-dated cheques or outstation demand drafts will not be accepted. Only one mode of payment should be used per CAF. Cheques or bank drafts should be drawn on any bank (including a co-operative bank) which is situated at and is a member or sub-member of the Bankers Clearing House located at particular place(s) where the applications are submitted and which is participating in the clearing at the time of submission. All cheques or bank drafts must be made payable to the Bankers to the Issue mentioned in the CAF marked “Name of the Bank-Bal Pharma- Rights Issue” and crossed “A/c payee only”. A separate cheque or bank draft must accompany each application form. All application forms duly completed together with cash/cheque/demand draft for the amount payable on application at Rs.30 per equity Share must be submitted before the close of the Subscription List to the Bankers to the Issue named herein or to any of their branches mentioned on the reverse of the CAF and NOT to the Company, the Lead Managers to the Issue or the Registrars to the Issue. However, only the plain paper application and application by post (in case there is no branch of the issuing Bank at the place of submitting the application) may be submitted to the Registrars to the Issue. Applicants should indicate the Folio number and CAF number on the reverse of the cheque/demand draft through which the payment is made. f. g. No receipt will be issued for the application money. However, the Bankers to the Issue and/or their branches receiving the applications will acknowledge receipt of the application by stamping and returning to the applicant the acknowledgement slip at the bottom of each CAF. Where an application is for allotment of equity shares for a total value of Rs.50,000 or more, i.e. the total number of equity shares applied for multiplied by the Issue price, is Rs.50, 000 or more, the applicant or in the case of applications in joint names, each of the applicants, should mention his/her permanent account number allotted under the Income-tax Act, 1961 or where the same has not been allotted the GIR number and the Income tax Circle/Ward/District. In case where neither the permanent account number nor the GIR number has been allotted, the fact of non-allotment should be mentioned in the Application Forms without which this information will be considered incomplete and the Applications are liable to be rejected. The applicant should provide information in the CAF as to his/her savings/current bank account number and the name of the bank with whom such account is held, in the space provided for the said purpose, to enable the Registrars to the Issue to print the said details on the refund orders, if any, after the name of the applicants. This has been made mandatory and applications not containing such details are liable to be rejected. Applicants in centers not covered by the branches of collecting banks can send their CAF along with the Demand Draft net of demand draft and postal charges payable at Mumbai to the Registrars to the Issue by Registered Post. For further instructions the investors are requested to read the CAF carefully while applying for the equity shares
c. d. e.
h.
i. j. ii.
Non-Resident Shareholders Applications received from Non-Resident Indians/ persons of Indian origin resident abroad, for allotment of equity shares shall be, inter alia, subject to the conditions imposed from time to time by the Reserve Bank of India, if any under the FEMA on the matter of refund of application moneys, allotment of equity shares, Issue of Letters of Allotment/share certificate(s), payment of interest, dividends, etc. General permission has been granted to any person resident outside India to purchase shares offered on rights basis by an Indian Company in terms of FEMA. In terms of Regulation No.6 of notification No.20/2000-RBI dated May 3, 2000, the existing non-resident shareholders may apply for equity shares on right basis and also for additional equity shares above their rights entitlements subject to the condition that the overall issue of shares to non-residents in the total paid-up capital of the Company does not exceed the sectoral cap, if any. The Board of Directors may at its absolute discretion, agree to such terms and conditions as may be stipulated by RBI while approving the allotment of equity shares, payment of dividend etc., to the NR Shareholders. Mode of payment by NR shareholders will depend on whether the equity shares are on repatriation or non-repatriation basis.
a)
On Repatriation basis Payments are to be made by such NRIs in any of the following modes: i. ii. iii. Indian Rupee Draft purchased from abroad and made payable at Mumbai or funds remitted from abroad (submitted along with Foreign Inward Remittance Certificate);or Cheques drawn on Non-Resident External Account (NRE Account) with any bank in India and payable at Mumbai Indian Rupee Draft purchased out of NRE/FCNR accounts maintained anywhere in India and payable at Mumbai In case of NRIs who remit their application money through Indian Rupee drafts from abroad, refunds, payment of interest and other disbursements, if any will be made in the relevant foreign currencies at the rate of the exchange prevailing at such time subject to the permission of Reserve Bank of India, if any. The Company will not be liable for any loss on account of exchange fluctuations for converting their Rupee amount in any foreign currency. In case of those NRIs who remit their application money from funds in NRE/FCNR accounts, refund, payment of interest and other disbursements, if any, shall be credited to such accounts. The details of such accounts should be furnished in the appropriate column of the CAF. iv. v. Cheque/Draft purchased out of funds held in Foreign Institutional Investors special non-resident rupee account. Applicants seeking allotment of the equity shares on repatriation basis should note that the payments for such allotment have to be made through external source only and that the payments through NRO accounts shall not be permitted.
b)
On Non-Repatriation basis Payments are to be made by such NRIs by Cheque drawn on a Non-Resident Ordinary Account (NRO Account) at Mumbai or Rupee Draft
13
purchased out of NRO Account maintained anywhere in India but payable at Mumbai. In such cases, refund, interest and other disbursement, if any, will be payable in Indian Rupees only. The CAF should be accompanied by a non-repatriation undertaking as per the forms prescribed by RBI, if applicable. Whether the application is being made for the equity shares is on repatriation/non-repatriation basis, a separate cheque/demand draft must accompany each CAF. All instruments must be crossed “Account Payee Only” and drawn in favour of the collecting bank specified on the reverse of the CAF and marked “Name of the Bank– Bal Pharma- Rights Issue – Non-Residents”. You are requested to mention the folio number and the CAF number on the reverse of the cheque/demand draft. An account debit certificate from the bank issuing the draft confirming that the draft net of demand draft and postal charges has been issued by debiting FCNR/NRE/NRO Account must be attached in all cases where drafts have been purchased from FCNR/NRE/NRO Accounts or Foreign Inward Remittance Certificate (FIRC) from the Authorised Dealers along with the CAF otherwise the application may be considered incomplete and liable for rejection. Payment by way of cash shall not be accepted. In no circumstances should the CAF be delivered to the Lead Manager to the Issue or to the Company. NRI Applicants can also obtain application forms from the collection center at Mumbai specified on the reverse of the CAF. Joint Applications An application may be made in single name or jointly with any other person(s) (upto 2). In the case of a joint application, refund orders (if any) and interest/dividend warrants, etc. will be made out in favour of the first applicant and all communications will be addressed to the applicant whose name appears first and at his/her address stated in the CAF. Nomination Facility In terms of Section 109A of the Act, nomination facility is available in case of equity shares. The applicant can nominate any person by filling the relevant details in the CAF in the space provided for this purpose. Applications under Power of Attorney In case of applications made under a Power of Attorney or by a Limited Company or a Body Corporate or Registered Society or Mutual Fund or Trusts, the relevant Power of Attorney or the relevant resolution or authority to make the application, as the case may be, together with the certified true copy thereof along with the certified copy of the Memorandum and Articles of Association and/or Bye-Laws as the case may be must be attached to the CAF or lodged for scrutiny separately, quoting the serial number of the CAF and the bank’s branch where the application has been submitted, at the office of the Registrar to the Issue after submission of the CAF to the Banker to the Issue or any of the designated branches as mentioned on the reverse of the CAF, failing which the applications are liable to be rejected. Such authority received by the Registrar to the Issue after closure of the offer may not be considered. Basis of Allotment The basis of allotment shall be finalised by the Board of the Company or Committee of Directors of the Company authorised in this behalf by the Board of the Company. The Board of the Company or the Committee of Directors as the case may be, will proceed to allot the equity Share in consultation with BSE in the following order of priority. i. Full allotment to the equity shareholders who have applied for their Rights entitlement either in full or in part and also to the renouncees who have applied for equity shares renounced in their favour either in full or in part (subject to other provisions contained under the paragraph titled “Renunciation”). Allotment to the equity shareholders who having applied for their full Rights entitlement of equity Share offered to them and have applied for additional equity shares, provided there is surplus available after full allotment under (i) above and shall be at the absolute discretion of the Board of the Company or the Committee of the Directors authorised in this behalf by the Board of the Company and the decision of the Board of the Company or the Committee of the Directors shall be final and binding. The allotment of such additional equity shares will be made as far as possible on an equitable basis with reference to the number of equity shares held by them on the Record Date in consultation with The Designated Stock Exchange. Allotment to the renouncees who, having applied for equity shares, renounced in their favour have also applied for additional equity shares, provided there is an under-subscribed portion after making full allotment in i and ii above. The allotment of such additional equity shares will be made on a proportionate basis at the absolute discretion of the Board/committee of Directors authorized by the Board in this behalf, jn consultation with the Designated Stock Exchange. The Company shall not retain any over-subscription. The issue will become under-subscribed after considering the number of shares applied as per entitlement plus additional shares. The undersubscribed portion can be applied for only after the close of the issue. The Promoters can subscribe to such under-subscribed portion as per the relevant provisions of the law. If any person presently in control of the Company desires to subscribe to such under-subscribed portion and if disclosure is made pursuant to SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, such allotment of the undersubscribed portion will be governed by the provisions of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. Allotment to Promoters of any un-subscribed portion over and above their entitlement will be done in compliance with Clause 40A of the Listing Agreement.
ii.
iii.
iv. v.
vi.
The allotment to the renouncee(s) in whose favour the renunciation has been exercised shall be subject to the condition that the Board of the Company or Committee of Directors shall have the discretion to reject such request without assigning any reasons thereof. In the event of over subscription, allotment will be made only within the overall size of the Rights Issue. Unsubscribed equity shares The unsubscribed portion, if any of the equity shares offered to the shareholders, after considering the application for Rights/Renunciation and additional equity shares, as above, shall be disposed by the Board of the Company or Committee of Directors authorised in this behalf by the Board of the Company at their full discretion and absolute authority, in such manner as they think most beneficial to the Company and the decision of the Board of the Company or Committee of Directors in this regard shall be final and binding. Disposal of Applications and Application Money i. The Board of the Company or Committee of Directors authorised in this behalf by the Board of the Company reserves its full, unqualified and absolute right to accept or reject any application in whole or in part in consultation with Designated Stock Exchange without assigning any reason thereof. If any application is rejected in full the entire application money will be refunded to the applicant in accordance with the provisions of Section 73 of the Companies Act, 1956. Where the applicant is allotted in part, the balance of the application money, will be refunded to the applicant in accordance with the provisions of Section 73 of the Companies Act, 1956.
14
ii
Refund cheques/pay orders to non-allottees i.e. those who had applied for more than the eligible limit or where applications have been rejected or partially allotted, above the value of Rs1500/- or more and Letters of Allotment)/share certificate(s) together with refund cheques/ pay orders, if any, to allottees will be sent by Registered Post at the applicant’s sole risk at his registered address within six weeks of closure of the subscription list. Refund cheques/ pay orders upto Rs1500/- will be sent under postal certificate at the applicant’s sole risk at his registered address. Refund will be made by cheques/ pay orders drawn on refund bankers and bank charges, if any, for encashing such cheques or pay orders will be payable by the applicant. Such cheques or pay orders will however, be payable at par at the branches of the refund bankers located at all places where applications are accepted or such places as may be approved by BSE. Allotment of equity shares and export of Letters of Allotment/share certificate(s) to NRI/OCB/Non-Residents would be subject to the approval of the Reserve Bank of India under the FEMA, if required. The Company shall provide adequate funds to the Registrar to the Issue for complying with requirement of despatch of refund cheques/ Letter(s) of Allotment / share certificate(s) by registered post/under postal certificate.
iii.
iv. v.
Interest in case of delay on Allotment/Despatch The Company will issue and despatch Letter(s) of Allotment/Share Certificate(s) and/or Letter(s) of Regret along with the Refund Orders, if any, credit the allotted securities to the beneficiary account within a period of 6 weeks from the date of closure of the subscription list. Such refund orders, in the form of MICR warrants/cheque/pay order, marked “Account payee” would be drawn in the name of a sole/first applicant and will be payable at par at all the centers where the applications were originally accepted. If such money is not repaid within 8 days from the day the Company becomes liable to pay it, the Company shall, as stipulated under Section 73 (2) / (2A) of the Companies Act, 1956, pay that money with interest at the rate of 15% p.a. Letter(s) of Allotment/Refund Order(s) above the value of will be despatched by Registered Post to the sole/first applicant’s address. However, Refund Orders for values not exceeding Rs.1,500/- shall be sent to the applicants under Certificate of Posting at the applicant’s sole risk at his address. The Company would make adequate funds available to the Registrar to the Issue for this purpose. Undertaking by the Company The Company undertakes that: a) b) c) d) e) The complaints received in respect of the Issue shall be attended to by the Company expeditiously and satisfactorily; All steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within seven working days of finalisation of basis of allotment; Funds required for dispatch of refund orders/allotment letters/certificates by registered post shall be made available to the Registrar to the Issue by the Company. Certificates of securities/refund orders of the Non-Resident/Non Resident Indians shall be dispatched within the specified time subject to receipt of approval from RBI/FIPB, if required. No further issue of shares shall be made till the shares offered through this LoO are listed or till the application moneys are refunded on account of non-listing, under-subscription, etc., All monies received out of the issue of shares to the investors shall be transferred to a separate bank account other than the bank account referred to in sub-section (3) of Section 73 of the Act; Details of all monies utilised out of the Issue shall be disclosed under an appropriate separate head in the balance sheet of the Company indicating the purpose for which such monies has been utilised and Details of all unutilised monies out of the Issue of shares, if any, shall be disclosed under an appropriate separate head in the Balance Sheet of the Company indicating the form in which such unutilised monies have been invested;
Utilisation of Issue Proceeds a) b) c)
The funds received against this Rights Issue to be kept in a separate bank account and the Company will not have any access to such funds unless it satisfies BSE (Designated Stock Exchange) with suitable documentary evidence that the minimum subscription of 90% of the issue has been received by the Company. Issue of Letter of Allotment In case the Company issues Letter(s) of Allotment, the relative Share Certificate(s) will be kept ready within 3 months from the date of allotment thereof or such extended time as may be approved by the Company Law Board or other applicable provisions, if any. Allottees are requested to preserve such Letters of Allotment, which would be exchanged later for Share Certificate(s). No Further Issue of Securities The Company undertakes that there shall be no further issue of capital whether by way of issue of bonus shares, preferential allotment, Rights Issue or public issue or in any other manner, during the period commencing from the submission of the LoO to SEBI for Rights Issue till the securities referred in the LoO have been listed or application moneys refunded on account of failure of Issue. General i. ii. Please read the instructions printed overleaf on the enclosed CAF carefully. A CAF found incomplete with regard to any of the particulars required to be given therein, and or which is not completed in conformity with the terms of the LoO are liable to be rejected and the money paid, if any, in respect thereof will be refunded without interest and after deduction of bank commission and other charges, if any. The CAF must be filled in English and the names of all the applicants, details of occupation, address, father’s/husband’s name must be filled in block letters. For a total value of Rs.50,000 or more, i.e. the total number of securities applied for multiplied by the issue price, is Rs. 50,000/- or more the applicant or in the case of application in joint names, each of the applicants, should mention his/her Permanent Account Number (PAN) allotted under the Income-tax Act, 1961 or where the same has not been allotted, the GIR number and the Income-tax Circle/Ward/District. In case where neither the PAN nor the GIR number has been allotted, the fact of non-allotment should be mentioned in the application forms. Application forms without this information will be considered incomplete and will be liable to be rejected. Thumb impressions and signatures other than in English, Hindi or any other language specified in the 8th Schedule to the Constitution of India, must be attested by a Magistrate or a Notary Public or a Special Executive Magistrate under his/her official seal. In case of an application under Power of Attorney or by a Body Corporate or by a Society, a certified true copy of the relevant Power of Attorney or relevant resolution or authority to make investment and sign the application along with the copy of the Memorandum & Articles of Association and/or bye laws must be lodged with the Registrars to the Issue giving reference of the serial number of the CAF before closure of the Issue.
iii. iv.
v. vi.
15
In case the above referred documents are already registered with the Company, the same need not be furnished again; however, the serial number of registration or reference of the letter, vide which these papers were lodged with the Company must be mentioned just below the signature(s) on the application. In no case should these papers be attached to the application submitted to the Bankers to the Issue. vii. In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per the specimen signature(s) recorded with the Company. Further, in case of joint applicants who are renouncees, the number of applicants should not exceed three. viii. In case of joint applicants, reference, if any, will be made in the first applicant’s name and all communication will be addressed to the first applicant. ix. x. The shareholders must sign the CAF as per the specimen signatures recorded with the Company. Application(s) received from Non-Residents, or Persons of Indian origin residing abroad for allotment of equity shares shall, inter alia, be subject to conditions, as may be imposed from time to time by the RBI under FEMA in the matter of refund of application money, allotment of securities, subsequent issue and allotment of securities, payment of dividend or interest on securities, export of the securities certificates, etc. In case a Non-Resident Shareholder has specific approval from the RBI, in connection with his/ her shareholding, the person should enclose a copy of such approval with the CAF. All communication in connection with application for the equity shares, including any change in address of the Shareholders should be addressed to the Registrar to the Issue quoting the name of the first/sole applicant Shareholder, folio numbers and CAF number.
xi.
xii. Split forms cannot be re-split. xiii. Only the person or persons to whom equity shares have been offered shall be entitled to obtain split forms. Renouncee(s) shall not be entitled to obtain split forms. xiv. It is mandatory for the applicant to mention the applicant’s savings bank/current account number and name of the bank with whom such account is held in the space provided in the CAF, to enable the registrars to the Issue, to print the said details in the refund orders after the name of the payees. Such applications not containing the above details are liable to be rejected. xv. The CAF together with cheque/demand draft should be sent to the Bankers to the Issue or any of their branches as listed in the CAF or to the Registrar to the Issue and NOT to the Lead Manager to the Issue. Applicants residing at places other than cities of the branches of the Bankers to the Issue will have to make payment by Demand Draft payable at Mumbai and should send their application forms to the Registrar to the Issue BY REGISTERED POST. If any portion(s) of the CAF is/are detached or separated, such application is liable to be rejected. xvi. Investors will not have facility of applying through stockinvest instrument in the issue as RBI has withdrawn the stockinvest scheme vide notification no.DBOD.NO.FSC.BC.42/24.47.001/2003-04 dated 5/11/2003. Last date for submission of CAF The last date for receipt of the CAFs by the Banker to the Issue/Registrar to the Issue with the amount payable is 26th May, 2005. The Board will, however, have the power to extend the same for such a period as it may determine from time to time, subject to the issue not remaining open for subscription beyond sixty days. If the CAFs together with the amount payable are not received by the Bankers to the Issue on or before the close of banking hours on 26th May, 2005 or such extended date as may be determined by the Board of Directors, the Offer contained in this Letter shall be deemed to have been declined. The CAF duly completed should be forwarded to the Bankers to the Issue or any of their branches as listed in the CAF. Application will NOT be accepted directly by the Company or Lead Managers to the Issue. IV. TAX BENEFITS FOR THE COMPANY AND ITS SHAREHOLDERS Auditor’s Certificate We hereby report that the enclosed annexure states the possible tax benefits available to Bal Pharma Limited (the “Company”) and its Shareholders under the current direct tax laws as amended by the Finance (No. 2) Bill, 2004. Several of these benefits are dependent on the Company or its shareholders fulfilling the conditions prescribed under the relevant tax laws. Hence the ability of the Company or its shareholders to derive the tax benefits is dependent upon fulfilling such conditions, which based on business imperatives the Company may or may not choose to fulfil. The benefits discussed below are not exhaustive. This Statement is only intended to provide general information to the investors and is neither designed nor intended to be a substitute for the professional tax advice. In view of the individual nature of the tax consequences and the changing tax laws, each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of their participation in the issue. We do not express any opinion or provide any assurance as to whether: ¨ ¨ The Company or its shareholders will continue to obtain these benefits in future; or The conditions prescribed for availing the benefits have been/ would be met with.
The contents of this annexure are based on information, explanations and representations obtained from the Company and on basis of our understanding of the business activities and operations of the Company and the interpretation of current tax laws as amended by the Finance (No. 2) Bill, 2004.
FOR OSTAWAL & JAIN, CHARTERED ACCOUNTANTS.
Place : Bangalore Date : 11th February 2005
(T.D Jain) PARTNER
16
ANNEXURE TO THE STATEMENT OF TAX BENEFITS A. TO THE COMPANY Under the Income Tax Act, 1961 1. The Company is entitled to a weighted deduction of 150% under Section 35(2AB) read with Section 35(2) of the Income Tax Act, 1961, of the entire amount of the expenditure (other than land & building) incurred on scientific research on in-house R & D Centres, as approved by prescribed authority, in the year in which such expenditure is incurred. The Company is eligible under Section 35D of the Income Tax Act, 1961 to a deduction equal to one-fifth of certain specified expenditure, including specified expenditure incurred in connection with the issue for the extension of the industrial undertaking, for the period of five successive years subject to the limits provided and the conditions specified under the said Section. 3.1 In accordance with the provisions of Section 10(38) [w.e.f. Assessment Year 2005-06], the long term capital gains arising on the transfer of securities in a transaction entered into in a recognized stock exchange in India on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 came into force, shall be exempt from income tax. 3.2 The long-term capital gains accruing to the Company otherwise than as mentioned in 3.1 above, shall be chargeable to tax in accordance with and subject to the provisions of Section 112 of the income tax Act, 1961 as follows: If long term capital gain is computed with indexation @ 20% (plus applicable surcharge and education cess) in the case of certain listed shares, securities and units, in a transaction not entered into in a recognized stock exchange, if long term capital gain is computed without indexation @ 10% (plus applicable surcharge and education cess) 4. The short term capital gains accruing to the Company, from the transfer of a short term capital asset, being securities, in a transaction entered into in a recognized stock exchange in India, on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 came into force, shall be chargeable to tax at the rate of 10% (plus applicable surcharge and education cess) as per the provisions of Section 111A (inserted by the Finance (No. 2) Act, 2004 w.e.f. Assessment Year 2005-06] The Company is eligible to claim exemption in respect of tax on long term capital gains u/s. 54EC & 54ED if the amount of capital gains is invested in certain specified bonds / securities subject to the fulfillment of the conditions specified in those Sections. The Company is eligible to exemption under Section 10(34) in respect of income by way of dividend received from other Domestic Companies.
2.
3.
5. 6. B.
TO THE RESIDENT MEMBERS OF THE COMPANY Under the Income Tax Act, 1961 1. 2. Members will be entitled to exemption, under Section 10(34) of the Income Tax Act, 1961, in respect of the income by way of dividend received from the Company. If the shares of the Company are sold by its members, after being held for more than 12 months, in a transaction entered into in a recognized stock exchange in India on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 came into force, the gain, if any, would be exempt from tax as per the provisions of Section 10(38) [w.e.f. Assessment Year 2005-06] If the shares of the Company are sold by the members, after holding them for a period of not more than 12 months, in a transaction entered into a recognized stock exchange in India on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 came into force, the gain, if any, shall be chargeable to tax @ 10% [plus applicable surcharge and education cess] as per the provisions of Section 111 A [inserted by the Finance (No. 2) Act, 2004 w.e.f Assessment Year 2005-06]. The long term capital gains accruing to the members of the Company from the transfer of the shares of the Company, otherwise than as mentioned in point 2, above shall be charged to tax after deducting the indexed cost of acquisition at 20% [plus applicable surcharge and education cess] or without the benefits of indexation at @ 10% [plus applicable surcharge and education cess] as per the provisions of Section 112, of the Income Tax Act, 1961. Long Term Capital Gains on sale of shares of the Company by the members shall be exempt from income tax if such gains are invested in bonds/ equity shares specified in Section 54EC or Section 54ED respectively subject to the fulfillment of the conditions specified in those sections. In the case of individual or HUF members, Long Term Capital Gains on sale of shares of the Company shall be exempt from Income tax u/s. 54F subject to the fulfillment of the conditions specified therein.
3.
4.
5.
Under Wealth Tax Act, 1957 As shares or securities are not included in the definition of ‘asset’ under Section 2(ea) of the Wealth Tax Act, 1957, total exemption from wealth tax will be available on investments in shares of the Company. C. TO THE NON-RESIDENT INDIAN MEMBERS OF THE COMPANY Under Income Tax Act, 1961 1. If the shares of the Company are sold by its members, after being held for more than 12 months, in a transaction entered into in a recognized stock exchange in India on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 came into force, the gain, if any, would be exempt from tax as per the provisions of Section 10(38) [Inserted by the Finance (No. 2) Act 2004 w.e.f. Assessment Year 2005-06] If the shares of the Company are sold by the members, after holding them for a period of not more than 12 months, in a recognized stock exchange in India on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 came into force, the gain, if any, shall be chargeable to tax @ 10% [plus applicable surcharge and education cess] as per the provisions of Section 111A [inserted by the Finance (No. 2) Bill, 2004 w.e.f. Assessment Year 2005-06] As per the provisions of Section 115D and Section 115E of the Income Tax Act, 1961 investment in shares of the Company being specified asset, the long term capital gain computed in accordance with the provisions of the Act, arising on the transfer of such shares (otherwise than as mentioned in 1 above) in the Company acquired in convertible foreign exchange by a Non-Resident Indian, as defined in Section 115C(e), will be charged to Income Tax @ 10% (plus applicable surcharge and education cess) Under Section 115F of the Income Tax Act, 1961 the Long Term Capital gain as referred to in 3 above shall be exempted from income tax entirely / proportionately subject to the fulfillment of the conditions specified in Section 115F if the member (i.e. Non Resident Indian as defined as Section 115C(e) invests all or a portion of the net consideration in specified assets as defined in Section 115C(f) of the Income Tax Act, 1961 within 6 months of the date of transfer. The amount so exempted shall, however, be chargeable to tax as long term capital gains under the provisions of Section 115F(2) if the specified assets are transferred or converted into money within three years from the date of acquisition thereof as specified in the said Section. As per the provisions of Section 115-I of the Act, when a Non Resident Indian, elects not to be governed by the provision of Chapter XII-A of the Income Tax, 1961, then his/her total income shall be computed and charged in accordance with other provisions of the Act.
2.
3.
4.
5.
17
6. 7.
Non resident shareholders will be entitled to exemption, under Section 10(34) of the Income Tax Act, 1961 in respect of the income by way of dividend received from the Company. Where any Double Taxation Avoidance agreement [DTAA] entered into by India with any other country provides for a concessional tax rate or exemption in respect of income from the investment in the Company’s shares, those beneficial provisions shall prevail over the provisions of the Income Tax Act, 1961 in that regard.
Under Wealth Tax Act, 1957 As shares or securities are not included in the definition of ‘asset’ under Section. 2(ea) of the Wealth Tax Act, 1957, total exemption from wealth tax will be available on investments in shares of the Company. D. TO FOREIGN INSTITUTIONAL INVESTORS 1. If the shares of the Company are sold by its members, after being held for more than 12 months, in a transaction entered into in a recognized stock exchange in India on or after the date on which Chapter VII of the Finance (No. 2 Act, 2004 came into force, the gain, if any, would be exempt from tax as per the provisions of Section 10(38) [inserted by the Finance (No.2) Act 2004 w.e.f. Assessment Year 2005-06] If the shares of the Company are sold by the members, after holding them for a period of not more than 12 months, in a transaction entered into in a recognized stock exchange in India on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 came into force, the gain, if any, shall be chargeable to tax @10% [plus applicable surcharge and education cess] as per the provisions of Section 111A [inserted by the Finance (No.2) Bill, 2004 w.e.f. Assessment Year 2005-06] Under Section 115AD(1)(b)(ii) of the Act, Income by way of Short Term Capital gain arising from the transfer of shares (otherwise than as mentioned in 2 above) held in the Company will be taxable @ 30% (plus applicable surcharge and education cess). Under Section 115AD(1)(b)(iii) of the Act, Income by way of Long Term Capital Gain arising from the transfer of shares (otherwise than as mentioned in 1 above) held in the Company will be taxable @ 10% (plus applicable surcharge and education cess). It is to be noted here that the benefits of indexation and foreign currency fluctation protection as provided by Section 48 of the Act are not available to Foreign Institutional Investors. Income by way of dividend received on shares of the Company is exempt u/s. 10(34) of the Income Tax Act, 1961. Where any Double Taxation Avoidance Agreement [DTAA] entered into by India with any other country provides for a concessional tax rate or exemption in respect of income from the investment in the Company’s shares, those beneficial provisions shall prevail over the provisions of the Income Tax Act, 1961 in that regard. If the shares of the Company are sold by its members, after being held for more than 12 months, in a transaction entered into in a recognized stock exchange in India on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 came into force, the gain, if any, would be exempt from tax as per the provisions of Section 10(38) [inserted by the Finance (No.2) Act 2004 w.e.f. Assessment Year 2005-06. If the shares of the Company are sold by the members, after holding them for a period of not more than 12 months, in a transaction entered into in a recognized stock exchange in India on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 came into force, the gain, if any, shall be chargeable to tax @ 10% [plus applicable surcharge and education cess] as per the provisions of Section 111A [inserted by the Finance (No. 2) Bill. 2004 w.e.f. Assessment Year 2005-06. Income by way of dividend declared by the Company is exempt from tax by virtue of provision of Section 10(34) of the Income Tax Act, 1961. Income by way of long term capital gain accrued otherwise than as mentioned in 1 above, will be taxed at concessional rate of 20% (plus applicable surcharge and education cess) as provided in Section 112(1)( C) of the Income Tax Act, 1961. Where any Double taxation Avoidance Agreement [DTAA] entered into by India with any other country provides for a concessional tax rate or exemption in respect of income from the investment in the Company’s shares, those beneficial provisions shall prevail over the provisions of the Income Tax Act, 1961 in that regard.
2.
3. 4.
5. 6.
E.
TO FOREIGN COMPANY 1.
2.
3. 4. 5.
F.
TO MUTUAL FUNDS As per the provisions of Section 10(23D) of the Act, any income of Mutual Funds registered under the Securities and Exchange Board of India Act, 1992 or Regulations made thereunder, Mutual Funds set up by public sector Banks or Public Financial Institutions and Mutual Funds authorised by the Reserve Bank of India would be exempt.
V.
PARTICULARS OF THE ISSUE Objects of the issue The present issue of equity shares is being made for the following purposes:
q q q q q
To set up a multipurpose facility for manufacturing APIs at Bangalore; To set up a greenfield formulations plant at Himachal Pradesh; To meet the issue expenses; To redeem the preference shares to the extent of Rs.88 lakhs; To enable listing of the equity shares of the Company on the National Stock Exchange (NSE).
MULTI PURPOSE FACILITY FOR MANUFACTURE OF APIs AND FORMULATIONS The Company has drawn plans to establish a multipurpose facility for the manufacture of APIs. The proposal envisages setting up of a manufacturing facility at Bangalore with focus on APIs like Topiramate and Ebastine with an installed annual capacity of 48 tons. This plant will conform to the standards laid down by USFDA. The plant is proposed to be set up in such a manner that apart from the above mentioned drugs, it shall also be able to produce Entacapone, Zolpidem,Tranxeamic Acid and other APIs. The Company intends to continue its focus on the branded formulations market in the identified therapeutic segment. The turnover from formulations division constituted around 53% of the total sales of the Company in the last year. The therapeutic segments like Anti diabetic, Cardiovascular, Gynecology segments grew well and the Company is focusing on these segments for further growth. In view of growing demand, the Company plans to set up a green field formulations manufacturing facility in the State where fiscal incentives and other concessions are available. This would lead to substantial reduction in the cost of manufacturing due to exemption from excise duty, sales tax and income tax for a period of 10 years from the date of commencement of production. The plant will have an annual installed capacity of 720 million tablets, 240 million capsules and 30 Mt ointments. LAND AND DEVELOPMENT It is proposed to acquire five acres of land in the Bommasandra industrial Area, Bangalore for setting up the facility for manufacturing of APIs. The
18
Company has received the approval for the project under the State Level Single Window Clearance Scheme from Karnataka Udyog Mitra. It is planned to have a civil construction of around 33356 square feet for production, intermediate stores, packaging, warehousing and utilities. Further, the Company plans to acquire around four acres of land in Himachal Pradesh where fiscal incentives and other concessions are available for setting up the manufacturing facility for formulations. This facility will be built as per guidelines and standards laid down by UK-MHRA and USFDA. This facility will also comply with guidelines of MCC, South Africa. Land acquisition details and consideration amount to be paid The total consideration for the land required for setting up the manufacturing facility in Bangalore for producing APIs is Rs 150 lakhs out of which the Company has paid an advance of Rs 30 lakhs as an initial deposit. The land allotment letter is awaited. The Company has applied to the Himachal Pradesh Industrial Development Authorities to ascertain the availability of land. The cost of the land including the site development is estimated at Rs 166 lakhs. PLANT AND MACHINERY The Company plans to install the state of art and modern equipments and accessories in the new manufacturing facilities. The details of such equipments and accessories are: APIs Description Process Equipments Reactors SS316 Reactors GLR Reactors Reactors Reactors Reactors Reactors Reactors Reactor with full assembly Fluid bed dryer Fluid bed dryer Fluid bed dryer Centrifuge Centrifuge Centrifuge Sifter Pulveriser Blender Sparkler filter Measure Vessels Heat Exchangers Hydrogenator Other Equipments Equipment Foundation TOTAL Utilities Boiler Chimney Chilled water plant Brine Chilling plant Low temp Brine plant Thermic fluid Heater DM Water Plant Vaccum System Air Handling Unit Diesel Gen set Solvent storage Pipes& Pipe fittings Steel Structures Electrical panel and fittings Other equipments Total Auxillary Equipment and Laboratory Equipment Lab equipments
Air Water Pollution control system
Capacity 1600 lts 1600 lts 3000 lts 2000 lts 1200 lts 750 lts 500 lts 250 lts 630 lts 250 lts 200 lts 150 lts 48” 36” 24” 24” 25 kg 1000lt Various Various 600 lt
Quantity 4 1 2 2 2 1 2 2 1 3 3 2 2 4 3 3 3 3 3 13 22 1
Rate 2.50 9.00 3.80 2.50 2.00 2.00 1.50 1.25 16.50 6.00 5.00 5.00 3.5 3.00 2.00 1.50 1.50 2.00 3.00 0.57 0.52 6.00
Amt (Rs lakhs) 10.00 9.00 7.60 5.00 4.00 2.00 3.00 2.50 16.50 18.00 15.00 10.00 7.00 12.00 6.00 4.50 4.50 6.00 9.00 7.41 11.45 6.00 19.09 15.00 210.55 12.00 5.00 10.00 12.00 13.00 6.00 15.00 10.00 45.00 20.00 15.00 30.00 16.00 65.00 8.50 282.50
Date of quote for cost estimate NA NA NA NA NA NA NA NA 30/3/05 NA NA NA NA NA 7/1/05 3/2/05 4/2/05 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA
2.0 T
250 kva
1 1 1 1 1 3 1 1 1 2 1
12.00 5.00 10.00 12.00 13.00 2.00 15.00 10.00 45.00 10.00 15.00
Total
100.00 66.25 166.25
NA NA
19
Formulations Unit Description Rapid Mixer granulator Rapid Mixer granulator Multi mill Fluid Bed Dryer Compression machine Compression Machine Coating Machine Sifter Blender- tablets Blender-Capsules Tray Drier Filling machine Primary Packing-Blister,strip,bulk Secondary packing- Appliances Ointment Filling machine Mixer Stirrer Other Equipments Total Utility Services: Description Electrical Transformer Diesel Gen set Air Compressor Boiler HVAC Water treatment Plant Effluent treatment plant Quality control equipments Fire fighting equipments Building mgt system Deposits Total Note: The Company is yet to invite quotes for the above Auxiliary Machines/equipments Description Plant Accessories Hydraulic pallet trucks Punches & Dies Cabinet for dies Racking system-Production Racking system-Stores Stackers Dispensing booth Sampling Booth Balances & office equipments Total Note: The Company is yet to invite quotes for the above The cost estimates have been worked based on the experience of the company and verbal enquiries of the production unit with the suppliers. The appropriate quotes will be obtained from the reputed suppliers and project implementation committee will place the orders at the appropriate time. The Company has not placed any orders with any supplier for the plant and machinery relating to the project. The Company has not paid any advance to any of the suppliers. The delivery of plant and machinery will be over the period of project and will take around three to six months from the date of placing the purchase orders. The plants will be capable of producing high quality output and will have the necessary equipments to conform to both the national and international standards like USFDA, MCC South Africa and UK-MHRA. Amt (Rs lakhs) 7.50 0.75 10.00 4.00 10.00 15.00 5.00 5.00 3.50 8.00 68.75 600 kg/hr Capacity 400kva 2 2 1 4.00 3.75 5.00 Quantity Rate Amt (Rs lakhs) 18.00 8.00 7.50 5.00 75.00 20.00 5.00 85.00 3.00 10.00 10.00 246.50 1 1 18.00 10.00 120 kg 45 stn 27 Stn Capacity 350 kg 250 kg Quantity 1 1 2 2 2 3 1 3 2 2 2 2 5 Rate 20. 00 15.50 1.00 14.00 10.00 6.60 20.00 1.00 3.50 2.00 3.80 20.00 9.00 Amt (Rs lakhs) 20.00 15.50 2.00 28.00 20.00 13.20 20.00 3.00 7.00 4.00 7.60 40.00 34.50 8.60 18.00 10.00 5.60 257.00
20
The plant and machinery is capable of manufacturing various APIs and has had flexibility to change over new products depending on the market requirements. The facility is capable of handling various chemical reactions such as hydrolosis, sulfonation, nitration, condensation, reduction, oxidation, and chlorination. These facilities can also be utilised for extraction, separation and purification of natural products. Utility systems such as the water system, cooling system, heating system, fire-fighting systems, compressed air systems have been provided. Apart from the operational requirements, environmental safety requirements comprising of Effluent treatment plants to treat effluents, fume scrubber to treat the gaseous emissions and an incinerator-cum-scrubber unit to treat liquid organic wastes are proposed to be provided. The Quality Control laboratory include facilities, apart from the routine equipment for chemical analysis, such as a High Performance Liquid Chromatography, Gas Chromatography, FT Infrared spectrometer, UV/Vis spectrometer etc. The Company will have trained manpower for quality control and quality assurance in the manufacturing facility. FACILITIES, FIXTURES AND INFRASTRUCTURE: The civil work for both the proposed units include factory office building warehouse, production area and areas for final packing, block process development laboratories and other civil foundations. The estimated built-up area for the API unit will be around 33356 sq feet aggregating to Rs 216.81 lakhs and for the formulations unit will be around 35000 sq feet aggregating to Rs 325.50 lakhs. Particulars (Rs in lakhs) Production including intermediate stores Utilities Laboratory Warehouse Office Administration Total API Total amount 86.02 34.97 31.47 41.96 22.39 216.81 Formulations Total amount 141.90 28.80 21.00 112.80 21.00 325.50
The above work for the API plant is expected to commence from July 2005 and be completed by April 2006. The above work for the Formulations plant is expected to commence from August 2005 and be completed by May 2006. No arrangement/agreement has yet been made with architects/engineers for any of the above. PROJECT COST The total project cost is estimated at Rs 3340.40 lakhs as under: A. PROJECT COST (Rs in lakhs) Land & Development Building Plant & Machinery Miscellaneous assets Contingency Provision Pre - operative expenses Working Capital Margin Total Issue Expenses Redemption of Preference shares Total API 150.00 216.81 659.30 28.00 59.17 33.37 229.00 1375.65 Formulations 166.00 325.50 572.25 68.75 106.25 200.00 413.00 1851.75 Total 316.00 542.31 1231.55 96.75 165.42 233.37 642.00 3227.40 25.00 88.00 3340.40
It is proposed to finance the projects partly by way of issue of equity shares on rights basis and partly by way of debt as under B. MEANS OF FINANCING (Rs in lakhs) Rights Issue Equity Loan from Exim Bank Total API 390.65 985.00 1375.65 Formulations 671.75 1180.00 1851.75 Total 1175.40 2165.00 3340.40 Percentage (%) 35.19 64.81 100.00
Of the project cost of Rs 3340.40 lakhs, 35.19% (Rs 1175.40 lakhs) is being financed by the Rights Issue and 64.81%(Rs 2165.00 lakhs) is being financed by a Term loan from Exim Bank . The Company has received In-principle sanction from EXIM Bank for a INR/USD term loan of Rs.2165 lakhs. under programmes for EOUs vide their letter no.Exim:BRO:521:2005 dated 07 January, 2005. This amounts to 100% of the Term Loan component of the Project Cost. The Company therefore confirms that firm arrangements of finance through verifiable means towards 75% of the stated means of finance, excluding the amount to be raised through proposed Rights issue, have been made. TERM LOAN TERMS Some of the indicative principal terms and conditions of the in-principle sanction are as follows: a. Rate of interest: INR: 10% p.a. with quarterly rests with reset at the end of three years from the date of first disbursement; USD: LIBOR (6 months) + 350 basis points (all inclusive) with quarterly rests; b. Repayment 6 years after a moratorium of 18 months from the date of first disbursement;
21
c.
Security i. First pari-passu charge on entire fixed assets except those assets, which are exclusively charged; ii. Personal guarantee of Mr.Shailesh Siroya, Managing Director and Mr.Shrenik Siroya, Director;
d.
Interim Disbursement Interim disbursement on completion of Rights Issue and on the basis of hypothecation of Bal Pharma’s plant and machinery pending creation of mortgage on immovable properties subject to the compliance with other terms and conditions and execution of undertaking by Bal Pharma to complete the mortgage facilities to the satisfaction of EXIM Bank within a period of 6 months from the date of loan agreement failing which additional interest @1% per annum will be applicable on the outstanding loan with retrospective effect from the date of disbursement. The Bank will have a right to recall the loan in case the security is not created within the stipulated period;
e.
Special condition To ensure minimum FACR (Fixed Assets Coverage Ratio) of 1.25:1 for the proposed loan during its tenor;
Tax Benefits/Fiscal Concessions Offered In Himachal Pradesh The new Industrial policy announced by Government of India, Ministry of Commerce & Industry (Department of Industrial Policy and Promotion) vide notification No 1(10)/2001- NER offers certain fiscal incentives for the new Industrial units set up in the state of Himachal Pradesh. The incentives include, among others, things like power, concession in state taxes a) b) c) d) e) Exemption of excise duty for manufactured goods for a period of ten years from the date of commercial production. Exemption of 100 % of income tax for initial period of five years and thereafter 30% for a further period of five years. Capital subsidy to the extent of 15% of the investment in plant and machinery. Deferment of General sales tax for a period of 8 years on the goods manufactured by the new Industrial Units set up in the backward areas. Central sales tax at a concessional rate of 1% on the goods produced by new Industrial units.
CALCULATIONS FOR WORKING CAPITAL The break up of the working capital, as included in the project cost, is given below: (Rs. In lakhs) PARTICULARS Inventories Raw material – 3 months Work in progress – 1 month Finished goods – 0.75 months Stores Receivables Export – 3 months Domestic – 3 months TOTAL Payables – 2 months Other current liabilities Total Net working capital Margin for working capital@25% Issue Expenses The issue expenses are estimated at Rs.25 lakhs which is inclusive of fees payable to the Lead Merchant Banker to the issue, Bankers to the issue, Registrar to the issue, Auditor, printing and stationery expenses, advertising expenses and marketing expenses and all other expenses for listing the equity shares on the Stock Exchanges. Redemption of Preference shares It is proposed to redeem 12.5% Redeemable Preference shares of face value of Rs.100 each aggregating to Rs.88.00 lakhs. Year-wise break-up of utilization of issue proceeds (Rs. in Lakhs) Capital Expenditure Programme 2005 Project – API Project -Formulations Redemption of preference shares Schedule of Implementation The projects are expected to commence from May, 2005, and are expected to be completed by December, 2006, and the broad milestones are as under: Nil Nil Nil Financial Year ending 31st March 2006 1155.52 1423.00 88.00 2007 288.88 360.00 Nil TOTAL 1444.40 1783.00 88.00 388 248 1257 232 109 341 916 229 0 1058 2021 298 71 369 1652 413 388 1306 3278 530 180 710 2568 642 389 130 97 5 595 153 205 10 984 283 302 15 APIs FORMULATIONS TOTAL
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For API Activity Land and Site Development Civil Works Ordering and procurement of Plant & Machinery Installation of plant and machinery Trial Production Commencement of commercial production For Formulations Activity Land and site development Civil works Ordering and procurement of Plant & Machinery Installation of Plant & machinery Trial production Commencement of commercial production Deployment of Funds Pending Utilization Issue proceeds, pending utilisation, shall be invested in debt schemes of Mutual funds and/or fixed deposits with banks or in reduction of borrowings. Proposal to meet shortfall of funds if any The company proposes to meet the shortfall of funds, if any at the time of implementation of the project from the internal accruals. The Auditors have issued a certificate dated 2nd April 2005 for the deployment of funds in the proposed project, the contents of which are reproduced below: “We have examined the books of accounts of M/s.Bal Pharma Limited and certify that a sum of Rs.35,44,500/- (Thirty Five lakhs Fourty FourThousand Five Hundred only) has been spent on the proposed project and issue expenses upto 31 March 2005. Project Expenditure Advance for Acquisition of land to Karnataka Industrial Area Development Board, Bangalore For acquiring 5 acres of land near Bangalore Issue expenses Including part of fees to Lead Manager to the Rights issue And other expenses Total (Rs.) The above expenditure has been met out of the internal accruals of the Company. For Ostawal & Jain Chartered Accountants Place: Bangalore Date: 02.04.2005 PHARMACEUTICAL INDUSTRY-OVERVIEW The Indian Pharmaceutical Industry today is in forefront of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. The Industry is growing at about 8 to 9 % annually. It ranks high in the third world, in terms of technology, quality and range of medicines manufactured. The sector is highly fragmented with more than 20,000 registered units and has expanded a great deal in the last two decades. The leading 250 pharmaceutical companies control 70% of the market and the industry meets 70 % of the country’s demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, capsules, tablets, orals and injectibles. Playing a key role in promoting and sustaining development in the field of medicines, the Indian Pharma Industry has quality producers and many units are approved by regulatory authorities in USA and UK. International companies associated with this sector have helped this development in the past four decades and has helped to put India on the pharmaceutical map of the world. It is characterized by being technologically strong and self reliant, low costs of production, research and development and manpower, strength of national laboratories and an increasing balance of trade. The Indian Pharmaceutical industry provides affordable healthcare to Indian population Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and pharma products has been done away with. The manufacturers are free to produce any drug duly approved by the Drug Control Authority. The Industry, with its scientific talents and research capabilities, supported by intellectual property protection regime is well set to take on the global market. In the new industrial scenario, India is once again emerging as a leading pharmaceutical exporting country in the global market, as a quality exporter of drug formulations both branded and generics. The exports have been growing steadily during the last five years and major companies are investing heavily in research & development for manufacture of molecules and patenting their new products in the regulated markets. Recent Dhanpal I Sakaria (Partner) - 5,44,500 - 35,44,500 - 30,00,000 Commencement date June 2005 August 2005 November 2005 March 2006 October 2006 December 2006 Completion date August 2005 May 2006 March 2006 September 2006 December 2006 Commencement date May 2005 July 2005 July 2005 January 2006 October 2006 December 2006 Completion date July 2005 April 2006 December 2005 October 2006 December 2006 N.A.
23
advances in Biotechnology and Information Technology have helped the Industry progress in the innovations and discovery of new chemical entities. IMS Health incorporated; USA (“IMS Health”) projects that the global pharmaceutical industry would register growth even in the face of continued Government pressure on pricing and a number of widely used drugs going off patent and the global pharmaceutical market is slated to expand at US$561 billion by 2005. In the developed countries, pharmaceutical industry is highly regulated and is subject to stringent patent laws. While discovery of new molecules and drugs get adequate encouragement and investment, the price of the products are significantly on the higher side. In the emerging markets, volumes of pharmaceutical products sold are much higher than the developed markets while they rank much lower in terms of sales value, mainly due to lower selling prices. These markets lack effective product patent protection laws and are not as highly regulated as developed markets. Therefore, local pharma companies in developing countries without investing in product development could manufacture and market patented products at comparatively lower prices in their respective countries. The same situation has helped India over the decades to gain manufacturing strengths and R&D capabilities and to become self –reliant in the pharmaceutical sector. Further, with the rapid developments in the communication and technology, the new opportunities are emerging for India to cater to large global markets. The new patent regime introduced in India throws open a lot of promises for the pharmaceutical industry. Various structural changes have taken place, encouraging innovation in the industry. The key strengths of India are with respect to low-cost manufacturing, medical research and development and biotechnology research. Outsourcing of the products and services from Indian manufacturers and service providers by mutinational corporations is evident and it has happened in the industries such as information technology, business process outsourcing, automobile component manufacturing. The competitive market conditions in the West have forced Western manufacturers to look at alternatives to reduce their manufacturing cost. Outsourcing part of manufacturing operations to Indian pharmaceutical companies would be one of the viable options. The Pharmaceutical Industry, being knowledgebased industry, offers good opportunities to Indian pharmaceutical manufacturers. Taking advantage of the low cost production, combined with FDA approved plants; Indian companies are becoming a global outsourcing hub for pharmaceutical products. The three outsourcing arenas in the pharmaceutical sector are likely to be: a) Contract Research The pharmaceutical and biotechnology companies abroad are likely to outsource part of or all of their research and development process, clinical development services to various Indian manufacturers who have acquired upstream capabilities and have necessary regulatory clearances. b) Contract manufacturing The multinational pharmaceutical companies in order to reduce the manufacturing costs are expected to increasingly outsource part of the manufacturing of active pharmaceutical ingredients and formulations. c) Contract sales and marketing The new product opportunities for bulk pharmaceuticals and chemical manufacturers continue to emerge from branded prescription products losing patent protection. Many multinational corporations will seek Indian pharmaceutical companies who have extensive marketing and distribution network with dedicated sales force to promote their products.
Source:www.imshealth.com
The Indian Pharmaceutical Industry is already aligning itself to the global markets. Some key trends that suggest this are fast growing chronic diseases, increasing focus on specialists, introduction of new molecules, effort on building brands, growing geriatric population, consolidations, mergers and acquisitions and focus on alliances. The Indian Retail Pharmaceutical Market valued at Rs.20,054 crores for the twelve-month period ending June,2004, grew by 8.1% in value and 8.5% in volume. New products continue to fuel the growth of the market. 3900 new products were launched in the past 24 months, which have grossed a value close to Rs.1580 crores contributing to 8% of the total market.
Source: ORG-IMS (Market Intelligence-June 2004)
VI. HISTORY OF THE COMPANY, PRESENT BUSINESS AND THE MANAGEMENT Incorporation The Company was originally incorporated on 19th May, 1987, as Bal Pharma Private Limited in the State of Karnataka under the Companies Act, 1956. The Company was subsequently converted into a public limited company with effect from 9th August,1994, as per the fresh certificate of incorporation issued by the Registrar of Companies, Karnataka. In the year 1995, the Company made a public issue of 25,30,000 equity shares of Rs.10 each, aggregating to Rs.780 lakhs. Listing The equity shares of the Company are presently listed in the BSE. The shares were delisted with effect from 03 January, 2004, from the Bangalore Stock Exchange. Main objects The main objects for which the Company has been incorporated are: 1. 2. To carry on the business of analytical chemists, druggists drystallers and manufacturers, repackers of and dealers in pharmaceutical, medicinal, biological, biochemical and electrolytic drugs, chemicals, ingredients, compounds, and products; To manufacture, prepare, import, export, buy, sell, supply, distribute, store, stock, maintain and otherwise handle, deal in and carry on the business in all kinds and varieties of patent medicines, drugs, mixtures, tablets, capsules, pills, powders, pharmaceuticals, chemicals, medicinal and medicinal products, preparations and materials, sterilized injections, vaccines, sera, immunogens, phylacogens and surgical dressings; To purchase, produce, manufacture, grow, raise, sell or otherwise handle raw materials of all kinds for manufacture of pharmaceuticals, medicines and drugs. To carry on the business of Exporters, Merchant Exporters, Importers, Merchant Importers, Traders, Distributors and Dealers in all products and services.
3. 3a
24
The Company is presently engaged in the business of manufacture, marketing and export of APIs, formulations and parenterals. The main object clause of the Memorandum of Association of the Company enables the Company to undertake the activities that the Company has been carrying on till date as well as the activities for which funds are being raised under this rights issue. The details of changes in the Memorandum of Association are given below: Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. Amendment Increase in Authorised Capital to Rs.5,00,000 Increase in Authorised Capital to Rs.25,00,000 Increase in Authorised Capital to Rs.75,00,000 Increase in Authorised Capital to Rs 6,50,00,000 Increase in Authorised Capital to Rs.8,00,00,000 Increase in Authorised Capital to Rs.10,00,00,000 Increase in Authorised Capital to Rs.12,00,00,000 Increase in Authorised Capital to Rs.15,00,00,000 Main Objects Clause Date 19.05.1987 (Incorporation of the Company) 12.02.1992 12.02.1993 15.07.1994 31.03.1999 22.09.1999 17.09.2004 23.09.2004 28.01.2005
Important events in the history of the Company The Company has grown during the last decade and plans to consolidate with additional investment and manufacturing facilities to achieve the next level of growth. Some of the important events are: 1993 1995 1996 1997 1998 1999 2000 2001 2002 First Company to introduce an Anti Diabetes drug based on Gliclazide under the brand name Diabend in the Indian market; Maiden public issue; First Company in India to commence manufacturing of API, Gliclazide; Acquisition of parenteral unit at Pune with FFS (Form Fill Seal) technology for manufacture of LVPs and SVPs; ISO 9001 certification by KPMG and ANSI RAB, USA for the formulations plant; Forming of separate division for marketing and distribution of generic formulations; Modernisation and upgradation of APIs manufacturing facility in Bangalore; Launching of new division for cardiac products called Servetus; Launch of new Active Pharmaceutical Ingredients – Ebastine and Benzydamine; European Directorate of Quality for Medicines awarded Certificate of Suitability(COS) for the API, Gliclazide manufactured by the Company; The Government of India, Department of Science and Technology conferred the status of R&D centre to the Company’s R&D facility for APIs; The Company was recognized as an Export House by the Government of India; 2003 Launch of Balvedics for marketing of herbal and ayurvedic medicines
Business Divisions The Company’s major business divisions are: APIs The Company’s API Division has a R&D center, scale up facility and a marketing outfit both for domestic and exports. The focus is on niche products of low volume, high value in anti-diabetes, anti-histamine, sedatives and anti-depressants portfolio. The Company has successfully commercialised its APIs, Gliclazide, Ebastine, Amiloride and Benzydamine in various international markets. Formulations The Company has more than 150 formulations approved by the Drug Control Authorities and the said formulations cover a wide range of therapeutic applications including antibiotics, anti diabetes, cardiovascular, gynaecology and nutritional supplements. The Company’s anti diabetic and cardiac brands have been well received in the market and they constitute a significant portion of the turnover. Besides branded formulations, the Company is also marketing formulations in generic form and is also supplying its formulations to the Government and major institutions like ESI,CGHS etc., Parenterals: The Company acquired existing operating parenteral unit located at Pune from Lakme Limited in the year 1997. The parenterals unit uses the latest and modern technology viz., Form Fill and Seal (FFS) technology which involves use of highly automated imported equipments without any human intervention to manufacture the products. The products manufactured include eye and ear drops under small volume products and intravenous fluids under large volume products. Exports: The Company’s exports constitute 18% of its turnover for the financial year 2003-04. It has a full-fledged marketing and logistics department. The exports division has experienced employees to market the Company’s products in the international markets. The Government of India recognized the Company as an Export House and the Company in the recent past won export performance awards from the Government of Karnataka, Federation of Karnataka Chamber of Commerce and industries. The Company has also received export award from Ceylon National Chamber of Industries, Sri Lanka for its performance.
25
Products launched by the Company in the last 5 years and the revenue generated there from PRODUCTS(Rs in lakhs) ETHICAL Diamet – 850 Carbofer Z GSO 4 Balvidine Ocium M Forte Recarb Secretat Diabend MR Piorest Citrocium Diamet SR CARDIAC Simvofix Servace Lipofix 2000 - 01 4.74 NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL 2001 - 02 7.94 14.10 11.79 21.26 NIL NIL NIL NIL NIL NIL NIL NIL 17.33 53.33 NIL 2002 - 03 10.46 62.38 17.32 112.84 4.74 26.04 9.47 NIL 31.89 NIL NIL NIL 69.12 76.01 26.22 2003 - 04 8.89 58.84 28.68 165.87 31.86 59.92 18.75 30.50 49.78 NIL NIL NIL 144.67 106.84 54.18 2004 – 05 8.54 42.42 18.77 123.39 28.98 74.46 30.29 45.50 39.96 15.20 17.11 NIL 203.55 104.80 76.90
The patents for the products of the Company and the implications of the patent regime on the project and products of the Company: The Patent (Amendment) Act, 2005, was passed on 31.3.05. It redefined the scope of patentability, fortified pre-grant opposition provisions, simplified Compulsory Licensing provision, provided for export to least developed countries and allowed to remain in the market the mail box application products by generic companies. The Government has taken care that drugs patented before 1995 are not covered by the patents. These include the drugs in the WHO essential list All the Company’s formulations, both generics and branded, and APIs are already in the off-patent category and hence there is no impact of the amendments brought in the Patent Act in the short term and medium term. To gear up the Company for the long term and also to reap the benefits arising out of the Patent Act as it stands now, particularly the recognition given to Product patent, the Company is strengthening its R & D set up for APIs and one of the objects of this Rights Issue to fund the project of setting up a greenfield API multi-product cum research facility. Existing Marketing Set up The formulations of the Company are marketed throughout the Country through super stockists and retail chemists. The marketing and distribution network of the Company is spread across the country with medical detailing personnel and executives, numbering more than 450 reaching to medical professionals and traders promoting the branded formulations. The APIs are marketed directly to industrial users and through marketing agents. The Company has organized itself into a number of product divisions for the marketing of the products. The various product divisions are : Ethical Division (for Branded formulations ) Servetus Division ( for Cardiac Products ) Generic Division ( For unbranded products & Institutional sales) Balvedics Division ( For Ayurvedic Products) Exports Division ( For Formulation Exports) Bulk Drugs Division (Domestic & Export) Parenterals Division ( For IV Fluid & EED) Marketing Strategy of the Company Ethical, Servetus, and Balvedics are prescription oriented and are sold through a wide distribution network consisting of super stockists/ consignment agents, stockists and retailers. The Company has close contact with the medical fraternity and promotional measures such as product information, sponsorships, seminars and conferences, participation in CMEs are regularly undertaken for building up of brand portfolio. Niche products in anti-diabetes and cardiac areas are identified and greater emphasis is put on developing the portfolio. The Company has about 380 field marketing personnel appointed and located in every strategic area in each state. The distribution is handled by a super stockist appointed for each state and stockists and retailers in the interiors. Life style disorders are increasing at a rate higher than the market growth. The Company has established itself in this sector and plans to expand its share of this sector in a large way in the coming years. The Exports Division has targeted the developing countries as the focus area and has been able to develop the market by appointing Agents for the distribution of its products. Further, the Company has identified many new growth markets wherein applications for the registration of its various products have been made. As a long-term plan the Company has drawn up a strategy of entering the developed markets of Europe and USA. Bulk Drugs marketing being industrial user oriented, the marketing team is in regular contact with various users and also develops new users. Most of the users are long standing customers of the Company. Accredited agents have been appointed in different countries operating on commission basis. The Company also participates in international exhibitions every year. Marketing Strategy Specific to the new Project API As a result of continuous R & D efforts, the company is planning to add a number of new APIs to the existing product portfolio. The Company plans to enter the regulated markets for the marketing of new products as well as expanding existing volumes of existing products. With the advent of the post-patent era the Company has drawn up a strategy of entering the regulated markets by setting up a world class infrastructure facility which will meet all the regulatory requirements of Europe and USA. Further, the Company has plans to expand the existing capacity of its various products.
26
Formulations The Company plans to strengthen the niche areas in the pharmaceutical sector and expand the market coverage for the same. The Company plans to widen the product range and build portfolio of brands in the lifestyle disorder segments like diabetes, cardio-vascular, gynecology segments by launching additional products. The Company’s new facility conforming to international quality standards, will help in building strong relationship with customers from regulated market The company will be able to face the intense competition with the cost advantage in manufacturing the products in the state where various incentives and concessions are available. Competition The company’s position relating to the competition The Indian pharmaceutical industry has a turnover of about Rs.2000 crores with more than 20000 competitors. This indicates the level of intense competition in the industry. The large 250 companies control about 70% of the demand. However, Bal Pharma, with its aggressive market strategy has positioned itself in the industry amongst the better performing listed companies and is confident of pushing itself up in the top 100 companies. The competition in the pharmaceutical industry is intense with more than 250 large companies trying to get the share of the market. The companies who have developed niche products through their research and development efforts over a period of time are able to withstand the competition. Bal Pharma has a well equipped Research & Development Centre recognized by Government of India wherein newer processes and products are being developed. Bal Pharma is the only manufacturer of Gliclazide, an anti-diabetes ingredient in India. This has good export potential notwithstanding the competition from countries like China. In formulations business, the Company has been able to build recognizable brands like Diabend, Diabend M, Diamet, ( anti- diabetes drugs), Aldostix, Lipofix, Regen, Servace, Simvofix (anti-cardiac drugs) Ocium (Calcium supplement) in the fastest growing therapeutic segments in the pharmaceutical industry. Besides, the Company has established a nationwide marketing network with extensive distribution chain through the trade and chemists. The Company’s direct competitors include, among others, Dr.Reddy’s Labs, Alkem, Aristo, USV, Cipla, JB chemicals, Ind-swift laboratories, Lupin, Natco Pharma etc., As the Company’s products are well established with the medical profession and trade, the Company will be able to withstand the competition. Research and Development The Company focuses its R&D expertise in developing APIs in the field of Diabetes, Cancer and Allergy and various other diseases. A qualified team is working on the development of new processes and development of new formulations and further, the Department of Science & Technology, Government of India conferred the status of R&D center to the Company’s R&D facility for APIs. The Products The break up of turnover, division wise, for the immediate previous financial year 2003-04 is as under: Segment Formulations Branded Formulations Generic and Institutional sales Exports Sub Total Bulk Drugs Parenterals TOTAL Production facilities and Infrastructure The Company has its manufacturing facilities at the following locations: 1. 2. 3. Formulations Unit in Bommasandra industrial Area, Bangalore APIs Unit and R&D Centre in Bommasandra Industrial Area, Bangalore Parenterals Unit in Pune, Maharashtra. 2213 1501 1123 4837 818 557 6212 35.63 24.16 18.08 77.87 13.16 8.97 100.00 Rs. (in lakhs) %
Manpower: The Company has 731 personnel on its roll, the break up of which is as given below: Description Senior Executives Middle & Junior Level Executives Field Staff Administration Staff Workers Manufacturing process The APIs like Gliclazide, Ebastine and Topiramate are prepared from basic chemical intermediates available in the market. In each case, the synthetic process consists of several steps i.e., the complex drug molecule is assembled starting from relatively simple intermediates in a series of welldesigned steps. General organic reaction techniques like substitution, alkylation, condensation, esterification, amidation, acylation etc., are followed in the synthetic process. The processes that have been worked out in Bal Pharma’s R & D laboratory are efficient as they take into consideration the yield patterns at each step, atom economy, energy efficiency and purity characteristic of the intermediates as well as the finally obtained drug molecule. The quality and purity of the drug produced is the most important consideration in the manufacturing process. The APIs manufactured in the plant meet the pharmacopoeia requirements at the international levels and thereby increases its acceptance in the overseas market. The manufacturing process for the formulations includes powdering, sifting if needed, mixing, granulation, drying and compression into tablets or capsules as may be required. The coating and polishing, if required, will be added. Number 8 49 355 165 154
27
Existing, licensed and installed capacity of the products along with product-wise capacity utilization The existing, installed capacities of the manufacturing units of the Company, on single shift basis, is as under: UNITS PRODUCT EXISTING/ INSTALLED CAPACITY Operating Annual capacity Actual Production (9 mths ended Dec 04) 351 26 29.4 42 10.45 3.75 6.73 % capacity utilisation
Unit I – Bangalore
Formulations Tablets(Million) Capsules(Million) Ointment(Metric tones) Liquids (Kilo litres) Bulk drugs (Metric tonnes) Parenterals Large volume(Million) Small volume(Million)
480 90 75 750 21 7 16
395 74 61.6 616 15.75 5.75 13.15
118 47 64 9 88 87 68
Unit II – Bangalore Unit III - Pune
Note: The Company manufactures several bulk drugs and formulations requiring different throughput time and yield ratio in the multipurpose plant. The Capacity varies considerably depending upon the product mix. Operating capacity is computed on the basis of 300 working days on single shift basis. Production of tablets has been achieved on extended shifts and there has been shift in market demand from capsules to tablets for some of the products and hence higher capacity utilization Demand for products The Company is manufacturing more than 150 formulations approved by Drug Control Authorities. The Company is building its brand portfolio in the therapeutic segments of lifestyle disorder like diabetes, cardio vascular and gynecological segments. The cardiac segment is one of the fastest growing segments at 18% in terms of value and at 15% in terms of volume. The Gynecology therapeutic segment valued at Rs.1066.80 crores constitutes 5.3% of the Indian Retail Pharmaceutical Market and hence gives opportunity for increasing share of Company’s revenue through aggressive marketing in this segment. The anti-diabetes segment has a growth rate of 11% in terms of value and 16% in terms of volumes. India is expected to become Diabetic capital of the world with significant population being affected because of life style and food habits that are being followed. The demand from this segment offers significant opportunities for the products of the Company. The following table showcases performance and market size of leading therapeutic segments in the Indian market: Particulars Anti-Infectives Gastro Intestinal Cardiac Respiratory Vitamins/Minerals/Nutrients Pain/Analgesics Dermatologicals Gynaecology Neuro Psychiatry Anti-diabetes Opthal/Otologicals Value in Rs. Crores 3282.10 2184.10 2073.70 2036.90 1925.30 1913.40 1081.20 1066.80 1061.80 881.80 346.60 Value market share (%) 16.40 10.90 10.30 10.20 9.60 9.50 5.40 5.30 5.30 4.40 1.70 Value Growth (%) 4 8 18 9 5 8 8 3 10 11 18 Volume Growth (%) 11 9 15 6 5 9 4 -1 6 16 16
Source: ORG-IMS (Market Intelligence-June 2004)
Relative positioning of the Company vis a vis the competitors in the industry and Company USP/core competence The Company is a mid sized pharmaceutical company. Although it is one of the many units in operation in the formulation sector it has been growing at a CAGR of 20% per annum for the last five years which is higher than the industry average and has built a portfolio of brands for its niche products in the anti diabetes and cardiovascular segments. Its USP is that it operates in the faster growing therapeutical segments. In the bulk drugs sector the company has developed its own process for APIs like Gliclazide and Ebastine for which it is the only manufacturer in the country. The Company has the Certificate of Suitability for Gliclazide issued by the European Directorate for Quality Medicines. It also has an R&D center recognised by the Department of Science and Technology, Government of India, which helps to develop new active Pharma ingredients that are in demand from the regulated markets. Market Structure/Competition/ Export Possibilities etc. The Indian pharmaceutical industry has a turnover of about Rs.2000 crores with more than 20000 competitors. This indicates the level of intense competition in the industry. The large 250 companies control about 70% of the demand. However, Bal Pharma, with its aggressive market strategy has positioned itself in the inndustry amongst the better performing listed companies and is confident of pushing itself up in the top 100 companies. The competition in the pharmaceutical industry is intense with more than 250 large companies trying to get the share of the market. The companies who have developed niche products through their research and development efforts over a period of time are able to withstand the competition. Bal Pharma has well equipped Research & Development Center recognized by Government of India wherein newer processes and products are being developed. Bal Pharma is the only manufacturer of Gliclazide, an anti-diabetes ingredient in India. This has good export potential notwithstanding the competition from countries like China. In formulations business, the Company has been able to build recognizable brands like Diabend, Diabend M, Diamet, ( antidiabetess drugs), Aldostix, Lipofix, Regen, Servace, Simcofix (anti-cardiac drugs) Ocium ( Calcium supplement) in the fastest growing therapeutical segments in the pharmaceutical industry. Besides the Company has established nation-wide marketing network with extensive distribution chain through the trade and chemists. The Company’s direct competitors include, among others, Nestor Pharma, Cipla, JB chemicals, Ind-swift laboratories, Lupin, Natco Pharma etc. As the Company’s products are well established with the medical profession and trade, the Company will be able to
28
withstand the competition. The Company has been exporting various bulk drugs namely Gliclacide, Ebastine, Amiloride, Topiramate to countries like Egypt, Saudi Arabia, UAE, Malaysia, Spain, Italy, U.K etc. The exports of bulk drugs have grown from Rs 20 lakhs in the year 2000 to Rs 461 lakhs fin the year 2003-04. As the new plant is being set up conforming to the international quality standards like USFDA, the export potential to regulated markets will increase substantially. One of the products, Gliclacide has received the Certificate of Suitability from European Directorate for Quality Medicine, UK which has enhanced the export possibilities to Europe. Similar application is being processed for another active pharmaceutical ingredient, Ebastine in the current year. In respect of formulations, the Company is exporting various products out of its more than 150 brands to countries in Southeast Asia, Middle East, Africa and South America. The Company is getting their products registered in the respective countries where export potential exists. The Company’s export turnover of formulations has grown from Rs 680 lakhs in the year 2000 to Rs 1124 lakhs in the year 2003-04. There have been enquiries from Zambia, Uzbekistan, CIS Countries Maldova and the Company is in active discussions with customers for export of its products. Future plans i) Entering Regulated Markets As unregulated markets are increasingly getting crowded with backyard operators, Bal Pharma is shifting its focus to regulated markets and keeping this in view its immediate plans are to set up a multipurpose manufacturing facility conforming to the standards laid down by USFDA for manufacturing various APIs. ii) Shift towards low cost manufacturing With the revised MRP based excise regime pushing up the cost of production, the Company is setting up a manufacturing facility for formulations in the State where fiscal incentives and other concessions are available. iii) Empowering R & D The Company would continue its thrust towards contract research, custom synthesis and discovery of NCEs. India being seen as a outsourcing hub in this arena, the Company is gearing itself fully to take advantage of this potential. iv) Widening the Product range The Company would be strengthening its focus on building a branded portfolio in the lifestyle disorder segments like diabetes, cardio-vascular, gynecology segments by launching additional products. The Company has also entered into emerging Ayurvedic segment and has plans to expand its activities in this segment to cater to the growing International requirements. VII. PROMOTERS AND THEIR BACKGROUND PROFILE OF THE PROMOTERS Mr.G C Surana, aged 64 years, is the founder Promoter of Bal Pharma Limited. He is a leading businessman in the pharmaceutical industry. He also promoted Micro Labs Ltd. He has been the guiding force for the growth of the Company for the past sixteen years. Voters ID:
i. Mr. G C Surana
CGL0411827
Driving license no: Not Available Mr.Shailesh Siroya, aged 38 years, is an MBA from Akron University, Ohio, USA. From the year 1994, when he was inducted as the Managing Director, the Company witnessed substantial growth in terms of turnover with well-established brand portfolios. He is also the founder Promoter of Novosynth Research Labs Private Limited, a wholly owned subsidiary of Bal Pharma Limited. Voters ID: KT-12-086-225757
Driving license no: 84/C/41717
ii. Mr. Shailesh Siroya
Mr.Shrenik Siroya, aged 40 years, BE, United Kingdom has vast experience in the management of huge construction contracts. Voter ID: MT04024136003
Driving License no: 84/C/31474
iii. Mr. Shrenik Siroya
Mr Dilip Surana, aged 38 years, joined the Management of Micro Labs Ltd., in 1985. and is ably assisting Mr.G.C.Surana in steering Micro Labs Ltd., to a good growth in market share that its national ORG rank improved from over 100 in 1985 to 14 in June 2004. He pioneered the concept of Specialty wise focused Divisions in the Indian Pharmaceutical Industry. Voter ID: Not Available Driving License No: 8603/967
iv. Mr. Dilip Surana
Mr Anand Surana, aged 34 years, a Gold Medallist in Economics, has been steering the manufacturing activities and exports of Micro Labs Ltd., from 1991 Voter ID: Not Available
Driving License No: 3437/96
v. Mr. Anand Surana
29
vi.
Micro Labs Limited Micro Labs Limited was incorporated as a private limited company on 7th September, 1993, and was subsequently converted into a public limited Company with effect from 12th September, 2001. The Company is engaged in the business of analytical chemists, druggists, manufacturers, importers and exporters of pharmaceutical, medicinal, chemical ingredients, products and other medicinal materials and preparations. (Rs. in lakhs) PARTICULARS 31.03.2004 31.03.2003 31.03.2002 Equity Capital* Reserves Income Profit after tax (PAT) EPS (Rs.) Book Value per share (in Rs.) *Face Value per share: Rs 5/1008.00 19043.37 23929.38 5939.08 29.46 99.46 1008.00 13036.45 19380.15 4430.35 21.98 69.66 1008.00 8606.09 18127.56 3812.75 18.91 47.69
The Board of Directors consist of Mr.Dilip Surana, Mr.Anand Surana and Mrs. Archana Surana The shareholding pattern as on 31st March 2004 is as follows: Name of the Shareholder/Promoter 1. Mr.G.C. Surana 2. Mr.Dilip Surana 3. Mrs. Bhawari Surana 4. Mr.Anand Surana 5. Mrs.Archana Surana 6. Mrs.Monica Surana 7. Mrs.Anita Siroya vii. Surana Pharmaceuticals Private Limited Surana Pharmaceuticals Private Limited was initially incorporated on 1st February 1982 under the name of Anand Pharmaceuticals Private Limited. The Company is engaged in the business of manufacturing pharmaceutical products, immunogens, injections, sera and various other chemical and surgical dressings. (Rs. in lakhs) PARTICULARS Equity capital Reserves Income Profit after tax (PAT) EPS (Rs.) Book Value per share (in Rs.) 31.03.2004 13.50 413.30 25.73 6.16 4.56 316.15 31.03.2003 13.50 408.02 149.20 84.25 62.41 312.24 31.03.2002 13.50 323.00 10.62 (0.28) Nil 249.26 % of shareholding 16.67 16.67 16.67 16.67 16.67 16.63 0.02
The Board of Directors consist of Mr.Dilip Surana, Mr.Anand Surana and Mrs.Archana Surana Surana Pharmaceuticals Private Ltd is a 100% subsidiary of Micro Labs Ltd and is in the process of getting the requisite approvals for the merger with Micro Labs Limited. PAN No., Bank Account Nos. and Passport No. of the Promoters have been submitted to the Stock Exchange on which the securities are listed. The present promoters of the Company are the original promoters of the Company. Other Details of the promoters
Name of Promoter Age Personal address Qualifications No of years of Experience in the Industry Over 40 years in the pharmaceuticals Industry. 10 years of experience in the pharmaceutical Industry Position held/ Positions held in the past Managing Director of Micro Labs Ltd(past) Managing Director Directorships held
Mr.G.C. Surana
64
45/3, Fair Field Layout, Bangalore – 560 001. 7/3/1,2nd Cross, Chandavarkar Layout, Palace Road, Bangalore 560052 1101,Garden View, Harkness Road, Mumbai – 400 006 45/3, Fair Field Layout, Bangalore – 560 001.
Intermediate MBA, Akron University, Ohio, USA
NIL Sanjay Gems Pvt. Ltd. Sunil Agro Ltd. Novosynth Research Labs Pvt. Ltd Bal Pharma Ltd Siroya Exports Pvt. Ltd. Siroya Trading Co. Pvt. Ltd. Mokalsar Stone Pvt. Ltd. Bal Pharma Ltd Micro Labs Limited, Brown & Burk Pharmaceuticals Ltd. Eros Pharma Limited, Micro Nova Pharmaceuticals Ltd., Surana Pharmaceuticals Pvt Ltd. Micro Labs Limited Brown and Burk Pharmaceuticals Limited Eros Pharma Limited Micro Nova Pharmaceuticals Limited, Surana Pharmaceu ticals Pvt Limited
Mr.Shailesh Siroya, Managing Director
38
Mr.Shrenik Siroya Director
40
BSc. Engineering, 14 years in the United Kingdom managementof huge construction contracts B.Com 20 years in the pharmaceuticals industry
Director
Mr Dilip Surana,
38
Managing Director, Micro Labs Ltd
Mr Anand Surana
34
45/3, Fair Field Layout, Bangalore – 560 001.
B Com, Gold Medallist in Economics
15 years in pharmaceuticals and Manufacturing activities
Director, Micro Labs Ltd
30
Other Ventures of the Promoters:
Name of the promoter Sole proprietorships/ Activities Firms /Activities Private Ltd companies /Activities Public Limited companies,/ Activities Micro Labs Limited Micro Nova Pharmaceuticals Limited Brown & Burk Pharmaceuticals Limited (Activities: Manufacturing, Marketing & Exporting of Pharmaceutical Formulations.) NIL Listed companies/ Activities NIL
Mr.G C Surana
NIL
NIL
Surana Pharmaceuticals Private Limited Lake Chemicals Private Limited (Activity:Manufacturing, marketing & Exporting of Bulk Drugs)
Mr.Shailesh Siroya
Desa Marketing International (Activity: Indenting)
Siroya Constructions (Activity:Construction of Mega Housing Projects) Balaji Realtors (Activity: Developing Layouts and construction of residential and commercial complexes) Siroya Developers Siroya Builders & Developers Siroya Construction Balaji Realtors (Land, development and construction business) NIL
NIL
NIL
Mr.Shrenik Siroya
NIL
NIL
NIL
NIL
Mr Dilip Surana,
NIL
Lake Chemicals Private Limited (Activity:Manufacturing, marketing & Exporting of Bulk Drugs)
Micro Nova Pharmaceuticals Limited (Activities: Manufacturing Marketing & Exporting of Pharmaceutical Formulations.) NIL
NIL
Mr Anand Surana
NIL
Pegasus Medical Services (Diagonostic Centre) Medifit Health Spa (Health Gym) Siroya Constructions (Activity: Construction of Mega Housing projects) Micro Exports (Activity: Marketing and exporting of Pharmaceutical formulations)
Lake Chemicals Private Limited (Activity: Manufacturing, marketing & Exporting of Bulk Drugs) Inpharma Pvt Ltd, Surana Pharmaceuticals Pvt Ltd (Activities: Manufacturing, Marketing & Exporting of Pharmaceutical Formulations.)
NIL
Micro Labs Ltd
NIL
Eros Pharma Ltd, Micro Nova Pharmaceuticals Limited, Brown & Burk Pharmaceuticals Limited (Activities: Manufacturing, Marketing & Exporting of Pharmaceutical Formulations.)
NIL
31
Turnover, Business interest and quantum of annual business of the ventures of the promoters with Bal Pharma Limited.
Name of the venture Desa Marketing International Capital and Annual Turnover Capital Annual (in lakhs) 8.00 Indents contracted Rs.1800 lakhs Business interest with the issuer company Service support to the Issuer Company for enhancing and promoting business interests of the Company and also sourcing various products of the Company NIL NIL NIL NIL NIL Purchase of products Purchase of products Purchase of products NA Sale of products NIL NIL NIL Quantum of annual business done with Bal Pharma Ltd Commission paid during financial year 2004: Rs.10.84 lakhs
Siroya Constructions Balaji Realtors Siroya Developers Siroya Builders & Developers Siroya Construction Micro Labs Limited Micro Nova Pharmaceuticals Limited Brown & Burk Pharmaceuticals Limited Surana Pharmaceuticals Private Limited Lake Chemicals Private Limited Pegasus Medical Services Medifit Health Spa Micro Exports
Operations yet to commence Operations yet to commence 32.00 55.54 94.24 1008.00 48.00 48.00 13.50 42.50 Operations yet to commence 20.00 10.00
NIL NIL Work in progress Work in progress Work in progress 23929.38 4106.90 10685.20 25.73 970.74 Operations yet to commence Operations yet to commence 5376.03
NIL NIL NIL NIL NIL Rs. 104.44 lakhs — Rs.1.26 lakhs — Rs. 2.68 lakhs (2004-05) NIL NIL NIL
Save as stated above no other business is being done through the companies mentioned above. The promoters confirm that none of the above entities had faced/ is facing any litigations/defaults/over dues or labour problems/closure etc. save and except what has been disclosed under outstanding litigations on Page 59 of the Letter of Offer. Brief details on the major ventures mentioned above Lake Chemicals Private Limited Date of Incorporation: 2nd December 1992.
Activities: Engaged in the business of Manufacturing, marketing & Exporting of Bulk Drugs FINANCIAL HIGHLIGHTS Particulars Equity capital Reserves Income Profit after tax EPS (Rs.) Book value per share (in Rs.) 31.03.2004 42.1 317.13 1226.3 82.21 19.53 85.33 31.03.2003 42.1 243.76 1061.52 85.17 20.23 67.90 (Rs. In lakhs) 31.03.2002 42.1 160.27 970.74 44.33 10.53 48.07
The Board of Directors: Mr Manoj Palrecha , Mr Kamlesh Surana. Micro Nova Pharmaceuticals Limited Date of Incorporation: Activities: FINANCIAL HIGHLIGHTS Particulars Equity capital* Reserves Income Profit after tax EPS (Rs.) Book value per share (in Rs.) * Face value per share-Rs. 1,000/The Board of Directors: Mr.Anand Surana, Mr.Dilip Surana and Mrs.Monica Surana. 31.03.2004 48 1321.20 4106.90 290 0.06 0.28 31.03.2003 48 920.12 3478.19 184.67 0.03 0.20 18th February 1987 Manufacturing & Exporting of Pharmaceutical Formulations (Rs. In lakhs) 31.03.2002 48 818.12 2826.46 73.15 0.01 0.18
32
Eros Pharma Limited Date of Incorporation: Activities: FINANCIAL HIGHLIGHTS Particulars Equity capital Reserves Income Profit after tax EPS (Rs.) Book value per share (in Rs.) 31.03.2004 300 163.83 2960.61 86.76 2.89 15.46 31.03.2003 300 81.44 2331.46 (163.12) — 12.71 12th May 1980 Manufacturing & Exporting of Pharmaceutical Formulations (Rs. In lakhs) 31.03.2002 300 324.48 1915.84 (67.80) — 20.81
The Board of Directors: Mr.Dilip Surana, Mr.Anand Surana and Mrs.Archana Surana. Brown and Burk Pharmaceuticals Limited Date of Incorporation Activities: FINANCIAL HIGHLIGHTS Particulars Equity capital* Reserves Income Profit after tax EPS (Rs.) Book value per share (in Rs.) * Face value per share-Rs. 1,000/The Board of Directors: Mr.Anand Surana, Mr.Dilip Surana and Mrs.Monica Surana. Inpharma Private Limited Date of Incorporation: Activities: FINANCIAL HIGHLIGHTS Particulars Equity capital Reserves Income Profit after tax EPS (Rs.) Book value per share (in Rs.) 31.03.2004 5 5.82 -0.01 0.0001 31.03.2003 5 5.82 0.69 0.0000138 0.0001 27th May 1991 Manufacturing & Exporting of Pharmaceutical Formulations (Rs. In lakhs) 31.03.2002 5 5.8 -1.94 0.0001 31.03.2004 48 3073.09 10685.20 1142.08 0.24 0.65 31.03.2003 48 1931.01 8253.12 784.17 0.16 0.41 22nd June 1977 Manufacturing & Exporting of Pharmaceutical Formulations (Rs. In lakhs) 31.03.2002 48 1196.82 7336.74 373.89 0.07 0.26
The Board of Directors: Mr.Vimal Chand, Mr.Manohar Palrecha. Nature and Interest of Promoters All the Promoters/Promoter Directors are interested to the extent of fees, if any, payable to them for attending meetings of the Board or any Committee thereof as well as to the extent of other remuneration, if any. The Promoters are also interested to the extent of shares, if any, already held by them in the Company or the Equity shares that may be subscribed for by and allotted to them out of the present Issue. All Promoters may be deemed to be interested in the contracts, agreements/arrangements entered into or to be entered into by the Company with any Company in which they hold Directorships.
33
VIII. THE BOARD OF DIRECTORS OF THE COMPANY Name of Directors, Age Qualification Designation, Occupation Mr.Shailesh Siroya, Managing Director, Industrialist Dr. Prasanna, Director, Service Mr.Shrenik Siroya , Director, Industrialist 38 MBA (Akron University , USA) MSc., Ph.D Experience Address Other Directorships
12 years
7/3/1,2nd Cross, Chandavarkar Sanjay Gems Pvt. Ltd., Layout, Palace Road, B’lore 560052 Sunil Agro Ltd., Novosynth Research Labs 91, 21st Main, Srinagar, Banashankari 1st Stage, Bangalore- 560050 Novosynth Research Labs Pvt. Ltd.,
56
20 years
40
B.E., (U.K)
14 years
1101,Garden View, Harkness Road, Siroya Exports Pvt. Ltd., Mumbai – 400 006 Siroya Trading Company Pvt. Ltd., Mokalsar Stone Pvt. Ltd., 1A,Pradhan Apartments, 16/5, 18th Cross, Malleshwaram, Bangalore – 560 055 Novosynth Research Labs Pvt. Ltd.,
Dr.G.S.R.Subba Rao, 68 Director, Academician Mr.N.D.Prabhu, Director, Retired Banker 73
B.Sc(Hons.), 45 years M.Sc., D.Sc., Ph.D., F.A.Sc., F.N.A. B.Com,FIIB, CAIB (London) 55 years
‘Srinivas’, 641, 11th Cross, 7th Block, Brescon Corporate Advisors Ltd., Jayanagar, Bangalore – 560 070 Jumbo Bag Ltd., Yokogawa Ltd., Robot Systems Pvt. Ltd., Self Growth Nidhi Ltd., Aqua Control Valves Ltd, Bigtech Pvt. Ltd., Novostar Capital Trustee Services Pvt. Ltd., No.281, 80 Feet Road, Padmanabha Nagar, Bangalore – 560 070 Nil
Dr.C.N.Manjunath, Director, Cardiologist
47
MBBS, MD., DM.,
24 years
All the Directors have confirmed that save and except as stated under outstanding litigations on page 56-60 LoO there are no pending litigations/ disputes or criminal/civil prosecutions against them. Additional Information on Board of Directors
Sl. Name of No. Director Business Experience Functions they handle Nature of Family Relationship Any arrangement or understanding with major shareholders/ customers/ others Himself a Shareholder NIL Compensation paid (FY05) including benefits in kind and including contingent or deferred compensation accrued for the year(Rs in lakhs) 30.00 12.00 Date of expiration of current term in office 5 years from 01.08.2004 5 years from 01.10.2003 Appointed as Director in the AGM held on 23.09.2004 Appointed as Director in the AGM held on 23.09.2004 Appointed as Director in the AGM held on 17.09.2003 Details of director service contracts on termination See note (1) below See note (1) below See note (1) below
01. 02.
Mr.Shailesh Siroya
Industrialist
Managing Director
Brother of Mr.Shrenik Siroya Not related to any of the other Directors
Dr.Prasanna R & D in Whole-time Pharmaceutical Director Industry Mr.Shrenik Siroya Industrialist
03.
Non-executive Brother of Director Mr.Shailesh Siroya Independent Director Not related to any of the other Directors Not related to any of the other Directors Not related to any of the other Directors
Himself a Shareholder
Sitting fee of Rs.1000/- per meeting of the Board or its committee Sitting fee of Rs.1000/- per meeting of the Board or its committee Sitting fee of Rs.1000/- per meeting of the Board or its committee Sitting fee of Rs.1000/- per meeting of the Board or its committee
04.
Dr.G.S.R. Subba Rao
Academics
NIL
See note (1) below
05.
Mr.N.D. Prabhu
Banking
Independent Director
NIL
See note (1) below
06.
Dr.C.N. Manjunath
Practising Medicine (Cardiology)
Independent Director
NIL
Appointed as See note (1) Director in the below AGM held on 30.01.2004 in the casual vacancy of a resigned Director who was appointed in the AGM held on 17.09.2003 subject to retirement by rotation
Note: (1) In the invitation to join the Board, there is no provision entitling for any benefit on cessation as a member of the Board, except in the case of the 2 Whole time Directors whose terms of appointment are detailed at page no 35 of the Letter of Offer. (2) Numbers 3-6 above, are subject to retirement by rotation.
34
Details of Shares held by the Directors Names 1. Mr.Shailesh Siroya 2. Mr.Shrenik Siroya 3. Dr..Prasanna 4. Dr.G.S.R.Subba Rao 5. Mr.N.D.Prabhu 6. Dr.C.N.Manjunath No. of Shares held 527000 374700 Nil Nil Nil Nil % of shareholding 8.07 5.74 Nil Nil Nil Nil
Changes in the Board of Directors during the last 3 years Name 1. Mr.D.B.Siroya 2. Mr.A.B.Siroya 3. Mr.N.D.Prabhu 4. Mr.A.Murali 5. Dr.C.N.Manjunath Change (Ceased/Appointed) Ceased Ceased Appointed Appointed Ceased Appointed With effect from 31.01.2002 31.01.2002 15.07.2002 29.03.2003 25.09.2003 30.01.2004 Reason for Change Personal Personal Personal -
Apart from the above, there has been no change in the Board of Directors in the last 3 years other than retirement by rotation and re-election at the Annual General Meetings. Compensation paid to the Directors for the financial year 2003-04 (in Rs.) Name of the Director 1. Mr.Shailesh Siroya 2. Dr.S.Prasanna 3.Mr.Shrenik Siroya 4.Mr.Murali(Till 25.09.2003) 5. Mr.N.D.Prabhu 6.Dr.G.S.R.Subba Rao 7.Dr.C.N.Manjunath Details of Managing Director’s Compensation and Terms: Salary and Perquisites 28,90,029 11,76,000 Nil Nil Nil Nil Nil Sitting fees Nil Nil 11,000 4,000 11,000 8,000 1,000 Total 28,90,029 11,76,000 11,000 4,000 11,000 8,000 1,000
1.
Terms of appointment of Mr.Shailesh Siroya, Managing Director
In accordance with the provisions of Section 198, 269, 309, 311 read with Schedule XIII and other applicable provisions, if any, of the Companies Act, 1956, and further subject to the statutory approvals, the Company appointed Mr. Shailesh Siroya, as Managing Director with effect from 01 August, 2004 , for a period of five years on the following terms and conditions, which can be altered and varied from time to time with mutual consent, subject to the approval of Central Government and/or limits specified in Schedule XIII of the Companies Act,1956, or any amendments thereto.
Terms of Remuneration
Salary: Rs.2,50,000/- (Rupees Two Lakh and Fifty Thousand Only) per month, which excludes the following: a. b. c. Contribution to Provident Fund, Superannuation Fund or Annuity Fund, to the extent, they, either singly or put together, are not taxable under the Income Tax Act, 1961; Gratuity payable at a rate not exceeding half a month’s salary for each completed year of service; Encashment of leave at the end of tenure.
Details of Compensation and Terms of the Whole Time Director:
1.
Terms of appointment of Dr.S.Prasanna, Whole Time Director
In accordance with all the applicable provisions and schedules read with Schedule XIII, the Company appointed Dr.S.Prasanna, as a Whole Time Director with effect from 1st October, 2003, for a period of five years on the following terms and conditions:
Terms of Remuneration
Salary: Rs.1, 00,000/- (Rupees One Lakh Only) per month, all inclusive of the salary and perquisites but exclusive of the following: a. b. c. Contribution to Provident Fund, Superannuation Fund or Annuity Fund to the extent, they, either singly or put together, are not taxable under the Income Tax Act, 1961; Gratuity payable at a rate not exceeding half a month’s salary for each completed year of service; Encashment of leave at the end of tenure.
Nature and Interest of Promoters and Directors All the Promoter Directors and Directors are interested to the extent of fees, if any, payable to them for attending meetings of the Board or any Committee thereof as well as to the extent of other remuneration, if any. The Promoter Directors and Directors are also interested to the extent of shares, if any, already held by them in the Company or the Equity shares that may be subscribed for by and allotted to them out of the present Issue. All Directors may be deemed to be interested in the contracts, agreements/arrangements entered into or to be entered into by the Company with any Company in which they hold Directorships.
35
Key Managerial Personnel Name Date of joining Age Desig(yrs) nation Managing Director Qualificati -on MBA, (Akron University USA) MSc., Ph.D., Current Responsibilities Service in the industry Service in the and Company 10 years Previous Organisation Designation Business
Mr.Shailesh Siroya
15.07.1994 38
Responsible for 12 years overall affairs and performance of the Company. Responsible for 20 years overall performance of R&D and manufacture of APIs. Finance & Accounts Legal, Secretarial and Exports logistics International marketing 39 years
Dr.S. Prasanna
12.08.1991 56
Director
13 years
Head, R&D, Micro Labs Ltd.
Mr.V. Sankaran Mr.K. Mahadevan Mr.K. Subramaniam
25.09.1996 61
Vice President (Finance) Company Secretary
B.Com., AICWA FCS., LLB, PG in Management
8 years
General Manager Finance), Bangalore Pesticides ( Limited Deputy General Manager, Bharatiya Reserve Bank Note Mudran Limited Marketing Manager, Micro Labs Ltd.,
18.04.2001 46
26 years
3 years
16.01.1994 59
Vice B.Sc., DBM President (International Marketing) Vice President (Materials) Vice President (Generics and Institutions) General Manager (R & D) General Manager (Sales) Senior General Manager (Sales) Unit Head B.Com
39 years
11 years
Mr.M.Sundar
01.02.1994 51
Procurement of materials Generics and Institutional marketing
33 years
11 years
Materials Manager, Eros Phama Pvt. Ltd., Vice President, Aurobindo Pharma Limited
Mr.Ronen Batabyal
02.06.2003 54
B.Sc.
32 years
1 year
Dr.Sivarama Krishnan Mr.Ashok Kumar Mr.Pramod Kumar Khanna Mr.Basant Rathore Mr.C.D.Kotian
02.11.1996
57
M.Sc., Ph.D.,
APIs manufacture 21 years of APIs and R&D Ethical Marketing, South and Maharashtra Ethical Marketing, North and West 20 years
8 years
Deputy General Manager, R&D, EID Parry (India) Limited Regional Manager, Helios Pharma GM (Sales), Jagat Pharma Private Limited
01.07.1995 41
B.A
9 years
20.11.2003
55
MSc
30years
1 year
25.12.2002 37
B.Pharm., PGDIP in Management B.Sc (Chemistry), Diploma in IRPM
Manufacturing of parenterals Manufacturing of formulations
12 years
2 years
Manager, Production, Nicholas Piramal (I) Ltd., Deputy Production Manager, Medriech Sterilab Ltd.,
12.07.2004 43
Production Manager
18 years
Recent Induction
The persons whose names appear as key management personnel are on the rolls of the Company as permanent employees Key Managerial Personnel of Novosynth Research Labs Private Limited Dr.V. Nagarajan 07.12.2001 53 Vice President M.Sc. Ph.D., Contract Research 5 years and R & D 3 years Vice President (R & D), Cadila Pharmaceuticals Limited, Bangalore
The above-mentioned employee is on the rolls of its subsidiary as permanent employee.
36
Other Details of Key Managerial Personnel Name Areas of Experience Nature of Family Relationship Any arrangement or understanding with major shareholders/ customers/others Compensation paid(FY05) benefits in kind and including contingent or deffered compen sation accrued for the year (Rs in lakhs) 30.00 12.00 6.00 5.00 5.00 6.50 9.00 6.50 6.50 5.00 3.00 4.50
Mr.Shailesh Siroya Dr.S.Prasanna Mr.V.Sankaran Mr.K.Mahadevan Mr.K.Subramaniam Mr.M.Sundar Mr.Ronen Batabyal Dr.Sivarama Krishnan Mr.Ashok Kumar Mr.Pramod Kumar Khanna Mr.Basant Rathore Mr.C.D.Kotian
Industrialist Academics, R&D, Production of bulk drugs Finance and accounts, business development, HR, administration Secretarial, legal, HR, Admin, Imports, Exports, Logistics International marketing Purchase Marketing R&D Marketing Marketing Production Production
Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related Not related
Himself a shareholder NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL
Other Details of Key Managerial Personnel of Novosynth Research Labs Private Limited Name Areas of Experience Nature of Family Relationship Any arrangement or understanding with major shareholders/ customers/others Compensation paid(FY04) benefits in kind and including contingent or deffered compen sation accrued for the year (Rs in lakhs) 12.00
Dr.V.Nagarajan
Academics, R&D
Not related
NIL
Changes in Key Managerial Personnel in the Last 3 Years Name Mr.Ronen Batabyal Mr.C.D.Kotian Mr.V.R.Kannan Mr.Basant Rathore The Average Employee turnover ratio is 3.5%. Details of Shares held by Key Managerial Personnel Except 5,27,000 shares held by Mr.Shailesh Siroya,225 shares held by Mr.K.Subramaniam and 1200 shares held by Mr.Sundar, none of the other Key Managerial Personnel hold shares in the Company. Details of Subsidiary Company NOVOSYNTH RESEARCH LABS PRIVATE LIMITED Keeping in view the potential ahead in contract research, Novosynth Research Labs Private Limited was incorporated as a wholly owned subsidiary of Bal Pharma Limited with effect from 10th August ,2001. As on date, the Company is yet to commence operations. Currently, the Directors of the Company are Mr.Shailesh Siroya, Dr.Prasanna and Dr.G.S.R.Subba Rao. Designation Vice President (Generics and Institutions) Production Manager Vice President (Marketing) Unit Head Date of joining 02.06.2003 12.07.2004 N.A. 20.02.2002 Date of resignation N.A. N.A. 05.12.2004 N.A. Reason Professional expertise Professional expertise Starting own business Professional expertise
37
Financial Highlights of NOVOSYNTH RESEARCH LABS PRIVATE LIMITED (Rs in lakhs) Particulars Equity Capital Reserves Loan Funds Total Liabilities Net Fixed Assets Investments Net Working Capital Misc. Expenditure 31.01.04 2.00 Nil Nil Nil Nil Nil (1.34) (3.34) 31.03.04 2.00 Nil Nil Nil Nil Nil (1.34) (3.34) 31.03.03 2.00 Nil Nil Nil Nil Nil (1.34) (3.34)
Note: Since the operations are yet to begin, there is no income. Hence, Profit and Loss account has not been drawn up. Changes in Auditors in the Last 3 Years There has been no change in the auditors of the Company in the last 3 years. Compliance with the Listing Agreement The Company confirms that it has complied with all the applicable clauses of the Listing agreement. The Company further confirms that it has complied with Clause 49 of the listing agreement with respect to corporate governance. Corporate Governance The Company has complied with all the norms of the SEBI Guidelines on Corporate Governance as enumerated in clause 49 of the listing agreements with stock exchanges. It has broad based its Board of Directors and has set up the necessary committees such as Audit Committee, Share Transfer and Investor Grievance Committee and Remuneration Committee.
Sub Committees of the Board; Audit Committee;
The Audit Committee, comprises of 3 members under the Chairmanship of an Independent Director. The current constitution of the Committee is Mr. N.D.Prabhu, Chairman, Mr.G.S.R.Subba Rao, Member and Mr.Shrenik Siroya, Member. The scope of this committee is to oversee the Company’s financial reporting process and ensure correct, adequate and credible disclosure of financial information; recommending appointment and removal of external auditors and fixing their fees, reviewing with Management the annual financial statements with special emphasis on accounting policies and practices, compliances with accounting standards and other legal requirements concerning financial statements, reviewing the adequacy of the audit and compliance functioning including their policies, procedures, techniques and other regulatory requirements and reviewing the adequacy of internal control systems and significant audit findings. The terms of reference of the Committee cover the matters specified under Clause 49 of the Listing agreement. The committee also functions as Audit Committee under Section 292A of the Companies Act, 1956, with terms of reference covering the matters specified under the said Section. Audit committee meetings were held during the year 2003-04 on 26-04-03, 14-07-03,28-07-03,23-10-03 and 30-01-04 and the attendance of the members are given below: Sl No 1 2 3 Name of the Member Mr N.D. Prabhu, Chairman Mr G.S.R.Subba Rao, Member Mr Shrenik Siroya, Member Number of meetings attended 5 4 5
Share Transfer and Investors Grievance Committee;
This Committee comprises of three members, two of them being Non-executive Directors. The current constitution of the committee is as follows: Dr.G.S.R.Subba Rao,Chairman, Mr.N.D.Prabhu, Member, and Mr.Shailesh Siroya, Member. The Committee looks into the redressal of shareholder and investor complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividend etc. The Terms of reference of the Committee cover the matters specified under Clause 49 of the Listing agreement. The Committee regularly meets every fortnight to dispose of the matters under its reference.
Remuneration Committee
This Committee comprises of three members under the Chairmanship of an Independent Director. The current constitution of the Committee is as follows: Dr.G.S.R.Subba Rao, Chairman, Mr.N.D.Prabhu, Member, Mr.Shrenik Siroya, Member and Dr.C.N.Manjunath, Member. The Committee determines on behalf of Board and Shareholders, the Company’s policy on specific remuneration packages for Executive Directors and Non-Executive Directors, including pension rights and any compensation payment. The Terms of reference of the Committee cover the matters specified under Clause 49 of the Listing Agreement. The Committee also functions as Remuneration Committee under Schedule XIII of the Companies Act, 1956 Further, the Company has complied with various disclosures as required under Corporate Governance provisions in the financial results, annual reports and periodical stipulated returns to the stock exchanges etc., Export Obligations of the Company The export obligations of the Company as on 31.12.2004 stood at Rs 405.29 lakhs. The obligations are to be fulfilled in the time period mentioned in the respective licences.
38
IX. FINANCIAL AND OTHER INFORMATION REPORT OF THE AUDITOR ON FINANCIAL INFORMATION To The Board of Directors Bal Pharma Limited. Bangalore 560 052 Gentlemen, 1) We have examined the financial information of Bal Pharma Limited, as attached to the report stamped and initialed by us for identification and as approved by the Board of the Company in terms of the requirements:a. b. Paragraph B (1) of Part II of Schedule II to the Companies Act, 1956 and The Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 issued by SEBI on January 19, 2000 in pursuance of Section 11 of Securities and Exchange Board of India Act (SEBI), 1992, “the SEBI Guidelines” and The instructions dated 28th September, 2004 received from Bal Pharma Limited, requesting us to issue a report as statutory auditors of the Company relating to the offer document being issued by the Company in connection with the Rights Issue Offer of equity shares of Bal Pharma Limited
c)
2)
We have examined the accompanying statement of adjusted Profits and Losses for each of the 5 financial years ended March 31, 2000;2001;2002;2003;2004 and 7 months ended October 31, 2004 and the statement of adjusted assets and liabilities as on those dates, forming Part of the “Financial Information” dealt with by this Report, detailed below. Both read together with the notes thereon, which are the responsibility of the Company’s management, have been audited by us. We report as under: i) The statements of adjusted profits and/or losses, and the assets and liabilities of the Company as at the end of each of the five financial years ended 31st March, 2004 and 7 months period ended 31st October, 2004 reflect the profits and losses and assets and liabilities extracted from the Profit and Loss accounts and Balance sheets for those years, audited by us, after making such adjustments, regroupings and disclosures as were, in our opinion, appropriate and required to be made in accordance with the provisions of paragraph 6.18.7 of “The Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000” issued by SEBI on January 19, 2000 in pursuance of Section 11 of SEBI Act, 1992, “the SEBI” Guidelines. The same in our opinion, read with the respective Significant Accounting Policies and subject to / read together with the notes thereon and after making such adjustments, regroupings and disclosures as were, in our opinion, appropriate and required, have been prepared in accordance with Part II of Schedule II of the Companies Act, 1956 and the SEBI Guidelines.
3)
ii)
4)
We have also examined the Consolidated Financial Statements of the Company and its subsidiary as at March 31, 2002, 2003, 2004 and seven months period 31st October 2004, all of which have been audited by us and are enclosed to this report. Our this Report, is being provided solely for the use of Bal Pharma Limited, for the purpose of inclusion in the said Offer Document in connection with the Rights Issue Offer of the equity shares of the Company. This Report may not be used or relied upon by, or disclosed, referred to or communicated by yourself (in whole or in part) to, any third party for any purpose other than the stated use, except with our written consent in each instance, and which consent, may be given, only after full consideration of the circumstances at that time. Yours faithfully, For and on behalf of Ostawal & Jain Chartered Accountants
5)
6)
Bangalore Date :11th February 2005
T.D Jain (Partner) M M No. 12034
39
Bal Pharma (Standalone) STATEMENT OF ASSETS AND LIABILITIES (Rs. In lakhs) Description A Fixed Assets Gross Block Less : Depreciation Net Block Capital Work-in-Progress Total B C D Investments Deferred Tax Assets Current Assets,Loans and Advances Inventories Sundry Debtors Cash and Bank balances Loans and Advances Total E Liabilities and Provision :Loan Funds Secured Unsecured Security Deposits from Customers Total F G Deferred Tax Liability Current Liabilities and Provisions Current Liabilities Provisions Total H I Net Worth Represented by : Shareholder’s Funds Share Capital Share Application Money Reserves Balance in Profit & Loss Account Total Less J K Miscellaneous Expenditure (to the extent not written off or adjusted) Net Worth 417.18 1647.14 363.44 1601.94 278.38 1433.26 210.32 1387.47 172.86 1559.82 166.38 1540.93 741.00 960.92 362.40 2064.32 973.00 726.37 266.01 1965.38 773.00 676.86 261.78 1711.64 773.00 641.35 183.44 1597.79 773.00 609.85 349.83 1732.68 773.00 578.36 355.95 1707.31 1280.05 145.11 1425.16 1647.14 1293.31 199.40 1492.71 1601.94 798.81 146.56 945.37 1433.26 996.52 126.35 1122.87 1387.47 621.05 137.27 758.32 1559.82 725.92 109.19 835.11 1540.93 1957.90 562.00 129.20 2649.10 378.58 1997.94 35.75 93.96 2127.65 336.88 1594.03 211.75 53.39 1859.17 287.50 1266.56 184.32 50.80 1501.68 248.24 1109.27 127.59 39.74 1276.60 920.08 823.59 96.49 2127.03 1565.77 284.47 481.08 4458.35 1964.40 1430.45 14.57 524.86 3934.28 1521.87 1077.64 20.37 452.67 3072.55 1347.15 1058.63 34.15 436.10 2876.03 1188.88 783.49 25.38 327.31 2325.06 925.74 855.89 14.02 263.64 2059.29 2045.05 563.37 1481.68 146.37 1628.05 13.58 1986.80 506.74 1480.06 131.26 1611.32 13.58 1840.05 419.52 1420.53 18.64 1439.17 13.58 1643.04 333.79 1309.25 61.27 1370.52 13.71 1466.20 262.56 1203.64 54.25 1257.89 11.79 1422.90 197.76 1225.14 0.00 1225.14 11.69 31.10.2004 31.03.2004 31.03.2003 31.03.2002 31.03.2001 31.03.2000
40
STATEMENT OF PROFITS AND LOSSES Descriptions Income Sales Of Products Manufactured by the Company Less Excise duty Net Sales Traded by the Company Total Sales Export Incentives Received Other Income Increase / (Decrease in Inventory Total Income Expenditure Raw Materials & components, Die Blocks, Die & tool Steel and Goods Consumed Staff Cost Other Manufacturing Expenses Administration Expenses Selling & Distribution Expenses Interest Depreciation Total Expenditure Net Profit before tax & Extra Ordinary / Exceptional Items Provision for Taxation Net Profit before Extra Ordinary / Exceptional Items Extra Ordinary Item of Expenditure Exceptional Items Net Profit after Extra Ordinary / Exceptional Items As per last Account after adjusting Adjustments relating to earlier years transitional provision for Deferred Tax Liability in the year 2002 Profit available for appropriation Appropriations : Debenture / Pref. Shares Redemption Reserve General Reserve Contingency Reserve Dividend on Preference Shares Tax on above Dividend Proposed Dividend Tax on Proposed Dividend Balance carried to Balance Sheet Details of Reserves and Surplus 2.57 — — 28.51 3.72 — — 96.39 38.50 11.00 — 53.00 6.92 85.95 11.23 4.23 28.50 7.00 — 28.00 3.59 68.76 8.81 74.44 28.50 3.00 — 28.00 0.00 57.30 0.00 40.85 28.50 3.00 — 28.00 2.86 57.30 5.84 17.19 172.88 260.21 258.35 198.77 142.69 1603.96 152.38 495.74 642.57 138.91 50.76 3084.32 204.46 31.58 172.88 — 3108.82 242.23 781.58 911.81 250.37 77.18 5371.99 309.03 23.82 285.21 25.00 2704.28 244.21 713.75 857.90 254.67 80.69 4855.50 275.50 17.15 258.35 0.00 1984.99 188.95 595.91 748.17 193.16 65.73 3776.91 213.10 14.33 198.77 0.00 1765.08 183.58 542.00 498.05 160.44 59.87 3209.02 152.11 9.42 142.69 0.00 3288.78 5681.02 5131.00 3990.01 3361.13 3493.32 223.99 3269.33 — 3269.33 18.27 1.18 5998.99 373.48 5625.51 — 5625.51 47.53 7.98 5428.61 399.85 5028.76 — 5028.76 85.26 16.98 4343.59 425.62 3917.97 — 3917.97 65.13 6.91 3699.37 419.18 3280.19 — 3280.19 72.20 8.74 31.10.2004 31.03.2004 31.03.2003 31.03.2002 31.03.2001
(Rs. In lakhs) 31.03.2000
2986.13 347.79 2638.34 — 2638.34 50.11 10.56 2699.01
1445.48 146.50 393.39 376.43 155.47 61.37 2578.64 120.37 12.16 108.21 0.00
108.21
41.69 131.19
49.38 210.83
39.25 219.10
41.12 157.65
0.00 142.69
0.00 108.21 28.50 3.00 — 16.25 3.58 42.98 9.45 4.45
(Rs. In lakhs) 31.10.2004 Capital Reserve Share Premium General Reserve Redemption Reserve (Pref. Shares) Balance in Profit & Loss Account surplus Total 30.00 692.60 233.55 4.77 362.40 1323.32 31.03.2004 30.00 460.60 83.25 152.5 266.01 992.36 31.03.2003 30.00 460.60 72.25 114 261.78 938.63 31.03.2002 30.00 460.60 65.25 85.5 183.44 824.79 31.03.2001 30.00 460.60 62.25 57 349.83 959.68 31.03.2000 30.00 460.60 59.25 28.5 355.95 934.30
41
Details of Loans and Advances at 31st October 2004 (Rs in Lakhs) Loans and advances, unsecured, good (unless otherwise stated) : Amount recoverable from wholly owned subsidiary company Loans to employees recoverable in instalments Deposit with Govt dept & others Fixed deposit with banks Advances recoverable in cash or or in kind or for value to be received Savings certificates (National/Indra Vikas Patra) Interest receivable Advance Income Tax and TDS Advance for capital Goods Total Details of Unsecured Loans taken by the Company as at 31st October 2004 (Rs. In lakhs) Name of the Lender Loan from Directors Shailesh Siroya Intercorporate Loans : Ajas Components Pvt ltd Govind Vallabh Finance Services Pvt Ltd Pam Pac Machineries Pvt Ltd Peddar Johnson Finance Ltd Corporate Loans: Industrial Development Bank of India Interest accrued but not due on above Corp Loan 500.00 500.00 2.00 562.00 Statement showing age wise analysis of Sundry Debtors as at 31st October 2004 (Rs. In lakhs) Sundry Debtors, Unsecured : (unless otherwise stated ) I. Over six months Considered Good Doubtful Less:Provision II. III. Others-Good Total 202.60 0 0 202.60 1363.17 1565.77 9% 14 Monthly from April 2005 ICD ICD ICD ICD 15.00 15.00 15.00 10.00 15.00 15.00 15.00 10.00 11% 11% 11% 11% 14.12.2004 06.12.2004 13.01.2005 05.11.2004 20.00 5.00 Nil 31.3.2005 Facility Original Amount Balance on 31.10.2004 Rate of Interest Repayment Schedule 1.46 3.31 62.74 63.85 277.95 0.14 6.42 30.64 34.57 481.08
Details of Other Income Break up of Other Income (if > 20% of Profit Before Tax) (Rs in lakhs) Description Profit Before Tax (Excluding Extra Ordinary Items) 20% of Profit Before Tax Other Income For the Year FINANCIAL PARAMETERS Description Sales Revenue Total Expenditure Depreciation Profit After Tax (Rs.in lakhs) 2003-04 5681.02 5294.81 77.18 285.21 2002-03 5131.00 4774.81 80.69 258.35 40.892 1.18 61.81 7.98 55.10 16.98 42.62 6.91 30.42 8.74 24.07 10.56 31.10.2004 204.46 31.03.2004 309.03 31.03.2003 275.50 31.03.2002 213.10 31.03.2001 152.11 31.03.2000 120.37
42
Statement of Cash Flows of the Company (Rs. In thousands) Sl No. Particulars A CASH FLOW FROM OPERATING ACTIVITIES Profit Before Tax Adjustments for: Bad debts written off Gratuity Fluctuation in Foreign Exchange Transactions Loss on sale of fixed assets Depreciation Miscellaneous Expenditure written off Interest received Interest paid Operating profit before working capital changes Adjustments for: Differential dividend Increase in Inventories Increase in Development & Registration Expenses Increase in Trade Payables Decrease/(Increase) in Trade & Other Receivables Advance Income Tax Income tax refund Net Cash from Operating Activities A 0 (16262) (6521) (8952) (8589) (930) 0 (41254) (2436) 0 (44,252) (9,483) 50,762 (48,981) 2,000 0 (49,954) 14,883 0 (17,473) (8,300) (22,337) 1,310 (3,074) 1,044 (48,830) 11,179 (8) (15,826) (4,954) 37,300 (37,972) (1,260) 113 (22,607) 25,935 0 (26,314) (1,923) (2,371) (1,857) (1,280) 680 (33,065) 3,347 0 (9,417) (1,235) 20,656 (17,391) (1,322) 0 (8,709) 24,199 600 (707) 5076 1147 (56) 12312 38818 985 1,368 723 7,718 1,982 (228) 21,386 64,837 167 745 (111) 8,069 1,997 (540) 22,132 60,009 1,149 608 66 6 6,573 1,761 (205) 17,274 48,542 5,988 1,767 (618) 14,064 36,412 36 6,138 1,710 (3,007) 15,994 32,908 20446 30,903 27,550 21,310 15,211 12,037 31.10.2004 31.03.2004 31.03.2003 31.03.2002 31.03.2001 31.03.2000
B
CASH FLOW FROM INVESTMENT ACTIVITIES : (Additions)/Deductions to Fixed Assets/Other Adjustments NET CASH USED IN INVESTMENT ACTIVITIES B (6748) (25,937) (15,438) (18,570) (9,768) (2,241) (6748) (25,937) (15,438) (18,570) (9,768) (2,241)
C
CASH FLOW FROM FINANCING ACTIVITIES : Share Application Money Proceeds from Issue of Shares Proceeds from Long Term Borrowings Working Capital Borrowings Short Term Borrowings Interest received Loans Interest paid Dividend & Tax on Dividend paid Net cash from financing activity NET INCREASE IN CASH & CASH EQUIVALENTS(A+B+C) Opening Cash Closing Cash NET CASH CHANGE C 0 0 53016 (6820) 2425 56 (12312) 36365 0 0 19,728 20,664 228 2,400 (21,386) (10,916) 10,718 0 0 623 34,065 2,745 540 (1,941) (22,132) (8,530) 5,370 0 0 1,045 19,768 6,976 205 (6,388) (17,284) (9,227) (4,905) (3,339) 0 1,945 29,926 3,110 618 (3,867) (13,938) (7,129) 7,326 (10,000) 20,000 1,569 (9,064) 2,842 3,007 (15,013) (16,522) 0 (23,181)
27181 7650 34831 27181
(336) 7,986 7,650 (336)
1,111 6,875 7,986 1,111
2,460 4,415 6,875 2,460
905 3,510 4,415 905
(1,223) 4,733 3,510 (1,223)
43
Principal Terms of Loans and Assets charged as Security Srl No. Name of Lender Term Loans 1 EXIM Bank of India Foreign Currency Term Loan US$ 280000 Eqv-IR 129.40 Facility Sanctioned Amount Balance on 31.10.2004 Rate of Interest Repayment Schedule
(Rs. In lakhs) Security
129.40
IR Loan 2 Karnataka State Financial Corporation Term Loan
142.00 21.01
69.50 18.00
LIBOR + 300 Basic points. 12% 8%
8Qtrly payments from February 2005 16 qtrly payments from March 2004
1st charge on Bulk Drug unit fixed assets incuding land and building to the extent of Rs.412.5 lakhs. 1st charge on assets financed and 2nd charge on fixed assets of Unit 1 at Bommasandra. 1st charge on assets financed at 5th Floor Lakshminarayan Complex. 1st charge on assets financed in Units 1 & 2 at Bommasandra and at Unit 3 in Pune. 1st charge on assets financed at Units 1 & 2 at Bommasandra and at Unit 3 in Pune 3 cars purchased hypothecated. Maruthi van hypothecated. Toyota Corolla Car hypothecated Maruthi car hypothecated Maruthi car hypothecated Tata Indica car hypothecated. 1st charge on equipments financed located at Unit 2 same as above same as above same as above
3
UTI Bank Ltd
Term Loan
37.50
26.04
11%
36 monthly payments from Dec 03
4
UTI Bank Ltd
Term Loan
68.55
47.78
11%
33monthly payments from January 2004
5
UTI Bank Ltd
Term Loan
300.00
30.61
10%
54 EMI after full drawl
6 7 8 9 10 11 12
Citibank –Car loan Citibank—Car Loan Citibank –Car Loan Citibank –Car Loan Citibank –Car Loan ICICI Bank- car Loan Scotia Bank
HP Loan for cars. -do-do-do-do-doHP Loan for equipment
8.72 1.78 11.25 1.86 1.86 3.62 6.30
6.3 1.25 5.62 0.84 0.77 1.91 1.12
7.5% 8% 8% 7.50% 7.50% 8%’ 7.69%
36 EMI from 1.1.04. 36EMI from 1.3.04 36 EMI from 1.5.04 36 EMI from 1.11.02 36 EMI from 1.10.2002 36 EMI from 1.06.04 36 EMI from 1.4.02
13 14 15
Scotia Bank Scotia Bank Scotia Bank
—do——do——do—-
5.93 1.78 9.60
1.15 0.23 2.95
7.69% 7.69% 7.69%
36 EMI from 01.04.2002 36 EMI from 01.05.2002 36 EMI from 05.09.2002
44
Working Capital Loan 16 17 18 19 Canara Bank-For Domestics -For Exports Punjab National Bank-Domestics -Exports ICICI Bank- Domestics -Exports EXIM Bank-Exports 450 250 510 170 340 110 170 420.58 157.99 474.04 170.00 10.25% 8% 10.25% 8% 10.25% 6.75% LIBOR+75 (on pre shipment)
(Rs. In lakhs)
1st charge on all current assets of the Company including stocks and book debts of all the locations. Collateral 1st charge on fixed assets of the all the units excluding those which are charged to term loans.
LIBOR+150 ( on post shipment ) 20 21 SIDBI-Domestics Corporation Bank (to be taken over by ICICI Bank) 2100 100 391.88 1614.99 12%
Working Capital loan has been sanctioned by a consortium of Banks/Institutions consisting of Canara Bank(Lead Bank),Punjab National Bank, Corporation Bank, ICICI Bank, Export-Import Bank of India and Small Industries Development Bank of India.The total amount of loan is Rs.2100 lakhs .Out of this, share of EXIM Bank Rs.170 lakhs and SIDBI Rs.100 lakhs are yet to be disbursed. Existing Balance of Corporation Bank is to be taken over by ICICI Bank. Statement showing Contingent Liabilities Not provided for : (Rs. In lakhs) Description Guarantees issued by Companys Bankers Letter of credit Estimated value of contract remaining to be executed on capital account and not provided Disputed Payments Not Provided For : 1. Excise Duty on Physician samples 1999-2000 pending CEGAT hearing Paid 5.00 balance 5.35 Excise duty on samples 1997-98 Rs.8.98 pending appeal hearing Excise Duty of Unit III for 2000-01 pending CEGAT hearing Rs.8.68 (paid 0.30) TDS on Usance interest on imports Rs.1.68 paid 0.85 balance Rs.0.83 Claim of 80IA disallowed pending Appellate Tribunal Rs.3.56 Sales tax exemption on branch Transfers Rs3.33 pending Tribunal hearing Demand for delayed payment PF Rs.2.82. Paid 50% pending Tribunal hearing Demand for Entry tax under KTEG Act of Rs.91.4 paid under protest and accounted as Loans & Advances. Of this Rs.25 lakhs has been provided for. Balance Rs.66.4 31.10.2004 85.72 395.83 31.03.2004 73.19 226.82 31.03.2003 63.83 189.74 31.03.2002 12.54 162.10 31.03.2001 54.24 103.33 31.03.2000 37.06 0.00
137.65
13.75
57.98
8.90
11.64
0.00
10.35
2.
8.98
3.
8.68
4.
1.68
5.
3.56
6.
3.33
7.
2.82
8.
66.4
45
Tax Shelter Statement ( Rs. in Lakhs) Assessment Year Financial Year Profit / (Loss) as per books of accounts Tax rate (including surcharge) % Notional Tax Payable (A) B) (I) (ii) (iii) (iv) (v) (vi) (vii) Permanent Difference Export Profit (Section 80 HHC) Capital Gain/Loss (different Treatment in tax) Share Capital Registration Expenses Dividend received u/s.10(34) Donations Earlier year Expenses Others 0.00 0.00 0.00 (0.25) 0.01 0.00 0.00 (0.24) (1.77) 0.00 0.00 (0.09) 0.21 0.61 0.00 (1.04) (24.76) 0.00 0.00 0.00 0.30 11.10 1.11 (12.26) 0.00 0.06 0.00 0.00 1.46 3.73 0.05 5.30 0.00 0.00 0.00 0.00 0.71 0.86 0.05 1.62 0.00 0.07 1.52 0.00 0.83 0.47 0.14 3.03 2005-06 2004-05 7 Months 204.46 36.5925 74.82 309.03 35.8750 110.86 275.50 36.7500 101.25 213.10 35.7000 76.08 152.11 39.5500 60.16 120.37 38.5000 46.34 2004-05 2003-04 2003-04 2002-03 2002-03 2001-02 2001-02 2000-01 2000-01 1999-2000
Subtotal (B) C) (I) (ii) Timing Difference Difference in Books & Tax depreciation Deferred Revenue Expenditure
(17.84) 11.47 8.80 (161.36) 0.00 (158.93) (159.17)
(64.28) 19.82 (22.90) (10.21) (219.85) 0.00 (297.42) (298.46) (107.07) 3.79 (8.97) 12.76 21.85 -
(66.09) 19.97 20.44 (132.05) (70.89) (228.62) (240.88) (88.52) 12.73 17.15 -
(74.28) 17.61 (3.05) (55.08) (174.50) (289.30) (283.99) (101.39) (25.30) 14.33 (70.89)
(81.45) 15.85 3.01 (22.65) (242.99) (328.23) (326.61) (129.17) (69.01) 9.42 (174.50)
(108.64) 17.10 (5.21) (17.37) (252.27) (366.39) (363.36) (139.90) (93.56) 12.16 (242.99)
(iii) Development Expenditure (iv) Expenses u/s 43B (v) Research & Development Expenses (vi) Unabsorbed Depreciation Section ( C) Net adjustments (B-C) Tax Burden/(Saving) thereon Total Tax (A+D) Tax on extra-ordinary items Tax on profits before extra-ordinary items Tax Provision u/s 115 JB Unabsorbed Depreciation/Loss Carried forward ( D)
(58.24) 16.58 16.03 -
NOTE : The figures in the above statement are taken as per the return of Income filed Rate of Dividend 31.10.2004 Equity shares Rate of Dividend Dividend Amount Preference Shares First Issue Rate of Dividend Dividend Amount Second Issue Rate of Dividend Dividend Amount 12.50% 25.00 14.00% 28.00 14.00% 28.00 14.00% 28.00 14.00% 28.00 14.00% 16.25 15% 85.95 12% 68.76 10% 57.3 10% 57.3 7.50% 42.98 31.03.2004 31.03.2003 31.03.2002 31.03.2001 31.03.2000
46
Changes in Accounting Policies : Accounting for Gratuity: During 1999-2000 Gratuity is being accounted on cash basis as and when the liability arises. During 2000-2001 to 2004-2005 Hitherto gratuity was being accounted on cash basis as and when the liability arose. During the year ended 31.3.2001, the Company has taken a Group Gratuity Scheme Master Policy with LIC. Liability ascertained under Actuarial basis has been provided for in the books of account A Trust under the name Bal Pharma Employees Gratuity Trust has been formed consisting of three members for administering the scheme. Note: As a result of this change in the method of recognising the liability the profit for the year ended 31.03.2000 is higher by Rs. 342,266/- which is not considered to have a material impact on the profit for the year ended 31.03.2000. and the liability in respect of the past years aggregating to Rs.14,60,851/- has been considered as a prior period adjustment in the Profit and Loss A/c surplus disclosed under Reserves & Surplus Exceptional Items (Rs. in Lakhs) 31.10.2004 Entry Tax under KTEG Act Related Party Transactions (Rs. in Lakhs) 31.10.2004 1. Subsidiary Company: (100% owned) Novosynth Research Labs Pvt Ltd., Advance Paid 2. Company/Firm in which Director(s) are interestedDesa Marketing International Commision on Sourcing Sales /imports Siroya Trading Company Private Limited Interest on loan 3. Directors Interest on Loan: Mr Shailesh Siroya Mr Shrenik Siroya 4. Key Managerial Personnel Salary to MD/WTD Mr Shailesh Siroya Dr S Prasanna Mr Shrenik Siroya Capitalisation Statement (Rs. In lakhs) Particulars Borrowings Short term debt Long term debt Total Debts Shareholders’ Funds Share capital — Equity — Preference — Reserves and surplus * Less: Miscellaneous Expenditure not written off Total Shareholders’ Funds Long Term Debt / Equity Ratio B/C C 653.00 88.00 1323.32 (417.18) 1647.14 1.53 1044.8 88.00 2106.92 (417.18) 2822.54 0.89 A B 60.00 2459.90 2519.90 60.00 2459.90 2519.90 Pre Issue as at 31st October 2004 Adjusted for the Right Issue 16.83 6.54 — 28.9 11.24 0.52 12.89 3.84 5.76 12.81 3.84 5.76 10.60 3.84 3.84 — — — 0.12 1.55 7.94 3.73 17.18 7.74 12.39 2.45 6.85 — — 0.66 1.40 1.49 3.21 3.30 — — 10.84 3.12 0.23 1.17 0.29 31.3.2004 31.3.2003 31.3.2002 31.3.2001 31.3.2000 31.3.2004 25.00 31.3.2003 — 31.3.2002 — 31.3.2001 — 31.3.2000 —
Note: The Company has allotted on preferential allotment basis as per SEBI Guidelines, 8,00,000 equity shares of Rs.10/- each at a premium of Rs.29/per share . Proceeds out of preferential allotment of shares amounting to Rs.312 lakhs has been utilised for redeeming preference shares.
47
Accounting Ratios 31-Oct-04 Earning per Share (EPS) (Excluding Extra ordinary and Exceptional items ) Net Profit After tax A 131.91 32.22 98.97 6530000 1.52 131.19 1647.14 A/B A 7.96% 1559.14 6530000 23.88 210.83 59.92 150.91 5730000 2.63 210.83 1601.94 13.16% 1201.94 5730000 20.98 219.1 31.59 187.51 5730000 3.27 219.1 1433.26 15.29% 1233.26 5730000 21.52 157.65 28 129.65 5730000 2.26 157.65 1387.47 11.36% 1187.47 5730000 20.72 142.69 30.86 111.83 5730000 1.95 142.69 1559.82 9.15% 1359.82 5730000 23.73 108.21 19.83 88.38 5730000 1.54 108.21 1540.93 7.02% 1340.93 5730000 23.40 Less: Pref Dividend & Div Tax -B Net Profit After tax Adj. C=A-B Number of Equity shares D Earning per Share (EPS) -C/D Return on Networth Net Profit After tax Networth Return on Networth Equity net worth A B 31-Mar-04 31-Mar-03 31-Mar-02 31-Mar-01 31-Mar-00
Net Asset value per equity share Number of Equity shares B Net Asset value per equity share A/B INVESTMENTS 31.10.2004 QUOTED - (At Cost) Lamina Foundries Limited (10000 Equity Shares of Rs.10 each fully paid) Sri Jayalakshmi Autospin Ltd (73600 Equity Shares of Rs.10 each fully paid) (Market value not available) UNQUOTED (At Cost) EQUITY SHARES of Shamrao Vittal Co-op Bank Ltd (5000 Shares of Rs.10/- each fully paid) Others:National Savings Certificate Indira Vikas Patra 0.50 0.00 0.00 11.58 0.50 0.00 0.00 11.58 0.50 0.00 0.00 11.58 0.50 0.10 0.03 11.71 0.50 0.21 0.00 11.79 0.50 0.11 0.00 11.69 7.36 7.36 7.36 7.36 7.36 7.36 3.72 3.72 3.72 3.72 3.72 3.72 31.3.2004 31.3.2003 31.3.2002 31.3.2001 31.3.2000
Note: In case of quoted investments in the absence of trading the market value is not available. No provision is made for any diminution in value which is considered permanent. BAL PHARMA LIMITED NOTES ANNEXED TO & FORMING PART OF ACCOUNTS AND SIGNIFICANT ACCOUNTING POLICIES FOR THE SEVEN MONTHS PERIOD ENDED 31.10.2004 A. SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF ACCOUNTING Income and expenditure are accounted for on accrual basis. b) FIXED ASSETS All fixed assets are stated at historical cost of acquisition including all costs incurred in bringing the assets to the place of use (excluding the amount of excise duty claimed as Cenvat) less accumulated depreciation. c) DEPRECIATION Depreciation on fixed assets is provided for on the straight line method as per the rates and in the manner prescribed under Schedule XIV of the Companies Act 1956, from the month of addition. Fixed Assets costing less than Rs.5,000/- each are depreciated fully during the year. d) VALUATION OF INVENTORIES Raw Materials, Packing Materials, Stores & Consumables are valued at lower of cost or net realizable value The cost has been arrived at on FIFO Basis. Work-in-progress is valued at cost of materials plus conversion cost. Finished Goods are valued at lower of cost or net realizable value. The cost has been arrived at as per AS 2 (Revised) issued by the ICAI. Excise duty in respect of finished goods lying in bonded warehouse has not been provided for in the books of accounts. However, there is no impact of the same on the profit for the year. e) RETIREMENT BENEFITS The Company has taken a Group Gratuity Scheme Master Policy with LIC. Liability ascertained under actuarial basis has been provided for in the books of account. A trust under the name Bal Pharma Employees Gratuity Trust has been formed consisting of three members for administering the scheme.
48
f)
INVESTMENTS Investments are considered as long -term investments and are accordingly stated at cost. Provision is made for any diminution in value, which is considered to be permanent.
g)
FOREIGN EXCHANGE TRANSACTIONS Transactions in foreign currency have been accounted for at the exchange rates prevailing at the time of entering into the transaction. Gains/ Losses arising out of settled transactions have been adjusted in purchase/sales on realization /payments. Transactions remaining unsettled at the year end are translated at the exchange rates prevailing on the closing date and any gains/losses are also adjusted for in purchases/sales.
h) i)
EXPORT BENEFITS Export Benefits under the Duty Entitlement Pass Book Scheme have been accounted for on accrual basis on the date of exports. EXPENDITURE ON RESEARCH AND DEVELOPMENT In accordance with the Accounting Standard 26 on Intangible Assets, the Management has recognized expenditure, direct as well as allocated, on R & D projects for development of new products and processes as Intangible Assets, since it is of the opinion that future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably. These assets shall be amortized over a period of ten years starting from the year of commercial production. However, expenditure on projects, which have become unsuccessful are charged off as an expense in the year in which they are abandoned.
j)
BORROWING COST FOR CAPITAL ACQUISITION Interest paid on loans raised for acquisition of Qualifying assets is being added to the cost of the asset till the date when substantially all activities necessary to prepare the asset for its intended use are complete.
B.
NOTES ON ACCOUNTS 1) 2) National Savings Certificates have been deposited with Commercial Tax Department. EXPORT BENEFITS: The Company has accounted an amount of Rs.1,826,964/- (P.Y. Rs. 4,752,836/-) being the net amount of credit under the DEPB scheme as announced by the Import Export Policy. The same will be utilised for off-setting the customs duty on future imports. The accumulated amount outstanding on this account as on 31.10.2004 is Rs. 5,459,043/- (P.Y. Rs. 8,824,669/-) and the same is reflected under loans and advances. 3) MARKET DEVELOPMENT EXPENSES: Expenditure incurred on Market development amounting to Rs. 867,735/-(P.Y.Rs. 1,560,269/-) has been written off during the year. Balance on this account as on 31.10.2004 is Rs. 6,112,393/- (P.Y Rs. 6,980,128/-). 4) RESEARCH & DEVELOPMENT EXPENSES: An amount of Rs.6,521,786. /-(Rs. 8,197,372/-) has been incurred during the year on research and development of new products and processes in the R & D Centre. The same is proposed to be amortised over a period of 10 years commencing from the year of commercial production. Amount written off during the year on account of unsuccessful projects was Rs 280,000/-(Rs 422,185/-) The balance on this account as on 31.10.2004 is Rs 35,605,281/-(P.Y.Rs 29,363,495/-). 5) 6) 7) Imported Goods amounting to Rs.Nil/- (P.Y Rs.2,291,149) were in Bonded Warehouse. No customs duty on such goods has been provided. During the year an amount of Rs. 599,974/- (P.Y Rs.162,567 /-) being interest on term loans for acquisition of qualifying capital assets was debited to Capital Work in Progress. Break-up of Deferred Tax liability is as below: Depreciation-Timing Difference Rs.22,119,641/8) Interest Amortisation Rs (917,151/- ) Deferred Revenue Expenditure Rs. 16,655,050/-
Gain/Loss on account of Foreign Exchange fluctuation adjusted in purchases/sales is as below: Net gain on ExportsNet loss on imports— Rs. 942,885/- (P.Y. Rs.23,47,779 loss) Rs.235,689/- (P.Y. Rs. 16,54,372 gain)
9)
Contingent liabilities not provided for ( in Rupees) a) b) c) Guarantees issued by Company’s bankers Rs.8,572,000/- (P.Y.Rs.7,319,357) Letter of credit Rs 3,95,83,000/- (P.Y.Rs.22,682,070). Estimated value of contracts remaining to be executed on capital account & not provided for Rs 13,765,000 /- (P.Y.Rs.13,75,126).
10) Sales of Rs 349,332,929/- (P.Y.599,897,802) is net of sales return and includes central excise duty. 11) Security for Loans in schedule (3) 11.1 Hire purchase finance provided by various financial institutions is secured by a charge on the assets financed by the respective institutions. 11.2 The Working Capital Loan financed by Canara Bank, Shamrao Vithal Cooperative Bank Ltd., Corporation Bank and Punjab National Bank under a Consortium arrangement with pari passu charge is secured against hypothecation of stock and book debts and first charge on fixed assets other than those financed by the term lending institutions. 11.3 Export-Import Bank of India—Mortgage of land and building, and hypothecation of plant and machinery, funded by them totaling to Rs.412 lakhs both present and future, of Bulk Drugs unit at 61 Bommasandra Industrial Area, Bangalore 562 099 11.4 UTI Bank —Hypothecation of Office Equipments located at Corporate Office, 10/5, Lakshminarayan Complex, Palace Road, Bangalore – 560 052, and also assets of Bal I,Bal II and Pune unit funded by them . 11.5 All the Secured Loans have been guaranteed by two Directors including Managing Director in their personal Capacity. 12) Sundry Debtors, Sundry Creditors and balances under Loans and Advances are subject to confirmation. 13) The Company has allotted 800,000 Equity Shares of Rs.10 each at a Premium of Rs.29 per share, on Preferential Allotment basis on date 7.10.2004 as per the guidelines of SEBI on Preferential Allotment.
49
14) RELATED PARTY DISCLOSURES: The Company has transactions with the following related party: A. Subsidiaries : Novosynth Research Labs Private Ltd Transactions-Nil (P.Y Rs.146,200/-) . Balances -Loans and Advances Rs.146,200/-.(P.Y Rs.146,200/-) Others:- (a) Desa Marketing International Transactions : Rs. Nil/-(P.Y.10,84,008 /-) commission paid for sourcing sales /imports Balances Rs.50,000/- Cr(P.Y Rs.679,442 /-Cr). (b) Siroya Trading Company Pvt Ltd Transactions – Rs 66,232/- (P.Y 140,364/-) Interest on loan Balance – Rs NIL (P.Y Rs 11,51,538/-) C. Managing and Wholetime Directors: Shailesh D.Siroya ,Shrenik D Siroya and Dr.S.Prasanna Transactions : Managerial Remuneration a. Managing Director Salaries Perquisites Commission (A) b. Wholetime Directors Salaries Perquisites Commission Total Grand Total (B) (A)+(B) 3,50,000 3,01,000 Nil 6,51,000 23,31,000 Rs. 8.40,000 8,40,000 Nil 16,80,000
B.
The remuneration paid to Mr. Shailesh D Siroya, Managing Director and Dr. S. Prasanna, Wholetime Director, is in accordance with the stipulations under Schedule XIII, Part II, Section II(B) of the Companies Act, 1956, and in terms of the shareholders approval by way of special resolution in the 16th Annual General Meeting held on 17.9.03. Interest on loans have been paid to directors as per details given below and appropriate TDS has been deducted and remitted to the credit of the Central Government. Name Mr. Shailesh D Siroya Mr. Shrenik D Siroya Amount(Rs) Nil 12,000
15) (a) The claim for differential excise duty of Rs. 1,034,757 on Physician Samples demanded by the Central Excise Dept in the year 1999-2000 is yet to be decided by CEGAT. The Company has deposited Rs. 500,000 as directed by CEGAT vide their stay order dated 2-8-99. (b) The claim for differential excise duty of Rs.8.98 lakhs on physicians sales for the period September 1997 to February 1998 demanded by Central Excise Dept in respect of Unit I is being contested and the case is yet to be decided by the Commissioner of Appeal. ( c ) The claim of duty and penalty of Rs.868,598 for the period May 2000 to November 2001 by Central Excise in respect of Unit III is being contested and under the directions of CEGAT , Mumbai a pre-deposit of Rs.30,000/- has been made. (d) A claim for TDS on usance interest paid on imports amounting to Rs 168,753/- was made by the Income Tax Department which has been disputed by the Company. An amount of Rs 85000/- has been deposited under protest during the last year and the appeal is pending with CIT- Appeals. (e) The Income tax department disallowed the company’s claim of deduction under Sec 80IA of the Income Tax Act 1961 which gives tax deduction for setting up/ expansion of industrial units in backward areas and the decision was contested before Income Tax Appellate Tribunal . The case was decided in favour of the company vide order dated 2nd Nov. 2004. (f) The Karnataka Commercial tax dept disallowed the company’s claim for sales tax exemption relating to assessment year 1997-98 on the ground that consignment agent did not furnish Form F on monthly basis but furnished the same on yearly basis. The liability on this account is Rs.3.33 lakhs and the same is being contested.
16) The Company had received a demand note from the PF department as additional interest for delayed payment for the year 93-94. The Company has appealed against this to the PF Appellate Tribunal, New Delhi. As per the directions of the PF Appellate Tribunal the Company has paid Rs.141,122/- being 50% of the demand on 26.12.2000 and the matter is pending. 17) EXTRAORDINARY/NON RECURRING ITEMS The Company had paid under protest an amount of Rs.91,40,396 towards recovery of tax and penalty under KTEG Act for the years 1993-94 to 2001-02 vide Demand Notice from the DCCT. The Company had appealed to the Supreme Court of India against the said order in 2002-03. The Supreme Court of India passed an order against the Company in the last year. The Company has however filed a Curative Petition against the Supreme Court Order, which is yet to be heard. Pending final decision on the above petition, the Management had made an ad hoc provision of Rs.25 lakhs during the year ended 31.3.2004. The balance amount has been disclosed under Loans & Advances. 18) Names of SSI undertakings to whom the Company owes any sum, which is outstanding for more than 30 days. Name Carto Cartoons Carto Prints Lake Chemicals Pvt. Ltd., M.P.Industries Printel Printers Amounts outstanding Rs 637,736 128,950 493,787 11,831 886,241
The list of dues to SSI undertakings is as certified by the Management based on information received from suppliers.
50
19) Unclaimed Dividends on Equity Shares: Year 1999-2000 2000-01 2001-02 2003-04 Total Amount (Rs) 131,862.00 176,282.00 469.00 2,475.00 311,088.00
20) Calculation of EPS (Basic and Diluted) Sl No 1 2 3 4 5 6 7 DILUTED 8 9 10 21 22 23 Total Shares outstanding (including dilution) EPS before Non-recurring/Extraordinary items EPS after Non-recurring/Extraordinary items 6,530,000 1.64 1.64 5,730,000 2.95 2.53 Particulars Opening No of shares Total Shares Outstanding Weighted average number of shares Profit after Taxation and before non recurring/Extraordinary Items and after preference dividend and dividend tax (Rs Lakhs) Profit after Taxation and after Non-recurring/Extraordinary Items and after preference dividend and dividend tax (Rs in Lakhs) EPS before Non-recurring/Extraordinary items EPS after Non-recurring/Extraordinary items 98.97 1.64 1.64 150.90 2.95 2.53 98.97 175.90 Seven months Ended October 31, 2004 5,730,000 6,530,000 6,026,000 Year ended March 31 2004 5,730,000 5,730,000 5,959,000
The Company operates only in one business segment i.e., pharmaceuticals. Figures in Brackets pertain to Previous Year. Previous year figures have been regrouped/rearranged wherever necessary. For and on behalf of the Board
As per our Report Attached OSTAWAL & JAIN CHARTERED ACCOUNTANTS T.D.JAIN Partner PLACE: BANGALORE DATE : 11th February 2005 V.SANKARAN V.P.Finance
K.MAHADEVAN Company Secretary
S.PRASANNA Director
SHAILESH D SIROYA Managing Director
FINANCIAL INFORMATION (STANDALONE) OF NOVOSYNTH RESEARCH PRIVATE LIMITED (SUBSIDIARY OF BAL PHARMA) DESCRIPTION A Fixed Assets Gross Block Less : Depreciation Net Block Capital Work-in-Progress Total B C D Investments Deferred Tax Assets Current Assets,Loans and Advances Inventories Sundry Debtors Cash and Bank balances Loans and Advances Total E Liabilities and Provision :Loan Funds Secured Unsecured — — — — — — — — — — — — — — — — — — — — — — 0.12 — 0.12 — — — — — — — — — — 0.12 — 0.12 — — — — — — — — — — 0.12 — 0.12 — — — — — — — — — — 0.27 — 0.27 — — — — — — — — — — — — — — — — — — — — — — — — — — 31.10.2004 31.03.2004 31.03.2003 31.03.2002 31.03.2001 31.03.2000
51
FINANCIAL INFORMATION (STANDALONE) OF NOVOSYNTH RESEARCH PRIVATE LIMITED (SUBSIDIARY OF BAL PHARMA) Contd. DESCRIPTION Security Deposits from Customers Total F G Deferred Tax Liability Current Liabilities and Provisions Current Liabilities Provisions Total H I Net Worth Represented by : Shareholder’s Funds Share Capital Share Application Money Reserves Balance in Profit & Loss Account Total Less J K Miscellaneous Expenditure (to the extent not written off or adjusted) Net Worth (1.34) (1.34) (1.34) (1.34) — — 3.34 3.34 3.34 3.34 — — — — 2.00 — — 2.00 — — 2.00 — — 2.00 — — — — — — 2.00 2.00 2.00 2.00 — — 1.46 — 1.46 (1.34) 1.46 — 1.46 (1.34) 1.46 — 1.46 (1.34) 1.61 — 1.61 (1.34) 31.10.2004 — — — 31.03.2004 — — — 31.03.2003 — — — 31.03.2002 — — — 31.03.2001 — — — — — — — — 31.03.2000 — — — — — — — —
FINANCIAL INFORMATION (CONSOLIDATED) OF BAL PHARMA LIMITED STATEMENT OF ASSETS AND LIABILITES (Rs.in Lakhs) Description A Fixed Assets Gross Block Less : Depreciation Net Block Capital Work-in-Progress Total B C D Investments Deferred Tax Assets Current Assets,Loans and Advances Inventories Sundry Debtors Cash and Bank balances Loans and Advances Total Liabilities and Provision :Loan Funds Secured Unsecured Security Deposits from Customers Total F G Deferred Tax Liability Current Liabilities and Provisions Current Liabilities Provisions Total H I Net Worth Represented by : Shareholder’s Funds Share Capital Share Application Money Reserves Balance in Profit & Loss Account Total J K Less Miscellaneous Expenditure (to the extent not written off or adjusted) Net Worth 2127.03 1565.77 284.58 479.62 4457.00 31.10.2004 2045.05 563.37 1481.68 146.37 1628.05 11.58 31.03.2004 1986.80 506.74 1480.06 131.26 1611.32 11.58 1964.40 1430.45 14.69 523.40 3932.94 1521.87 1077.64 20.49 451.21 3071.21 1347.15 1058.63 34.41 435.95 2876.14 1188.88 783.49 25.38 327.31 2325.06 925.74 855.89 14.02 263.64 2059.29 31.03.2003 1840.05 419.52 1420.53 18.64 1439.17 11.58 31.03.2002 1643.04 333.79 1309.25 61.27 1370.52 11.58 31.03.2001 1466.20 262.56 1203.64 54.25 1257.89 11.79 31.03.2000 1422.90 197.76 1225.14 0.00 1225.14 11.69
E
1957.90 562.00 129.20 2649.10 378.58 1280.05 145.11 1425.16 1643.79
1997.94 35.75 93.96 2127.65 336.88 1293.31 199.40 1492.71 1598.60
1594.03 211.75 53.39 1859.17 287.50 798.81 146.56 945.37 1429.92
1266.56 184.32 50.80 1501.68 248.24 997.84 126.36 1124.20 1384.12
1109.27 127.59 39.74 1276.60
823.59 96.49 920.08
621.05 137.27 758.32 1559.82
725.92 109.19 835.11 1540.93
741.00 960.92 362.40 2064.32 420.53 1643.79
973.00 726.37 266.01 1965.38 366.78 1598.60
773.00 676.86 261.79 1711.65 281.73 1429.92
773.00 641.35 183.44 1597.79 213.67 1384.12
773.00 609.85 349.83 1732.68 172.86 1559.82
773.00 578.36 355.95 1707.31 166.38 1540.93
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Inter Corporate Loans Srl No 1 2 3 4
outstanding as on 31.10.2004: Balance Outstanding as on 31.10.2004 (Rs. Lakhs ) 15.00 15.00 15.00 10.00 55.00
Name of the Lender Ajas Components Pvt Ltd Govind Vallabh Finance Services Pvt Ltd Pam Pac Machineries Pvt. Ltd Peddar Johnson Finance Ltd Total
The Company confirms that the all the relevant provisions of the Companies Act, 1956 have been complied with regard to the above Inter Corporate Loans Details of Personal guarantees by Directors The following are the details of the loans for which Mr. Shailesh Siroya, Managing Director and Mr. Shrenik Siroya, Director have executed personal guarantees. (Amount in Lakhs.) Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Name of Lender Secured Loans Exim Bank of India Karnataka State Financial Corporation UTI Bank Ltd. UTI Bank Ltd. UTI Bank Ltd. Scotia bank Scotia bank Scotia bank Scotia bank Canara Bank For Domestics For Exports 11. Punjab National Bank For Domestics For Exports 12. ICICI Bank For Domestics For Exports 13. 14. 15. 16. EXIM Bank – Exports SIDBI - Domestics Corporation Bank Unsecured Loans IDBI Rs.500.00 20 months Rs.340.00 Rs.110.00 Rs.170.00 Rs.100.00 Rs.391.88 Working capital loan Working capital loan Working capital loan Working capital loan Rs.510.00 Rs.170.00 Working capital loan Rs.450.00 Rs.250.00 Working capital loan Sanctioned Amount US$280000 Equ-IR Rs.129.40 & Rs.142.00 Rs.21.01 Rs.37.50 Rs.68.55 Rs.300.00 Rs.6.30 Rs.5.93 Rs.1.78 Rs.9.60 Tenure 8 Qtly payments from Feb. 2005 16 qtrly payments from Dec. 2003 36 monthly payments from Dec 2003 33 monthly payments from January 2004 54 EMI after full drawal 36 EMI from 1.10.02 36 EMI from 1.4.02 36 EMI from 1.5.02 36 EMI from 5.9.02.
Details of Loans and Advances and Sundry Debtors due from the promoter group companies Name Loans and advances Sundry debtors (less than 6 months) Micro Labs Limited Micro Nova Private Limited Eros Pharma Private Limited TOTAL 9.33 0.33 0.04 9.70 balance as on 31.10.2004 (Rs. In lakhs) NIL
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X. A.
MANAGEMENT DISCUSSION AND ANALYSIS An Overview The Indian Pharmaceutical industry provides affordable healthcare to Indian population. It is characterized by being technologically strong and self reliant, low costs of production, research and development and manpower, strength of national laboratories and an increasing balance of trade. The competitive market conditions in the West have forced Western manufacturers to look at alternatives to reduce their manufacturing cost. Outsourcing part of manufacturing operations to Indian pharmaceutical companies would be one of the viable options.. Taking advantage of the low cost production, combined with FDA approved plants Indian companies are becoming a global outsourcing hub for pharmaceutical products. The new patent regime introduced in India from 2005 throws open a lot of promises for the pharmaceutical industry. Various structural changes have taken place, encouraging innovation in the industry. The Pharmaceutical Industry, being knowledge based industry, offers good opportunities to Indian pharmaceutical manufacturers who have significant R&D capabilities for developing molecules for international drug manufacturers. The Government’s decision to allow 100% FDI in the pharma industry is expected to aid contract research. New legislations are expected in the OTC segment increasing the number of brands therein. The Indian industry is getting increasingly USFDA compliant to harness growth opportunities for contract manufacturing and research from multinational companies. It is worth noting that India has the largest number of manufacturing plants having USFDA approval outside the US. In order to seize the opportunities unfolding in the coming years, Bal Pharma plans to set up two manufacturing facilities one for APIs and another for formulations conforming to the standards laid down by USFDA. The company has registered significant growth in the export of APIs in the year 2003-04.Bal Pharma has released new branded formulations in the Diabetic segment and has recorded an increase in the performance by 9.6% over the previous year 2002 - 03. Cardiac and Generic Divisions also recorded an increase in their operational efficiency. Recently USFDA has recognized the ayurvedic form of medicine and it is believed that this segment will have significant growth in the coming years. Keeping this in mind, the Company launched ayurvedic products during the year. The Bulk Drugs Division launched two new drugs – Topiramate and Letrozole. The Company’s exports of APIs registered growth of 44% during the year 2003-04 over the previous year. R&D facility commenced its contract research by bagging its first order from Germany in the current year.
B.
Analysis of financial performance of Bal Pharma Limited (Rs. In lakhs) Description Income Expenditure Interest Depreciation Total Expenditure Net Profit before tax & Extra Ordinary / Exceptional Items Provision for Taxation Net Profit before Extra Ordinary / Exceptional Items Extra Ordinary Item of Expenditure Exceptional Items Net Profit after Extra Ordinary / Exceptional Items As per last Account after adjusting Adjustments relating to earlier years transitional provision for Deferred Tax Liability in the year 2002 Profit available for appropriation Comparison of FY2004 over FY 2003 Sales Revenue During the year ended 31st March, 2004, the sales revenue has recorded an increase of Rs.550 lakhs (approx.) in the FY2004 due to the aggressive marketing techniques adopted by the Company that has helped in boosting the sales. There was an all round increase in the performance of operations of the Company. This growth has been achieved through a process of identifying niche products and areas and diversification of product groups. However, the turnover was affected due to transporters’ strike and the confusion regarding introduction of Value Added Tax during the current year. The Company had also launched a new division called Balvedics for marketing of herbal and ayurvedic products. The sales from this division amounted to Rs 47 lakhs. During the year, the branded products marketing was aggressive and a number of new branded formulations were launched particularly in the antidiabetic segment. The performance of this division increased by 9.6%. The Cardiac Products Division was also very aggressive expanding its market coverage to North and returned a good growth of 39% over the previous year. The Generic division continued its performance and returned a growth of about 33%. The Government & Institutions business grew by 56%. Looking at the multifold growth of the Indian Ayurvedic business in the recent years and to keep pace with this development. the Company entered this sector and made an initial sales of Rs.0.52 crores during the year. The Bulk Drugs Division launched 2 new products –Topiramate and Letrozole. Export turnover of bulk drugs increased by about 39%.. The R & D facility commenced the contract research business bagging its first order from Germany during the year. The Formulation Exports Division maintained its level of operations. New markets in Angola, Maputo, Mauritania and Singapore were added to the area of operations.. Total Expenditure The expenditure increased by Rs 516 lakhs (approx.) in the year FY2004 over that of FY2003. The increase was mainly due to growth in volume by 10%. Despite the inflationary tendencies, expenses have been controlled to minimize the cost increase. There was reduction in interest expense compared to the previous year due to negotiated lowering of interest rate from banks and institutions. Profit After Tax The profit after tax has shown an increase of Rs 26.86 lakhs (approx.) in the year FY2004 over the year FY2003. The profitability margin has been maintained at the same levels. However, an amount of Rs 25 lakhs was charged to profit and loss account as an extraordinary and exceptional item. 31.10.2004 3288.78 2894.65 138.91 50.76 3084.32 204.46 31.58 172.88 Nil Nil 172.88 41.69 131.19 31.03.2004 5681.02 5044.44 250.37 77.18 5371.99 309.03 23.82 285.21 25 Nil 260.21 49.38 210.83 31.03.2003 5131.00 4520.14 254.67 80.69 4855.5 275.5 17.15 258.35 Nil Nil 258.35 39.25 219.10 31.03.2002 3990.01 3518.02 193.16 65.73 3776.91 213.10 14.33 198.77 Nil Nil 198.77 41.12 157.65
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Comparison of FY2003 over FY 2002 Sales Revenue Sales during FY2003 has registered growth of 25% i.e. Rs1085 lakhs (approx) over the previous year. Greater focus on niche products, aggressive marketing especially in exports and expansion in the north Indian markets resulted in the growth in sales. Total Expenditure The increase in expenditure has been mainly due to the increase in the volume, additional selling expenses were incurred due to the recruitment of additional sales personnel and also due to promotional expenses. Profit After Tax Profit after tax for FY2003 recorded and increase of about Rs 59.58 lakhs over the previous year and this has resulted due to increase in margin on higher turnover. Unusual or infrequent events or transactions There are no major unusual or infrequent events or transactions known to the Company that could have a material affect on its revenues or operations Significant Economic Changes Various economic factors such as interest rates, import duties on raw materials, duties and taxes on finished products, foreign exchange rate, international pharmaceutical prices could have an effect on the Company’s operations. Known Trends or uncertainties India has adopted product patents under the World Trade Order (WTO) regime with effect from January 2005. The major challenge ahead for the Indian pharmaceutical industry is to prepare itself for the WTO environment and the Product Patent regime. This requires higher level of allocation of funds for research and development. The pharmaceutical industry will no longer be able to take advantage of the launch of the products before the expiry of product patent. Introduction of MRP (maximum retail price) based excise duty for all allopathic formulations with effect from 8th January, 2005, and the introduction of value added tax from 1st April, 2005, are likely to have impact on the business of the Company. Extent to which material increases in net sales or revenues are due to increased sales volume, introduction of new products or services or increased sales prices The net sales volume of APIs have registered a growth of 44% in the year 2003-04 over the previous year. The Company modifies its prices from time to time in accordance with market conditions and applicable laws like DPCO. Future changes in relationship between costs and revenues The R&D department of the Company has been making efforts to develop new APIs. The Company is also aiming at reduction in costs by improvements in process and production. The extent to which business is seasonal The business of the Company is not seasonal. Competitive conditions The Indian Pharmaceutical Industry is highly fragmented and competitive due to presence of large number of domestic as well as multinational players. The Company effectively faces the challenges of competition through its emphasis on marketing network and research and development. Significant dependence on a single or few suppliers or customers The Company is not dependant on any single or few suppliers or customers. Status of any publicly announced new products or business segment In order to enter the global regulatory markets and shift towards low cost production, the Company is in the process of setting up Greenfield plants, one for formulations and another for APIs. The development stage of Tranxeamic Acid and Entacapone are complete and the products are under scale up. Total Turnover in the industry The Indian Retail Pharmaceutical Market has been valued at Rs.20054 crores for the twelve-month period ending June 2004.Source: ORG-IMS (Market Intelligence-June 2004) Events After the Balance sheet date There are no subsequent developments after the date of the Auditor’s Report, which will have a material impact on performance and prospects of the company. XI. BASIS OF ISSUE PRICE a) Qualitative factors i. The Company has a wide spectrum of pharma products. ii. It is aggressively positioning itself for manufacturing and marketing of niche APIs. iii. There is an increasing emphasis for entry into regulated markets. b) Quantitative Factors i. Earnings per share for the last three years Year Ended 31.03.2002 31.03.2003 31.03.2004 The weighted average EPS works out to Rs. 2.78 Earnings Per Share (Rs.) 2.26 3.27 2.63 Weight 1 2 3
55
ii.
P/E Multiple in relation to the Offer Price Offer Price (Rs) Weighted EPS (Rs per share) PE Multiple Based on weighted EPS PE Multiple Based on EPS as on 31st March 2004 Industry PE Highest Lowest Industry composite average 60.7 6.7 25.1 30 2.78 10.79 11.41
(Source: Capital Market Isssue dated March 28-April 10, 2005)Vol XX/02
iii. Return on Net-Worth (RoNW) for last three years Financial Year 31.03.2002 31.03.2003 31.03.2004 % 11.36 15.29 13.16 Weight 1 2 3
Based on the above, the weighted average RoNW works out to 13.57%. iv. Minimum Return on increased net worth required to maintain Pre Issue EPS: 10.05% Net Asset Value per equity share as on March 31, 2004, is Rs.20.98 per share and as on 31 October, 2004, is Rs.23.88 per share. Net Asset Value per equity share after the issue is Rs.26.17 The issue price is Rs.30/- per share. The issue price is three times the face value. Comparison of all accounting ratios of the Company with industry average and accounting ratios of peer group companies. Company Ipca Labs Elder Pharmaceuticals Ltd Indswift Labs Aarti Drugs FDC Natco Pharma Year ended 31.03.2004 31.03.2004 31.03.2004 31.03.2004 31.03.2004 31.03.2004 EPS (Rs.) 31.20 10.00 4.20 9.90 3.00 3.40 P/E 10.50 13.80 18.50 9.80 17.00 27.00 RoNW% 32.50 16.70 17.00 19.30 37.00 12.60 Book Value (Rs.) 110.30 83.20 43.20 56.80 10.10 30.70
(Source: (Capital Markets Issue dated March 28-April 10, 2005)Vol XX/02
On the basis of the above qualitative and quantitative parameters, the Lead Manager and the Company are of the opinion that the issue price of Rs. 30 per share is justified. XII. OUTSTANDING LITIGATIONS, DEFAULTS, ADVERSE EVENTS AND MATERIAL DEVELOPMENTS There are no contingent liabilities not provided for, outstanding litigation, disputes, non payment of statutory dues, overdue to banks/ financial institutions, defaults against banks/ financial institutions, defaults in dues towards instrument holders like debenture holders, fixed deposits and arrears on cumulative preference shares issued by the Company, defaults in creation of full security as per terms of issue/other liabilities, proceedings initiated for economic/ civil/ any other offences including disciplinary action taken by SEBI/Stock Exchanges (including past cases where penalties may or may not have been awarded and irrespective of whether they are specified under paragraph (i) of Part 1 of Schedule XIII of the Companies Act, 1956) against the Company except the following: Contingent liabilities not provided for ( in Rupees) on 31 October, 2004 a) b) c) Guarantees issued by Company’s bankers Rs.8,572,000/- (P.Y.Rs.7,319,357) Letter of credit Rs 3,95,83,000/- (P.Y.Rs.22,682,070). Estimated value of contracts remaining to be executed on capital account & not provided for Rs 13,765,000 /- (P.Y.Rs.13,75,126).
CASES FILED AGAINST THE COMPANY Sl No 1 STATUTORY CASES REGULATORY The Registrar of Companies, Karnataka, issued show cause notice to the Company Secretary, ex-Directors and Directors inposition, alleging violation of certain provisions of the Companies Act, 1956, with reference to Annual Report for the Financial Year ended 31.03.2002, which are technical in nature. The show cause notices were suitably replied and compounding applications were also submitted and these are under process CIVIL CASES Brief on the Case 2 TRADEMARK Centaur Labs Private Ltd., filed a suit against the Company on 30.06.01 before Mumbai High Court for (i) passing off and (ii) infringement and succeeded in getting ad interim order against the Company for using the mark “Microdine” which was in continuous use by the Company since 1992.The Company did not succeed in the appeal before Division Bench against ad interim order of the Trial Court and Supreme Court did not entertain the application made by the Company on technical grounds.In the interim stage, the trial court confirmed its ad interim orders. The Company is contesting and the regular hearing is yet to be taken up by court.
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The relief sought includes permanent injunction and account of profits, which at this stage could not be quantified. 3 TRADEMARK Wave Pharmaceuticals filed a case against the Company on 29.05.02 for passing off the Company’s products under their mark ‘Ocumol’before the Delhi High Court .The Company exported its product to Russia under the mark ‘Okumol’ on a specific understanding from the importer that all liabilities of any nature including trademark litigation will be met by the importer. A very few consignments in the first half of 2001 were made but when the Company came to know that the mark ‘Ocumol’ is registered by the plaintiff in Russia, the use of ‘Ocumol’ was stopped immediately. The Company’s defense mainly centers around ‘no cause of action’ in India and ‘jurisdiction’ as the mark registered only in Moscow and the said products are not sold in India. The Court has directed that since the license to manufacture the drug under the name ‘Okumol’ has already been surrendered by the Company, the status quo be maintained. Regular hearing is on. The relief sought includes permanent injunction and account of profits and could not be quantified at this stage. 4 PATENT Eli Lily, an MNC, based at USA, filed a case in High Court of Sindh at Karachi against M/s. Morgan Chemicals, Karachi, the Company’s agent in Pakistan and the Company was made one of the defendants, for alleged infringement of their patent rights. Regular hearing is on. Reliefs sought could not be quantified 5 LABOUR Case before Conciliation Officer & Asst Labour Commissioner, Division IV, Bangalore was filed on 12.11.03 by 42 ex-contract labourers demanding employment on regular basis. Contractor’s offer of financial settlement has been taken by 30 of them and they withdrew themselves from the dispute. Out of the rest 12, 9 are continuing the diaspute. The Conciliation is complete but the report is yet to be forwarded to Government. Reliefs sought could not be quantified 6 A case before Labour Officer and Minimum Wages Authority by 40 ex-contract labourers alleging non payment of minimum wages by the contractors was filed on 22.01.04. Contractor’s offer of financial settlement has been taken by 32 of them and withdrew themselves from the complaint .Rest 8 are continuing the complaint Regular hearing is on. Reliefs sought is estimated at Rs. 56,000/7 Case was filed on 18.09.04 by a Ex-Trainee Sales Officer, who worked with the Company for 2 months before Ernakulam Labour Court for computation of wages. Regular hearing is on. Reliefs sought is estimated at Rs.8000/- . STATUS ON CASES/APPEALS FILED BY THE COMPANY CRIMINAL CASES 1 4 LG air conditioners purchased for Corporate Office were stolen from the Corporate Office premises. FIR was lodged and 3 air conditioners were traced. We filed an application under Section 451 & 457 of CrPC for interim custody of the 3 L G Air Conditioners with us. The 3 Air conditioners were recovered on 12-12-03. In the meanwhile, Police is being persuaded to handover the compressor without insisting for the identification number. Regular hearing is on. Relief sought could not be quantified 2 Under a loan licence agreement dated 31-12-2002 with M/s Dominion Chemical Industries Ltd we placed job work orders on them and supplied to them raw materials and packing materials and machine. The said factory is now closed and our raw materials, equipments and finished products worth more than Rs.20 lakhs were inside the factory premises. The Complainant came to know from reliable sources that the accused, Mr. G.Vijay Kumar and others, have stolen the said materials from the factory premises without the knowledge of the complainant or of M/s. Dominion Chemical Industries Ltd and have sold the same in the market. A criminal case against Mr. G. Vijay Kumar and others has been filed. Regular hearing is on. Relief sought could not be quantified 3 The Defendant was handling Company’s assignment of customs clearance and freight forwarding of export consignments and one of the stipulation was that the defendant would submit certain identified post shipment documents within a day of sailing and certain other identified post shipment documents within 10-15 days of sailing. Despite termination of business the defendant wrongfully exercised lien over the documents and did not release them despite written undertaking to release them, involving criminal breach of trust etc. Relief’s sought are to investigate by police authorities and give the documents released from wrongful lien. Regular hearing is on. Relief sought could not be quantified STATUTORY CASES 4 ENTRY TAX CLAIM The Company had paid under protest an amount of Rs.91,40,396 towards recovery of tax and penalty under KTEG Act for the years 1993-94 to 2001-02 vide Demand Notice from the DCCT. The Company had appealed to the Supreme Court of India against the said order in 2002-03. The Supreme Court of India passed an order against the Company in the last year. The Company has however filed a Curative Petition against the Supreme Court Order, which is yet to be heard. Pending final decision, the Company had made an ad hoc provision of Rs. 25 lakhs during the year 2003-04. Regular hearing is on. Reliefs sought could not be quantified
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5
EXCISE CLAIM CASE Appeal filed against Central Excise Department’s valuation of Physician’s samples removed during 1-6-1996 to 20-6-1997 based on sale value of equivalent products. Our contention is that valuation should be cost + 15% Duty liability is Rs.10.34 lakhs. The Company has deposited Rs. 5 lakhs as directed by CEGAT. Reliefs sought is to set aside the order of lower authority Regular hearing is on. Reliefs sought is quantified as Rs. 10.34 Lakhs
6
EXCISE CLAIM CASE Physician’s samples cleared between 9/97 to 2/98. Duty liability Rs. 8.98 lakhs. While Department’s valuation was based on sale value of equivalent product, our contention is that valuation should be cost+15%. Matter was taken to Commissioner (Appeals), Bangalore. He issued unfavorable decision on 30.12.04 Regular hearing is on. Reliefs sought is quantified as Rs. 8.98 lakhs
7
EXCISE CLAIM CASE This is a time barred claim from Excise on Pune factory. A small period of 2 months may not escape time bar but this depends on the decision in the said appeal. We did not pay duty on the scrap as the main product was not liable for duty, on the erroneous impression that if the main product does not attract duty, the scrap will also not attract duty without noticing the condition that such an exemption is available only where no other dutiable products are manufactured. Joint Commissioner, Pune, turned down our plea of time barred claim and our appeal before Commissioner of Appeals, Pune did not succeed. Stake involved – Duty Rs.434299/- + Penalty Rs.434299/-. Appeal has been filed with CESTAT, Mumbai and CESTAT stayed the proceedings with an advise to deposit Rs 30000/which was done. In the meanwhile, as 180 days for the stay expired, we took steps to extend the stay for another 6 months. Regular hearing is on Relief sought is quantified as Rs. 8.99 Lakhs.
8
EXCISE CLAIM CASE During the period 12.10.99 to 17.10.99 Pune Factory was paying Excise duty at full rate of duty for clearance of the product “PILOCARPINE” which was exempt from payment of Excise duty and we claimed duty refund of Rs 1,01,356/-. The refund claim was rejected by the Department and Commissioner (Appeals) rejected the refund claim as time barred. Regular hearing is on Relief sought is quantified as Rs. 1.01 Lakhs
9
SALES TAX CLAIM The sales tax liability is Rs 3,33,000/- relating to assessment year 1997-1998. The Karnataka Commercial Tax Department disallowed our claim for sales tax exemptions on the ground that the consignment agent did not furnish F forms on monthly basis but furnished on yearly basis. Regular hearing is on Reliefs sought is quantified as Rs. 3.33 Lakhs
10
INCOME TAX CLAIM The tax demanded is Rs 1,68,753 relating to assessment year 2000-2004. The Karnataka Commercial Tax Department made this claim of tax on us in respect of payments made for imports. We filed appeal before IT Tribunal. We have remitted 50% of the tax claim. Regular hearing is on Reliefs sought is quantified as Rs. 1.69 Lakhs..
11
INCOME TAX CLAIM Income tax Department disallowed 80HHC benefits arising out of negative profits relating to exports Appeal for the financial year 97-98 has been filed, as only for this year, Department’s action is barred by law. Regular hearing is on Relief’s sought could not be quantified..
12
COMMERCIAL Under a loan licence agreement dated 31-12-2002 with the defendant M/s. Dominion Chemical Industries Ltd., Bangalore, we placed job work orders and supplied raw materials. The factory is now closed and our raw material, equipments and finished products worth more than Rs.20 lakhs was inside the defendant’s factory premises. As whereabouts of the owners or authorised representatives of the defendant are not known, a suit has been initiated for recovery. We filed suit only for finished products and equipments, as at the time of filing the suit, the list of raw materials lying was not stated in the suit by inadvertence. Under the orders of the Court, part quantity could be recovered. Regular hearing is on Reliefs sought is quantified as Rs. 20 Lakhs
13
COMMERCIAL In response to the tender floated by Punjab Health Corporation, we submitted our quotes, which were accepted. Along with the quote, the bid security of Rs. 5,70,984.30 in the form of Bank Guarantee was submitted. However, we noticed variation in the price when the supply order was placed and requested for amendments to supply order. Contending no variation, Punjab Health Corporation invoked the bank guarantee. Bangalore City Civil Court restrained the Bank from operating the instructions of the defendant to invoke the guarantee. Punjab Health Corporation, despite time given by the Court, did not file objections to the application. Regular hearing is on Relief’s sought is quantified as Rs. 5.7 Lakhs
14,
COMMERCIAL The case has been initiated at the National Consumer Forum, New Delhi sagainst Ethiopian Airlines for non-delivery. Insurance company is prepared to settle the claim provided Ethiopian Airlines gives a non-delivery certificate, which the Airline is refusing to give contending delivery Regular hearing is on Relief sought is quantified as Rs. 9.6 Lakhs.
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CIVIL CASES Brief on the Case 15 TRADEMARK Action was initiated against ICPA Health Products (P) ltd on 18.06.98, for manufacturing and marketing their products under the Company’s brand name “Thermol”. The relief sought is permanent injunction restraining ICPA from infringing mark “THERMOL”. Regular hearing is on. Relief’s sought could not be quantified 16 TRADEMARK Action was initiated against Medwin Pharmaceuticals, Ahmedabad, on 18.07.03, for manufacturing and marketing their products under the Company’s brand name “Aziwin”. The relief sought is permanent injunction restraining Medwin Pharmaceuticals from infringing mark “Aziwin”. Regular hearing is on. Relief’s sought could not be quantified. 17. TRADEMARK An appeal was filed before Intellectual Property Appellate Board on 13.07.04 against the decision of Trademarks Registry to treat an application for registration of a Trademark ‘Diamet’ as abandoned . Regular hearing is on. Relief’s sought could not be quantified 18 TRADEMARK Action was initiated against Sain Medicaments Private Limited, Hyderabad, on 03.03.05, for indulging in manufacturing and marketing products under Company’s name ‘CARBOFER’. The relief’s sought are perpetual injunction restraining Sain Medicaments Private Limited in any manner to use our mark ‘CARBOFER’. Regular hearing is on Relief sought could not be quantified 19 MISCELLANEOUS Following certain incidents of disruptions from ex-contract labour, civil suit praying orders restraining the defendants from staging dharanas etc., within ½ k.m. radius of the factory (Unit-I) premises. The relief sought is restraining the defendants from staging Dharna in front of the factory. Interim orders were given restraining them from staging dharna before the factory. Regular hearing is on. Relief sought could not be quantified Litigations against/involving Promoters, Ventures promoted by the promoters, Promoter Group and Directors of the Company Micro Labs Limited: Statutory:Excise Claim Excise dispute to the extent of R.17,97,071/- (previous year Rs. 17,97,071) has been paid under protest towards the modvat utilised on exported goods pending before SESTAT. A sum of Rs.2,00,000/- has been paid under protest against the same and shown as advance recoverable. Brown and Burk Pharmaceuticals Limited: Statutory:Excise Claim The Company has paid Central Excise Duty of Rupees Two lakhs under protest during September 1999 towards disputed Excise Liability of Rs. 14, 79,412/-. The case is pending with SESTAT. Save and except the above: There are no contingent liabilities not provided for, outstanding litigations, disputes, non payment of statutory dues, overdues to banks/ financial institutions, defaults against banks/ financial institutions, defaults in dues towards instrument holders like debenture holders, fixed deposits and arrears on cumulative preference shares issued by the promoters, directors and the companies/ firms promoted by the promoters subsidiaries. There are no defaults in creation of full security as per terms of issue/ other liabilities, proceedings initiated for economic/ civil/ any other offences (including disciplinary action taken by SEBI/Stock Exchanges past cases where penalties may or may not have been awarded), any litigation towards tax liabilities, or any criminal/ civil prosecution for any offences (irrespective of whether “specified in paragraph (i) of Part I of Schedule XIII of the Act) against the Promoters, Promoter Group and Directors of the Company. There are no adverse findings in respect of persons/entities connected with the Company/ promoter as regards compliance of the securities laws. There are no litigation’s outstanding against the Promoters/ Directors in their personal capacity. The Company, its promoters and other Companies with which promoters/directors are associated have neither suspended by SEBI nor any disciplinary action has been taken by SEBI. There are no prosecution launched by Income Tax Authorities and no liability compounded by the Promoters/Company/ Companies/Ventures with which the Promoters are associated is subsisting. There are no cases of pending litigations/defaults in respect of the firms/ Companies with which the Promoters/Directors are associated in the past but are no longer associated. The Company confirms that save and except as mentioned above, there are no claims against the Company that are not acknowledged as debts. There are no cases of litigations pending against the Company or against any other company whose outcome could have a materially adverse effect on the position of the Company. There are no instances of any of the above litigations arising after the issue of the SEBI observation letter dated March, 30, 2005 till the date of this letter of offer There are no small scale undertakings having outstanding of more than Rs.1 lakh for more than 30 days as at 31 October 2004 respectively save and except the following.:
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Names of SSI undertakings to whom the Company owes any sum, which is outstanding for more than 30 days as on 31st October, 2004. Name Carto Cartoons Carto Prints Lake Chemicals Pvt. Ltd., M.P.Industries Printel Printers XIII. STOCK MARKET DATA The details of the share prices on the Stock Exchange, Mumbai, during the last 3 years are as follows: Year High (Rs.) Date of High 19.07.2002 29.12.2003 20.12.2004 Volume on the date of High 66972 91993 187245 Low (Rs.) Date of Low 02.01.2002 31.03.2003 23.06.2004 Volume on the date of Low 50 1750 5473 Average (Rs.) 19.35 39.90 58.88 Amounts outstanding (Rs ) 6,37,736 1,28,950 4,93,787 11,831 8,86,241
2002 2003 2004
28.60 63.90 88.75
10.10 15.90 29.00
(Source: The Stock Exchange, Mumbai official website: www.bseindia.com) *Average calculated as mean of high and low of the closing prices.
The details of the share prices on the Stock Exchange, Mumbai during last 6 months are as follows: Month High (Rs.) 74.20 78.40 85.75 76.85 67.60 63.65 Date of High 28.10.2004 04.11.2004 20.12.2004 03.01.2005 03.02.2005 04.03.2005 Volume on the date of High 81517 119311 187245 39051 9417 49876 Low (Rs.) Date of Low 04.10.2004 30.11.2004 01.12.2004 24.01.2005 25.02.2005 29.03.2005 Volume on the date of Low 24414 23134 14574 5412 7027 44744 Total Average Volume in Price in the the Month Month* 1300538 766409 1181262 276541 199999 350052 64.00 71.88 74.83 70.18 62.60 55.57
October 2004 November 2004 December 2004 January 2005 February 2005 March 2005
53.80 65.35 63.90 63.50 57.60 47.50
*Average calculated as mean of high and low of the closing prices. (Source: The Stock Exchange, Mumbai official website: www.bseindia.com)
The closing share price on 24.09.2004 on the Stock Exchange, Mumbai being the first day of trading after the Shareholders Meeting approving the Rights Issue was Rs. 48.70.There was no trading on BSE on 29.01.2005, being the first day of trading after the declaration of postal ballot results. The Ordinary Shares of the Company are actively traded on The Stock Exchange, Mumbai. Please refer to page v of this Letter of Offer for details regarding transactions in the securities of the Company undertaken by the promoters, relatives and directors of the Company during the last 6 months. Procedure for Handling Investor Complaints and Investor Grievances The Company has qualified and experienced staff in its Secretarial Department which closely monitors and co-ordinates with its RTA, for attending to and resolving the complaints of its shareholders. The Company attempts or uses its best endeavors jointly with the RTA, to ensure that complaints are minimal and that all complaints are resolved satisfactorily. The Company ordinarily attempts to dispose the complaints within four weeks of receipt of complaints. The Company Secretary supervises the process of redressal of grievances. The Company’s name has never appeared in the press release issued by SEBI regarding maximum number of complaints received from investors. Tata Share Registry Limited will be acting as Registrar to the Issue with whom the Company has made arrangements for attending to the investor’s complaints. However, investors can also address their grievances to the Company Secretary and Compliance Officer of the Company, who will coordinate all matters related to the investors’ grievances expeditiously with the Registrar & Transfer Agents. The Company would make all efforts to deal with and redress investors’ complaints within 30 days of their receipt. Complaint letters should be either typewritten or legibly handwritten quoting folio number, application number, number of equity shares applied for, name and address of the first applicant, name and address of the Bank, branch where application was submitted with date thereof, and the date of receipt by the Registrars to the Issue in case application was sent by post. The Company has appointed Company Secretary, as the Compliance Officer. Envelopes containing the complaints should be addressed to: Mr.K.Mahadevan, Company Secretary & Compliance officer, Bal Pharma Limited, 5th floor, Lakshmi Narayan Complex, 10/1, Palace Road, Bangalore – 5600 052, India All the complaints received subsequent to making document public have been dealt with suitably. There are no investor complaints pending with the Company as on the date of LoO. There are no listed companies under the same management within the meaning of Section 370 (1B) of the Companies Act, 1956. Expert opinion The Company has not obtained any expert opinions except that of M/s. Ostawal & Jain, Chartered Accountants who have given the tax benefits certificate
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Option to subscribe Other than the present Rights Issue, the Company has not given any option to subscribe for any Equity shares of the Company. Option to subscribe in dematerialised form The Investors have an option to subscribe to the shares of the Company either in the physical form or dematerialised form. The application form contains space for indicating number of shares subscribed for in demat and physical shares or both. Applicants must indicate in the application form the number of shares they wish to receive in dematerialised and physical form out of the total number of shares applied for. In case of partial allotment, shares will be first allotted in dematerialised form and the balance equity shares, in excess of the applicant’s request for equity shares in dematerialised form will be allotted in physical form. Shareholders opting to receive equity shares in physical mode will be issued a consolidated equity share certificate for all the equity shares allotted to them in this Offer. Promises Vs Performance The Company came out with a public offer of 25,30,000 shares of Rs.10/- each for cash out of which 23,20,000 shares were issued at a premium of Rs.20/- each and 2,10,000 shares were issued at a premium of Rs.30/- each, aggregating to Rs.780 lakhs. The issue opened on 1st February 1995 and closed on 11th February 1995. (Rs in lakhs) Particulars Expected Sales PBIDT Depreciation PBT PAT Share capital Reserves and Surplus EPS Book value Dividend (%) 757.53 284.04 10.00 237.24 201.65 573.00 722.00 15.37 22.60 20.00 1994 – 95 Actual 777.28 243.82 5.01 215.89 196.89 320.00 197.74 6.15 14.96 25.00 Variance 19.75 (40.22) (4.99) (21.35) (4.76) (253.00) (524.26) (9.22) (7.64) 5.00 Expected 3726.46 962.65 112.00 639.65 433.68 573.00 1155.68 7.57 30.17 20.00 1995 - 96 Actual 1072.12 167.43 9.57 98.72 98.72 573.00 769.31 0.97 21.01 7.5 Variance Expected (2654.34) (795.22) (102.43) (540.93) (334.96) Nil 386.37 (6.6) (10.16) (12.5) 1001.89 85.80 694.89 471.13 573.00 1626.82 8.22 38.39 25.00 1996 - 97 Actual 152.81 13.32 83.91 69.92 573.00 839.23 1.22 23.98 Nil Variance (3193.67) (849.08) (72.48) (610.98) (401.21) Nil (787.59) (7.00) (14.41) (25.00) 4854.44 1660.77
In the year 1995, there was a market glut in the Pharma sector that forced many pharma companies to close down. The Company survived the onslaught of the glut on account of its prudent policy and business strategies and this had an impact on the business and financial performance of the Company and hence, the variation. Issue of shares otherwise than for cash There have not been any issues for consideration other than cash, other than those disclosed under notes to capital structure. Details of previous issues The Company came out with a public offer of 25,30,000 shares of Rs.10/- each for cash out of which 23,20,000 shares were issued at a premium of Rs.20/- each and 2,10,000 shares were issued at a premium of Rs.30/- each, aggregating to Rs.780.00 lakhs. The issue opened on 1st February 1995 and closed on 11th February 1995. Payment of benefit to the Directors and Officers of the Company No amount or benefit has been paid or given or is intended to be paid or given to any Director or officer of the Company except their normal remuneration and/or reimbursement for the services rendered to the Company to which they are entitled to or may become entitled to in accordance with the law. Previous issue of Associate Companies during the last three years No Associate Company has come out with an issue during the last three years. Working Results and other information Information as required by Government of India, Ministry of Finance, Circular No. F2/5/SE/76, dated February 5, 1977 as amended vide their circular of even number dated March 8, 1977 is given below: a) Working results of the Company on standalone basis (unaudited) for the eleven months ended 28 February, 2005 Particulars Gross Income from Sales/Services Cost of Sales/Services Gross Operating Margin Other Income Interest Depreciation Profit Before Tax Provision for Income Tax Net Profit after Income Tax Deferred Tax-current Profit After IT & Def.Tax b) Rs. in Lakhs 5471.90 4884.90 587.00 1.19 195.57 0.00 392.62 33.00 359.62 50.00 309.62
There are no material changes and commitments affecting the financial position of the Company since the date of the last Balance Sheet, save that the Company has received a term loan of Rs.500 lakhs from IDBI at an interest rate of 8.5% p.a. to be repaid in 14 installments after 6 months and the purpose of the loan was to meet the expanded working capital requirements.
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c)
Week-end prices for the last four weeks on The Stock Exchange, Mumbai is as follows: Date March 18, 2005 March 24, 2005 April 1, 2005 April 8, 2005 Price per Share (Rs) 58.20 51.10 61.90 58.40
Source: www.bseindia.com
The closing price of the equity shares of the Company on The Stock Exchange, Mumbai as on April 08,2005 was Rs.58.40. d) The highest and the lowest of the prices of the equity shares during the period of last one year from April 1, 2004 to March 31, 2005 are: Price (Rs.) Highest price Lowest price 85.75 29.00 Date 20.12.2004 23.06.2004
Source: www.bseindia.com
General Declaration The Company has made all payments/refunds on fixed deposits, has paid interest on fixed deposits and has paid all institutional dues up-to-date other than those remaining unclaimed. Adverse events and material developments In the opinion of the Directors of the Company, there are no circumstances that have arisen since the last financial statement disclosed in the LoO that materially or adversely affect or are likely to affect the performance or the profitability of the Company or the value of its assets or its ability to pay its liability within the next 12 months XIV RISK FACTORS ENVISAGED BY THE MANAGEMENT The investors should consider the following risk factors together with all other information included in this LoO carefully in evaluating the Company and its business before making any investment decision. Any projections, forecasts and estimates contained herein are forward looking statements that involve risks and uncertainties. Such statements use forward looking terminologies like “may”, “believes”, “will”, “expect”, “anticipate”, “estimate”, “plan” or other similar words. The Company’s actual results could differ from those anticipated in these forward looking statements as a result of a number of factors including those, which are set forth in the “Risk Factors” as appearing on Page ii & 62 Internal Factors: 1. Non-receipt or delay in receipt of approvals for the new project: The Company is in the process of applying for/obtaining certain approvals for the proposed new facilities. With respect to the formulations manufacturing facility proposed to be located in Himachal Pradesh, the Company is in the process of identifying the land. The following approvals are required: a) b) c) d) e) f) g) h) i) j) k) l) Sales Tax registration granted by the Assessing Authority, Himachal Pradesh under Rule 6 of the Himachal Pradesh General Sales Tax Rules, 1970; Grant of Consent from Pollution Control Management Environmental Engineer, Baddi; Licence to work as a Factory - From Inspector of Factories; Approval of factory plan under Factories Act 1948; Letter from State Electricity Board for supply of electric power; Approval from Municipality/corporation for water connection; Manufacturing Licence from FDA, Consent from State pollution control board (Air, water, hazardous waste); Approval by Industrial safety and health authority; Central Excise Registration Certificate; Licence for purchase, possession and use of Inflammable and explosive material; Contract Labour Registration Certificate if required; Customs/Registration certification if required;
With respect to the APIs manufacturing facility proposed to be located in Bangalore, the Company has received a letter from the Karnataka Udyog Mitra under its State Level Single Window Clearance Scheme, for its project with infrastructural facilities. In this regard the Company is in the process of initiating the application and receipt of other approvals like clearance from BMRDA (Bangalore Metropolitan Rural Development Authority), Ministry of Environment and Forests, Government of India, approval from Factories and Boilers Department, factory licence, electricity and water approval, pollution board consent, etc. Non-receipt or delay in receipt of such approvals may delay the implementation of the projects and may have an adverse impact on the operations and performance of the Company. Management perception The Management has drawn up a time bound plan for implementation of the projects. The approval has been received from the Karnataka Udyog Mitra under the State level Single Window Clearance scheme for setting up of multipurpose API facility at Bangalore. The application will be made for the requisite approvals for setting up the Formulations Unit. The Company will also be making applications to all the statutory authorities for obtaining necessary registrations and approvals and the Management is confident of getting the clearances. 2. Project not appraised: The proposed project is not being appraised by any bank or financial institution and the deployment of funds raised through the present Rights Issue is not being monitored by any financial institution. Management Perception: The Management of the Company has estimated the requirement of funds. The Management shall ensure that the funds raised for the intended purpose will be judiciously utilised. 3. Quotations for cost estimates/arrangements with architects: The Company is yet to invite quotes for many items of the plant and machinery related to the project. The Company has not placed any orders with any supplier for the plant and machinery relating to the project. The Company has not paid any advance to any of the suppliers. The Company has
62
not obtained any performance guarantee for the supply of the equipment. No arrangement/agreement has yet been made with architects/engineers for the civil work, facilities and fixtures for the proposed units. Management perception: The cost estimates have been worked based on the experience of the Company and verbal enquiries of the production unit with the suppliers. The appropriate quotes will be obtained from the reputed suppliers and project implementation committee will place the orders at the appropriate time. The delivery of plant and machinery will be over the period of project and will take around three to six months from the date of placing the purchase orders. 4. Deployment/utilization of funds: Deployment/utilization of funds may not be in productive assets, which may not result in returns for the Company in the short and medium term. Management Perception: The Company is professionally managed with over ten years of experience in the pharmaceutical business and has estimated the funds requirement based upon its business plans. The Company is confident of utilizing the proceeds judiciously and meeting the time schedule for implementation. 5. The Company is dependent on the full subscription to the Rights Issue. Under subscription to the issue may have an adverse material impact on the implementation of the project and consequently on the future performance of the Company. Management Perception: In the event of any under subscription to the issue, some of the Promoters intend to subscribe to the issue beyond their entitlement. In such a case, the acquisition of additional shares by Promoters shall be exempt from making an open offer in terms of Regulation 3(1) (b) (ii) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. The acquisition will not result in a change in the control of the Management of the Company. 6. Equity Dilution: The present issue of equity shares on Rights basis will increase the paid up capital of the Company and this is likely to reduce the EPS. Management perception: The Company is making fresh investments out of proceeds of the present issue and this investment is expected to yield significant return, which will have a positive impact on EPS. 7. Outstanding Litigations (As per details given on Page 56-60 of the LoO) Cases filed against the Company: 3 Trademark and Patent infringement/passing off cases 1 Labour related case cannot be quantified and 2 labour related cases 1 Regulatory case Cases/Appeals filed by the Company By the Company: 4 Trademark cases 1 Civil case 3Criminal Cases 4 Excise Claim Cases 2 Income Tax Claim Cases 1 Sales Tax Claim Case 3 Commercial cases 1 Entry Tax case The outstanding litigations involving the promoter group companies are as follows: Micro Labs Limited: 1 Excise dispute Brown and Burk Pharmaceuticals Limited: 1 Excise case Rs.17.97 lakhs Rs. 14.79 lakhs (Rs. in lakhs) a) b) c) Guarantees issued by Company’s bankers Letters of Credit issued by Company’s bankers Estimated value of contracts remaining to be executed on capital account and not provided for in the Accounts 85.72 395.83 137.65 Not quantified Not quantified Not quantified Rs 29.32 lakhs Rs 1.69 lakhs Rs 3.33 lakhs Rs 35.30 lakhs Not quantified
Not quantified Rs 0.64 lakhs Not quantified
The details of the Contingent Liabilities of the Company, not provided for, as on October 31, 2004, are as under:
It is to be noted that if the Company becomes subject to significant legal action, it may incur substantial costs related to litigation. The Company currently carries no products liability insurance. If the Company improperly handles any dangerous materials used in its business and accidents result, the Company could face significant liabilities that would lower its profits. 8. Domestic formulation Industry is growing at a slow rate: The Company’s presence in the Pharmaceutical Industry is largely in the domestic formulations business. However, the domestic formulation Industry is growing at slow rate and this could impact the profitability of the Company 9. Inability to manage growth: Any inability to manage its growth by the Company could adversely affect its business prospects and reduce its profitability. Management Perception: The Company‘s formulations business in the specific therapeutic segments are growing faster than growth of Industry and further aggressive marketing and distribution will enable the Company to gain increased market share in the Industry. 10. Raw materials- Price volatility: The raw materials/solvents consumed by the Company are susceptible to volatility in prices. Such volatility may adversely affect the profitability of the Company.
63
11.
12.
13.
14.
15.
Management Perception: The Company has successfully adopted appropriate procurement strategies to meet similar challenges in the past and the Management is equipped to meet such situations in the future. Restrictive covenants: There are restrictive covenants in agreements the Company has entered into with the Banks/Financial Institutions for its short term and long-term borrowings. These restrictive covenants require the Company to seek their prior permission on corporate matters like declaration of dividends, alteration of capital structure, raising of fresh capital etc., Besides the Promoter Directors have executed Personal Guarantee for the said borrowings. Management Perception: The Management is confident that the lending institutions may not impose unreasonable restrictions as long as their interests are protected. Concentration of facilities: The location of the Company’s facilities is concentrated and disruption affecting the Company’s sites could have a material adverse effect on the company’s business, financial position and results of operations. Manpower requirement/ Attrition of key employees: The Company needs skilled manpower to maintain its performance as well as for the new project. Attrition of key employees and man power, particularly those in the research and development, marketing and specialized functional areas may affect the performance of the Company. Management Perception: The Company is taking effective steps to reduce the attrition at all levels of technical and managerial personnel. Its HR Policy and employee compensation schemes are likely to bring down the attrition rate. Employees Stock Option Scheme to lead to Equity Dilution: Shareholders of the Company in their meeting held on 23rd September, 2004, approved the introduction of Employees Stock Option Scheme in the Company with an overall ceiling of 5% of the issued capital of the Company. Implementation of the scheme is likely to reduce the EPS. Management Perception: The scheme, when implemented is likely to enhance the motivation level of the Option Holder and consequently improve the performance of the Company. Promises vs Performance The Company’s promises made in the initial public issue and the performance were as under: (Rs.in lakhs) Particulars Expected Sales PBIDT Depreciation PBT PAT Share capital Reserves and Surplus EPS Book value Dividend (%) 757.53 284.04 10.00 237.24 201.65 573.00 722.00 15.37 22.60 20.00 1994 – 95 Actual 777.28 243.82 5.01 215.89 196.89 320.00 197.74 6.15 14.96 25.00 Variance 19.75 (40.22) (4.99) (21.35) (4.76) (253.00) (524.26) (9.22) (7.64) 5.00 Expected 3726.46 962.65 112.00 639.65 433.68 573.00 1155.68 7.57 30.17 20.00 1995 - 96 Actual 1072.12 167.43 9.57 98.72 98.72 573.00 769.31 0.97 21.01 7.5 Variance (2654.34) (795.22) (102.43) (540.93) (334.96) Nil 386.37 (6.6) (10.16) (12.5) Expected 4854.44 1001.89 85.80 694.89 471.13 573.00 1626.82 8.22 38.39 25.00 1996 - 97 Actual 1660.77 152.81 13.32 83.91 69.92 573.00 839.23 1.22 23.98 Nil Variance (3193.67) (849.08) (72.48) (610.98) (401.21) Nil (787.59) (7.00) (14.41) (25.00)
16.
17.
18.
19.
Management perception In the year 1995, there was a market glut in the Pharma sector that forced many pharma companies to close down. The Company survived the onslaught of the glut on account of its prudent policy and business strategies and this had an impact on the business and financial performance of the Company and hence, the variation. Possibilty of conflict of interest Two of the promoter companies, Micro Labs Ltd., and Surana Pharmaceuticals Pvt Ltd., were incorporated with the same objects as that of the Company and are engaged in the manufacture of formulations. Management perception The Company has identified its niche area of operations in the pharmaceutical formulations arena which ensures that there is no conflict of interest with both the promoter Companies. Further more, the focus of Bal Pharma Limited is also on Active Pharmaceutical Ingredients (APIs), Contract Research on APIs and Parenterals, where the other promoter companies do not have any presence. Subsidiary yet to commence operations: Novosynth Research Labs Pvt. Ltd., a wholly owned subsidiary of the Company engaged in the business of Research and Development has not yet commenced operations. Management perception It is the firm assessment of the Management that India is becoming a favourable destination for contract research at competitive costs and to take advantage of this business potential, the subsidiary has been promoted with focus on contract research. With the revised patent regime in place from 01 January,2005, the operations are expected to commence soon. Relationship of the beneficiaries of the loans and advances and sundry debtors of the Company with the promoters. Some of the beneficiaries of the loans and advances and sundry debtors of the Company, namely Micro labs limited, Micro Nova private limited and Eros Pharma Limited are related to the promoters of the Company. (Details on Page No 53 of this LoO) Non provision for quoted investments of the Company in its books of accounts. Management perception For the quoted investments, in the absence of any trading no market quotations are available, hence, no provision has been made in the books of accounts for the diminution in the value if any of such investments. External Factors Business Risks: The Company operates in a globally competitive business environment. The competition in the pharmaceutical industry is intense with more than 250
1.
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large companies trying to get the share of the market. Growing competition may force the Company to reduce the prices of its products which may reduce the revenues and margins and/or decrease the market share of the Company, either of which could have a materially adverse effect on the business, financial conditions and operations of the Company. The Company faces growing and new competition that may adversely affect the Company’s competitive position and profitability. If changes in technology or therapeutic preferences make the Company’s products obsolete, its product sales and revenues will decline. Management Perception: Bal Pharma, with its aggressive market strategy has positioned itself among the better performing listed companies and is confident of pushing itself up in the top 100 companies. The companies who have developed niche products through their research and development efforts over a period of time are able to withstand the competition. Balpharma has a well equipped Research & Deveopment Center recoginsed by Government of India wherein newer processes and products are being developed. As the company’s products are well established with the medical profession and trade, the company will be able to withstand the competition. Regulatory Risks: The pharmaceutical industry in India is highly regulated by the Government of India under its Drug Price Control Order (DPCO). Therefore, any adverse change in the Government Policy in terms of margins or prices of the products would affect the Company’s performance. Governmental regulations may restrict the Company’s ability to sell it’s products, which could result in a loss of revenues. 3. Introduction of MRP (Maximum Retail Price) based excise duty for all allopathic formulations; both patented and otherwise, with effect from January 08,2005 and the introduction of Value Added Tax (VAT) from April 01, 2005 would affect the business and performance of the Company. 4. India has adopted product patents under the World Trade Order (WTO) regime with effect from January 2005. The pharmaceutical industry is required to comply with Trade Related Intellectual Property Rights (TRIPS). The pharmaceutical industry will no longer be able to take advantage of the launch of the products before the expiry of product patent. 5. Government of India announced gradual elimination of some of the Income-Tax exemptions and DEPB scheme that are available to the Indian Exporters. Non-availability of these tax exemptions and incentives will increase the future tax liability and decrease profits of the Company. 6. Any change in policies by countries in terms of tariff and non-tariff barriers, from which the Company imports raw materials and/or export products to, will have an impact on its profitability. 7. There is no assurance or guarantee that the Government or Statutory authority will not ban a bulk drug that is used by the Company in their formulations or for trading. In such an event the business and profitability of the Company may be affected. 8. If the Company fails to comply with environmental laws and regulations or faces environmental litigation, it’s results of operation may be adversely affected. Foreign Exchange Risk: 9. The strengthening of the Rupee, particularly with respect to the US Dollar, could adversely impact the profitability of the Company. Increasing employee compensations: 10. Increasing employee compensation in India may erode some of the competitive advantage and may reduce the Company’s profit margins. Conflicts and Instability: 11. Terrorist attacks and other acts of violence or war involving India, the United States and other countries could adversely affect the financial markets, result in a loss of business confidence and adversely affect the Company’s business, results of operations and financial condition. Regional conflicts in South Asia could adversely affect the Indian economy; disrupt the Company’s operations and cause it’s business to suffer. The performance of the Company is linked to the stability of policies and political situation in India. Management Perception: 2. These are general risks applicable to every player in the industry. They have already been reckoned in the operational strategies of the Company. The proactive pricing and costing strategies being pursued by the Management reckons acute competition in the industry and as such the Management is confident of meeting the above challenges and minimizing such adverse effects. Notes to Risk Factors
q q q q q
q
Investors are advised to refer to “Basis of Issue Price” on Page 55 before investing in this issue; Investors are advised to refer to “Notes to Accounts” before investing in this issue; Net worth of the Company before the issue as on 31st October, 2004, was Rs.1647.14 lakhs. The Net worth of the Company as on 31st March, 2004, was Rs.1601.94 lakhs; The NAV of the equity shares of the Company as on 31st October, 2004 was Rs.23.88 per share. The NAV of the equity shares of the Company as on 31 March, 2004, was Rs.20.98 per share; The present issue is of equity shares of Rs. 10 each for cash at a premium of Rs.20 per equity share, i.e., at a price of Rs. 30 per equity share on a rights basis to the existing equity shareholders of the Company in the ratio of 3 equity shares for every 5 equity shares held on the Record Date, 15 April, 2005 i.e., aggregating to Rs. 1175.40 lakhs; The Promoters, Directors and their relatives have undertaken the following transactions in the shares of the Company during the last 6 months: Sl No 1. 2. 3. Name of the Promoter / Director/Relative Mr.Jivi Dheerajmal Siroya Mrs. Anita Chandraprakash Siroya M/s. Micro Labs Limited No of Shares Bought Nil Nil 2,85,000 No of shares sold 5,000 9,106 Nil Average Price per share 75.30 76.88 39.00
In addition to the above, 10,000 shares worth transferred by Mrs Anita Chadraprakash Siroya by way of a gift. None of the Promoters, Directors or their relatives has undertaken any transactions in the shares of the Company, in the last 6 months, except as stated above.
q
As per AS 18, the Company’s related parties are given below: a. b. c. Wholly Owned Subsidiary Company Others Enterprises over which the above persons exercise significant influence and with which the Company has transactions during the year : : Novosynth Research Labs Private Limited i. M/s. Desa Marketing International ii. M/s.Siroya Trading Company Private Limited
:
Nil
65
The Company’s transactions with the above Related Parties for the period ending 31.10.2004 and the last five financial years are given below: Rs. in Lakhs 31.10.2004 1. Subsidiary Company (100% owned): Novosynth Research Labs Pvt Ltd., Advance Paid Company/Firm in which Director(s) are interested (i) Desa marketing International Commission on Sourcing sales /imports (ii) Siroya Trading Company Pvt.Ltd., Interest on loan Directors Interest on Loan: Mr. Shailesh Siroya Mr. Shrenik Siroya Key Managerial Personnel Salary to Managing Director/ Whole Time Director Mr. Shailesh Siroya Dr. S Prasanna Mr. Shrenik Siroya 31.3.2004 31.3.2003 31.3.2002 31.3.2001 31.3.2000
—
—
1.17
0.29
2.
— 0.66
10.84 1.40
3.12 1.49
0.23 3.21 3.30
3.
— 0.12
1.55 7.94
3.73 17.18
7.74 12.39
2.45 6.85
4.
16.83 6.54 —
28.90 11.24 0.52
12.89 3.84 5.76
12.81 3.84 5.76
10.60 3.84 3.84
XV. MATERIAL CONTRACTS AND INSPECTION OF DOCUMENTS The following contracts mentioned below (not being contracts entered into in the ordinary course of business carried on by the Company) are or may be deemed to be material contracts. Copies of these contracts along with documents referred below may be inspected at the Registered Office of the Company between 10.00 a.m. and 1.00 p.m. on any working day until the closing of the subscription list. Material Contracts i. Memorandum of Understanding dated January 30,2005 signed between the Company and Karvy Investor Services Limited for acting as Lead Managers to the Issue. Memorandum and Articles of Association of the Company; Certificate of Incorporation of the Company dated 19 May, 1987; Listing agreement with the BSE; Agreement with NSDL dated March 08, 2001 for dematerialisation of shares; Letter of Appointment of Tata Share Registry Limited as Registrar to the Issue; Agreement with CDSL dated 16 February, 2001 for dematerialisation of shares; Letter dated 11 February, 2005 from M/s. Ostawal & Jain, the Auditors of the Company, regarding the tax benefits available to the Company and its members; Letter dated 11 February, 2005 from M/s. Ostawal & Jain., the Auditors of the Company regarding financial performance for the past five years adjusted as per SEBI guidelines; Annual reports of the Company for the past five years; Consents from the Directors, Auditors, Lead Manager, Registrar, Compliance Officer, Bankers to the Issue, Bankers to the Company to act in their respective capacities; Observation Letter No. SRO/PMD/IMID/EIF/2004/2/5176 dated March 30, 2005 issued by the Securities and Exchange Board of India for the Issue; In principle approval dated 23 February, 2005 from BSE for listing of the securities offered in this issue Due-diligence certificate dated 03.02.2005 to SEBI from Karvy Investor Services Limited; Letters of intent for the subscription to rights entitlement and unsubscribed portion, received from the Promoters; Relevant extracts regarding Industry Information; Letter dated 7th January, 2005, from Export Import Bank of India granting In-Principle Approval;
Material Documents i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. xiii. xiv. xv. xvi.
XVI DECLARATION NO STATEMENT MADE IN THIS LETTER OF OFFER CONTRAVENES ANY OF THE PROVISIONS OF THE COMPANIES ACT, 1956 AND THE RULES MADE THEREUNDER. ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE GUIDELINES, INSTRUCTIONS, ETC. ISSUED BY SEBI, GOVERNMENT AND ANY OTHER COMPETENT AUTHORITIES IN THIS BEHALF HAVE BEEN DULY COMPLIED WITH. The Company accepts no responsibility for statements made otherwise than in the Letter of Offer or in the advertisement or any other material issued by or at the instance of the Company and that any one placing reliance on any other source of information would be doing so at their own risk. The Directors of the Issuer Company certify that all the disclosures made in the Letter of Offer are true and correct. Signed by the Directors Mr. Shailesh Siroya, Managing Director Mr. Shrenik Siroya, Director Dr. S. Prasanna, Director Dr. G.S. R.Subba Rao, Director Mr. N. D. Prabhu, Director Dr. C.N. Manjunath, Directors
Place :Bangalore Date : 13.04.2005 Encl: Composite Application Form (‘CAF’)
66