Directors' Report

To

The Members,

The Directors are pleased to present the 27th Annual Report with the Audited Accounts for the financial year ended March 31,2015.

COMPANY’S PERFORMANCE

Hikal's total revenue grew to Rs. 8,719 million, a 5% increase over the last year. The growth was driven by a 13% increase in the pharmaceutical division with higher off take of our key products. We expect growth in the pharmaceutical division to continue in the future.

The pharmaceutical division registered a 28% increase in volume year on year. However, fierce competition in our product segments led to price erosion of some of our key products which offset the volume gain we experienced. Pricing for some of our key products is expected to stabilize in the coming year which will help arrest the drop in margins. We will de-risk some of the portfolio with the introduction of new products this year.

In the crop protection division, there was erosion in volume as well as value primarily caused by inventory cuts by our major clients. Volume was down by 6% as compared to the previous year. Sales were down by 5%, which partially offset the gain in the pharmaceutical division. The agricultural industry is experiencing a downturn after having several years of high single digit growth. We expect impact to reverse itself in the second half of the current financial year. We are working towards diversifying our product portfolio and customer base which would ease the effects of the global downturn. Our EBITDA margin was down by 2% to Rs.1,841 million due to lower pricing for increased volumes as well as increased pricing competition. In this challenging market, we still operate at a healthy EBITDA margin of 21%. We introduced several cost rationalization initiatives in the current year. Cost savings from our co-generation plant, purchasing power at discounted tariffs and process improvements will protect our margins going forward. We have instituted strict working capital norms which will help free up cash reserves and reduce our overall working capital costs.

Depreciation was higher atRs.642 million from Rs. 550 million last year due to capitalization of additional assets in the pharmaceutical and R&D divisions. Significant investments were made to debottleneck and increase capacities of some of our manufacturing plants.

During the year, gross fixed assets increased by Rs.640 million due to an increase in capital assets (buildings, plants and equipment) in the pharmaceutical division and R&D. We invested a significant amount of money to set up our new development and launch plant and a co-generation plant at Jigani, Bangalore. We also invested in several de-bottlenecking initiatives across our sites.

Our financing cost was lower at Rs. 600 million vs. Rs. 680 million last year due to a reduction in the outstanding long term debt. Our total debt outstanding as on March 31, 2015 was Rs.5,471 million, slightly up from Rs. 5,458 million on March 31, 2014. Our debt/equity ratio has improved to 0.81 vs. 0.93 last year. We expect to further improve our financial leverage with repayments scheduled this year. We are actively working on strengthening our balance sheet.

The tax expense decreased from Rs. 342 million to Rs. 193 million this year due to tax on exceptional income last year

(one time sale of ESOP shares as per SEBI rules).

Our operational net profit after tax was down by 4% YOY at Rs. 405 million.

Hikal has undertaken several measures to ensure sustainability in the short as well as long term. We filed two DMFs for which products are expected to be commercialized during the year. We plan to file five to six DMFs every year for products that have significant commercial potential. It will increase our product portfolio and reduce our dependence on several legacy products. It will also help us phase out saturated products with declining margins. In crop protection, we aspire to grow our proprietary products to safeguard our division from volatile demand for some of our key contract manufactured molecules.

This year we refined our business strategy. We strengthened our business development teams for crop protection as well as the pharmaceutical divisions. Our primary objective is to develop a robust and diversified product pipeline mix of commercialized products. We recruited talent for R&D and set up new labs in allied but new business areas such as steroids. We debottlenecked our scale up facilities last year with the addition of a development and launch plant in Jigani which will enable a larger throughput of products from development into commercialization.

In a challenging environment, we increased our revenues and achieved a healthy EBITDA margin of 21%. We are well positioned to reap the benefits of our capital investments and benefit from our product pipeline. The Board of Directors has recommended a dividend of 50% as against 45% last year.

2. EXPORTS

Exports for the year is Rs.6,890 millions (79%of total sales) as compared to Rs.7,056 millions (85% of total sales) in the previous year. We have diversified our customers base which include more local customers who in turn re-export our manufactured products.

3. MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis on the operations of the company is provided in a separate section and forms a part of the report.

4. DIVIDEND

The Board had recommended an interim dividend of 25% (previous year:20%) and a final dividend of 50% including the interim dividend for the year (previous year:45%). During the year your Company has transferred Rs.50 Million to General Reserve.

5. SHARE CA PITAL

The paid up Equity Share Capital as at March 31, 2015 stood at Rs.16.44 crores. During the year under review, the Company has not issued shares with differential voting rights nor has granted any stock options or sweat equity. As on March 31,2015, none of the Directors of the Company hold instruments convertible into equity shares of the Company

The Board of Directors in their meeting held on December 17, 2014 approved the sub -division of each fully paid equity share of the face value of INR10/-into 5 (five) equity shares of face value of INR 2/-each fully paid up and the consequent amendment to the clause V of the memorandum of association & clause 3 of the articles of association of the company. Shareholders' approval by way of special resolution was obtained through postal ballot the result of which was declared on February 16,2015.

6. EXTRACT OF A NNUAL RETURN

The details forming part of the extract of the Annual Return in form MGT-9, as required under Section 92 of the Companies Act, 2013, is included in this Report as Annexure - D and forms an integral part of this Report.

7. SUBSIDIARY ACCOUNTS

In terms of the approval granted by the Government of India, Ministry of Company Affairs under Section 129(3) of the Companies Act, 1956, copies of the Balance Sheet, Profit and Loss Account, Directors' Report and the Report of the Auditors of the subsidiary companies viz., Hikal International B.V and Acoris Research Limited have not been attached with the Balance Sheet of the company. The company will make available these documents / details upon request made by any shareholder of the company interested in obtaining the same and the same can also be inspected at the Registered Office of the company as well as of the subsidiaries. Pursuant to the approval, a statement of the summarized financials of all the subsidiaries is attached along with the Consolidated Financial Statements. Pursuant to Accounting Standard (AS) -21 issued by the Institute of Chartered Accountants of India, Consolidated Financial Statements presented by the company includes the financial information of its subsidiaries.

8. DIRECTORS

During the year under review, the Company appointed Mr. Shivkumar Kheny, Dr. Wolfgang Welter and Dr. Axel Kleemann as Independent Directors of the Company with effect from May 5,2015 for a period of three consecutive years.

All Independent Directors have given declarations that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

In accordance with the provisions of Section 152 of the Companies Act, 2013 and the Company's Articles of Association, Mrs. Sugandha Hiremath, Director retires by rotation at the forthcoming Annual General Meeting and being eligible offers herself for re-appointment.

During the year under review, Dr. Peter Pollak retired as a Director of the Company with effect from September 12, 2014. The Board places on record its appreciation for the services rendered by Dr. Peter Pollak during his tenure as a Director.

Details of number of Board meeting held during 2014-15 forms part of Corporate Governance Report.

9. BOARD EVALUATION

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, a structured questionnaire was prepared after taking into consideration the various aspects of the Board's functioning like composition of the Board and its Committees, culture, execution and performance of specific duties, obligations and governance.

The performance evaluation of the Independent Directors was completed. The performance evaluation of the Chairman and the Non-independent Directors was carried out by the Independent Directors. The Board of Directors expressed their satisfaction with the evaluation process.

10. WHISTLE BLOWER POLICY

The Company has a whistle blower policy to report genuine concerns or grievances. The Whistle Blower policy has been posted on the website of the Company (www.hikal.com ).

11. REMUNERATION AND NOMINATION POLICY

The Board of Directors has framed a policy which lays down a framework in relation to remuneration of Directors, Key Managerial Personnel and Senior Management of the Company. This policy also lays down criteria for selection and appointment of Board Members. The details of this policy is explained in the Corporate Governance Report.

12. RELATED PARTYTRANSACTIONS

All related party transactions that were entered into during the financial year were on an arm's length basis and were in the ordinary course of business. There are no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential conflict with the interest of the Company at large.

All Related Party Transactions are placed before the Audit Committee as also the Board for approval. Prior omnibus approval of the Audit Committee is obtained on a quarterly basis for the transactions which are of a foreseen and repetitive nature. The transactions entered into pursuant to the omnibus approval so granted are audited and a statement giving details of all related party transaction is placed before the Audit Committee and the Board of Directors for their approval on a quarterly basis

The policy on Related Party Transactions as approved by the Board is uploaded on the Company's website.

None of the Directors has any pecuniary relationships or transactions vis-a-vis the Company

13. SIGNIFICANT AND MATERIAL ORDERS PASSED BYTHE REGULATORS OR C OURTS

There are no significant and material orders passed by the Regulators/Courts that would impact the going concern status of the Company and its future operations.

14. RISK MANAGEMENT

Company has a robust business risk management framework in place to identify and evaluate all business risks. The company recognizes that risk management is a crucial aspect of the management of the Company and is aware that identification & management of riskeffectively is instrumental to achieving its corporate objectives. The Company has identified the business risks and the business heads who are termed as risk owners assess, monitor and manage these risks on an ongoing basis. The risk owners assess the identified risks and continuously identify any new risks that can affect the business. Different risks such as technological, operational, maintenance of quality, reputational, competition, environmental, foreign exchange, financial, human resource, legal compliances among others are assessed on continuous basis. The risk management committee and audit committee review and submit to the Board of Directors their finding in the form of risk register at regular intervals. At the Board meetings, the committee has a detailed discussion to assess each risk and the measures that are in place to bring them to acceptable limits.

The strategies are reviewed, discussed and allocation of appropriate resources is done as and when necessary. The risk management programme, internal control systems and processes are monitored and updated on an ongoing basis. A built mechanism has been established to identify, measure, control, monitor and report the risks. Business heads are responsible for rolling out the risk assessment and management plan within entire organisation.

15. INTERNAL C ONTROL SYSTEMS A NDTHEIRA DEQUACY

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee of the Board.

The Internal Audit Department monitors and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the company and its subsidiaries. Based on the report of internal audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board.

The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control systems and suggests improvements to strengthen the same. The Company has a robust Management Information System, which is an integral part of the control mechanism.

16. KEY MANAGERIAL PERSONNEL

During the year, the Company appointed/designated the following persons as Key Managerial Personnel.

Mr. Jai Hiremath, Chairman & Managing Director

Mr. Sameer Hiremath, Presidents Joint Managing Director (Whole Time Director)

Mr. Sham Wahalekar, Chief Financial Officer & Company Secretary

17. PARTICULARS OF LOANS, GUARANTEES & INVESTMENTS BYTHE COMPANY

The details under section 186 of the Companies Act, 2013 are given in the notes to the financial statements.

18. DIRECTOR'S RESPONSIBILITY STATEMENT

Your Directors state that:

(i)ln the preparation of the annual accounts, the applicable accounting standards read with requirements set out under Schedule III to the Act, have been followed and there are no material departures from the same;

(ii)The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year ended March 31,2015 and of the profit of the company for that year;

(iii)The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(iv)The annual accounts have been prepared on a going concern basis;

(v)The Directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and (vi)The Directors have devised a proper system to ensure compliance with the provision of all applicable laws and that such systems are adequate and are operating effectively

19. AUDITOR

M/s B S R & Co. LLP Chartered Accountants is the retiring auditor, offer themselves for re-appointment

20. COST AUDITOR

The company has re-appointed Prof. V.J.Talati of V.J.Talati & Co., as the Cost Auditor to carry out the audit of Cost Accounts for the financial year 2015-16. The Cost Audit report for the financial year 2013-14 was filed with Ministry of Corporate Affairs, Government of India on September 24,2014.

21. SECRETARIAL AUDITOR

The Board has appointed Ms. Ashish Bhatt& Associates, Practising Company Secretaries, to conduct Secretarial Audit for the financial year 2014-15.

The Secretarial Audit Report for the financial year ended March 31,2015 is annexed herewith marked asAnnexure B to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

22. CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Corporate Social Responsibility Committee (CSR Committee) has formulated and recommended to the Board, a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company, which has been approved by the Board. The CSR Policy may be accessed on the Company's website at the below link: <http://www.hikal.com/investors/pdf/Corporate_Social_Responsibility.pdf>

Policy Statement

As a socially responsible corporate member of the world community, with long enduring relationships we believe that the future of our business is best served by respecting the interests of the Society at large.Through our efforts we shall strive to improve the living standards of the surrounding community. Our CSR activities shall aim to bring a difference in the lives of the needy, under privileged persons of the society including children, women and senior citizens and the environment.

The key philosophy of all CSR initiatives of the Company is guided by three core commitments of Scale, Impact and Sustainability. The Company has identified six focus areas of engagement which are as under:

• Health: Affordable solutions for healthcare through improved access, awareness and sanitation

• Education: Access to quality education, training, skill enhancement, enhancement of vocation skills

• Environment: Environmental sustainability, ecological balance, conservation of natural resources

• Protection of National Heritage, Art and Culture: Protection and promotion of traditional art, culture and heritage

• Overall development activities in surrounding areas of Hikal's manufacturing sites for the benefit of the society

• Contribution to Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio economic development or welfare

Implementation of the CSR Program

1. Project activities identified under CSR are to be implemented either by personnel of the Company or through registered trust or a registered society

2. The time duration of each project / program shall depend on its nature and intended impact.

The Company would also undertake other need based initiatives incompliance with Schedule VII to the Act. During the year, the Company has spent Rs.0.87 Million on CSR activities. Pursuant to the provisions of the Companies Act 2013, the Company should have spent Rs.12.8 Million (being 2% of the average net profits of last three financial years), during the financial year 2014-15. Your Company has taken progressive steps to formulate a policy identified the activities and is confident of spending the stipulated amount on selected programs in near future along with the shortfall in CSR expenditure for this financial year. The Annual Report on CSR activities is annexed herewith marked as Annexure A.

23. SAFETY&ENVIRONMENT

The company continued to maintain the highest standards of environment, health and safety. The company has become the first Indian life sciences company to receive the Responsible Care certification. It is applicable to all manufacturing and research sites of the company. Continuous training and awareness programs for the employees are undertaken on a frequent basis.

24. PUBLIC DEPOSITS

The company has not accepted any deposits and as such there are no overdue deposits outstanding as on March 31,2015.

25. EMPLOYEES

The company considers its human capital as an invaluable asset. The company continued to have cordial relationships with all its employees. Management and employee development programs and exercises were conducted at all sites. Employees had various team building exercises and were sponsored for various external seminars and other developmental programs to enhance their skill sets. The total workforce of the company stood at 1164 as on March 31,2015.

As required by the provisions of the section 197 (12) of the Companies Act, 2013, read with Companies (Appointment and Remuneration of Management Personnel) Rules, 2014, as amended, the names and other particulars of the employees form part of the Directors' Report. However, as per the provisions of the Sec. 136 of the Companies Act, 2013, the report and accounts are being sent to all shareholders of the company excluding the aforesaid information, any shareholders interested in obtaining such particulars may write to the Company Secretary at the corporate office of the company

26. CONSERVATION OF ENERGY, RESEARCH & DEVELOPMENT TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS A ND OUTGO

In accordance with the requirements of Section 134 (3) (m) of the Companies Act, 2013, read with rule 8 (3) of the Companies (Accounts) Rules, 2014, a statement showing particulars with respect to conservation of energy technology absorption and foreign earnings and outgo forming part of the Directors' Report, is given in the enclosed annexure c which forms part of this report.

27. CORPORATE GOVERNANCE

A report on the Corporate Governance Code along with a certificate from the Auditors of the company regarding the compliance of the code of Corporate Governance as also the Management Discussion and Analysis Report as stipulated under clause 49 of the Listing Agreements are annexed to this Report.

28. ACKNOWLEDGEMENTS

The Board of Directors place on record their appreciation of the contribution and sincere support extended to the company by our bankers, financial institutions and valued customers and suppliers.

The Board also places on record its appreciation for the impeccable service and generous efforts rendered by its employees at all levels, across the board towards the overall growth and success of the company

29. CAUTIONARY STATEMENT

Statements in the Board's Report and the Management Discussion & Analysis describing the Company's objectives, expectations or forecasts may be forward-looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Company's operations include global and domestic demand and supply conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.

For and on behalf of the Board of Directors

Jai Hiremath

Chairman & Managing Director

Place: Mumbai

Date: May 5, 2015