DIRECTORS' REPORT

Your Directors are pleased to present the 21st Annual Report and the Financial Statements for the financial year ended on March 31, 2016.

RESULTS OF OPERATIONS:

During the year under review, the consolidated gross sales grew by 11.6%. On standalone basis, the Company has achieved gross sales of Rs. 65,329 millions, showing a growth of 37.14% compared to the previous year. The PBIDT increased by 55.7% to Rs. 26,771 millions and the Profit Before Tax increased by 66.2% to Rs. 24,335 millions. The Profit After Tax has increased to Rs. 19,773 millions as compared to Rs. 12,711 millions in the previous year and the EPS has increased from Rs. 12.42 in the previous year to Rs. 19.31. A detailed analysis of performance for the year has been covered in the Management Discussion and Analysis, which forms part of the Annual Report.

INTERIM DIVIDEND:

During the year under review, your Directors had declared and paid an interim dividend of Rs. 3.20 per equity share of face value Rs. 1 each to the shareholders holding shares in physical form and whose names were listed on the Register of Members of the Company as on March 18, 2016, being the Record Date fixed for the purpose. Those shareholders holding shares in electronic form were paid dividend as per the beneficiary data provided by the Depositories.

Your Directors did not recommend final dividend. The dividend payout ratio for the current year [inclusive of corporate dividend tax on dividend distribution] is 19.6%.

During the year, the unclaimed dividend pertaining to the dividend for the year ended March 31, 2008 was transferred to Investors Education and Protection Fund after giving notice to the Members to claim their unpaid/unclaimed dividend.

Sub-division of equity shares

The Board of Directors at its meeting held on August 12, 2015 approved a proposal to sub-divide the face value of equity shares of the Company from Rs. 5 to Rs.1 per share. The Company received approval of the shareholders through postal ballot for sub-division of shares on September 22, 2015.

The record date fixed for sub-division of shares was October 8, 2015. Shareholders with equity shares of Rs. 5 each of the Company in electronic form received direct credit of the sub-divided shares of Rs.1 each of the Company to their depository account. The Company issued new composite share certificate of Rs.1 each in place of the old share certificates, for shareholders holding shares in physical form. 204,748,520 equity shares of face value Rs. 5 each were sub-divided into 1,023,742,600 equity shares of face value

Rs.1 each and there is no change in the paid-up share capital of the Company consequent upon sub-division of the face value of the equity shares.

MANAGEMENT DISCUSSION AND ANALYSIS (MDA):

MDA, for the year under review, as stipulated under clause 49 of the Listing Agreement / the Listing Regulations, 2015 with the Stock Exchanges is presented in a separate section, which forms a part of the Annual Report.

CONSOLIDATED FINANCIAL STATEMENTS:

In accordance with the Accounting Standard - AS-21 on Consolidation of Financial Statements read with Accounting Standard - AS-23 on Accounting for Investments in Associates and Accounting Standard - AS-27 on Financial Reporting of Interest in Joint Ventures and as provided under the provisions of the Companies Act, 2013 [hereinafter referred to as "Act"] read with Schedule III to the Act and Rules made thereunder and the Listing Agreement/the Listing Regulations, 2015, the audited Consolidated Financial Statements are provided in the Annual Report, which show the financial resources, assets, liabilities, income, profits and other details of the Company, its associate companies and its subsidiaries after elimination of minority interest, as a single entity.

SUBSIDIARY COMPANIES:

As provided in section 136 of the Act, the Balance Sheet, Statement of Profit and Loss and other documents of the subsidiary companies are not being attached with the Balance Sheet of the Company. The Company will make available free of cost the Audited Financial Statements of the subsidiary companies and the related detailed information to any member of the Company who may be interested in obtaining the same. The Financial Statements of the subsidiary companies will also be kept open for inspection at the Registered Office of the Company and that of the respective subsidiary companies. The Consolidated Financial Statements presented by the Company include financial results of its subsidiary companies.

During the year, Zydus Healthcare, Sikkim a partnership firm was converted into a public limited Company in the name of Zydus Healthcare Limited under the provisions of the Companies Act, 2013 and then it was merged into German Remedies Limited, a wholly owned subsidiary Company pursuant to a Scheme of Amalgamation approved by the Hon'able High Court of Gujarat at Ahmedabad and therefore the investment of the Company into Zydus Healthcare, a partnership firm and Zydus Healthcare Limited consequent upon conversion was extinguished and in lieu thereof German Remedies Limited will issue the equity shares to the Company as per the share exchange ratio determined by an independent valuer.

As provided under section 129[3] of the Act and Rules made there under a statement containing the salient features of the financial statements of its subsidiaries in the format prescribed under the rules is attached to the financial statements. The policy relating to material subsidiaries as approved by the Board may be accessed on the Company's website at the link: <http://> zyduscadila.com/wp/content/uploads/2015/05/Policy-on-Material- Subsidiary.pdf.

PARTICULARS OF LOANS, GUARANTEES AND INVESTMENTS:

Details of loans, guarantees and investments covered under section 186 of the Act are given in the notes to the financial statements.

RELATED PARTY TRANSACTIONS:

All contracts/arrangements/transactions entered by the Company during the financial year with related parties were in the ordinary course of business and on an arm's length basis. As provided under section 134[3][h] of the Act and Rules made thereunder disclosure of particulars of material transactions with related parties entered into by the Company in the prescribed format is annexed to this report as Annexure - A. Disclosures on related party transactions are set out in Note No. 39 to the financial statements.

The Policy on materiality of related party transactions and dealing with related party transactions as approved by the Board may be accessed on the Company's website at the link:<http://zyduscadila>. com/wp-content/uploads/2015/05/Policy-on-Related-Party-Transactions.pdf

DIRECTORS:

i) Appointment of Independent Director:

The Board of Directors has appointed Mr. Apurva S. Diwanji [DIN - 00032072] as an Independent Director of the Company from May 13, 2016 to May 12, 2021, subject to approval of the shareholders. Mr. Apurva S. Diwanji was appointed as an Additional Director, who shall hold office upto the ensuing Annual General Meeting.

The Board of Directors at its meeting held on May 13, 2016 has also appointed Mr. Apurva S. Diwanji as a member of the Audit Committee and Nomination and Remuneration Committee.

The terms and conditions of appointment are placed on the website of the Company www.zyduscadila.com

ii) Retirement by rotation:

In accordance with the provisions of section 152[6] of the Act and in terms of the Articles of Association of the Company, Dr. Sharvil P. Patel, Deputy Managing Director [DIN - 00131995] will retire by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment. The Board recommends his re-appointment.

The Board of Directors of the Company has, subject to the approval of the shareholders at the ensuing Annual General Meeting re-appointed Mr. Pankaj R. Patel, as Managing Director of the Company for a period of five years with effect from September 1, 2016.

iii) Declaration of independence:

The Company has received declarations of independence as stipulated under section 149[7] of the Act and Regulation 16[b] of the Listing Regulations, 2015 from Independent Directors confirming that they are not disqualified from appointment/ continuing as an Independent Director.

iv) profile of Directors seeking appointment/re-appointment:

As required under Regulation 36 [3] of the Listing Regulations, 2015, particulars of Directors seeking appointment/ re-appointment at the ensuing Annual General Meeting are annexed to the notice convening 21st Annual General Meeting.

v) Key Managerial personnel:

The following persons are the Key Managerial Personnel:

1. Mr. Pankaj R. Patel, Chairman and Managing Director,

2. Dr. Sharvil P. Patel, Deputy Managing Director,

3. Mr. Nitin D. Parekh, Chief Financial Officer and

4. Mr. Upen H. Shah, Company Secretary.

There is no change in the Key Managerial Personnel during the year.

vi) Board Evaluation:

Pursuant to provisions of the Act and Rules made thereunder and as provided in Schedule IV to the Act and the Listing Regulations, 2015, the Nomination and Remuneration Committee/Board has carried out the annual performance evaluation of itself, the Directors individually as well as the evaluation of its committees. The manner in which the evaluation was carried out has been provided in the Corporate Governance Report, which is a part of this Annual Report.

vii) Nomination and Remuneration policy:

The Board has on the recommendation of the Nomination and Remuneration Committee framed a policy on selection and appointment of Directors, Senior Management and their remuneration. The Remuneration Policy is stated in the Corporate Governance Report, which is a part of this Annual Report.

DIRECTORS' RESPONSIBILITY STATEMENT:

In terms of section 134[3][c] of the Act and to the best of their knowledge and belief, and according to the information and explanations provided to them, your Directors hereby make the following statements:

(a) that in preparation of the Financial Statements, the applicable accounting standards have been followed along with proper explanations relating to material departures, if any;

(b) that such accounting policies have been selected and applied consistently and judgments and estimates made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on March 31, 2016 and of the profit of the Company for the year ended on that date,

(c) that proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for prevention and detection of fraud and other irregularities,

(d) that the annual financial statements have been prepared on going concern basis,

(e) that proper internal financial controls were in place and that the financial controls were adequate and were operating effectively; and

(f) that the systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.

BOARD MEETINGS:

Information of meetings of the Board of Directors is given in Corporate Governance Report, forming part of this report.

AUDIT COMMITTEE:

As provided in section 177[8] of the Act, the information about composition of Audit Committee and other details are given in Corporate Governance Report, forming part of this report. The Board has accepted the recommendations of the Audit Committee. The Audit Committee is comprising of Mr. Nitin R. Desai, as Chairman and Mr. Humayun Dhanrajgir, Mr. Mukesh M. Patel and Ms. Dharmishta N. Rawal as members.

CORPORATE GOVERNANCE:

The Company has complied with the Corporate Governance requirements under the Act and as stipulated under clause 49 of the Listing Agreement/Listing Regulations, 2015. A separate section on detailed report on the Corporate Governance practices followed by the Company under the Listing Agreement/Listing Regulations, 2015 along with a certificate from the statutory auditors, confirming the compliance forms a part of this Annual Report.

AUDITORS:

i) Statutory Auditors and Audit Report:

The Company's Auditors M/s. Mukesh M. Shah & Co., Chartered Accountants, (Firm Registration No. 106625W) have completed more than ten years as Statutory Auditors of the Company. In accordance with the provisions of section 139 of the Act and Rules made there under, they can continue as Auditors for a further period of one year i.e. upto March 31, 2017. On the recommendation of the Audit Committee, it is proposed to appoint them from the conclusion of 21st Annual General Meeting till the conclusion of 22nd Annual General Meeting.

M/s Mukesh M. Shah & Co., Chartered Accountants have informed to the Company that their appointment, if made, would be within the limits prescribed under section 141 of the Act. They have also furnished a declaration confirming that their independence as well as their arm's length relationship with the Company and that they have not taken up any prohibited non-audit assignments for the Company.

The Board has duly reviewed the Statutory Auditor's Report and the observations and comments, appearing in the report are self-explanatory and do not call for any further explanation/ clarification by the Board of Directors as provided under section 134 of the Act.

ii) Cost Auditors:

Pursuant to provisions of section 148[3] of the Act read with the Companies [Cost Records and Audit] Amendment Rules, 2014, the cost audit records maintained by the Company in respect of the Pharmaceuticals Products are required to be audited. The Board had, on the recommendation of the Audit Committee, appointed M/s Dalwadi & Associates, Cost Accountants to audit the cost records of the Company for the financial year 2016-17 on a remuneration of Rs. 1.20 mio. As required under the Act and Rules made thereunder, the remuneration payable to the Cost Auditors is required to be placed before the Members in a general meeting for ratification. Accordingly, a resolution seeking ratification by members for the remuneration payable to M/s Dalwadi & Associates is included at Item No. 8 of the Notice convening 21st Annual General Meeting.

iii) Secretarial Auditors and Secretarial Audit Report:

Pursuant to provisions of section 204 of the Act and the Companies [Appointment and Remuneration of Managerial Personnel] Rules, 2014, the Board has appointed M/s Manoj Hurkat and Associates, a firm of Company Secretaries in Whole-time Practice to undertake the Secretarial Audit of the Company for the financial year 2015-16. The Secretarial Audit Report is annexed herewith as Annexure - B. The Board has duly reviewed the Secretarial Auditor's Report and the observations and comments, appearing in the report are self-explanatory and do not call for any further explanation/clarification by the Board of Directors as provided under section 134 of the Act.

BUSINESS RESPONSIBILITY REPORTING:

As per Regulation 34[2][f] of the Listing Regulations, 2015, a separate section on Business Responsibility Reporting forms a part of this Annual Report.

CORPORATE SOCIAL RESPONSIBILITY [CSR]:

Your Company, being a Pharmaceutical Company, having objective as "Dedicated to Life" has contributed for healthcare, education and research in cancer as a part of initiatives under "Corporate Social Responsibility" for the year under review. Pursuant to section 135 of the Act and the relevant rules, the Board has constituted a Corporate Social Responsibility [CSR] Committee under the Chairmanship of Mr. Pankaj R. Patel. The other members of the Committee are Dr. Sharvil P. Patel and Ms. Dharmishta N. Rawal. CSR Policy has been framed and placed on the Company's website. Other details of the CSR activities, as required under section 135 of the Act, are given in the CSR Report as Annexure - C.

BUSINESS RISK MANAGEMENT:

Pursuant to provisions of section 134[3][n] of the Act and requirement under clause 49 of the Listing Agreement/

Listing Regulations, 2015, the Company has constituted a Risk Management Committee. The details of the Committee and its terms of reference are set out in the Corporate Governance Report, which forms a part of this Annual Report.

A well-defined risk management mechanism covering the risk mapping and trend analysis, risk exposure, potential impact and risk mitigation process is in place. The objective of the mechanism is to minimize the impact of risks identified and taking advance actions to mitigate them. The mechanism works on the principles of probability of occurrence and impact, if triggered. A detailed exercise is being carried out to identify, evaluate, monitor and manage both business and non-business risks. The Company has formally framed a Risk Management Policy to identify and assess the key risk areas, monitor and report compliance and effectiveness of the policy and procedure.

Discussion on risks and concerns are covered in the Management Discussion and Analysis Report, which forms a part of this Annual Report.

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY:

The Company has designed and implemented a process driven framework for Internal Financial Controls [IFC] within the meaning of the explanation to section 134[5][e] of the Act. For the year ended on March 31, 2016, the Board is of the opinion that the Company has sound IFC commensurate with the size, scale and complexity of its business operations. The IFC operates effectively and no material weakness exists. The Company has a process in place to continuously monitor the same and identify gaps, if any, and implement new and/ or improved controls whenever the effect of such gaps would have a material effect on the Company's operations.

MANAGING THE RISKS OF FRAUD, CORRUPTION AND UNETHICAL BUSINESS PRACTICES:

i) Vigil Mechanism/Whistle Blower policy:

The Company has established vigil mechanism and framed whistle blower policy for Directors and employees to report concerns about unethical behavior, actual or suspected fraud or violation of the Company's Code of Conduct or Ethics Policy. Whistle Blower Policy is disclosed on the website of the Company.

ii) Zydus Business Conduct policy:

The Company has framed "Zydus Business Conduct Policy" and is monitored by the Group President [Human Resources and Corporate Communication]. Every employee is required to review and sign the policy at the time of joining and an undertaking shall be given for adherence to the Policy. The objective of the Policy is to conduct the business in an honest, transparent and ethical manner. The policy provides for anti-bribery and avoidance of other corruption practices by the employees of the Company.

EXTRACT OF ANNUAL RETURN:

As per the provisions of section 92[3] of the Act, an extract of the Annual Return in the prescribed form MGT-9 is attached to this report as Annexure - D.

COMPOSITION OF AUDIT COMMITTEE:

More details on the Committee are given in the Corporate Governance Report.

PARTICULARS OF EMPLOYEES:

The information required under section 197 of the Act read with Rule 5[1] of the Companies [Appointment and Remuneration of Managerial Personnel] Rules, 2014, is given in Annexure - E.

Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo:

Information on conservation of energy, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under section 134[3][m] of the Act read with Rule 8[3] of the Companies [Accounts] Rules, 2014, is provided in the Annexure - F and forms a part of this Annual Report.

GENERAL DISCLOSURES:

Your Directors state that the Company has made disclosures in this report for the items prescribed in section 134[3] of the Act and Rule 8 of the Companies [Accounts] Rules, 2014, to the extent the transactions took place on those items during the year.

There are no material changes and commitments affecting the financial position of the Company between the end of the financial year and the date of this report.

Acknowledgment:

Your Directors place on record their sincere appreciation for the continued co-operation and support extended to the Company by the Consortium Banks. Your Directors also thank the Medical Profession, the Trade and Consumers for their patronage to the Company's products. Your Directors also place on record sincere appreciation of the continued hard work put in by the employees at all levels. The Directors also thank the Company's vendors, investors, business associates, Stock Exchanges, Government of India, State Government and various departments and agencies for their support and co-operation.

On behalf of the Board of Directors

PANKAJ R. PATEL

Chairman

Date: May 13, 2016

Place : Ahmadabad