1996 TORRENT PHARMACEUTICALS LIMITED CHAIRMAN'S STATEMENT It gives me great pleasure to welcome you to this Annual General Body Meeting of your Company. The results for the year are already with you, and I do hope that you share my satisfaction with the solid progress that we have made. Our ongoing programs to manage quality, productivity and costs on one hand, and to consolidate our strong market position on the other, have yielded good results. Your Company has recorded a growth in sales of about 28%, to Rs. 298.73 crore, and a growth in net profit of about 41%, to Rs 33.01 crore. These are good figures, considering that we operate in a very competitive market. We are now positioned, I believe, to make the next set of moves in our quest for leadership in the Great Indian tomorrow. It is about these moves that I would like to talk to you today. WHAT DO WE MEAN BY LEADERSHIP? When we talk of leadership, we are referring to the ability to manage our environment : our regulatory environment, our industry environment, our supplier environment and our market environment. As I see it, the leader in any industry is the company that can most effectively shape the external environment; a follower is a company that has to adapt itself to the actions of others. The ability to manage the environment puts the control of our destiny in our own hands. In order to shape the external environment, one must generally have critical mass. I believe that this critical mass is achieved when you hold the first or second rank in an industry. Big stones make big splashes, small pebbles make small ripples. But critical mass alone is not enough. One must also have the ability to play better than the opposition by the existing rules of the game, and one must have the ability to change the rules of the game. If one has these two abilities, one can shape the environment without being a volume leader : but not necessarily on a large scale, and not necessarily for long. Ideally, all these factors should be present: size, superior performance, Innovation. As somebody said, of another organisation in another market in another country, `It's good to be big; it's better to be good; it's best to be both.' HOW FAR ARE WE FROM LEADERSHIP? In the last few years, we have travelled a reasonable distance down the road to leadership. In eight short years, our ranking in the domestic market has improved from being 36th to being 8th. We have also established market leadership in the Cardiovascular and Neuro-psychiatric therapeutic segments. It is through these segments that we build life long relationships with the patient community. Supported by our forays into basic pharma materials and bulk drugs, we are now making strong inroads into the fast growing and high volume anti-infective therapeutic segment. In addition to this, we are also a niche player in the treatment of Gastro-intestinal diseases. With our continued thrust on Research and Development, we are not only able to improve the application and the ease of administration of our products but we are also able to maintain leadership in introducing a wide range of new products. Since the year 1990, we have launched 45 new products. Notable among these are Listril Plus and Listril Forte in low dose combinations which were recently launched for the first time in the world. They combine the advantages of an ACE inhibitor and a diuretic which addresses the problems related with hypertension and other associated disorders. We have also recently launched Lozapin for the first time in the country for the treatment of resistant schizophrenia. INDIA'S MOST INTEGRATED PHARMA GROUP. It is important now to think in terms of Torrent's healthcare business as one and to look at your Company together with the Companies it is associated with. Namely, Torrent Gujarat Biotech Limited, a company which has been promoted by us and Torrent Exports Limited, the Company which has invested so much in developing overseas markets for us. TGBL is India's largest and most automated manufacturer of Penicillin, which began commercial production just about a year ago, in mid 1995. I am pleased to inform you that the Company is slated to reach a capacity utilization of 82% in this month, which is a significant achievement considering the complexity of the processes involved. In fact, in the first four months of this financial year, TGBL recorded the highest sales of Penicillin G in the country. I am also pleased to inform you that production runs at the recently built downstream facility for semi- synthetic Penicillins have begun this year and have produced encouraging results. It is a matter of pride for us that we have developed the fermentation technology for the production of Penicillin G in our R & D laboratories, the quality and productivity of which matches international standards. Torrent Exports is perhaps, the country's largest exporter of pharmaceutical formulations. It has invested heavily in a network of sales offices, distributors, dealers and medical representatives and it makes Torrent products available in over 70 countries. Torrent Exports is therefore not, let me emphasise, a commodity trader. It has been investing heavily in developing markets other than our traditionally strong CIS markets, and the results are beginning to show. Both TGBL and TEL, therefore, are going to register very significant growths this year. Add to that your Company's own growth - domestic sales are up about 23% in the first half of the year - and I believe that we could be looking at a Healthcare Group turnover of about Rs. 550 crore this year, growing to about Rs. 750 crore next year. That should catapult us amongst the top three healthcare players in the country. I should also add that we are now India's most integrated pharma group, with a stake in large volume basic raw materials, intermediates, bulk drugs and formulations. Not many of you may be aware that the Torrent Group has put in the second largest investment in the Indian pharma industry. The economies and the efficiencies arising out of this integration are crucial in our push for leadership. We have also attempted to ensure that our push for leadership will not be hampered for want of new molecules. Our joint venture with Sanofi will give us a constant stream of new molecules. And our investment in R&D facilities - one of the largest in this part of the world - will, I hope, result in breakthrough original research. We have recently shifted into our new research centre built at the cost of Rs. 30 crore. We are further committed to expanding the scope of our research activities into molecular pharmacology, long term toxicity, geno toxicity, cellular and molecular biology areas. I believe that all these activities will add considerable momentum to our drive for growth and leadership. THE NEXT STEPS IN HEALTHCARE. I have already mentioned some initiatives in the area of new products and the development of new markets. It is appropriate to mention two more initiatives at this stage. Both these initiatives have to do with the changing nature of our external environment. Over the last few years, the expectations of the patient community have been changing significantly, particularly in urban markets. Whereas, earlier, most patients were willing to leave matters more or less entirely in the hands of a medical practitioner, today's patient is more demanding. He wants to know more, about his ailment and about the course of treatment prescribed and he wants a more participative role in the entire process. To some extent this is reflected, I believe, in the rapid growth of things such as fitness clubs, of packaged check- up plans at hospitals and polyclinics, and of products such as healthier edible oils. Today's Doctors are striving hard to cope with these changes. In the past we had essentially a supplier relationship with the Doctors and the patient community. However, I believe that the time has come for us to change and to move into a mutually beneficial partner relationship in which we play a larger, more interactive role in disease management. I believe that both the Doctor and the patient community will welcome these initiatives and indeed, initial responses have been very encouraging. The resultant strengthening of brand and company loyalty would be vital inputs into our drive for market leadership. A second initiative would be in our relationship with the trader. Unlike as in more developed markets, the distribution trade in India consists of thousands of independent operators, not of chains. We have seen trade structures changing in other consumer markets in India, with franchising and licensing bringing the trade the advantages of bulk buying, better and standardised retail management practices, and better customer services. In markets as diverse as ready-made garments, tyres, watches, restaurants and consumer electronics both consumers and the trade have welcomed and benefited from these changes. It is inevitable that these winds of change will affect our industry as well. We intend to be among the pioneers in helping our trade adapt to the opportunities in the Great Indian Tomorrow. Our investments in these areas, once again, will result in significantly increasing loyalty in a market that is already very competitive. BEYOND HEALTHCARE. As you know, we have made forays into areas beyond healthcare - into energy and financial services. These are areas where, as in healthcare, we see an opportunity to assume leadership positions. Your Company, I hope, will benefit from the fact that it belongs to a large, diversified and focused group. It is this backing that will help your company in reaching and maintaining leadership in the Great Indian Tomorrow. U.N. Mehta Chairman Place : Ahmedabad Dated : 23th September, 1996.