DIRECTOR S REPORT

TO,

THE MEMBERS,

Your Directors are pleased to present 25th Annual Report and the Company's audited financial statements for the financial year ended March 31, 2016.

Review Of Operations:

The Company's Standalone revenues from operations were Rs.1,32,849.38 Lakhs for the FY 2015-16 as compared to Rs.1,21,487.25 Lakhs for the previous year registering growth of 9.35% in the current financial year. The Company has made Net Profit of Rs.12,096.44 Lakhs on standalone basis for the year under review as compared to Rs.9,522.64 Lakhs for the previous year, registering a growth of 27.03% in the current financial year.

The primary growth driver in FY 2015-16 was led by change in product mix. On a standalone basis, the Active Pharmaceutical Ingredients (API) business contributed the largest share of revenue at 37% while Pharmaceutical Finished Intermediates (PFI) and Finished Dosages contributed 29% and 34%, respectively. This is compared to 40%, 25% and 35% for API, PFI and Finished Dosages respectively in FY 2014-15. The profitability outpaced revenue growth due to several reasons. Our continuous efforts on operational excellence, process innovation, yield improvement and lower raw material cost of some of the key starting materials resulted improved earnings.

During the year under review, two of our facilities located in Vizag and Jeedimetla have completed US FDA inspection. There were no observations for the Vizag facility and three observations for the Jeedimetla facility. We have responded to the US FDA within the stipulated time and we believe that these issues will be resolved in the near future. During the year, the US FDA had approved

Ibuprofen Rx ANDA filed by us for 400 mg, 600 mg and 800 mg tablets. This will further strengthen our core base business and enable us to increase our product offering to our customers in the United States. The management believes that the profitability margins from the operations are sustainable and it will continue to strengthen its leadership position through dedicated research and introduction of new products.

Vertical integration has always been our strength and focus area. We will continue our focus on our core business and strengthen it by enhancing our capacities, improving our efficiencies, adding new products, moving up in the value chain and most importantly offering better services to our customers. The Company will continue to solidify its business model and build systems that are sustainable as it continue to scale-up.

During the financial year 2015-16, the Company enhanced Paracetamol API capacity at Bonthapally plant by 3,000 metric tonnes per annum. The Company is further adding 3,600 tonnes of PFI capacity at Gagillapur facility. The Company is also enhancing Metformin and Guaifenesin API capacity at Bonthapally plant by 7,000 and 2,000 tons per annum respectively.

Dividend:

The Board of Directors has recommended a final dividend of 20 paisa per equity share(Face value Rs.1/- per equity share) for the FY 2015-16,amounting to Rs.433.42 Lakhs. This is in addition to the interim dividend of 45 paisa per equity share paid during the year. The total dividend for the FY 2015-16 aggregates 65 paisa per equity share amounting to Rs.1,362.36 Lakhs as compared to 50 paisa per equity share paid in the previous year. Dividend distribution tax is Rs.277.35 Lakhs for the FY 2015-16 on interim and proposed final dividend.

Transfer Of Amount To Reserves:

The Board has not recommended any transfer to general reserve from the profits of the year under review.

Share Capital:

The Authorized Share Capital of the Company is 34,50,00,000 equity shares of Rs.1/- each. The Company has allotted 1,13,50,230 equity shares of Rs.1/- each to the promoters upon exercise of an equal number of warrants vested in them pursuant to the approval of the members obtained during the financial year 2015-16. The Company has also allotted 11,10,000 equity shares of Rs.1/- each upon exercise of an equal number of stock options pursuant to the extant Stock Option Scheme of the Company.

In view of the above allotments, the outstanding shares of the company increased from 20,42,51,540 equity shares of Rs.1/- each to 21,67,11,770 equity shares of Rs.1/- each.

Transfer To The Investor Education & Protection Fund (IEPF):

According to Section 205C of the Companies Act, 1956 read with Investor Education and Protection Fund (Awareness and Protection of Investors) Rules, 2001, the unclaimed dividend amounting to Rs.2,82,878/- (rupees two lakh eighty two thousand eight hundred and seventy eight only) for the financial year 2007-08, was transferred to the

Investor Education and Protection Fund established by the Central Government during the year under review.

Management's Discussion and Analysis Report:

Management's Discussion and Analysis Report for the year under review, as stipulated under regulation 34(2) of the Listing Regulations, is presented in a separate section forming part of the Annual Report.

Subsidiaries, Joint Ventures and Associate Companies:

No company has become/ceased to be a subsidiary or joint venture or associate during the financial year 2015-16.

Subsidiary Companies:

The developments in business operations / performance of subsidiaries consolidated with the Company are as below:

• Granules USA, Inc.

Granules USA, Inc. a wholly-owned foreign Subsidiary of your company, caters to the requirements of customers in the U.S market. The Share Capital of the Company as on March 31, 2016 is Rs.116.31 Lakhs. During the FY 2015-16, the Company achieved a turnover of Rs.29,828.82 Lakhs against the turnover of Rs.17,774.91 Lakhs of FY 2014-15 and the profit after tax is Rs.168.67 Lakhs against Rs. (40.82) Lakhs of FY 2014-15.

• GIL Lifesciences Private Limited

The Company has not commenced its operations so far. However, construction of green field API project was started during the year under review in its land located at Visakhapatnam in the state of Andhra Pradesh. As on March 31, 2016, the Authorized Share Capital of the Company is Rs.1,600.00 Lakhs divided into 1,60,00,000 (one crore sixty lakhs) equity shares of Rs.10/- each and the Paid Up Share Capital of the Company is Rs. 1,383.06 Lakhs divided into 1,38,30,600 (one crore thirty eight lakh thirty thousand and six hundered) equity shares of Rs.10 each.

The draft scheme of amalgamation of M/s. GIL Lifesciences Private Limited with the Company was approved by the Board of Directors of the Company, subject to approval of the Hon'ble High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh.

• Granules Pharmaceuticals,lnc.

Renovation of facility of Granules Pharmaceuticals,Inc.

a wholly-owned foreign subsidiary of your company was completed during the year. During the year, the company started Product development work in the renovated facility. The Share Capital of the Company as on March 31, 2016 is Rs.1,225.00 Lakhs.

The Policy for determining material subsidiaries as approved by the Board may be accessed on the Company's website at the link: www.granulesindia. com

Joint Venture Companies:

The developments in business operations / performance of Joint Venture Companies consolidated with the Company are as below:

• Granules-Biocause Pharmaceutical Co. Limited

The Share Capital of the Company as on March 31, 2016 is Rs.3638.06 Lakhs. During the FY 2015-16, the Company achieved a turnover of Rs.17,008. 32 Lakhs as against turnover of Rs.22,216.72 Lakhs in the FY 2014­15 of which Granules India Limited reports 50% in its consolidated revenue. However, previous year figures are not comparable as current year figures are for nine months period from April to December 2015.

• Granules OmniChem Private Limited

The Share Capital of the Company as on March 31, 2016 is Rs. 8,576.19 Lakhs. The Company has commenced the commercial production during the FY 2015-16 and achieved a turnover of Rs.1,425.66 Lakhs of which Granules India Limited reports 50% in its consolidated revenue.

However, as per the provisions of section 129 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, a separate statement containing the salient features of the financial statements of the subsidiary Companies and Joint Ventures is prepared in Form AOC-1 and it forms part of the consolidated financial statements.

Consolidated Financial Statements:

The consolidated financial statements, in terms of Section 129 of the Companies Act, 2013 and regulation 34 of the Listing Regulations and prepared in accordance with Accounting Standard 21 as specified in the Companies (Accounting Standards) Rules, 2006 as amended thereof forms a part of this annual report. As per the provisions of Section 136 of the Companies Act, 2013, the Company has placed separate audited accounts of its Subsidiaries on its website www.granulesindia.com and copy of separateaudited accounts of its Subsidiaries will be provided to the members at their request.

Director's Responsibility Statement:

Pursuant to the requirement of Section 134(5) of the Companies Act, 2013 and based on the representations received from the operating management, the Directors hereby confirm that:

a) in the preparation of the annual accounts for the year ended March 31, 2016, 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;

b) 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 as at March 31, 2016 and of the profit of the Company for the year ended on that date;

c) 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;

d) the Directors have prepared the annual accounts on a 'going concern' basis for the financial year ended March 31, 2016;

e) 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

f) the Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

Corporate Governance Report:

The Company is committed to maintain the highest standards of Corporate Governance and adhere to the Corporate Governance requirements set out by SEBI. The report on Corporate Governance as stipulated under the Listing Regulations forms an integral part of this Report. The requisite certificate from the Auditors of the Company confirming compliance with the conditions of Corporate Governance is attached to the report on Corporate Governance.

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 Company is undertaking CSR initiatives in compliance with Schedule VII to the Act. During the year under review, the Company has spent Rs.140.04 Lakhs on CSR activities. The annual report on CSR activities is annexed here with marked as Annexure I.

Nomination and Remuneration Committee:

The Company's Nomination and Remuneration Committee consists of majority of Independent Directors which ensures transparency in determining the remuneration of Directors, KMPs and other employees of the Company. The Chairman of the committee is an Independent Director, thereby resulting in independent and unbiased decisions.

The Performance Evaluation and Remuneration Policy framed by the Committee and approved by the Board is directed towards rewarding performance of Executive and Non-Executive Directors, Key Managerial Personnel and Senior Management Personnel of the Company based on review of achievements periodically.

Risk Management Committee:

Risk Management Committee has been entrusted with the responsibility to assist the Board in (a) overseeing and approving the Company's enterprise wide risk management framework; and (b) overseeing that all the risks that the organization faces such as strategic, financial, credit, market, liquidity, security, property, IT, legal, regulatory, reputational and other risks have been identified and assessed and there is an adequate risk management infrastructure in place capable of addressing those risks. Your Company has proper process for Risk Management.

Internal Audit & Controls:

Your Company continues to engage M/s Dhanunjaya & Haranath, Chartered Accountants as its Internal Auditors. During the year, your Company continued to implement their suggestions and recommendations to improve the internal controls. Their scope of work includes review of operational efficiency, effectiveness of systems & processes, compliances and assessing the internal control strengths in all areas. Internal Auditors findings are discussed and suitable corrective actions are taken as per the directions of Audit Committee on an on-going basis to improve efficiency in operations.

The Company's internal control systems are well established and commensurate with the nature of its business and the size and complexity of its operations. The Audit Committee reviews adequacy and effectiveness of the Company's internal control environment and monitors the implementation of audit recommendations. The recommendations/suggestions of the internal auditors are discussed in the Audit Committee meetings.

Directors and Key Managerial Personnel:

Mr. Harsha Chigurupati ceased to be Executive Director during the year under review due to his resignation on October 31, 2015. However, Mr. Harsha is continuing as member of the Board and he is Non-Executive Director of the Company.

In accordance with the provisions of Section 152 of the Companies Act, 2013 and the Articles of Association of the Company, Mr. Harsha Chigurupati, Non-Independent, Non­Executive Director of the Company, retires by rotation at the ensuing Annual General Meeting and being eligible offers himself for re-appointment.

The Company has received declarations from all the Independent Directors of the Company confirming that they meet with the criteria of independence as prescribed both under the Companies Act and the Listing Regulations.

The Company has devised a Policy for performance evaluation of Independent Directors, Board, Committees and other individual Directors which include criteria for performance evaluation of the Non-Executive Directors and Executive Directors.

The Board of Directors have complete access to the information within the Company. Independent Directors have the freedom to interact with the Company's management. Interactions happen during Board / Committee meetings, when CXOs are asked to make presentations about performance of the Company. Apart from this, they also have independent interactions with the Statutory Auditors, the Internal Auditors and external advisors appointed from time to time. Further, they meet without the presence of any management personnel and their meetings are conducted informally to enable the Independent Directors to discuss matters pertaining to the Company's affairs and put forth their combined views to the Board of Directors of the Company.

Mr. Krishna Prasad Chigurupati, Chairman and Managing Director, Mrs. Uma Devi Chigurupati, Executive Director, Mr. VVS Murthy, Chief Financial Officer and Mrs. Chaitanya Tummala, Company Secretary are key managerial personnel of the Company.

Employee Stock Option Plan (ESOP):

The Nomination and Remuneration Committee of the Board of Directors of the Company, inter alia, administers and monitors the Employee Stock Option Plan of the Company in accordance with the applicable SEBI Guidelines.

The applicable disclosures as stipulated under the SEBI Guidelines as on March 31, 2016 (cumulative position) with regard to the Employee's Stock Option Scheme are herein under provided. The issue of equity shares pursuant to exercise of options does not affect the Statement of Profit and Loss of the Company, as the exercise is made at the market price prevailing as on the date of the grant plus taxes as applicable.

Pursuant to clause 14 of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, certificate from M/s. Kumar & Giri, Statutory Auditors is given as Annexure II to this report. Voting rights on the shares issued to employees under the ESOP are either exercised by them directly or through their appointed proxy.

Auditors & Their Report: Statutory Auditors

Pursuant to the provisions of Sections 139, 141 & 142 and other applicable provisions, if any, of the Companies Act, 2013 and rules made thereon, M/s. Kumar & Giri, Chartered Accountants, Hyderabad was re-appointed for three years in the 23rd Annual General meeting subject to ratification at every Annual General meeting. The Company has received a certificate from the auditors to the effect that their ratification for re-appointment if made, would be in accordance with the conditions as specified under Section 141 of the Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2014. The Directors recommend for ratification of re-appointment of M/s. Kumar & Giri, Chartered Accountants as Statutory Auditors for the financial year 2016-17. A resolution proposing ratification of re-appointment of M/s. Kumar & Giri, Chartered Accountants as the Statutory Auditors of the Company for the financial year 2016-17 pursuant to section 139 of the Companies Act, 2013 forms part of the Notice.

Comments of the Auditors in their report and the notes forming part of the accounts are self-explanatory and need no comments. However, the Auditors have not made any adverse qualifications in their report on the accounts of the Company for the year under review.

Secretarial Auditor

The Board has appointed M/s. Saurabh Poddar & Associates, Company Secretaries, to conduct Secretarial Audit for the financial year 2015-16. The Secretarial Audit Report for the financial year ended March 31, 2016 is annexed here with marked as Annexure III to this Report. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

Contracts And Arrangements With Related Parties:

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. During the year, except with the wholly owned subsidiary, the Company had not entered into any contract / arrangement / transaction with related parties which could be considered material in accordance with the policy of the Company on materiality of related party transactions.

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: www.granulesindia.com

The particulars of contracts or arrangements with related parties referred to in section 188(1) are prepared in Form No. AOC-2 pursuant to clause (h) of sub-section (3) of section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014 and the same is enclosed as Annexure IV to this Report

Disclosures: Audit Committee

The Audit Committee comprises majority Independent Directors namely Mr. C. Parthasarathy (Chairman), Mr. L.S. Sarma, Mr. A.P. Kurian, Mr. A. Arun Rao and Mr. Krishna Prasad Chigurupati as other members. During the period under review, Mr. L.S. Sarma resigned as Chairman of the Audit Committee and Mr. C. Parthasarathy, Independent Director, was elected as Chairman of the Committee by Committee members. All the recommendations made by the Audit Committee were accepted by the Board.

Vigil Mechanism

The Company has a Vigil mechanism and Whistle blower policy in terms of the Listing Regulations, under which the employees are free to report violations of applicable laws and regulations and the Code of Conduct. Protected disclosures can be made by a whistle blower through a dedicated e-mail, or a letter to the Chairman of the Audit Committee.

The Policy on vigil mechanism and whistle blower policy may be accessed on the Company's website at the link:www.granulesindia.com

Meetings of the Board

Eight (8)meetings of the Board of Directors were held during the year under review. The details of the Board Meetings with regard to their dates and attendance of each of the Directors thereat have been provided in the Corporate Governance Report.

Code of Conduct

A declaration regarding compliance with the code of conduct signed by the Company's Chairman and Managing Director is published in the Corporate Governance Report which forms part of the annual report.

Particulars of Loans given, Investments made, Guarantees given and Securities provided

Particulars of loans given, investments made, guarantees given and securities provided are provided in the standalone financial statement (Please refer to Note No.2.12, 2.13 and 2.35 to the standalone financial statement).

Conservation of energy, technology absorption and foreign exchange earnings and outgo:

The particulars relating to conservation of energy, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under the Act, are provided in Annexure V to this Report.

Extract of Annual Return

Extract of Annual Return of the Company is annexed herewith as Annexure VI to this Report.

Particulars of Employees and related disclosures

In terms of the provisions of Section 197(12) of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules forms part of this Report.

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Act read with Rule5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are also forms part of this Report.

However, having regard to the provisions of the firstproviso to Section 136(1) of the Act, the Annual Report excluding the aforesaid information is being sent to the members of the Company. The said information is available for inspection at the registered office of the Company during working hours for a period of 21 days before the date of ensuing Annual General Meeting and any member interested in obtaining such information may write to the Company Secretary and the same will be furnished on request. This information is available on the Company's website link: www.granulesindia.com

Your Directors further state that, the remuneration paid to the Key managerial Personnel and others is as per the Remuneration Policy of the Company.

Policy on Sexual Harassment

The Company has a Policy on "Prevention of Sexual Harassment of Women at Workplace" for the matters connected there with or incidental thereto covering all the aspects as contained under the "The Sexual Harassment of Women at Work place (Prohibition, Prevention and Redressal) Act, 2013".

During the year under review, the Company has not received any complaints pertaining to Sexual Harassment.

General:

Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review:

1. Details relating to deposits covered under Chapter V of the Act.

2. Issue of equity shares with differential rights as to dividend, voting or otherwise.

3. Issue of shares (including sweat equity shares) to employees of the Company under any scheme save and except ESOP referred to in this Report.

4. Cost Audit is not applicable for the financial year 2015-16.

5. Neither the Chairman and Managing Director nor the Whole-time Directors of the Company receive any remuneration or commission from any of its subsidiaries.

6. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future.

Appreciations And Acknowledgements:

Your Directors would like to express their sincere appreciation for the assistance and co-operation received from the financial institutions, banks, Government authorities, customers, vendors and members during the year under review. Your Directors wish hereby to place on record their appreciation of the services rendered by the employees, without whose whole-hearted efforts, the over all satisfactory performance would not have been possible.

Your Directors look forward to the long term future with confidence.

On behalf of the Board of Directors

Sd/- Krishna Prasad Chigurupati

Chairman and Managing Director

DIN:00020180

Place : Hyderabad,

Date : April 28, 2016