DIRECTORS' REPORT

To,

The Members, MEDICAPS LIMITED

1. The Directors submits their 31st Annual Report of the Company along with the Audited Standalone and Consolidated Financial Statements for the financial year ended March 31,2014.

2. DIVIDEND:

Your Directors considered the feasibility of dividend for the year 2013-14 and considered the requirement of the liquid financial resources for the smooth running of the  company and in view of the  present financial status, the company needs to provide financial support to its subsidiary Medgel Pvt. Ltd. therefore this year the Directors proposes to escape the dividend and the profits earned by the Company be utilized for the further business plans to maximize the worth of the  company and its shareholders. (Previous Year NIL)

3. COMPANY'S PERFORMANCE & FUTURE OUTLOOK:

Inspite of the  slack in the market condition during the year under review, it could earn the gross income of Rs.2580.78 Lacs as compared to Rs.2469.27 Lacs in previous year. Due to sharp increase in the cost of raw material and employee cost, the profitability of the Company has been decreased from Rs.181.75 Lacs to Rs.122.45 Lacs. The Company's investment in the Mutual Funds, etc. as well as in Subsidiary Company could not generate adequate profits even the company has to in our losses on the investments activities due to depressed capital market and Mutual Funds in the country.

4. DIRECTORS:

The Board in its meeting held on 29th May, 2014 has appointed Shri Pramod Fatehpuria as an Additional Director under the category of Independent Director of the  Company,to hold the office of the director till the conclusion of the Annual General Meeting.

Dr.Vishwanath  Balkrishna Malkar, Director of the  Company has resigned from the office of Director w.e.f.29th May,2014.

In view of impending retirement from the directorship of Shri R.C.Mittal liable to retire by rotation at the forthcoming Annual General Meeting, being eligible offers himself for re-appointment.

Further that Dr. Shashi Kant Sharma, Shri Pramod Fatehpuria, Dr. Shamsher Singh and Dr. Keshav Singh Verma the existing independent directors are further proposed to be appointed as Independent Directors for a term of 5 years as per requirement of section 149 of the  Companies Act, 2013 as well as Clause 49 of the  Listing Agreement.

The Company has received notice in writing from the members as required under section 160 of the  Act for proposal for appointment of above said Directors of the Company at the ensuing Annual General Meeting.

The Independent Directors have submitted a declaration confirming that they meets the criteria for independence as provided in section 149(6) of the  Act and is eligible for appointment as Independent  Directors of the Company.

In the opinion of the  Board the above said four directors fulfills the conditions specified in the Act and the Rules made there under as the Clause 49 of the  Listing Agreement for their appointment as Independent Directors of the Company.

5. DIRECTORS RESPONSIBILITY STATEMENT:

Pursuant to the requirement of Section 217(2AA) of the Companies Act, 1956, and based on the representation received from the operating management, the Directors here by confirm that:

a. in the preparation of the annual accounts, the applicable accounting standards have been followed and there is no material departures;

b. they have selected such accounting policies and applied them consistently and made judgments and estimates that have been 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 and of the profit of the  company for the year under review;

c. they have taken proper and sufficient care to the best of their Knowledge and ability for the maintenance of adequate accounting records in accordance with the provision of this Act. They confirm that there are adequate systems and controls for safeguarding the assets of the company and/or preventing and detecting frauds and other irregularities;

d. they have prepared the annual accounts for the financial year ended 31st March,2014 on a going concern basis;

6. DEPOSITORY SYSTEMS AND LISTING:

The equity shares of the  Company may also be kept in electronic form with the Central Depository Services Ltd.(CDSL) and National Depository Services Ltd. (NSDL) therefore all members and investors may hold their shares in the Company's shares in dematerialized form. Company's equity shares are listed at the BSE Ltd. and MPSE and being regularly traded at the BSE.

7. FINANCE & ACCOUNTS:

7.1 Cash generation:

Your company continued its strong cash generation driven by overall business performance. Your company optimized the return on investment by deployment of cash surplus in a balanced portfolio of sale and liquid securities and may be considered as 'Zero Debts Company'.

7.2.Internal Control Systems and its adequacy:

The Company's internal control procedures are tailored to match the organization pace of growth and increasing complexity of operations, these ensure compliance with various policies, practices and statutes. The Company's internal audit carries out extensive and it through out the year, across all functional are a and submits its report to the Audit Committee of the  Board of directors.

7.3 Adequate coverage of risk:

The Company's assets are adequately insured against various risks, which were considered necessary by the management from time to time.

Your company is a foreign exchange earner and the transactions are suitably covered for exchange risk and there is no materially significant exchange rate risk associated with the company.

7.4 Segment-wise results:

Your company is dealing only in a single segment, i.e. manufacturing of the  gelatin capsules;therefore AS-17 for Segment-Wise reporting is not applicable to the Company.

7.5 Subsidiary Company:

Medgel Pvt. Ltd. is a subsidiary company and it has invested Rs. 2812.34 in the share capital. Medgel Pvt. Ltd. is having its plant in the Pithampur(M.P.)

7.6 Disclosures:

The Company has made adequate disclosures regarding related party transactions, contingent liabilities, remuneration of directors, and significant accounting policy in the notes to the accounts as an integral part of the  Balance Sheet and Profit & Loss Accounts for the year ended 31st March,2014.

8. ISO:9001:2000 CERTIFICATION:

As you are aware that your Company is ISO: 9001:2000 complied and this will give further strength to the quality as well as international recognition.

9. AUDITORS:

M/s C.P. Rawka & Co.,Chartered Accountants(ICAI Firm Registration No.000518C),Indore, statutory auditors of  the Company, hold the office until the ensuing Annual General Meeting.The said Auditors have furnished the certificate of the in eligibility for re-appointment.

Pursuant to the provisions of section 139 and other applicable provisions,if any,of Companies Act,2013 read with Rule 3 of Companies (Audit and Auditors) Rules, 2014, subject to the peer review by the ICAI is proposed to re-appoint M/s C.P. Rawka & Co.,Chartered Accountants (ICAI Firm Registration No. 000518C), as Statutory Auditors of the  Company from the conclusion of this Annual General Meeting (AGM) till the conclusion of the  Thirty Fourth AGM of the  Company to be held in the year 2017 (subject to ratification of their appointment at every AGM) on such remuneration as may be decided & fixed by the board on the recommendations of the Audit Committee.

The Auditors' Report read with notes to accounts are self-explanatory and needs no further comments.

10. COST AUDITORS:

Pursuant to the directives of the  Central Government under the provisions of section 148 and all other applicable provisions of the  Companies Act,2013 read with the Companies(Audit and Auditors)Rules 2014,the Company is not required to appoint the Cost Auditors for the year 2014-15.The Cost Audit Report/Compliance Certificate for the year 2013-14 would be filed to the Central Government within the stipulated time.

11. CONSERVATION OF ENERGY/ TECHNOLOGY ABSORPTION, PARTICULAR OF EMPLOYEES AND FOREIGN EXCHANGE:

Information as required under section 217(1)(e) of the  Companies Act, 1956 read with the Companies (Disclosure of particulars in the Report of the  Board of Directors) Rules 1988 have been annexed herewith as Annexure A.

12. DEPOSITS:

Your Company has not accepted any public deposit within the meaning of provisions of section 58A of the Companies Act, 1956 read with the Companies (Acceptance of Deposits) Rules, 1975 and there is no outstanding deposit due for re-payment.

13.PERSONNEL:

The Company continued to have cordial and harmonious, rooted in the philosophy of bilaterism. In totality our employees have shown a high degree of maturity and responsibility in responding to the changing environment,economic and the market conditions.

14.SECRETARIAL AUDITORS:

The Company has appointed M/s Ishan Jain & Co., Company Secretaries (ACS 29444 & CP 13032) as the Secretarial Auditors for the year 2014-15 as required under section 204 of the Companies Act,2013.

15.INSURANCE:

The Company has taken adequate insurance cover for all movable & immovable assets for various types of risks.

16. PARTICULARS OF EMPLOYEES:

Your company did not have any person in employment that, if employed throughout the financial year or part thereof, was in receipt of remuneration,particulars of which are required to be included in this report as per Section 217(2A) of the  Companies Act, 1956 read with Companies (Particulars of Employees) Rules 1975.

17.CORPORATE GOVERNANCE REPORT:

Report on Corporate Governance as required under the Listing Agreements with the Stock Exchanges along with the certificate of the  Auditors, M/s C.P. Rawka & Co., Chartered Accountants (ICAI Firm Registration No. 000518C) confirming compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges are attached to this report as Annexure B.

18. MANAGEMENT DISCUSSION AND ANALYSIS REPORT:

18.1 Industry structure and developments:

India is among the top five emerging pharma markets and has grown at an estimated compound annual growth rate (CAGR) of 13% during the period FY 2009-2013. A new cluster of countries is contributing to the growth of the  Pharma industry, resulting in a robust jump in export of drugs. The country's pharma industry accounts for about 1.4% of the  global pharma industry in value terms and 10% in volume terms. Both domestic and export-led demand contributed towards the robust performance of the  sector.Pharmaceutical sales in India are expected to grow by 14.4 per cent to US$ 27 billion in 2016 from US$ 22.6 billion in 2012,according to a report by Deloitte called "2014 Global Life Sciences Outlook".

Among the fastest growing pharma industries in the world, India's Pharmaceutical Sector is expected to expand at a compound annual growth rate (CAGR) of 12.1% during 2012-2020 and reach US$ 45 billion. By 2020, the country is expected to be within the top three pharmaceutical markets by incremental growth and sixth largest market globally in absolute size. India exports to more than 200 countries; its share of exports is expected to grow manifold. India's pharmaceutical exports stood at US$ 14.84 billion in FY201314.The United States (US) is the country's biggest market for pharma exports accounting for about 25 per cent, followed by the United Kingdom (UK). We are expecting around 12 per cent growth this fiscal (201415).The export of bulk drugs continue to grow to regulated markets and is supported by India's existing foothold in semi-regulated market

With 70 percent of India's population residing in rural areas, pharma companies have immense opportunities to tap this market. Demand for generic medicines in rural markets has seen a sharp growth. The rural health research centers are expected to put an overall positive impact on the Indian pharma sector highlighting the healthcare issues suffered by rural population and helping the Indian pharmaceutical companies to offer feasible solutions to the challenges. Other measures like setting up of four additional AIIMS and 12 government medical colleges are expected to result in improved quality of medical education and access to healthcare.

As per extant policy, FDI up to 100 per cent, under the automatic route, is permitted in the pharmaceuticals sector for Greenfield investment. Hundred percent FDI is also permitted for investments in existing companies under the government approval route. Further, the Government of India has also put in place mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to address the issue of affordability and availability of medicines.

18.2 SWOT ANALYSIS FOR THE COMPANY:

18.2.1 Strengths:

• Strong in-house Research & Development.

• Integrated supply chain.

• Ability to deliver cost saving.

• High quality manpower resources.

• Centralized manufacturing activities at Pithampur Plant.

• Zero Debt Company.

• Strong financial planning.

18.2.2 Weaknesses:

• Scarcity of Technical Expertise.

• Controlling of process parameters is very critical.

• Dependency on drug formulation companies.

• Frequent fluctuation in market demand.

• Very sensitive process of manufacturing.

18.2.3 Opportunities:

There is very good demand of gelatin capsules in overseas and Indian market having good quantum in that and quality of Indian capsule recognized in world.

18.2.4Threats:

• India has one of the lower per capita healthcare expenditure in the world.

• Aggressive price competition from local and multinational players.

• Fast technology change in the manufacturing line of the Company.

• Frequent change in Govt. policy for pharmaceutical industries.

• Registration of patent by the users of the  products of the  company.

• Developed countries are very rigid in procuring capsules from out of countries.

• Higher inflation rate.

• Uncertainty in the capital market.

18.3.OUTLOOK

While we cannot predicta further performance,we believe considerable opportunities will exist for sustained and profitable growth,not only in the developing countries but also in the developed western countries. The Company is in continuous process to launch new variety of empty capsules and variants to meet out the demands in the coming year and also to expand its marketing reach in other country for growth in the export as well as domestic turnover. The company with its continued focus on exports stands to gain a lot from the emergings cenario. However, return from the investment activities may largely affect the profitability of the Company.

18.4.MARKETING AND EXPORT:

In domestic market your company had some more well reputed companies. In the export front the turnover of the  Company is increased to Rs.155.09 Lacs as compared to previous year Rs. 62.11 Lacs, however your company is making all the efforts to increase its export turn over in the coming years.

19.ACKNOWLEDGEMENTS:

Your directors acknowledge the vital role played by conscientious and hardworking employees of the  company at all levels towards its overall success. Your directors also acknowledge the support provided by suppliers, vendors and valued customers in its efforts to provide high quality products. Your Board takes this opportunity to record their appreciation in this regard including valued investors and shareholders of the Company.

FOR&ON BEHALF OF THE  BOARD

RAMESH CHANDRA MITTAL

CHAIRMAN CUM MANAGING DIRECTOR

DIN-00035272

Place :Pithampur

Date:13th August,2014