NEULANDWHERE OPPORTUNITY BECOMES R.EALIT/

Neuland Laboratories LimitedSanali Info Park, 'A' Block,

Ground Floor, 8-2-120/113

RoadNo.2,BanjaraHiNs

Hyderabad-500034.

Telangana, India.

Tel: 040 30211600 / 23551081Fax: 040 30211602Email: neuland@neulandlabs.com

www.neulandlabs.com

REPORT OF THE AUDIT COMMITTEE OF NEULAND LABORATORIES LIMITED BEARING ON:L85195TG1984PLC004393 ("COMPANY") RECOMMENDING THE DRAFT SCHEME OFAMALGAMATION AND ARRANGEMENT BETWEEN NEULAND LABORATORIES LIMITED(TRANSFEREE COMPANY) AND NEULAND HEALTH SCIENCES PRIVATE IIM'TED (FIRSTTRANSFEROR COMPANY) AND NEULAND PHARMA RESEARCH PRIVATE LIMITED (SECONDTRANSFEROR COMPANY) AND THEIR RESPECTIVE SHAREHOLDERS AND CREDITORS, ISSUEDCONSEQUENT TO THE MEETING OF THE AUDIT COMMITTEE OF THE COMPANY HELD ONTHURSDAY, THE 03RD DAY OF NOVEMBER, 2016, AT 2.30 P.M. AND ADJOURNED TO FRIDAY,THE 04TH DAY OF NOVEMBER, 2016, AT 9.30 A.M., AT HOTEL TAJ KRISHNA, ROAD NO. 1,BANJARA H:LLS, HYDEF<ABAD - 500034, TELANGANA, INDIA.

Members Present:

Mr. P.V. Maiya - Chairman

Mr. Humayun Dhanrajgir - Member

Mr. D. Sucheth Rao - Member

In Attendance:

Mrs. Sarada Bhamidipat^ - Company Secretary & CompLidnce Officer

1. BACKGROUND

1.1 A meeting of the members of the Audit Committee cf the Company was held on Thursday,

the 03rd day of November, 2016, at 2.30 P.M. and adjourned to Friday, the 04th day of

November, 2016, at 9.30 AM, to consider and to recommend to the Board for its

consideration and approval, the proposed draft Scheme of Amalgamation and

Arrangement between Neuland Laboratories Limited (Transferee Company} and

Neuiand Health Sciences Private Limited (First Transferor Company) and Neula:td

Pharma Research Private Limited (Second Transferor Company) and their respective

Shareholders and Creditors" ("Scheme") providing for ?.na!yamat1on of Neuiand 1-icalth

Sciences Private Limited (First Transferor Company) and of NeuLand Phamna Research

Private Limited (Second Transferor Company) v/ith the Company on a g'j^ng concern basis

wTzh effect from 01.04.2016 (Fiist Day of April, Two Thousand and Sixteen) being the

Registered Office: Sanali Info Park, 'A' Block, Ground Floor, 8-2-1 20/113, Road No. 2, Banjara Hills, Hyderabad - 500034, Telangana, India, I CIN No :L85195TGT9CTPLC004393

NEULAND

appointed date and presented under the provisions of Section 391 to 394 read with sections

100 to 103 of the Companies Act, 1956 and other applicable provisions, if any, of the

Companies Act, 1956, and of the Companies Act, 2013, including any statutory

modifications, amendments, re-enactments thereof for the time being in force, relevant

and applicable regulations of Securities and Exchange Board of India (Listing Obligations and

Disclosure Requirement) Regulations, 2015 [SEBI (LODR) Regulations], the provisions ofSEBI Circular No.CIR/CFD/CMD/16/2015, dated 30th November, 2015, and relevant rules of

the Companies (Court) Rules, 1959, or as the c^se may be, the National Company Lav/

Tribunal Rules.

1.2This report of the Audit Committee recommending the draft Scheme to the Board of

Directors of the Company for their consideration and approval, is being made in order to

comply with the requirementsof SEBI Circular No.CIR/CFD/CMD/16/2015, dated 30thNovember, 2015, issued by the Securities and Exchange Board of India ("SEBI").

1.3The draft Scheme duty initialed by the Company Secretary of the Company for the purpose

of identification, was placed before the members of the Audit Committee.

2. PROPOSED SCHEME OF AAAALGAAAATION AND ARRANGEMENT

2.1 The members of the Audit Committee noted the rationale of the Scheme which is as follows:

• NLL is a manufacturer of active pharmaceutical ingredients (APIs) and advanced

intermediates and is a solution provider for the pharmaceutical industry for chemistry

related services.

• NH5PL is in the business of conducting research and development on synthesis of

Peptides and Peptide building blocks and marketing of Peptides. NLL is the exclusive

peptide manufacturer for NHSPL.

• NPRPL is a contract research and marketing services company providing Custom

Manufacturing Solutions ("CMS") to its customers with a focus on regulated markets.

The Research and Development facility of NPRPL has been successfully Inspected and

classified acceptable by the USFDA in February 2016. NPRPL is an exclusive research

service provider for NLL and NLL is the exclusive CMS manufacturer for NPRPL.

• NHSPL, NPRPL and the Company, as a Group, provide end-to-end solutions for chemistry

related services from synthesis of early stage climcal molecules to supply of-API and

intermediates at various clinical phases up to commercial scale.

• The businesses being carried on by all these three companies are synerpistic and sre

complementary to esch other. Given the nature of consolidation in the pharmaceutical

industry, there is a huge opportunity for cross-selting of the products and services of

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NHSPL and NPRPL along with that of the Company which 1s expected to further enhancethe value for the stakeholders of all the companies.

* The combined entity (1.e. the Company), with its strong financiats, wiLL have greater

access to sources of funds, a better credit rating, improved cash flows, increased net

worth, thereby expected to strengthen the value of alt the stakeholders of the

companies Involved.

• Therefore, the proposed Amalgamation is expected to:

^ FacHitate seamless coordination between the R&D facilities and manufacturing

activities leading to greater Leverage in operations, planning, process, product life

cycle management, new product development and product cptimization and

enhanced flexibility in operations in the combined entity.

^ Lead to the benefits of synergetic advantages particularly in view of the fact that

the companies involved in the amalgamation are engaged in the businesses, which

are akin and can be conveniently merged for mutual benefit further leading to

improved organizational capability and Leadership, arising from the pooling of

resources and expertise that has the diverse skills talent and vast experience to

compete successfully in an increasingly competitive industry.

^ Result in consoLidation of intettectual properties, R&D capabHities and physical

infrastructure into one combined entity Including an opportunity to avail additional

tax benefits for in house R&D.

^ Result 1n cost savings from utilizing the combined facilities of all the three entities

with more focus on operational efforts, rationalization, standardization arid

simplification cf business processes, productivity improvements, elimination of

intercompany transactions costs,, usage of common resource pool Like humdn

resource, administration, accounts, legal and other related functions leading to

elimination of duplication and rationalization of administrative expenses and

reduction of compliance costs.

^ Result in operational convenience in terms of execution of contracts and provision

of related services.

^ Improve relationship with customers, as the combined post amalgamation entitywould become an end-to-end API somtion provider.

• In order to achieve the objectives as mentioned in the abovementioned clauses, the

Board of Directors of all the three companies have proposed to consolidate NHSPL,

NPRPL and the Company into a single company by amalgamating NHSPL, NPRPL into theCompany.

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• The amalgamation will build a stronger and sustainable business and enhance the

potential for future growth and the Scheme of Amalgamation would be beneficial and

in the best interests of the shareholders, creditors, customers, suppliers, employees and

other stakeholders of all the companies.

2.2The Audit Committee also took note of the foLLowing documents:

a) Valuation Report dated November 4, 2016, prepared and issued by the independent

vatuers, M/s. DeLoitte Haskins & Sells, Chartered Accountants, determining and

recommending the fair Share Exchange Ratio as under:

• Without giving effect of the proposed Scheme

(a) 552 (Five hundred and fifty only) equity shares of NLL of Rs. 10,- each fully paid-up for every 100 (One Hundred Only) equity shares of NHSPL of Rs. 1001- each

fully paid-up based on the Existing Share Capital of NHSPL of Rs. 12.43 crores

consisting of 12,42,952 equity shares of face value of Rs. 100,- each fuUy paid

up;(b) 410 (Four hundred and ten only) equity shares of NLL of Rs.10/- each fuLLy paid-

up for every 100 (One Hundred Only) equity shares of NPRPLofRs.10/- each fullypaid-up.

• After giving effect of the proposed Scheme

(a) 552 (Five hundred and fifty only) equity shares of NLL of Rs. 10, - each fully paid-up for every 1000 (One Thousand Only) equity shares of NHSPL of Rs. 10,- eachfuiiy paid-up based on the subdivision of Share Capital of NHSPL (as envisagedin the Scheme) of Rs. 12.43 crores consisting of 1,24,29,520 equity shares of face

value of Rs. 10,- each fully paid up.

(b) 410 (Four hundred and ten only) equity shares of NLL of Rs.10/- each fully paid-

up for every 100 (One Hundred Only) equity shares of NPRPL of Rs. 10,- each fully

paid-up.

• NHSPL holds shares in Its subsidiaries, NLL and NPRPL, and the intercompany

shareholding wiU be canceLLed and new shares of NLL will be allotted to shareholders

of NHSPL and balance shareholders of NPRPL as on the Record Date.

b) Fairness Opinion Certificate dated November 4, 2016, issued by the independentMerchant Banker, SBI Capital Markets Limited, certifying that the valuation carried out

by the M/s. Deloitte Haskins & Sells, Chartered Accountants, is fair and reasonable for

the proposed amalgamation.

c) Certificate issued by the Statutory Auditors of the Company in terms of provisions of

SEBI Circular No. CIR/CFD/CMD/16/2015, dated 30th November, 2015, confirming theproposed accounting treatment as contemplated under Clause 14 of Scheme of

Amalgamation and Arrangement between Neutand Laboratories Limited (Transferee

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Company) and Neuland Health Sciences Private Umited (First Transferor Company) and

Neuland Pharma Research Private Limited (Second Transferor Company) and their

respective Shareholders and Creditors with reference to its compliance with the

Securities and Exchange Board of India (Listing Obligations and Disdosure Requirement)

Regulations, 2015 and the Circulars issued thereunder and alt the applicable Accounting

Standards notified under the Companies Act, 1956 and /or 2013 and Other Generally

Accepted Accounting Principles.

3. RECOMMENDATION OF THE AUDIT COMMITTEE

Taking into consideration the rationale of the draft Scheme of Amalgamation and

Arrangement between Neuland Laboratories Limited (Transferee Company) and NeuLand

Health Sciences Private Limited (First Transferor Company) and Neuland Pharma Research

Private Limited (Second Transferor Company) and their respective Shareholders and

Creditors, the Valuation Report and the Fairness Opinion Certificate, the Audit Committee

do hereby recommends the draft Scheme to the Board of Directors of the Company for

favorable consideration andapproval.

BY THE ORDER OF THE AUDIT COMMITTEEFOR NEULAND LABORATORIES LIMITED

y.-'•^^tZ^yf

P.V. MAIY^-"

CHAIRMAN

PLACE: HYDERABADDATE: 04.11.2016