Mar 31, 2023
Your Directors are pleased to present the 36th Annual Report of your Company together with the audited accounts for the financial year ended March 31, 2023.
FINANCIAL HIGHLIGHTS
Consolidated & Standalone Financials (f in million)
('' in million) |
||||
Consolidated |
Standalone |
|||
2022-23 |
2021-22 |
2022-23 |
2021-22 |
|
Revenue from operations |
2,48,554 |
2,34,555 |
1,27,923 |
1,12,871 |
Profit Before Depreciation, Interest, Tax and Exceptional Items* |
39,976 |
46,759 |
21,647 |
21,444 |
Depreciation |
12,446 |
11,265 |
4,354 |
4,153 |
Finance cost |
1,405 |
486 |
1,150 |
169 |
Exceptional items |
- |
1,280 |
- |
747 |
Profit Before Tax |
26,125 |
33,727 |
16,144 |
16,375 |
Provision for Tax |
6,849 |
7,256 |
3,839 |
1,828 |
Net Profit After Tax |
19,277 |
26,471 |
12,304 |
14,547 |
Other Comprehensive Income/ (Expense) |
7,356 |
2,617 |
59 |
17 |
Total Comprehensive Income for the period |
26,632.3 |
29,088 |
12,363 |
14,564 |
* Including other income and share of loss of joint venture and associates (net of tax) |
Your Company has paid an interim dividend of 300% i.e., '' 3.00 per equity share of '' 1 for the financial year 2022-23 against 900% i.e., '' 9.00 per equity share of '' 1 paid in the previous year. The dividend recommended for the financial year 2022-23 is in accordance with the Companyâs Dividend Distribution Policy. Higher dividends were paid during the previous year considering the profits made by the Company on disposal of Natrol LLC, USA, a wholly owned step-down subsidiary of the Company engaged in nutraceutical business.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top 1,000 listed entities based on market capitalisation are required to formulate a Dividend Distribution Policy. The Board has approved and adopted the Dividend Distribution Policy and the same is available on the Companyâs website: https://www.aurobindo. com/api/uploads/disclosure_under_regulation/Dividend-Distribution-Policy.pdf
Your Company is one of the leading generic pharma companies globally. Your Company is also the largest supplier in the USA by prescription volume as per IQVIA data for the quarter ending March 31, 2023. Your Company maintained its growth momentum in revenue despite headwinds caused by the pandemic.
On a standalone basis, your Companyâs revenue increased by 13.3% to ''127,923 million in FY22, as against ''112,871 million in the corresponding previous period. The Formulations business increased by 14.8% to ''76,653 million. The API business witnessed a growth of 8.2% to ''47,410 million. Profit Before
Depreciation, Interest, Tax and Exceptional Items for FY23 increased by 0.9% to ''21,647 million, compared to ''21,444 million in FY22. Profit Before Tax for the year decreased by 1.4% Y-o-Y to ''16,114 million. Your Companyâs Net Profit After Tax (before Other Comprehensive Income) decreased by 15.4% to ''12,304 million as against ''14,547 million in FY22.
On a consolidated basis, the revenues increased by 6.0% to ''2,48,554 million. The formulations business increased by 5.4% to ''210,074 million from ''199,393 million in the corresponding previous period. The Active Pharmaceutical Ingredients (APIs) business posted a growth of 9.5% to ''38,478 million vs. ''35,156 million in FY22. Profit Before Depreciation, Interest, Tax and Exceptional Items stood at ''39,976 million, witnessing a 14.5% decrease Y-o-Y. Profit Before Tax for the year stood at ''26,125 million, compared to ''33,727 million in the previous year.
Your Company reported a Net Profit After Tax (before Other Comprehensive Income) of ''19,277 million in FY23, vs. ''26,471 million in FY22. The Diluted Earnings Per Share (reported) stood at ''32.9 in FY23, compared to ''45.19 in FY22.
The US is the largest market for your Company and accounted for 46.9% of the total revenue. US revenue increased by 4.8% to ''116,544 million. Your Company launched 34 products in FY23. Your companyâs market share by prescription volume (IQVIA TRX) in the US, for the quarter ending March 2023 stands at 8.7%, positioning your Company as the largest generic pharmaceutical player.
Your Company continues to strengthen its pipeline for the global markets including the US market. As on March 31, 2023, your Company filed 774 Abbreviated New Drug Applications (ANDAs) on a cumulative basis. Of the total count, 565 have
received final approvals and 34 received tentative approvals and 175 ANDAs are currently under review.
Your Companyâs revenue in its Europe formulations business was ''64,256 million in FY23 compared to ''64,803 million in FY22. Your Company now operates in ten countries in EU/UK and is present across multiple channels including pharmacy, hospital and tender business.
The ARV Formulations business stood at ''9,544 million in FY23, growing 14.6% compared to ''8,330 million in FY22.
Growth Markets segment, including Brazil, Canada, Columbia and South Africa and others, grew by 31.2% Y-o-Y to ''19,729 million.
FY23 was a challenging year for businesses, as the global economy slowly recovering from the pandemic was subjected to geo-political shocks leading to soaring inflation and hurting demand. Your companyâs effort in diversifying product portfolio and improving operational efficiency helped it to overcome the turbulent macro-economic environment significantly.
Your Company made significant progress in advancing the biosimilar and vaccine development program during the year. Through continued focus on R&D, the company has advanced the complex product portfolio and capacity further for commercialization.
Your company maintains its strong position in the key geographies of the US and Europe and is poised to grow through new launches and increasing access. In the US, your company has filed 774 ANDAs till March 31, 2023, with estimated total market potential of US$150 billion as per IQVIA data. 565 out of the total filed ANDAs have received final approval, while 209 ANDAs are in different stages of the review process. During the year, your company filed 49 ANDAs with the US FDA, including 10 ANDAs for injectable products, and received final approvals for 59 products including for 16 injectable products. The company remains committed to broaden the array of branded OTC products in line with the market trend.
For the Europe market, your Company now has Operations in ten countries with full-fledged pharmacy, hospital and tender sales infrastructure. It now ranks amongst the top 10 generic pharmaceutical companies in 8 countries of Europe. Your Company aims to expand its market share and growth, through new launches including day 1 launches, differentiated offerings, niche and complex products like Biosimilars. The company also completed building the Europe market focused injectable facility at Vishakhapatnam, India, which is in the process of commissioning.
Your company preserved its ARV market dominance by winning bids to supply in both the Global fund and PEPFAR allocation
this year. Despite price erosion, its efficient capacities and pricing capability have been a key factor in maintaining leading position in the Dolutegravir-based regimen which is the standard therapy for HIV.
Among the key growth markets, your Company has completed building a Orals facility at Taizhou, China which is in the process of commissioning. Moreover, in China, the Company has filed 30 import products and has received 6 approvals till March 31, 2023, which will be manufactured in units in India. In Canada, your Company has 188 approved products while 52 products are awaiting final approval as at the end of FY23.
Your Company has long been focused on creating an efficient API business, which is a key component in the companyâs overall growth journey. As part of the ongoing strategy, the API business operations have been carved into a wholly owned subsidiary. This move is expected to bring higher management bandwidth and more emphasis on growth and productivity within the API segment.
Last year your Company had launched a Penicillin-G project in Kakinada, Andhra Pradesh, of 15,000 tonnes/annum capacity, as part of the Indian Governmentâs production linked incentives (PLI) scheme. The project is progressing well on time and is expected to be completed in FY24.
RESEARCH AND DEVELOPMENT (R&D)
Aurobindo, over the years, has consistently invested in R&D for improving capabilities and on-boarding talented people across the globe. Your Company now has a team of more than 1,500 scientists and analysts. This enables your Company to develop a wide range of medications from generics to complex speciality products. Currently, Aurobindo has nine Research and Development (R&D) centres, of which five are in India and four are in the USA. The R&D centres are equipped with cutting-edge technologies where the talented scientists develop generics and difficult-to-develop products and strive to improve productivity. During FY23, your Company invested 5.7% of its consolidated revenue or '' 14,115 million as against '' 15,814 million or 6.7% of its consolidated revenue in FY22 in R&D.
Your Company is focused on developing specialty and difficult-to-develop complex products in the respiratory and dermatological therapeutic areas, including metered dose inhalers (MDIs), dry powder inhalers (DPIs), nasal sprays, topical lotions, creams, ointments and transdermal patches.
The products are developed for global markets, where your Company will be able to file the product, get approval and market the products. Your Company is further diversifying its product portfolio by working on multiple R&D initiatives.
During the year, your Company has continued to advance our Phase 3 clinical trials of two oncology and one ophthalmic biosimilar products, including completion of the treatment phase of our trastuzumab, a biosimilar to Herceptin.
To support future product launches, it has incurred a capacity expansion in both the microbial and mammalian drug substance manufacturing facilities. The additional microbial drug substance manufacturing capacities are commissioned for use already in FY23, while the two new mammalian production lines will be ready for use in FY24.
The 15 Valent Pneumococcal Conjugate Vaccine, developed by Tergene Biotech, a joint venture 80% owned by your Company, completed successful 3 0 trial in 1,130 pediatric subjects.
The vaccine received recommendation from Subjects Expert Committee, that operates under the aegis of CDSCO, for grant of permission to Tergene to manufacture and market the vaccine with three dose schedule in pediatric age group of 6,
10 and 14 weeks.
ENVIRONMENT, HEALTH AND SAFETY (EHS) Environment
Environmental preservation has been critical to your company and it has assigned the highest level of priority across the units. To accomplish this sustainability goal, we are leaning more towards Renewable Energy, improving the Co-Processing of Hazardous Waste, Reusing/Recycling 100% of NonHazardous waste, Managing Water resources responsibly, and expanding Green belts around our facilities. We have adopted the best standards of responsible manufacturing across our supply chain.
Health, safety, and well-being of our employees and associates are a crucial material topic for us. We are committed towards instilling a healthy lifestyle, a safe working environment. Our EHS framework and management practices assure compliance while prioritizing product and process safety and safeguarding all employees. Each manufacturing facility has departmental and Plant safety committee. Every month Management review meetings are conducted which comprises top management from Corporate and representatives from all sites including site heads to examine safety performance and streamline operational procedures critical to safety requirements. In addition to the above Lean Daily Management meetings are also conducted daily with Senior leadership team to track the actions for continuous improvement. Health and safety training is provided to both permanent and contractual workers, ensuring that our team understands the significance of safe procedures and guidelines. Risk identification and assessments are undertaken as part of the process before scaling up. Before commencing any chemical process in the manufacturing area, a hazard and operability study (HAZOP) is conducted. Qualitative and Quantitative risk assessments are carried out for establishing effective controls.
Evaluation of Safety performance through EHS Score card on monthly basis. This EHS Score card provides insight to help an organization to understand its safety performance by evaluating on monthly basis based on Key Performance Indicators identified. Inter Unit audits are conducted for gap assessments
and performance improvement. Regular Knowledge sharing session are conducted for sharing best practices among the manufacturing facilities.
Engagement in National and global initiatives on Antimicrobial Resistance (AMR)
As a healthcare service provider, the Company is partnering with âThe Access to Medical Foundation,â which is monitoring what the 30 most active firms in antimicrobial R&D and production are doing to combat antibiotic resistance. We participated in The Antimicrobial Resistance Benchmark 2018, 2020 and 2021.
The Company is also a member of the âAMR Industry Alliance,â which is driving antimicrobial resistance progress via common objectives and commitment to increase access to high-quality antimicrobial products, encourage responsible usage, and reduce environmental concerns. We participated in AMR Industry Alliance Survey report 2020,2021 and 2022.
Membership with Pharmaceutical Supply Chain Initiative (PSCI):
The Pharmaceutical Supply Chain Initiative (PSCI) is a group of pharmaceutical and healthcare companies who share a vision of better social, health, safety and environmental outcomes in the communities. Aurobindo became Associate Member of PSCI in 2022.
Participation in Carbon Disclosure Project (CDP):
CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. CDP holds the largest environmental database in the world, and this year scored nearly 15,000 companies on their climate change, forests and water security disclosures.
Your company participated in the CDP Disclosure 2022 (Performance in Climate Change and Water security) and it has received a CDP score of âCâ for Climate Change and Water Security for exemplary performance as a First-Time responder.
⢠Significant Achievement in HR Excellence, 13th CII National HR Excellence Award, 2022
⢠Excellence in Business Partnering, Economic Times Human Capital Awards, 2022
⢠IKON Talent Acquisition Awards - HR Guru, 2022
⢠âL&D Excellenceâ and âBest L&D Team â in 12th Edition Learning and development Summit & Awards 2023 organised by UBS FORUMS PVT LTD
⢠â23rd National Award for Excellence in Energy Management 2022â at CII Virtual Platform:
⢠Unit IX received the Excellence Energy Efficient Unit -Consistent in the same category in the last 02 years.
⢠Unit XIV received Excellence Energy Efficient Unit - Current year and Energy Efficient Unit category in the last year.
⢠Unit I received Energy Efficient Unit - Consistent in the same category in the last three Years.
⢠Unit V received Energy Efficient Unit Current Year.
⢠Unit XI received Energy Efficient Unit Consistent in the same category in the last two Years.
⢠Unit XIU received Energy Efficient Unit Current Year.
As per the provisions of Section 129 of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014, a separate statement containing the salient features of the financial statements of Subsidiary companies/Associate companies/Joint ventures is detailed in Form AOC-1 and is in Annexure-1 to this Report.
The Company has formulated a Policy for determining Material Subsidiaries. The Policy is available on the Companyâs website and can be accessed at https://www.aurobindo.com/api/uploads/ disclosure_under_regulation/Policy-MaterialSubsidiary.pdf
During the year, the following were the changes in the subsidiaries of the Company:
During the period under review, the following are the companies that ceased as subsidiaries/JVs:
⢠Auro PR I LLC (formerly known as Mylan LLC) Merged with Auro PR Inc w.e.f. May 23, 2022.
⢠Eugia Injectable Inc, is dissolved w.e.f. April 26, 2022
⢠Auro Steriles LLC, a wholly owned stepdown subsidiary in USA has been cancelled w.e.f. September 30, 2022.
During the period under review, following subsidiary/step-down subsidiary companies were incorporated/acquired:
⢠Theranym Biologics Private Limited was incorporated as wholly owned subsidiary of Curateq Biologics Private Limited w.e.f. September 22, 2022.
⢠PT Aurogen Pharma Indonesia was incorporated as a wholly owned stepdown subsidiary (99% held by Helix Healthcare BV and 1% held by Agile Pharma BV) w.e.f. July 1, 2022
⢠51% share capital of GLS Pharma Limited was acquired and it became a subsidiary with effect from August 17, 2022
Name changes of Subsidiaries / JVs
During the period under review, names of the following subsidiary/JVs were changed:
⢠Acrotech Biopharma LLC name has been changed to Acrotech Biopharma Inc. w.e.f. June 2, 2022
⢠Auro Cure Private Limited name has been changed to Eugia Steriles Private limited w.e.f. July 26, 2022
⢠Wytells Pharma Private Limited name has been changed to Eugia SEZ Private Limited w.e.f. September 2, 2022
⢠Auro Medics Pharma LLC name has been changed to Eugia US LLC w.e.f. August 8, 2022
⢠Tergene Biotech Private Limited has been converted from private limited company to public limited company w.e.f. October 20, 2022, hence the name changed to Tergene Biotech Limited.
⢠Auro Pharma India Private Limited name has been changed to Apitoria Pharma Private Limited w.e.f. March 29, 2023.
Ownership changes in Subsidiaries
During the period under review, ownership of the following subsidiaries was changed from one subsidiary to other subsidiary:
⢠AuroMedics Pharma LLC (now Eugia US LLC) - Ownership changed from Aurobindo Pharma USA Inc to Auro Steriles LLC w.e.f. April 1, 2022. Consequent to cancellation of Auro Steriles LLC on September 30, 2022, ownership of Eugia US LLC changed from Auro Steriles LLC to Eugia Inc w.e.f. October 1, 2022
⢠Auro Steriles LLC - Ownership changed from Aurobindo Pharma USA Inc to Eugia Inc w.e.f. April 1, 2022
⢠Eugia US Manufacturing LLC - Ownership changed from Aurobindo Pharma USA Inc to Eugia Inc w.e.f. April 1, 2022
INTEGRATED ANNUAL REPORT
In compliance with the SEBI Circular SEBI/HO/CFD/CMD/ CIR/P/2017/10 dated February 6, 2017 and based on the International Integrated Reporting Framework, the Company Voluntarily adopted the Integrated Annual Report for the financial year 2022-23, which encompasses both financial and non-financial information to Members of the Company to view insight into the organizationâs strategy, governance framework, stakeholder relationship and future outlook and performance and prospects of value creation based on the six forms of capitals viz. financial capital, manufactured capital, intellectual capital, human capital, social capital, relationship capital and natural capital.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements have been prepared by the Company in accordance with the Indian Accounting Standards (Ind AS) 110 and 111 as specified in the Companies (Indian Accounting Standards) Rules, 2015 and as per the provisions of Companies Act, 2013. The Company has placed separately, the audited accounts of its subsidiaries on its website https:// www.aurobindo.com/investors/disclosures-under-regulation-46/
financials-subsidiaries in compliance with the provisions of Section 136 of the Companies Act, 2013. Audited financial statements of the Companyâs subsidiaries will be provided to the Members, on request.
CODE FOR PREVENTION OF INSIDER TRADING
The Company adopted a Code of Conduct to regulate, monitor and report trading in securities of the Company by the designated persons and their immediate relatives pursuant the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015. This Code of Conduct also includes code of practices and procedures for fair disclosure of unpublished price sensitive information and has been made available on the Companyâs website at https://www. aurobindo.com/api/uploads/Code-Fair-Disclosure-PIT-Feb2019. pdf. Company has implemented System Driven Disclosures for monitoring dealings in the securities of the Company by the promoters, directors and designated persons and also structured digital database to keep record of the persons with whom the unpublished price sensitive information of the Company has been shared with.
VIGIL MECHANISM
The Board of Directors adopted the Whistle Blower Policy which is in compliance with Section 177(9) of the Companies Act, 2013 and Regulation 22 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Whistle Blower Policy aims to conduct the affairs of the Company in a fair and transparent manner by adopting the highest standards of professionalism, honesty, integrity, and ethical behaviour.
All permanent employees and Whole-time Directors of the Company are covered under the Whistle Blower Policy.
A mechanism has been established for employees and other stakeholders to report their concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct and Ethics, and leak of price-sensitive information under the Companyâs Code of Conduct formulated for regulating, monitoring, and reporting by Insiders under SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time. It also provides for adequate safeguards against the victimisation of employees who avail of the mechanism and allows direct access to the Chairperson of the Audit Committee and also Managing Director of the Company in exceptional cases. During the year, no complaints were reported under the Whistle Blower Policy. The Whistle Blower Policy is available on the Companyâs website https://www.aurobindo.com/investors/ disclosures-under-regulation-46/vigil-mechanism-whistle-blower-policy
PREVENTION AND PROHIBITION OF SEXUAL HARASSMENT
Your Company has a policy and framework for employees to report sexual harassment cases at the workplace and the said process ensures complete anonymity and confidentiality of information. Your Company has constituted an Internal Complaints Committee in compliance with the Sexual
Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules there under. The Company has a policy on prevention and prohibition of sexual harassment at the workplace. The policy provides for protection against sexual harassment of women at the workplace and for the prevention and redressal of such complaints. During the year, the Company has not received any complaint. The Company has been conducting regular awareness programmes aimed at prevention of sexual harassment.
The Board and Committee meetings are prescheduled, and a tentative calendar of the meetings is created, in consultation with the Directors. However, in case of special and urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, five Board Meetings and six Audit Committee Meetings were convened and held.
The details of the meetings including composition of the Audit Committee are provided in the Corporate Governance Report. During the year, all the recommendations of the Audit Committee were accepted by the Board.
DETAILS OF DIRECTORS AND KEY MANAGERIAL PERSONALKey Managerial Personnel
Mr. K. Nithyananda Reddy, Vice Chairman & Managing Director, Dr. M. Sivakumaran, Whole-time Director, Mr. M. Madan Mohan Reddy, Whole-time Director, Mr. Santhanam Subramanian, Chief Financial Officer, and Mr. B. Adi Reddy, Company Secretary are Key Managerial Personnel of the Company in accordance with the provisions of Section(s) 2(51), and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. In view of temporary inability to perform executive functions of the Company by Mr. P. Sarath Chandra Reddy, he has been relieved from his executive responsibilities with effect from November 12, 2022. However, he continues to remain as director on the Board of the Company.
None of the Directors of the Company are disqualified under the provisions of the Companies Act, 2013 (âActâ) or under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. All Independent Directors have provided confirmations as contemplated under section 149(7) of the Act. As required by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a certificate from the Company Secretary in practice, that none of the Directors on the Board of the Company have been debarred or disqualified from being appointed or continuing as Directors of companies by the Board/Ministry of Corporate Affairs or any such statutory authority, forms part of Corporate Governance Report as Annexure-A.
During the year, the Members approved the reappointment of Mr. Girish Paman Vanvari (DIN: 07376482) as an Independent Director for second term of five years from November 5,
2022 to November 4, 2027 and approved the appointment of Mr. Santanu Mukherjee (DIN: 07716452) as an Independent
Director for a period of two years from February 9, 2023 to February 8, 2025. In the opinion of the Board, both Mr. Girish Paman Vanvari and Mr. Santanu Mukherjee are the persons of integrity, fulfil requisite conditions as per applicable laws and are independent of the management and promoters of the Company.
Further, as per the provisions of the Companies Act, 2013,
Dr. M.Sivakumaran and Mr. P. Sarath Chandra Reddy will retire as Directors at the ensuing Annual General Meeting and being eligible, seek reappointment. The Board recommends their reappointment.
DIRECTORSâ RESPONSIBILITY STATEMENT
Pursuant to Section 134(3)(c) of the Companies Act, 2013 your Directors confirm that:
a. in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b. appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as at the end of the financial year and of the profit of your Company for the year;
c. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act,
2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
d. the annual accounts have been prepared on an on-going concern basis;
e. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and are operating effectively; and
f. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems are adequate and are operating effectively.
DECLARATION FROM INDEPENDENT DIRECTORS
The Independent Directors have submitted the declaration as to the compliance with the Companyâs Code of Conduct and the declaration of independence stating that they meet the criteria of independence as provided in sub-section (6) of Section 149 of the Companies Act, 2013 as well as clause (b) of sub-regulation (1) of Regulation 16 of the Listing Regulations (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) and confirmed that they have registered their names in the Independent Directorsâ Data bank. In terms of Regulation 25(8) of the Listing Regulations, the Independent Directors have confirmed that they are not aware of
any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge their duties.
The Company recognises and embraces the importance of a diverse Board in its success. The Board has adopted the Board Diversity Policy which sets out with an approach to diversify the Board of Directors. The Board Diversity Policy is available on the Companyâs website: https://www.aurobindo.com/api/uploads/ Policy-on-Board-Diversity.pdf
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be conducted by the Board of its own performance and that of its committees and individual Directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of Independent Directors shall be conducted by the entire Board of Directors, excluding the Director being evaluated.
The Annual Performance Evaluation was conducted for all Board Members, for the Board and its Committees for FY23.
This evaluation was led by the Nomination and Remuneration/ Compensation Committee of the Company. The Board evaluation framework has been designed in compliance with the requirements under the Companies Act, 2013 and the Listing Regulations and in accordance with the Guidance Note on Board Evaluation issued by SEBI in January 2017 The Board evaluation was conducted through questionnaires designed with qualitative parameters and feedback based on ratings.
Evaluation of Committees was based on criteria such as adequate independence of each Committee, frequency of meetings and time allocated for discussions at meetings, functioning of Board Committees and effectiveness of its advice/ recommendation to the Board, etc.
Evaluation of Directors was based on criteria such as participation and contribution in Board and Committee meetings, representation of shareholders interest and enhancing shareholders value, experience, and expertise to provide feedback and guidance to top management on business strategy, governance, risk and understanding of the organisationâs strategy, etc.
POLICY ON DIRECTORSâ APPOINTMENT AND REMUNERATION
The policy of the Company on Directorsâ appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a Director and other matters are adopted as per the provisions of the Companies Act, 2013. The remuneration paid to the Directors is as per the terms laid out in the Nomination and Remuneration Policy of the Company. The Nomination and Remuneration Policy
RISK MANAGEMENT COMMITTEE
Risk Management Committee of the Company consists of the following Directors viz., Mr. Girish Paman Vanvari, Mr. P. Sarath Chandra Reddy and Mr. K. Ragunathan as on March 31, 2023.
The Risk Management Committee was re-constituted on April 1, 2023 with the following Directors viz., Mr. Girish Paman Vanvari, Mr. Santanu Mukherjee and Mrs. Savita Mahajan as members.
Mr. Girish Paman Vanvari is the Chairman of the Committee.
The Company has established a separate department to monitor the enterprise risk and for its management. The Committee had formulated a Risk Management Policy for dealing with different kinds of risks which the Company faces in its day-today operations. The Risk Management policy of the Company outlines a framework for identification of internal and external risks specifically faced by the Company, in particular including financial, operational, sectoral, sustainability (particularly, ESG-related risks), information, cyber security risks, or any other risk as may be determined by the Committee; measures for risk mitigation including systems and processes for internal control of identified risks; and Business continuity plan. Risk is an integral part of the Companyâs business, and sound risk management is critical to the success of the organisation. The Company has adequate internal financial control systems and procedures to combat the risk. The risk management procedure is reviewed by the Audit Committee and Board of Directors on a regular basis at the time of review of the quarterly financial results of the Company. A report on the risks and their management is enclosed as a separate section forming part of this report.
AUDITORS & AUDITORSâ REPORT
Pursuant to Section 139 (2) of the Companies Act, 2013, read with Companies (Audit and Auditors) Rules, 2014, the Company at its 35th Annual General Meeting (AGM) held on August 2,
2022, had appointed M/s. Deloitte Haskins & Sells, Chartered Accountants as Statutory Auditors for a period of 5 years i.e. up to the conclusion of the 40th AGM to be held in the year 2027 Further, as per the Companies (Amendment) Act, 2017 effective from May 7, 2018, the provisions relating to ratification of the appointment of Statutory Auditors at every AGM are not required to be followed. The Auditors have confirmed that they are not disqualified from continuing as Auditors of the Company. The Statutory Auditorsâ report forms part of the Annual Report. The notes on financial statements referred to in the Auditorsâ Report are self-explanatory and do not call for any further comments. There are no specifications, reservations, adverse remarks on disclosure by the statutory auditors in their report. They have not reported any incident of fraud to the Audit Committee of the Company during the year under review.
INTERNAL AUDITORS
Ernst & Young LLP are the Internal Auditors of the Company and to maintain its objectivity and independence, the Internal Auditors report to the Chairman of the Audit Committee. The scope and authority of the Internal Audit function is clearly
as adopted by the Board is available on the Companyâs website: https://www.aurobindo.com/api/uploads/NRC-Policy-AUROBINDO-09022023.pdf
Your Company has not transferred any amount to reserves during the year under review.
LOANS, GUARANTEES AND INVESTMENTS
Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the Notes to the financial statements provided in this Annual Report.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All transactions entered with Related Parties for the year under review were on armâs length basis and in the ordinary course of business. All Related Party transactions are mentioned in the Notes to the Financial Statements. The Company has developed a framework through Standard Operating Procedures for the purpose of identification and monitoring of such Related Party Transactions. A statement giving details of all Related Party Transactions are placed before the Audit Committee and the Board for review and approval. The policy on Related Party Transactions, as approved by the Board of Directors, has been uploaded on the website of the Company https://www. aurobindo.com/investors/disclosures-under-regulation-46/ policy-on-rpt
The particulars of contracts or arrangements with Related Parties referred to in sub-section (1) of Section 188 of the Companies Act, 2013 is 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 is in Annexure-2 to this Report.
There were no materially significant Related Party Transactions which could have potential conflict with the interests of the Company at large.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS & OUTGO
Information with respect to conservation of energy, technology absorption, foreign exchange earnings & outgo pursuant to Section 134(3)(m) of the Act read with Companies (Accounts) Rules, 2014 is in Annexure-3 to this Report.
The Annual Return of the Company as on March 31, 2023 is available on the Companyâs website and can be accessed at: https://www.aurobindo.com/investors/disclosures-under-regulation-46/annual-returns
defined by the Audit Committee of the Board. The Internal Auditors monitor and evaluate the efficacy and adequacy of the internal control system of the Company, its compliance with applicable laws/regulations, accounting procedures and policies on a standalone basis. Based on the reports of the Internal Auditors, corrective actions will be undertaken, thereby strengthening the controls. Significant audit observations and action plans were presented to the Audit Committee of the Board on a quarterly basis.
As per Section 148 of the Act, the Company is required to have the audit of its cost records conducted by a Cost Accountant. The Board of Directors of the Company has on the recommendation of the Audit Committee, approved the appointment of EVS & Associates, a firm of Cost Accountants in Practice (Registration No. 000175) as the Cost Auditors of the Company to conduct cost audit for relevant products prescribed under the Companies (Cost Records and Audit) Rules, 2014 for the year ending on March 31, 2024 at a remuneration of '' 650,000/- plus reimbursement of out-of-pocket expenses at actuals and applicable taxes. As per the provision of the Act, the remuneration payable to the Cost Auditor for audit of cost records, subject to ratification by the Members in the forthcoming AGM. The Cost Auditor, EVS & Associates have, under Section 139(1) of the Companies Act, 2013 and the Rules framed thereunder, furnished a certificate of their eligibility and consent for appointment.
The internal financial controls (IFC) framework institutionalised in Aurobindo has been evaluated in-depth for its adequacy and operating effectiveness, wherein the Company has covered financial reporting controls, operational controls, compliance-related controls and also Information Technology (IT) controls, comprising IT general controls (ITGC) and application-level controls. The ITGC would include controls over IT environment, computer operations, access to programmes and data, programme development and programme changes. The application controls would include transaction processing controls in ERP Oracle system which supports accurate data input, data processing and data output, workflows, reviews and approvals as per the defined authorisation levels.
To further strengthen the existing IFC framework and support the growing business, the Company has redefined all the process level controls at activity level which has brought in more clarity and transparency in day-to-day processing of transactions and in addressing any related risks. All the controls so redefined and identified have been properly documented and tested with the help of an independent auditor to ensure their adequacy and effectiveness.
The Internal Auditors conduct âProcess & control reviewâ on a quarterly basis as per the defined scope and submit the audit findings along with management comments and action taken reports to the Audit Committee for its review.
The IFC framework at Aurobindo ensures the following:
⢠Establishment of policies and procedures, assignment of responsibility, delegation of authority, segregation of duties to provide a basis for accountability and controls;
⢠Physical existence and ownership of assets at a specified date;
⢠Enabling proactive anti-fraud controls and a risk management framework to mitigate fraud risks to the Company;
⢠Recording of all transactions occurred during a specific period. Accounting of assets, liability, and revenue and expense components at appropriate amounts;
⢠Preparation of financial information as per the timelines defined by the relevant authorities.
These controls cover the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business including adherence to the Companyâs policies, safeguarding of its assets of the Company, prevention and detection of its frauds and errors, accuracy and completeness of accounting records and timely preparation of reliable financial information. The Company has an internal control system, commensurate with the size, scale and complexity of its operation.
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr. A. Mohan Rami Reddy, a Company Secretary in Practice, to undertake the secretarial audit of the Company for the financial year 2022-23. The Secretarial Audit Report issued in form MR-3 is in Annexure-4 of this Report.
As per regulation 24A(1) of SEBI Listing Regulations, your Company is required to annex a secretarial audit report of its material unlisted subsidiary incorporated in India to its Annual Report. Accordingly, the Secretarial Audit Report for the Financial Year 2022-23 of APL Healthcare Limited, a material subsidiary incorporated in India, is annexed along with Annexure-4 of this report.
There are no qualifications, reservations or adverse remarks in either of these Secretarial Audit Reports. Also, pursuant to Regulation 24A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has obtained the Annual Secretarial Compliance Report from a Practicing Company Secretary and submitted the same to stock exchanges where the shares of the Company are listed.
CORPORATE SOCIAL RESPONSIBILITY
In compliance with Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules 2014, the Company has established the Corporate Social Responsibility Committee (CSR Committee).
The Board, on the recommendation of the CSR Committee, adopted a CSR Policy. The same is available on the Companyâs website at https://www.aurobindo.com/api/uploads/CSR-policy. pdf The CSR objectives are designed to serve societal, local and national goals in the locations that we operate in, to create a significant and sustained impact on local communities.
The Company undertakes its CSR activities through Aurobindo Pharma Foundation, a wholly-owned subsidiary of the Company incorporated under Section 8 of the Companies Act 2013.
The details of CSR projects approved by the Board for the financial year 2022-23 are available on the Companyâs website at https://www.aurobindo.com/sustainability/annual-action-plan. The Annual Report on Corporate Social Responsibility as per Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is annexed as Annexure-5 to this Report.
PARTICULARS OF EMPLOYEES
The statement of particulars of appointment and remuneration of managerial personnel as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is in Annexure-6 to this Report. The statement containing particulars of employees pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014 is open for inspection at the Registered Office of the Company during business hours on all working days of the Company, up to the date of the ensuing Annual General Meeting. Any shareholder interested in obtaining such details may write to the Company Secretary of the Company at [email protected].
Affirmation that the remuneration is as per the remuneration policy of the Company.
In compliance with the provisions of the Companies Act, 2013 and SEBI Listing Regulations, the Board, on the recommendation of the Nomination and Remuneration/Compensation Committee approved the Policy for selection, appointment of Directors,
KMPs and Senior Management persons. The said Policy provides a framework to ensure that suitable and efficient succession plans are in place for appointment of Directors on the Board and other management members. The Policy also provides for selection and remuneration criteria for the appointment of Directors and senior management persons. The Company affirms that the remuneration is as per the Remuneration Policy of the Company.
INSURANCE
All properties and insurable interests of the Company including building, plant and machinery and stocks have been fully insured. The Company has also taken D&O Insurance Policy covering Companyâs Directors and Officers.
MATERIAL CHANGES AND COMMITMENTS
There are no material changes and commitments in the business operations of the Company from the financial year ended March 31, 2023 to the date of signing of the Boardâs Report other than the transfer of certain Units of the Company viz. Unit 1, Unit 5, Unit 8, Unit 9, Unit 11, Unit 14, Unit 17 and R&D Unit 2, to the Companyâs wholly owned subsidiary Apitoria Pharma Private Limited for an aggregate consideration of '' 38,0979 million subject to necessary adjustments as prescribed in the business transfer agreements and on a cash free basis.
CORPORATE GOVERNANCE
A separate report on Corporate Governance standards followed by your Company, as stipulated under Schedule V (C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is enclosed as a separate section forming part of this report. The certificate of the Practicing Company Secretary, Mr. S. Chidambaram with regard to compliance of conditions of corporate governance as stipulated under Schedule V(E) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed to the Corporate Governance Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report for the year under review as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is presented in a separate section forming part of this report.
DEPOSITS
Your Company has not accepted any deposits from the public within the purview of Chapter V of the Companies Act, 2013.
INDUSTRIAL RELATIONS
Industrial relations at all units of the Company have been harmonious and cordial. The employees are motivated and have shown initiative in improving the Companyâs overall performance during the year.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF
The dividends that remained unpaid/unclaimed for a period of seven years, have been transferred on due dates by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government. Section 124 of the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (âthe Rulesâ) mandates that companies shall apart from transfer of dividend that has remained unclaimed for a period of seven years in the unpaid dividend account to the IEPF, also transfer the corresponding shares with respect to the dividend, which has not been paid or claimed for seven consecutive years or more to IEPF.
Accordingly, the dividends that remain unclaimed for seven years and also the corresponding shares have been transferred to
IEPF account on due dates. The details of amount of unclaimed unpaid dividend and corresponding shares transferred to IEPF during the financial year 2022-23 have been provided in the AGM Notice.
Further, in accordance with the IEPF Rules, the Board of Directors have appointed Mr. B. Adi Reddy, Company Secretary as Nodal Officer of the Company for the purpose of verification of claims of shareholders pertaining to shares transferred to IEPF and / or refund of dividend from IEPF Authority and for coordination with IEPF Authority. The details of the Nodal Officer are available on the website of the Company at https://www.aurobindo.com/api/ uploads/unpaiddividendaccountdetails/Nodal-Officer-IEPF.pdf
SHARE CAPITAL
During the financial year under review, there has been no change in the Authorised, Subscribed and Paid-up Share Capital of the Company. The paid-up share capital of the Company as on March 31, 2023 was '' 585,938,609 divided into 585,938,609 equity shares of '' 1 each. The Company has not issued any shares, debentures, bonds or convertible / non-convertible securities during the financial year under review.
BUSINESS RESPONSIBILITY AND SUSTAINABILITY REPORT
A detailed Business Responsibility and Sustainability Report in terms of the provisions of Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is available as a separate section in this Annual Report.
SIGNIFICANT/ MATERIAL ORDERS PASSED BY COURTS/ REGULATORS/TRIBUNALS
There were no significant material orders passed by the Regulators or Courts or Tribunals that would impact the going concern status of the Company and its operations in future.
SECRETARIAL STANDARDS
The Company has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India, i.e., SS-1 and SS-2, relating to âMeetings of the Board of Directorsâ and âGeneral Meetingsâ respectively.
OTHER DISCLOSURES
Acquisitions / Disinvestment / merger / demerger
Acquisition of 51% equity stake in GLS Pharma Limited
The Board of Directors of the Company at its meeting held on June 17, 2022, approved the acquisition of 51% equity shares in GLS Pharma Limited, operating in oncology business and having manufacturing facility in Hyderabad for a cash consideration of '' 280.5 millions. GLS Pharma Limited is engaged in the business of Oncology products which include orals and injectables used in chemotherapy for solid malignancies, chemotherapy for hematological malignancies and chemo supportive products.
GLS Pharma Limited was incorporated on September 1, 2014
and initiated manufacturing in the year 2015. It had a total sales of '' 258 millions during the financial year 2021-22 and '' 273 millions during the financial year 2022-23.
Acquisition of business operations of Veritaz Healthcare Limited
The Company completed the acquisition of business and certain assets of Veritaz Healthcare Limited on slump sale basis in July 2022, for a consideration of '' 1,710 million as per the Business Transfer Agreement dated March 28, 2022. Veritaz operates in the pharmaceutical industry in India and sells branded generic formulations and other health care related products.
Merger Scheme
The Board of directors at its meeting held on August 12, 2021 had approved Scheme of Amalgamation providing for the amalgamation of two of its wholly owned subsidiaries viz., Auronext Pharma Private Limited and Mviyes Pharma Ventures Private Limited with the Company subject to the requisite statutory / regulatory approvals including the approval of the National Company Law Tribunal (Hyderabad Bench). Since there were other restructuring proposals in discussion, this amalgamation was put on hold and the Board of Directors at its meeting held on April 1, 2023 has decided to proceed with the aforesaid Scheme of Amalgamation.
CREDIT RATING
The Company has obtained the Credit ratings from India Ratings & Research Private Limited and it has assigned ND AA /Stable/ IND A1 on Rating Watch Evolving for Companyâs fund based working capital facilities and ND A1 on Rating Watch Evolving for Companyâs non-fund-based working capital limits vide their letter dated October 20, 2022.
ACKNOWLEDGEMENTS
Your directors are grateful for the invaluable contribution made by the employees and are encouraged by the support of the customers, business associates, banks and government agencies. The Directors deeply appreciate their faith in the Company and remain thankful to them. The Board shall always strive to meet the expectations of all the stakeholders.
For and on behalf of the Board K. Ragunathan
Date: May 27, 2023 Chairman
Place: Hyderabad DIN: 00523576
Mar 31, 2022
'' in million |
||
2021-22 |
2020-21 |
|
Revenue from operations |
112,871.4 |
158,236.8 |
Profit Before Depreciation, Interest, Tax and Exceptional Items |
14,734.0 |
41,198.3 |
Depreciation |
4,152.6 |
4,880.0 |
Finance cost |
169.4 |
286.8 |
Profit Before Tax |
16,374.8 |
41,930.1 |
Provision for Tax |
1,827.7 |
10,801.0 |
Net Profit After Tax |
14,547.1 |
31,129.1 |
Other Comprehensive Income/ (Expense) |
16.9 |
(64.2) |
Total Comprehensive Income for the period |
14,564.0 |
31,064.9 |
DIVIDEND
Your Company has paid first interim dividend of 150% i.e. ''1.50 per equity share of ''1, second interim dividend of 150% i.e. ''1.50 per equity share of ''1, third interim dividend of 150% i.e. ''1.50 per equity share of ''1 and fourth interim dividend of 450% i.e. ''4.50 per equity share of ''1. The total dividend for the financial year 2021-22 comes to 900% i.e. ''9.00 per equity share of ''1 against 400% i.e. ''4.00 per equity share of ''1 paid in the previous year.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top 1000 listed entities based on market capitalisation are required to formulate a Dividend Distribution Policy. The Board has approved and adopted the Dividend Distribution Policy and the same is available on your Companyâs website: https://www.aurobindo. com/wp-content/uploads/2018/10/Dividend-Distribution-Policy. pdf
PERFORMANCE REVIEW
Your Company is the leading generic pharma company globally and now ranks as seventh largest generic company by sales and second largest listed Indian pharmaceutical company by revenues. Your Company has become the largest supplier in the USA by volume in last quarter of the financial year. Your Company maintained its growth momentum in revenue and profitability despite headwinds caused by the pandemic.
On a standalone basis, your Companyâs revenue stood at ''112,871.4 million in the financial year 2021-22, as against ''158,236.8 million in the corresponding previous period.
The Formulations business stood at ''66,942.9 million due to
Your Directors are pleased to present the 35th Annual Report of your Company together with the audited accounts for the financial year ended March 31, 2022.
FINANCIAL HIGHLIGHTSStandalone Financials
transfer of formulation units (Unit IV, Unit XVI) to wholly-owned subsidiaries of Aurobindo Pharma Limited. The API business witnessed a growth of 28.5% to ''44,022.6 million. EBITDA for the year decreased by 64.2% to ''14,734.0 million vs. ''41,198.3 million in the corresponding previous period. Gross Profit margin decreased by 6% to 48.2% of revenue (vs. 54.2% revenue in FY21), which led EBITDA margin for the year to decrease by 13% to 13.1% of revenue (vs. 26% of revenue in FY21). Profit before Tax for the year is at ''16,374.8 million. Your Companyâs net profit (before Other Comprehensive Income) is at ''14,547.1 million as against ''31,129.1 million in FY21. The diluted Earnings Per Share stood at ''24.83 compared to ''53.13 in FY21.
On a consolidated basis, the revenues stood at '' 234,554.9 million. The Formulations business stood at ''199,393.2 million vs ''216,859.7 million in the corresponding previous period.
The Active Pharmaceutical Ingredients (APIs) business posted a growth of 13.9% to ''35,155.7 million vs. ''30,859.0 million in FY21. The growth in API segment led by strong growth of 20.4% in Beta Lactam segment to ''20,825.0 million. EBITDA margin decreased by 2.8% to 18.7% vis-a-vis 21.5% in FY21.
R&D expenditure for the year was ''15,813.5 million or 6.7% of revenue, increased from ''15,095.7 million or 6.1% of revenue in FY21. EBITDA before forex and other income stood at ''43,867.9 million. Your Company reported a Net Profit of ''26,471.0 million, vs. ''53,338.4 million (including one off gains from the sale of Natrol business in FY21) in corresponding previous period. The Diluted Earnings Per Share (reported) stood at ''45.19 compared to ''91.05 in FY21. During the year, Company received net loss (net of the tax) of ''1,216.8 on exceptional items including Gain on sale of tangible assets, Impairment of intangible assets & goodwill and Impairment of capital work in progress.
The US is the largest market for your Company and accounted for 47.4% of the total revenue. US revenue stood at ''111,221.1 million. Your Company has launched 22 products in FY22. Your Company has maintained its dominant position in the US market and is ranked as the largest volume player as per IQVIA QTR March 2022 data.
Your Company continues to strengthen its pipeline for the global markets including the US market. As on March 31, 2022, your Company filed 727 Abbreviated New Drug Applications (ANDAs) on a cumulative basis. Of the total count, 505 have received final approvals and 33 received tentative approvals, including 8 ANDAs, which are tentatively approved under the US Presidentâs Emergency Plan for AIDS Relief (PEPFAR), while 189 ANDAs are currently under review.
Your Company registered a 6.9% growth in its Europe formulations business to ''64,802.9 million in FY22 compared to the previous yearâs revenue of ''60,607.9 million. Your Company is listed among the top 10 generics businesses in 6 of the 9 EU/UK nations where it operates, having a presence in all market channels such as pharmacies, hospitals, and tenders, as well as sales infrastructure and 550 INNs commercialised (International Non-proprietary Names). Despite headwinds,
your Companyâs performance in France, Portugal, Poland and Italy led to overall growth in Europe. Your Companyâs focus during the year was to improve the profitability of the acquired Apotex business.
The ARV Formulations business stood at ''8,329.9 million in FY22 vs. ''18,627.7 million in FY21, due to COVID impact as well as excess procurement in the previous FY.
Growth Markets, which include Brazil, Canada, Columbia and South Africa grew by 4.6% to ''15,039.4 million.
FY22 was different in every aspect and held more than its fair share of challenges, as the world reeled under the pandemic through the year, we stayed focused on diversifying our product basket and launching new products consistently. Your Company has plans to leverage the infrastructure of the acquired business to drive penetration and optimise value creations.
Your Company remains focused on developing on complex and differentiated products in multiple areas comprising oncology and hormonal products, biosimilars, depot injections, vaccines, topicals, transdermal patches, inhalers, nasals, and complex peptide products which will drive the next phase of growth.
Your Company is also in the process of commissioning the capacities for some of the complex therapeutic areas.
Your Company is committed to grow in its key geographies i.e. US and Europe. In the US, around 220 ANDAs are awaiting final approval and annual sales as per IQVIA data is US$105 billion as on March 31, 2022. Apart from this, as of March 31, 2022, Your Company is seeking final clearance for 128 ANDAs, with a goal of expanding the number of submissions and approvals across treatments in oral solids, and for 48 ANDAs in injectables. With the pandemic situation easing, Your Company will resume its development trajectory, with a focus on developing a product range of complicated injectables. As more pharmaceuticals transition from prescription to OTC, the array of branded OTC products will grow.
For Europe markets, your Company have total 58 products filed and awaiting approval. Additionally, there are nearly 200 products under development in general oral/ general/ oncology product categories, which will be launched in the next two to three years. Your Company is also building a dedicated injectable facility for Europe and Growth Markets to strengthen its presence in the Hospital segment. The facility will start filing new injectable products in FY23 with earliest possible commercialisation in FY24.
In the ARV space, due to the Covid effect as well as surplus procurement in the previous fiscal year, this category had a 55 percent year-on-year decline to '' 8,330 million. Your Company intends to maintain a substantial chunk of its market position in the ARV sector via Dolutegravir-based regimen, which is the
first line therapy in HIV, by utilising big capacities at low pricing. This regimen is projected to be the standard therapy in the future years.
In Growth Markets, Canada, South Africa, Brazil and China are the key geographies for your Company. In Canada, your Company has a robust product pipeline with over 43 products awaiting approval. In China so far, we have approval for 2 products and are awaiting approval for additional 29 products.
In its API business, your Company produces and sells Betalactam and Non-Betalactam products from its 10 API and intermediate plants. To satisfy consumer demands while being cost-effective, the Company has focused on growing capacity and continually upgrading its production processes. The Indian government established production linked incentives (PLI) to enhance local manufacturing capacity, including high-value items across the global supply chain. We replied by launching a plant in Kakinada, Andhra Pradesh, to produce 15,000 tonnes of Penicillin G.
In R&D, your Company will maintain focus on difficult-to-manufacture, differentiated products, with possible low competitive pressure. Filing momentum is in line with the strategy of moving towards complex and differentiated products.
RESEARCH AND DEVELOPMENT (R&D)
Aurobindo, over the years, has consistently invested in R&D for improving capabilities and on-boarding talented people across the globe. Your Company now has a team of more than 1,500 scientists and analysts. This enables your Company to develop a wide range of medications from generics to complex speciality products. Currently, Aurobindo has nine Research and Development (R&D) centres, of which five are in India and four are in the USA. The R&D centres are equipped with cutting-edge technologies where the talented scientists develop generics and difficult-to-develop products and strive to improve productivity. During FY22, your Company invested 6.7% of its consolidated revenue or ''15,813.5 million as against ''15,095.7 million or 6.1% of its consolidated revenue in FY21 in R&D.
Your Company is focused on developing specialty and difficult-to-develop complex products in the respiratory and dermatological therapeutic areas, including metered dose inhalers (MDIs), dry powder inhalers (DPIs), nasal sprays, topical lotions, creams, ointments and transdermal patches.
The products are developed for global markets, where your Company will be able to file the product, get approval and market the product globally. Your Company is further diversifying its product portfolio by working on multiple R&D initiatives.
Our biosimilars are developing steadily. We filed two cancer biosimilars in FY22. One cancer biosimilar monoclonal antibody is expected to end patient enrolment in its Phase III efficacy and safety trial in early FY23. This product should be filed in select markets by Q4FY2022. In Q4 FY22, a Phase 1 clinical trial for one of our biosimilar antibodies started.
In our North Carolina R&D centre, we develop respiratory medicine products including MDIs and DPIs for asthma and COPD (Chronic Obstructive Pulmonary Disease). Our India and US R&D centres create dermatological products. 33 items are under development at different levels (ANDA filed for 1 product, 32 products are under development, development to be initiated for another 6 products). At least 30% of developing goods need clinical or BE studies. First clinical trial and show batches for 6 items in FY22. Our India and US factories will make these items.
10-transdermal patches are under development. The underdevelopment items have a $3 billion market. In FY22, we submitted 1 product''s technical data package and began 1 exhibit batch.
We have bacterial and viral vaccines in the works. We are developing a fifteen serotype PCV via our Company Tergene Biotech (Pneumococcal Conjugate Vaccine). We have completed one phase 3 clinical investigation for PCV, which we intend to move forward to the filing stage in FY23. Our research and development centres in Hyderabad, India, and the United States are working on various candidate vaccines that are in the early stages of development.
ENVIRONMENT, HEALTH AND SAFETY (EHS) Environment
The Company continuously monitors its energy usage, regulates the emissions released and waste generated, and makes sure it follows responsible water consumption practices. To commit itself further to protect the environment, it holds tree planting initiatives and drives to protect the ecology of the regions it operates in.
Aurobindo undertakes a number of steps to upgrade and enhance employee safety. For all new projects, existing production units, distribution centres, and so on, the Company observes and monitors the safety laws and procedures. In order to avoid mishaps, the Company also offers several safety training programmes to its employees.
Engagement in national and global initiatives on Antimicrobial Resistance (AMR)
As a healthcare service provider, the Company is partnering with ''The Access to Medical Foundation,'' which is monitoring what the 30 most active firms in antimicrobial R&D and production are doing to combat antibiotic resistance. The
Company is also a member of the ''AMR Industry Alliance,'' which is driving antimicrobial resistance progress via common objectives and commitment to increase access to high-quality antimicrobial products, encourage responsible usage, and reduce environmental concerns.
⢠Excellence in Business Partnering, Economic Times Human Capital Awards
⢠Significant Achievement in HR Excellence, 12th CII National HR Excellence Award
⢠Transformance Forums âHR Innovation & Tech Fest 2021â winner in the categories of âMost Collaborative Hiring Teamâ and âInnovation in Employee Engagementâ
⢠Aurobindo Pharma Limited, Unit XIV, Visakhapatnam was adjudged the âWINNER of Golden Peacock Occupational Health & Safety Award - 2021â conducted by The Institute of Directors (IOD)
As per the provisions of Section 129 of the Companies Act,
2013 read with the Companies (Accounts) Rules 2014, a separate statement containing the salient features of the financial statements of Subsidiary companies/Associate companies/Joint ventures is detailed in Form AOC-1 and is in Annexure-1 to this Report.
The Company has formulated a Policy for determining Material Subsidiaries. The Policy is available on the Companyâs website and can be accessed at https://www.aurobindo.com/wp-content/uploads/2022/04/Policy-MaterialSubsidiary-2021.pdf
Eugia Pharma Specialities Limited, a wholly owned subsidiary of the Company, is engaged in oncology, hormonals and sterile products. Its Board of Directors comprises of professionals having managerial experience and business acumen in diverse fields. Eugia is independently run by professionally qualified and experienced team of professionals in the field of quality control, quality assurance and manufacturing. It has its own strong R&D team.
During the year, the following changes were implemented in the subsidiaries of the Company:
During the period under review, Aurobindo Pharma Gmbh Germany merged with Puren Pharma GmbH w.e.f. October 1, 2021. CuraTeQ Biologics GmbH was Liquidated w.e.f. October 7, 2021 and Longxiang Pharma Taizhou Co. Ltd. was Liquidated w.e.f. August 31, 2021.
During the period under review, following subsidiary/step-down subsidiary companies were incorporated/acquired:
⢠CuraTeQ Biologics s.r.o was incorporated in Czech Republic as a wholly-owned subsidiary of Helix Healthcare B.V. w.e.f. July 27, 2021.
⢠Eugia Pharma B.V., was incorporated in The Netherlands as a wholly-owned subsidiary of Eugia Pharma Specialities Ltd. w.e.f. September 8, 2021.
⢠Eugia Pharma (Malta) Limited was incorporated in Malta as a wholly-owned subsidiary of Eugia Pharma B.V. w.e.f. October 14, 2021.
⢠Eugia (UK) Limited was incorporated in U.K as a wholly-owned subsidiary of Eugia Pharma B.V. w.e.f.
October 21, 2021.
⢠Aurosalud SA De CV was incorporated in Mexico as subsidiary of Helix Healthcare B.V. & Agile Pharma B.V. w.e.f. July 16, 2021.
⢠Auro PR Inc was incorporated in Puerto Rico as a wholly-owned subsidiary of Helix Healthcare B.V w.e.f. September 22, 2021.
⢠Eugia Pharma Inc was incorporated in Canada as a wholly-owned subsidiary of Eugia Pharma B.V. w.e.f.
October 29, 2021.
⢠Eugia Pharma (Australia) Pty. Limited was incorporated in Australia as a wholly-owned subsidiary of Eugia Pharma B.V., w.e.f. December 15, 2021.
⢠Eugia Pharma Industria Farmaceutica Limitada was incorporated in Brazil as a wholly-owned subsidiary of Eugia Pharma B.V. w.e.f. December 20, 2021.
⢠Mylan LLC was acquired in Puerto Rico as a wholly-owned subsidiary of Auro PR Inc w.e.f. December 30, 2021.
⢠Aurobindo Pharma Ukraine LLC was incorporated in Ukraine as a wholly-owned subsidiary of Helix Healthcare B.V. w.e.f. February 2, 2022.
⢠Eugia Pharma Colombia S.A.S was incorporated in Colombia as a wholly-owned subsidiary of Eugia Pharma B.V, w.e.f. March 2, 2022.
⢠Auro Steriles LLC was incorporated in USA as a wholly-owned subsidiary of Aurobindo Pharma USA Inc. w.e.f.
April 1, 2021.
⢠Vespyr Brands, Inc (formerly known as Nurya Brands Inc) was incorporated in USA as a wholly-owned subsidiary of Auro Health LLC w.e.f. April 28, 2021.
⢠Eugia US Manufacturing LLC was incorporated in USA as
a wholly-owned subsidiary of Aurobindo Pharma USA Inc., w.e.f. August 31, 2021.
⢠Eugia Injectable Inc was incorporated in USA as a wholly-owned subsidiary of Eugia Pharma Specialities Ltd. w.e.f. April 1, 2021.,
⢠Eugia Inc was incorporated in USA as a wholly-owned subsidiary of Eugia Pharma Specialities Ltd., w.e.f.
February 23, 2022.
⢠Auro vaccines Private Limited was incorporated in India as a wholly-owned subsidiary of the Company w.e.f. November 8, 2021
The name of Aurovitas Nederland B.V (formerly Apotex Nederland B.V.), a wholly-owned subsidiary of Aurobindo Pharma B.V., was changed w.e.f. February 1, 2022
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements have been prepared by the Company in accordance with the Indian Accounting Standards (Ind AS) 110 and 111 as specified in the Companies (Indian Accounting Standards) Rules, 2015 and as per the provisions of Companies Act, 2013. The Company has placed separately, the audited accounts of its subsidiaries on its website www. aurobindo.com, in compliance with the provisions of Section 136 of the Companies Act, 2013. Audited financial statements of the Companyâs subsidiaries will be provided to the Members, on request.
CODE FOR PREVENTION OF INSIDER TRADING
On December 31, 2018 Securities and Exchange Board of India amended the Prohibition of Insider Trading Regulations, 2015, prescribing various new requirements with effect from 1st April 2019. In line with the amendments, your Company has adopted an amended Code of Conduct to regulate, monitor and report trading by Designated Persons and their Immediate Relatives under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015. This Code of Conduct also includes code of practices and procedures for fair disclosure of unpublished price sensitive information and has been made available on the Companyâs website at https://www.aurobindo. com/investors/corporate-governance/code-of-conduct/
Report. During the year, all the recommendations of the Audit Committee were accepted by the Board.
DETAILS OF DIRECTORS AND KEY MANAGERIAL PERSONAL
Key Managerial Personnel
Mr. K. Nithyananda Reddy, Whole-time Director and Vice Chairman up to December 31, 2021 and Vice Chairman and Managing Director from January 1, 2022, Mr. N. Govindarajan, Managing Director (up to December 31, 2021), Dr. M. Sivakumaran, Whole-time Director, Mr. M. Madan Mohan Reddy, Whole-time Director, Mr. P Sarath Chandra Reddy, Whole-time Director, Mr. Santhanam Subramanian, Chief Financial Officer, and Mr. B. Adi Reddy, Company Secretary are the Key Managerial Personnel of the Company in accordance with the provisions of Section(s) 2(51), and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. During the year, Mr. N. Govindarajan resigned as Managing Director of the Company w.e.f. January 1, 2022 and Mr. K. Nithyananda Reddy, Vice Chairman and Whole-time Director was appointed and redesignated as Vice Chairman and Managing Director from January 1, 2022.
None of the Directors of the Company are disqualified under the provisions of the Companies Act, 2013 (âActâ) or under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. All Independent Directors have provided confirmations as contemplated under Section 149(7) of the Act. As required by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a certificate from the Company Secretary in practice, that none of the Directors on the Board of the Company have been debarred or disqualified from being appointed or continuing as Directors of companies by the Board/Ministry of Corporate Affairs or any such statutory authority, forms part of Corporate Governance Report as Annexure-A.
Appointments/Re-appointment of Directors
As per the provisions of the Companies Act, 2013, Mr. K. Nithyananda Reddy and Mr. Madan Mohan Reddy will retire as Directors at the ensuing Annual General Meeting and being eligible, seek re-appointment. The Board recommends their re-appointment.
The re-appointment of Mr. P Sarath Chandra Reddy as Whole-time Director is being proposed.
Cessation
Mr. N. Govindarajan resigned as Managing Director and Director of the Company w.e.f. January 1, 2022.
The Board of Directors have adopted the Whistle Blower Policy which is in compliance with Section 177(9) of the Companies Act, 2013 and Regulation 22 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Whistle Blower Policy aims to conduct the affairs in a fair and transparent manner by adopting the highest standards of professionalism, honesty, integrity, and ethical behaviour.
All permanent employees and Whole-time Directors of the Company are covered under the Whistle Blower Policy.
A mechanism has been established for employees to report their concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct and Ethics, and leak of price-sensitive information under the Companyâs Code of Conduct formulated for regulating, monitoring, and reporting by Insiders under SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time. It also provides for adequate safeguards against the victimisation of employees who avail of the mechanism and allows direct access to the Chairperson of the Audit Committee in exceptional cases. The Whistle Blower Policy is available on the Companyâs website https://www.aurobindo.com/wp-content/uploads/2022/04/ Whistle-Blower-Policy-APL-New-March2022.pdf
PREVENTION AND PROHIBITION OF SEXUAL HARASSMENT
Your Company has a policy and framework for employees to report sexual harassment cases at the workplace and the said process ensures complete anonymity and confidentiality of information. Your Company has constituted an Internal Complaints Committee in compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules there under. The Company has a policy on prevention and prohibition of sexual harassment at the workplace. The policy provides for protection against sexual harassment of women at the workplace and for the prevention and redressal of such complaints. During the year, the Company has not received any complaint. The Company has been conducting regular awareness programmes aimed at prevention of sexual harassment.
The Board and Committee meetings are prescheduled, and a tentative calendar of the meetings are created, in consultation with the Directors. However, in case of special and urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, nine Board Meetings and six Audit Committee Meetings were convened and held. The details of the meetings including composition of the Audit Committee are provided in the Corporate Governance
BOARD EVALUATION
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be conducted by the Board of its own performance and that of its committees and individual Directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of Independent Directors shall be conducted by the entire Board of Directors, excluding the Director being evaluated.
The Annual Performance Evaluation was conducted for all Boar Members, for the Board and its Committees for the financial year 2021-22. This evaluation was led by the Nomination and Remuneration/Compensation Committee of the Company. The Board evaluation framework has been designed in compliance with the requirements under the Companies Act, 2013 and the Listing Regulations and in accordance with the Guidance Note on Board Evaluation issued by SEBI in January 2017. The Boarc evaluation was conducted through questionnaires designed with qualitative parameters and feedback based on ratings.
Evaluation of Committees was based on criteria such as adequate independence of each Committee, frequency of meetings and time allocated for discussions at meetings, functioning of Board Committees and effectiveness of its advice/recommendation to the Board, etc.
Evaluation of Directors was based on criteria such as participation and contribution in Board and Committee meetings, representation of shareholders interest and enhancing shareholders value, experience, and expertise to provide feedback and guidance to top management on business strategy, governance, risk and understanding of the organisationâs strategy, etc.
POLICY ON DIRECTORS'' APPOINTMENT AND REMUNERATION
The policy of the Company on Directorsâ appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a Director and other matters are adopted as per the provisions of the Companies Act, 2013. The remuneration paid to the Directors is as per the terms laid out in the Nomination and Remuneration Policy of the Company. The Nomination and Remuneration Policy as adopted by the Board is available on the Companyâs website: https://www.aurobindo.com/wp-content/uploads/2022/02/ NominationRemunerationPolicy-APL.pdf
TRANSFER TO RESERVES
Your Company has not transferred any amount to reserves during the year under review.
DIRECTORSâ RESPONSIBILITY STATEMENT
Pursuant to Section 134(3)(c) of the Companies Act, 2013, your Directors confirm that:
a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b) appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as at the end of the financial year and of the profit of your Company for the year;
c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
d) the annual accounts have been prepared on an on-going concern basis;
e) proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and are operating effectively; and
f) proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems are adequate and are operating effectively.
DECLARATION FROM INDEPENDENT DIRECTORS
The Independent Directors have submitted the declaration of independence stating that they meet the criteria of independence as provided in sub-section (6) of Section 149 of the Companies Act, 2013 as well as clause (b) of sub-regulation (1) of Regulation 16 of the Listing Regulations (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) and confirmed that they have registered their names in the Independent Directorsâ Data bank. In terms of Regulation 25(8) of the Listing Regulations, the Independent Directors have confirmed that they are not aware of any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge their duties.
The Company recognises and embraces the importance of a diverse Board in its success. The Board has adopted the Board Diversity Policy which sets out with an approach to diversify the Board of Directors. The Board Diversity Policy is available on the Companyâs website: https://www.aurobindo.com/wp-content/uploads/2018/10/Policy-on-Board-Diversity.pdf
LOANS, GUARANTEES AND INVESTMENTS
Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the Notes to the financial statements provided in this Annual Report.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All transactions entered with Related Parties for the year under review were on armâs length basis and in the ordinary course of business. All Related Party transactions are mentioned in the Notes to the Financial Statements. The Company has developed a framework through Standard Operating Procedures for the purpose of identification and monitoring of such Related Party Transactions. A statement giving details of all Related Party Transactions are placed before the Audit Committee and the Board for review and approval. The policy on Related Party Transactions, as approved by the Board of Directors, has been uploaded on the website of the Company https://www.aurobindo.com/wp-content/uploads/2022/04/ PolicyOnRPT-Feb2022.pdf.
The particulars of contracts or arrangements with Related Parties referred to in sub-section (1) of Section 188 of the Companies Act, 2013 is 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 is in Annexure-2 to this Report.
There were no materially significant Related Party Transactions which could have potential conflict with the interests of the Company at large.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS & OUTGO
Information with respect to conservation of energy, technology absorption, foreign exchange earnings & outgo pursuant to Section 134(3)(m) of the Act read with Companies (Accounts) Rules, 2014 is in Annexure-3 to this Report.
The Annual Return of the Company as on March 31, 2022 is available on the Companyâs website and can be accessed at: https://www.aurobindo.com/investors/results-reports-presentations/annual-returns/
Risk Management Committee of the Company consists of the following Directors viz., Mr. Girish Paman Vanvari, Mr. P. Sarath Chandra Reddy and Mr. K. Ragunathan as on March 31, 2022.
Mr. N. Govindarajan ceased to be member of Risk Management Committee w.e.f. January 1, 2022 on his resignation.
Mr. Girish Paman Vanvari was appointed as a Chairman of Risk Management Committee w.e.f. April 1, 2021. The Company has established a separate department to monitor the enterprise risk and for its management. The Committee had formulated a
Risk Management Policy for dealing with different kinds of risks which the Company faces in its day-to-day operations. The Risk Management policy of the Company outlines a framework for identification of internal and external risks specifically faced by the Company, in particular including financial, operational, sectoral, sustainability (particularly, ESG-related risks), information, cyber security risks, or any other risk as may be determined by the Committee; measures for risk mitigation including systems and processes for internal control of identified risks; and Business continuity plan. Risk is an integral part of the Companyâs business, and sound risk management is critical to the success of the organisation. The Company has adequate internal financial control systems and procedures to combat the risk. The risk management procedure is reviewed by the Audit Committee and Board of Directors on a regular basis at the time of review of the quarterly financial results of the Company. A report on the risks and their management is enclosed as a separate section forming part of this report.
Pursuant to Section 139 (2) of the Companies Act, 2013, read with the Companies (Audit and Auditors) Rules, 2014, the Company at its 30th Annual General Meeting (AGM) held on August 31, 2017, had appointed B S R & Associates LLP, Chartered Accountants as Statutory Auditors for a period of 5 years i.e. up to the conclusion of the 35th AGM to be held in the year 2022. The present term of B S R & Associates LLP as Statutory Auditors of the Company would expire at the conclusion of the ensuing AGM.
The Board of Directors of the Company has proposed the appointment of Deloitte Haskins & Sells, Chartered Accountants (Firm''s Registration No. 008072S) as the Statutory Auditors of the Company to hold office from the conclusion of 35th AGM until the conclusion of the 40th AGM in place of retiring auditors, B S R & Associates LLP on completion of their term.
The Company has received a letter from Deloitte Haskins & Sells, Chartered Accountants confirming that they are eligible for appointment as Statutory Auditors of the Company under Section 139 of Companies Act, 2013 and meet the criteria for appointment as specified in Section 141 of the Companies Act, 2013.
The statutory Auditorsâ Report forms part of the Annual Report. The notes on financial statements referred to in the Auditorsâ Report are self-explanatory and do not call for any further comments. There are no qualifications, reservations, adverse remarks or disclaimers by the statutory auditors in their report. They have not reported any incident of fraud to the Audit Committee of the Company during the year under review.
Ernst & Young LLP are the Internal Auditors of the Company and to maintain its objectivity and independence, the Internal Auditors report to the Chairman of the Audit Committee. The scope and authority of the Internal Audit function is clearly
The IFC framework at Aurobindo ensures the following:
⢠Establishment of policies and procedures, assignment of responsibility, delegation of authority, segregation of duties to provide a basis for accountability and controls;
⢠Physical existence and ownership of assets at a specified date;
⢠Enabling proactive anti-fraud controls and a risk management framework to mitigate fraud risks to the Company;
⢠Recording of all transactions occurred during a specific period. Accounting of assets, liability, and revenue and expense components at appropriate amounts;
⢠Preparation of financial information as per the timelines defined by the relevant authorities.
These controls cover the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business including adherence to the Companyâs policies, safeguarding of its assets of the Company, prevention and detection of its frauds and errors, accuracy and completeness of accounting records and timely preparation of reliable financial information. The Company has an internal control system, commensurate with the size, scale and complexity of its operation.
SECRETARIAL AUDIT REPORT
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr. A. Mohan Rami Reddy, a Company Secretary in Practice, to undertake the secretarial audit of the Company for the for the financial year 2021-22. The Secretarial Audit Report issued in form MR-3 is in Annexure-4 of this Report.
There are no qualifications, reservations, or adverse remarks in the Secretarial Audit Report. Also, pursuant to Regulation 24A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has obtained the Annual Secretarial Compliance Report from a Practicing Company Secretary and submitted the same to stock exchanges where the shares of the Company are listed.
CORPORATE SOCIAL RESPONSIBILITY
In compliance with Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules 2014, the Company has established the Corporate Social Responsibility Committee (CSR Committee).
The Board, on the recommendation of the CSR Committee, adopted a CSR Policy. The same is available on the Companyâs website at https://www.aurobindo.com/wp-content/uploads/2021/07/CSR-policy.pdf. The CSR objectives
defined by the Audit Committee of the Board. The Internal Auditors monitor and evaluate the efficacy and adequacy of the internal control system of the Company, its compliance with applicable laws/regulations, accounting procedures and policies. Based on the reports of the Internal Auditors, corrective actions will be undertaken, thereby strengthening the controls. Significant audit observations and action plans were presented to the Audit Committee of the Board on a quarterly basis.
As per Section 148 of the Companies Act, 2013, the Company is required to have the audit of its cost records conducted by a Cost Accountant. The Board of Directors of the Company has on the recommendation of the Audit Committee, approved the appointment of EVS & Associates, a firm of Cost Accountants in Practice (Registration No. 000175) as the Cost Auditor of the Company to conduct audit of cost records of the Company for relevant products as prescribed under the Companies (Cost Records and Audit) Rules, 2014 for the year ending on March 31, 2023. The Board on recommendations of the Audit Committee has approved the remuneration payable to the Cost Auditor subject to ratification of its remuneration by the Members in the forthcoming AGM. EVS & Associates has, under Section 139(1) of the Companies Act, 2013 and the Rules framed thereunder, furnished a certificate of its eligibility and consent for appointment.
The internal financial controls (IFC) framework institutionalised in Aurobindo has been evaluated in-depth for its adequacy and operating effectiveness, wherein the Company has covered financial reporting controls, operational controls, compliance-related controls and also Information Technology (IT) controls, comprising IT general controls (ITGC) and application-level controls. The ITGC would include controls over IT environment, computer operations, access to programmes and data, programme development and programme changes. The application controls would include transaction processing controls in ERP Oracle system which supports accurate data input, data processing and data output, workflows, reviews and approvals as per the defined authorisation levels.
To further strengthen the existing IFC framework and support the growing business, the Company has redefined all the process level controls at activity level which has brought in more clarity and transparency in day-to-day processing of transactions and in addressing any related risks. All the controls so redefined and identified have been properly documented and tested with the help of an independent auditor to ensure their adequacy and effectiveness.
The Internal Auditors conduct âProcess & control reviewâ on a quarterly basis as per the defined scope and submit the audit findings along with management comments and action taken reports to the Audit Committee for its review.
are designed to serve societal, local and national goals in the locations that we operate in, to create a significant and sustained impact on local communities. During the financial year 2021-22, the Companyâs CSR efforts included COVID-19 relief work over and above its usual CSR commitments.
The Company undertakes its CSR activities through Aurobindo Pharma Foundation, a wholly-owned subsidiary of the Company incorporated under Section 8 of the Companies Act 2013.
The CSR projects approved by the Board for the year 202122 is available on the Companyâs website at https://www. aurobindo.com/sustainability/.Report. The Annual Report on Corporate Social Responsibility as per Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is annexed as Annexure-5 to this Report.
The statement of particulars of appointment and remuneration of managerial personnel as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014 is in Annexure-6 to this Report. The statement containing particulars of employees pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is open for inspection at the Registered Office of the Company during business hours on all working days of the Company, up to the date of the ensuing Annual General Meeting. Any shareholder interested in obtaining such details may write to the Company Secretary of the Company.
Affirmation that the remuneration is as per the remuneration policy of the Company.
In compliance with the provisions of the Companies Act,
2013 and SEBI Listing Regulations, the Board, on the recommendation of the Nomination and Remuneration/ Compensation Committee approved the Policy for Selection, Appointment of Directors, KMPs and Senior Management persons. The said Policy provides a framework to ensure that suitable and efficient succession plans are in place for appointment of Directors on the Board and other management members. The Policy also provides for selection and remuneration criteria for the appointment of Directors and senior management persons. The Company affirms that the remuneration is as per the remuneration policy of the Company.
All properties and insurable interests of the Company including building, plant and machinery and stocks have been fully insured. The Company has also taken D&O Insurance Policy covering Companyâs Directors and Officers.
MATERIAL CHANGES AND COMMITMENTS
There are no material changes and commitments in the business operations of the Company from the financial
year ended March 31, 2022 to the date of signing of the Boardâs Report.
A separate section on Corporate Governance standards followed by your Company, as stipulated under Schedule V (C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is enclosed as a separate section forming part of this report. The certificate of the Practicing Company Secretary, Mr. S. Chidambaram with regard to compliance of conditions of corporate governance as stipulated under Schedule V(E) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed to the Corporate Governance Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report for the year under review as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is presented in a separate section forming part of this report.
Your Company has not accepted any deposits from the public within the purview of Chapter V of the Companies Act, 2013
Industrial relations at all units of the Company have been harmonious and cordial. The employees are motivated and have shown initiative in improving the Companyâs performance even during the prevalence of COVID-19 pandemic challenges.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF
The dividends that remained unpaid/unclaimed for a period of seven years, have been transferred on due dates by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government. Section 124 of the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (âthe Rulesâ) mandates that companies shall apart from transfer of dividend that has remained unclaimed for a period of seven years in the unpaid dividend account to the IEPF, also transfer the corresponding shares with respect to the dividend, which has not been paid or claimed for seven consecutive years or more to IEPF.
Accordingly, the dividends that remain unclaimed for seven years and also the corresponding shares have been transferred to IEPF account on due dates. The details of amount of unclaimed unpaid dividend and corresponding shares transferred to IEPF during the financial year 2021-22 have been provided in the AGM Notice.
During the financial year under review, Authorised Share Capital increased from ''760,000,000/- (Rupees Seven Hundred and
Sixty million only) to ''2,611,500,000 (Rupees Two Thousand Six Hundred Eleven million and Five Hundred Thousands only) as per Clause 12.11 of the Scheme of Amalgamation as approved by Hon''ble National Company Law Tribunal, Hyderabad Bench, Hyderabad as per its order dated March 30, 2021. The paid-up share capital of the Company as on March 31, 2022 was ''585,938,609 divided into 585,938,609 equity shares of ''1 each. The Company has not issued any shares, debentures, bonds or any non-convertible securities during the financial year under review.
BUSINESS RESPONSIBILITY REPORT
A detailed Business Responsibility Report in terms of the provisions of Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is available as a separate section in this Annual Report.
OTHER DISCLOSURES
There were no significant material orders passed by the Regulators or Courts or Tribunals that would impact the going concern status of the Company and its operations in future.
Secretarial Standards
The Company has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India, i.e. SS-1 and SS-2, relating to âMeetings of the Board of Directorsâ and âGeneral Meetingsâ respectively.
Acquisitions/ Disinvestment/ demerger/ merger
The Company has transferred 100% stake in Auro Cure Private Limited, a wholly-owned subsidiary of the Company to Eugia Pharma Specialities Limited, also a wholly-owned subsidiary of the Company. Auro Cure Private Limited has become wholly-owned step-down subsidiary of the Company.
Transfer of business undertaking comprised in Unit-16 of the Company, on a going concern basis, to Wytells Pharma Private Limited, a wholly-owned step-down subsidiary of the Company. Wytells Pharma Private Limited is a 100% subsidiary of Eugia Pharma Specialities Limited which in turn is a wholly-owned subsidiary of the Company.
Transfer of vaccines business undertaking comprised in Unit-18, on a going concern basis, to Auro Vaccines Private Limited, a wholly-owned subsidiary of the Company; and transfer of equity shares of Tergene Biotech Private Limited, a subsidiary, to Auro Vaccines Private Limited, a wholly-owned subsidiary of the Company.
The Board of Directors of the Company at its meeting held on July 1, 2021, has approved the transfer of business undertaking comprised in Unit-4, on an on-going concern basis, to Eugia
Pharma Specialities Limited, a wholly-owned subsidiary of the Company.
During the year, Auro PR Inc, a subsidiary of Helix Healthcare B.V. Netherlands, acquired certain properties including rights, title and interest in the assets and liabilities owned by Mylan LLC USA.
The Company has approved the acquisition of business and certain assets of Veritaz Healthcare Limited on slump sale basis for a consideration of ''1,710 million and accordingly entered into a Business Transfer Agreement dated March 28, 2022. Veritaz operates in the pharmaceutical industry in India and sells branded generic formulations and other health care related products
Pursuant to the provisions of Sections 230 to 232 read with Companies (Compromises, Arrangement and Amalgamation) Rules, 2016 and other applicable provisions of the Companies Act, 2013, the Board of Directors of the Company at its meeting held on August 12, 2021 has approved the Scheme of Amalgamation for merger of its wholly-owned subsidiaries viz. Auronext Pharma Private Limited and Mviyes Pharma Ventures Private Limited with the Company and the Company is yet to file the necessary applications with the concerned authorities in this matter seeking sanction for the aforesaid merger.
The Company has obtained the Credit ratings from India Ratings & Research Private Limited and it has assigned ND AA /Stable/ IND A1 on Rating Watch Evolving for Companyâs fund based working capital facilities and ND A1 on Rating Watch Evolving for Companyâs non-fund-based working capital limits vide their letter dated August 4, 2021.
Your Directors are grateful for the invaluable contribution made by the employees and are encouraged by the support of the customers, business associates, banks and government agencies. The Directors deeply appreciate their faith in the Company and remain thankful to them. The Board shall always strive to meet the expectations of all the stakeholders.
For and on behalf of the Board K. Ragunathan
Place: Hyderabad Chairman
Date: June 17, 2022 DIN: 00523576
Mar 31, 2021
Your Directors are pleased to present the 34th Annual Report of your Company together with the audited accounts for the financial year ended March 31, 2021.
FINANCIAL HIGHLIGHTS
('' in Million) |
||
2020-21 |
2019-20 |
|
Revenue from operations |
158,236.8 |
133,707.7 |
Profit before depreciation, interest, tax and Exceptional items |
41,198.3 |
26,978.7 |
Depreciation |
4,880.0 |
4,733.3 |
Finance cost |
286.8 |
979.1 |
Profit before tax |
41,930.1 |
23,700.5 |
Provision for tax |
10,801.0 |
4,931.7 |
Net profit after tax |
31,129.1 |
18,768.8 |
Other Comprehensive Income/ (Expense) |
(64.2) |
(127.0) |
Total Comprehensive income for the period |
31,064.9 |
18,641.8 |
Your Company has paid first interim dividend of 125% i.e. ''1.25 per equity share of ''1, second interim dividend of 125% i.e. ''1.25 per equity share of ''1 and third interim dividend of 150% i.e. ''1.50 per equity share of ''1. The total dividend for the financial year 2020-21 comes to 400% i.e. ''4.00 per equity share of ''1 against 300% i.e. ''3.00 per equity share of ''1 paid in the previous year.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top one thousand listed entities based on market capitalisation are required to formulate a Dividend Distribution Policy. The Board has approved and adopted the Dividend Distribution Policy and the same is available on your Companyâs website at: https://www.aurobindo. com/wp-content/uploads/2018/10/Dividend-Distribution-Policy. pdf
Performance Review
Your Company is the leading generic pharma company globally and now ranks as 7th largest generic company by sales and second largest listed Indian pharmaceutical company by revenues. Your Company has become the largest supplier in the USA by volume in last quarter of the financial year. Your Company maintained its growth momentum in revenue and profitability despite headwinds caused by the pandemic.
On a standalone basis, your Companyâs revenue witnessed a growth of 18.3% reaching ''158,236.8 million in FY21, as against ''133,7077 million in the corresponding previous period. The Formulations business registered a growth of 23.5% to ''123,853.0 million driven by strong growth in exports, which are up by 23.6% to ''123,186.1 million. The API business witnessed a growth of 3.0% to ''34,269.3 million despite sales of weaker sales of anti-
infective products which was impacted by the pandemic. EBITDA for the year increased by 52.7% to ''41,198.3 million vs. ''26,978.7 million in the corresponding previous period. Gross Profit margin improved by 340 bps to 54.2% of revenue (vs. 50.8% revenue in FY20), which led EBITDA margin for the year to improve by 580 bps to 26.0% of revenue (vs. 20.2% of revenue in FY20). Profit before Tax for the year increased by 76.9% to ''41,930.1 million. Your Companyâs net profit (before Other Comprehensive Income) increased by 65.9% to ''31,129.1 million as against ''18,768.8 million in FY20. The diluted Earnings Per Share stood at ''53.13 compared to ''32.03 in FY20.
On a consolidated basis, the revenues increased by 7.3% to ''247,746.2 million. The Company attained a healthy growth inspite sales from select therapies being impacted due to the pandemic. The growth was driven by new product launches across markets and increase in market share of existing products. The Formulations business posted a growth of 8.4% to ''216,859.7 million from ''200,119.3 million in the corresponding previous period. The Active Pharmaceutical Ingredients (APIs) business remained flat at ''30,859 million. The growth in API segment led by strong growth of 25.0% in Non Betalactam segment to ''13,557.6 million. EBITDA margin improved 40 bps to 21.5% vis-a-vis 21.1% in FY20 despite 200 bps increase in R&D expenses. R&D expenditure for the year was ''15,095.7 million or 6.1% of revenue, increased from ''9,580.2 million or 4.1% of revenue in FY20. EBITDA before forex and other income stood at ''53,334.1 million, witnessing a 9.6% growth year-on-year. Your Company reported a Net Profit of ''53,338.4 million, an increase of 87.6% over the corresponding previous period, including one off gains from the sale of Natrol business (refer below). The Diluted Earnings Per Share (reported) stood at ''91.05 compared to ''48.56 in FY20.
During the year, your Company divested Natrol LLC, the dietary supplements business in the USA, for US$ 550 million consideration and acquired the balance stake in its Joint Venture Company, Eugia Pharma Specialities Limited and also provided a goodwill write-off with respect to earlier acquisitions done by the Company. As a result of all these, the Company received an exceptional gain (net of the tax) of ''20,658.3 million. Adjusted net profit for the year was ''32,683.3 million, an increase of 13.8%.
Your Companyâs performance excluding Natrol and exceptional items stood as follows - Revenue increased by 77% to ''236,807.5 million. EBITDA before Forex and Other income increased by 8.6% to ''49,971.0 million and net profit increased by 12.1% to ''30,364.7 million.
The US is the largest market for your Company and accounted for 49.8% of the total revenue. US business reported a growth of 7.3% growth at ''123,244.7 million. The business witnessed a growth despite headwinds such as reduction in elective surgeries and sales of select therapies getting impacted due to COVID-19. New product launches coupled with an increase in the market share
of existing products led to an improvement in the revenues. Your Company has launched 53 products in FY21. The TRx share in the USA for the quarter ending March 2021 stands at 8.7%, positioning us as the largest player, as per IQVIA data.
Your Company continues to strengthen its pipeline for the global markets including the US market. As on March 31, 2021, your Company filed 639 Abbreviated New Drug Applications (ANDAs) on a cumulative basis. Of the total count, 439 have received final approvals and 29 have got tentative approvals, including 8 ANDAs, which are tentatively approved under the US Presidentâs Emergency Plan for AIDS Relief (PEPFAR), while 171 ANDAs are currently under review.
Your Company registered a marginal 2.3% growth in its Europe formulations business to ''60,607.9 million in FY21 compared to the previous yearâs revenue of ''59,218.3 million on account of stock-up at the start of pandemic in Q4FY20. Your Company now operates in 11 countries in EU/UK and is present across multiple channels including pharmacy (Gx), hospital (Hx) and tender (Tx). Despite headwinds, Your Companyâs performance in France, Germany, UK and Italy led to overall growth in Europe. Your Companyâs focus during the year was to improve the profitability of the acquired Apotex business.
The ARV Formulations business reported a robust growth of 48.8% with revenues of ''18,627.7 million. The significant early mover advantage Aurobindo had in TLD (Tenofovir 300mg Lamivudine 300mg Dolutegravir 50mg tablet) single pill regimen along with rapid conversion of TLE to TLD in the institution segment has contributed towards this growth.
Growth Markets, which includes Brazil, Canada, Columbia and South Africa grew by 6.1% to ''14,379.4 million.
Your Company posted healthy performance in FY21 despite challenges faced by the industry due to partial lockdown across the globe. The inherent strength of your Company is a diversified product basket and launching of new products consistently. With vaccination progressing well across our key markets such as the USA and Europe, the pickup in elective surgeries and footfall in pharmacies are expected to improve. This would improve demand for some of the therapeutic segments which were impacted during the pandemic.
Your Company is working on complex and differentiated products in multiple areas comprising oncology & hormonal products, biosimilars, depot injections, vaccines, topicals, transdermal patches, inhalers, nasals and complex peptide products which will drive the next phase of growth. Your Company is also in the process of commissioning the capacities for some of the complex therapeutic areas. The viral vaccine facility will be ready for commercial production by end of Julyâ2021.
Your Company is committed to grow in its key geographies i.e. USA and Europe. In the US, around 200 ANDAs are awaiting final approval and annual sales as per IQVIA data is US$ 95 billion as on March 31, 2021. Apart from this, over 300 ANDAs are under development, including the differentiated pipeline. Your Company is in the process of expanding the capacity in Unit X (APL Healthcare Unit IV), the oral solid manufacturing facility dedicated for the US market. It also completed the construction of injectable facility in USA which is used to manufacture high value and low volume products.
For Europe markets, more than 250 products are under development in general oral and oncology product categories, which will be launched in the next two to three years. Your Company is also building a dedicated injectable facility for Europe and Growth Markets to strengthen its presence in the Hospital segment in Europe. The facility will be commissioned in the next 12-18 months.
In the ARV space, your Company has achieved a dominant market share in Dolutegravir segment. The Company aims to retain large portion of the market share achieved by it in the respective products in the ARV segment.
In Growth Markets; Canada, South Africa and China are the key geographies for your Company. In Canada, your Company has a robust product pipeline with over 150 products registered. The Company is in the process of launching over 50 products in the next two years which include both orals and injectables. China will be an important geography for your Company going ahead. It is in the process of completing construction of its an oral solid manufacturing facility in China. So far we have filed 28 products from the China facility.
In its API business, Aurobindo has been working towards making products more competitive. Your Company is expanding capacities to cater to external sales. Recently, your Company has been awarded for setting up capacities for 3 fermentation based products from the Government of India under the PLI scheme. Aurobindo is in the process of executing these projects. Once these capacities are on-stream, it can meet a significant part of the global demand for these products.
In R&D, your Company will maintain focus on difficult to manufacture, differentiated products, with possible low competitive pressure. Filing momentum is in line with the strategy of moving towards complex and differentiated products.
RESEARCH AND DEVELOPMENT (R&D)
Aurobindo over the years has consistently invested in R&D for improving capabilities and adding talented people across the globe. Your Company now has a team of comprising of more than 1,700 scientists and analysts. This enables the Company to develop a wide range of medications from generics to complex speciality products. Currently, Aurobindo has eight Research and Development (R&D) centres, of which five are in India and three
are in the USA. The R&D centres are equipped with cutting edge technologies where the talented scientists develop generics and difficult-to-develop products and strive to improve productivity. During FY21, your Company invested 6.1% of its consolidated revenue or ''15,100 million as against ''9,580 million or 4.1% of its consolidated revenue in FY20 in research and development.
Your Company is focused on developing specialty and difficult-to-make complex products in the respiratory and dermatological therapeutic areas, including metered dose inhalers (MDIs), dry powder inhalers (DPIs), nasal sprays, topical lotions, creams, ointments and transdermal patches. The products are developed for global markets, where the Company will be able to file the product, get approval and market the product in all markets globally. Your Company is further diversifying its product portfolio by working on multiple R&D initiatives.
During the year, your Company has achieved some key milestones such as filing its first inhaler with the USFDA. It strengthened its Nasal spray portfolio by adding one more product to the pipeline. It also completed its phase II clinical trials for its PCV vaccine and would commence phase III trials soon. Apart from this the specialty pipeline including depot injections, patches, topicals etc. are progressing well.
Your Company has made progress in setting up the manufacturing facility for topical, transdermal and inhalers in North Carolina, USA where it has completed a validation batch for 1 inhaler product out of 3 and clinical studies have been initiated. For topicals, 2 manufacturing plants are in place, one in North Carolina and one in Hyderabad, India. So far, 3 products have been taken for validation batches and more than 27 products are in the pipeline for development. Besides this, your Company has built a development lab in its Research Centre-II, which is based at Hyderabad at AuroHealth.
Your Company has made substantial progress in Biosimilars with completing Phase I study of the lead molecule and proceeding to conduct Phase III clinical trials. With a focus on microbial based products the company has decided to expand one more bioreactor line (microbial). The Company has entered into a distribution partnership in certain regulated markets in Europe where we do not have presence.
Awards & Accolades
⢠Regional award (Telangana) for Promoting Health in the workplace & Innovative HR Practices in the Pharma space by World HRD congress
⢠National Best Employer of the Year 2020 by World HRD Congress & Economic times
⢠Innovation in Employee Engagement & Most Collaborative Hiring Team by Transformance Forums
⢠Aurobindo Pharma Limited has won 3 awards in India Packaging Award-2020 conducted by Innopack Pharma Confex (formerly known as UBM India Private Limited)
o Award- 1: Integrated Drug Delivery System
o Award- 2: Packaging Design Shapes & Structures
o Award- 3: Sustainable Packaging- Solid Dosage Form
o Aurobindo Pharma Limited has won Indiastar Award 2020 for Integrated Drug Delivery System from Indian Institute of Packaging
⢠The Energy Cell of Corporate Engineering Department, participated in the CIIâs â21st National Award for Excellence in Energy Management 2020â and was awarded as âEnergy Efficient Unitâ under Pharma & Bulk Drugs category. In the last three financial years, APL Unit-1 has implemented 52 energy saving projects by investing ''244.5 million, which have resulted in electricity savings of 21.66 million kWh; thermal energy savings of 21.83 MCal; and financial savings of ''286.8 million
⢠In recognition of Aurobindoâs flagship program on nutrition (providing meals to underprivileged), the World CSR day Organisation along with Asia HRD Congress, Mumbai awarded Aurobindo Pharma Foundation with âTelangana CSR Leadership Awards 2020â under Concern for Health and Nutrition category.
As per the provisions of Section 129 of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014, a separate statement containing the salient features of the financial statements of Subsidiary companies/Associate companies/Joint ventures is detailed in Form AOC-1 and is in Annexure-1 to this Report.
The Company has formulated a policy for determining material subsidiaries. The policy is available on the Companyâs website and can be accessed at https://www.aurobindo.com/wp-content/ uploads/2019/04/Policy-Material-Subsidiary-March-2019.pdf.
During the year, the following are the changes in the subsidiaries of the Company:
Ceased subsidiaries / JVs
During the period under review:
Aurovitas Pharma Ceska Republica S.r.o, a wholly owned step-down subsidiary of Agile Pharma B.V. merged with Aurovitas Spol s.r.o (Formerly Apotex (CR) Spol s.r.o.) w.e.f. April 1, 2020.
Apotex N.V merged with Aurobindo NV/SA w.e.f. April 1, 2020
Natrol LLC ceased to be step-down subsidiary of the Company w.e.f. November 30, 2020
New subsidiaries / JVs
During the period under review, following subsidiaries companies were incorporated/acquired:
⢠Curateq Biologics Private limited, India, a wholly owned subsidiary was incorporated w.e.f. April 25, 2020
⢠Auro Cure Private Limited was incorporated as a wholly owned subsidiary w.e.f. July 5, 2020
⢠Aurobindo Pharma Foundation was incorporated as a wholly owned subsidiary Ltd under Section 8 of the Companies Act 2013 w.e.f. July 20, 2020.
⢠AuroZest Private Limited was incorporated as a wholly owned subsidiary w.e.f. August 6, 2020
⢠Aurobindo Antibiotics Private Limited was incorporated as a wholly owned step-down subsidiary w.e.f. October 6,2020
⢠Lyfius Pharma Private Limited was incorporated as a wholly owned step-down subsidiary w.e.f. November 16, 2020
⢠Qule Pharma Private Limited was incorporated as a wholly owned step-down subsidiary w.e.f. November 16, 2020
⢠MviYes Pharma Ventures Private Limited became a wholly owned subsidiary of the Company w.e.f. November 7, 2020 by virtue of this, Eugia Pharma Specialities has become wholly owned subsidiary of the Company
⢠Wytells Pharma Private Limited was incorporated as a wholly owned subsidiary to Eugia Pharma Specialities Limited w.e.f. February 20, 2021.
⢠Auro Steriles LLC was incorporated as a wholly owned subsidiary of Aurobindo Pharma USA Inc w.e.f. April 1, 2021.
⢠Eugia Injectable Inc was incorporated as a wholly owned subsidiary of Eugia Pharma Specialities Limited w.e.f. April 1, 2021.
⢠Nurya Brands Inc, was incorporated on April 28, 2021 in the USA as a subsidiary to Auro Health LLC.
⢠NVNR (Ramannapet I) Power Plant Private Limited and NVNR (Ramannapet II) Power Plant Private Limited in which the Company is holding 26% each became associate companies w.e.f. May 12, 2021.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements have been prepared by the Company in accordance with the Indian Accounting Standards (Ind AS) 110 and 111 as specified in the Companies (Indian Accounting Standards) Rules, 2015 and as per the provisions of Companies Act, 2013. The Company has placed separately, the audited accounts of its subsidiaries on its website www.aurobindo.com, in compliance with the provisions of Section 136 of the Companies Act, 2013. Audited financial statements of the Companyâs subsidiaries will be provided to the Members, on request.
CODE FOR PREVENTION OF INSIDER TRADING
On December 31, 2018, Securities and Exchange Board of India amended the Prohibition of Insider Trading Regulations, 2015, prescribing various new requirements with effect from April 1,
2019. In line with the amendments, your Company has adopted an amended Code of Conduct to regulate, monitor and report trading by Designated Persons and their Immediate Relatives under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015. The Code of Conduct is amended from time to time in line with the amendments to SEBI (Prohibition of Insider Trading) Regulations, 2015. This Code of Conduct also includes code of practices and procedures for fair disclosure of unpublished price sensitive information and has been made available on the Companyâs website at https:// www.aurobindo.com/wp-content/uploads/2019/04/Code-Fair-Disclosure-PIT-Feb2019.pdf
The Board of Directors has adopted the Whistle Blower Policy which is in compliance with Section 177(9) of the Companies Act, 2013 and Regulation 22 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Whistle Blower Policy aims to conduct the affairs in a fair and transparent manner by adopting the highest standards of professionalism, honesty, integrity and ethical behaviour. All employees and Whole-time directors of the Company are covered under the Whistle Blower Policy.
A mechanism has been established for employees to report their concerns about unethical behaviour, actual or suspected fraud or violation of Code of Conduct and Ethics and leak of price sensitive information under the Companyâs Code of Conduct formulated for regulating, monitoring and reporting by Insiders under SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time. It also provides for adequate safeguards against the victimisation of employees who avail of the mechanism and allows direct access to the Chairperson of the Audit Committee in exceptional cases. The Whistle Blower Policy is available on the Companyâs website https://www.aurobindo.com/wp-content/ uploads/2021/07/Whistle-Blower-Policy-APL.pdf
PREVENTION AND PROHIBITION OF SEXUAL HARASSMENT
Your Company has a policy and framework for employees to report sexual harassment cases at workplace and the said process ensures complete anonymity and confidentiality of information. Your Company has constituted an Internal Compliance Committee in compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules there under. The Company has a policy on prevention and prohibition of sexual harassment at the workplace. The policy provides for protection against sexual harassment of women at the workplace and for the prevention and redressal of such complaints. During the year, the Company has not received any complaint. The Company has been conducting regular awareness programmes aimed at prevention of sexual harassment.
The Board and Committee meetings are prescheduled and a tentative calendar of the meetings is created in consultation with
the Directors. However, in case of special and urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, seven Board Meetings and seven Audit Committee Meetings were convened and held. The details of the meetings including composition of Audit Committee are provided in the Corporate Governance Report. During the year, all the recommendations of the Audit Committee were accepted by the Board.
DETAILS OF DIRECTORS & KEY MANAGERIAL PERSONNEL
Key Managerial Personnel
Mr. K. Nithyananda Reddy, Whole-time Director and Vice Chairman, Mr. N. Govindarajan, Managing Director, Dr. M. Sivakumaran, Whole-time Director, Mr. M. Madan Mohan Reddy, Whole-time Director, Mr. P. Sarath Chandra Reddy, Whole-time Director, Mr. Santhanam Subramanian, Chief Financial Officer and Mr. B. Adi Reddy, Company Secretary are the key Managerial Personnel of the Company in accordance with the provisions of Section(s) 2(51), and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. During the year, Mr. Girish Paman Vanvari was appointed as an Additional Director categorised as Independent Director of the Company.
None of the directors of the Company are disqualified under the provisions of the Companies Act, 2013 (âActâ) or under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. All Independent Directors have provided confirmations as contemplated under section 149(7) of the Act. As required by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a certificate from Company Secretary in Practice that none of the directors on the Board of the Company have been debarred or disqualified from being appointed or continuing as directors of companies by the Board/Ministry of Corporate Affairs or any such statutory authority, forms part of Corporate Governance Report as Annexure-A
Appointments/Re-appointment
As per the provisions of the Companies Act, 2013, Dr. M. Sivakumaran and Mr. P. Sarath Chandra Reddy will retire as directors at the ensuing Annual General Meeting and being eligible, seek re-appointment. The Board recommends their reappointment.
The re-appointment of Mr. K. Nithyananda Reddy as Whole-time Director designated as Vice Chairman, Mr. N. Govindarajan as Managing Director, Dr. M. Sivakumaran as Whole-time Director and Mr. M. Madan Mohan Reddy as Whole-time Director are being proposed. The appointment of Mr. Girish Paman Vanvari as Nonexecutive Independent Director is also being proposed at the ensuing Annual General Meeting for the approval of Members.
Cessation
Mr. M. Sitarama Murty ceased to be Director of the Company w.e.f. April 1, 2021 as his tenure as Independent Director of the Company was completed on close of business hours of March 31, 2021. The Board expressed its gratitude to Mr. Murty for his service on the Board as Director, for his sound business advice and valued counsel and for all that he has contributed to the Board of Directors and to the Company.
DIRECTORSâ RESPONSIBILITY STATEMENT
Pursuant to Section 134(3)(c) of the Companies Act, 2013 your Directors confirm that:
a. i n the preparation of the annual accounts, the applicable accounting standards have been followed and that there are no material departures;
b. appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as at the end of the financial year and of the profit of your Company for the year;
c. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
d. the annual accounts have been prepared on a going concern basis;
e. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and are operating effectively; and
f. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems are adequate and are operating effectively.
DECLARATION FROM INDEPENDENT DIRECTORS
The Independent Directors have submitted the declaration of independence stating that they meet the criteria of independence as provided in sub-section (6) of Section 149 of the Companies Act, 2013 as well as clause (b) of sub-regulation(1) of Regulation 16 of the SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015 (including any statutory modification(s) or reenactments) thereof for the time being in force) and confirmed that they have registered their names in the Independent Directorsâ Databank. In terms of Regulation 25(8) of the SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015, the Independent Directors have confirmed that they are not aware of any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge their duties.
The Company recognises and embraces the importance of a diverse board in its success. The Board has adopted the Board Diversity Policy which sets out the approach to diversity of the Board of Directors. The Board Diversity Policy is available on the Companyâs website: https://www.aurobindo.com/wp-content/ uploads/2018/10/Policy-on-Board-Diversity.pdf
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of Independent Directors shall be done by the entire Board of Directors, excluding the director being evaluated.
The Annual Performance Evaluation was conducted for all Board Members, for the Board and its Committees for the financial year 2020-21. This evaluation was led by the Nomination and Remuneration / Compensation Committee of the Company. The Board evaluation framework has been designed in compliance with the requirements under the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015 and in accordance with the Guidance Note on Board Evaluation issued by SEBI in January 2017. The Board evaluation was conducted through questionnaires designed with qualitative parameters and feedback based on ratings.
Evaluation of Committees was based on criteria such as adequate independence of each Committee, frequency of meetings and time allocated for discussions at meetings, functioning of Board Committees and effectiveness of its advice/ recommendation to the Board, etc.
Evaluation of Directors was based on criteria such as participation and contribution in Board and Committee meetings, representation of minority shareholders interest and enhancing shareholders value, experience and expertise to provide feedback and guidance to top management on business strategy, governance, risk and understanding of the organisationâs strategy, etc.
POLICY ON DIRECTORSâ APPOINTMENT AND REMUNERATION
The policy of the Company on directorsâ appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters are adopted as per the provisions of the Companies Act, 2013. The remuneration paid to the Directors is as per the terms laid out in the nomination and remuneration policy of the Company. The nomination and remuneration policy as adopted by the Board is placed on the Companyâs website: https://www.aurobindo.com/wp-content/uploads/2018/10/Nomination-and-Remuneration-Policy.pdf.
Your Company has not transferred any amount to reserves during the year under review.
LOANS, GUARANTEES AND INVESTMENTS
Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the Notes to the financial statements provided in this Annual Report.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All transactions entered with Related Parties for the year under review were on armâs length basis and in the ordinary course of business. All related party transactions are mentioned in the Notes to the Financial Statements. The Company has developed a framework through Standard Operating Procedures for the purpose of identification and monitoring of such Related Party Transactions. A statement giving details of all Related Party Transactions are placed before the Audit Committee and the Board for review and approval. The policy on Related Party Transactions as approved by the Board of Directors has been uploaded on the website of the Company https://www.aurobindo.com/wp-content/ uploads/2018/10/Related-Party-Transaction-Policy.pdf.
The particulars of contracts or arrangements with related parties referred to in sub-section (1) of Section 188 of the Companies Act, 2013 is prepared in Form No. AOC-2 pursuant to clause (h) of subsection (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014 and is in Annexure-2 to this Report.
There were no materially significant related party transactions which could have potential conflict with the interests of the Company at large.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS & OUTGO
Information with respect to conservation of energy, technology absorption, foreign exchange earnings & outgo pursuant to Section 134(3)(m) of the Act read with Companies (Accounts) Rules, 2014 is in Annexure-3 to this Report.
The Annual Return of the Company as on March 31, 2021 is available on the Companyâs website and can be accessed at: https://www.aurobindo.com/wp-content/uploads/2021/07/ AnnualReturn202021.pdf
Risk Management Committee of the Company consists of the following Directors viz. Mr. M. Sitarama Murty, Mr. N. Govindarajan, Mr. P. Sarath Chandra Reddy, Mr. K. Ragunathan and Mr. Girish Paman Vanvari as on March 31,2021. Mr. M. Sitarama Murty ceased to be member and Chairman of Risk Management Committee w.e.f. April 1, 2021 on his retirement as an Independent Director of the
Company. Mr. Girish Paman Vanvari, was appointed as a Chairman of Risk Management Committee w.e.f. April 1,2021. The Company has established a separate department to monitor the enterprise risk and for its mitigation. The Committee had formulated a Risk Management Policy for dealing with different kinds of risks which the Company faces in its day-to-day operations. Risk management policy of the Company outlines a framework for identification of internal and external risks specifically faced by the Company, in particular including financial, operational, sectoral, sustainability (ESG related risks), information, cyber security risks or any other risk as may be determined by the Committee; measures for risk mitigation including systems and processes for internal control of identified risks; and Business continuity plan. Risk is an integral part of the Companyâs business, and sound risk management is critical to the success of the organisation. The Company has adequate internal financial control systems and procedures to combat the risk. The risk management procedure is reviewed by the Audit Committee and Board of Directors on a regular basis at the time of review of quarterly financial results of the Company. A report on the risks and their management is enclosed as a separate section forming part of this report.
Pursuant to Section 139 (2) of the Companies Act, 2013, read with Companies (Audit and Auditors) Rules, 2014, the Company at its 30th Annual General Meeting (AGM) held on August 31,
2017, had appointed M/s. B S R & Associates LLP, Chartered Accountants as Statutory Auditors for a period of 5 years i.e. up to the conclusion of the 35th AGM to be held in the year 2022. Further, as per Companies (Amendment) Act, 2017 effective from May 7,
2018, the provisions relating to ratification of the appointment of Statutory Auditors at every AGM are not required to be followed. The Auditors have confirmed that they are not disqualified from continuing as Auditors of the Company.
The Statutory Auditorsâ report forms part of the Annual Report. The notes on financial statements referred to in the Auditorsâ Report are self-explanatory and do not call for any further comments. There are no specifications, reservations, adverse remarks on disclosure by the statutory auditors in their report. They have not reported any incident of fraud to the Audit Committee of the Company during the year under review.
Ernst & Young LLP are the internal auditors of the Company and to maintain its objectivity and independence, the Internal Auditors report to the Chairman of the Audit Committee. The scope and authority of the Internal Audit function is clearly defined by the Audit Committee of the Board. The Internal Auditors monitor and evaluate the efficacy and adequacy of the internal control system of the Company, its compliance with applicable laws/regulations, accounting procedures and policies. Based on the reports of the Internal Auditors, corrective actions were undertaken and thereby strengthened the controls. Significant audit observations and action plans were presented to the Audit Committee of the Board on quarterly basis.
Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Rules, 2014, the Company is maintaining the cost records as its business is covered under the regulated sector viz. drugs and pharmaceuticals. Audit of the Companyâs cost records is not applicable since the Companyâs revenues from exports, in foreign exchange, exceed 75% of its total revenues.
The Internal Financial Controls (IFC) framework institutionalised in Aurobindo has been evaluated in-depth for its adequacy and operating effectiveness, wherein the Company has covered financial reporting controls, operational controls, compliance related controls and also Information Technology (IT) controls, comprising IT General Controls (ITGC) and application level controls. The ITGC would include controls over the IT environment, computer operations, access to programs and data, program development and program changes. The application controls would include transaction processing controls in ERP Oracle system which supports accurate data input, data processing and data output, workflows, reviews and approvals as per the defined authorisation levels.
In order to further strengthen the existing IFC framework and to support the growing business, the Company has redefined all the process level controls at activity level which has brought in more clarity and transparency in day-to-day processing of transactions and in addressing any related risks. All the controls so redefined & identified have been properly documented and tested with the help of an independent auditor to ensure their adequacy and effectiveness.
The internal auditors conduct âProcess & Control Reviewâ on a quarterly basis as per the defined scope and submit the audit findings along with management comments and action taken reports to the Audit Committee for its review.
The IFC framework at Aurobindo ensures the following:
⢠Establishment of policies & procedures, assignment of responsibility, delegation of authority, segregation of duties to provide a basis for accountability and controls;
⢠Physical existence and ownership of assets at a specified date;
⢠Enabling proactive anti-fraud controls and a risk management framework to mitigate fraud risks to the Company;
⢠Recording of all transactions occurred during a specific period. Accounting of assets, liability, and revenue and expense components at appropriate value;
⢠Preparation of financial information as per the timelines defined by the relevant authorities.
These controls cover the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business including adherence to the Companyâs policies, safeguarding of its assets of the Company, prevention and detection
of its frauds and errors, accuracy and completeness of accounting records and timely preparation of reliable financial information. The Company has an internal control system, commensurate with the size, scale and complexity of its operation.
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr. A. Mohan Rami Reddy, a Company Secretary in Practice to undertake the secretarial audit of the Company for the financial year 2020-21. The Secretarial Audit Report issued in form MR-3 is in Annexure- 4 to this Report.
There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report. Also, pursuant to Regulation 24A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has obtained Annual Secretarial Compliance Report from a Practicing Company Secretary and submitted the same to stock exchanges where the shares of the Company are listed.
CORPORATE SOCIAL RESPONSIBILITY
In compliance with Section 135 of the CA 2013 read with the Companies (Corporate Social Responsibility Policy) Rules 2014, the Company has established the Corporate Social Responsibility Committee (CSR Committee).
The Board on the recommendation of CSR Committee, adopted a CSR Policy. The same is available on Companyâs website at https://www.aurobindo.com/wp-content/uploads/2021/07/CSR-policy-cleaned-May2021-Reviewed.pdf. The CSR objectives are designed to serve societal, local and national goals in the locations that we operate in, creating a significant and sustained impact on local communities. During the financial year 2020-21, the Companyâs CSR efforts included COVID-19 relief works over and above its usual CSR commitments.
The Company undertakes its CSR activities through Aurobindo Pharma Foundation, a wholly owned subsidiary of the Company incorporated under Section 8 of the Companies Act 2013.
The CSR projects approved by the Board for the year 2021-22 are placed on the Companyâs website at: https://www.aurobindo. com/sustainability/annual-action-plan/. The Annual Report on Corporate Social Responsibility as per Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is annexed as Annexure-5 to this Report.
The statement of particulars of appointment and remuneration of managerial personnel as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,
2014 is in Annexure-6 to this Report. The statement containing particulars of employees pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is open for inspection at the Registered Office of the Company during business hours on all working days of the Company up to the date of the ensuing Annual General Meeting. Any shareholder interested in obtaining such details may write to the Company Secretary of the Company.
Affirmation that the remuneration is as per the remuneration policy of the Company.
In compliance with the provisions of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board, on the recommendation of the Nomination and Remuneration/Compensation Committee approved the Policy for Selection, Appointment of Directors, KMPs and Senior Management persons. The said Policy provides a framework to ensure that suitable succession plan is in place for appointment of Directors on the Board and other management personnel. The Policy also provides for selection and remuneration criteria for appointment of Directors and senior management persons. The Company affirms that the remuneration is as per the remuneration policy of the Company.
All properties and insurable interests of the Company including building, plant and machinery and stocks have been fully insured. The Company has also taken D&O Insurance Policy covering the Companyâs Directors and Officers.
MATERIAL CHANGES AND COMMITMENTS
There are no material changes and commitments in the business operations of the Company from the financial year ended March 31, 2021 to the date of signing of the Boardâs Report.
A separate section on Corporate Governance standards followed by your Company, as stipulated under Schedule V (C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015 is enclosed as a separate section forming part of this report. The certificate of the Practicing Company Secretary, Mr. S. Chidambaram with regard to compliance of conditions of corporate governance as stipulated under Schedule V(E) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed to the Corporate Governance Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report for the year under review as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is presented in a separate section forming part of this report.
Your Company has not accepted any deposits from the public within the purview of Chapter V of the Companies Act, 2013.
Industrial relations at all the units of the Company have been harmonious and cordial. The employees are motivated and have shown initiative in improving the Companyâs performance even during the prevalence of COVID-19 pandemic challenges. Your Board would like to express its gratitude to the employees for demonstrating high level of commitment and perseverance during the pandemic.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF
The dividends that remained unpaid/unclaimed for a period of seven years, have been transferred on due dates by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government. Section 124 of the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (âthe Rulesâ) mandates that companies shall apart from transfer of dividend that has remained unclaimed for a period of seven years in the unpaid dividend account to the IEPF, also transfer the corresponding shares with respect to the dividend, which has not been paid or claimed for seven consecutive years or more to IEPF.
Accordingly, the dividends that remain unclaimed for seven years and also the corresponding shares have been transferred to the IEPF account on due dates. The details of amount of unclaimed unpaid dividend and corresponding shares transferred to the IEPF during the financial year 2020-21 have been provided in the AGM Notice.
During the financial year under review, there has been no change in the Authorised and Paid-up Share Capital of the Company. The paid-up share capital of the Company as on March 31, 2021 was ''585,938,609 divided into 585,938,609 equity shares of ''1 each. The Company has not issued any shares, debentures, bonds or any non-convertible securities during the financial year under review.
BUSINESS RESPONSIBILITY REPORT
A detailed Business Responsibility Report in terms of the provisions of Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is available as a separate section in this Annual Report.
There were no significant material orders passed by the Regulators or Courts or Tribunals that would impact the going concern status of the Company and its operations in future.
Secretarial Standards
The Company has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India.
Acquisitions / Disinvestment / Demerger / Merger
Acquisition of 100% ownership of Eugia Pharma Specialities Limited
The Company had entered into a share purchase agreement to acquire 100% equity share capital of MViyeS Pharma Ventures Private Limited (MViyeS). MViyeS was holding 32.18% shareholding in Eugia Pharma Specialities Limited, a joint venture company in which the Company was holding 67.82%. By this acquisition, both Eugia Pharma Specialities Limited and MViyeS Pharma Ventures Private Limited have become 100% subsidiaries of the Company. The said acquisition was completed on November 6, 2020.
Acquisition of 26% ownership in two solar power generating companies
The Company had entered into a binding agreement to invest ''53.8 million each in NVNR (Ramannapet I) Power Plant Private Limited and NVNR (Ramannapet II) Power Plant Private Limited, Hyderabad based solar power generating companies, aggregating to ''107.6 million by subscribing to equity shares and other securities of the said solar power generating companies to avail the benefit of captive consumption of Solar Power. After making the said investments, the Company is holding 26% of the share capital in each of the aforesaid solar power generating companies.
Disposal of Natrol LLC, a wholly owned step-down subsidiary in the USA
Aurobindo Pharma USA Inc, a wholly owned subsidiary of the Company had entered into a definite agreement with New Mountain Capital LLC, NY and its affiliate Jarrow Formulas Inc., and its entire holding in Natrol LLC for a sale consideration of US$ 550 million.
Merger Scheme
The Board of Directors of the Company at its meeting held on May 28, 2019 approved the Scheme of Amalgamation for merger of Companyâs wholly owned subsidiaries viz. APL Healthcare Limited, APL Research Centre Limited, Aurozymes Limited,
Curepro Parenterals Limited, Hyacinths Pharma Private Limited and Silicon Life Sciences Private Limited (a step-down wholly owned subsidiary) with the Company. Accordingly, the Company has made a joint application on August 7, 2019 with Honâble National Company Law Tribunal, at Hyderabad (NCLT). Pursuant to the orders dated September 30, 2019, the required approvals of the Members and unsecured creditors were obtained at the meetings held on November 30, 2019.
Subsequently, a Joint Company Petition No. C. P (CAA) No.51/230/ HDB/2020 has been filed on December 9, 2019 for obtaining the sanction of the Honâble Tribunal to the Scheme of Amalgamation and the same has been allowed by the Honâble Tribunal at its hearing held on January 24, 2020 with directions to issue necessary paper publications seeking objections, if any, from the general public, and to serve the notices with various statutory authorities, income tax, stock exchanges, etc., and listed for final hearing on February 28, 2020. Compliance memo was filed on March 18, 2020 with the Honâble NCLT and thereafter the Company in its Board meeting held on August 12, 2020 authorised the Restructuring Committee to look into the exclusion of APL Healthcare Limited from the purview of the Scheme and the Restructuring Committee in its meeting held on September 7, 2020, has approved to exclude APL Healthcare Limited and filed a joint Interlocutory Application (IA) before the NCLT and necessary reports of Regional Director and Official Liquidator are filed, arguments were completed and in the hearing that took place on February 1, 2021, the Honâble Bench has heard from OL & RD that they didnât have any objections and accordingly, directed OL & RD to file their no objections in writing and posted the matter for hearing on February 8, 2021. The matter was heard on February 8, 2021 and February 24, 2021.
The NCLT on March 30, 2021 approved the Scheme of Amalgamation. The certified copy of the order was issued by the NCLT on April 7, 2021. The District Registrar, Hyderabad (South) & Collector under Indian Stamp Act-1899 has made endorsement in the Order that the Order issued by the NCLT is not chargeable to stamp duty under Indian Stamp Act, 1899. The Order was filed by Aurobindo and the subsidiary companies with the Registrar of Companies on April 29, 2021 which was subsequently approved.
The Company has obtained the Credit ratings from India Ratings & Research Private Limited and it has assigned IND AA /Stable/ IND A1 for Companyâs fund based working capital facilities and IND A1 for Companyâs non-fund-based working capital limits vide their letter dated July 3, 2020.
Your Directors are grateful for the invaluable contribution made by the employees and are encouraged by the support of the customers, business associates, banks and government agencies. The Directors deeply appreciate their faith in the Company and remain thankful to them. The Board shall always strive to meet the expectations of all the stakeholders.
For, and on behalf of the Board,
K. Ragunathan
Place: Hyderabad Chairman
Date: May 31, 2021 DIN: 00523576
Mar 31, 2019
BOARDâS REPORT
Dear Members,
The Directors are pleased to present the 32nd Annual Report of the Company together with the audited accounts for the financial year ended March 31, 2019.
FINANCIAL HIGHLIGHTS
Standalone financials_ _(Rs, in Million)
2018-19 |
2017-18 |
|
Revenue from operations |
122,578.9 |
103,031.5 |
Profit before depreciation, interest, tax and Exceptional items |
24,092.9 |
26,700.0 |
Depreciation |
4,130.3 |
3,548.3 |
Finance cost |
1,309.2 |
528.9 |
Profit before Tax |
19,646.2 |
23,429.4 |
Provision for Tax |
4,348.9 |
5,301.7 |
Net Profit after tax |
15,297.3 |
18,127.7 |
Other Comprehensive Income/ (expense) |
-14.1 |
-21.8 |
Total Comprehensive income for the period |
15,283.2 |
18,105.9 |
DIVIDEND
Your Company has paid first interim dividend of 125% i.e. Rs,1.25 per equity share of Rs,1/- and second interim dividend of 125% i.e Rs,1.25/- per equity share of Rs,1/-. The total dividend for the financial year 2018-19 comes to 250% i.e. ''2.50 per equity share of Rs,1/- against 250% i.e ''2.50 per equity share of Rs,1/- paid in the previous year.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top five hundred listed entities based on market capitalization are required to formulate a Dividend Distribution Policy. The Board has approved and adopted the Dividend Distribution Policy and the same is available on the Company''s website http://www.aurobindo.com/ about-us/governance/governance-policies/
PERFORMANCE REVIEW
Your Company achieved significant size and scale during the year. It is now globally the tenth largest generic Company by revenues and the second largest among the listed Indian pharmaceutical companies.
FY2018-19 was also the year during which your Company made significant acquisitions and investments to augment its global presence. In the US, it entered into a definitive agreement to acquire the portfolio of dermatology and oral solids businesses from Sandoz1 Inc. USA. The acquisition is expected to be completed in FY2019-20. Your Company also made inroads into the branded oncology market by acquiring seven marketed oncology branded injectable products from Spectrum Pharmaceuticals Inc.
The acquisition of Apotex Inc''s businesses opened doors to markets in the Eastern Europe. Your Company also acquired R&D assets from Advent Pharmaceuticals Pty Ltd., Australia boosting its R&D capabilities in the respiratory segment.
During the year, through its wholly owned subsidiary, Helix Healthcare BV Netherlands your Company invested in a joint venture with Shandong Luoxin in China.
On a standalone basis, your Company revenues registered a growth of 19.0% reaching Rs,122,578.9 million in FY2018-19, compared to Rs,103,031.5 million in the FY 2017-18. EBITDA for FY 2018-19 stood at ''24,092.9 million vs. ''26,700.0 million in FY2017-18. EBITDA margin was at 19.7%. Profit before Tax for the year at standalone level was Rs,19,646.2 million, decline of 16.1% compared to the preceding year. Your Company''s Net Profit (before OCI) was at Rs,15,297.3 million as against Rs,18,127.7 million in FY2017-18. The Diluted Earnings Per Share stood at ''26.11 compared to ''30.94 in FY2017-18.
On a consolidated basis, revenues for FY2018-19 grew by 18.6% from Rs,164,998.4 million in the previous year to Rs,195,635.5 million. The healthy growth in revenues were driven by new product launches across markets and an improvement in market share of the existing products. The formulations business registered a revenue growth of 19.4% and improved to Rs,161,570.3 million from Rs,135,331.8 million in the previous year. The Active Pharmaceutical Ingredients (APIs) business sales stood at ''34,030.3 million from ''29,622.3 million in the corresponding previous period, witnessing a growth of 14.9% year-on-year. EBITDA margin was at 20.2% vis-a-vis 23.0% in FY2017-18. EBITDA before forex and other income stood at ''39,519.4 million, witnessing a 4.3% growth y-o-y. Your Company reported a Net Profit of ''23,647.4 million. The Diluted Earnings Per Share stood at Rs,40.36 compared to Rs,41.36 in FY2017-18.
As on 31st March 2019, the Company filed 541 Abbreviated New Drug Applications (ANDAs) on a cumulative basis. Of the total count, 377 have received final approvals and 26 have got tentative approvals, including 9 ANDAs which are tentatively approved under the US President''s Emergency Plan for AIDS Relief (PEPFAR) and the balance 138 ANDAs are currently under review.
Your Company witnessed growth across key geographies in the formulations segment. The US business reported 21.3% growth to reach Rs,90,307.3 million and contributed 46.2% to the total revenues. The growth in revenues were driven by new product launches, along with an increase in the market share of existing products across the segments such as oral solids, injectables, dietary supplements and the over the counter (OTC) business.
Your Company registered a 13.9% growth in its Europe formulations business, as revenue touched Rs,49,601.7 million in FY2018-19 compared to the previous year''s revenue of Rs,43,543.8 million. With the Acquisition of Apotex''s businesses in five countries, Aurobindo strengthened its foothold in Europe.
It now operates in 11 countries and is present across multiple channels including pharmacy, hospital and tender sales.
Your Companyâs formulations sales in Growth Markets including Brazil, Canada, Columbia and South Africa grew by 33.1% to Rs,11,936.5 million vis-a-vis Rs,8,971.3 million reported in FY2017- 18. The growth was largely driven by Canada. The Company now ranks amongst the top ten generic players in Canada. The growth in Canada was propelled by the approvals for a number of products and the Companyâs ability to leverage these approvals.
The ARV formulations business reported a growth of 15.8% with revenues of Rs,9,724.8 million vis-a-vis Rs,8,395.8 million a year ago. During the year, the Company was awarded a supply contract from South African government for Dolutegravir triple combination and related products, dispatches for which will begin in FY2019-20.
OUTLOOK
Your Company will continue to expand its market penetration in the core markets (US and EU) by adding more products, and scaling recently completed & announced acquisitions.
Also, through its in-house research & development capabilities. Your Company has identified multiple areas for significant value creation and synergies from recent acquisitions and plans to leverage the infrastructure of the acquired businesses to drive penetration and optimize value creation by leveraging its vertically integrated platform.
Your Company is expanding its portfolio mix towards differentiated products with pipeline encompassing oncology, hormones, inhalers and Biosimilars, among other, and an addressable market over US$100 billion (as per IQVIA MAT Mar 2019). In US the acquisition of Sandozâs dermatology and oral solids businesses, comprising authorized generics and in-licensed products, offer significant synergy and value creation potential for your Company.
In the EU, your Company will continue to expand its portfolio through launches of targeted Day 1 products, oncology range, hormones, niche low injectables and orals. Your Company has a pipeline of over two hundred fifty products under development. Further, your Company sees an opportunity of more than US$5 billion of addressable sales coming off-patent in the near term (2019-20) and more than US$13 billion in the medium term (2021-22). In addition, countries such as Italy, Spain, Portugal and France offer growth potential as the penetration of generics improves. The acquisition of Apotexâs business in five key European countries will allow your Company to further expand its product offering and its position in Eastern Europe.
Your Company will also work on expanding its presence in Growth Markets through the launch of new products especially from its oncology portfolio and will continue its strategy of focusing on tenders for ARV formulations.
The API segment that supplies products to third parties as well as strengthens the business model of Aurobindo by providing vertical integration for the manufacturing of formulations will be scaled up as per market dynamics and business needs.
RESEARCH AND DEVELOPMENT
Aurobindo has a dedicated research team that consists of more than 1,600 scientists and analysts who work on developing a wide range of medications from simple plain-vanilla generics to complex speciality products. The research philosophy of the Company is to provide a broad basket of products in a category or a therapeutic area that the Company forays into. Currently, the Company has seven Research and Development (R&D) centres, of which five are in India and two are in the USA. In FY2018-19, the Company has invested 4.5% of its consolidated revenue i.e. Rs,8,682.6 million in research & development.
The aim of the research team is to develop affordable generic medications and products that would be accessible to all strata of society. Given the ever-rising cost of healthcare worldwide, it is imperative that less expensive, high quality generics alongside branded counterparts become available to patients worldwide.
Oncology and Hormones
Eugia has a diverse portfolio comprising more than seventy five products that are prescribed for oncology, hormones and immuno-suppressant indications. The Company has shortlisted over sixty five generic oncology products for formulations development. These products are prescribed in the treatment of over 25 different indications involving mainly first-line and second-line therapies in cancer patients either in single or in combination with other drugs. The Company has filed 13 ANDAs for Oncology products including four injectable products.
The company has shortlisted ten generic Hormone products for formulations development. These products are prescribed for indications such as Pre-term birth, Birth Control, Amenorrhea and Hypogonadism. The Company has filed nine ANDAs.
A total of 22 ANDAs have been filed as of March 31, 2019.
The development and manufacturing of Oncology & Hormone products require specialized preparations and containment measures. The manufacturing facility is designed to cater to >20% of the global volume demand for those products that are part of Eugiaâs portfolio. Eugia has the capability to develop and manufacture 6 different dosage forms.
- Oral solid dosage forms (Tablets, Hard Gelatin Capsules & Soft Gelatin Capsules)
- Injectables (Wet vials, Dry (lyophilized) vials & Pre-filled syringes)
In FY2018-19, the Company has received approval for four products (two oncology and two hormonal products) and completed exhibit batches for twenty three products. The Company has also planned to develop and manufacture oncology and hormone products to cater to the requirements in Europe, Canada, China and other key emerging markets through other subsidiaries.
In FY2019-20, it is estimated that the Company will file 15-18 ANDAâs with USFDA. Registrations are in progress in Europe and other key emerging markets. The Company has commenced its commercial manufacturing operations and is expected to launch more than ten products in the US and EU markets in FY2019-20.
According to IQVIA, spending on cancer therapies and supportive care drugs accounted for US$99.5 billion in developed economies (the USA, 5-EU etc.) and selected emerging markets (Brazil, China, India, Mexico etc.) in 2018. The US is the biggest contributor to this and accounted for 46% of global spending.
The market for oncology therapeutic medicines is estimated to reach US$140-150 billion by 2023 in these selected markets growing at a CAGR of 6-7%. Oncology products are expected to account for approximately 30% of the new launched medicines (~70-90 products) over the next five years. The generic oncology market is estimated at US$20 billion currently and is forecasted to grow at CAGR of 6.7% to reach US$23 billion by 2021, considering loss of patent expiry for few branded drugs and increase in demand for generic medicines.
Biologics
Aurobindo uses recombinant DNA technology to express and produce Biologics in a living system such as a mammalian cell or a microorganism. Biologics we work with are large, complex proteins and monoclonal antibodies.
Aurobindo has one of the industry leading portfolio of 14 biosimilars, which include five molecules acquired from TL Biopharmaceuticals AG. The pipeline caters to oncology, rheumatology and ophthalmology. In first wave of development, the Company is working on five products - all advancing to different stages of clinical trials in the next two to three quarters. Phase III clinical trials of ophthalmic products is expected to start in this fiscal year, three more products including our lead molecule Bevacizumab, a biosimilar version of Avastin, will be tested in Phase I clinical trials. The combined market size of these four products is in excess of US$ 20 billion.
As this segment is an important growth driver, the Company commissioned a state-of-the-art manufacturing facility of 1,40,000 square feet comprising mammalian cell culture, microbial fermentation, quality control, fill and finish sections. The fill and finish facility can cater to filings product in vials, syringes and cartridges. This fully integrated facility is operational and is generating material for clinical trial requirement. Currently, over 160 people with a strong scientific background in cell biology bioprocess engineering, protein chemistry, regulatory and clinical sciences are employed in Biologics division of the Company.
Dermatology
Dermatology is an area of medicine concerned with the health of the skin and diseases of the hair, nails, and mucous membranes. The skin is the largest organ in the body. It is the first line of defense against bacteria and injury, and often reflects overall health.
The Company is currently working on twenty four products on different segments such as Acne Vulgaris, Inflammatory lesions of Rosacea, Atopic Dermatitis, Hypogonadism, Menopause, Vaginal Atrophy, Osteoarthritis, Herpes, Pruritus and lice infestations. The market size of these products is estimated at US$4.4 billion. The identified products have presence across various dosages including ointment, cream, gel, lotion and solutions in the pipeline.
Of the twenty four products under development, around eighteen products need clinical trials or Bioequivalence (BE) studies.
During FY2018-19, Aurobindo has completed clinical trial for one product and is planning further trails for about close to seven products in FY2019-20.
In FY2018-19, the Company has produced exhibit batches for two products and is planning to execute exhibit batches for another eight to ten products in FY2019-20.
The Company filed three ANDAs in FY2018-19, and is planning to file another 8-10 ANDAs over the next two years.
Transdermal Patches
A Transdermal patch is a medicated adhesive patch that is placed on the skin to deliver a specific dose of medication. They release small amounts of drug through the skin into the blood stream over a long period of time. These patches may include pain relievers, nicotine, hormones, and drugs to treat angina and motion sickness.
Aurobindo has eight transdermal products under development with an addressable global market size of around US$3.3 billion. All these products need either clinical trials or BE studies. The Company has successfully completed pilot BE studies for one product. The Company is likely to file two ANDAs by FY2020-21. The Company is developing transdermal products in North Carolina R&D center. The Company also completed setting up a manufacturing facility for the same.
Respiratory
Inhalers
An inhaler (puffer or pump) is a medical device used for delivering medication into the body via the lungs.
The most common type of inhaler is the pressurized Metered-Dose Inhaler (MDI), that delivers medication by using a propellant spray. Another form of inhaler is a Dry-Powder Inhaler (DPI) which is breath-activated. The medication is released only when you take a deep, fast breath-in through the inhaler.
Respiratory is one of the key therapeutic areas where Aurobindo is strengthening its presence. The Company is working on building a pipeline of metered dose inhalers and dry powder inhalers. Within respiratory products, the Company now has nine inhaler products under development; of which two products are likely to come up for clinical trials during FY2019-20. The market size of products under development is US$13.3 billion.
The Company expects to file first ANDA during FY2019-20. Inhalers will be manufactured at North Carolina facility.
Nasals
Nasals or nasal sprays are used to deliver medications locally in oneâs nasal cavities as substances can be assimilated quickly and directly through the nose. In certain cases, the nasal delivery route is preferred because it provides a good alternative to injection or pills.
Aurobindo has identified seven nasal products for development.
Of which, the company already filed ANDAs for two products.
The total market size of all the seven products is US$1.4 billion. The Company is planning to file three more in ANDAs in FY2019-20. These products are manufactured in Unit X, and the unit has a current monthly capacity to produce 1.4 million units.
Depot Injections
Your Company is currently developing four depot injections that have a combined addressable market size of US$3.6 billion.
One of the products from this segment is likely to have exhibit batches ready in FY2019-20 and clinical trials will start in second half of FY2019-20. The Company plans to file the first product in FY2020-21.
Peptides
Peptides are short chains of amino acid monomers linked by peptide (amide) bonds. The Company has invested in developing a state-of-the-art peptide development laboratory and has four manufacturing suites for its commercial production. Peptides usually have a long gestation period and take four to five years for development.
Auro Peptides has developed the process for manufacturing twenty peptides. The unit has already filed 6 DMFs with the US regulatory authorities and is planning to file an additional 3-4 DMFs in FY2019-20.
For now, Auro Peptides is supplying material for formulation development and the execution of its validation batches. These peptide APIs are being utilized for the development of three liposomal injectable products and seven injectable products. Of which, two to three injectables will be filed in FY2019-20. The addressable market size of products under development is about US$13.5 billion.
Biocatalysts
Aurobindo identifies and produces biocatalysts through fermentation processes which are subsequently developed into scalable biocatalytic solutions. This reduces the usage of chemicals within the processes during pharmaceutical manufacturing, saving costs whilst benefiting from this green technology. The high technical base and core competence of Aurobindo has made it easier to initiate the entry into enzyme production.
The Company has a highly qualified dedicated team of over 30 professionals, with an on-going technology development program which has built a library of over 7,000 biocatalysts across 15 classes of enzymes. Utilising our state-of-the-art technology, we have developed several processes and these are being scaled into GMP manufacturing assets. Our new cGMP fermentation manufacturing facility is also coming online this year, and a series of new products are now expected to commence manufacturing soon.
Vaccines
The need for improved public health and medicines to protect infants is fast becoming a global priority. In view of this reality, the Company has focused on development of the Pneumococcal Conjugate Vaccine (PCV). The global market size of the product is US$6.2 billion.
In FY2018-19, the Company has completed Phase I clinical trials and started enrolment for Phase II clinical trials in March 2019, which will be completed by August 2019. Phase III clinical trials are expected to commence in early 2020. The Company has already registered the brand in India under the name âPneuteger 15â.
All the clinical trials are expected to be completed by early 2021 and the Company expects to be ready for taking part in the upcoming government tender during 2021. Aurobindo has set up a new manufacturing unit for the same that has the capacity to manufacture 100 million doses a year.
ENVIRONMENT HEALTH & SAFETY (EHS)
The Companyâs EHS initiatives focus on reducing its impact on the environment, improving the work life of employees and making sure that the highest safety standards for employees, contractors and visitors are met. The Companyâs EHS standards are dynamic and evolving with international standards to ensure industry best practices. During the year under review, the Company undertook multiple initiatives to remain at the forefront of this journey.
Safety
The Company follows international guidelines on safety. It is working to increase safety standards across all its facilities and processes.
At this end, the Company has made it mandatory for all new projects including capacities, buildings and facilities to have EHS clearance and requires that the guidelines are followed right from the planning stage. After completion of a project, a review of the new facility is conducted to vet its compliance to the standards.
The Company has also started incorporating safety requirements in all its production processes. Its safety guidelines are included in the Batch Production and Control Record (BPCR). Such measures will ensure greater workplace safety and prevent any occurrence of hazardous incidents in the production process.
To maintain a safe working environment, safety pep-talks were initiated before every shift, on hazards in activities and necessary precautions to be taken in case of a mishap. The man-hour spent in safety training increased to 0.65% in FY2018-19 from 0.59% last year.
During the year, Hazard and Operability study (HAZOP) was conducted for eighty five products. Risk analysis was conducted for thirty nine products. Behaviour based safety processes were initiated in Units III, XII and VII.
Several initiatives were taken during the year to improve the overall safety across the boards. These included conducting quantitative risk assessments for bulk solvent storage areas, installing sprinkler systems for an additional layer of safety, conducting ergonomic assessments to assess health risks and initiating product-based risk assessments for formulation products.
Environment:
The Company is working to ensure that its activities have the least impact on the environment and is also upgrading its plants and treatment systems every year to ensure that it remains a frontrunner in promoting sustainability.
During the year, the Company initiated the augmentation and expansion of wastewater treatment facilities at two major API manufacturing units along with the introduction of MBR technology for enhancement of treatment efficiency.
Its facilities are compliant with the regulations stipulated for wastewater treatment, disposal/reuse, hazardous and other wastes management, emissions control, to name a few. Wastewater and air emissions management systems at API Units are viewed and monitored on-line by the concerned environmental regulatory agencies, apart from periodical inspections to site.
The waste streams have been successfully handled and managed effectively on cradle to grave philosophy and are complying with regulations.
The facilities located in Telangana are compliant with on-line manifest system and tracking for respective waste streams as being implemented by the concerned regulatory agency.
It has also successfully completed the environmental impact assessment process for expansion of Aurobindo Unit XI.
Sustainability:
With a view to initiate reporting on sustainability, Aurobindo has added the Sustainability vertical - Sustainability to its EHS structure.
In FY2018-19 the Company received SA 8000 accreditation for two of its formulations manufacturing facilities - Aurobindo Pharma Limited, Unit VII and APL Health Care Limited located at SEZ, Jadcherla, Telangana.
Aurobindo Pharma has initiated Environmental Management System across all its units for effective Environmental Management & as part of this 9 units of the company are already certified for ISO 14001:2015 standard. Other units are under pipeline for ISO 14001:2015 certification which will be completed by end of the year 2019 except for unit XVII & XVIII where commercial production is yet to start.
These efforts have borne fruit as the Companyâs Environmental Social Governance (ESG) rating and scorecards as ranked by internationally reputed agencies such as EcoVadis have shown a significant improvement.
The Company has taken up green-belt development in close vicinity of its facilities, in schools and near the water bodies. It has planted about 10000 saplings covering a variety of indigenous plant species and is happy to report that a focussed approach and proper maintenance practices have resulted in 80% of survival rate of the saplings.
Antimicrobial Resistance (AMR)
Aurobindo recognized that AMR is a threat and has taken proactive steps to ensure it is at the forefront of the fight against it.
The Company collaborated with The Access to Medicine Foundation to participate in The Antimicrobial Resistance Benchmark 2018 and will be a part of the forthcoming 2020 AMR Benchmark.
Aurobindo is also a member of the AMR industry alliance that brings together research-based pharmaceutical companies, generics, biotech and diagnostic companies, to drive and measure industry progress to curb antimicrobial resistance.
The AMR Industry Alliance will ensure that signatories collectively deliver on the commitments made in the Declaration (January 2016) and the Roadmap (September 2016) and will measure industryâs progress in the fight against AMR.
During the year, the Company also participated in the initiatives of Government of India on combating AMR and engaged actively with the events organized by Ministry of Environment, Forest and Climate Change.
AWARDS
- Aurobindo has been awarded IP Excellence in INDIA 2018 by Questel Orbit INC, as a part of their Indian IP Awards, 2018. The Indian IP Awards are given to facilitate best professionals across the IP (Intellectual Property) Industry.
- Aurobindo Pharma has bagged award for the category of Best CSR Practices in Responsible Business Awards hosted by World CSR Day.
- Aurobindo Pharma has bagged the ''Outstanding Export Award for FY2017-18'' conducted by Pharmaceutical Export Promotion Council of India (Pharmexcil).
- The Indian Institute of Packing, a national autonomous body under the Ministry of Commerce, Government of India
has awarded the INDIASTAR - 2017 to Aurobindo Pharma Limited for its Sustainable Shelf-ready Display carton.
- The Federation of Telangana and Andhra Pradesh Chamber of Commerce and Industry (FTAPCCI) has felicitated Aurobindo with HR Best Practices Awards-2018 in the category of Large-Scale Industries
- Aurobindo has received âIDMA Best API Patents Award 201718â conducted by Indian Drug Manufacturers association
- Our HR team received a Certificate of Achievement from BML Munjal Awards for attaining the âExpert Panelâ evaluation milestone. The certificate accolades the commitment towards investment in âLearning & Developmentâ to achieve Business Excellence
- Aurobindoâs HR team was awarded a certificate of merit in âTop 7 Rising Stars of HR Competitionâ at CII HR Conclave
- Aurobindo HR team won the HR Frame award, a Video Competition for Young HR Professionals organized by CII Telangana. âMy Super Herosâ a 2 minute video was displayed to a large and eminent audience, at the CII HR Conclave
SUBSIDIARIES/JOINT VENTURES
As per the provisions of Section 129 of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014, a separate statement containing the salient features of the financial statements of subsidiary companies/associate companies/joint ventures is detailed in Form AOC-1 and is in Annexure-1 to this Report.
During the year, the following are the changes in the subsidiaries of the Company:
Ceased as subsidiaries
Mer Medicamentos, Lda, Aurobindo Pharma (Portugal)
Unipessoal Limitada and Aurovitas, Unipessoal LDA, were ceased as subsidiaries consequent to merger of the same with Generis Farmaceutica S.A w.e.f. 1st April, 2018
New subsidiaries/Joint Ventures
Auro Science Pty Ltd., Australia was incorporated on January 6, 2019 as a wholly owned subsidiary of Aurobindo Pharma USA Inc.
Aurobindo Pharma FZ LLC, UAE was incorporated on January
6, 2019 as a wholly owned subsidiary of Helix Healthcare BV Netherlands
Cura TeQ Biologics GmbH, Switzerland, was incorporated on March 20, 2019 as a wholly owned subsidiary of Helix Healthcare BV Netherlands
Auro Science LLC, USA was incorporated on March 28, 2019 as a wholly owned subsidiary of Aurobindo Pharma USA Inc.
Purple Bell Flower Pty Ltd., South Africa was formed as a joint venture under Aurogen Pharma Pty Ltd., South Africa
Apotex Europep B.V Netehrlands; Apotex Netharlands B.V, Netehrlands; Sameko Farma B.V, Netehrlands; Leidapharm
B.V Netehrlands; Marel B.V Netehrlands; Pharma Dossier B.V Netehrlands: Apotex N.V, Belgium; Apotex Polska SP z o o, Spain Apotex (CR) Spool s.r.o, Check Republic and Apotex Espana SL, Spain became the stepdown subsidiaries of Helix Healthcare BV., Netherlands consequent to acquisition of operations of Apotex Inc., Canada.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements have been prepared by the Company in accordance with the Indian Accounting Standards (Ind AS) 110 and 111 as specified in the Companies (Indian Accounting Standards) Rules, 2015 and as per the provisions of Companies Act, 2013. The Company has placed separately, the audited accounts of its subsidiaries on its website www. aurobindo.com, in compliance with the provisions of Section 136 of the Companies Act, 2013. Audited financial statements of the Company''s subsidiaries will be provided to the Members, on request.
CODE FOR PREVENTION OF INSIDER TRADING
On December 31, 2018, Securities and Exchange Board of India amended the Prohibition of Insider Trading Regulations, 2015, prescribing various new requirements with effect from April 1, 2019. In line with the amendments, your Company has adopted an amended Code of Conduct to regulate, monitor and report trading by Designated Persons and their Immediate Relatives under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015. This Code of Conduct also includes code of practices and procedures for fair disclosure of unpublished price sensitive information and has been made available on the Companyâs website at https://www.aurobindo. com/investors/corporate-governance/code-of-practices-and-procedures-for-fair-disclosure/
VIGIL MECHANISM
The Board of Directors has adopted the Whistle Blower Policy which is in compliance with Section 177(9) of the Companies Act, 2013 and Regulation 22 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Whistle Blower Policy aims for conducting the affairs in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behavior. All permanent employees and whole-time directors of the Company are covered under the Whistle Blower Policy
A mechanism has been established for employees to report their concerns about unethical behavior, actual or suspected fraud or violation of Code of Conduct and Ethics and leak of price sensitive information under the Companyâs Code of Conduct formulated for regulating, monitoring and reporting by Insiders under SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time. It also provides for adequate safeguards against the victimization of employees who avail of the mechanism and allows direct access to the Chairperson of the Audit Committee in exceptional cases. The Whistle Blower Policy is available on the Company''s website: http://www.aurobindo. com/about-us/governance/governance-policies /
PREVENTION AND PROHIBITION OF SEXUAL HARASSMENT
Your Company has a policy and framework for employees to report sexual harassment cases at workplace and the said process ensures complete anonymity and confidentiality of information. Your Company has constituted an Internal Complaints Committee in compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules there under. The Company has a policy on prevention & prohibition of sexual harassment at workplace. The policy provides for protection against sexual harassment of women at workplace and for the prevention and redressal of such complaints. During the year the Company received one complaint and disposed of the same. The Company has been conducting awareness programme to the employees of the Company, on prevention of sexual harassment.
MEETINGS OF THE BOARD
The Board and Committee meetings are prescheduled and a tentative calendar of the meetings finalized in consultation with the Directors to facilitate them to plan their schedule. However, in case of special and urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, six Board Meetings and five Audit Committee Meetings were convened and held. The details of the meetings including composition of Audit Committee are provided in the Corporate Governance Report. During the year, all the recommendations of the Audit Committee were accepted by the Board.
DETAILS OF DIRECTORS & KEY MANAGERIAL PERSONAL
Key Managerial Personnel
Mr. K. Nithyananda Reddy, Executive Vice Chairman,
Mr. N.Govindarajan, Managing Director, Dr.M.Sivakumaran, Whole-time Director, Mr.M.Madan Mohan Reddy, Whole-time Director, Mr.P.Sarath Chandra Reddy, Whole-time Director,
Mr. Santhanam Subramanian, Chief Financial Officer and Mr. B. Adi Reddy, Company Secretary are Key Managerial Personnel of the Company in accordance with the provisions of Section(s) 2(51), and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. There has been no change in the Key Managerial Personnel during the financial year.
None of the directors of the Company are disqualified under the provisions of the Companies Act, 2013 (âActâ) or under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. All Independent Directors have provided confirmations as contemplated under section 149(7) of the Act.
Appointments/Re-appointments
As per the provisions of the Companies Act, 2013, Mr. P.Sarath Chandra Reddy and Dr. M. Sivakumaran will retire at the ensuing annual general meeting and being eligible, seek reappointment. The Board of Directors recommends their re-appointment.
The re-appointment of Mr. P. Sarath Chandra Reddy as Wholetime Director with effect from June 1, 2019 is being proposed at the ensuing Annual General Meeting. The reappointment of Mr. K. Ragunathan, Mrs. Savita Mahajan and Dr. (Mrs) Avnit Bimal Singh as Independent Directors for the second term are also being proposed at the ensuing Annual General Meeting. The Board of directors recommends their re-appointment.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to Section 134(3)(c) of the Companies Act, 2013 your Directors confirm that:
a. i n the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b. appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as at the end of the financial year and of the profit of your Company for the year;
c. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
d. the annual accounts have been prepared on a going concern basis;
e. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and are operating effectively; and
f. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems are adequate and are operating effectively.
DECLARATION FROM INDEPENDENT DIRECTORS
The Independent Directors have submitted the declaration of independence stating that they meet the criteria of independence as provided in sub-section (6) of Section 149 of the Companies Act, 2013 as well as clause (b) of sub-regulation (1) of Regulation 16 of the Listing Regulations (including any statutory modification(s) or re-enactment(s) thereof for the time being in force). In terms of Regulation 25(8) of the Listing Regulations, the Independent Directors have confirmed that they are not aware of any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge their duties.
BOARD DIVERSITY
The Company recognizes and embraces the importance of a diverse board in its success. The Board has adopted the Board Diversity Policy which sets out the approach to diversity of the Board of Directors. The Board Diversity Policy is available on the Company''s website: http://www.aurobindo.com/about-us/ governance/governance-policies/.
BOARD EVALUATION
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated.
The Annual Performance Evaluation was conducted for all Board Members, for the Board and its Committees for the financial year 2018-19. This evaluation was led by the Nomination and Remuneration / Compensation Committee. The Board evaluation framework has been designed in compliance with the requirements under the Companies Act, 2013 and the Listing Regulations and in accordance with the Guidance Note on Board Evaluation issued by SEBI in January 2017. The Board evaluation was conducted through questionnaire designed with qualitative parameters and feedback based on ratings.
Evaluation of Committees was based on criteria such as adequate independence of each Committee, frequency of meetings and time allocated for discussions at meetings, functioning of Board Committees and effectiveness of its advice/ recommendation to the Board, etc.
Evaluation of Directors was based on criteria such as participation and contribution in Board and Committee meetings, representation of shareholders interest and enhancing shareholders value, experience and expertise to provide feedback and guidance to top management on business strategy, governance, risk and understanding of the organizationâs strategy, etc.
POLICY ON DIRECTORS'' APPOINTMENT AND REMUNERATION
The policy of the Company on directors'' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters are adopted as per the provisions of the Companies Act, 2013. The remuneration paid to the Directors is as per the terms laid out in the nomination and remuneration policy of the Company. The nomination and remuneration policy as adopted by the Board is placed on the Company''s website: http://www.aurobindo.com/ about-us/governance/governance-policies/.
TRANSFER TO RESERVES
Your Company has not transferred any amount to reserves during the year under review.
LOANS, GUARANTEES AND INVESTMENTS
Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the Notes to the financial statements provided in this Annual Report.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All transactions entered with Related Parties for the year under review were on armâs length basis and in the ordinary course of business. All related party transactions are mentioned in the Notes to the Financial Statements. The Company has developed a framework through Standard Operating Procedures for the purpose of identification and monitoring of such Related Party Transactions. A statement giving details of all Related Party Transactions are placed before the Audit Committee and the Board for review and approval. The policy on Related Party Transactions as approved by the Board of Directors has been uploaded on the website of the Company http://www.aurobindo.com/about-us/ governance/governance-policies/
The particulars of contracts or arrangements with related parties referred to in sub-section (1) of Section 188 of the Companies Act, 2013 is prepared in Form No. AOC-2 pursuant to clause (h) of subsection (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014 and is in Annexure-2 to this Report.
EXTRACT OF ANNUAL RETURN
As required under Section 134 (3) (a) and Section 92(3) of the Companies Act, 2013 read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014, the extract of Annual Return prepared in Form MGT-9 and is in Annexure-3 to this report. The Annual Return of the Company will be made available on its website www.aurobindo.com
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS & OUTGO
Information with respect to conservation of energy, technology absorption, foreign exchange earnings & outgo pursuant to Section 134(3)(m) of the Act read with Companies (Accounts) Rules, 2014 and is in Annexure-4 to this Report.
RISK MANAGEMENT COMMITTEE
Risk Management Committee of the Company consists of the following Directors viz. Mr. M. Sitarama Murty, Mr. N. Govindarajan and Mr. P. Sarath Chandra Reddy. Mr. M. Sitarama Murty is the Chairman of the Committee. The Company has established a separate department to monitor the enterprise risk and for its management. The Committee had formulated a risk management policy for dealing with different kinds of risks which the Company faces in its day-to-day operations. Risk management policy of the Company outlines different kinds of risks and risk mitigating measures to be adopted by the Board.
Risk is an integral part of the Companyâs business, and sound risk management is critical to the success of the organization. The Company has adequate internal financial control systems and procedures to combat the risk. The risk management procedure is reviewed by the Audit Committee and Board of Directors on regular basis at the time of review of quarterly financial results of the Company. A report on the risk and their management is enclosed as a separate section forming part of this report.
AUDITORS & AUDITORS'' REPORT
The statutory auditors'' report is annexed to this report. The notes on financial statements referred to in the Auditors'' Report are self-explanatory and do not call for any further comments. There are no specifications, reservations, adverse remarks on disclosure by the statutory auditors in their report. They have not reported any incident of fraud to the Audit Committee of the Company during the year, under review.
Pursuant to Section 139 (2) of the Companies Act, 2013, read with Companies (Audit and Auditors) Rules, 2014, the Company at its 30th Annual General Meeting (AGM) held on August 31, 2017, had appointed M/s. B S R & Associates LLP, Chartered Accountants as Statutory Auditors for a period of 5 years i.e. up to the conclusion of the 35th AGM to be held in the year 2022. Further, as per Companies (Amendment) Act, 2017 effective from May 07, 2018, the provisions relating to ratification of the appointment of Statutory Auditors at every AGM are not required to be followed.
INTERNAL AUDITORS
Ernst & Young LLP are the internal auditors of the Company and to maintain its objectivity and independence, the Internal Auditors report to the Chairman of the Audit Committee. The scope and authority of the Internal Audit function is clearly defined by the Audit Committee of the Board. The Internal Auditors monitor and evaluate the efficacy and adequacy of internal control system of the Company, its compliance with applicable laws/regulations, accounting procedures and policies. Based on the reports of the Internal Auditors, corrective actions were undertaken and thereby strengthened the controls. Significant audit observations and action plans were presented to the Audit Committee of the Board on quarterly basis.
COST AUDIT
Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Rules, 2014, the Company is maintaining the cost records as its business is covered under the regulated sector viz. drugs and pharmaceuticals. Audit of the Company''s cost records is not applicable since the Company''s revenues from exports, in foreign exchange, exceed 75% of its total revenues.
INTERNAL FINANCIAL CONTROLS
The internal financial controls (IFC) framework institutionalized in Aurobindo has been evaluated in-depth for its adequacy and operating effectiveness, wherein the Company has covered financial reporting controls, operational controls, compliance related controls and also Information Technology (IT) controls, comprising IT general controls (ITGC) and application level controls. The ITGC would include controls over IT environment, computer operations, access to programs and data, program development and program changes. The application controls would include transaction processing controls in ERP Oracle system which supports accurate data input, data processing and data output, workflows, reviews and approvals as per the defined authorization levels.
In order to further strengthen the existing IFC framework and to support the growing business, the Company has redefined all the process level controls at activity level which has brought in more clarity and transparency in day-to-day processing of transactions and in addressing any related risks. All the controls so redefined & identified have been properly documented and tested with the help of an independent auditor to ensure their adequacy and effectiveness.
The internal auditors conduct '' Process & control review'' on a quarterly basis as per the defined scope and submit the audit findings along with management comments and action taken reports to Audit Committee for its review.
The IFC framework at Aurobindo ensures the following:
- Establishment of policies & procedures, assignment of responsibility, delegation of authority, segregation of duties to provide a basis for accountability and controls;
- Physical existence and ownership of assets at a specified date;
- Enabling proactive anti-fraud controls and a risk management framework to mitigate fraud risks to the Company;
- Recording of all transactions occurred during a specific period. Accounting of assets, liability, and revenue and expense components at appropriate amounts;
- Preparation of financial information as per the timelines defined by the relevant authorities.
These controls cover the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business including adherence to the Companyâs policies, safeguarding of its assets of the Company, prevention and detection of its frauds and errors, accuracy and completeness of accounting records and timely preparation of reliable financial information. The Company has an internal control system, commensurate with the size, scale and complexity of its operation
SECRETARIAL AUDIT REPORT
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr.A.Mohan Rami Reddy, a Company Secretary in Practice to undertake the secretarial audit of the Company for the financial year 2018-19. The Secretarial Audit Report issued in form MR-3 is and in Annexure-5 to this Report.
There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report. Also, pursuant to Regulation 24A of the SEBI (Listing Regulations), 2015, the Company has obtained Annual Secretarial Compliance Report from a Practicing Company Secretary and submitted the same to stock exchanges where the shares of the Company are listed.
CORPORATE SOCIAL RESPONSIBILITY
In compliance with Section 135 of the CA 2013 read with the Companies (Corporate Social Responsibility Policy) Rules 2014, the Company has established the Corporate Social Responsibility Committee (CSR Committee). Your Company is striving to help create a healthy, improved life of people in its neighborhood. Broadly, the initiatives are to execute on the stated CSR policy of ''give back to the society'' and make an impact on the lives of people.
The activities undertaken during 2018-19 can be summarized under the following heads:
- Promoting education;
- Supporting preventive health care;
- Eradicating hunger, poverty & malnutrition;
- Making available safe drinking water;
- Encouraging environment sustainability;
- Sustaining ecological balance & conservation of natural resources;
- Developing rural sports; and
- Setting up old age homes, etc
A detailed account of the CSR activities forms part of the annual report and placed on the Company''s website at: http://www.aurobindo.com/sustainibility/. Report on Corporate Social Responsibility as per Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is provided as Annexure-6 to this Report.
PARTICULARS OF EMPLOYEES
The statement of particulars of appointment and remuneration of managerial personnel as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and is in Annexure-7 to this Report.
The statement containing particulars of employees pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is open for inspection at the Registered office of the Company during business hours on all working days of the Company up to the date of the ensuing Annual General Meeting. Any shareholder interested in obtaining such details may write to the Company Secretary of the Company.
Affirmation that the remuneration is as per the remuneration policy of the Company.
In compliance with the provisions of the Companies Act, 2013 and SEBI Listing Regulations, the Board, on the recommendation of the Nomination and Remuneration/Compensation Committee approved the Policy for Selection, Appointment and of Directors, KMPs and Senior Management persons. The said Policy provides a framework to ensure that suitable and efficient succession plans are in place for appointment of Directors on the Board and other management members. The Policy also provides for selection and remuneration criteria for appointment of Directors and senior management persons.
The Company affirms that the remuneration is as per the remuneration policy of the Company.
INSURANCE
All properties and insurable interests of the Company including building, plant and machinery and stocks have been fully insured. The Company has also taken D & O Insurance Policy covering Company''s Directors and officers.
MATERIAL CHANGES AND COMMITMENTS
There are no material changes and commitments in the business operations of the Company from the financial year ended March 31, 2019 to the date of signing of the Director''s Report.
CORPORATE GOVERNANCE
A separate section on Corporate Governance standards followed by your Company, as stipulated under Schedule V (C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is enclosed as a separate section forming part of this report.
The certificate of the Practicing Company Secretary Mr. S. Chidambaram with regard to compliance of conditions of corporate governance as stipulated under Schedule V(E) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed to the Corporate Governance Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report for the year under review as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is presented in a separate section forming part of this report.
DEPOSITS
Your Company has not accepted any deposits from the public within the purview of Chapter V of the Companies Act, 2013.
INDUSTRIAL RELATIONS
Industrial relations at all units of the Company have been harmonious and cordial. The employees are motivated and have shown initiative in improving the Company''s performance.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF
The dividends that remained unpaid/unclaimed for a period of seven years, have been transferred on due dates by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government.
Section 124 of the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (''the Rules'') mandates that companies shall apart from transfer of dividend that has remained unclaimed for a period of seven years from the unpaid dividend account to the Investor Education and Protection Fund (IEPF), also transfer the corresponding shares with respect to the dividend, which has not been paid or claimed for seven consecutive years or more to IEPF. Accordingly, the dividends that remain unclaimed for seven years and also the corresponding shares have been transferred to IEPF account on due dates.
The details of amount of unclaimed unpaid dividend and corresponding shares ''transferred to IEPF during the financial year 2018-19 have been provided in the AGM Notice.
SHARE CAPITAL
During the financial year under review, there has been no change in the Authorized Share Capital of the Company. However, the paid up equity share capital of the Company increased by Rs,8,000 during the year consequent to the allotment of 8,000 equity shares of Rs,1 each on exercise of stock options under the Employee Stock Option Plan-2006 (ESOP 2006) of the Company. The paid up share capital of the Company as on March 31, 2019 was Rs,585,915,609 divided into 585,915,609 equity shares of Rs,1 each. The Company has not issued any debentures, bonds or any non-convertible securities during the financial year under review.
EMPLOYEE STOCK OPTION SCHEME
The Members at the Annual General Meeting of the Company held on September 18, 2006 approved formulation of Employee Stock Option Scheme- 2006 (ESOP 2006) for the eligible employees and Directors of the Company and its subsidiaries. Details of the stock options as on March 31, 2019 is provided on the Company''s website: http://www.aurobindo.com/about-us/ governance/governance-policies/. The details of the employee stock options also form part of the notes to accounts of the financial statements in this Annual Report.
BUSINESS RESPONSIBILITY REPORT
A detailed Business Responsibility Report in terms of the provisions of Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is available as a separate section in this Annual Report.
OTHER DISCLOSURES
There were no significant material orders passed by the Regulators or Courts or Tribunals that would impact the going concern status of the Company and its operations in future.
The Company has complied with Secretarial Standards issued by the Institute of Company Secretaries of India.
Acquisitions / Disinvestment/ demerger/merger
A. Acquisitions
Apotex
The wholly owned step-down subsidiary of the Company, Agile Pharma B.V. (Netherlands) has entered into an agreement in July
2018 to acquire commercial operations and certain supporting infrastructure in five European countries viz. the Netherlands, Belgium, Spain, Poland and Czech Republic from Apotex International Inc. a Canadian pharmaceutical company engaged in the manufacture and marketing of pharmaceutical products. The Acquisition of Apotexâ businesses in Poland, Czech Republic, the Netherlands, Spain and Belgium was completed in February, 2019.
Sandoz
The wholly owned subsidiary of the Company, Aurobindo Pharma USA Inc., USA, has entered into an agreement to acquire commercial operations and three manufacturing facilities in USA from Sandoz Inc., USA, a Novartis Division.
The acquisition includes in-line portfolio of dermatology and oral solids, authorised generics and in-licensing products, Branded dermatology products, 3 manufacturing facilities at, Hicksville -NY (Derma), Melville - NY(Derma), Wilson- NC (OSD), and 100% shareholding in Eon Labs Inc, a wholly owned subsidiary of Sandoz.
This is a carved out business of Sandoz in US and the product portfolio consists of Dermatology, CNS, Alimentary Tract/ Metabolic, Womenâs Health, Anti-infectives, Systemic Hormones and others along with three manufacturing facilities situated in Hicksville and Melville in New York and Wilson in North Carolina. The acquisition is in progress.
Advent
The wholly owned subsidiary of the Company, Aurobindo Pharma USA Inc., USA, has in November 2018 acquired a product under development and related assets from âAdvent Pharmaceuticals Pty Ltd., Australia, through AuroScience Pty Limited, Melbourne, a 100% subsidiary of Aurobindo Pharma USA Inc., USA.
- Acquisition provides an opportunity to acquire assets that would be used for specialty generics business.
- Acquisition will lead to enhancement of R &D capabilities in complex specialty generics
Luoxin
The wholly owned subsidiary of the Company, Helix Healthcare
B.V, Netherlands, has entered into an agreement with Shandong Luoxin Pharmaceutical Group Stock Co., Ltd, China (Luoxin) to establish a Joint Venture Company in China with manufacturing facilities to manufacture nebuliser inhaler and other products for China, US and EU markets. However, for Europe markets, the new Joint Venture Company will establish its fully owned subsidiary(ies) in any of the European countries.
Spectrum
Acrotech Biopharma L.L.C., a wholly owned subsidiary of Aurobindo Pharma USA Inc., USA, which in turn is a wholly owned subsidiary of the Company, has entered into a definitive agreement to acquire seven marketed oncology injectable products, intellectual property and commercial infrastructure from Spectrum Pharmaceuticals Inc., (NASDAQ:SPPI), a US based, global branded oncology company. Spectrum has as part of its major strategic shift to focus on novel oncology drug development and commercialization of its two late-stage pipeline products, carved out its commercial business inclusive of seven marketed oncology injectable products, intellectual property and commercial infrastructure for sale. The acquisition has been completed on March 1, 2019.
Synergy
The Company has made an investment of Rs,150 million in Synergy Remedies Private Limited (Synergy), a Tirupathi based pharma company and acquired 19.9% holding in the said company. The objective of this acquisition was to ensure assured supplies of some of the APIs and intermediates.
B. Merger
Merger of wholly owned Subsidiaries
On May 28, 2019 the Board of Directors had accorded its approval for the draft scheme for merger of Company''s 5 (Five) Wholly Owned Subsidiaries (i.e. APL Research Centre Limited, Aurozymes Limited, Curepro Parenterals Limited, Hyacinths Pharma Private Limited and APL Healthcare Limited) and 1 (one) step-down wholly owned subsidiary (i.e. Silicon Life Sciences
Private Limited) with the Company. No shares of the Company will be issued as consideration for the said amalgamation and the shares held by the Company in its wholly owned subsidiaries and step-down wholly owned subsidiary shall stand cancelled. The Scheme would be subject to the requisite statutory/ regulatory approvals including the approval of the National Company Law Tribunal (Hyderabad Bench).
CREDIT RATING
The Company has obtained credit rating from India Ratings & Research Private Limited and it has assigned âIND AA ââ/ âINDA1 â on Rating Watch Positive for Companyâs fund based working capital facilities and âIND A1 â on Rating Watch Positive for Companyâs non-fund based working capital limits vide their letter dated September 17, 2018.
ACKNOWLEDGEMENTS
Your Directors are grateful to for the invaluable contribution made by the employees and are encouraged by the support of the customers, business associates, banks and government agencies. The Directors deeply appreciate their faith in the Company and thankful to them. The Board shall always strive to meet the expectations of all the stakeholders.
For and on behalf of the Board
K. Ragunathan
Place: Hyderabad Chairman
Date: 28 May 2019 DIN: 00523576
Mar 31, 2018
Dear Members,
The Directors are pleased to present the 31st Annual Report of the Company together with the audited accounts for the financial year ended 31 March 2018.
FINANCIAL HIGHLIGHTS
Standalone financials Rs. Million
2017-18 |
2016-17 |
|
Revenue from operations |
103,031.5 |
97,812.1 |
EBITDA |
26,700.0 |
23,740.0 |
Depreciation |
3,548.3 |
2,861.7 |
Finance cost |
528.9 |
451.6 |
Profit before Tax |
23,429.4 |
21,785.7 |
Provision for Tax |
5,301.7 |
4,718.1 |
Net Profit after tax |
18,127.7 |
17,067.6 |
Other Comprehensive Income/ (expense) |
-21.8 |
-56.1 |
Total Comprehensive income for the period |
18,105.9 |
17,011.5 |
DIVIDEND
Your Company has paid first interim dividend of 150% i.e. Rs.1.50 per equity share of Rs.1/- and second interim dividend of 100% i.e Rs.1/- per equity share of Rs.1/-. The total dividend for the financial year 2017-18 comes to 250% i.e. Rs.2.50 per equity share of Rs.1/- against 250% i.e Rs.2.50 per equity share of Rs.1/- paid in the previous year.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top five hundred listed entities based on market capitalization are required to formulate a Dividend Distribution Policy. The Board has approved and adopted the Dividend Distribution Policy and the same is available on the Companyâs website viz. www.aurobindo.com.
PERFORMANCE REVIEW
Your Company continued to strengthen its position across global markets during the year. It delivered yet another year of consistent and profitable growth; and fortified its manufacturing and research capabilities.
Your Company continued to build a robust pipeline of products for the future and invested in elevating operational efficiencies to improve the quality of products. The holistic wellbeing of employees also remained a priority. During the reporting period, there was a sustained focus to augment the strengths of your Company and sharpen competitive advantages with a view towards long term value creation.
On a standalone basis, your Company revenues registered a growth of 5.3% reaching Rs.103,032 million in FY 2017-18, compared to Rs.97,812 million. EBITDA stood at Rs.26,700 million, an increase of 12.5% over FY2016-17. EBITDA margins increased by ~160 bps to 25.9% during the year and profit before tax for the year at standalone level was Rs.23,429 million, a 7.5% growth over the preceding year. Your Companyâs net profit was at Rs.18,128 million, a growth of 6.2% over Rs.17,068 million reported in FY2016-17. The diluted earnings per share stood at Rs.30.94 compared to Rs.29.16 in FY2016-17.
On a consolidated basis the performance for the FY2017-18 is, revenues increased to Rs.164,998 million from Rs.150,899 million in the previous year, at 9.3% growth. The formulations business registered a revenue growth of 12.4% and improved to Rs.135,332 million from Rs.120,454 million in the previous year. The API business sales stood at Rs.29,622 million from Rs.30,421 million in the corresponding previous period. EBITDA margins expanded by ~20 bps to 23.0% vis-a-vis 22.8% in 2016-17. EBITDA was Rs.37,885 million, witnessed a 10.3% growth over the corresponding previous period. Net profit grew by 5.3% to Rs.24,232 million. The growth in net profit was impacted by a onetime expense related to a tax charge.
The diluted earnings per share stood at Rs.41.36 compared to Rs.39.33 in 2016-17. The healthy growth in revenues and profits were driven by new product launches across markets, improvement in market share of existing products, enhanced productivity and cost optimizations.
In the US, the Tax Cuts and Jobs Act of 2017 was approved and enacted into a law on December 22, 2017. This resulted in reduction of federal corporate tax from 35% to 21%. As a result, the Company re-evaluated its U.S. deferred tax assets and liabilities, and recognized a one-time charge of Rs.664 million.
As on 31 March 2018, the Company filed 478 ANDAs on a cumulative basis. Of the total count, 327 have final approvals and 34 have tentative approvals, including 11 ANDAs which are tentatively approved under the US Presidentâs Emergency Plan for AIDS Relief (PEPFAR) and the balance 117 ANDAs are under review.
Your Company witnessed growth across the key geographies in the formulations segment. The US business reported 9% growth to Rs.74,421 million and contributed 45% to total revenues. The growth in revenues was driven by new product launches, including complex products, coupled with an increase in the market share of existing products. Your Company witnessed growth, despite pricing pressures in the orals segment. The pricing pressure in orals segment was led by an increase in competition with the improved pace of USFDA approvals and customer consolidation.
Your Company registered a robust 32.9% growth in revenue from the Europe formulations business, reaching to Rs.43,544 million in FY2017-18 over the previous year revenue of Rs.32,771 million. Aurobindo continues to work towards improving synergies between the acquired businesses of Actavis and Generis, and the Companyâs existing ground presence in several markets. During the year under review, the EBITDA margins in the European region touched double digit.
The improvement in revenue and profitability happened on the back of transferring manufacturing base for products to India, continued streamlining of business structures, integrating and optimizing the information flow to improve decision-making and control; and new product launches, including Day-1 launches.
As on 31 March 2018, the Company has transferred the manufacturing activities of 83 products from Europe to India.
Your Companyâs formulations sales in Growth Markets including Brazil, Canada, Columbia and South Africa grew by 18.7% to Rs.8,971 million vis-a-vis Rs.7,556 million reported in 2016-17. This segment remains a key market for Aurobindo and renewed efforts are made to position your Companyâs products as one of the preferred suppliers in the existing and new geographies.
The ARV formulations business was negatively impacted during the year and posted sales of Rs.8,396 million vis-a-vis Rs.11,854 million. The decline in sales was due to incremental pricing pressure in one of the key molecules and delay in some country specific tenders. During the year, the Company received tentative approval from USFDA for Dolutegravir triple combination product (Tenofovir, Lamivudine and Dolutegravir tablets) under the PEPFAR program, which enables your Company to launch the product in PEPFAR markets. Your Company is the second pharma enterprise to receive the USFDA approval for this drug.
OUTLOOK
Your Company will continue to invest in building a diversified product portfolio and improve its market share in the existing product basket. Quality and regulatory compliance will continue to be the cornerstone of your Companyâs overall operations. As the demand for critical therapies continue to rise, your Company continues to develop differentiated and new drug delivery systems in these therapies and contribute to improve the lives of patients globally.
In the coming years, the organizationâs key priorities will comprise: building a robust pipeline of complex molecules and setting up state-of-the art manufacturing facilities for select therapies that meet high compliance standards; minimizing wastage and maximizing the recycling of materials; reducing the risk in operations; enhancing community wellbeing and being a preferred partner to all stakeholders.
Despite shifting industry trends, your Companyâs strong balance sheet and robust operations have helped it stay on track of its growth plans. Your Companyâs product portfolio and pipeline has significant potential for sustainable volume growth. Research and Development (R&D) initiative has been undertaken on difficult-to-manufacture and differentiated products, with possible low competitive pressure. Work is currently in progress for development of differentiated molecules, both for oral and injectable products. FY2018-19 promises to be a year with many milestones across a differentiated product basket.
Aurobindo is optimistic of the sustained value that will be created through the planned new initiatives. In the last fiscal, your Company made considerable development across the upcoming product categories and the same is encapsulated in R&D section.
To manufacture a growing product pipeline, your Company initiated significant improvements in capacities to bolster volumes:
- Unit XVI: The Company has successfully commissioned Betalactum injectables manufacturing facility at Jadcherla, Telengana in FY2017-18, which will improve the injectable volumes for the US, EU and Growth Markets.
- Unit X: The Company is building an USFDA compliant oral manufacturing facility at Naidupet, Andhra Pradesh; and the facility will be commissioned during FY2018-19. It has been inspected by USFDA and EMA.
- Injectable facility in US: The Company is in the process of setting up a non-Betalactum injectable manufacturing facility in the US, which is in line with the diversification strategy.
For a sustainable future growth and to spread the geographical risk, Aurobindo has been steadily expanding its European footprint since 2006, via acquisitions across several key markets and organically building a diversified product basket. The acquisition of Generis, referred to earlier, builds upon an already successful growth strategy.
Your Companyâs products have the potential to improve the lives of millions of patients across the globe.
RESEARCH & DEVELOPMENT
Your Companyâs new product development initiatives ranges from conventional orals to injectable products to more complex and advanced dosage forms. In the last fiscal, the R&D efforts led to filing ANDAs of complex and niche products including oral and sterile drug products
Oncology and Hormones
Eugiaâs product portfolio comprises of 79 products that are prescribed for Oncology, Hormone & Immuno-suppressant indications. The Oncology product portfolio is diverse and are approved for treating cancers (involving 16 different indications), either in single or in combination with other drugs. The Hormonal products that are being developed by Eugia are approved prescribed for indications involving, Pre-term birth, birth control, Amenorrhea & Hypergonadism.
Oncology products are a highly specialized class of products and are difficult to produce due to their toxic characteristics and the need for specialized preparation and handling. Of the 71 oncology products which have been shortlisted, 55 products are already in the development phase. We have filed 7 ANDAs as on 31 March, 2018, in the Oncology Segment. In hormones segment, a total of eight products have been identified for development and the Company has already filed six ANDAs.
The Company has also planned to develop and manufacture the Oncology and Hormone products for distribution in Europe markets. With a plan to de-risk the portfolio and improve market share, the Company aims to file these products across Canada and other key emerging markets in future. The facility is designed to cater to ~20% of the global volume demand for the products that are part of Eugiaâs portfolio.
The manufacturing facility at Eugia comprises of the Oral solid dosage forms (Tablets & Capsules) and Injectables (Wet vials, dry vials & pre-filled syringes) and was inspected twice by the USFDA in FY2017-18. The facility has also been inspected by EMA in FY2017-18 and has been approved without any observations.
In FY2017-18, the Company filed 11 ANDAs with the USFDA and Exhibit batches for 25 products were completed.
In FY2018-19, it is estimated that Exhibit batches for 20-24 products will be completed and 15-18 ANDAâs will be filed in US market.
The Company has received its first ANDA approval (product name: Capecitabine) in the first quarter of FY2018-19.
According to IQVIA, global spending on cancer therapies and supportive care drugs now exceeds $133 billion. The U.S. is the biggest contributor to this trend with spends accounting for 46% of global spending. The global market for oncology therapeutic medicines is estimated to reach $200 billion by 2022, averaging 10â13% growth over the next five years, with the U.S. market reaching as much as $100 billion by 2022, averaging 12-15% growth. The global market size of the products under development is $ 45 billion.
Biologics
The Company started working on biosimilars a couple of years ago. In February 2017, Aurobindo acquired five molecules from TL Biopharmaceuticals. Your Company is currently developing nine more products and the pipeline spans across oncology, rheumatology and ophthalmology. The global market size of these products is around $ 45 billion.
To build this segment into an important future growth driver, your Company has invested in a state-of-the-art manufacturing facility with 1,40,000 square feet comprising of mammalian cell culture, microbial fermentation, quality control, fill and finish sections.
This facility has been commissioned and the exhibit batches will be completed in FY2018-19. With a total R&D employee strength of 75 people for biologics division, the Company will start Phase I clinical trials for its lead molecule i.e. Bevacizumab - a biosimilar to Avastin® in FY2018-19. Apart from Bevacizumab, the Company has also started doing animal toxic studies on an ophthalmic product which will be ready for Phase III trials in FY2019-20.
Peptides
Peptides are short chains of amino acid monomers linked by peptide (amide) bonds. The Company has invested in developing a state-of-the-art peptide development laboratory and four manufacturing suites for its commercial production. Till date,
Auro Peptides have developed the process for manufacturing 14 peptides; and two more molecules are in the process of development.
The unit has already filed four DMFs with US regulatory authorities and is planning to file an additional 3 DMFs in FY2018-19. Presently, Auro Peptides is supplying material for formulation development and the execution of its validation batches. These peptide APIs are being utilized for the development of three liposomal injectable products and seven injectable products. The addressable market size of these products is about $ 12.2 billion
Biocatalysis
Aurobindo invents, identifies and produces biocatalysts through fermentation processes which are subsequently developed into scalable biocatalytic solutions. This reduces the usage of chemicals within the processes during pharmaceutical manufacturing, saving costs whilst benefiting from this green technology. The high technical base and core competence of Aurobindo has made it easier to initiate the entry in to enzyme production.
The Company has a highly qualified dedicated team of over 30 professionals, with an on-going technology development program which has built a library of over 7,000 biocatalysts across 15 classes of enzymes. Supplementing the initial R&D molecular and microbiology facilities, your Company has invested in state-of-the-art fermentation development equipment which encompasses twelve 20 litre automated fermentation vessels, with associated downstream processing including: homogenization, tangential flow filtration and resin purification. A number of biocatalytic projects and processes have been identified utilizing internally developed technology, and these are now progressing through process validation. This development work is supported by the 1KL pilot facility leading to the 10KL enzyme production facility.
Penems
Penem products are manufactured at the Companyâs Auronext manufacturing facility at Bhiwadi, Rajasthan. The total capacity of the unit is ~ 1.0 million vials per month. The facility was re-inspected in February 2018 and received Establishment Inspection Report (EIR).
The Company has filed two ANDAs with USFDA and received approvals for both the products. The approval for Meropenem was received in March 2017 and the same was launched in US in April 2017. In the month of June 2018, an approval was received for Ertapenem injection and is in the process of launching in US. The market size of these products put together is around $ 480 million for the 12 months ending 31 March 2018. In Europe, the Company already launched Meropenem injection (with a market size which is over $ 200 million) and expects to launch Ertapenem in FY2018-19
Dermatology
Topicals
The Company has currently identified 38 products for development and started working on 23 products. The market size of these products is $ 5 billion.
The identified products have presence across various dosages including Ointment (7 nos), Cream (14 nos), Gel (12 nos) and Solution (5 nos) in the pipeline. Of the 38 products under development, around 24 products need clinical trials or BE studies which are planned to kick-start in Jan 2019.
In FY2017-18, the Company has produced exhibit batches for two products and is planning to execute exhibit batches for another 17 products in FY2018-19. APL, North Carolina site, is expected to be ready for manufacturing these products in August 2018. The Company filed the first ANDA in the first quarter of FY2018-19; and is planning to file another five ANDAs by the end of this fiscal.
Transdermal
Currently, the Companyâs pipeline includes five patches under development. The addressable global market size of these products is around $ 2.8 billion. The clinical studies for these products had started in June 2018 and the first ANDA for patches will be filed in November 2019. APL, North Carolina site is planned for manufacturing these products; and the capacity will be ready by October 2018.
Respiratory
Inhalers
Your Company has been working towards creating a diverse portfolio of products with different drug delivery systems. With the respiratory portfolio, the Company now has six inhaler products under development; of which four products are likely to come up for exhibit batches during FY2018-19. The market size of these products under development is $ 7.5 billion.
The pilot pharmacokinetics analysis will start during April 2019 for one of the key products; and the Company expects to file its first ANDA during the first quarter of 2020. These products will be manufactured from APL, North Carolina, which will be commissioned in October 2018 for exhibit batch production. This facility will be equipped with a capacity to handle 10 to 15 million units with eight head filling machines and a 500L vessel.
Nasals
The Company has a strong pipeline of nasals with five products under development, of which two products already had exhibit batches in FY 18; and another two products are expected to have exhibit batches during FY2018-19. The market size of these products is $ 0.5 billion. The Company expects to file two ANDAs in FY2018-19 and the remaining will be filed in FY2019-20. These products are manufactured in Unit X; and the unit has a current monthly capacity to produce 1.4 million units.
Depot Injections
Your Company is currently developing four depot injections, which have a combined addressable market size of $ 3.6 billion. These products are ready for scaling-up and waiting for manufacturing capabilities to be commissioned.
Vaccines
The need for improved public health and medicines to protect infants is fast becoming a global priority. In view of this reality, your Company was focused on development of the pneumococcal conjugate vaccine (PCV), and the development was completed in FY2017-18. The global market size of the product is $ 6 billion.
The Company has received the approval to conduct Phase I clinical trials from the Drug Controller General of India (DCGI) in April 2018; and has initiated the trials in May 2018 and completed the same in June 2018. The Company will be submitting the report to DGCI by August 2018 and Phase 2 clinical trials are expected to commence in the third quarter of FY2018-19.
All the clinical trials are expected to be completed by 2020; and the Company expects to be ready for taking part in the upcoming government tender during 2021. Your Company is setting up a manufacturing facility in Hyderabad with an annual capacity of 100 million doses.
ENVIRONMENT, HEALTH & SAFETY
Your Companyâs EHS imperatives are part of its broader sustainability journey. These initiatives focus on reducing the environment footprint, help enhance wellbeing of employees and set high safety standards for employees, contractors and visitors. While several steps have been taken to enhance these standards and raise awareness across the organization, Team Aurobindo believes that it is an area with no finish line; and more needs to be done to remain ahead of the curve in this dynamic industry.
Few initiatives taken during the year comprise of Environment
In FY2017-18, the Company continued to ensure that environmental norms were abided by all its API and Formulation units. API manufacturing units in Telangana state demonstrated compliance to Zero Liquid Discharge norms.
The Formulations Units and other API units have conformed to the regulations for disposal of wastewater to Common Effluent Treatment Plants (CETPs) or marine discharge. New initiatives for treatment of wastewater using advanced technologies, viz., membrane bio-reactors, supplementing the infrastructure required in line with expansion projects have been started for some of the API manufacturing facilities.
Standardized practices for disposal of organic wastes to cement units for reuse as auxiliary fuel in cement kilns continues. While inorganic and miscellaneous solid wastes are being disposed to treatment, storage and disposal facilities (TSDF). New initiatives for additional control measures on fugitive emissions at waste treatment facilities at some of the API initiatives like providing hoods on waste water storage tanks, arrangement of additional scrubbers, among others have been started. The API units are equipped with monitoring instruments for continuous assessments of fugitive emissions in the premises.
Vermi-composting of garden and kitchen waste was attempted in one of the API manufacturing units on a pilot basis that proved to be highly successful. This initiative will be taken forward to other units in the future.
The Company has installed, online continuous emissions monitoring systems across manufacturing units. These are connected to the Central and concerned State Pollution Control Boards as per norms. Public consultation process for expansion of Aurobindo Unit XI is completed and is gearing up for the submission of Environmental Impact Assessment (EIA) report to the Ministry of Environments and Forests & Climate Change (MoEF & CC). Environment assessments across API and DP formulations units by Aurobindoâs customers in FY2017-18 concluded on a highly satisfactory note.
Safety
To maintain a safe working environment, safety pep-talks were initiated before every shift, on hazards in activities and necessary precautions to be taken in case of a mishap. As an important process inclusion, hazard and operability study (HAZOP) and risk analysis were conducted for all new products.
Historical events including injuries and other incidents were analysed and actions have been initiated to address the common root causes. The Company has created a training matrix for contract workers, based on their initiatives and special training modules have been implemented for production heads for managing and leading the safety agenda.
HUMAN RESOURCES
Your Companyâs ability to respond to new challenges and opportunities depends on effective leadership, knowledge, expertise and new ideas shared at all levels. Therefore, Aurobindo recognizes human capital as the most important element to drive its progress. Hence, your Company has devised initiatives that enable training and development of employees across levels and enables their professional and personal growth.
Your Companyâs human resources management framework is aligned to the business goals and drives key decisions on business processes and introduction of new technology. The HR interventions of the Company focuses on skilling the existing workforce and empowering them to step beyond their defined roles. Emphasis is laid on ensuring that every colleague is well informed with the Standard Operating Procedures on quality and compliance. Shop floor executives are continuously trained and groomed in the area of compliance, supported adequately to raise their competence, confidence and anytime readiness.
Employees at the shop floor undergo classroom training, on-the-job training and assessments. Over 8,000 person days of training was conducted for them during the year under review.
Nalanda, the online learning program, helps employees to choose from a range of strategic leadership courses in partnership with CROSS knowledge. Launched with a vision towards business excellence through leadership and functional competency development, 271 employees were trained under the program in FY2017-18. Nalanda training is exclusively for junior, middle and senior management.
Employees covered under Technical, Safety & Quality Trainings in addition to mandatory cGMP Trainings (FML API) is above 1,000 during the year. Several employees underwent multiple, need-based programs. Aurobindo Training and Development Centre (ATDC) developed 464 talented professionals, who can be leaders of tomorrow. During the year, your company recruited 4,135 employees.
Established in 2014 with a vision to impart Technical and Application skills to the future workforce of Aurobindo, ATDC (Aurobindo Training & Development Centre) has since been making steadfast contribution in Talent space to compliment the steady yet rapid growth our APL has achieved. It is a great privilege to report our ATDC achieved major milestone with placement of 1004 trained candidates since inception and enculturated future ready workforce into Aurobindo ranks.
AWARDS
- Received âPharmexcil Outstanding Exports Award 201617â in the category of highest Number of ANDAs filed in the calendar year 2016.
- Bagged two Awards in âExcellence in Skill Developmentâ & âExcellence in Pharma Digital Innovationâ for the 2nd time in row at the India Pharma Awards 2017 in South-Asiaâs largest pharmaceutical event- CPhI& PMEC India.
- Have won the âIDMA MARGI MEMORIAL BEST PROCESS PATENTS AWARD 2016-17â (for 2 Indian & 1 US Granted patents; supported by several other patent applications filed during the said year) awarded by Indian Drug Manufacturersâ Association.
- Our HR team received certificate of appreciation from BML Munjal Awards 2018 for attaining Expert Panel evaluation level in the category of âLearning and Developmentâ.
- Received â2017 Business Awardâ from The East Windsor Township for best community enhancement contributions in East Windsor Township.
- Aurobindo won âCompany of the Year, Asia Pacificâ award at Global Generics and Biosimilars Awards 2017.
- Aurobindoâs Unit 15 at Parawada - Vizag awarded by the State Government of Andhra Pradesh for best management award in manufacturing sector. (in Mid-Size Industries category)
SUBSIDIARIES/JOINT VENTURES
As per the provisions of Section 129 of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014, a separate statement containing the salient features of the financial statement of subsidiary companies/associate companies/joint ventures is detailed in Form AOC-1 and is in Annexure-1 to this Report.
During the year, the following are the changes in the subsidiaries of the Company:
Ceased as subsidiaries
Raidurgam Developers Limited (formerly known as Aurobindo Antibiotics Limited) now became a joint venture
Aurobindo Pharma USA LLC (Liquidated w.e.f. 31.03.2018)
Aurobindo Pharma (Portugal) Unipessoal Limitada (Merged with Generis Farmaceuita SA effective 1st April, 2018)
Aurovitas, Unipessoal LDA
(Merged with Generis Farmaceuita SA effective 1st April, 2018)
Aurobindo Ilac Sanayi Ve Ticaret Limited Sirketi (Liquidated on 31st October, 2017)
Mer Medicamentos, Lda
(Merged with Generis Farmaceuita SA effective 1st April, 2018) Farma APS (Liquidated w.e.f 25.01.2018)
Generis Mozambique (Liquidated w.e.f 19.03.2018)
Incorporation of New subsidiaries
Aurobindo Pharma Saudi Arabia Limited, Saudi Arabia
AuroLogistics LLC, USA
Auro Pharma India Pvt.Ltd, India
Aurovitas Pharma Ceska Republica s.r.o, Check Slovakia
Acquisition
Agile Pharma BV, a step down subsidiary of the Company acquired Generis Farmaceutica SA and its 4 subsidiaries viz. Mer Medicamentos, Portugal, Generis Phar, Portugal, Pharma APS, Portugal and Generis Mozambique, Portugal. Post acquisition of Generis Farmaceutica SA, Portugal, as part of restructuring of operations in Portugal, Aurobindo Pharma (Portugal) Unipessoal Limitada and Aurovitas, Unipessoal LDA, Mer Medicamentos, Lda, Farma APS and Generis Mozambique have been either merged with Generis Farmaceutica SA or liquidated.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements have been prepared by the Company in accordance with the Indian Accounting Standards (Ind AS) 110 and 111 as specified in the Companies (Indian Accounting Standards) Rules, 2015 and as per the provisions of Companies Act, 2013. The Company has placed separately, the audited accounts of its subsidiaries on its website www.aurobindo.com, in compliance with the provisions of Section 136 of the Companies Act, 2013. Audited financial statements of the Companyâs subsidiaries will be provided to the Members, on request.
VIGIL MECHANISM
The Board of Directors has adopted the Whistle Blower Policy which is in compliance with Section 177(9) of the Companies Act, 2013 and Regulation 22 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Whistle Blower Policy aims for conducting the affairs in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behavior. All permanent employees and whole-time directors of the Company are covered under the Whistle Blower Policy.
A mechanism has been established for employees to report their concerns about unethical behavior, actual or suspected fraud or violation of Code of Conduct and Ethics. It also provides for adequate safeguards against the victimization of employees who avail of the mechanism and allows direct access to the Chairperson of the audit committee in exceptional cases. The Whistle Blower Policy is available on the Companyâs website: http://www.aurobindo.com/about-us/corporategovernance.
PREVENTION AND PROHIBITION OF SEXUAL HARASSMENT
Your Company has constituted an internal complaints committee in compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules there under. The Company has a policy on prevention & prohibition of sexual harassment at workplace. The policy provides for protection against sexual harassment of women at workplace and for the prevention and redressal of such complaints. During the year, no complaints have been received.
RATING
India Ratings and Research (Ind-Ra) has affirmed Aurobindoâs current long-term rating at âIND AA â with outlook positive.
MEETINGS OF THE BOARD
The Board and Committee meetings are prescheduled and a tentative calendar of the meetings is finalized in consultation with the Directors to facilitate them to plan their schedule. However, in case of special and urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, five Board Meetings and six Audit Committee Meetings were convened and held. The details of the meetings including composition of Audit Committee are provided in the Corporate Governance Report. During the year, all the recommendations of the Audit Committee were accepted by the Board.
DIRECTORS
As per the provisions of the Companies Act, 2013, Mr. K.Nithyananda Reddy and Mr.Madan Mohan Reddy will retire at the ensuing annual general meeting and being eligible, seek reappointment. The Board of Directors recommends their re-appointment.
The re-appointment of Mr. K.Nithyananda Reddy Dr.M.Sivakumaran and Mr.M. Madan Mohan Reddy as Wholetime Directors and Mr. N.Govindarajan as Managing Director with effect from June 1, 2018 are being proposed at the ensuing Annual General Meeting. The Board of directors recommends their re-appointments.
The appointment of Mrs. Savita Mahajan as an Independent Director of the Company for a period of two years up to December 15, 2019 is being proposed at the ensuing Annual General Meeting. The Board of Directors recommends her appointment.
Mr.Rangaswamy Rathakrishnan Iyer resigned as Independent Director of the Company with effect from December 9, 2017. The Board has placed on record its sincere appreciation and gratitude for contributions made by him during his tenure as Independent Director of the Company.
DETAILS OF DIRECTORS & KEY MANAGERIAL PERSONNEL
Board of Directors appointed Mrs.Savita Mahajan as an Independent Director of the Company for a period of two years up to December 15, 2019.
Mr.Rangaswamy Rathakrishnan Iyer resigned as Independent Director of the Company with effect from December 9, 2017 due to pre-occupation and time constraints.
DIRECTORSâ RESPONSIBILITY STATEMENT
Pursuant to Section 134(3)(c) of the Companies Act, 2013 your Directors confirm that:
a. i n the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b. appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as at the end of the financial year and of the profit of your Company for the year;
c. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
d. the annual accounts have been prepared on a going concern basis;
e. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and are operating effectively; and
f. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems are adequate and are operating effectively.
DECLARATION FROM INDEPENDENT DIRECTORS
The Independent Directors have submitted the declaration of independence stating that they meet the criteria of independence as provided in sub-section (6) of Section 149 of the Companies Act, 2013.
BOARD DIVERSITY
The Company recognizes and embraces the importance of a diverse board in its success. The Board has adopted the Board Diversity Policy which sets out the approach to diversity of the Board of Directors. The Board Diversity Policy is available on the Companyâs website: http://www.aurobindo.com/about-us/ corporategovernance.
BOARD EVALUATION
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated. The evaluation of all the Directors and the Board as a whole was conducted against the parameters laid down by the Nomination and Remuneration / Compensation Committee including performance and working of its Committees.
POLICY ON DIRECTORSâ APPOINTMENT AND REMUNERATION
The policy of the Company on directorsâ appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters are adopted as per the provisions of the Companies Act, 2013. The remuneration paid to the Directors is as per the terms laid out in the nomination and remuneration policy of the Company. The nomination and remuneration policy as adopted by the Board is placed on the Companyâs website: http://www.aurobindo.com/ about-us/corporategovernance.
TRANSFER TO RESERVE
The Company has not transferred any amount to general reserve out of the profits of the year.
LOANS, GUARANTEES OR INVESTMENTS
Loans, guarantees or investments covered under Section 186 of the Companies Act, 2013 form part of the Notes to the financial statements provided in this Annual Report.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
The particulars of contracts or arrangements with related parties referred to in sub-section (1) of Section 188 of the Companies Act, 2013 is prepared in Form No. AOC-2 pursuant to clause (h) of subsection (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014 and is in Annexure-2 to this Report.
EXTRACT OF ANNUAL RETURN
As required under Section 92(3) of the Companies Act, 2013 and Rule 12(1) of the Companies (Management and Administration) Rules, 2014, the extract of Annual Return prepared in Form MGT-9 is in Annexure-3 to this Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS & OUTGO
Information with respect to conservation of energy, technology absorption, foreign exchange earnings & outgo pursuant to Section 134(3)(m) of the Act read with Companies (Accounts) Rules, 2014 is in Annexure-4 to this Report.
RISK MANAGEMENT COMMITTEE
Risk Management Committee of the Company consists of the following Directors viz. Mr. M. Sitarama Murty, Mr. N. Govindarajan and Mr. P. Sarath Chandra Reddy. Mr. M. Sitarama Murty is the Chairman of the Committee. The Company has established a separate department to monitor the enterprise risk and for its management. The Committee had formulated a risk management policy for dealing with different kinds of risks which the Company faces in its day-to-day operations. Risk management policy of the Company outlines different kinds of risks and risk mitigating measures to be adopted by the Board.
The Company has adequate internal financial control systems and procedures to combat the risk. The risk management procedure is reviewed by the Audit Committee and Board of Directors on regular basis at the time of review of quarterly financial results of the Company. A report on the risks and their management is enclosed as a separate section forming part of this report.
AUDITORS & AUDITORSâ REPORT
The statutory auditorsâ report is annexed to this report. The notes on financial statements referred to in the Auditorsâ Report are self-explanatory and do not call for any further comments. There are no specifications, reservations, adverse remarks on disclosure by the statutory auditors in their report. They have not reported any incident of fraud to the Audit Committee of the Company during the year under review.
Pursuant to Section 139 (2) of the Companies Act, 2013, read with Companies (Audit and Auditors) Rules, 2014, the Company at its 30th Annual General Meeting (AGM) held on August 31, 2017, had appointed M/s. B S R & Associates LLP, Chartered Accountants as Statutory Auditors of the Company for a period of 5 years i.e. up to the conclusion of the 35th AGM to be held in the year 2022.
INTERNAL AUDITORS
The internal audit of the Company was conducted by in-house team of professionals up to December, 2017. Form January, 2018
Ernst & Young LLP has been appointed as internal auditors of the Company and they submit their report to the Audit Committee.
COST AUDIT
Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Rules, 2014, the Company is maintaining the cost records as its business is covered under the regulated sector viz. drugs and pharmaceuticals. Audit of the Companyâs cost records is not applicable since the Companyâs revenues from exports, in foreign exchange, exceed 75% of its total revenues.
INTERNAL FINANCIAL CONTROLS
The internal financial controls (IFC) framework institutionalized in Aurobindo last year has been evaluated in-depth for its adequacy and operating effectiveness, wherein the Company has covered financial reporting controls, operational controls, compliance related controls and also Information Technology (IT) controls, comprising IT general controls (ITGC) and application level controls. The ITGC would include controls over IT environment, computer operations, access to programs and data, program development and program changes. The application controls would include transaction processing controls in ERP Oracle system which supports accurate data input, data processing and data output, workflows, reviews and approvals as per the defined authorization levels.
In order to further strengthen the existing IFC framework and to support the growing business, the Company has redefined all the process level controls at activity level which has brought in more clarity and transparency in day-to-day processing of transactions and in addressing any related risks. All the controls so redefined & identified have been properly documented and tested with the help of an independent auditor to ensure their adequacy and effectiveness.
The internal auditors conduct â Process & control reviewâ on a quarterly basis as per the defined scope and submit the audit findings along with management comments and action taken reports to Audit Committee for its review.
The IFC framework at Aurobindo ensures the following:
- Establishment of policies & procedures, assignment of responsibility, delegation of authority, segregation of duties to provide a basis for accountability and controls;
- Physical existence and ownership of assets at a specified date;
- Enabling proactive anti-fraud controls and a risk management framework to mitigate fraud risks to the Company;
- Recording of all transactions occurred during a specific period. Accounting of assets, liability, and revenue and expense components at appropriate amounts;
- Preparation of financial information as per the timelines defined by the relevant authorities.
SECRETARIAL AUDIT REPORT
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr.A.Mohan Rami Reddy, a Company Secretary in Practice to undertake the secretarial audit of the Company for the financial year 2017-18. The Secretarial Audit Report issued in form MR-3 is in Annexure-5 to this Report.
There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report.
CORPORATE SOCIAL RESPONSIBILITY
Your Company is striving to help create a healthy, improved life of people in its neighborhood. Broadly, the initiatives are to execute on the stated CSR policy of âgive back to the societyâ and make an impact on the lives of people.
The activities undertaken in FY2017-18 can be summarized under the following heads:
- Promoting education;
- Supporting preventive health care;
- Eradicating hunger, poverty & malnutrition;
- Making available safe drinking water;
- Encouraging environment sustainability;
- Sustaining ecological balance & conservation of natural resources;
- Developing rural sports; and
- Setting up old age homes, etc
A detailed account of the CSR activities forms part of the annual report on CSR placed on the Companyâs website at: http://www. aurobindo.com/social-responsibility/csr-activities. Report on Corporate Social Responsibility as per Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is in Annexure-6 to this Report.
STATEMENT OF PARTICULARS OF APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
The statement of particulars of appointment and remuneration of managerial personnel as per Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is in Annexure-7 to this Report.
INSURANCE
All properties and insurable interests of the Company including building, plant and machinery and stocks have been fully insured.
MATERIAL CHANGES AND COMMITMENTS
There are no material changes and commitments in the business operations of the Company from the financial year ended March 31, 2018 to the date of signing of the Boardâs Report. There were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Companyâs operations in future. There is no change in the nature of the business of the Company during the year.
CORPORATE GOVERNANCE
A separate section on Corporate Governance standards followed by your Company, as stipulated under Schedule V (C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is enclosed as a separate section forming part of this report.
The certificate of the Practicing Company Secretary, Mr. S. Chidambaram with regard to compliance of conditions of corporate governance as stipulated under Schedule V (E) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed to the Corporate Governance Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report for the year under review as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is presented in a separate section forming part of this report.
FIXED DEPOSITS
Your Company has not accepted any fixed deposits from the public within the purview of Chapter V of the Companies Act, 2013.
INDUSTRIAL RELATIONS
Industrial relations at all units of the Company have been harmonious and cordial. The employees are motivated and have shown initiative in improving the Companyâs performance.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF
The dividends which remain unpaid/unclaimed for a period of seven years, have been transferred on due dates by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government.
Further, Section 124 of the Companies Act, 2013 read with Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (âthe Rulesâ) mandates that companies shall apart from transfer of dividend that has remained unclaimed for a period of seven years from the unpaid dividend account to the Investor Education and Protection Fund (IEPF), also transfer the corresponding shares with respect to the dividend, which has not been paid or claimed for seven consecutive years or more to IEPF. Accordingly, the dividends that remain unclaimed for seven years and also the corresponding shares have been transferred to IEPF account on due dates.
SHARE CAPITAL
The paid up share capital of the Company increased by Rs.25,200 during the year due to the allotment of 25,200 equity shares of Rs.1 each on exercise of stock options under the Employee Stock Option Plan-2006 (ESOP 2006) of the Company. The paid up share capital of the Company as on March 31, 2018 was Rs.585,907,609 divided into 585,907,609 equity shares of Rs.1 each.
EMPLOYEE STOCK OPTION SCHEME
The Members at the Annual General Meeting of the Company held on September 18, 2006 approved formulation of Employee Stock Option Scheme- 2006 (ESOP 2006) for the eligible employees and Directors of the Company and its subsidiaries. Details of the stock options as on March 31, 2018 is provided on the Companyâs website: http://www.aurobindo.com/about-us/ corporategovernance. The details of the employee stock options also form part of the notes to accounts of the financial statements in this Annual Report.
BUSINESS RESPONSIBILITY REPORT
A detailed Business Responsibility Report in terms of the provisions of Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is available as a separate section in this Annual Report.
ACKNOWLEDGEMENTS
Your Directors are grateful to for the invaluable contribution made by the employees and are encouraged by the support of the customers, business associates, banks and government agencies. The Directors deeply appreciate their faith in the Company and are thankful to them. The Board shall always strive to meet the expectations of all the stakeholders.
For and on behalf of the Board
Place: Hyderabad K. Ragunathan
Date: 28 May 2018 Chairman
DIN: 00523576
Mar 31, 2017
The Directors are pleased to present the 30th Annual Report of the Company together with the audited accounts for the financial year ended March 31, 2017.
FINANCIAL HIGHLIGHTS
Standalone financials Rs. Million
2016-17 |
2015-16 |
|
Revenue from operations (inclusive of excise duty) |
97,812.1 |
93,227.6 |
Profit before depreciation, interest, tax and exceptional items |
25,099.0 |
24,761.1 |
Depreciation |
2,861.7 |
2,630.0 |
Finance cost |
451.6 |
652.7 |
Profit before tax |
21,785.7 |
21,478.4 |
Provision for tax |
4,718.1 |
5,211.4 |
Net profit after tax |
17,067.6 |
16,267.0 |
Other comprehensive income/(expense) |
(56.1) |
(14.4) |
Total comprehensive income for the period |
17,011.5 |
16,252.6 |
DIVIDEND
Your Directors have approved a second interim dividend of 125% i.e. Rs.1.25 per equity share and together with the first interim dividend of 125% i.e. Rs.1.25 per equity share, the total dividend for the financial year 2016-17 comes to 250% i.e. Rs.2.50 per share on the equity share of Rs.1 against 250% i.e. Rs.2.50 per share of Rs.1 paid in the previous year.
Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top five hundred listed entities based on market capitalization are required to formulate a Dividend Distribution Policy. The Board has approved and adopted the Dividend Distribution Policy and the same is available on the Company''s website viz. www.aurobindo.com.
PERFORMANCE REVIEW
Your Company delivered yet another year of consistent and profitable growth, continued to build a robust pipeline of products, stepped up market development, significantly expanded manufacturing capacities, invested to further improve reliability of deliverables and enhanced the level of execution across the Company. There was a sustained focus on research and development, employee engagement, competency enhancement and relentless pursuit of excellence in quality.
The team at Aurobindo demonstrated resilience despite several challenges, especially in dealing with competitive pricing pressures in the market as well as hardening of the rupee in the latter half of the financial year. At the market place, the momentum was maintained by improving the product mix with high value, differentiated oral solid and injectable products.
Your Company was quick to respond to the challenges of the market environment by executing improvements in operations. There was considerable work done to scale up volumes, improve efficiencies, optimize costs and fine-tune supply chain and logistics in order to expand the bottom line. Productivity enhancements and process improvements were proactively undertaken to benchmark the manufacturing systems with the best in the industry.
The standalone revenue at Rs.97,812.1 million increased by 4.9% in 2016-17. Operating profit including forex and other income was higher by 1.4% over the previous year. Profit before tax was higher by 1.4% at Rs.21,785.7 million over the previous year. Net profit for the year 2016-17 at Rs.17,067.6 million was an increase of 4.9% compared to 2015-16. The diluted earnings per share for 2016-17 is Rs.29.16 as compared to Rs.27.84 in 2015-16.
At the consolidated level, your Company delivered solid financial results fuelled by strong performance in US and European markets. The revenues increased to Rs.150,898.6 million, a growth of 8.1% over the previous year with an EBITDA margin of 22.8%. EBITDA for the year was Rs.34,342.8 million as against Rs.31,881.2 million in the previous year and the diluted earnings per share grew by 13.5% to Rs.39.33.
US formulations business contributed 57% to the overall formulations revenue during the year, as against 55% in the previous year. The revenue generated from the US business grew by 12.3% at Rs.68,272.3 million in 2016-17 over the previous year sales of Rs.60,785.5 million.
Your Company maintained its momentum of growth with the launch of several new oral and injectable products in the US, led by final approvals for 61 products from the US FDA during the financial year. Aurobindo continues to witness strong pace of approvals from US FDA, which helped to maintain growth momentum in sales and improve market presence. In keeping with the past track record, speed to the market and effectiveness in execution has remained the hallmark of Aurobindo''s performance.
As a result of customer centric approach and relationship oriented marketing, your Company has become the 6th ranked Rx supplier of prescriptions dispensed (as per IMS National Prescription Audit, April 2017). In the highly competitive US market, your Company has diversified product basket in oral solids including controlled substances and injectables.
A few key developments in your Company in 2016-17 as regards product portfolio expansion were as follows:
- Received final approvals for 61 ANDAs as compared to 49, in 2015-16;
- Obtained US FDA approval for the Company''s first penem ANDA for an injectable product;
- Filed 31 ANDAs as compared to 22, in 2015-16;
- Commenced filing from new facility, Unit X. As on March 31, 2017, the Company has filed 4 ANDAs from the facility;
- Started filing for oncology products with US FDA through the Company''s joint venture entity, Eugia; Filed 2 ANDAs;
- Launched 35 products in the US market during the year under review;
- Capacity utilization was increased at every production facility to meet the growing portfolio.
As on March 31, 2017, your Company has cumulatively filed 429 ANDAs, out of which 276 have final approval and 38 have tentative approval, including 10 ANDAs which are tentatively approved under PEPFAR and the balance 115 ANDAs are under review.
Your Company clocked a growth of 4.7% in Europe to reach a revenue of ''32,771.5 million in 2016-17 as against sales of ''31,304.3 million in the previous year. The focus continues to achieve improved synergies between the acquired businesses at Western Europe with the Company''s existing product pipeline. In all the addressable markets, there was volume growth, improved market presence as well as enhanced profitability, supplemented by increased manufacturing in India for larger number of products. This exercise of transferring the manufacturing base to India has streamlined and integrated the operations, optimized costs, improved the information flow, facilitated decision making and enabled better supervision and control. All of these initiatives have translated into increase in profitability.
In March 2017, formulations manufacturing facility
Unit XV at Parawada in Visakhapatnam was commissioned. The unit is primarily for supplies to European markets, and has been audited & approved by European authorities. In order to meet the growing demand, the volumes are being ramped up.
During the year, your Company further strengthened its branded products portfolio and leveraged its position as a key player in select European markets through couple of acquisitions. Arrow Generiques S.A.S., the French subsidiary of Aurobindo acquired the rights, title and interest in products Calcium and Calcium Vitamin D3, including the use of the Orocal trademark for the France market.
Agile Pharma B.V., The Netherlands, the wholly owned step-down subsidiary of your Company acquired Generis Farmaceutica S.A., which is engaged in the manufacture and sale of pharmaceutical products in Portugal. The acquisition includes the manufacturing facility in Amadora, Portugal, which has a capacity to manufacture 1.2 billion tablets/capsules/sachets annually.
Generis Farmaceutica S.A. is a generic pharmaceutical firm that focuses on both the retail and hospital segments apart from exports. Generis has a wide portfolio of products with major share in the therapeutic areas of cardiovascular (CVS), Central Nervous System (CNS), anti-infectives and genitourinary system ailments. Generis is the most sold pharmaceutical brand in Portugal, and is the 2nd largest generic group in Portugal.
The acquisition establishes Aurobindo as the leading generics group in Portugal. Synergies are expected from Aurobindo''s vertical integration and pipeline breadth, improvement in Amadora plant capacity utilization by servicing both local and European markets, and operational advantages.
The acquisition will catapult your Company to the leadership position in the Portuguese generic pharma market.
Sales of formulations to the emerging markets such as Brazil, Ukraine, Mexico and MENA (Middle East and North Africa) as well as South Africa grew by 17% to Rs.7,556.3 million against Rs.6,461.0 million reported in 2015-16. This segment remains a key market for Aurobindo and renewed efforts are made to position your Company''s products as one of the preferred suppliers in the existing and newer geographies.
ARV formulations business clocked a revenue Rs.11,854.1 million and during the year , your Company received US FDA approval for a valuable product - considered as a first line for treatment for HIV - under the PEPFAR program, and your Company has also filed an ANDA related to a triple combination product with the FDA.
Overall, formulations business constituted 79.8% of the consolidated revenue, while active pharmaceutical ingredients (API) accounted for the balance 20.2%. During the financial year, sale of formulations at Rs.120,454.2 million grew by 8.9% across all geographies in comparison to the previous year.
Revenue from API was Rs.30,420.6 million during the year under review, a growth of 5.5%. This growth in revenue of high value APIs has been achieved after meeting the very large in-house demand for manufacture of formulations. In line with anticipated further increase in formulations business, the in-house capacity for API has been further raised, even as your Company has contracted additional, newer, alternate sources for APIs.
AuroHealth, a subsidiary of your Company, which manufactures and markets pharma OTC products in the US, continued to gain penetration in to several key national retailers as well as select regional accounts. This business gained traction during the year and as at end of March 2017, AuroHealth was shipping to 24 customers with a commercialized basket of 56 products.
The dietary supplements business done by Natrol, the nutritional supplementary maker that Aurobindo acquired in 2014, was in line with the expectations, even as work continues to enhance the product pipeline. Natrol continues to be amongst the top 20 branded dietary supplement companies in the US. Existing products gained market share, while newer products are being launched. The revenues and bottom line expanded as planned and your Company sees further headroom for growth.
OUTLOOK
The Company''s endeavor has been to invest in reliability; ensure patient safety through high-end quality of products and processes; develop alternate API and excipient sources to deliver larger volumes, in line with customer expectations on-time-in-full; possess high value, differentiated portfolio of complex molecules; build state-of-the-art manufacturing facilities that meet compliance standards; ensure safe working environment to protect the health of the employees; minimize waste and maximize recycling of materials; reduce the risk in operations; and be a preferred partner to all the stakeholders. In effect, strive for execution excellence and be a responsible corporate citizen.
Aurobindo has made significant progress in all these areas, but the team works with the belief that there is room for improvement. Operational excellence is often reviewed closely to further improve productivity, become cost effective and be reliable in every transaction.
The market environment is changing rapidly, with newer challenges and newer opportunities. Your Company has been conscious to work ahead of time and has invested in several technologies and platforms such as biotechnology, oncology, hormones, steroids, biocatalysts, peptides, vaccines, penems, depot injections, dermatology, inhalers, nasal, patches and films to sustain the growth.
Aurobindo is striving to stay ahead of the curve. A large portfolio is being built of differentiated products which would act as a moat against competitive pressures; new manufacturing facilities are under construction to cater to the growing portfolio; several of the newer technologies would help enhance margins; process improvements and better logistics management are expected to strengthen competitiveness.
Your Company''s product portfolio and pipeline for the US market have significant potential for sustainable volume growth. This is a quality conscious, knowledge driven market and your
Company is far better positioned with offers in several therapeutic segments.
Pricing pressures in US markets are expected to stay and there is the risk of the ability to maintain current margins. Price sensitivities will test all the players in a crowded market where price tends to sag while volume business gets done.
This threat does not affect Aurobindo significantly, because of its large portfolio of products, control over raw material sourcing and lower product concentration. The Company is a dominant player in the active ingredients business and has been able to control its quality, improve on timelines, be competitive on its costs and has the ability to deliver at short notice. This is a unique advantage that Aurobindo enjoys over competing manufacturers across the world.
Competitive pressures and resultant price erosion in US markets has galvanized your Company to focus on the organizational strength, leverage the full capabilities and competencies of the cadre of dedicated and highly experienced professionals. Your Company will continue to work to protect the revenues and bottom line, to turn challenges and opportunities into successes.
Research and development (R&D) activity being undertaken is focused on difficult to manufacture, differentiated products, with possible low competitive pressure. Work is on-going in differentiated molecules, both for oral and injectable products.
For instance, your Company successfully developed and filed 4 penems for the US market and received approval for one product, an injection drug, at the end of the financial year. This product was successfully launched in April 2017. Penems are difficult to develop products. The development and filing is in-line with the strategy of moving towards complex/specialty products.
The recent acquisition of 5 biosimilar molecules is in furtherance of the same strategy. These are complex biosimilars, and the plans are to take a lead molecule from this transaction for clinical trials in 2017. This is an anti-antiogenesis drug used in treatment of multiple-cancers including metastatic colon or rectal cancer, non-squamous and non-small cell lung cancers. Apart from these molecules, your Company is working on development of biosimilars in therapeutic segments such as oncology, auto immune disorders and ophthalmology.
In keeping with the need to manufacture a growing product pipeline, your Company, in addition to commissioning the formulations manufacturing facility at Unit XV referred earlier, has initiated significant improvements in capacities to boost volumes, as given below:
- Unit X: Your Company is building a US FDA compliant oral manufacturing facility at Naidupet, Andhra Pradesh, which will be commissioned in 2017-18. It is presently at project stage, where validation batches are being taken and is being got ready for regulatory inspection;
- Unit XVI: Your Company is building another US FDA compliant Betalactum injectables manufacturing facility at Jedcherla, near Hyderabad. It is planned to get the facility commissioned in 2017-18;
- Your Company is in the processes of tripling the capacity at AuroLife manufacturing facility, which will significantly boost volumes for the US market.
In order to sustain future growth and spread the geographical risk, Aurobindo has been steadily expanding its European footprint since 2006, via acquisitions across several key markets and building a diversified product basket. Most notably, in 2014 the acquisition of Actavis''s commercial operations in seven Western European countries added traction to the Company''s presence in these developed markets. The acquisition of Generis, referred to earlier, builds upon an already successful growth strategy.
Members will recall, Arrow Generiques S.A.S., the French subsidiary of Aurobindo acquired select commercial products in Calcium and Calcium Vitamin D3, including the use of the Orocal trademark. This acquisition enables Arrow Generiques to continue to increase its branded products portfolio and leverage its position as a key player in the market, with focus on selling generics in the retail and hospital markets in France. The Company is well balanced between generics/branded products/biosimilars in the retail and hospital markets. A dedicated Business Unit with sales and marketing team has been set up specifically to enhance this business.
Arrow Generiques has continued developing the brand awareness among prescribers through promotion of mature products and launch of specialties for patients care. The present arrangement will boost the position of Arrow Generiques and open new opportunities for the future.
Aurobindo is committed to the larger cause of bringing affordable HIV drugs to millions of patients. Today, in addition to its existing powerful portfolio of products, your Company is bringing a one-of-its-kind generic version of a valuable drug, as also developing a fixed dose combination drug, to help achieve the UNAIDS 90-90-90 goals and an AIDS-free generation. The UNAIDS 90-90-90 goal is an ambitious treatment target aimed at goals briefly described below:
- By 2020, 90% of all people living with HIV will know their HIV status.
- By 2020, 90% of all people with diagnosed HIV infection will receive sustained antiretroviral therapy.
- By 2020, 90% of all people receiving antiretroviral therapy will have viral suppression.
Your Company is striving to help achieve these goals by proactively meeting the needs by offering products in several countries. The World Health Organization has recommended Aurobindo''s first-line therapy against HIV which is expected to see rapid growth in demand now that a cost-effective generic product is made available to the market. Your Company''s products have the potential to improve the lives of millions of patients.
RESEARCH & DEVELOPMENT
As in earlier years, your Company''s new product development initiatives ranged from conventional oral and injectable products to more complex and advanced dosages. The focus was to prioritize on the more complex and niche products including oral and sterile, peptide drug products. Filing ANDAs of such products involved innovative and development intensive work.
The oncology, dietary supplements and the OTC teams made significant contributions by developing new products. A notable activity during the financial year was the start of development work on 58 products in the oncology and 8 products in the hormone segments, both in injectable and solid dosage forms. Regulatory filings are expected to happen for all these products within the next 3 years. Out of these 66 products that have been shortlisted, two products were filed in the US in 2016-17 and the plans are to file, at least 15 products in 2017-18. Further, product development has been initiated in new segments such as dermatology and nasal drug delivery.
The continuous innovative and skilful work being done by the R&D team is seen in the number of approvals received over the years with revenue growth and productivity gains. The regulatory product approvals for the ANDAs filed in the past as well as increased contribution/ commercialization of the development projects already undertaken, demonstrate the intellectual property strengths of your Company.
To take-up development of additional oncology molecules, another Chemical Research Laboratory has been created with isolators and appropriate personal safety protection equipment. Process development of six anti-cancer APIs is underway to commercially validate those in the next financial year.
ENVIRONMENT, HEALTH & SAFETY
In keeping with the increasing manufacturing infrastructure and in order to continuously upgrade the environmental and safety standards, your Company took several initiatives, all of which were dedicated to ensure renewability of the natural resources, reduce environmental footprint, and ensure all our employees, contractors and visitors go home safely. This is an area of management where prevention and proactive supervision is embedded in the systems and processes.
While several steps have been taken to enhance these standards and raise awareness across the organization, Team Aurobindo believes that it is an area where there is no finishing line and shall remain a work-in-progress. A few of the actions taken during the year are listed below:
Environment
In 2015-16, the Company planned additional environmental management infrastructure, particularly in wastewater management. These have been installed in 2016-17, commissioned and are working satisfactorily. This year too, environment management across all facilities attained a steady state and have proved that the systems are consistent with environmental regulations and customer expectations.
During the year under review, there was a surge in environmental assessments of API and formulations units by experts from reputed multinational customers and your Company demonstrated its efforts on environmental management to the satisfaction of all stakeholders. This journey moves forward as part of continual improvement of the organization''s efforts.
In 2016-17, the biggest of Aurobindo''s API manufacturing units, Unit XI, got accredited to ISO 14001 international standard. A rigorous and continuous evaluation of environmental performance triggered a new initiative of comprehensive and robust rain water management across Aurobindo''s manufacturing units. As part of this drive, existing storm water drainage system/ network stands re-engineered.
As part of setting up of dedicated sewage treatment plants (STP), three sewage treatment plants were installed; one each in two of the manufacturing units and one in a formulation manufacturing unit. These STPs are in addition to the ones planned and installed in 2015-16.
During 2016-17, your Company was successful in obtaining consent for expansion of two API manufacturing units. Regulatory approvals and consents are in place for all the units while the Company has ensured compliance with all applicable environmental regulations.
Safety
Your Company engaged the employees and contractors to commit themselves for their own safety and those of their colleagues. In order to motivate the contractors, a reward and penalty system for contractors was initiated so as to complete their projects with zero safety incidents.
As an awareness initiative, a month long safety program was organized, where promotional activities were taken up to increase awareness of prevention of hazards, and unsafe actions among the work force. Nitrogen blanketing, prevention of static electricity, volatiles in work place and learning from past incidents were the themes of the safety month. The program has inspirational impact on the need for employees to align with the best interests of each other.
Training remains a continual effort to create a culture of safety. Formal safety training inputs were provided, accounting for 0.54% of total man-hours of each employee. Shift pep talks are organized in API units to communicate the hazards and precautions that need to be taken in the operations planned for each shift.
All new processes and changes to existing processes are reviewed by the safety team and tests are conducted to ensure that safety issues in scale-up are identified and addressed. HAZOP studies have been completed for 58 processes during the year and risk assessments are completed for 47 activities.
Over and above the routine up gradations, your Company installed earth interlock and monitoring systems. A new technology fire fighting system with aerosol based extinguishers was installed to raise the in-house capability.
HUMAN RESOURCES
Aurobindo has aligned its human resources learning and development to the needs of a growing and fast track organization. Year-on-year as the organization catapults ahead to meet its newest strategies and challenges, the immediate impact is felt on its processes, technology and most importantly its people. The very same people have to now perform with a certain sense of urgency, do more with less, be assertive yet be compliant and feel the heat of increase in their span of control.
This presupposes skilling the existing manpower to perform at their optimum best. The shop floor resources are hence encouraged to stay focused on key development areas as they are the doers, and hence are required to maintain the necessary cGMP compliance levels. Shop floor executives are continuously trained and groomed in the area of compliance, supported adequately to raise their competence, confidence and anytime readiness.
Key employees at the shop floor undergo classroom training, on-the-job training and assessments. 5,968 mandays of training was conducted for them in 2016-17.
Customized programs such as Auro Disha, Naa Unnati specially designed for the block and area in-charges covering supervisory and managerial skills with emphasis on project implementations was organized. Such projects ranged from process improvements to cost efficiencies with the support of their managers. 1,560 mandays of training was conducted in 2016-17 for supervisory and managerial resources.
Mid-level managers were put through year-long management development programs to bullet proof them wherein they undergo and participate in 24 important competencies to raise them to be successful leaders. They are required to implement projects on cost improvements, customer service and process improvements. 120 participants are undergoing a full year of training in four batches. Each batch on an average has helped save significant amount of cost, where the savings are objectively accounted for, even as the managers are raising their expertise to their next level. Individual''s career plan is tailored and aligned with the organization''s strategic growth requirements.
A unique intervention has paved its way into the organization where 30 General Executive Trainees are being hired from premium colleges and are being groomed to grow into future leaders. A yearlong hand-holding process is organized to help them understand the complexities of the organization. They are put through classroom training, on-the-job training, projects, robust reviews and minimum of three rotations. Three batches have been hired into the system.
During the year, 27,637 employees have been covered in compliance, safety and behavioral training. Several employees underwent multiple, need based programs.
Aurobindo Training and Development Centre (ATDC) recruits, trains and helps absorb talented candidates. During the year, your Company recruited 257 employees (29 M. Pharmacy, 113 M.Sc., 55 B. Pharmacy degrees and 60 ITI/Diploma holders). During training, they are prepared both on theoretical and practical aspects to meet the requirements of quality control, quality assurance; regulatory affairs, analytical techniques, stability/ quality compliance, safety compliance and good documentation practices.
ITI/Diploma candidates are trained on production and packaging operations. Apart from imparting technical knowledge, ATDC plays a critical role in holistic learning which includes internalizing the corporate culture, work ethics and behavior attributes towards effective leadership development and progression and making a difference to the organization.
AWARDS
For its HR practices, your Company received recognition during the year, such as:
- Certificate of Honor in the category of Excellence in HR by CPhI India & UBM India for the initiatives taken for e-learning, skill development, HR automation, talent engagement, leadership competencies & its integration with HR sub-systems.
- Certificate of Appreciation in the 12th edition of BML Munjal Awards for Excellence in Learning & Development.
Your Company has received an award for Most Consistent IR (Investor Relations) Practice in Large Cap category for 2016-17 conducted by KPMG, BSE, Bloomberg and IR Society.
Aurobindo Pharma is a winner of the Clarivate Analytics India Innovation Awards 2016. Clarivate
Analytics - formerly the IP & Science division of Thomson Reuters -honors the top 50 most innovative companies in India according to patent-related metrics that get to the essence of what it means to be truly innovative.
SUBSIDIARIES/JOINT VENTURES
As per the provisions of Section 129 of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014, a separate statement containing the salient features of the financial statement of subsidiary companies/associate companies/joint ventures is detailed in Form AOC-1 and is in Annexure-1 to this Report.
During the year, the following companies were incorporated as step down subsidiaries of the Company:
a. Auro AR LLC;
b. Auro Pharma USA LLC;
c. Aurogen South Africa (Pty) Limited;
d. Auro Vaccine LLC, USA;
e. Aurovitas Pharma Polska, Poland.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements have been prepared by the Company in accordance with the Indian Accounting Standards (Ind AS) 110 and 111 as specified in the Companies (Indian Accounting Standards) Rules, 2015 and as per the provisions of Companies Act, 2013. The Company has placed separately, the audited accounts of its subsidiaries on its website www.aurobindo.com, in compliance with the provisions of Section 136 of the Companies Act, 2013. Audited financial statements of the Company''s subsidiaries will be provided to the Members, on request.
VIGIL MECHANISM
The Board of Directors has adopted the Whistle Blower Policy which is in compliance with Section 177(9) of the Companies Act, 2013 and Regulation 22 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Whistle Blower Policy aims for conducting the affairs in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behavior. All permanent employees and whole-time directors of the Company are covered under the Whistle Blower Policy.
A mechanism has been established for employees to report their concerns about unethical behavior, actual or suspected fraud or violation of Code of Conduct and Ethics. It also provides for adequate safeguards against the victimization of employees who avail of the mechanism and allows direct access to the Chairperson of the audit committee in exceptional cases. The Whistle Blower Policy is available on the Company''s website: http://www. aurobindo.com/about-us/ corporate governance.
PREVENTION AND PROHIBITION OF SEXUAL HARASSMENT
Your Company has constituted an internal complaints committee in compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules there under. The Company has a policy on prevention & prohibition of sexual harassment at workplace. The policy provides for protection against sexual harassment of women at workplace and for the prevention and redressal of such complaints. During the year, no complaints have been received.
RATING
India Ratings and Research (Ind-Ra) has revised Aurobindo ''s outlook to Positive from Stable and affirmed its long-term rating of the Company at ''IND AA ''.
MEETINGS OF THE BOARD
The Board and Committee meetings are prescheduled and a tentative calendar of the meetings finalized in consultation with the Directors to facilitate them to plan their schedule. However, in case of special and urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, four Board Meetings and five Audit Committee Meetings were convened and held. The details of the meetings including composition of Audit Committee are provided in the Corporate Governance Report. During the year, all the recommendations of the Audit Committee were accepted by the Board.
DIRECTORS
As per the provisions of the Companies Act, 2013, Mr. P. Sarath Chandra Reddy and Dr. M. Sivakumaran will retire at the ensuing annual general meeting and being eligible, seek reappointment. The Board of Directors recommends their re-appointment.
The appointment of Mr. Rangaswamy Rathakrishnan Iyer as an Independent Director of the Company for a period of two years upto February 8, 2019 is being proposed at the ensuing Annual General Meeting. The Board of Directors recommends his appointment.
Dr. D. Rajagopala Reddy resigned as Independent Director of the Company with effect from February 10, 2017. The Board has placed on record its sincere appreciation and gratitude for contributions made by him during his tenure as Independent Director of the Company.
DETAILS OF DIRECTORS & KEY MANAGERIAL PERSONNEL
The Members of the Company at their 29th Annual General Meeting held on August 24, 2016 have appointed Mr. P. Sarath Chandra Reddy as Whole-time Director for a period of three years with effect from June 1, 2016.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to Section 134(3)(c) of the Companies Act, 2013 your Directors confirm that:
a. in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b. appropriate accounting policies have been selected and applied consistently.
Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as at the end of the financial year and of the profit of your Company for the year;
c. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;
d. the annual accounts have been prepared on a going concern basis;
e. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and are operating effectively; and
f. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems are adequate and are operating effectively.
DECLARATION FROM INDEPENDENT DIRECTORS
The Independent Directors have submitted the declaration of independence stating that they meet the criteria of independence as provided in sub-section (6) of Section 149 of the Companies Act, 2013.
BOARD DIVERSITY
The Company recognizes and embraces the importance of a diverse board in its success. The Board has adopted the Board Diversity Policy which sets out the approach to diversity of the Board of Directors. The Board Diversity Policy is available on the Company''s website: http:// www.aurobindo.com/about-us/corporate-governance.
BOARD EVALUATION
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated.
The evaluation of all the Directors and the Board as a whole was conducted based on the criteria and framework adopted by the Board including performance and working of its Committees.
POLICY ON DIRECTORS'' APPOINTMENT AND REMUNERATION
The policy of the Company on directors'' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters are adopted as per the provisions of the Companies Act, 2013. The remuneration paid to the Directors is as per the terms laid out in the nomination and remuneration policy of the Company. The nomination and remuneration policy as adopted by the Board is placed on the Company''s website: http://www.aurobindo.com/about-us/corporate-governance.
TRANSFER TO RESERVE
The Company has not transferred any amount to general reserve out of the profits of the year.
LOANS, GUARANTEES OR INVESTMENTS
Loans, guarantees or investments covered under Section 186 of the Companies Act, 2013 form part of the Notes to the financial statements provided in this Annual Report.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
The particulars of contracts or arrangements with related parties referred to in sub-section (1) of Section 188 of the Companies Act, 2013 is 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 is in Annexure-2 to this Report.
EXTRACT OF ANNUAL RETURN
As required under Section 92(3) of the Companies Act, 2013 and Rule 12(1) of the Companies (Management and Administration) Rules, 2014, the extract of Annual Return prepared in Form MGT-9 is in Annexure-3 to this Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS & OUTGO
Information with respect to conservation of energy, technology absorption, foreign exchange earnings & outgo pursuant to Section 134(3)(m) of the Act read with Companies (Accounts) Rules, 2014 is in Annexure-4 to this Report.
RISK MANAGEMENT COMMITTEE
Risk Management Committee of the Company consists of the following Directors viz.
Mr. M. Sitarama Murty, Mr. N. Govindarajan and Mr. P. Sarath Chandra Reddy. Mr. M. Sitarama Murty is the Chairman of the Committee. The Company has established a separate department to monitor the enterprise risk and for its management.
The Committee had formulated a risk management policy for dealing with different kinds of risks which the Company faces in its day-to-day operations. Risk management policy of the Company outlines different kinds of risks and risk mitigating measures to be adopted by the Board. The Company has adequate internal financial control systems and procedures to combat the risk. The risk management procedure is reviewed by the Audit Committee and Board of Directors on regular basis at the time of review of quarterly financial results of the Company. A report on the risk and their management is enclosed as a separate section forming part of this report.
AUDITORS & AUDITORS'' REPORT
The statutory auditors'' report is annexed to this report. The notes on financial statements referred to in the Auditors'' Report are self-explanatory and do not call for any further comments. There are no specifications, reservations, adverse remarks on disclosure by the statutory auditors in their report. They have not reported any incident of fraud to the Audit Committee of the Company during the year, under review.
Pursuant to Section 139 (2) of the Companies Act, 2013, read with Companies (Audit and Auditors) Rules, 2014, the Company at its 27th Annual General Meeting (AGM) held on August 27, 2014, had appointed M/s. S.R.Batliboi & Associates LLP, Chartered Accountants as Statutory Auditors for a period of 3 years i.e. up to the conclusion of the 30th AGM to be held in the year 2017. The present term of M/s. S.R.Batliboi & Associates LLP, Statutory Auditors, would expire at the conclusion of the ensuing AGM.
The Board of Directors of the Company has proposed the appointment of M/s. B S R & Associates LLP, Chartered Accountants as the Statutory Auditors of the Company to hold office from the conclusion of 30th AGM until the conclusion of the 35th AGM.
The Company has received a letter from M/s. B S R & Associates LLP, Chartered Accountants confirming that they are eligible for appointment as Statutory Auditors of the Company under Section 139 of Companies Act, 2013 and meet the criteria for appointment as specified in Section 141 of the Companies Act, 2013.
INTERNAL AUDITORS
The internal audit of the Company was conducted by a professional firm of Chartered Accountants up to September 2016. From October 2016, internal audit is being conducted by an in-house team of professionals. The internal audit reports are being reviewed by the Audit Committee of the Company.
COST AUDIT
Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Rules, 2014, the Company is maintaining the cost records as its business is covered under the regulated sector viz. drugs and pharmaceuticals. Audit of the Company''s cost records is not applicable since the Company''s revenues from exports, in foreign exchange, exceed 75% of its total revenues.
INTERNAL FINANCIAL CONTROLS
The internal financial controls (IFC) framework institutionalized in Aurobindo last year has been evaluated in-depth for its adequacy and operating effectiveness, wherein the Company has covered financial reporting controls, operational controls, compliance related controls and also Information Technology (IT) controls, comprising IT general controls (ITGC) and application level controls. The ITGC would include controls over IT environment, computer operations, access to programs and data, program development and program changes. The application controls would include transaction processing controls in ERP Oracle system which supports accurate data input, data processing and data output, workflows, reviews and approvals as per the defined authorization levels.
In order to further strengthen the existing IFC framework and to support the growing business, the Company has redefined all the process level controls at activity level which has brought in more clarity and transparency in day-to-day processing of transactions and in addressing any related risks. All the controls so redefined & identified have been properly documented and tested with the help of an independent auditor to ensure their adequacy and effectiveness.
The internal auditors conduct '' Process & control review'' on a quarterly basis as per the defined scope and submit the audit findings along with management comments and action taken reports to Audit Committee for its review.
The IFC framework at Aurobindo ensures the following:
- Establishment of policies & procedures, assignment of responsibility, delegation of authority, segregation of duties to provide a basis for accountability and controls;
- Physical existence and ownership of assets at a specified date;
- Enabling proactive anti-fraud controls and a risk management framework to mitigate fraud risks to the Company;
- Recording of all transactions occurred during a specific period. Accounting of assets, liability, and revenue and expense components at appropriate amounts;
- Preparation of financial information as per the timelines defined by the relevant authorities.
SECRETARIAL AUDIT REPORT
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s. D.V. Rao & Associates, a firm of Company Secretaries in practice to undertake the secretarial audit of the Company for the financial year 2016-17. The Secretarial Audit Report issued in form MR-3 is in Annexure-5 to this Report.
There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report.
CORPORATE SOCIAL RESPONSIBILITY
Your Company is striving to help create a healthy, improved life of people in its neighborhood. Broadly, the initiatives are to execute on the stated CSR policy of ''give back to the society'' and make an impact on the lives of people.
The activities undertaken in 2016-17 can be summarized under the following heads:
- Promoting education;
- Supporting preventive health care;
- Eradicating hunger, poverty & malnutrition;
- Making available safe drinking water;
- Encouraging environment sustainability;
- Sustaining ecological balance & conservation of natural resources;
- Developing rural sports; and
- Setting up old age homes, etc
A detailed account of the CSR activities forms part of the annual report on CSR placed on the Company''s website at: http://www.aurobindo.com/ social-responsibility/csr-activities. Report on Corporate Social Responsibility as per Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is in Annexure-6 to this Report.
STATEMENT OF PARTICULARS OF APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL
The statement of particulars of appointment and remuneration of managerial personnel as per Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is in Annexure-7 to this Report.
INSURANCE
All properties and insurable interests of the Company including building, plant and machinery and stocks have been fully insured.
MATERIAL CHANGES AND COMMITMENTS
There are no material changes and commitments in the business operations of the Company from the financial year ended March 31, 2017 to the date of signing of the Director''s Report. There were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company''s operations in future.
CORPORATE GOVERNANCE
A separate section on Corporate Governance standards followed by your Company, as stipulated under Schedule V (C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is enclosed as a separate section forming part of this report.
The certificate of the Practicing Company Secretary Mr. S. Chidambaram with regard to compliance of conditions of corporate governance as stipulated under Schedule V(E) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed to the Corporate Governance Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report for the year under review as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is presented in a separate section forming part of this report.
FIXED DEPOSITS
Your Company has not accepted any fixed deposits from the public within the purview of Chapter V of the Companies Act, 2013.
INDUSTRIAL RELATIONS
Industrial relations at all units of the Company have been harmonious and cordial. The employees are motivated and have shown initiative in improving the Company''s performance.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF
The dividends which remain unpaid/unclaimed for a period of seven years, have been transferred on due dates by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government.
Section 124 of the Companies Act, 2013 read with Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (''the Rules'') mandates that companies shall apart from transfer of dividend that has remained unclaimed for a period of seven years from the unpaid dividend account to the Investor Education and Protection Fund (IEPF), also transfer the corresponding shares with respect to the dividend, which has not been paid or claimed for seven consecutive years or more to IEPF. Accordingly, the dividends that remain unclaimed for seven years and also the corresponding shares would be transferred to IEPF account on due dates.
SHARE CAPITAL
The paid up share capital of the Company increased by Rs.712,823 during the year due to the allotment of 712,823 equity shares of Rs.1 each on exercise of stock options under the Employee Stock Option Plan-2006 (ESOP 2006) of the Company. The paid up share capital of the Company as on March 31, 2017 was 585,882,409 equity shares of Rs.1 each.
EMPLOYEE STOCK OPTION SCHEME
The Members at the Annual General Meeting of the Company held on September 18, 2006 approved formulation of Employee Stock Option Scheme-2006 (ESOP 2006) for the eligible employees and Directors of the Company and its subsidiaries. Details of the stock options as on March 31, 2017 is provided on the Company''s website: http://www.aurobindo.com/about-us/corporate-governance. The details of the employee stock options also form part of the notes to accounts of the financial statements in this Annual Report.
BUSINESS RESPONSIBILITY REPORT
A detailed Business Responsibility Report in terms of the provisions of Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is available as a seperate section in this Annual Report.
ACKNOWLEDGEMENTS
Your Directors are grateful to for the invaluable contribution made by the employees and are encouraged by the support of the customers, business associates, banks and government agencies. The Directors deeply appreciate their faith in the Company and thankful to them. The Board shall always strive to meet the expectations of all the stakeholders.
For and on behalf of the Board
K. Ragunathan
Hyderabad Chairman
June 20, 2017 DIN: 00523576
Mar 31, 2015
Dear Members,
The Directors are pleased to present the 28th Annual Report of the
Company together with the audited accounts for the financial year ended
March 31, 2015.
FINANCIAL RESULTS
Standalone financials Rs. Million
2014-15 2013-14
Gross Turnover 82,448.4 72,695.3
Profit before depreciation, interest,
tax and exceptional items 23,176.4 19,942.7
Depreciation/amortization 2,451.5 1,859.7
Finance cost 565.8 866.2
Exchange difference adjusted to
borrowing cost 755.6 2,022.2
Profit before tax 19,403.5 15,194.6
Provision for tax/deferred tax 4,240.0 3,473.7
Net profit after tax 15,163.5 11,720.9
Balance brought forward from previous year 28,278.4 18,752.2
Balance available for appropriation 43,441.9 30,473.1
Appropriations:
Dividend on equity shares - Interim 1,312.8 874.1
Final - -
Tax on dividend 250.4 148.5
Depreciation adjusted (as per Schedule II) 196.4 -
Transferred to general reserve - 1,172.1
Surplus carried to Balance Sheet 41,682.3 28,278.4
DIVIDEND
Your Directors have approved a third interim dividend of 100% i.e. Rs.1
per equity share and together with the first interim dividend of 150%
i.e. Rs.1.50 per equity share and second interim dividend of 200% i.e.
Rs.2.00 per equity share, the total dividend for the financial year
2014-15 comes to 450% i.e. Rs.4.50 per share on the equity share of Rs.1
against 300% i.e. Rs.3 per share of Rs.1 paid in the previous year.
PERFORMANCE REVIEW
Your Company delivered financially satisfactory results by executing on
core strategies and setting the stage for long term growth. The revenue
from operations was Rs.80,951 million on a standalone basis, an increase
of 13.8% over 2013-14. On a standalone basis, the EBITDA for 2014-15
was Rs.23176.4 million, an increase of 16.2% over the previous year.
Profit before tax was increased to Rs.19,403.5 million from Rs.15,194.6
million in the previous year. This 27.7% increase was achieved by
ramping up the volumes, improving productivity and saving on finance
costs. Profit after tax was higher by 29.4% for the year under review
at Rs.15,163.5 as compared to Rs.11,720.9 million in the previous fiscal.
Diluted earnings per share on standalone basis is Rs.51.97 as compared to
Rs.40.20 in the previous year.
Members will be pleased to know that the Company did well at the
consolidated level, as well. In 2014-15, the consolidated revenues
increased by 49.6% to Rs.121,205.2 million. EBITDA for the year grew
23.4% and was Rs.26,603.3 million as compared to Rs.21,552.1 million in
2013-14 and diluted earnings per share grew by 34.3% to Rs.54.0
reflecting strong execution and continued momentum in the business.
Your Company made the necessary long term investments to advance the
geographical reach of formulations, to grow both in the US and Europe.
The performance in 2014-15 was driven by competitive edge of the
products across the portfolio. Over the financial year, formulation
sales grew by 42% in the US and 375% in Europe, complimented by the
acquisition of commercial operations from Actavis across seven Western
European countries with effect from April 1, 2014.
Formulations in the US contributed 50.5% to the overall formulations
revenues in the year under review and share of Europe has increased to
33.4% in 2014-15 from 12.5% in the previous year, demonstrating the
focus on both the markets.
Formulation sales across all geographies grew by 77.7% to Rs.95,586
million as compared Rs.53,785 million in 2013-14. Formulations business
constituted 77.9% of the revenues while active ingredients make the
balance 22.1%.
In the US, Aurobindo Pharma continued to deliver strong revenue growth
with its customer relationships and increased market penetration of
existing products.
While sales of several generic products have been raised through the
year, the growth has been more skewed towards controlled substances and
non-institutional business. The injectable business in the US continued
to outperform and grew by 88.7% over fiscal 2013-14.
In addition to the US, your Company is now present in over 150
countries with growing visibility in advanced markets such as France,
Germany, Spain and Italy.
Aurobindo has delivered to expectations in Europe. The revenues from
Europe stood at Rs.31,947 million, significantly growing over the
previous year. This has been primarily on account of the acquisition of
the products from Actavis in Western European markets. Presently,
France is the biggest market in Europe for Aurobindo followed by
Germany, Netherlands, Spain, UK and Portugal. A concerted effort is
being made to create an impact in Western Europe, and reach a critical
mass.
Aurobindo has been supporting several multilateral agencies to provide
cost effective treatment of HIV/AIDS patients. Your Company started
executing a few notable tenders and stepped up deliveries across
regions, of triple combination products. Anti-retroviral formulations
sales increased by about 14.7% over the previous year. Your Company's
products are estimated to have targeted treatment of over 2 million
HIV/AIDs affected people across 110 countries.
In the emerging markets such as Africa, CIS, Latin America and MENA
(Middle East and North Africa), there was a major shift from
tenders/generics to more sustainable and better valued branded
generics, especially in the high value therapy areas of cardiovasculars
and neuro-psychiatry ailments. Close customer interaction helped gain
traction in markets such as Malaysia, Myanmar, Philippines, Vietnam and
Cambodia.
Proportion of revenue from active ingredients came down from 34.7% to
about 22.1%, since there was an exponential growth in the formulations
business, as compared to the API business. Your Company sees
opportunities for growth of API business. Hence, the manufacturing
capacities of API are being further expanded.
During the year, your Company completed the acquisition of the assets
of nutritional supplement maker Natrol LLC, which was acquired for a
consideration of Rs.8,344 million. Natrol manufactures and sells quality
nutritional supplements in the US and select international markets. It
offers branded products including vitamins, minerals, and supplements;
diet and weight management products; sports nutrition products; and
products for hair, skin, and nails. This acquisition is a strategic
move to gain an entry for Aurobindo into the growing nutraceutical
segment.
The US based Natrol is a leading 35 year old nutraceuticals
manufacturer with established brands and was acquired with all the
manufacturing assets, personnel and commercial infrastructure including
the well established brands of Natrol along with an agreement to take
on certain liabilities. The due approval was obtained from authorities
and the acquisition was completed on December 4, 2014. In the
consolidated financial statements, the financials of the acquired
entity have been integrated effective that date.
OUTLOOK
Aurobindo is shaping its future, by ensuring sustainable growth with
niche and differentiated basket of products, offering the highest
product quality while being cost competitive, to meet the needs of
customers and patients.
Your Company has already demonstrated its capabilities by creating a
portfolio of very large number of generic products, including 193 ANDA
approvals from the US FDA. The product profile includes wide range of
injectables and more difficult to develop complex products and drug
delivery systems.
The existing manufacturing capacities have helped reach revenues of
almost USD 2 billion. Three new plants are being commissioned over the
next 12 months, while three more are being expanded to double their
existing capacities. Systems and processes are being improved with the
help of a well-known consultant. Aurobindo aims to service its
customers with performance standards in deliveries that meet their
expectations.
The developed markets of US, Europe and Japan will remain the focus on
the organisational dash board for generics and APIs. There are huge
opportunities for your Company's ARV products which are being
addressed. Emerging markets will be another thrust area for growth.
Overall, Team Aurobindo is striving to create an impact in all these
key markets.
As Members are aware, your Company develops, manufactures, markets and
distributes store brand Over-the-Counter (OTC) products. The mission is
to develop as many OTC products for most of US retail market as
possible, providing a consistent and reliable supply, at a fair price
and of the highest quality.
The plans are to include Rx to OTC switch molecules, ANDA & Monograph
OTC products in various dosage forms/formats - solids (tablets,
capsules, soft gels), liquids, semi solids & nasal sprays. The
manufacturing sites are located in New Jersey, US at Lawrenceville with
facility to make liquids, semi solids & nasal sprays (about 52 million
units per year); another manufacturing site is at Dayton with facility
to make solids including Drug Enforcement Administration (DEA)
controlled products (about 3 billion doses per year); and the third
facility is set up at Jedcherla, near Hyderabad, with capacity to
manufacture solids (about 8 billion doses a year). This business is
supported with adequate infrastructure including 200,000 sq ft of
packaging & distribution facilities for solids & liquids.
70 liquid products have been developed, exhibit batches have been made
for a few solids and some are undergoing stability tests. Your Company
has also commenced marketing a few products through well-established
chain stores in the US. Aurobindo will work to get a strong foothold in
this competitive but attractive market.
Streamlining of the newly acquired Natrol's current operation would
expand operating margin in the near term. The management aims to
enlarge the market, improve revenues and enhance efficiencies
significantly.
Your Company is making determined foray into oncology and hormonal
products, penems and peptides technology. In all the newer ventures,
Aurobindo will build and leverage on its inherent strengths augmented
by a team of generic industry-seasoned professionals. Your Company has
strong relationships in the market that would help to create businesses
with a broad, unique product portfolio in record time. In essence, the
new business models are founded on core competencies.
Your Company has set a vision to build businesses that meaningfully
impact their addressable markets, are respected for customer centric
products and services, meet industry benchmarks in productivity of
resources, are recognized for quality and compliance standards and in
the ultimate analysis, create societal wealth for all stakeholders.
In financial terms, the objective is to lower earnings volatility,
strive for higher predictable and calibrated growth, and improve EBITDA
margin and Return on Investment higher than industry average. The
target is to stay cash flow positive, improve the quality of the
balance sheet, lower the leverage, reduce interest outgo and expand
earnings year-on-year.
RESEARCH & DEVELOPMENT
Clearly your Company's best investment for future growth has been and
remains in research and development, and in order to maintain the
momentum, allocation of funds was increased during the year under
review. R&D expenses constituted 3.9% of the gross revenue for the
year. In absolute amount, the expenditure in 2014-15 on standalone
basis was Rs.3,182.4 million, while it was Rs.2,550.5 million in the
previous year. More importantly, the resource base was ramped up by
adding experienced scientists and researchers.
Aurobindo's expertise in R&D has given your Company the edge in
designing the product basket, process technology, drug delivery
systems, anticipation of customer and patient needs of the future and
intellectual property challenges. Every effort has been made to ensure
quality and compliance standards are met both at the lab and on the
production floor, while reviewing the costs and time to launch the
products in to the market.
During the year, 15 molecules (API/Intermediates) were taken up to
modify/optimize the manufacturing technology to bring down the raw
materials cost. Four new CRAMS API projects were taken up for
development during 2014-15. Process for one complex API was
successfully commercialized for a Japanese customer.
First half of the financial year saw large number of ANDA filings,
especially for difficult to develop niche products, primarily in the
steriles portfolio as well as oncology and hormonal products. Such
products are highly development intensive, hold high risk in
bioequivalence, but are rewarding from a business perspective. Cost
optimization continued to be a focus area with alternate APIs,
excipients and packs being worked upon, for both the US and EU markets.
In order to execute the requirements of products for which marketing
rights were acquired for the key western European markets from Actavis,
your Company has set up a dedicated formulation R&D. The objective is
to design and develop cost effective compositions to compete with
generics in the EU tender market. Development work has been initiated
to create a pipeline of 60-70 products to be manufactured at Vizag and
commercialized in the next 12 to 18 months.
Development work is on-going, on as many as 20 products in the oncology
and hormone segments, both injectable and solid dosage forms. Dossier
filings are expected to start in the financial year 2015-16.
Your Company is deepening the integration of the products acquired from
Actavis and it will remain a priority in 2015-16 to grow the business
profitably and create value for shareholders. The value is being
realized through a combination of cost and growth synergies and
excellence in deliveries.
In terms of the filings to US FDA, a total of 376 ANDAs have been filed
as on March 31, 2015 out of which 166 final approvals had been received
and another 27 tentative approvals (including 21 ANDA approved under
PEPFAR, which are not for sales in the US market) too have been
received. The balance 183 ANDAs are under review for approval.
The filings with regulatory authorities across all products are in
excess of 2,100 generic registrations and over 2,500 API filings. In
addition, 594 process patent applications have been filed so far.
ENVIRONMENT, HEALTH & SAFETY
The year under review ended on a satisfactory note in environmental
management across API and formulations divisions. In respect of
environment management operations at manufacturing locations and R&D
establishments, activities and operations across all sites are
adequately stabilized.
This was yet another year that witnessed competencies and commitment
demonstrated by Aurobindo in sustained environmental management in its
manufacturing locations.
From a regulatory perspective, environment regulatory approvals have
been obtained well on time for all green field projects. State and
central level environmental approvals have been obtained for one of the
acquired API units. Process for central level environmental clearance
for one of the expansion projects of an API unit is completed and
awaiting consideration of the Expert Technical Committee concerned.
Investments continued to be made for up-gradation of existing
environmental infrastructure and development of new projects in line
with planned manufacturing activities. Planned activity of
establishment of sewerage treatment plants at API units is completed
for one unit and the project is nearing completion in one more unit.
With an objective to reduce wastewater disposal to CETP and reuse
treated wastewater, installation of RO plant was taken up in one of the
formulations unit. One major achievement in the year is reduction of
disposal costs of organic solid wastes by 50% which was made possible
due to increased awareness, discipline and efforts in environmental
management practices at manufacturing locations.
The EHS team of your Company prepared and implemented 'Guidelines for
EHS risk assessment'. This framework provides methodologies to be
followed to:
a. perform risk assessment of all activities of Aurobindo;
b. rank and prioritize activities;
c. identify and define risk controls;
d. ensure that the controls are working effectively to maintain risk
within acceptable levels.
Several training programs were initiated to increase employee awareness
and knowledge. Safety videos were used extensively to make an impact. A
separate EHS training matrix was prepared for contract workmen based on
work activities they perform.
Chemical exposure risk assessment was initiated to determine hazardous
effects of chemical exposure. This risk assessment has been completed
for 129 materials.
SUBSIDIARIES/JOINT VENTURES
As per the provisions of Section 129 of the Companies Act, 2013 read
with the Companies (Accounts) Rules, 2014, a separate statement
containing the salient features of the financial statements of the
subsidiary companies/associate companies/joint ventures is detailed in
Form AOC-1 and is in Annexure-1 to this Report.
The following companies have become the Company's subsidiaries during
the year: Aurovitas Spain S.A.U., Spain; Actavis France SAS, France;
Arrow Generiques SAS, France; Actavis Deutschland GmbH & Co., Germany;
Actavis B.V., The Netherlands; Actavis Management GmbH, Germany;
Aurovitas S.L., Spain; Aurex B.V., Spain and Natrol, LLC, U.S.A.
The following companies have ceased to be the Company's subsidiaries
during the year: Aurobindo Pharma Limited S.R.L., Dominican Republic;
Aurobindo Pharma France SARL, France merged into Arrow Generiques SAS,
France; Aurovitas SL, Spain while Agile Malta Holdings Limited, Malta
merged into Aurobindo Pharma (Malta) Limited, Malta.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated financial statements have been prepared by the Company in
accordance with the requirements of Accounting Standards 21 issued by
the Institute of Chartered Accountants of India (ICAI) and as per the
provisions of Companies Act, 2013. As per the provisions of Section 136
of the Companies Act, 2013, the Company has placed separately, the
audited accounts of its subsidiaries on its website www.aurobindo.com
and copy of audited financial statements of its subsidiaries will be
provided to the Members at their request.
HUMAN RESOURCE DEVELOPMENT
Your Company has the necessary managerial bandwidth to navigate the
growth opportunities. Planning ahead of the requirement has ensured
that Aurobindo has a strong team in many markets, in manufacturing
facilities, research labs, supply-chain management and in fact, in
every functional area. However, considering the potential opportunities
and the organizational growth targets, there is a constant review being
done to be ahead of the curve. Talent acquisition and talent retention
are being given considerable emphasis in people management.
The strength of the organization is manifest in the enthusiasm to
overcome competitive pressures, in building a robust pipeline of
products, in the focus to monitor and control quality, in the premium
attached to data governance, in the commitment to improve
On-Time-In-Full (OTIF) performance and in the hunger to deliver
results.
To strengthen the alignment between strategy, accountability,
performance and recognition, there is a challenging but participative
target setting, and the progress is closely tracked on a dashboard of
milestones and actions, key operational metrics and financial
performance. Individual goals are getting aligned to corporate results.
The goal setting has ring fenced the risks, driven the business model
towards sustainable growth and made the enterprise collaborative.
At every level in the hierarchy, learning & development inputs ensure
that people stay agile and resilient to the challenges of growth.
While Team Aurobindo seeks new opportunities to extend geographies and
build on the existing relationships, at every level, in every
transaction, your Company will strive to minimize risks. The team is
being sensitized to do whatever it takes to anticipate and pre-empt
challenges. The measure of this approach is in the full involvement of
the management at the senior most level. For instance, the team makes
no compromise on quality and compliance. This approach is targeted to
achieve predictable growth.
VIGIL MECHANISM
The Board of Directors has adopted the Whistle Blower Policy which is
in compliance with Section 177(10) of the Companies Act, 2013 and
Clause 49 of the Listing Agreement with the stock exchanges. The
Whistle Blower Policy aims for conducting the affairs in a fair and
transparent manner by adopting highest standards of professionalism,
honesty, integrity and ethical behavior. All permanent employees and
whole-time directors of the Company are covered under the Whistle
Blower Policy.
A mechanism has been established for employees to report concerns about
unethical behavior, actual or suspected fraud or violation of Code of
Conduct and Ethics. It also provides for adequate safeguards against
the victimization of employees who avail of the mechanism and allows
direct access to the Chairperson of the audit committee in exceptional
cases. The Whistle Blower Policy is available on the Company's website
http://www.aurobindo.com/about-us/corporate- governance.
POLICY ON SEXUAL HARASSMENT
Your Company has constituted an Internal Complaints Committee as per
the Sexual Harassment of Women at Workplace (Prevention, Prohibition
and Redressal) Act, 2013 and the Rules there under. The Company has a
policy on prevention & prohibition of sexual harassment at workplace
The policy provides for protection against sexual harassment of women
at workplace and for prevention and redressal of such complaints.
During the year, no complaints have been received under the policy.
RATING
The National Long-term Fitch Rating of your Company has been upgraded
to 'IND AA' from 'IND AA-' indicating stable outlook of the Company.
MEETINGS OF THE BOARD
The Board and Committee meetings are pre-scheduled and a tentative
calendar of the meetings finalized in consultation with the Directors
to facilitate them to plan their schedule. However, in case of special
and urgent business needs, approval is taken by passing resolutions
through circulation. During the year under review, nine Board Meetings
and five Audit Committee Meetings were convened and held. The details
of the meetings including composition of Audit Committee are given in
the Corporate Governance Report. During the year, all the
recommendations of the Audit Committee were accepted by the Board.
DIRECTORS
As per the provisions of the Companies Act, 2013 Mr. P. Sarath Chandra
Reddy and Dr. M. Sivakumaran will retire at the ensuing annual general
meeting and being eligible, seek re- appointment. The Board of
Directors recommends their re-appointment.
The re-appointments of Mr. K. Nithyananda Reddy, Dr. M. Sivakumaran and
Mr. M. Madan Mohan Reddy, Whole-time Directors and Mr. N. Govindarajan,
Managing Director are being proposed at the ensuing Annual General
Meeting.
DETAILS OF DIRECTORS & KEY MANAGERIAL PERSONNEL
The Members of the Company at the 27th Annual General Meeting of the
Company held on August 27, 2014 have re-appointed Mr. K. Ragunathan,
Mr. M. Sitarama Murty and Dr. Rajagopala Reddy as independent directors
of the Company for a period of five years up to March 31, 2019.
Dr. C. Channa Reddy ceased to be a Director due to his resignation from
the Board of the Company for personal reasons with effect from January
27, 2015. The Board places on record its appreciation of the services
rendered by him as a Director during his association with the Company.
Dr. (Mrs.) Avnit Bimal Singh was appointed by the Board as an
Additional Director (Independent Director) of the Company with effect
from March 25, 2015 and being eligible, her appointment as an
independent director for a period of five years up to March 24, 2020 is
being proposed at the ensuing Annual General Meeting. The Board of
Directors recommends her appointment.
Mr. Sudhir B. Singhi relinquished his responsibilities as Chief
Financial Officer of the Company with effect from July 1, 2014 and was
re-designated as Head of Global Finance & Operations Department. Mr.
Santhanam Subramanian was appointed as Chief Financial Officer of the
Company with effect from July 1, 2014.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to Section 134(3)(c) of the Companies Act, 2013 your Directors
confirm that:
a. in the preparation of the annual accounts, the applicable accounting
standards have been followed along with proper explanation relating to
material departures, if any;
b. appropriate accounting policies have been selected and applied
consistently. Judgement and estimates which are reasonable and prudent
have been made so as to give a true and fair view of the state of
affairs of your Company as at the end of the financial year and of the
profit of your Company for the year;
c. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 2013 for safeguarding the assets of your Company and for
preventing and detecting fraud and other irregularities;
d. the annual accounts have been prepared on a going concern basis;
e. proper internal financial controls have been laid down to be
followed by your Company and such internal financial controls are
adequate and are operating effectively; and
f. proper systems to ensure compliance with the provisions of all
applicable laws have been devised, and such systems are adequate and
are operating effectively.
DECLARATION FROM INDEPENDENT DIRECTORS
The independent directors have submitted the declaration of
independence stating that they meet the criteria of independence as
provided in sub-section (6) of Section 149 of the Companies Act, 2013.
BOARD DIVERSITY
The Company recognizes and embraces the importance of a diverse board
in its success. The Board has adopted the Board Diversity Policy which
sets out the approach to diversity of the Board of Directors. The Board
Diversity Policy is available on the Company's website
http://www.aurobindo.com/about-us/corporate-governance.
BOARD EVALUATION
Clause 49 of the Listing Agreement mandates that the Board shall
monitor and review the Board evaluation framework. The Companies Act,
2013 states that a formal annual evaluation needs to be made by the
Board of its own performance and that of its committees and individual
directors. Schedule IV of the Companies Act, 2013 states that the
performance evaluation of independent directors shall be done by the
entire Board of Directors, excluding the director being evaluated. The
evaluation of all the directors and the Board as a whole was conducted
based on the criteria and framework adopted by the Board including
performance and working of its Committees.
POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION
The policy of the Company on directors' appointment and remuneration,
including criteria for determining qualifications, positive attributes,
independence of a director and other matters are adopted as per the
provisions of the Companies Act, 2013. The remuneration paid to the
directors is as per the terms laid out in the nomination and
remuneration policy of the Company. The nomination and remuneration
policy as adopted by the Board is placed on the Company's website
http://www.aurobindo.com/about-us/corporate-governance.
TRANSFER TO RESERVE
The Company has not transferred any amount to general reserve out of
the profit of the Company. LOANS, GUARANTEES OR INVESTMENTS
The details of loans, guarantees, investments given during the
financial year ended on March 31, 2015 is in Annexure-2 to this Report
in compliance with the provisions of Section 186 of the Companies Act,
2013 read with Companies (Meetings of Board and its Powers) Rules,
2014.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
The particulars of contracts or arrangements with related parties
referred to in sub-section (1) of Section 188 of the Companies Act,
2013 is 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 is in Annexure-3 to this Report.
EXTRACT OF ANNUAL RETURN
As required under Section 92(3) of the Companies Act, 2013 and Rule
12(1) of the Companies (Management and Administration) Rules, 2014, the
extract of Annual Return prepared in Form MGT-9 is in Annexure-4 to
this Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
EARNINGS AND OUTGO
Information with respect to conservation of energy, technology
absorption, foreign exchange earnings and outgo pursuant to Section
134(3)(m) of the Act read with Companies (Accounts) Rules, 2014 is in
Annexure-5 to this Report.
RISK MANAGEMENT COMMITTEE
Risk Management Committee of the Company consists of the following
Directors namely Mr. M. Sitarama Murty, Mr. N. Govindarajan and Mr. P.
Sarath Chandra Reddy. The Company has established a separate department
to monitor the enterprise risk and its management.
The Committee had formulated a risk management policy for dealing with
different kinds of risks which it faces in day-to-day operations of the
Company. Risk management policy of the Company outlines different kinds
of risks and risk mitigating measures to be adopted by the Board. The
Company has adequate internal financial control systems and procedures
to combat the risk. The risk management procedure is reviewed by the
Audit Committee and Board of Directors on regular basis at the time of
review of quarterly financial results of the Company. A report on the
risk and their management is enclosed as a separate section forming
part of this report.
AUDITORS & AUDITORS' REPORT
The statutory auditors' report is annexed to this report. The notes on
financial statements referred to in the Auditors' Report are
self-explanatory and do not call for any further comments. There are
no specifications, reservations, adverse remarks on disclosure by the
statutory auditors in their report. They have not reported any incident
of fraud to the Audit Committee of the Company during the year under
review.
The members of the Company at the 27th Annual General Meeting had
appointed M/s. S.R. Batliboi & Associates LLP, Chartered Accountants
as Statutory Auditors of the Company up to the conclusion of 30th
Annual General Meeting of the Company subject to ratification of the
appointment by the members at every Annual General Meeting. The
ratification of the appointment of statutory auditors is proposed at
the ensuing Annual General Meeting.
COST AUDIT
M/s. Sagar & Associates, Cost Accountants, were appointed as Cost
Auditors of the Company to conduct cost audit of the Company for the
year 2013-14. The due date for filing Cost Audit Report of the Company
in XBRL format for 2013-14 was September 30, 2014 and the same was
filed with the Ministry of Corporate Affairs on September 26, 2014.
INTERNAL AUDITORS
The Board of Directors of the Company has appointed M/s. KPMG to
conduct internal audit of the Company for the financial year ended
March 31, 2015.
INTERNAL FINANCIAL CONTROLS
The internal financial controls (IFC) framework at Aurobindo
encompasses internal controls over financial reporting (ICOFR) as well
as operational controls that have been put in place across all key
business processes of the Company. The internal controls are designed
to facilitate and support the achievement of the Company's business
objectives and such controls do enable the Company to adapt to changing
and operating environment, to mitigate risks to acceptable levels and
to support sound decision making and good governance.
Details in respect of adequacy of internal financial controls with
reference to the financial statements are briefly iterated below:
a. The Company maintains all its major records in ERP System (Oracle
Financials) and the work flow and approvals are routed accordingly;
b. The Company has appointed internal auditors to examine the internal
controls, whether the workflow of the organization is being done
through the approved policies of the Company. In every quarter, during
the approval of financial statements, internal auditors present the
internal audit report and the management comments on the internal audit
observations; and
c. The Board of Directors of the Company has adopted various SOPs and
policies such as related party transactions policy, whistle blower
policy, policy to determine material subsidiaries and such other
procedures for ensuring the orderly and efficient conduct of its
business for safeguarding of its assets, the prevention and detection
of frauds and errors, the accuracy and completeness of the accounting
records, and the timely preparation of reliable financial information.
SECRETARIAL AUDIT REPORT
Pursuant to the provisions of Section 204 of the Companies Act, 2013
and Rule 9 of the Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014, the Company has appointed Mr. S. Chidambaram,
Practicing Company Secretary (C.P.No: 2286), Company Secretary in
Whole- time Practice, to undertake the Secretarial Audit of the Company
for the financial year 2014-15. The Secretarial Audit Report issued in
form MR-3 is in Annexure-6 to this Report. There are no qualifications,
reservations or adverse remarks in the Secretarial Audit Report.
CORPORATE SOCIAL RESPONSIBILITY
Your Company has formulated a corporate social responsibility policy
with the objective 'give back to the society'. In line with this
approach, Aurobindo has undertaken social activities such as promoting
education, hygiene, preventive health care, eradicating hunger, poverty
& malnutrition, making available safe drinking water, environment
sustainability, ecological balance & conservation of natural resources,
rural sports and setting up of old age homes etc.
Pursuant to the provisions of Section 135 and Schedule VII of the
Companies Act, 2013, the Corporate Social Responsibility (CSR)
Committee of the Board of Directors has been formed consisting of
following members namely Mr. K. Nithyananda Reddy, Mr. K. Ragunathan
(Independent Director), Dr. M. Sivakumaran and Mr. P. Sarath Chandra
Reddy to recommend the policy on Corporate Social Responsibility and
monitor its implementation. Your Company has initially decided to focus
on education, health, drinking water and sanitation as key areas which
require attention. The objective is to make an impact on the quality of
life of the common people in its neighborhood.
Your Company assesses each project for feasibility, organizes the
volunteers and support staff before initializing the activity. Being
the first year of a co-ordinated approach, the earmarked monies i.e.
the stipulated two per cent of the average net profit of the last three
financial years, could not be spent in full and hence is being carried
forward.
Corporate Social Responsibility policy was adopted by the Board of
Directors on the recommendation of Corporate Social Responsibility
Committee and it is placed on the Company's website at:
http://www.aurobindo.com/about-us/corporate-governance.
Annual report on the CSR activities of the Company during the year are
also placed on the Company's website at:
http://www.aurobindo.com/social-responsibility/csr-activities.
Report on Corporate Social Responsibility as per Rule 8 of the
Companies (Corporate Social Responsibility Policy) Rules, 2014 is in
Annexure-7 to this Report.
STATEMENT OF PARTICULARS OF APPOINTMENT AND REMUNERATION OF MANAGERIAL
PERSONNEL
The statement of particulars of appointment and remuneration of
managerial personnel as per Rule 5 of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014 is in Annexure-8 to
this Report.
INSURANCE
All properties and insurable interests of the Company including
building, plant and machinery and stocks have been fully insured.
MATERIAL CHANGES AND COMMITMENTS
There are no material changes and commitments in the business
operations of the Company from the financial year ended March 31, 2015
to the date of signing of the Director's Report.
There were no significant and material orders passed by the regulators
or courts or tribunals impacting the going concern status and Company's
operations in future.
CORPORATE GOVERNANCE
A separate section on Corporate Governance standards followed by your
Company, as stipulated under Clause 49 of the Listing Agreement with
the stock exchanges is enclosed as a separate section forming part of
this report.
The certificate of the Practicing Company Secretary Mr. S. Chidambaram
with regard to compliance of conditions of corporate governance as
stipulated under Clause 49 of the Listing Agreement with the stock
exchanges in India is annexed to the Corporate Governance Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report for the year under review as
stipulated under Clause 49 of the Listing Agreement with the stock
exchanges is presented in a separate section forming part of this
report.
FIXED DEPOSITS
Your Company has not accepted any fixed deposits from the public within
the purview of Chapter V of the Companies Act, 2013.
INDUSTRIAL RELATIONS
Industrial relations at all units of the Company have been harmonious
and cordial. The employees are motivated and have shown initiative in
improving the Company's performance.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF
The dividends which remain unpaid/unclaimed for a period of seven
years, have been transferred on due dates by the Company to the
Investor Education and Protection Fund (IEPF) established by the
Central Government.
SHARE CAPITAL
The paid up share capital of the Company increased by Rs.525,254 during
the year due to the allotment of 525,254 equity shares of Rs.1 each on
exercise of stock options under the Employee Stock Option Plan - 2006
(ESOP 2006) of the Company.
EMPLOYEE STOCK OPTION SCHEME
The Members at the Annual General Meeting of the Company held on
September 18, 2006 approved formulation of Employee Stock Option Scheme
- 2006 (ESOP 2006) for the eligible employees and Directors of the
Company and its subsidiaries. Details of the stock options as on March
31, 2015 is in Annexure-9 to this Report. The details of the employee
stock options form part of the notes to accounts of the financial
statements in this Annual Report.
ACKNOWLEDGEMENTS
Your Directors would like to thank the employees of Aurobindo for the
dedication they have shown to accelerate the Company towards
sustainable growth and shaping the future. The Directors are also
grateful to the customers, business associates, banks and government
agencies for their support and co-operation. Every day, the investors
have shown their trust in Aurobindo. The Board shall continue to
reciprocate their trust in the Company.
For and on behalf of the Board
K. Ragunathan
Hyderabad Chairman
May 28, 2015 DIN: 00523576
Mar 31, 2013
Dear Members'',
The Directors are pleased to present the 26th Annual Report of the
Company together with the Audited Accounts for the financial year ended
March 31, 2013.
FINANCIAL RESULTS
Standalone financials Rs. Million
2012-13 2011-12
Gross Turnover 55695.0 43787.3
Profit before depreciation, finance costs,
tax and exceptional items 9845.7 5925.6
Depreciation/Amortization 1713.9 1429.4
Finance costs 1147.4 931.1
Exchange difference adjusted to borrowing cost
(Revised Schedule VI) 1353.2 1744.7
Profit before tax 5631.2 1820.4
Provision for tax/Deferred tax 671.3 (952.1)
Profit after tax before exceptional item 4959.9 2772.5
Less: Exceptional items - 3198.6
Net Profit/(Loss) after exceptional items 4959.9 (426.1)
Balance brought forward from previous year 14797.1 15561.5
Balance available for appropriation 19757.0 15135.4
Appropriations
Dividend on equity shares 436.8 291.1
Tax on dividend 72.0 47.2
General reserve 496.0 -
Surplus carried to Balance Sheet 18752.2 14797.1
DIVIDEND
Your Directors have proposed a final dividend of 50% i.e. Rs.0.50 per
equity share and with the interim dividend of 100% i.e. Rs.1 per equity
share, the total dividend for the financial year 2012-13 comes to 150%
i.e. Rs.1.50 per share on the equity share of Rs.1 against 100% i.e.
Rs.1 per share of Rs.1 paid in the previous year.
FINANCIAL HIGHLIGHTS
Your Company continued to show steady performance, achieved increase in
revenues, operating profit and bottom line during the financial year
2012-13, despite the macroeconomic challenges in almost all the
overseas markets. On the manufacturing side, there was severe stress
due to shortage as well as high cost of power purchased from state
grids. Currencies remained volatile, with intermittent sharp movements.
Your Company demonstrated its resilience and the strength of its
business model by expanding the product portfolio and aggressively
marketing them, managing costs better in an inflationary environment,
stepping up its manufacturing efficiencies and by staying focused on
steadily raising its bottom line. Every effort as in the past was made
to expand the global footprint and consolidate the position in the
existing growth markets. Overall, the focus was on improving
shareholder value.
The consolidated gross revenue from operations was higher by 27% at
Rs.60008.3 million in the year under review, over the previous year.
The formulation and API ratio during the year was 57:43. Consolidated
net operating income inclusive of dossier income of Rs.759.8 million is
Rs.58553.2 million showing a growth of 26.5% over the previous year.
Consolidated gross revenue from formulation during the year was
Rs.33872 million, 30.1% higher on a year-on-year basis. In the API
markets, both domestic and overseas, your Company strived to increase
its share of high value products and special efforts were made to build
relationships in the developed markets. API revenues for the year under
review were Rs.25362 million, a growth of 23% over the previous year,
on account of favorable demand scenario as well as focused efforts at
enhancing product realizations.
There has been a year-on-year improvement in EBITDA by 200 basis
points. EBITDA before forex adjustments and other income for the year
was Rs.8891 million which is 15.2% of net operating income and has gone
up by 45.7% on year-on-year basis. Profitability during the year under
review has improved due to better sales and business mix which had
favorable impact on material consumption to net sales by 3.4%, and
staff cost to net sales marginally decreased by 25 basis points and
other expenses to net sales increased by 1.1%.
As far as foreign exchange is concerned, the closing rupee dollar rate
was Rs.54.285 on March 31, 2013 while it was Rs.50.875 on March 31,
2012. The rupee has been highly volatile through the year and has
depreciated by 6.7% during the financial year. This has resulted in a
net exchange loss of Rs.1634.4 million during the year which includes
an amount of Rs.1353.2 million on borrowings adjusted to finance
charges as per revised Schedule VI. It has also increased your
Company''s borrowings by approximately Rs.2100 million as on March 31,
2013 on account of restatement.
REVIEW OF OPERATIONS
Formulations sales to USA was Rs.17526 million, recording a 48.1%
growth over the previous year. Europe and Rest of the World geographies
recorded a sale of Rs.8843 million in 2012-13, an increase of 39.8%
over the previous fiscal. There was a 4.6% fall in ARV formulation
sales at Rs.7503 million, in an endeavour to shed low margin products
and optimize on our margins. Strategic action was taken to be selective
in building products and markets that contribute to the bottom line.
In terms of segmental contribution to the formulations revenue, the
share of US was 51.7% against 45.5% in the previous year. Similarly,
European as well as the rest of the world was 26.1% against 24.3% and
ARV was 22.2% against 30.2% in the previous year. The segmental shift
in both API and formulations is reflective of your Company''s efforts to
improve margins and this trend is expected to continue.
In generic markets of US, UK, Germany, Spain and the Netherlands, your
Company is progressing well. Additional thrust to raise the marketing
presence and gain margin is ongoing in countries such as Japan,
Portugal and Italy. The subsidiaries in the US have turned around and
are substantially improving their sales.
In respect of US business, your Company has had a balanced growth
between new product introductions and the base business. There was an
increased presence with key customers. The marketing efforts were
directed towards expanding strongly through retail chains with new
product launches. Necessarily, aggressive positions were taken from an
inventory standpoint in preparations for those launches; wherever
required, your Company built inventory to take advantage of launch
needs, while trimming inventory costs as a routine. Today, Aurobindo
has a well balanced portfolio and a pragmatic growth plan.
In the formulation business, your Company is spreading across the
geographies to grow in each of the geography independently rather than
trying to be focused on only one or two markets. In case of API
business, the objective is to grow high value and niche products while
taking advantage of the vertically integrated manufacturing systems.
Your Company targets to grow the ARV business while ensuring that the
focus remains on the bottom line. During the year, in keeping with this
strategy, Aurobindo participated in tenders where the Company could
quote a price which will ensure competitive margins rather than just
chasing the top-line. There is a very large portfolio of ARV products
with your Company and the objective is to grow this business while
climbing the value chain.
OUTLOOK
Going ahead, introduction of new products by your Company is expected
to be a strong driver in the formulations market with about 20 to 25
launches in 2013-14 and efforts shall continue to increase the
penetration in the existing baseline business.
The focus on API is to reduce the dependency on the pure Betalactam
products. Your Company has 279 DMFs filed in the U.S., Europe and
Japan. While Aurobindo has a growing presence in the US and several
countries of Europe for over several years, a determined effort is
being made to make inroads in to Japan. Today Aurobindo exports six API
products and intermediates to several prestigious customers in that
country. Purposeful efforts are being made to grow this
quality-conscious market, and your Company has been able to maintain
more than 50% growth in Japan in each of the last six quarters.
Aurobindo has a wide array of well-balanced products on offer. Some are
specialized and can drive higher margins, some belong to niche spaces
such as ophthalmics, while others are typical mass market, high volume
molecules that are expected to boost the bottom line over the next
couple of years. There are others that are gaining higher volumes
which are being leveraged to take advantage of the in-house API
strengths, vertical integration of capacities and improving
manufacturing efficiencies.
There are a large number of ANDA applications that have been submitted
in the past few months, which await approvals, adding to the pipeline
of products on offer. Your Company believes that there would be
significant increase in the product basket over next 2 to 3 years.
Aurobindo is making a foray in to the injectables market which could
gain traction in the latter half of 2013-14. Given that there are fewer
competitors than in solid orals, the objective is to gain around 10-15%
market share as the Company moves forward.
It needs to be highlighted that the improved performance in 2012-13 was
without the manufacturing capacities at Unit-IV, Unit-VI and less than
optimum capacity utilization at Unit-XII. The recent spate of approvals
would further ramp up the capacity utilization at Unit-VII. Team
Aurobindo is fairly confident of improving the market share and top
line every quarter of the year ahead.
It is expected that European operations in countries such as Italy and
Portugal would stabilize in 2013-14 and turn around a year later.
Meanwhile operations in countries such as UK, the Netherlands, Germany
and Spain are targeted to grow faster than the previous year. Volumes
in Canada are also picking up and Australian operations are likely to
stabilize over the next 18 to 24 months.
Aurobindo has made a foray into the CRAMS business in the past few
months and believes that it should become a significant portion of the
income in about 3 years. While it has started contributing to the
business model, and is likely to improve gradually, your Company shall
work to ramp up the CRAMS business, build a mutually advantageous
relationship with customers, become a dependable resource and
contribute meaningfully to the revenue stream.
Your Company will be overcoming a major challenge in availability and
cost of power. The possibility of plant shutdown and cost escalation
through diesel generation threatened the operations of almost all your
Company''s facilities. The year under review witnessed an energy crisis
which included three-day week power holiday, surprise power- cuts and
prohibitive cost increases. Considerable relief has now been worked
out by independently installing the meters in all but one of the
production units, to do power trading through the power exchange which
has brought down the cost and added to the certainty of power
availability.
RESEARCH & DEVELOPMENT
During 2012-13, your Company developed certain niche products involving
complex chemistry and technology and strived to reduce cost of certain
fast moving/high volume products. Further, your Company has opted to go
for establishing the CRAMS division and a few projects have been
activated.
Your Company carried out process development/scale-up of various niche
products (such as Fondaparinux Sodium, Isosulfan Blue, Iron Sucrose,
Fosaprepitant Dimeglumine etc.), which involve complex chemistry and
complicated purification technology. Further, Aurobindo has developed
the processes to commercialize different Carbapenem antibiotics, such
as Meropenem, Imipenem, Doripenem and Ertapenem. During the year under
review, your Company has also initiated R&D in the area of
nutraceuticals, peptides and biocatalysis.
New technologies and processes were worked out to develop soft gel
capsules, infusion bags, OTC ANDA products, OTC monograph products and
suspension based injectables.
Looking ahead, your Company would focus on the R&D activities in the
coming year as well, with special emphasis on the development of niche
products, nutraceuticals, peptides and biocatalysis and strengthen its
CRAMS business.
ENVIRONMENT, HEALTH & SAFETY
During the year under review, your Company initiated benchmarking
itself with the best in the industry by conducting safety management
evaluation (SME) in partnership with one of the best consultants in the
chemical industry for safety performance. The consultants visited all
the API facilities, interacted with senior management personnel and
representative employee groups, observed the operations, and provided
key insights on areas of improvement. Action is being taken on all
their suggested improvements.
Substantial investments were made in the area of wastewater treatment,
recycling and disposal. As part of the Company policy and to comply
with regulations, disposal of wastewater generated from manufacturing
processes of API units to common effluent treatment plants has been
stopped. Two of your Company''s facilities have even achieved zero
liquid discharge competencies. In 2012-13, it was decided to sustain
the same level of operating conditions of treatment systems and
demonstrate consistency in performance of organization in wastewater
treatment.
More importantly, your Company could successfully demonstrate to the
government on the commitment of Aurobindo to environment management
relating to its activities through the inspections and audits conducted
by high level technical expert committees constituted for the purpose.
SUBSIDIARIES/JOINT VENTURES
As approved by the Board the reports and accounts of the subsidiary
companies are not annexed to this Report. A statement pursuant to
Section 212 of the Companies Act, 1956 however, is annexed.
Annual accounts of the subsidiary companies are kept at the Registered
Office of the Company as well as at the Registered Offices of the
respective subsidiary companies for scrutiny by any member. Members
interested in obtaining a copy of the accounts of the subsidiaries may
write to the Company Secretary.
HUMAN RESOURCES
A governing council has been constituted to serve as an apex body in
Aurobindo to shape HR agenda and actions within the organization with
the objective of enhancing business performance and capability of
people under a strong value based framework. The council gives a broad
direction and support initiation for talent management programs in line
with short term and long term business imperatives/organizational
needs.
A new chapter has been added in the area of strategic leadership
development by partnering with a leading consulting firm. This
initiative aims at providing role clarity, mapping of functional and
behavioral skills and consequently creation of individual development
plan and covers all middle level and senior level leadership positions
across API and formulations business.
The management has given adequate attention to employee communications
to share various developments in the business and at the organizational
level. Apart from a periodic newsletter mode of communication,
half-yearly Town Hall meeting is organized at API and formulations
level to address the group at large and communicate various
developments and apprise them of short and long term dimensions of the
business and for better interactions. There is a perceptible
improvement in the corporate performance and proactive approach to
business, by employees at all levels.
DIRECTORS
In accordance with the provisions of the Companies Act, 1956, read with
the Articles of Association of the Company, Mr. P. Sarath Chandra
Reddy, Mr. K. Ragunathan and Dr. M. Sivakumaran retire by rotation at
the ensuing Annual General Meeting. All of them being eligible offer
themselves and seek re-appointment.
Mr. P.V. Ramprasad Reddy relinquished his responsibilities as
Whole-time Director of the Company with effect from December 1, 2012
and continues to be a Non-Executive Director on the Board. He has been
appointed as Managing Director designated as Chairman in Aurobindo
Pharma USA Inc., US, the wholly owned subsidiary of the Company with
effect from December 1, 2012.
Mr. Ravindra Y. Shenoy ceased to be the Joint Managing Director of the
Company due to his resignation with effect from November 9, 2012.
A brief profile of Mr. P. Sarath Chandra Reddy, Mr. K. Ragunathan and
Dr. M. Sivakumaran are provided in the Report on Corporate Governance
forming part of the Annual report.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to the provisions of Section 217 (2AA) of the Companies Act,
1956 as amended, the Board of Directors confirm that in the preparation
of the Statement of Profit and Loss for the year ended March 31, 2013
and the Balance Sheet as at that date:
i. the applicable accounting standards have been followed:
ii. selected such accounting policies and applied them consistently
and made judgements 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 the end of the financial year and of the profit of the Company for
the year;
iii. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and,
iv. the annual accounts have been prepared on a going concern basis.
CORPORATE GOVERNANCE
The certificate of a Practicing Company Secretary Mr. S. Chidambaram
with regard to compliance of conditions of Corporate Governance as
stipulated under Clause 49 of the Listing Agreement with the Stock
Exchanges in India is annexed.
AUDITORS'' & AUDITORS'' REPORT
The statutory auditors'' report is annexed to this report.The notes on
financial statements referred to in the Auditors'' Report are self
explanatory and do not call for any further comments.
M/s. S.R. Batliboi & Associates LLP, Chartered Accountants retire at
the ensuing Annual General Meeting and being eligible, offer themselves
for re-appointment as Statutory Auditors of the Company for the
financial year 2013-14.
COST AUDITORS
M/s. Sagar & Associates, Cost Accountants, have been reappointed as
Cost Auditors of the Company with the consent of the Central Government
of India to conduct cost audit of the Company for the year 2012-13. The
due date for filing Cost Audit Report of the Company in XBRL format for
2011-12 was February 28, 2013 and the same was filed with the Ministry
of Corporate Affairs on February 27, 2013.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION ETC.
Information in accordance with the provisions of Section 217 (1) (e) of
the Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 is given
in Annexure I forming part of this Report.
FIXED DEPOSITS
Your Company has not accepted any fixed deposits during the year under
review. As such no amount of principal or interest was outstanding on
the date of the Balance Sheet.
INDUSTRIAL RELATIONS
Industrial relations at all units of the Company have been harmonious
and cordial. The employees stand motivated and have shown initiative
in improving the Company''s performance.
PARTICULARS OF EMPLOYEES
The particulars of employees as required to be disclosed in accordance
with the provisions of Section 217 (2A) of the Companies Act, 1956 and
the Companies (Particulars of Employees) Rules, 1975 as amended are
annexed to the Directors'' Report. However, as per the provisions of
Section 219 (1)(b)(iv) of the Companies Act, 1956, the Report and
Accounts are being sent to all the members of the Company excluding the
aforesaid information. Any member interested in obtaining such
particulars may write to the Company Secretary.
EMPLOYEE STOCK OPTION SCHEME
The Members at the Annual General Meeting of the Company held on
September 18, 2006 approved formulation of Employee Stock Option
Scheme-2006 (ESOP 2006) for the eligible employees and Directors of the
Company and its subsidiaries.
Under ESOP 2006 Scheme 1,715,500 options were granted and 90,000 equity
shares of Rs.1 each were issued and allotted during the year.
Details of the options granted up to March 31, 2013 are set out in the
annexure to this Report, as required under Clause 12 of the Securities
and Exchange Board of India (Employee Stock Options Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999.
ACKNOWLEDGEMENTS
Your Company is grateful to the customers and business associates for
their support and encouragement. Your Board is appreciative of the
passion, dedication and commitment demonstrated on the job by all the
employees and is confident that they shall continue to underwrite the
Company''s growth. Your Directors wish to place on record their
gratitude to the valuable clientele, Union and state governments,
banks, financial institutions, and shareholders and seek their
continuing support, guidance, and assistance in all our future
endeavors.
For and on behalf of the Board
Hyderabad K. RAGUNATHAN
May 30, 2013 Chairman
Mar 31, 2012
The Directors are pleased to present the 25th Annual Report of the
Company together with the Audited Accounts for the financial year ended
March 31, 2012.
FINANCIAL RESULTS
Standalone financials Rs.Million
2011-12 2010-11
Gross Turnover 43787.3 42299.9
Profit before depreciation, finance
costs, tax and exceptional items 5925.6 10142.2
Depreciation/Amortization 1429.4 1250.4
Finance costs 931.1 550.2
Exchange difference adjusted to
borrowing cost (revised Schedule-VI) 1744.7 -
Profit before tax 1820.4 8341.6
Provision for tax/Deferred tax (952.1) 2116.5
Profit after tax before exceptional item 2772.5 6225.1
Less: Exceptional items 3198.6 287.1
Net Profit/(Loss) after
exceptional items (426.1) 5938.0
Balance brought forward from
previous year 15561.5 10900.9
Balance available for appropriation 15135.4 16838.9
Appropriations
Dividend on Equity Shares 291.1 587.2
Tax on Dividend 47.2 96.4
General Reserve - 593.8
Surplus carried to Balance Sheet 14797.1 15561.5
DIVIDEND
Your Directors have recommended a dividend of 100% i.e. Rs1 per equity
share of Rs1 against the dividend of Rs2 per share on the equity share of
Rs1 paid in the previous year.
In view of the loss for the financial year ended March 31, 2012 the
dividend is proposed to be paid out of accumulated profits of the
Company.
FINANCIAL HIGHLIGHTS
Your Company's performance must be viewed against an extremely
challenging year for the western economies and a highly volatile
currency with a tendency to turn weak. Several of the advanced markets
that we deal with experienced weak growth, while the emerging markets
were implementing policies to dampen inflation. While these undermined
business confidence, the volatile rupee biased towards a weakening
trend added to the pressure throughout the financial year.
The first half of the current fiscal was challenging on account of
lower formulation sales, full impact of the USFDA alert on Unit VI
Cephalosporin manufacturing facility, subdued demand environment in
Europe, disruption in operations due to regional unrest and exchange
loss on repayment of foreign currency borrowings.
The fact that we achieved remarkable presence in each of our markets,
improved our volume sales and earned steadily growing margins,
underlines the robust business that Aurobindo has created and the
benefit of the actions your Company has taken to optimize operations
and hold costs on a sustainable basis.
However, there was a decline in dossier income by Rs1958 million on
year-on-year basis. Dossier income is non-recurring and subject to
periodic variability. The US formulation sales was shaded to the extent
of a potential USD 36 million as a full-year impact due to import
alert.
Despite constraints, consolidated net operating income was Rs46274
million showing a growth of 5.6% over the previous year. Gross sales
from formulations have been at Rs26020 million, which is 7.4% higher on
year-on-year basis.
The ARV sales have grown by 13.4% to Rs7866 million during the year
under review. Europe and the rest of the world geographies recorded a
sale of Rs6315 million, thereby growing at 17% over the financial year
2010-11. Gross sales from API have been at Rs20634 million which is
14.5% higher over the corresponding previous fiscal while the SSP sales
grew by 11.4%. There is a decline in Cephalosporin sales to the extent
11.8%. However, non-betalactam (non-penicillin and non-cephalosporin)
product sales has seen a rapid growth at 76% at Rs6870 million during
the year over Rs3901 million last year.
Profit from operations before other income, finance costs, foreign
exchange gain/loss, exceptional items, depreciation/ amortization and
tax for the year was Rs6101 million which is 13.2% of net operating
income, declined as compared to the previous year by 36.7%.
As already referred, EBITDA was impacted due to lower dossier income by
Rs1958 million. Loss of margin is mainly due to full year sales impact
on USFDA alert on Unit-VI, material consumption to net sales higher by
2.5% on account of change in sales mix, increase in staff cost by 1.4%
mainly due to the new hiring in Europe and USA, increase in other
expenses such as power, fuels, consumables and freight by 1.2%.
Further, your Company booked redemption premium of Rs3198.6 million
while the outstanding FCCBs were redeemed on due date in the first
quarter of the financial year.
As far as foreign exchange is concerned, the closing rupee- dollar rate
was Rs50.875 on March 31, 2012 while it was Rs44.595 on March 31, 2011.
The rupee has been highly volatile and depreciated by 14.1% during the
financial year. This has resulted in a net exchange loss of Rs2232.9
million during the year includes an amount of Rs1744.7 millions on
borrowings adjusted to finance charges as per revised Schedule VI. It
has also increased your Company's borrowings by approximately Rs3500
million as on March 31, 2012 on account of restatement.
REVIEW OF OPERATIONS
Your Company consolidated its business during the year and climbed the
value chain by focusing on quality of its processes and products,
controlling the variable costs, building on its relationship with its
customers and enhancing the commitment towards environment, health and
safety.
On the product and process front, your Company worked on time cycle
reductions by practicing lean manufacturing concepts to improve
productivity. Similarly, process stabilization efforts increased
yields, while newer methods of recycling of solvents added to
by-product recoveries. Energy costs account for approximately 5.75% of
total revenue and the organization was audited and sensitized to make
judicious and effective use of energy to minimize costs, strive for
saving potential of 12% and enhance competitive position.
Several scale up efforts were attempted successfully which helped
launch new products. A new API plant was commissioned to cater
exclusively to the quality conscious Japanese market.
Members would be gratified to note that your Company has been launching
one new product in major markets, every month.
Despite increasing the product base and stepping up volume deliveries,
the capacity utilization is at around 50% in formulation facilities and
about 70% in the API units. The investments made in the past in
vertically integrated mega manufacturing facilities have provided
headroom for growth and enabled your Company to compete better for
several more quarters. The built-in manufacturing flexibility offers
Aurobindo the opportunity to optimize its product mix, reduce the time-
to-launch new products after regulatory approvals and provide customers
a single-window approach to draw from the large basket of approved
products from Aurobindo.
OUTLOOK
Aurobindo's growth strategy will be to work towards profitable growth,
focus on high value products, ramp up its operations, with higher
utilization of capacities for top ten products both in APIs and
formulations and deliver larger volume of existing products and by
commercializing newer products that have received regulatory approvals.
Your Company has a basket of largest number of approved products. For
instance, the regulatory approvals for generics (ANDAs) as at March 31,
2011 were 133 which stood increased to 145 as at March 31, 2012.
The Company's manufacturing facilities are approved by several leading
regulatory agencies like US FDA, UK MHRA, WHO, Health Canada, MCC
(South Africa) and ANVISA (Brazil). The Company's robust product
portfolio is spread over 6 major therapeutic/ product areas
encompassing antibiotics, anti-retroviral, CVS, CNS,
gastroenterological, and anti-allergic, supported by an outstanding
R&D set-up. The Company is marketing these products globally, in over
125 countries. The intellectual property and a well-organized
manufacturing and marketing team will continue to add traction to the
growth trajectory.
The Company has benefited from several learning opportunities to
improve its processes with specific emphasis on quality and regulatory
requirements. At the same time, Aurobindo believes that improvements
need to be closely monitored internally as a dynamic day-to-day
exercise and every effort made to meet/ exceed expectations. The level
of vigilance has been raised to offer excellence through proactive
initiatives to carve out more focus and add impetus to the quality
culture in the production process. The accountability levels stand
enhanced with responsibility for vendor quality, adherence to quality
management systems and post-marketing surveillance.
Your Company has a mutually advantageous relationship with some of the
best pharma companies globally, who have shown enormous trust in
Aurobindo meeting their market needs. Your Company will continue to
strive building a strong relationship and be a dependable resource for
all of them. Their feedback has been positive in areas such as
collaboration, order handling and product quality which helped your
Company to further hone its systems and processes. Systematic
monitoring and management of customer relationships, reliable processes
and enhanced product quality has enabled Aurobindo to understand and
meet their needs and expectations.
Internally, several cost control measures have been put in place by
strengthening the budgeting process and carefully controlling cost of
operations and reducing overhead and capital expenditure. Production
unit-wise focus on bottom line improvement, alignment of input: output
ratios, productivity improvements and inventory management to lower the
holding costs are some of the aggressive efforts made to implement a
unified policy to enhance margins.
RECOGNITION
The export promotion council for EOUs and SEZ under Ministry of
Commerce & Industry, Government of India has selected your Company for
our outstanding export performance in 2009-10. Mr. Jyotiraditya M.
Scindia, Hon'ble Minister for State for Commerce & Industries handed
over the award on May 17, 2012.
RESEARCH & DEVELOPMENT
The year under review has been one of the formidable years for the API
R&D team in terms of the technology transfer dossiers (TTD)
submissions, patent filings and regulatory agency submissions. In
addition to working on close to 30 new products, the team also worked
on the various improvement initiatives on the commercialized products.
The R&D function has 68 projects under various stages of development
including 5 products with first-to-file (FTF) opportunities, 7
processes for patent applications, and 10 recipients. Several other
products are under active development in therapeutic areas such as
ophthalmic, inhalation and injectables and a few more have been taken
up for cost optimization.
During the year, the API R&D Center has been shifted from Bachupally to
Pashamylaram in a seamless manner and is fully operational. The new
Center is dedicated to API research (synthetic and analytical) along
with creating relevant intellectual property rights and is duly
supported by a strong regulatory affairs team.
ENVIRONMENT, HEALTH & SAFETY
Your Company is committed to ensuring ecological balance and protecting
the health and safety of its employees and neighborhood. In the long
run, environmentally conscious process design and development are
central ways to reduce harmful ecological impact. Therefore, the
Company has taken up initiatives to optimize energy efficiency,
minimize substances harmful to the environment and people, and recycle
materials and resources as far as practicable.
A few of the initiatives undertaken in 2011-12 include, introduction of
activity based risk assessment for non-process activities, enhancement
of the safety culture and work ethics on the shop floor and empowerment
of the safety committees charged with the task of improving the
well-being of the people and the neighborhood. More specifically, some
of the safety initiatives undertaken include:
- Process risk analysis in all the API units;
- A hazard and operability study (HAZOP) i.e. a structured and
systematic examination of existing process/operations were undertaken
to review all processes in API units in order to identify and evaluate
problems that may represent risks to personnel or equipment and steps
taken to prevent them;
- Activity based risk assessment for non-process activities
(warehouse, engineering, QC) in both API and formulation units;
- Devised specific handling procedures for hazardous chemicals and
training personnel on those procedures;
- Process safety testing - Determination of thermal conductivity of
all powders, flammability of powders which are non-conductive in
character; and,
- Review of layouts and product improvement and development by the
EHS team, before finalization of new projects.
Several initiatives were also made in the area of environmental
management. A few of them are listed below:
- Achieved zero process liquid discharge status at two API Units
(Units VIII and IX);
- Installed on-line stack monitoring equipment for boiler stacks at
Units I, V and VI;
- Installed and commissioned stripper, multiple-effect evaporator
(MEE) and agitated thin film drier (ATFD) at Unit XI;
- Installation of stand-by wastewater treatment systems at Units V
and IX (MEE and ATFD) for business continuity;
- Entered in to agreements with cement units for disposal of liquid
organic wastes at 'zero' handling and disposal costs;
- Sewage treatment plant at Unit I;
- Initiation for installation of continuous ambient air quality
monitoring station at Unit XI; and,
- Accredited to ISO:14001 certification for Units VI (A&B).
During the year under review, your Company was proud to receive the
National Award for Energy Excellence & Energy Management
- 2010 conferred by the Confederation of Indian Industry (CII) for Unit
I.
FOREIGN CURRENCY CONVERTIBLE BONDS
During 2006-07, your Company had issued 150,000 Zero Coupon Foreign
Currency Convertible Bonds of USD 1,000 each due in 2011 (Tranche A
Bonds) and 50,000 Forward Conversion Convertible Bonds of USD 1,000
also due in 2011 (Tranche B Bonds). After repurchase and cancellation
(43,750 of Tranche A bonds and 17,050 of Tranche B bonds), the
outstanding 106,250 of Tranche A bonds and 32,950 of Tranche B bonds
were repaid on due date in May, 2011 at 146.285% and 146.991%
respectively to the principal amount.
The redemption premium (Yield to Maturity) has been charged to the
Statement of Profit and Loss and is disclosed as an exceptional item in
the financial results. By virtue of such redemption, all outstanding
FCCBs have been fully redeemed and extinguished.
SUBSIDIARIES/JOINT VENTURES
The reports and accounts of the subsidiary companies are not annexed to
this Report. The Board of Directors of the Company have approved and
passed a resolution in this regard. A statement pursuant to the
provisions of Section 212 of the Companies Act, 1956 is annexed.
Annual accounts of the subsidiary companies are kept for inspection by
any Member at the Registered Office of the Company as well as at the
Registered Office of the respective subsidiary companies. Any Member
interested in a copy of the accounts of the subsidiaries may write to
the Company Secretary.
HUMAN RESOURCES
Your Company has been ably managed and competitively better positioned
by the commitment demonstrated by all the 8,635 employees in their
effort generate sustainably profitable growth. They are the key
building block for implementing the Company's strategy and the
financial year 2011-12 saw them respond flexibly to the dynamic changes
in a highly challenging globalized market.
Several business excellence initiatives started in 2010-11 under the
program Aurobindo Achieving Competitive Edge (A CE) has been further
strengthened during the year under review with the involvement of more
teams at shop floor level. Significant number of project proposals on
yield improvement, quality enhancement, waste reduction and
productivity upscale are implemented at both formulation and API units.
A cross
functional team has been formed to validate the results and share the
critical learning across the organization. A CE platform has given
significant opportunity to the people at all levels to exercise their
creative talents and channelize their potential to impact the company's
performance in a positive manner.
DIRECTORS
Dr. K. Ramachandran ceased to be Director due to his resignation from
the Board with effect from May 3, 2011. The Board places on record its
appreciation for the services rendered by him as a Director during his
association with the Company.
Dr. C. Channa Reddy has been appointed as an Additional Director of
your Company with effect from January 18, 2012 and pursuant to Section
260 of the Companies Act, 1956 and Article 37 of the Articles of
Association of the Company, he holds office up to the date of the
ensuing Annual General Meeting and being eligible, offers himself for
appointment.
In accordance with the provisions of the Companies Act, 1956 read with
the Articles of Association of the Company, Mr. M. Sitarama Murthy, Dr.
D. Rajagopala Reddy and Dr. P.L. Sanjeev Reddy retire by rotation at
the ensuing Annual General Meeting. All of them being eligible, offer
themselves and seek re-appointment except Dr. Sanjeev Reddy.
Dr. P.L. Sanjeev Reddy expressed his intention not to seek
re-reappointment. The members of the Board place on record the deep
sense of appreciation for the services rendered by Dr. Sanjeev Reddy
during his tenure as a member of the Board.
The re-appointment of Dr. M. Sivakumaran, and Mr. M. Madan Mohan Reddy,
Wholetime Directors are being proposed at the ensuing Annual General
Meeting.
Mr. K. Nithyananda Reddy seeks to relinquish his responsibilities as
Managing Director of the Company and the Board has appointed him as
Wholetime Director of your Company designated as Vice Chairman with
effect from June 1, 2012 subject to approval of the Members at the
ensuing Annual General Meeting.
Mr. N. Govindarajan has been appointed as a Director of the Company
with effect from June 1, 2012 and pursuant to Section 260 of the
Companies Act, 1956 and Article 37 of the Articles of Association of
the Company, he holds office up to the date of the ensuing Annual
General Meeting and being eligible, offers himself for appointment.
Further, Mr. Govindarajan has been appointed as Managing Director of
the Company with effect from June 1, 2012 subject to approval of the
Members at the ensuing Annual General Meeting.
Mr. Ravindra Y. Shenoy has been appointed as a Director of the Company
with effect from June 1, 2012 and pursuant to Section 260 of the
Companies Act, 1956 and Article 37 of the Articles of Association of
the Company, he holds office up to the date of the ensuing Annual
General Meeting and being eligible, offers himself for appointment.
Further, Mr. Shenoy has been appointed as Joint Managing Director of
the Company with effect from June 1, 2012 subject to approval of the
Members at the ensuing Annual General Meeting.
Mr. P.V. Ramprasad Reddy seeks to relinquish his responsibilities as
Executive Chairman of the Company with effect from June 1, 2012 and
continues to be on the Board as a Whole time Director.
Mr. K. Ragunathan, an Independent Director, has been appointed as
Non-Executive Chairman of the Board with effect from June 1, 2012.
A brief profile of Dr. C. Channa Reddy, Mr. M. Sitarama Murthy, Dr. D.
Rajagopala Reddy, Mr. K. Nithyananda Reddy, Dr. M. Sivakumaran, Mr. M.
Madan Mohan Reddy, Mr. N. Govindarajan and Mr. Ravindra Y. Shenoy are
provided in the Report on Corporate Governance forming part of the
Annual Report.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to the provisions of Section 217 (2AA) of the Companies Act,
1956 as amended, the Board of Directors confirms that in the
preparation of the Statement of Profit and Loss for the year ended
March 31, 2012 and the Balance Sheet as at that date:
i. the applicable accounting standards have been followed:
ii. had 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 the end of the financial year and of the loss of the
Company for the year;
iii. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and,
iv. the annual accounts have been prepared on a going concern basis.
CORPORATE GOVERNANCE
The certificate of the Practicing Company Secretary Mr. S. Chidambaram
with regard to compliance of conditions of corporate governance as
stipulated under Clause 49 of the Listing Agreement with the stock
exchanges in India is annexed.
AUDITORS & AUDITORS' REPORT
M/s. S.R. Batliboi & Associates, Chartered Accountants retire at the
ensuing Annual General Meeting and being eligible, offer themselves for
re-appointment as Statutory Auditors of the Company for the financial
year 2012-13.
The notes on financial statements referred to in the Auditors' Report
are self explanatory and do not call for any further comments.
COST AUDITORS
M/s. Sagar & Associates, Cost Accountants, have been reappointed as
Cost Auditors of the Company with the consent of the Government of
India to conduct cost audit of both the bulk drug and formulations
divisions of the Company for the year 2011-12. The due date for filing
cost audit report reports of the Company for 2010-11 was September 30,
2011 and the same was filed with the Ministry of Corporate Affairs on
September 26, 2011.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION ETC.
Information in accordance with the provisions of Section 217 (1) (e) of
the Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 is given
in Annexure I forming part of this Report.
FIXED DEPOSITS
Your Company has not accepted any fixed deposits during the year under
review. As such no amount of principal or interest was outstanding on
the date of the Balance Sheet.
INDUSTRIAL RELATIONS
As in the earlier years, your Company had cordial relations with its
employees at all levels. There is a continuous effort to step up
leadership and technical skills that has helped them function better,
stay focused on systems and best practices and in the process, build a
robust Aurobindo with capabilities to face emergent challenges.
PARTICULARS OF EMPLOYEES
The particulars of employees as required to be disclosed in accordance
with the provisions of Section 217 (2A) of the Companies Act, 1956 and
the Companies (Particulars of Employees) Rules, 1975 as amended are
annexed to the Directors' Report. However, as per the provisions of
Section 219 (1)(b)(iv) of the Companies Act, 1956 the Report and
Accounts are being sent to all the Members of the Company excluding the
aforesaid information. Any Member interested in obtaining such
particulars may write to the Company Secretary.
EMPLOYEE STOCK OPTION SCHEME
At the Annual General Meeting of the Company held on July 31, 2004 the
Members approved formulation of Employee Stock Option Scheme - 2004
(ESOP 2004) for the eligible employees and Directors of the Company and
its subsidiaries.
Further, the Members at the Annual General Meeting of the Company held
on September 18, 2006 approved formulation of Employee Stock Option
Scheme - 2006 (ESOP 2006) for the eligible employees and Directors of
the Company and its subsidiaries.
During the year 1,205,000 options were granted under ESOP- 2006.
Further, no options were exercised and no shares were allotted under
the ESOP Schemes.
Details of the options granted up to March 31, 2012 are set out in the
annexure to this Report, as required under Clause 12 of the Securities
and Exchange Board of India (Employee Stock Options Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999.
ACKNOWLEDGEMENTS
Your Board is grateful for the passion, dedication and commitment
demonstrated on the job by all employees and is confident that they
shall continue to underwrite the Company's growth. Your Company as in
the past, looks forward to the support and encouragement from the
customers and business associates. Your Directors thank the banks,
financial institutions, government departments and shareholders and
seeks their continuing guidance and assistance in all our future
endeavors.
For and on behalf of the Board
Hyderabad P. V. RAMPRASAD REDDY
May 29, 2012 Chairman
Mar 31, 2011
The Directors are pleased to present the 24th Annual Report of the
Company together with the Audited Accounts for the financial year ended
March 31, 2011.
FINANCIAL RESULTS
Rs. Million
2010-2011 2009-2010
Gross Turnover 42299.9 33196.0
Profit before Depreciation, Interest,
Tax and exceptional items 10096.9 8579.4
Depreciation/Amortization 1250.4 954.6
Interest (Net) 504.9 523.3
Profit before tax 8341.6 7101.5
Provision for tax/Deferred tax 2116.5 1865.8
Profit after tax before exceptional item 6225.1 5235.7
Exceptional items (287.1) 21.9
Net Profit after exceptional items 5938.0 5257.6
Balance brought forward from previous year 10900.9 6493.2
Balance available for appropriation 16838.9 11750.8
Appropriations
Dividend on Equity Shares 587.2 277.4
Tax on Dividend 96.4 46.7
General Reserve 593.8 525.8
Surplus carried to Balance Sheet 15561.5 10900.9
DIVIDEND
Your Directors have proposed a final dividend of 100% i.e. Rs.1 per
equity share of Rs.1 and with the interim dividend of 100% i.e. Rs.5 per
equity share of Rs.5, the total dividend for the financial year 2010-2011
comes to 200% i.e. Rs.2 per share on the equity share of Rs.1 against 100%
i.e. Rs.5 per share of Rs.5 paid in the previous year.
FINANCIAL HIGHLIGHTS
Members will be happy to know that your Company is in its Silver
Jubilee year. This eventful journey has been a period of planned growth
and success, and your Directors take this opportunity to compliment
each one of the Members, customers, business associates and employees
for their encouragement, support and co-operation. Your Company shall
maintain the momentum and stands dedicated to strive for continued
growth and thereby meet every stakeholder expectation in the future, as
well.
The year under review witnessed Aurobindo cross the one billion dollar
revenue mark, a landmark that truly reflects the presence
your Company has in the global pharmaceutical market. The challenges of
the market were met vigorously due largely to the enormous advantage
that your Company has built with its customer relationships, product
basket, manufacturing capabilities and organizational strength.
Aurobindo demonstrated great speed and flexibility in its marketing and
manufacturing efforts and resilience while dealing with competitive
pressures. The performance results showcase the success.
The financial year 2010-2011 saw significant improvement in all
parameters including revenues, operating income, profit before tax,
profit after tax and earnings per share. The revenue growth of over
27.4% at Rs.42299.9 million was a culmination of our strategic
initiatives in widening our presence in Europe and USA, penetrating
better with larger basket of products with existing customers and
commercializing of new products as well as creating footprints in
untapped markets such as Japan.
Net profit after tax at Rs.5938 million was higher by 12.9% over ~
Rs.5257.6 million in the previous year. It is a new high for your
Company translating to Earnings per Share of Rs.18.56 (Face Value Rs.1) as
compared to Rs.16.63 (adjusted for split in Face Value from Rs.5 to Rs.1).
Effectively, your Company earned 11.6% higher earnings over the
previous year.
REVIEW OF OPERATIONS
Despite the difficult economic environment, your Company delivered
sales growth both in USA and Europe. Your Companys total volume was
higher in each of the existing markets. More importantly, there were
higher deliveries in all the key therapeutic segments.
Your Company continues to hold an enviable basket of a large number of
products in several therapeutic segments approved by regulatory
authorities across the globe. The marketing efforts were galvanized to
create demand, deliver on expectations and ensure top line growth.
Converting approvals and quickly commercializing them remains one of
your Companys key strengths.
The newly commercialized manufacturing unit, Unit VII (SEZ) at
Gedcherla added to the existing huge production capabilities of your
Company to support the marketing thrust. The unit at Dayton (USA) was
significantly scaled up to deliver high value products.
Consolidation of facilities helped add newer products in all other
facilities. Across all facilities, production was optimized and
utilization was stepped up. Overall, capacity utilization was higher
month after month from June 2010.
Large state-of-the-art manufacturing facilities have created headroom
for growth for your Company to meet market expectations. Rising volume
deliveries and new product launches during 2010-2011 are a testimony to
your Companys improving competitiveness.
OUTLOOK
Aurobindos business strategies and financial position are on solid
footing even as the dynamics of the global market are challenging and
changing increasingly towards cost effective generic formulations. This
change is accelerating and driving the need for Aurobindo to
continuously renew and upgrade its operations. Your Company is equal to
the challenges and expected results are being achieved by the dedicated
teamwork on the manufacturing side as well as by aligning with the
needs of the customers.
Today, greater traction is visible in formulation sales in USA, Europe
and the emerging markets. Working closely with MNCs has enabled
Aurobindo to become a preferred choice supplier.
During 2011-2012, your Company is striving towards commercializing 12
new generics, with 4 of them expected to be on a first-to-launch basis.
Higher volumes, higher utilization and improvements in productivity
would improve visibility of revenues, margins and earnings.
Your Companys clear focus on quality, product development,
manufacturing efficiencies, productivity improvements and quicker reach
to market will drive the future success. This focus will enable
Aurobindo to enter the financial year 2011-2012 with optimism and keep
the Company on track to deliver revenue of USD 2 billion in 2013-2014.
In order to further strengthen and provide focus to the growing volume
of APIs and formulation business, the Board has constituted a
Restructuring Committee to explore and evaluate possible growth linked
restructuring options, inter alia, including spin-off or demerger or
any other suitable form, with the ultimate objective of enhancing
shareholders value and customer satisfaction. The Restructuring
Committee, consisting of Directors including independent directors,
will take all necessary steps and recommend the best options to the
Board for consideration.
RESEARCH & DEVELOPMENT
The Company has maintained its momentum to enlarge the product
pipeline. Given the nature of the pharmaceutical industry, all
activities translate into results after considerable investment of
inputs, necessary process validations, stringent quality assurances and
uncompromising compliance needs. Therefore, there is a time lag in
achieving results and/or commercializing new products.
Your Company has invested in a large pool of skilled talents to
actively create newer products. Their accomplishments have been in
areas as varied as product development, quality enhancement, process
development, customer support and knowledge sharing.
During the year under review, the R&D team has entered into newer
therapeutic areas such as ophthalmic products and contraceptives.
Validation batches are planned to be taken in 2011-2012. The R&D team
in USA have commercialized and launched new products and many more are
expected in the forthcoming financial year.
Overall, your Company filed 46 new patent applications taking the total
applications filed to 464. During the year under review, Aurobindo
filed 380 DMFs taking the aggregate of DMFs filed in different
countries to 1,937. At the same time, 98 formulation dossiers were
filed taking the aggregate of formulation dossiers filed in different
countries to 588. As at March 31, 2011 your Company holds 133 FDA
approved/tentatively approved ANDAs, and 156 formulation dossier
approvals from other regulatory authorities.
Every R&D effort is focused on enhancing the competitiveness and long
term sustainability of your Company.
QUALITY MANTRA
Your Company is pledged to supplying highest quality medicines to
customers founded on the belief that Aurobindo is committed to
healthier life. This presupposes that your Company at all times is
regulatory compliant, meets stringent requirements of customers and
that the drugs sold shall provide health care and wellness for the
consumers.
While your Company has put in place the necessary systems, regularly
all the systems, procedures and controls are continuously fine-tuned.
As a consequence, the quality systems have been revisited to strengthen
them while training inputs have been stepped up to elevate the level of
awareness, supervision and controllership.
Aurobindo is striving to ensure that it is benchmarked as the
best-in-class and thereby provide reassurance to all stakeholders.
Every effort is hence being made to ensure that there is no compromise
on quality of products and processes.
ENVIRONMENT, HEALTH & SAFETY
At Aurobindo, in every activity, your Company safeguards its employees,
facilities and the environment, conserves natural resources and
promotes environmental awareness. In the pursuit of the corporate goal
as a responsible corporate, your Company has initiated several
activities and adopted best practices such as:
/ Stepped up investments on wastewater treatment systems across all
facilities;
. Installed stripper system, multiple effect evaporation, agitated thin
film drier systems and reverse osmosis systems established across API
Units;
. Established multiple effect evaporation systems in three formulation
units;
. Significantly reduced wastewater disposal to common effluent
treatment facility;
. Explored avenues for disposal of hazardous wastes through alternate
destruction and reuse technologies; and,
. Instituted continuous on-line monitoring systems for treated
wastewater and on-line emission of suspended particulate matter.
Safety and health of all the employees continues to be of paramount
importance. Considerable work has gone into making our operations safer
by implementation of Standard Operating procedures, ergonomics
initiatives, regular safety audits etc. Among the focus area during
the year under review were as follows:
. Introduction of risk assessments to identify all risks in the work
area and devise and implement proper controls to mitigate the risk;
/ Training to all new employees and contract workmen;
/ Identification of process hazards at lab stage itself and usage of
calorimetric reaction.
Your Company stayed on track to get accreditation to ISO 14001:2004, a
key objective of the year. One of the API units achieved ISO 14001:2004
certification while three formulation units are on the verge of being
certified.
FOREIGN CURRENCY CONVERTIBLE BONDS
As Members are aware, in 2005, your Company had issued 60,000 Foreign
Currency Convertible Bonds of USD 1,000 each due in 2010. After
conversion into equity shares, repurchase and cancellation, the
outstanding bonds aggregating to face value of USD 2.118 million were
repaid on due date in August, 2010.
During 2006, your Company had issued 150,000 Zero Coupon Foreign
Currency Convertible Bonds of USD 1,000 each due in 2011 (Tranche A
Bonds) and 50,000 Forward Conversion Convertible Bonds of USD 1,000
also due in 2011 (Tranche B Bonds).
The outstanding FCCBs as at March 31, 2011 is 139,200 bonds and are due
for repayment as per the terms of the Offering Circular. Your Company
is confident of discharging its commitment.
EQUITY SHARE CAPITAL
The Board of Directors of your Company at their meeting held on
November 3, 2010, approved the sub-division of equity shares of the
face value of Rs.5 each in the Company into equity shares with the face
value of Rs.1 each. With approval of the Members at the Extraordinary
General Meeting of the Company held on December 23, 2010, the
sub-divided shares were issued to Members as on February 11, 2011 (the
Record Date).
SUBSIDIARIES/JOINT VENTURES
The reports and accounts of the subsidiary companies are not annexed to
this Report. The Board of Directors of the Company have approved and
passed a resolution in this regard. A statement pursuant to Section
212(8) of the Companies Act, 1956 is annexed.
Annual accounts of the subsidiary companies are kept for inspection by
any investor at the Registered Office of the Company as well as at the
Registered Office of the respective subsidiary companies. Any investor
interested in a copy of the accounts of the subsidiaries may write to
the Company Secretary at the Registered Office of the Company.
HUMAN RESOURCES
Aurobindo is well known for its execution capabilities, manufacturing
strengths, product quality, ability to keep to its commitments and be a
reliable partner for its customers. Over the years, organizational
strengths have enabled your Company to grow faster than the industry
average in each of the past decade.
The momentum continued during the year under review with a new high in
volume sold, highest ever revenues and profit after tax. Your Company
has been well served by all the employees, Aurobindos valuable
resources.
As at March 31, 2011 employees on roll constituted 8,317, higher by 3%
over 8,066 as on the same date a year ago.
DIRECTORS
In accordance with the provisions of the Companies Act, 1956, read with
the Articles of Association of the Company, Mr. K. Ragunathan, Dr. M.
Sivakumaran and Mr. M. Madan Mohan Reddy, Directors retire at the
ensuing Annual General Meeting and being eligible offer themselves for
re-appointment.
The re-appointment of Mr. P.V. Ramprasad Reddy, Chairman and Mr. K.
Nithyananda Reddy, Managing Director is being proposed at the ensuing
Annual General Meeting.
A brief profile of Mr. K. Ragunathan, Dr. M. Sivakumaran, Mr. M. Madan
Mohan Reddy, Mr. P.V. Ramprasad Reddy and Mr. K. Nithyananda Reddy are
provided in the Report on Corporate Governance.
DIRECTORS RESPONSIBILITY STATEMENT
Pursuant to the provisions of Section 217 (2AA) of the Companies Act,
1956 as amended, the Board of Directors confirms that in the
preparation of the Profit and Loss Account for the year ended March 31,
2011 and the Balance Sheet as at that date:
i. the applicable accounting standards have been followed;
ii. had 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 the end of the financial year and of the profits of the Company for
the year;
iii. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and,
iv. the annual accounts have been prepared on a going concern basis.
GROUP
Pursuant to an intimation from the promoters, the names of the
promoters and entities comprising group as defined under the
Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 are
disclosed in the Annual Report for the purpose of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997.
CORPORATE GOVERNANCE
The certificate of the Practicing Company Secretary Mr. S. Chidambaram
confirming compliance of conditions of Corporate Governance as
stipulated under Clause 49 of the Listing Agreement with the Stock
Exchanges in India is annexed.
AUDITORS
M/s. S.R.Batliboi & Associates, Chartered Accountants retire at the
ensuing Annual General Meeting and being eligible, offer themselves for
re-appointment as Statutory Auditors of the Company for the financial
year 2011-2012.
COST AUDITORS
M/s. Sagar & Associates, Cost Accountants, have been re- appointed as
Cost Auditors of the Company with the consent of the Central Government
of India to conduct cost audit of both the bulk drug and formulations
divisions of the Company for the year 2010-2011. The due date for
filing Cost Audit Report Reports of the Company for 2009-10 was
September 30, 2010 and the same was filed with the Ministry of
Corporate Affairs on September 18, 2010.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION ETC.
Information in accordance with the provisions of Section 217 (1) (e) of
the Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 is given
in Annexure I forming part of this Report.
FIXED DEPOSITS
Your Company has not accepted any fixed deposits during the year under
review. As such no amount of principal or interest was outstanding on
the date of the Balance Sheet.
INDUSTRIAL RELATIONS
As in the earlier years, your Company had cordial relations with its
employees at all levels. There is a continuous effort to step up
leadership and technical skills that has helped them function better,
stay focused on systems and best practices and in the process, build a
robust Aurobindo with capabilities to face emergent challenges.
PARTICULARS OF EMPLOYEES
The particulars of employees as required to be disclosed in accordance
with the provisions of Section 217 (2A) of the Companies Act, 1956 and
the Companies (Particulars of Employees) Rules, 1975 as amended are
annexed to the Directors Report. However, as per the provisions of
Section 219 (l)(b)(iv) of the Companies Act, 1956, the Report and
Accounts are being sent to all the members of the Company excluding the
aforesaid information. Any member interested in obtaining such
particulars may write to the Company Secretary.
EMPLOYEE STOCK OPTION SCHEME
At the Annual General Meeting of the Company held on July 31, 2004 the
Members approved formulation of Employee Stock Option Scheme - 2004
(ES0P 2004) for the eligible employees and Directors of the Company and
its subsidiaries.
Further, the Members at the Annual General Meeting of the Company held
on September 18, 2006 approved formulation of Employee Stock Option
Scheme - 2006 (ES0P 2006) for the eligible employees and Directors of
the Company and its subsidiaries.
During the year no options were granted under ESOP-2004 and ESOP-2006.
29,707 equity shares of Rs.5 each were issued and allotted under the
ESOP-2004 Scheme.
Details of the options granted up to March 31, 2011 are set out in the
annexure to this Report, as required under Clause 12 of the Securities
and Exchange Board of India (Employee Stock Options Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999.
ACKNOWLEDGEMENTS
Your Directors place on record their sincere appreciation for the
dedication and commitment of the employees at all levels and their
significant contribution to your Companys growth. Your Company is
grateful to the customers and business associates for their support and
encouragement. Your Directors thank the banks, financial institutions,
government departments and shareholders and look forward to having the
same support in all our future endeavors
Annexure-I to the Directors Report
RESEARCH AND DEVELOPMENT
Specific areas in which Research and Development carried out by the
Company
The Company carried out process development and commercialized various
products in cephalosporin antibiotics and antiviral compounds. Further,
it continued process research for maximizing the yield with improved
quality.
Benefits derived as a result of the above R&D
The Companys continuing efforts to become a strong knowledge based and
technology oriented R&D driven health care Company have yielded results
by way of improved processes in the commercial production.
Newer products and processes have facilitated Aurobindo to expand its
market.
Future plan of action
Your Company has ambitious plans to invest further for enhancing its
R&D capabilities.
Expenditure on Research and Development , Million
2010-2011 2009-2010
Capital 338.4 42.1
Recurring 1,394.0 972.7
Total R&D expenditure 1,732.4 1014.8
as a percentage of total turnover 4.10 3.06
TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION
Efforts, in brief, made towards technology absorption, adaptation and
innovation:
Technology absorption is not involved as the process for manufacture of
bulk drug is being developed in-house by the Company.
Benefits derived as a result of the above efforts, e.g., product
improvement, cost reduction, import substitution etc.
The processes were simplified and thereby achieving reduction in cost
and improvement in products.
Particulars of imported technology: Nil
Foreign Exchange Earning & Outgo
Activities relating to exports, initiatives taken to increase exports.
Registration of more product dossiers with global authorities, setting
up of foreign subsidiaries and commencement of activities at
subsidiaries and joint ventures.
For and on behalf of the Board
P. V. RAM PRASAD REDDY
Chairman
Hyderabad,
May 9, 2011.
Mar 31, 2010
The Directors are pleased to present the 23rd Annual Report of the
Company together with the Audited Accounts for the financial year ended
March 31, 2010.
FINANCIAL RESULTS
Rs. Million
2009-2010 2008-2009
Gross Turnover 33196.0 28852.5
Profit before Depreciation, Interest,
Tax and exceptional items 8579.4 2945.1
Depreciation/Amortization 954.6 824.1
Interest (Net) 523.3 550.6
Profit before tax 7101.5 1570.4
Provision for tax/Deferred tax 1865.8 321.2
Profit after tax before exceptional item 5235.7 1249.2
Exceptional items 21.9 36.2
Net Profit after exceptional items 5257.6 1285.4
Balance brought forward from previous year 6493.2 5619.4
Balance available for appropriation 11750.8 6904.8
APPROPRIATIONS
Dividend on Equity Shares 277.4 242.0
Tax on Dividend 46.7 41.1
General Reserve 525.8 128.5
Surplus carried to Balance Sheet 10900.9 6493.2
DIVIDEND
Your Directors have proposed a final dividend of 40% i.e., Rs.2 per
equity share and together with the interim dividend of 60% i.e. Rs.3
per equity share, the total dividend for the financial year 2009-10
amounts to 100% i.e. Rs.5 per share on the equity shares of Rs.5
against 90% i.e. Rs.4.50 per share paid in the previous year.
FINANCIAL HIGHLIGHTS
Your Company achieved all-time high revenues, operating income, EBITDA,
operating profit before tax and profit after tax. New highs were also
recorded in several other parameters such as volume sold and Earnings
per Share, while your Company became long-term debt free and holds its
net assets free of all encumbrances.
The gratifying part of the performance was the accomplishment in a year
which saw recessionary conditions in several countries, where your
Company has a presence, at a time of high volatility in raw material
prices and exchange rate.
The revenues at Rs.33196 million for the year under review was higher
by 15% over Rs.28852.5 million reported in 2008-09. Volume sold was
higher year-on-year and more significantly, with higher average
realization per product sold.
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)
excluding foreign exchange adjustments was Rs.7723.6 million in 2009-10
higher by 47.9% over Rs.5223.3 million earned in 2008-09. EBITDA margin
excluding foreign exchange adjustments was 23.3% in the year under
review compared to 18.1% in the previous year. It is relevant to
mention that your Company had an exchange gain of Rs.855.8 million
during the year, while there was a foreign exchange fluctuation loss of
Rs.2278.2 million in 2008-09.
Profit after Tax after exceptional items was Rs.5257.6 million during
the year under review, a significant improvement over Rs.1285.4 million
reported in 2008-09. The diluted Earnings per Share for the year is
hence Rs.83.16 as compared to Rs.19.86 for the previous year.
REVIEW OF OPERATIONS
In the face of global recessionary conditions and the consequent severe
competitive pressures, your Company strengthened its presence in all
its geographies and improved its marketing reach. The expanded product
portfolio and the investments made to augment manufacturing capacities
were leveraged to gain market share, strengthen distribution channels
and build further on the existing relationships with customers.
Formulations sales (Consolidated) during the year under review were up
by 32.6% to Rs.18520 million from Rs.13971 million in 2008-09.
Formulations sales constituted 53.6% of gross sales, while it accounted
for 46.2% in the previous year.
As in the earlier years, your Company continued to pursue newer product
offerings to respond to market needs. While Aurobindo has a presence in
several therapeutic segments in the formulations business, the focus
has been to increase the offerings in six segments in all the
addressable markets, both in the premium and emerging markets. In order
to ensure a sustainable growth, the product pipelines were further
expanded by filing 22 more ANDAs covering both Indian and US
facilities.
Your Company has a mutually rewarding relationship with all its
multinational customers including some of the best pharmaceutical
majors across the globe and strives to meet their exacting demands.
Volume sales have been rising and your Company has been working to keep
to their expectations, especially quality and timelines.
Manufacturing capacity stands optimized with the commissioning of the
Unit VII (SEZ) at Jedcherla as well as de- bottlenecking at other
units. The manufacturing facility at Dayton, New Jersey, U.S.A.
commenced commercial production during the year under review.
Capacities were added both at the active ingredient units as well as in
the formulation units. While some of them were commissioned in the
course of the year, the full benefits at both revenue and profitability
levels are anticipated in the financial year 2010-11.
There has been improvement in efficiencies, increase in power
generation and moderate increase in operating margins. While
productivity and yields have increased, focused efforts are being made
to improve on the key parameters at the manufacturing units.
EVENTS AFTER THE BALANCE SHEET DATE
As Members are aware, your Company in 2006 had issued 60,000 Zero
Coupon Foreign Currency Convertible Bonds (bonds) due in 2010 of $
1,000 each on the following terms:
- either convertible by the holders at any time on or after September
20, 2005 but prior to close of business on August 1, 2010. Each bond
will be converted into 83.12 fully paid up equity share with par value
of Rs.5 per share at a fixed price of Rs.522.036 per share at a fixed
exchange rate conversion of Rs. 43.3925 = $ 1; or
- redeemable in whole but not in part at the option of the Company at
any time on or after February 25, 2008 and on or prior to August 1,
2010 as per the terms and conditions of the bonds mentioned in the
Offering Circular;
- redeemable on maturity date at 139.954% of its principal amount if
not redeemed or converted earlier.
The bonds have been since determined and crystallized and all except
2,118 bonds of $ 1,000 each have been converted/ repurchased. The
balance bonds are due for repayment as per the terms of the Offering
Circular.
OUTLOOK
Going ahead, your Company will continue to focus on higher capacity
utilization and augmenting the existing large portfolio of generic
products. The marketing plans are also tailored to becoming more
geographically diversified in the emerging markets and deepen the
presence in the premium markets in order to have a more balanced and
derisked growth.
Your Company is well-positioned for the long term with its proven
business strategy that has withstood the challenges of global economic
environment, regulatory compliant product basket, sound financials and
dedicated team of people working together to achieve superior results.
However, in the recent past, raw material prices have tended to rise
leading to cost push and supply-demand mismatch. Your Company is
cognizant of such challenges and is geared to face them. Aurobindos
vertically integrated manufacturing facilities enable producing and
delivering on due dates as well as managing margin pressures.
In order to ensure sourcing reliability and provide for growth
requirements, your Company will continue to invest in manufacturing
systems and add to capacity of both intermediates and active
ingredients. Similarly, investment will continue to be made to add to
product pipeline as well launch products soon after they are approved
by regulatory authorities. Today, your Company is managed by competent
and experienced people and initiatives are being taken to add to
resources, equip them for present and future needs and enable them to
face the challenges of a high energy organization on a fast track.
In the ultimate analysis, your Company will maintain its momentum to
grow sustainably and reach the stated objective of $ 2 billion revenues
by 2012-13.
RESEARCH & DEVELOPMENT
Your Companys research and development (R&D) activities are focused on
developing new products and new non-infringing processes, as well as
maintaining and improving the quality of the existing products.
Research is also being carried out on risk characterization, patenting
new process patents, creating a framework for ensuring regulatory
compliance and for understanding the future needs of the markets.
Efforts are on to launch a focused program of Quality by Design to
ensure and improve assurance standards in processes and products. Risk
reduction such as developing technologies that have the potential to
ensure valence and conform to regulatory requirements is a central part
of the R&D program.
Aurobindos strength is its research based chemistry capabilities and
expertise in developing dosage forms that meet compliance standards and
market needs. On an on-going basis, your Company continues to invest in
high-end talents to identify new products and non-infringing processes
and improve process controls.
During the year under review, the R&D Centre filed 22 ANDAs including 7
Paragraph IV applications. The R&D facility in the U.S.A. filed 3
ANDAs for controlled substances. The new formulation facility in SEZ
has been formally inaugurated and has commenced filing ANDAs /Dossiers.
Further, 49 more patent applications covering improved processes for
various active pharmaceutical ingredients and pharmaceutical
compositions were filed. Your Company is proud to report that the
patent Appreciation Award was received for its API process from the
Indian Drug Manufacturers Association, Mumbai.
SUBSIDIARIES/JOINT VENTURES
The reports and accounts of the subsidiary companies are not annexed to
this Report. The Company has obtained in writing an exemption in this
regard from the relevant authority. A statement pursuant to Section
212(8) of the Companies Act, 1956 is annexed.
Annual accounts of the subsidiary Companies are kept for inspection by
any investor at the Registered Office of your Company as well as at the
Registered Office of the respective subsidiary Companies. Any investor
interested in a copy of the accounts of the subsidiaries may write to
the Company Secretary at the Registered Office of the Company.
ENVIRONMENT & SAFETY
Your Company places considerable emphasis on its commitment and
responsibility towards the health and safety of its employees as well
as on its environmental footprint. Considerable care is taken to not
only meet the regulatory standards, but also to become best-in-class in
the pharmaceutical industry.
Large investments have been made in competent and experienced
supervisory human resources, state-of-the-art hardware, latest
technologies, updated systems and processes and focused training of
employees. Site visits were made by the supervisory teams to
familiarize themselves and train to get a hands-on understanding of the
international practices.
The team at Aurobindo is upgrading the facilities to implement a
comprehensive safety improvement and capacity building program.
On the environmental front, some of the initiatives taken during the
year include:
- establishing environmental management infrastructure across all
units;
- streamlining the process of disposal of certain categories of
hazardous wastes through alternate destruction and reuse technologies;
- promoting and encouraging innovative emerging technologies of water
treatment; and
- progressing towards achieving zero liquid discharge.
DIRECTORS
In accordance with the provisions of the Companies Act, 1956, read with
the Articles of Association of the Company, Dr. K. Ramachandran, Dr.
P.L. Sanjeev Reddy and Mr. P. Sarath Chandra Reddy, Directors retire at
the ensuing Annual General Meeting and being eligible, offer themselves
for re-appointment.
A brief profile of Dr. K. Ramachandran, Dr. P.L. Sanjeev Reddy and Mr.
P. Sarath Chandra Reddy are provided in the Report on Corporate
Governance.
DIRECTORS RESPONSIBILITY STATEMENT
Pursuant to the provisions of Section 217 (2AA) of the Companies Act,
1956 as amended, the Board of Directors confirms that in the
preparation of the Profit and Loss Account for the year ended March 31,
2010 and the Balance Sheet as at that date:
i. the applicable accounting standards have been followed;
ii. had 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 the end of the financial year and of the profits of the Company for
the year;
iii. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and,
iv. the annual accounts have been prepared on a going concern basis.
CREDIT RATING
Fitch Ratings has upgraded and assigned a National Long Term Issuer
rating of AA-(ind) with a Stable Outlook to your Company.
The upgrades reflect an improvement in your Companys financial and
credit profile during 2009-10. The ratings also factor in Fitchs
expectation of a further improvement in Aurobindos capacity
utilization, strong visibility of business growth and profitability as
well as a reduction in its financial risks despite the additional
capital expenditure planned during 2010-11.
GROUP
Pursuant to an intimation from the promoters, the names of the
promoters and entities comprising group as defined under the
Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 are
disclosed in the Annual Report for the purpose of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997.
CORPORATE GOVERNANCE
The certificate of the Practicing Company Secretary confirming
compliance of conditions of Corporate Governance as stipulated under
Clause 49 of the Listing Agreement with the Stock Exchanges in India is
annexed.
AUDITORS
M/s. S.R. Batliboi & Associates, Chartered Accountants retire at the
ensuing Annual General Meeting and being eligible, offer themselves for
re-appointment as Statutory Auditors of the Company for the financial
year 2010-11.
COST AUDITORS
M/s. Sagar & Associates, Cost Accountants, have been re-appointed as
Cost Auditors of the Company with the consent of the Central Government
of India to conduct cost audit of both the bulk drug and formulations
divisions of the Company for the year 2009-10.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION ETC.
Information in accordance with the provisions of Sec. 217 (1) (e) of
the Companies Act, 1956 read with the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 is given
in Annexure I forming part of this Report.
FIXED DEPOSITS
Your Company has not accepted any fixed deposits during the year under
review. As such no amount of principal or interest was outstanding on
the date of the Balance Sheet.
HUMAN RELATIONS
Aurobindos 8,066 (as at March 31, 2010) employees bring their skills
and motivation to their workplace and their specialized knowledge is
valuable to steer the future growth. Employees play a major role in
putting Aurobindos strategy into practice and are being encouraged to
innovate, improve and measurably contribute to creating a strong and
successful pharmaceutical company.
Your Companys goals include instilling the organizations values and
commitments, recruiting and maintaining skills tuned to present needs
and future growth, providing employees with a continually safe,
stimulating and satisfying work environment.
Your Board would like to thank all of the employees of Aurobindo for
the role that they have played in 2009-10 to build a stronger, fitter
organization.
PARTICULARS OF EMPLOYEES
The particulars of employees as required to be disclosed in accordance
with the provisions of Section 217 (2A) of the Companies Act, 1956 and
the Companies (Particulars of Employees) Rules, 1975 as amended are
annexed to the Directors Report. However, as per the provisions of
Section 219 (1)(b)(iv) of the Companies Act, 1956, the Report and
Accounts are being sent to all the Members of the Company excluding the
aforesaid information. Any Member interested in obtaining such
particulars may write to the Company Secretary at the Registered
Office.
EMPLOYEE STOCK OPTION SCHEME
At the Annual General Meeting of the Company held on July 31, 2004 the
Members approved formulation of Employee Stock Option Scheme - 2004
(ESOP-2004) for the eligible employees and Directors of the Company and
its subsidiaries.
Further, the Members at the Annual General Meeting of the Company held
on September 18, 2006 approved formulation of Employee Stock Option
Scheme - 2006 (ESOP-2006) for the eligible employees and Directors of
the Company and its subsidiaries.
During the year, no options were granted under ESOP-2004 and ESOP-2006.
150,030 equity shares were issued and allotted under the ESOP-2004
scheme.
Details of the options granted up to March 31, 2010 are set out in the
annexure to this Report, as required under Clause 12 of the Securities
and Exchange Board of India (Employee Stock Options Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999.
ACKNOWLEDGEMENT
Your Directors place on record their sincere appreciation for
significant contribution made by the employees at all levels through
their dedication, hard work and commitment and look forward to their
continued support. Your Company has hugely benefited by the
encouragement and patronage of its large number of customers and is
deeply indebted to them. Your Directors are grateful to the central and
state governments for their continued support for the Companys
expansion plans and wish to place on record their appreciation and
acknowledge with gratitude the co-operation extended by regulatory
authorities, banks, financial institutions and shareholders and look
forward to having their support in the future.
For and on behalf of the Board
P. V. RAMPRASAD REDDY
Chairman
Hyderabad
August 5, 2010