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Directors Report of Divi's Laboratories Ltd.

Mar 31, 2015

Dear Shareholders,

The Directors have pleasure in placing before you the Twenty Fifth Annual Report of the Company together with the Audited Accounts for the year ended 31st March 2015.

FINANCIAL RESULTS

The Company's financial performance, for the year ended 31st March, 2015 is summarized below :

(Rs. in lakhs) Particulars Standalone 2014-15 2013-14

Net Sales 307230.09 250717.32

Other Operating Income 1170.80 679.22

Other Income 4284.08 8390.26

Total Income 312684.97 259786.80

Expenditure 192195.68 149511.03

PBDIT 120489.29 110275.77

Depreciation 13585.22 9206.18

Finance Cost 186.45 205.52

Profit before tax (PBT) 106717.62 100864.07

Provision for tax :

Current Tax 21614.04 20615.88

MAT Credit Entitlements (679.91) (2436.08)

Deferred Tax 1077.96 3511.96

Profit after tax (PAT) 84705.53 79172.31

Earnings per Share (EPS) (Rs.) -Basic & Diluted 63.82 59.65

Paticular Consolidated 2014-15 2013-14

Net Sales 310323.21 252534.82

Other Operating Income 1170.80 679.22

Other Income 4469.68 7060.32

Total Income 315963.69 260274.36

Expenditure 194969.62 151765.58

PBDIT 120994.07 108508.78

Depreciation 13599.84 9211.60

Finance Cost 186.45 205.52

Profit before tax (PBT) 107207.78 99091.66

Provision for tax :

Current Tax21 614.04 20615.88

MAT Credit Entitlements (679.91) (2436.08)

Deferred Tax 1121.47 3578.05

Profit after tax (PAT) 85152.18 77333.81

Earnings per Share (EPS) (Rs.) -Basic & Diluted 64.15 58.26

RESULTS OF OPERATIONS Standalone

- Sales for the year increased by 23% to Rs. 307230.09 lakhs.

- PBDIT for the year increased by 9% at Rs. 120489.29 lakhs.

- Profit before Tax (PBT) for the year amounted to Rs.106717.62 lakhs as against a PBT of Rs.100864.07 lakhs for the last year.

- Tax Provision for the currentyear amounted to Rs. 20934.13 lakhs (net of MAT credit entitlement of Rs.679.91 lakhs). Provision for last year was Rs. 18179.80 lakhs (net of a MAT credit entitlement of Rs.2436.08 lakhs).

- An amount of Rs. 1077.96 lakhs has been provided towards Deferred Tax Liability for the year as against Rs. 3511.96 lakhs during the previous year.

- Forex loss was Rs.104.50 lakhs as against a forex gain of Rs.5041.79 lakhs during the last year.

- Profit after Tax for the year amounted to Rs.84705.53 lakhs.

- Earnings Per Share of Rs.2/- each works out to Rs. 63.82 for the year as against Rs. 59.65 last year.

- Out of the total revenue, 38% came from North America, 35% from Europe, 10% from Asia, 13% from India and 4% from Rest of the World.

Depreciation : The company has revised charging of depreciation on fixed assets according to the useful life as specified in Schedule II to the Companies Act, 2013 which came into effect from 1st April, 2014.

In view of the amendment to the Schedule II vide Notification dated 29-08-2014 issued by the Ministry of Corporate Affairs and the Application Guide issued by the ICAI on 10-04-2015, which gave the company an option to charge-off depreciation of assets, whose useful life has already been exhausted before 1st April, 2014, after retaining residual value, either to the opening balance of retained earnings or to the Statement of Profit and Loss, your company has decided to charge-off such depreciation to the Profit and Loss Account for the year.

Consolidated

Our total income on consolidated basis increased to Rs. 315963.69 lakhs from Rs. 260274.36 lakhs in the previous year, recording a growth of 21%.

PBDIT amounted to Rs. 120994.07 lakhs as against Rs. 108508.78 lakhs in the previous year. Profit after Tax for the year accounted to Rs. 85152.18 lakhs as against Rs. 77333.81 lakhs in the previous year.

There has been a wide fluctuation in the exchange rates of currencies worldwide. Gain for the current and previous year is given below :

(Rs. in lakhs) Particulars 2014-15 2013-14

Forex gain/(loss) 185.51 3711.73

SUBSIDIARIES

Our subsidiaries viz., M/s. Divis Laboratories (USA) Inc., in USA and M/s. Divi's Laboratories Europe AG in Switzerland are engaged in marketing/distribution of nutraceutical products and to provide a greater reach to customers within these regions.

During the year, the subsidiaries have achieved a turnover of Rs.16835.44 lakhs as against previous year turnover of Rs. 12618.50 lakhs, resulting in growth of 33% for the nutraceutical products in North America and Europe.

Brief of financial results of the subsidiaries, as per Indian GAAP, are as under :

(Rs. in lakhs) Particulars Divis Laboratories (USA) Inc., Year ended 31-03-2015 31-03-2014

Turnover 10002.58 8763.97

Profit / (Loss )before taxation (111.91) (750.93)

Provision for taxation (Deferred Income Tax) 43.51 66.09

Profit / ( Loss) after taxation (155.42) (817.02)

pATICULAR Divi's Laboratories Europe AG 31-03-2015 31-03-2014

Turnover 6832.86 3854.53

Profit / (Loss )before taxation 602.07 (1021.48)

Provision for taxation (Deferred Income Tax)

Profit / ( Loss) after taxation 602.07 (1021.48)

Subsidiaries have achieved good growth in operating profit. Loss on forex currency translation for the year accounted to Rs. 225 Lakhs for US subsidiary and forex gain on currency translation of Rs. 515 Lakhs for Europe subsidiary.

Auditors of these subsidiaries have observed that the subsidiaries have suffered recurring losses, lack sufficient liquidity to continue operations and to continue as a going-concern depends on the temporary funding by the parent and successful realization of their business plans.

This year, the company has increased the subordination of its loans to Divi's Laboratories Europe to an aggregate to CHF 5.00 million.

As stated above, with the significant efforts having been made in stabilizing operations and qualifications from several customers, the company is confident of achieving profitability at the subsidiaries and recovery of the investments/advances made in the foreseeable future.

As per section 129(3) of the Companies Act, 2013, statement containing the salient features of the financial statement of Company's subsidiaries in form AOC-1 is annexed herewith as "Annexure I". Moreover, pursuant to provisions of Section 136(1) of the Companies Act, 2013, audited financial statements of the subsidiary companies are placed on the website of the company at www.divislaboratories.com. Shareholders who wish to have a copy of the full report and accounts of the subsidiaries will be provided the same on receipt of a written request from them. These documents will be available for inspection at the Registered Office of the Company on any working day during business hours. The Consolidated Financial Statements presented by the Company include the financial results of its subsidiary companies.

Emphasis of Matter

Our Auditors have observed that the networth of the subsidiaries has eroded and consequent possibility of any temporary impairment of investment by way of equity in subsidiaries amounting to Rs.281.61 lakhs and non-recovery or partial recovery of loans of Rs.4358.08 lakhs given to the subsidiaries.

Over the last few years, we have made significant progress in terms of implementing the nutra facility and stabilising operations. Approvals have since been received from several major users and the outlook now looks very positive.

During the year, the subsidiaries have achieved good growth of business and have achieved operating profit. Net loss could have reduced significantly, but for the loss on account of foreign currency translation. With the significant efforts having been made towards optimizing operations and cost efficiency, the company is confident of achieving profitability at the subsidiaries and recovery of the loans given in the foreseeable future.

CONSOLIDATED ACCOUNTS

As stipulated in the listing agreement with the stock exchanges and Companies Act, 2013, the consolidated financial statements have been prepared by the Company in accordance with the relevant accounting standards. The audited consolidated financial statements together with Auditors Report thereon form part of the Annual report.

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs.20/- per equity share of Rs.2/- each, i.e., 1000% for the financial year ended 31st March, 2015, subject to approval of members at the ensuing Annual General Meeting.

The total dividend payout for the current year amounts to Rs. 31951.17 lakhs (inclusive of tax of Rs. 5404.31 lakhs) as against Rs. 31058.50 lakhs in the previous year. Dividend (including dividend tax) as a percentage of profits is 38% as compared to 39% in the previous year.

The dividend on equity shares, if declared at the AGM, will be paid to members whose names appear in the Register of Members as on 8th August, 2015. In respect of shares held in dematerialised form, it will be paid to members whose names are furnished by Depositories as beneficial owners as on that date.

TRANSFER TO GENERAL RESERVES

We propose to transfer an amount of Rs.20000.00 lakhs to General Reserve for facilitating the dividend for the year.

FIXED DEPOSITS

Your Directors wish to inform that the Company has not accepted any deposits from public covered by provisions of Section 73 of the Companies Act, 2013.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

During the year, the company has not given any loans or guarantees covered under the provisions of section 186 of the Companies Act, 2013. The details of investments made by company are given in the notes to the financial statements.

RELATED PARTY TRANSACTIONS

As a matter of policy, your Company carries out transactions with related parties on an arms' length basis. There are no materially significant related party transactions made by the company with Promoters, Key Managerial Personnel or other designated persons which may have potential conflict with interest of the company at large. Statement of these transactions is given in other explanatory information attached in compliance of Accounting Standard No.AS-18.

MANAGEMENT DISCUSSION AND ANALYSIS

A report on Management Discussion & Analysis for the year under review, as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is provided in a separate section forming part of this Annual Report.

MATERIAL CHANGES AND COMMITMENTS

No material changes and commitments have occurred after the close of the year till the date of this Report, which affect the financial position of the company.

INTERNAL FINANCIAL CONTROLS

The Company has in place adequate internal financial controls with reference to financial statements. During the year, such controls were tested and no reportable material weakness in the design or operation was observed.

RISK MANAGEMENT

Divis has an enterprise-wide approach to risk management, which lays emphasis on identifying and managing key operational and strategic risks. Through this approach, the company strives to identify opportunities that enhance organisational values while managing or mitigating risks that can adversely impact its future performance. The company has been addressing various risks impacting the company and the policy of the company on risk management is provided elsewhere in this annual report in Management Discussion and Analysis.

Pursuant to section 134 (3) (n) of the Companies Act, 2013 & Clause 49 of the listing agreement, the company has constituted a business risk management committee to review the processes and procedures for ensuring that all strategic and operational risks are properly identified and that appropriate systems of monitoring and control are in place and to oversee and review the risk management framework, assessment of risks and minimization procedures.

DIRECTORS' RESPONSIBILITY STATEMENT

As required under Section 134 (5) of the Companies Act, 2013, Directors of your company hereby state and confirm that :

a) the applicable accounting standards have been followed in the preparation of the annual accounts;

b) the accounting policies selected were applied consistently and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2015 and its profit for the year ended on that date;

c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) the annual accounts have been prepared on a going concern basis.

e) internal financial controls have been laid down and such controls are adequate and operating effectively;

f) proper systems have been laid down to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively.

NUMBER OF MEETINGS OF BOARD OF DIRECTORS

The Board meets at least four times in a year at quarterly intervals and more frequently if deemed necessary, to transact its business. During the financial year the Board has met five times, i.e. on 24th May 2014, 23rd June, 2014, 11th August 2014, 1st November 2014 and 31st January 2015.

DIRECTORS AND KEY MANAGERIAL PERSONNEL Appointments :

Pursuant to the provisions of Section 149 and other applicable provisions of the Companies Act, 2013, Dr. G. Suresh Kumar, Mr. R. Ranga Rao, Mr. K.V.K. Seshavataram and Smt. S. Sridevi were appointed as Independent Directors in the Annual General Meeting held on 25th August, 2014 for a period of five years.

Re-appointments :

As per the provisions of the Companies Act, 2013 Mr. N.V. Ramana, Executive Director will retire by rotation at the ensuing Annual General Meeting and, being eligible, offers himself for re-appointment.

Members of the Company in the Annual General Meeting held on 25th August, 2014, approved the re-appointment of Dr. Murali K. Divi as Chairman & Managing Director of the Company for a further period of five years from October 10, 2014 and Mr. N. V. Ramana as Executive Director of the company for a further period of five years from December 26, 2014.

Members of the Company through Postal Ballot Resolution (declared on 20th March, 2015) approved the re-appointment of Mr. Madhusudana Rao Divi as Director - Projects of the Company for a further period of five years from April 1,2015 and Mr. Kiran S. Divi as Director & President - Operations of the company for a further period of five years from April 1,2015.

Resignations:

Dr. K. Satyanarayana, Independent Director has resigned from the Board with effect from 23rd June, 2014. Dr. K. Satyanarayana joined the Board on 08.08.1995 and has been part of Divi's journey for 19 years. The Board would like to thank him for his long association with the company.

Mr. S. Vasudev, Independent Director has resigned from the Board with effect from 23rd June, 2014. Mr. S. Vasudev has been part of the Board from 09.08.2004. The Board sincerely appreciates his contribution to the company during his tenure as member of the Board. DECLARATION BY INDEPENDENT DIRECTORS

In terms of provisions of section 149(7) of the Companies Act, 2013, the company has obtained declaration from all independent directors of the company confirming that they meet the criteria of independence as provided in Section 149(6) of the Companies Act, 2013 and clause 49 of the Listing Agreement with Stock Exchanges.

MECHANISM FOR EVALUATION OF BOARD

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Nomination and Remuneration Committee laid down criteria for performance evaluation of individual directors, the board and its committees. Accordingly, the Board has carried out an evaluation of its own performance, the directors individually as well as the evaluation of the working of its Committees. Evaluation of all Directors is carried on an annual basis. Performance evaluation of Directors shall be done by the entire Board of Directors excluding the director being evaluated.

Board performance evaluation is carried out through a structured questionnaire which provides a powerful and valuable feedback for improving board effectiveness, maximising strengths and highlighting areas for further development.

The following are some of the broad issues that are considered in performance evaluation :

Criteria for evaluation of Board and its Committees :

- Ability to act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders.

- Optimum combination of knowledge, skill, experience and diversity on the Board as well its Committees.

- Relationships and effective communication among the Board members.

- Effectiveness of individual non-executive and executive directors and Committees of Board.

- Quality of the discussions, general information provided on the company and its performance, papers and presentations to the board.

- Stakeholders' engagement.

- Risk and Crisis management as well processes for identifying and reviewing risks.

- Well- defined mandate and terms of reference of Committee.

Criteria for evaluation of Individual Directors :

- Attendance at Board as well as Committee Meetings

- Procurement of Information, preparation for Board Meetings and value of contribution at meetings

- Relationships with fellow board members, the company secretary and senior management and mutual trust and respect they stimulated within the Board.

- Keeping update with the latest developments in the areas of governance and financial reporting

Additionally, Independent directors are expected to provide an effective monitoring role and to provide help and advice for the executive directors. In evaluating independent Directors it is necessary to address the following aspects as well :

- Willingness to devote time and effort to understand the company and its business

- Providing necessary guidance using their knowledge and experience in development of corporate strategy, major plans of action, risk policy, and setting performance objectives.

- Independence exercised in taking decisions, listening to views of others and maintaining their views with resolute attitude

- Ability in assisting the Company in implementing the best corporate governance practices.

- Capability in exercising independent judgement to tasks where there is a potential for conflict of interest.

- Commitment in fulfilling the director's obligations fiduciary responsibilities.

POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION

The Board has, on the recommendation of the Nomination & Remuneration Committee, framed a policy for appointment and remuneration of Directors, Key Managerial Perosnnel and other employees including criteria for determining qualifications, positive attributes and director's independence. The Remuneration Policy is annexed herewith as "Annexure II".

REMUNERATION DETAILS OF DIRECTORS AND KMP

Particulars required to be furnished under Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in "Annexure - III" and forms part of this Report.

PARTICULARS OF EMPLOYEES

Particulars of employees required to be furnished under Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in "Annexure - IV" and forms part of this Report.

CORPORATE SOCIAL RESPONSIBILITY

The Board of Directors has constituted Corporate Social Responsibility Committee (CSR Committee) consisting of members Mr. R. Ranga Rao (Chairman), Dr. Murali K. Divi, Mr. N. V. Ramana and Mr. Madusudana Rao Divi. The said Committee has formulated and recommended to the Board, a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company, which has been approved by the Board.

As per the requirements of Companies Act, 2013, Company needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility activities. During the last several years, your Company has already been spending resources to improve the quality of life and sustainable development of the communities living in the villages around the manufacturing units.

Report on Corporate Social Responsibility as Per Rule 8 of Companies (Corporate Social Responsibility Policy) Rules, 2014 is prepared and the same is enclosed as "Annexure - V" to this Report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO

Particulars required under Section 134 (3) (m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is given in the "Annexure - VI" to this report.

AUDIT COMMITTEE

The primary objective of the Audit Committee of the company is to monitor and provide effective supervision of the management's financial reporting process with a view to ensure accurate, timely and proper disclosures and transparency, integrity and quality of financial reporting. Composition of the Audit Committee is as follows :

Name Category Designation

Sri. K. V. K. Seshavataram Independent Director Chairman

Dr. G. Suresh Kumar Independent Director Member

Sri. R. Ranga Rao Independent Director Member

VIGIL MECHANISM

The Company has established a vigil mechanism and accordingly, formulated a Whistle Blower Policy to provide mechanism for directors and employees of the company to report their concerns about unethical behaviour, actual or suspected fraud or violation of the company's code of conduct or ethics policy and disclosed the details of establishment of such mechanism on its website. This mechanism also provides for adequate safeguards against victimization of director(s) / employee(s) who avail of the mechanism and also provide for direct access to the Chairman of the Audit Committee in exceptional cases. The Whistle Blower Policy may be accessed on the company's website at the link: http://www.divislabs.com/inside/pdf/Whistle%20blower%20policy.pdf. STATUTORY AUDITORS

At the Annual General Meeting held on 25th August, 2014, M/s. P.V.R.K. Nageswara Rao & Co., Chartered Accountants, Hyderabad (Firm's Regn. No 002283S) were appointed as statutory auditors of the Company to hold office for three consecutive years till the

conclusion of the 27th Annual General Meeting. In terms of first proviso to Section 139 of the Companies Act, 2013, the appointment of the auditors shall be placed for ratification at every Annual General Meeting.

Accordingly, the appointment of M/s. P.V.R.K. Nageswara Rao & Co., Chartered Accountants as statutory auditors of the company is placed for ratification by shareholders.

The Company has received a communication from the Auditors to the effect that their re-appointment, if made, would be within the prescribed limits under Section 141(3)(g) of the Companies Act, 2013 and that they are not disqualified for re-appointment. SECRETARIAL AUDIT

Pursuant to provisions of section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board of Directors of the Company has appointed M/s. V. Bhaskara Rao & Co., Company Secretaries as the Secretarial Auditor of the Company for the financial year 2014-15. The Secretarial Audit report for the financial year 2014-15 is annexed herewith as "Annexure VII". The secretarial Audit Report does not contain any qualification, reservation or adverse remark. COST AUDIT

Pursuant to the Section 148 of the Act and rule 3 of the Companies (cost records and audit) Rules, 2014, the company maintains cost records in its books of account. As per rule 7 of the said rules, the requirement for cost audit shall not be applicable to a company which is covered under rule 3, and whose revenue from exports, in foreign exchange, exceeds seventy five per cent of its total revenue or which is operating from a special economic zone. However, company has voluntarily opted for audit of cost records and appointed M/s. E.V.S & Associates, Cost Accountants as cost auditors.

CORPORATE GOVERNANCE AND SHAREHOLDERS' INFORMATION

A report on Corporate Governance is included as a part of this Annual Report. Certificate from M/s. V. Bhaskara Rao & Co., Company Secretaries confirming the compliance with the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is attached to the report on Corporate Governance.

EXTRACT OF ANNUAL RETURN

The Extract of Annual Return in Form MGT-9 as per the provisions of the Companies Act, 2013 and Rule 12 of Companies (Management and Administration) Rules, 2014 is annexed herewith as "Annexure VIII".

OTHER DISCLOSURES

- No company has become or ceased to be its Subsidiary, joint venture or associate company during the year

- No significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and company's operations in future.

- No cases were filed pursuant to the Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressal) Act, 2013 during the year under review.

ACKNOWLEDGEMENTS

The Board expresses its gratefully appreciation for the continued assistance and co-operation received from Government authorities, Financial Institutions, Banks, customers, suppliers and investors. The Board also wishes to place on record its appreciation for the dedication and commitment extended by its employees at all levels and their contribution to the growth and progress of the company.

For and on behalf of the Board Dr. MURALI K. DIVI Chairman and Managing Director (DIN : 0005040)

Hyderabad 23.05.2015




Mar 31, 2013

Dear Shareholders,

The Directors have pleasure in placing before you the Twenty Third Annual Report of the Company together with the Audited Accounts for the year ended 31st March 2013.

FINANCIAL RESULTS

(Rs. in crores)

Particulars 2012-13 2011-12

Net Sales 2123.95 1839.49

Other Operating Income 4.94 5.44

Other income 48.51 65.76

Total Income 2177.40 1910.69

Expenditure 1307.14 1150.06

PBDIT 870.26 760.63

Depreciation 76.90 62.03

Finance Cost 1.78 3.74

Profit before tax (PBT) 791.58 694.86

Provision for tax

Current Tax 153.00 132.83

MAT Credit Utilisation 7.90 3.68

Deferred Tax Liability 19.26 12.38

Profit after tax (PAT) 611.42 545.97

Earnings per Share (EPS)

a)Basic (Rs.) 46.06 41.15

b)Diluted (Rs.) 46.06 41.15

Your company has achieved a sales growth of 15% for the year on the back of a decent growth of 41% achieved during the last year.

We made a provision of Rs. 160.90 crores towards Income- tax this year (including MAT credit utilization of Rs.7.90 crores). Provision for last year amounted to Rs.136.51 crores including a MAT credit utilization of Rs.3.68 crores. An amount of Rs. 19.26 crores has been provided towards Deferred Tax Liability during the year as against Rs. 12.38 crores during the previous year.

PAT amounted to Rs.611.42 crores for the year, reflecting a growth of 12%. Earnings Per Share of Rs.2/- each works out to Rs. 46.06 for the year as against Rs. 41.15 last year.

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs.15 per equity share of Rs.2/- each, i.e., 750% for the year 2012- 13 subject to approval of members.

SUBSIDIARIES

Our subsidiaries viz., M/s. Divis Laboratories (USA) Inc., in USA and M/s. Divi''s Laboratories Europe AG in Switzerland are engaged in marketing/distribution of nutraceutical products and to provide a greater reach to customers within these regions.

During the year, the subsidiaries have achieved aggregate sales of Rs.90.78 crores for the nutraceutical products in North America and Europe.

Brief operations of the subsidiaries are as under :

Particulars Divis Laboratories (USA) Inc., Divi''s Laboratories Europe AG Total

Year ended 31-03-13 31-03-12 31-03-13 31-03-12 31-03-13 31-03-12

Sales 62.02 51.90 28.76 22.94 90.78 74.84

Other income 0 0 0.01 0.01 0.01 0.01

Total Income 62.02 51.90 28.77 22.95 90.79 74.85

Expenditure 66.89 59.78 29.69 29.24 96.58 89.02

Depreciation 0.04 0.04 0.01 0.01 0.05 0.05

Loss before tax 4.91 7.92 0.93 6.30 5.84 14.22

Tax Asset (0.94) (1.52) 0 0 (0.94) (1.52)

Net Loss 3.97 6.40 0.93 6.30 4.90 12.70

Losses for the current year at the subsidiaries have significantly reduced as compared to the previous year.

Auditors of these subsidiaries have observed that the subsidiaries have suffered recurring losses, lack sufficient liquidity to continue operations and to continue as a going- concern depends on the temporary funding by the parent and successful realization of their business plans.

In accordance with the general circular issued by the Ministry of Corporate Affairs, Government of India, the Balance Sheet, Statement of Profit and Loss and other documents of the subsidiary companies are not being attached with the Balance Sheet of the Company. Shareholders who wish to have a copy of the full report and accounts of the subsidiaries will be provided the same on receipt of a written request from them. These documents will be available for inspection at the Registered Office of the Company and that of the respective subsidiary companies on any working day during business hours. The Consolidated Financial Statements presented by the Company include the financial results of its subsidiary companies.

Emphasis-of-Matter - Audit observations

Our Auditors have observed that the networth of the subsidiaries has eroded and consequent possibility of any temporary impairment of investment by way of equity in subsidiaries amounting to Rs.281.61 lakhs and recovery of loans of Rs.4486.31 lakhs given to the subsidiaries.

The nutraceutical business has been established based on the strengths of Divi''s Labs in handling complex chemistry whereby all the synthetic carotenoids have been developed and produced on a commercial scale for the first time in India. Over the last few years, we have made significant progress in terms of implementing the nutra facility and stabilising operations. Technical/Quality/ Regulatory Experts employed at the subsidiaries have also helped in implementation of the nutra facility and the various processes of approvals and qualifications.

Different application forms have also been fully developed and now the nutraceutical forms are offered for the entire use base in the pharma, food supplement and color applications as also for animal health segments. Approval processes are very elaborate and time consuming. Approvals have since been received from several major users and the outlook now looks very positive.

With the significant efforts having been made in stabilizing operations and qualifications from several customers, the company is confident of achieving profitability at the subsidiaries and recovery of the loans given in the foreseeable future.

CONSOLIDATED ACCOUNTS

As stipulated in the listing agreement with the stock exchanges, the consolidated financial statements have been prepared by the Company in accordance with the relevant accounting standards under the Companies Act, 1956. The audited consolidated financial statements together with Auditors Report thereon form part of the Annual report.

Financial summary of consolidated accounts :

(Rs. in crores)

Particulars 2012-13 2011-12

Net Sales 2139.90 1858.43

Other Operating Income 4.94 5.44

Other income 44.81 56.05

Total Income 2189.65 1919.92

Expenditure 1329.68 1173.47

PBDIT 859.97 746.45

Depreciation 76.95 62.08

Finance Cost 1.78 3.74

Profit before tax (PBT) 781.24 680.63

Provision for tax

Current Tax 153.00 132.83

MAT Credit Utilisation 7.90 3.68

Deferred Tax Liability 18.33 10.86

Profit after tax (PAT) 602.01 533.26

Earnings per Share (EPS)

a) Basic (Rs.) 45.35 40.19

b) Diluted (Rs.) 45.35 40.19

DIRECTORS

Dr. G. Suresh Kumar and Mr. Madhusudana Rao Divi will retire by rotation at the ensuing Annual General Meeting and, being eligible, offer themselves for re-appointment.

Mr. Ranga Rao Ravipati has been appointed as Additional Director (Independent and Non-Executive) with effect from 3rd November, 2012. It is proposed to appoint him as Director of the Company, liable to retire by rotation, at the ensuing Annual General Meeting.

Mr. G. Venkata Rao has resigned as a Director of the company with effect from 3rd November, 2012 due to personal reasons and other pre-occupations. The Directors place on record their appreciation for the contribution made by Mr. G. Venkata Rao during his long tenure on the Board since 10.03.2001.

DIRECTORS'' RESPONSIBILITY STATEMENT

As required under Section 217 (2AA) of the Companies Act, 1956, Directors of your company hereby state and confirm that :

a) the applicable accounting standards have been followed in the preparation of the annual accounts;

b) the accounting policies selected were applied consistently and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2013 and its profit for the year ended on that date;

c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

d) the annual accounts have been prepared on a going concern basis.

AUDITORS

The Auditors, M/s. P.V.R.K. Nageswara Rao & Co., Chartered Accountants, Hyderabad retire at the ensuing Annual General meeting and, being eligible, offer themselves for reappointment.

COST AUDIT

Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed Cost Audit for the company. Based on recommendations of the audit committee and subject to approval of the Central Government, M/s. EVS & Associates, Cost Accountants, Hyderabad have been appointed as Cost Auditors for the year.

The relevant cost audit report for the financial year 2011-12 has been filed within the due date on 29th January, 2013. The due date for filing the report was 28th February, 2013.

MANAGEMENT DISUCSSION AND ANALYSIS

A report on Management Discussion & Analysis is provided as part of this Annual Report.

CORPORATE GOVERNANCE AND SHAREHOLDERS'' INFORMATION

A report on Corporate Governance is included as a part of this Annual Report. Certificate from the Statutory Auditors of the company M/s. P.V.R.K. Nageswara Rao & Co., Chartered Accountants confirming the compliance with the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is attached to this report.

RELATED PARTY TRANSACTIONS

As a matter of policy, your Company carries out transactions with related parties on an arms-length basis. Statement of these transactions is given in the other explanatory information attached in compliance of Accounting Standard No.AS-18.

FIXED DEPOSITS

Your Directors wish to inform that the Company has not accepted any deposits from public covered by provisions of Section 58A of the Companies Act, 1956.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars required under Section 217 (1) (e) of the Companies Act, 1956 read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure - I to this report.

HUMAN RESOURCES

Particulars of employees required to be furnished under Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 are given in the Annexure - II attached and forms part of this Report.

ACKNOWLEDGEMENTS

We thank our customers, suppliers and investors for their continued support. We also gratefully acknowledge the continued assistance and co-operation extended by Government authorities, financial institutions and banks to the company. The Board expresses its appreciation for the dedication and commitment extended by its employees at all levels and their contribution to the growth and progress of the company.

For and on behalf of the Board

Hyderabad Dr. MURALI K. DIVI

20th May, 2013 Chairman and Managing Director


Mar 31, 2011

The Directors have pleasure in placing before you the Twenty first Annual Report of the Company together with the Audited Accounts for the year ended 31st March 2011.

FINANCIAL RESULTS

(Rs. in Crores)

Particulars 2010-11 2009-10

Net Sales 1305.44 929.29

Other operating income 13.08 17.36

Other income 25.52 13.33

Total Income 1344.04 959.98

Expenditure 809.46 517.43

PBDIT 534.58 442.55

Finance charges 2.18 2.76

Depreciation 53.35 51.45

Profit before tax (PBT) 479.05 388.34 Provision for tax

Current Tax 39.20 31.20

MAT Credit Utilisation 1.28 9.60

Deferred Tax 3.00 3.34

Profit after tax (PAT) 435.57 344.20

Earnings per Share (EPS)

a) Basic 32.90 26.40

b) Diluted 32.88 26.35

During the year, Divi achieved a turnover of Rs.1305 crores as against Rs.929 crores during the previous year resulting in a growth of 41%. Exports constituted 93% of total turnover as against 91% during the last year. Profit after Tax (PAT) for the year amounted to Rs.436 crores as against Rs. 344 crores during the last year, a growth of 27%.

Business has grown satisfactorily across all the segments, especially during the second half. The issue of destocking of inventory at our customers seen during the last year is done with and we see normal flow of business across the product portfolio of the company.

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs.10/- per equity share of Rs.2/- each, i.e., 500% for the year 2010-11 subject to approval of members.

TAXATION

We made a provision of Rs. 40.48 crores towards Income-tax this year (including MAT credit utilization of Rs.1.28 crores. Provision for last year amounted to Rs.40.80 crores including a MAT credit utilization of Rs.9.60 crores.

An amount of Rs. 3.00 crores has been provided towards Deferred Tax Liability during the year as against Rs. 3.34 crores during the previous year.

EQUITY CAPITAL

During the year, we allotted 4,50,965 equity shares of Rs.2 each to employees on exercise of their stock options.

As a result of the the allotment of shares under ESOP scheme, the paid-up equity capital of the company has increased by Rs.0.09 crores to Rs.26.52 crores and an addition of Rs. 7.59 crores to the Share Premium Account.

EMPLOYEE STOCK OPTION SCHEME

The Employee Stock Option Scheme (ESOP 2006) approved by the company provided for vesting of stock options in 4 tranches. The fourth/last tranche under this Scheme was vested on 13th March, 2010 and a majority of the options have been exercised by the employees. There are 1,39,180 outstanding options yet to be exercised as at the end of the year.

As per the provisions of Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines, 1999, disclosures with respect to Scheme are given in the Annexure - I to this report.

SUBSIDIARIES

Your company has two wholly owned subsidiaries viz., M/s. Divis Laboratories (USA) Inc., in USA and M/s. Divis Laboratories Europe AG in Switzerland for marketing its nutraceutical products and a greater reach to customers within these regions. While loss for current year at Divis Laboratories (USA) is Rs.0.63 crores, the loss at Divis Laboratories Europe is Rs.5.66 crores.

Auditors of these subsidiaries have observed that they have negative networth and suffer from deficiency of cash for continuing operations as a going-concern without the support of the parent. The losses in the subsidiaries are on account of low level of operations at the subsidiaries. With the expected increase in the level of operations, the subsidiaries would be getting into cash profits shortly.

During the year, we have enhanced the equity capital in Divis Laboratories (USA) Inc., by converting Rs.2.23 crores from out of the loans given to the subsidiary into equity capital. We would also be increasing the equity capital of Divis Laboratories Europe AG during the next fiscal.

In accordance with the general circular issued by the Ministry of Corporate Affairs, Government of India, the Balance Sheet, Profit and Loss Account and other documents of the subsidiary companies are not being attached with the Balance Sheet of the Company. Shareholders who wish to have a copy of the full report and accounts of the subsidiaries will be provided the same on receipt of a written request from them. These documents will be put up on the website of the company viz., www.divislaboratories.com and will also be available for inspection at the Registered Office of the Company and that of the respective subsidiary companies on any working day during business hours. The Consolidate Financial Statements presented by the Company include the financial results of its subsidiary companies.

CONSOLIDATED ACCOUNTS

As stipulated in the listing agreement with the stock exchanges, the consolidated financial statements have been prepared by the Company in accordance with the relevant accounting standards under the Companies Act, 1956. The audited consolidated financial statements together with Auditors Report thereon form part of the Annual report. The consolidated net profits after tax of the company and its subsidiaries for the year amounted to Rs.429.27 crores as compared to Rs.340.33 crores in the previous year representing a basic earning per share of Rs.32.42 and Rs.32.41 per share on diluted basis for the current year as against Rs. 26.11 and Rs. 26.06 respectively for the previous year.

DIRECTORS

Sri G.Venkata Rao, Dr. G. Suresh Kumar and Sri Madhusudana Rao Divi will retire by rotation at the ensuing Annual General Meeting and, being eligible, offer themselves for re- appointment.

Dr. P. Gundu Rao has resigned from his whole-time employment with the company as he wishes to relocate to the U.S.A. to spend time with his family. Dr. Gundu Rao will, however, continue as a Non-Executive Director of the company.

DIRECTORS RESPONSIBILITY REPORT

As required under Section 217 (2AA) of the Companies Act, 1956, Directors of your company hereby state and confirm that:

a) the applicable accounting standards have been followed in the preparation of the annual accounts

b) the accounting policies selected were applied consistently and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2011 and its profit for the year ended on that date;

c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

d) the annual accounts have been prepared on a going concern basis.

AUDITORS

The Auditors, M/s. P.V.R.K. Nageswara Rao & Co., Chartered Accountants, Hyderabad retire at the ensuing Annual General meeting and, being eligible, offer themselves for reappointment.

COST AUDIT

Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed Cost Audit for the company. Based on recommendations of the audit committee and subject to the approval of the Central Government, M/s. EVS & Associates, Cost Accountants, Hyderabad have been appointed as Cost Auditors for the year.

The relevant cost audit report for the financial year 2009-10 was filed within the due date on 20th August, 2010. The due date for filing the report was 27th September, 2010.

MANAGEMENT DISUCSSION AND ANALYSIS

A report on Management Discussion & Analysis is provided as part of this Annual Report.

CORPORATE GOVERNANCE AND SHAREHOLDERS INFORMATION

A report on Corporate Governance is included as a part of this Annual Report.

RELATED PARTY TRANSACTIONS

As a matter of policy, your Company carries out transactions with related parties on an arms-length basis. Statement of these transactions is given in the Notes to Accounts attached in compliance of Accounting Standard No. AS-18.

FIXED DEPOSITS

Your Directors wish to inform that the Company has not accepted any deposits from public covered by provisions of Section 58A of the Companies Act, 1956.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION

Particulars required under Section 217 (1) (e) of the Companies Act, 1956 read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure - II to this report.

HUMAN RESOURCES

Particulars of employees required to be furnished under Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 are given in the Annexure - III attached and forms part of this Report.

ACKNOWLEDGEMENTS

We thank all our customers, suppliers and investors for their continued support. We also gratefully acknowledge the continued assistance and co-operation extended by Government authorities, financial institutions and banks to the company. The Board expresses its appreciation for the dedication and commitment extended by its employees and their contribution to the growth and progress of the company.

For and on behalf of the Board of Directors

Hyderabad Dr. Murali K. Divi

20th May, 2011 Chairman & Managing Director

 
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