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Directors Report of Dr. Reddy's Laboratories Ltd.

Mar 31, 2013

Dear Members,

The Directors are pleased to present the 29th annual report for the year ended 31 March 2013.

FINANCIAL HIGHLIGHTS

Table 1 gives the financial highlights of the Company for FY2013 as compared to previous financial year on Indian GAAP standalone basis.

DIVIDEND

Your Directors are pleased to recommend a dividend of R15 on every equity share of R5 each (300%) for FY2013. The dividend, if approved at the 29th Annual General Meeting, will be paid to those shareholders whose names appear on the register of members of the Company as on 16 July 2013.

The dividend would be tax-free in the hands of the shareholders.

SHARE CAPITAL

The paid-up share capital of your Company increased by R 1.38 million in FY2013 due to the allotment of 276,129 equity shares on exercise of stock options by the eligible employees under Dr. Reddy''s Employees Stock Option Scheme, 2002 and Dr. Reddy''s Employees ADR Stock Option Scheme, 2007.

UNSECURED, REDEEMABLE, NON-CONVERTIBLE DEBENTURES

The bonus non-convertible debentures (NCDs) issued by the Company in FY2011 are listed on the Bombay Stock Exchange and the National Stock Exchange and rated LAA by ICRA.

During FY2013, the second year''s interest on these NCDs was paid on due date.

CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION TO SHAREHOLDERS

A detailed report on the corporate governance systems and practices of the Company is given in a separate section of the annual report 2012-13. Detailed information for the shareholders is given in Additional Shareholders'' Information section.

MANAGEMENT DISCUSSION AND ANALYSIS

A detailed report on the Management Discussion and Analysis is provided as a separate section in the annual report.

BUSINESS RESPONSIBILITY REPORT

A detailed Business Responsibility report is given as a separate section in the annual report.

SUBSIDIARY COMPANIES

The Company has 50 subsidiaries as on 31 March 2013.

During FY2013, the Company has acquired 98.91% of the issued and subscribed share capital of OctoPlus N.V., Netherlands, an entity listed on the Amsterdam stock exchange. OctoPlus is a specialty pharmaceutical company focused on the development and manufacture of improved injectable pharmaceuticals based on proprietary drug delivery technologies that exhibit fewer side effects, improved patient convenience and a better efficacy/ safety balance than existing therapies. Subsequently, the shares of OctoPlus N.V. were delisted from the Amsterdam stock exchange w.e.f. 16 April 2013.

Further, subsidiaries of OctoPlus N.V., namely OctoShare BV, OctoPlus Development BV, OctoPlus Technologies BV, OctoPlus Science BV, OctoPlus PolyActive Science BV and Chienna BV also become the subsidiaries of the Company.

During FY2013, Reddy Pharmaceuticals Hongkong Limited, Hongkong; Dr. Reddy''s Laboratories ILAC TICARET, Turkey; OOO Alfa, Russia; Trigenesis Therapeutics Inc., USA; and Dr. Reddy''s Laboratories (Canada) Inc., Canada ceased to be subsidiaries of the Company.

As per Section 212 of the Companies Act, 1956, the Company is required to attach the Directors'' Report, Balance Sheet and Statement of Profit and Loss of the subsidiaries to the annual report.

The Ministry of Corporate Affairs, Government of India vide its circular No. 2/2011 dated 8 February 2011 has provided an exemption to companies from complying with Section 212, provided such companies publish the audited consolidated financial statements in their annual report. Accordingly, the annual report 2012-13 does not contain the financial statements of the subsidiaries. The audited annual accounts and related information of the subsidiaries, where applicable, will be made available for inspection during business hours at our registered office in Hyderabad, India.

The same will also be published on the Company''s website, www.drreddys.com.

The members, if desire, may write to the Company Secretary at Dr. Reddy''s Laboratories Limited, 8-2-337, Road No. 3, Banjara Hills, Hyderabad 500 034 to obtain a copy of the financials of the subsidiary companies.

The consolidated financial statements, in terms of Clause 32 of the Listing Agreement and prepared in accordance with Accounting Standard 21 as specified in the Companies (Accounting Standards) Rules, 2006 also forms a part of this annual report.

TABLE 1 FINANCIAL HIGHLIGHTS IN RS. MILLION

FY2013 FY2012

Total revenue 85,757 68,215

Profit before depreciation and tax 20,660 15,603

Depreciation 3,128 3,011

Profit before tax 17,532 12,592

Tax expense 4,877 3,468

Net profit for the year 12,655 9,124

Add: Surplus at the beginning of the year 36,049 31,397

Total available for appropriation 48,704 40,521

Appropriations:

Proposed dividend on equity shares 2,548 2,331

Tax on proposed dividend 433 378

Credit of dividend distribution tax (4) -

Dividend of previous years (including tax) 3 3

Debenture Redemption Reserve 845 848

Transfer to General Reserve 1,265 912

Balance carried forward 43,614 36,049

DIRECTORS

On 15 March 2013, Dr. K Anji Reddy, Founder Chairman of the Company, passed away at Hyderabad. His mission in life was to provide affordable medicines to millions of patients worldwide while also innovating for healthier life. Under his leadership, the Company became a pioneer and trend setter in the Indian pharmaceutical industry.

Dr. Reddy also set-up the ''Dr. Reddy''s Institute of Life Sciences'' at Hyderabad, which is a public-private partnership with the Government of Andhra Pradesh for carrying out cutting edge research in Life Sciences. Critically aware of his responsibility to society, Dr. Reddy in the last decade was engaged in outcome based institutionalized philanthropy that positively impacted the lives of nearly 5 million underprivileged citizens, mainly children and youth.

The Board places on record its enormous appreciation for the contribution made by Dr. K Anji Reddy for creating and growing the Company.

Following the demise of Dr. K Anji Reddy, Founder Chairman, the Board of Directors, based on the recommendation of the Nomination, Governance and Remuneration Committee, has designated:

- Mr. G V Prasad as Chairman and Chief Executive Officer of the Company; and

- Mr. Satish Reddy as Vice Chairman in addition to his role of Managing Director and Chief Operating Officer.

The above changes were effective 30 March 2013. The terms and conditions like remuneration, balance tenure and others relating to the appointment of Mr. G V Prasad and Mr. Satish Reddy, as approved by the shareholders at their annual general meetings held on 21 July 2011 and 20 July 2012, respectively, remain the same.

The disclosure regarding change in designations of Mr. G V Prasad, Chairman and CEO and Mr. Satish Reddy, Vice Chairman and Managing Director in this section of annual report may also be regarded as an abstract and memorandum of interest of Directors under Section 302 of the Companies Act, 1956.

As per Article 113 of the Articles of Association of the Company, Dr. Ashok S Ganguly, Dr. J P Moreau and Ms. Kalpana Morparia retire by rotation at the forthcoming Annual General Meeting scheduled to be held on 31 July 2013 and being eligible, seek re-appointment.

The brief profiles of Dr. Ashok S Ganguly, Dr. J P Moreau and Ms. Kalpana Morparia are given in the Corporate Governance section of the annual report for reference of the members.

AUDITORS

The statutory auditors of the Company, B S R & Co., Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept office of the statutory auditors for FY2014, if re-appointed. The Audit Committee and the Board of Directors recommend the re-appointment of B S R & Co. as statutory auditors of the Company for FY2014 for shareholders'' approval.

COST AUDIT

Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed an audit of cost accounting records in respect of Pharmaceuticals business of the Company.

Based on the recommendations of the Audit Committee, and subject to the approval of the Central Government, the Board of Directors had appointed M/s. Sagar & Associates as cost auditors of the Company for FY2013. The cost audit report would be filed with the Central Government as per timeline.

The relevant cost audit reports for FY2012 were filed within the due date on 27 February 2013. The due date for filing these reports was 28 February 2013.

SECRETARIAL AUDIT

A secretarial audit for FY2013 was carried out by Dr. K R Chandratre, practicing Company Secretary. The secretarial audit report forms a part of the annual report.

The said secretarial audit report confirms that the Company has complied with all the applicable provisions of the Companies Act, 1956, Depositories Act, 1996, Equity and Debt Listing Agreements with the Stock Exchanges, Debenture Trust Deed, Securities Contracts (Regulation) Act, 1956 and all the regulations of Securities and Exchange Board of India (SEBI) as applicable to the Company, including the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and the SEBI (Prohibition of Insider Trading) Regulations, 1992.

DIRECTORS'' RESPONSIBILITY STATEMENT

In terms of Section 217(2AA) of the Companies Act, 1956, your Directors confirm as under:

1 In preparation of annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

2 Accounting policies have been selected and applied consistently and judgments and estimates made, are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year 2012-13 and of profit of the Company for that period;

3 Proper and sufficient care has been taken to maintain adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4 Annual accounts have been prepared on a going concern basis.

TRANSFER OF UNPAID AND UNCLAIMED AMOUNTS TO IEPF

Pursuant to the provisions of Section 205A(5) of the Companies Act, 1956, the declared dividends, which remained unpaid or unclaimed for a period of seven years, have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 205C of the said Act.

EMPLOYEES STOCK OPTION SCHEMES

The details of stock options as on 31 March 2013 under the "Dr. Reddy''s Employees Stock Option Scheme, 2002" and the "Dr. Reddy''s Employees ADR Stock Option Scheme, 2007", in terms of Guideline 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, as amended, are set out in the Annexure 1 to the Directors'' Report.

PARTICULARS OF EMPLOYEES

Pursuant to the provisions of Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are set out in the Annexure 2 to the Directors'' Report.

CONSERVATION OF ENERGY RESEARCH AND DEVELOPMENTS, TECHNOLOGY ABSORPTION, FOREIGN ExCHANGE EARNING AND OUTGO

The particulars as prescribed under 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 are set out in the Annexure 3 to the Directors'' Report.

ACKNOWLEDGEMENT

Your Directors place on record their sincere appreciation for the significant contribution made by the employees through their dedication, hard work and commitment and the trust reposed on us by the medical fraternity and the patients. We also acknowledge the support and wise counsel extended to us by the analysts, bankers, government agencies, shareholders and investors at large. We look forward to having the same support in our endeavor to help people lead healthier lives.

For Dr. Reddy''s Laboratories Limited

G V Prasad

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

PLACE HYDERABAD

DATE 14 MAY 2013


Mar 31, 2012

The Directors are pleased to present the 28th annual report for the year ended 31 March 2012.

FINANCIAL HIGHLIGHTS

Table 1 gives the financial highlights of the Company for FY2012 as compared to previous financial year on Indian GAAP standalone basis.

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs. 13.75 on every equity share of Rs. 5 each (275%) for FY2012. The dividend, if approved at the 28th Annual General Meeting, will be paid to those shareholders whose names appear on the register of members of the Company as on 3 July 2012.

The dividend would be tax-free in the hands of the shareholders.

SHARE CAPITAL

The paid-up share capital of your Company increased by Rs. 1.54 million in FY2012, due to allotment of 307,614 equity shares on exercise of stock options by the eligible employees under Dr. Reddy's Employees Stock Option Scheme, 2002 and Dr. Reddy's Employees ADR Stock Option Scheme, 2007.

UNSECURED, REDEEMABLE, NON- CONVERTIBLE DEBENTURES(NCDS)

The bonus NCDs issued by the Company in FY2011 have since been listed on the Bombay Stock Exchange and the National Stock Exchange and rated LAA by ICRA.

During FY2012, the first year's interest on these NCDs was paid on due date.

TABLE 1 FINANCIAL HIGHLIGHTS (RS.IN MILLION)

FY2012 FY2011

Income 68,215 54,241

Profit before depreciation and tax 15,603 12,998

Depreciation 3,011 2,479

Profit before tax 12,592 10,519

Taxation (3,468) (1,585)

Net profit for the year 9,124 8,934

Add: Surplus at the begining of the year 31,397 25,541

Add: Transfer from General Reserve - 5,972

Total Available For Appropriation 40,521 40,447

APPROPRIATIONS

Proposed dividend on equity shares 2,331 1,904

Tax on proposed dividend 378 309

Dividend of previous years (including tax) 3 4

Debenture Redemption Reserve 848 19

Issuance of Bonus Debentures as per scheme - 5,078

Dividend Distribution Tax on distribution as per scheme - 843

Transfer to General Reserve 912 893

Balance carried forward 36,049 31,397

CORPORATE GOVERNANCE AND ADDITIONAL INFORMATION TO SHAREHOLDERS

A detailed report on the corporate governance systems and practices of the Company are given in a separate section of the annual report 2011-12. Detailed information for the shareholders is given in Additional Shareholders' Information section.

MANAGEMENT DISCUSSION AND ANALYSIS

A detailed report on the Management Discussion and Analysis is provided as a separate section in the annual report.

SUBSIDIARY COMPANIES

The Company has 48 subsidiaries as on 31 March 2012.

During FY2012, Dr. Reddy's Laboratories New York, Inc., USA, Limited Liability Company Dr. Reddy's Laboratories, Ukraine, and Dr. Reddy's Laboratories (Canada) Inc., Canada, were incorporated as wholly-owned subsidiaries of the Company.

As per Section 212 of the Companies Act, 1956, the Company is required to attach the Directors' Report, Balance Sheet and Profit and Loss Account of the subsidiaries to the annual report. The Ministry of Corporate Affairs, Government of India vide its circular No. 2/2011 dated 8 February 2011 has provided an exemption to companies from complying with Section 212, provided such companies publish the audited consolidated financial statements in their annual report. Accordingly, the annual report 2011-12 does not contain the financial statements of the subsidiaries. The audited annual accounts and related information of the subsidiaries, where applicable, will be made available for inspection during business hours at our registered office in Hyderabad, India. The same will also be published on the Company's website, www.drreddys.com.

The members, if desire, may write to the Company Secretary at Dr. Reddy's Laboratories Limited, 8-2-337, Road No. 3, Banjara Hills, Hyderabad - 500 034 to obtain a copy of the financials of the subsidiary companies.

The consolidated financial statements, in terms of Clause 32 of the Listing Agreement and prepared in accordance with Accounting Standard 21 as specified in the Companies (Accounting Standards) Rules, 2006 also form part of this annual report.

DIRECTORS

As per Article 113 of the Articles of Association of the Company, Dr. Omkar Goswami and Mr. Ravi Bhoothalingam retire by rotation at the forthcoming Annual General Meeting scheduled to be held on 20 July 2012 and being eligible, seek re-appointment.

The Board of Directors had appointed Mr. Sridar Iyengar as an Additional Director on the Board of the Company on 22 August 2011. He will hold this office till the conclusion of 28th Annual General Meeting scheduled to be held on 20 July 2012. Requisite notice under Section 257 of the Companies Act, 1956 has been received from a member proposing his appointment. It is proposed to appoint him as a Director of the Company, liable to retire by rotation. The resolution for the same has been included in the notice of the 28th Annual General Meeting scheduled to be held on 20 July 2012.

The brief profiles of Dr. Omkar Goswami,

Mr. Ravi Bhoothalingam and Mr. Sridar Iyengar are given in the Corporate Governance section of the annual report for reference of the members.

The Board of Directors in their meeting held on 3 February 2012 had re-appointed Mr. Satish Reddy as Whole Time Director designated as Managing Director and Chief Operating Officer of the Company for a further period of five years effective from 1 October 2012. His re-appointment is subject to the shareholders' approval and the resolution to this effect is included in the notice convening 28th Annual General Meeting scheduled to be held on 20 July 2012.

AUDITORS

The statutory auditors of the Company, B S R & Co., Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept office of the statutory auditors for FY2013, if re-appointed. The Audit Committee and the Board of Directors recommend the re-appointment of B S R & Co. as statutory auditors of the Company for FY2013 for shareholders' approval.

COST AUDIT

Pursuant to Section 233B of the Companies Act, 1956, the Central Government has prescribed cost audit of the Company's bulk drug division and formulation division.

Based on the recommendations of the Audit Committee, and subject to the approval of the Central Government, the Board of Directors had appointed, Sagar & Associates as cost auditors of the Company for FY2012. The cost audit report would be filed with the Central Government as per timeline.

The relevant cost audit reports for FY2011 for bulk drug division and formulation division were filed within the due date on 26 September 2011. The due date for filing these reports was 27 September 2011.

SECRETARIAL AUDIT REPORT

A secretarial audit for FY2012 was carried out by Dr. K R Chandratre, practicing Company Secretary. The secretarial audit report forms part of this annual report.

The said secretarial audit report confirms that the Company has complied with all the applicable provisions of the Companies Act, 1956, Depositories Act, 1996, Equity and Debt Listing Agreements with the Stock Exchanges, Debenture Trust Deed, Securities Contracts (Regulation) Act, 1956 and all the regulations of Securities and Exchange Board India (SEBI) as applicable to the Company, including the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (erstwhile Regulation of 1997) and the SEBI (Prohibition of Insider Trading) Regulations, 1992.

DIRECTORS' RESPONSIBILITY STATEMENT

In terms of Section 217(2AA) of the Companies Act, 1956, your Directors confirm as under:

1. In preparation of annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

2. Accounting policies have been selected and applied consistently and judgments and estimates made, are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year 2011-12 and of profit of the Company for that period;

3. Proper and sufficient care has been taken to maintain adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4. Annual accounts have been prepared on a going concern basis.

TRANSFER OF UNPAID AND UNCLAIMED AMOUNTS TO IEPF

Pursuant to the provisions of Section 205A(5) of the Companies Act, 1956, the declared dividends, which remained unpaid or unclaimed for a period of seven years, have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 205C of the said Act.

EMPLOYEES STOCK OPTION SCHEMES

Dr. Reddy's Employees Stock Option Scheme, 2002, (the Scheme) was valid for a period of ten years from the date of adoption of the Scheme i.e. upto 29 January 2012. Pursuant to Regulation 7 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employees Share Purchase Scheme) Guidelines, 1999, the terms of the Scheme may be varied by way of a special resolution in a general meeting.

Based on the recommendation of the Nomination, Governance and Compensation Committee, the Board of Directors of the Company at their meeting held on 25 October 2011, has consented to extend the validity of the Scheme for a further period of ten years with effect from 29 January 2012, subject to the approval of the shareholders. All other terms and conditions of the Scheme shall remained unchanged.

The resolution for extension of validity of the Scheme has been included in the notice of the 28th Annual General Meeting scheduled to be held on 20 July 2012.

The details of stock options as on 31 March 2012 under the "Dr. Reddy's Employees Stock Option Scheme, 2002" and the "Dr. Reddy's Employees ADR Stock Option Scheme, 2007" in terms of Guideline 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, as amended, are set out in the Annexure - 1 to the Directors' Report.

PARTICULARS OF EMPLOYEES

Pursuant to the provisions of Section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are set out in the Annexure - 2 to the Directors' Report.

CONSERVATION OF ENERGY RESEARCH AND DEVELOPMENTS, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNING AND OUTGO

The particulars as prescribed under 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 are set out in the Annexure - 3 to the Directors' Report.

QUALIFYING PERSONS FOR INTERSE TRANSFER OF SHARES

Based on the information received from the Promoters and as required under Regulation 10(1 )(a) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011, persons constituting "qualifying persons" as defined in the said Regulations comprises:

Dr. Reddy's Holdings Limited, Dr. Reddy's Investments and Advisory LLP, Dr. Reddy's Income Advisory LLP, APS Invest Advisory LLP, ASP Income Advisory LLP, APS Trust, Dr. Kallam Anji Reddy,

Mr. Gunupati Venkateswara Prasad, Mr. Gunupati Venkateswara Prasad (HUF), Mr. Kallam Satish Reddy, Mr. Kallam Satish Reddy (HUF), Mrs. K Samrajyam, Mrs. G Anuradha, Mrs. K Deepti Reddy, Miss. G Vani Sanjana Reddy and Miss. G Mallika Reddy.

ACKNOWLEDGEMENT

Your Directors place on record their sincere appreciation for significant contribution made by the employees through their dedication, hard work and commitment and the trust reposed on us by the medical fraternity and the patients.

We also acknowledge the support and wise counsel extended to us by the analysts, bankers, government agencies, shareholders and investors at large. We look forward to having the same support in our endeavor to help people lead healthier lives.

For Dr. Reddy's Laboratories Limited

DR. K ANJI REDDY

CHAIRMAN

Place: Hyderabad

Date: 11 May 2012

 
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