Mar 31, 2023
The Board of Directors are pleased to present the Company''s Thirty Ninth Annual Report and the Company''s audited financial statements (standalone and consolidated) for the financial year ended March 31,2023.
The Company''s financial performance (standalone) for the year ended March 31,2023, is summarised below:
(Rs. in Lakhs) |
||
Particulars |
2022-23 |
2021-22 |
Total Income |
1,20,094.61 |
95,315.33 |
Profit before Finance Costs, Depreciation, Amortisation and Tax |
28,105.58 |
14,427.06 |
Finance costs |
1,306.67 |
1,349.44 |
Profit before Depreciation, Amortisation and Tax |
26,798.91 |
13,077.62 |
Less: Depreciation & Amortisation |
5,277.62 |
4,903.64 |
Profit before Tax |
21,521.29 |
8,173.98 |
Less: Current tax |
5,039.00 |
2,042.19 |
Deferred tax |
170.37 |
(221.55) |
Profit after Tax |
16,311.92 |
6,353.34 |
Add: Other comprehensive income |
(391.39) |
(599.17) |
Total comprehensive income for the year |
15,920.53 |
5,754.17 |
For the financial year ended March 31, 2023, a Total Income of ''1,20,094.61 lakhs as against ''95,315.33 lakhs in the previous year.
For the year ended on March 31, 2023, the Company has reported Earnings Before Interest, Finance Cost, Depreciation and Amortization and Tax (EBIDTA) of ''28,105.58 lakhs as against the EBIDTA of ''14,427.06 lakhs during the previous year.
The Net Profit of the Company for the year 2022-23 was ''16,311.92 lakhs compared to ''6,353.34 lakhs during the previous year.
During the year under review, your Company was able to navigate uncertain macro-economic circumstances and take appropriate actions in line with the long-term objectives of the organization. The Company continued its focus on business development and portfolio management with the strategic priorities as the guiding framework. The long-term focus on Specialty GDS products & CMS projects resulted in the change in business mix which has had a significant positive impact on margins. We have seen significant GDS revenues from products where customers are preparing for generic launches. In terms of the CMS business, we are seeing increase in revenues as projects progress in their lifecycle with customers preparing for launch or scaling their commercial requirements. We are continuing to see good traction in new business as more customers are aware of the Company''s capabilities.
During the year, the Company spent time on customer feedback based on survey facilitated by an external agency which gave inputs for improvement. The Company''s commitment to strong governance, sustainability and the environment was further bolstered through the work on Enterprise Risk Management and Environmental, Social and Governance overseen by the Risk and Sustainability Committee of the Board. The Company received satisfactory scores as it was rated by external agencies on Sustainability. During the year, the Company''s management has spent significant time on talent planning to ensure that the Company is able to deliver on its strategic objectives.
Your directors are pleased to recommend a final dividend of ''10/-(100%) per equity share on face value of ''10/- each of the Company, for the financial year ended March 31, 2023. The final dividend, if approved at the 39th Annual General Meeting, will be paid to members within the period stipulated by the Companies Act, 2013 (''the Act''), as amended from time to time. The outflow on account of final dividend is estimated to be ''12,82,98,890/-.
In terms of Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations), the dividend distribution policy, is available on the Company''s website at -https://www.neulandlabs.com/wp-content/uploads/2021/06/ Dividend-Distribution-Policy.pdf
Share Capital
The equity shares of your Company continue to be listed and traded on the BSE Limited and National Stock Exchange of India Limited. The paid-up equity share capital of the Company as on March 31, 2023 is ''1,290.05 lakhs. During the year under review, the Company has not issued any shares with differential voting rights nor granted stock options nor sweat equity.
Outlook
The Company is focussed on actions to secure the long-term growth and sustainability of the Company as there is visibility on customer order flow for the short term, and processes are in place to ensure short-term execution. Project management will be critical to ensure delivery of projects and new products, as it will also be key to ensuring cost improvement programs and other strategic initiatives are on track. The Company will continue to keep quality at the top of the agenda, though it focuses on deepening current relationships and attracting new customers. The Company is continuously taking actions across the complete spectrum of the value chain to ensure it delivers value to all stakeholders and is one of the leading API partners of choice.
Consolidated Financial Statements
The Audited Consolidated Financial Statements of your Company as on March 31, 2023, which forms part of the Annual Report, have been prepared pursuant to the provisions of SEBI Listing Regulations as amended from time to time, and also as per the applicable Indian Accounting Standard (IndAS) on Consolidated Financial Statements (IndAS-110) as notified by the Ministry of Corporate Affairs.
The 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 and also available on the website of the Company, www.neulandlabs.com. Any member interested in a copy of the accounts of the subsidiaries may write to the Company Secretary at the Registered Office of the Company.
Subsidiaries
Your Company has two subsidiaries, Neuland Laboratories K.K., Japan and Neuland Laboratories Inc. USA, working on market development. Your Company does not have any joint venture or associate companies. Further there has been no material change in the nature of business of the subsidiaries.
A report on the performance and financial position of the subsidiaries, set out in the prescribed form AOC-1 in terms of proviso to sub-section (3) of Section 129 of the Act as amended from time to time, is provided as Annexure to the consolidated financial statements and hence not repeated here.
Corporate Governance Report, Management Discussion & Analysis and Other Information Required under the Companies Act, 2013 and SEBI Listing Regulations
As per SEBI Listing Regulations, as amended from time to time Corporate Governance Report with Certificate from a Practicing Company Secretary thereon and Management Discussion and Analysis report are attached and form part of this report.
Directors and Key Managerial Personnel
During the year, Members of the Company approved the appointment of Mr. Prasad Raghava Menon as Independent Director through postal ballot, with effect from October 31,2022. The Board is of the opinion that Mr. Menon possess requisite integrity, experience and expertise (including the proficiency).
The Board of Directors on the recommendation of the Nomination and Remuneration Committee, have approved the following, subject to approval of the members sought in the Notice of the Thirty Ninth Annual General Meeting:
⢠Re-appointment of Mr. Davuluri Sucheth Rao as Whole Time Director designated as Vice-Chairman & Chief Executive Officer of the Company and remuneration thereof, effective August 1,2023.
⢠Continuation of Mrs. Bharati Rao as Non-Executive Independent Director on attaining the age of 75 years.
⢠Re-appointment of Dr. D.R. Rao as Whole Time Director designated as Executive Chairman of the Company and remuneration thereof, effective April 1,2024.
Dr. Christopher M. Cimarusti, who is liable to retire by rotation, has offered himself for re-appointment as the Director at the ensuing AGM of the Company. The Board recommends his re-appointment in the ensuing AGM of the Company.
During the year under review, Mr. Deepak Gupta, Chief Financial Officer and Key Managerial Personnel (KMP) of the Company tendered his resignation w.e.f. close of business hours on October 13, 2022. The Board places on record its appreciation for the contribution and guidance of Mr. Gupta during his tenure as Chief Financial Officer. Mr. Abhijit Majumdar has been appointed as the Chief Financial Officer and designated as KMP of the Company w.e.f. November 23, 2022.
Dr.Davuluri Rama Mohan Rao, Executive Chairman, Mr. Davuluri Sucheth Rao, Vice Chairman & Chief Executive Officer, Mr. Davuluri Saharsh Rao, Vice Chairman & Managing Director, Mr. Abhijit Majumdar, Chief Financial Officer, and Ms. Sarada Bhamidipati, Company Secretary & Compliance Officer, are the Key Managerial Personnel of the Company as on the date of this Report.
The equity shares of your Company continue to be listed and traded on the BSE Limited and National Stock Exchange of India Limited. The Annual Listing fee for the year 2023-24 has been paid to both the stock exchanges.
Directors'' Responsibility Statement
Pursuant to Section 134(3)(c) of the Companies Act, 2013, as amended from time to time, your directors confirm that to the best of their knowledge and belief and according to the information and explanation obtained by them:
a. i n the preparation of the annual financial statements for the year ended March 31, 2023, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b. such accounting policies as mentioned in the Notes to the Financial Statements have been selected and applied consistently and judgement and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31,2023 and of the profit of the Company 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 Companies Act, 2013, as amended from time to time, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
d. the annual financial statements have been prepared on a going concern basis;
e. proper internal financial controls were in place and that the financial controls were adequate and were operating effectively; and
f. systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.
During the year under review, six Board Meetings were convened and held, the details of which are given in the Corporate Governance Report, which forms part of this report. The intervening gap between the meetings was within the period prescribed under the Act, and SEBI Listing Regulations, as amended from time to time.
Composition of various Committees
Details of various committees constituted by the Board as per the provisions of the Act and SEBI Listing Regulations as amended from time to time, and their meetings are given in the Corporate Governance Report which forms part of this report
Pursuant to the provisions of the Act and SEBI Listing Regulations the annual evaluation of the performance of the Board, its Committees and of individual directors has been carried out by the Board. The process was carried out by circulating questionnaires on the Board and Committees functioning on certain parameters. The performance evaluation of the Independent Directors was carried out by the entire Board, except the director being evaluated. The performance evaluation of the non-Independent Directors including Executive Directors was carried out by the Independent Directors.
The Independent Directors met on February 14, 2023, without the presence of non-Independent Directors and members of the management. The Independent Directors, inter alia, discussed matters pertaining to the Company''s affairs and reviewed the performance of non-Independent Directors, the Chairman and the Board as a whole, and assessed the quality, quantity and timeliness of flow of information between the Company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.
The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence prescribed under the Act and SEBI Listing Regulations, as amended. Further, they have affirmed compliance to the code of conduct for Independent Directors as prescribed in Schedule IV of the Act. The terms and conditions of appointment of Independent Directors is available on the website of the Company.
None of the directors of your Company is disqualified as per provisions of Section 164(2) of the Act. Your directors have made necessary disclosures to this effect as required under Act.
During the year under review, five Audit Committee Meetings were convened and held. The details of the committee meeting and composition of the Audit Committee and its terms of reference are included in the Report on Corporate Governance annexed. All the recommendations made by the Audit Committee were accepted by the Board of Directors.
Nomination and Remuneration Policy
The Nomination and Remuneration Policy of the Company includes Board Diversity as part of the policy and is available on the website of the Company at https://www.neulandlabs.com/ investors/board-of-directors/policies/. Your Company''s policy covers selection and appointment of Directors, Key Managerial Personnel, Senior Management and their remuneration, including criteria for determining qualifications, positive attributes, independence of a
director and other matters provided under section 178(3) of the Act and SEBI Listing Regulations.
Corporate Social Responsibility
The Company has in place a Corporate Social Responsibility Policy which is available on the website of the Company at https:// www.neulandlabs.com/investors/board-of-directors/policies/. Further, your Company has met its CSR obligations for the financial year ended March 31,2023 under the provisions of the Act and rules made thereunder.
Annual report on CSR activities as required under Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 read with Section 134(3) and 135(2) of the Act, has been appended as Annexure-1 and forms an integral part of this Board''s Report.
Business Responsibility and Sustainability Report
In accordance with Regulation 34(2)(f) of the SEBI Listing Regulations, the Business Responsibility and Sustainability Report (BRSR), is forming part of this report as Annexure-2.
Code of Conduct for Board of Directors and Senior Management Personnel
The directors and members of senior management have affirmed compliance with the Code of Conduct for Board of Directors and Senior Management Personnel of the Company. A declaration to this effect by the Vice Chairman & Chief Executive Officer, forms part of the Annual Report.
Vigil Mechanism/ Whistle Blower Policy
Your Company has a Vigil Mechanism/Whistle Blower Policy which serves as a mechanism for its directors, employees and stakeholders to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. Audit Committee of the Company oversees implementation of the Whistle Blower Policy. During the year, Company has not received any protected disclosure. The Whistle Blower Policy is available on the website of the Company, at https://www.neulandlabs.com/investors/board-of-directors/ policies/. A brief note on the Whistle Blower Policy is also provided in the Report on Corporate Governance, which forms part of this Annual Report.
Pursuant to Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, the Company has adopted the Code of Internal Procedures and Conduct for Regulating, Monitoring and Reporting of Trading by Designated Persons and their Immediate Relatives along with Code of Fair Disclosures. Periodically, insider trading awareness sessions are conducted for the benefit of designated persons. Trading window closures, when the designated
persons are not permitted to trade in the securities of the Company, are intimated in advance to all concerned.
Disclosure as per Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
The Company is committed to ensure that there is no scope for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules framed thereunder. The Company has not received any complaints on sexual harassment during the year under review and as on the date of this report.
As on March 31, 2023, there are no employee stock options available in the Company and hence no disclosures are required to be made under Regulation 14 of the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.
The financial statements have been audited by M/s. M S K A & Associates (Firm Registration No: 105047W), Chartered Accountants, Statutory Auditors of the Company.
The Statutory Auditors were appointed in the AGM held on July 5, 2019 to hold office from the conclusion of the thirty fifth Annual General Meeting until the conclusion of the fortieth Annual General Meeting.
There are no qualifications, reservations or adverse remarks made by M/s. M S K A & Associates, Statutory Auditors, in their report for the financial year ended March 31,2023.
Pursuant to provisions of Section 143(12) of the Act, the Statutory Auditors have not reported any incident of fraud to the Audit Committee during the year under review.
Pursuant to the provisions of Section 204 of the Act and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended from time to time, the Company has appointed M/s. P.S. Rao & Associates, a firm of Company Secretaries in Practice, to conduct the Secretarial Audit of the Company. The report of the Secretarial Audit for the financial year ended March 31, 2023 is annexed to the Corporate Governance Report and forms part of this report. There are no qualifications, reservations or adverse remarks made by the Secretarial Auditor in their report.
Pursuant to Section 148 of the Act read with the Companies (Cost Records and Audit) Amendment Rules, 2014, as amended from time to time, subject to the approval of the Central Government, if any required, the Audit Committee has recommended and the Board of Directors had appointed M/s. Nageswara Rao & Co. (Registration No. 000332), Cost Accountants, Hyderabad, being eligible and having sought re-appointment, as Cost Auditors of the Company, to carry out the cost audit of the products manufactured by the Company during the financial year 2023-24.
During the year, the Statutory Auditors, Cost Auditors and Secretarial Auditors have not reported any instances of frauds committed in the Company by its officers and employees under Section 143(12) of the Act details of which needs to be mentioned in this Report.
Your Company has taken necessary steps to mitigate risks and obtained appropriate insurances and the Board is kept appraised of the risk assessment and minimization procedures. The assets of the Company have been adequately covered under insurance. The policy values have been determined taking into consideration the value of the assets of the Company.
There have been no material changes and commitments affecting the financial position of the Company between the end of the financial year of the Company to which the financial statements relate and the date of the report. Further, it is hereby confirmed that there has been no change in the nature of business of the Company.
Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo
The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Act read with Rule, 8 of the Companies (Accounts) Rules, 2014, as amended from time to time, is annexed herewith as Annexure-3.
Pursuant to Section 92 and Section 134 of the Act, the Annual Return as on March 31,2023 in form MGT-7 is available on the website of the Company at www.neulandlabs.com.
Particulars of Employees and related disclosures
The information relating to remuneration and other details as required pursuant to Section 197 of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014, as amended, is provided as Annexure-4 to this report.
In terms of the provisions of Section 197 of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules are provided in the Annual Report, which forms part of this Report.
Pursuant to the provisions of the first proviso to Section 136(1) of the Act, the Annual Report is being sent to the members and other persons entitled thereto, excluding the information in respect of employees of the Company containing the particulars as specified in Rule 5 (2) of the said Rules. The said information is available for inspection on all working days, during business hours, at the Registered Office of the Company up to the date of the ensuing Annual General Meeting. Any member interested in obtaining such information, may write to the Company Secretary and the same will be furnished on request.
All contracts/arrangements/transactions with the related parties during the financial year were in the ordinary course of business and at an arm''s length basis.
During the year, the Company has not entered into any contract or arrangement with related parties which could be considered material in accordance with the policy of the Company on materiality of related party transactions. Further, there were no materially significant related party transactions which could have potential conflict with interest of the Company at large.
The Policy on Materiality of Related Party Transactions and on dealing with Related Party Transactions as approved by the Board may be accessed on the Company''s website at https://www.neulandlabs. com/investors/board-of-directors/policies/.
The particulars of transactions with related parties in the prescribed format is annexed to this report, as Annexure-5. Members may refer to Note No. 38 to the standalone financial statement which sets out related party disclosures pursuant to Ind AS.
Particulars of Loans, Guarantees and Investments
The Company has not given any loans and guarantees or made any investments under Section 186 of the Act during the year under review.
The Company has not accepted any deposits from the public and as such no amount of principal or interest on deposits from the public was outstanding as on the date of the Balance Sheet.
Significant and Material Orders passed by the Regulators or Courts
There are no significant and material orders passed by the Regulators/ Courts which would impact the going concern status of the Company and its future operations.
No amount was proposed to be transferred to the general reserve during the financial year 2022-23.
The Board oversees Company''s processes for determining risk tolerance and review management''s action and comparison of overall risk tolerance to established levels. The framework is designed to enable risks to be identified, assessed and mitigated appropriately. Major risks identified by the businesses and functions are systematically addressed through appropriate actions on a continuous basis. For details, please refer to the Management Discussion and Analysis report which forms part of this Report.
Internal Financial Controls are an integral part of the risk management process, addressing financial and financial reporting risks. The internal financial controls have been embedded and documented in the business processes. The controls in place include essential components of internal financial controls required under the Companies Act, 2013, as amended from time to time, and also the internal financial controls over financial reporting as per the Guidance Note on Audit of Internal Controls over Financial Reporting as issued by Institute of Chartered Accountants of India.
Assurance on the effectiveness of internal financial controls is obtained through management reviews, continuous monitoring by functional owners as well as testing of the internal financial control systems by the internal auditors during the course of their audits. We believe that these systems provide reasonable assurance that our internal financial controls are designed effectively and are operating as intended.
The Company has in place adequate internal financial controls with reference to financial statements. During the year under review such controls were tested and no reportable material weakness in the design or operation were observed.
Human Resources & Industrial Relations
Your Company''s relations with its employees continue to be cordial. Dedicated work by the workmen, supervisors and executives of your Company made it possible to achieve success under trying and difficult circumstances.
Acknowledgement
Your Board of Directors take this opportunity to thank all its stakeholders, including banks, financial institutions, business partners, government and other statutory bodies, regulatory authorities, analysts and members for their continued support and valuable cooperation. The Board of Directors also wish to place on record its deep sense of appreciation for the committed services by the Company''s employees at all levels.
For and on behalf of the Board
Dr. Davuluri Rama Mohan Rao
Place: Hyderabad Executive Chairman
Date: May 11,2023 (DIN: 00107737))
Mar 31, 2022
The Board of Directors are pleased to present the Company''s Thirty Eighth Annual Report and the Company''s audited financial statements (standalone and consolidated) for the financial year ended March 31,2022.
The Company''s financial performance (standalone) for the year ended March 31,2022, is summarised below:
('' in lakhs) |
||
Particulars |
2021-22 |
2020-21 |
Total Income |
95,315.33 |
95,300.80 |
Profit before Finance costs, Depreciation, Amortisation and Tax |
14,427.06 |
16,253.81 |
Finance costs |
1,349.44 |
1,789.75 |
Profit before Depreciation, Amortisation and Tax |
13,077.62 |
14,464.06 |
Less: Depreciation and Amortisation |
4,903.64 |
3,967.85 |
Profit before Tax |
8,173.98 |
10,496.21 |
Less: Current tax |
2,042.19 |
1,248.29 |
Deferred tax |
(221.55) |
1,218.43 |
Profit after Tax |
6,353.34 |
8,029.49 |
Add: Other comprehensive income |
(599.17) |
(139.25) |
Total comprehensive income for the year |
5,754.17 |
7,890.24 |
For the financial year ended March 31, 2022, a Total Income of '' 95,315.33 lakhs as against '' 95,300.80 lakhs in the previous year.
For the year ended on March 31, 2022, the Company has reported Earnings Before Interest, Finance Cost, Depreciation and Amortization and Tax (EBIDTA) of '' 14,427.06 lakhs as against the EBIDTA of '' 16,253.81 lakhs during the previous year.
The Net Profit of the Company for the year 2021-22 was '' 6,353.34 lakhs compared to '' 8,029.49 lakhs during the previous year.
During the year under review, your Company was impacted by various factors including the macro-economic and geopolitical situation combining with the second and third waves of the COVID19 pandemic. We saw a decline in GDS revenues as customers faced inventory pile-up issues for some of the key Prime products. The GDS Specialty business did well as several products contributed to the revenue even in this turbulent period. In the CMS business we saw continued traction even as we saw the commercialization of 2 molecules and saw growth in development revenues even as one of the key molecules was impacted due to genericization. During the year the Company strengthened certain capabilities like Project Management which are crucial to the growing CMS business.
Your directors are pleased to recommend a final dividend of '' 5/- (50%) per equity share on face value of ''10/- each of the Company, for the FY 2021-22. The final dividend, if approved at
the 38th Annual General Meeting, will be paid to members within the period stipulated by the Companies Act, 2013, as amended from time to time. The outflow on account of final dividend is estimated to be '' 6,41,49,445/-.
In terms of Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations), the dividend distribution policy, is available on the Company''s website on website-www.neulandlabs.com
The equity shares of your Company continue to be listed and traded on the BSE Limited and National Stock Exchange of India Limited. The paid-up equity share capital of the Company as on March 31, 2022 is ''1,290.05 lakhs. During the year under review, the Company has not issued any shares with differential voting rights nor granted stock options nor sweat equity.
Both business verticals of Generic Drug Substances (GDS) and Custom Manufacturing Solutions (CMS) will continue to be pivotal to the growth of your Company. Highest focus will be maintained on quality, technological excellence and transparent partnerships for deepening existing customer relationships as well as attracting new customers. With several steps being taken to strengthen the organisation internally and enhance customer focus, Neuland is poised to be one of the leading partners of choice for the Pharmaceutical industry in both the GDS and CMS space.
Consolidated Financial Statements
The Audited Consolidated Financial Statements of your Company as on March 31, 2022, which forms part of the Annual Report, have been prepared pursuant to the provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time, and also as per the applicable Indian Accounting Standard (IndAS) on Consolidated Financial Statements (IndAS-110) as notified by the Ministry of Corporate Affairs.
The 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 and also available on the website of the Company, www.neulandlabs.com. Any member interested in a copy of the accounts of the subsidiaries may write to the Company Secretary at the Registered Office of the Company.
Subsidiaries
Your Company has two subsidiaries, Neuland Laboratories K.K.,Japan and Neuland Laboratories Inc. USA, working on market development. Your Company does not have any joint venture or associate companies. Further there has been no material change in the nature of business of the subsidiaries.
A report on the performance and financial position of the subsidiaries, set out in the prescribed form AOC-1 in terms of proviso to sub-section (3) of Section 129 of the Companies Act, 2013, as amended from time to time, is provided as Annexure to the consolidated financial statements and hence not repeated here.
Corporate Governance Report, Management Discussion & Analysis and Other Information Required under the Companies Act, 2013 and Listing Agreement
As per Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time Corporate Governance Report with Certificate from a Practicing Company Secretary thereon and Management Discussion and Analysis report are attached and form part of this report.
Directors and Key Managerial Personnel
With deep regret, we report the sad demise of our Independent Director, Dr. William Gordon Mitchell, on December 6, 2021. Your directors would like to place on record their highest gratitude and appreciation for the invaluable contributions and achievements of Dr. Mitchell over the years.
Mr. Davuluri Saharsh Rao retires by rotation at the forthcoming 38th Annual General Meeting and being eligible, seeks re-appointment. The profile of Mr. Davuluri Saharsh Rao is included in the Report on Corporate Governance and the Notice of the AGM.
Dr. Davuluri Rama Mohan Rao, Executive Chairman, Mr. Davuluri Sucheth Rao, Vice Chairman & Chief Executive Officer, Mr. Davuluri Saharsh Rao, Vice Chairman & Managing Director, Mr. Deepak Gupta, Chief Financial Officer, and Ms. Sarada Bhamidipati, Company Secretary & Compliance Officer, are the Key Managerial Personnel of the Company as on the date of this Report.
Listing at Stock Exchanges
The equity shares of your Company continue to be listed and traded on the BSE Limited and National Stock Exchange of India Limited. The Annual Listing fee for the year 2022-23 has been paid to both the stock exchanges.
Directors'' Responsibility Statement
Pursuant to Section 134(3)(c) of the Companies Act, 2013, as amended from time to time, your directors confirm that to the best of their knowledge and belief and according to the information and explanation obtained by them:
a. in the preparation of the annual financial statements for the year ended March 31, 2022, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b. such accounting policies as mentioned in the Notes to the Financial Statements have been selected and applied consistently and judgement and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31,2022 and of the profit of the Company 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 Companies Act, 2013, as amended from time to time, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
d. the annual financial statements have been prepared on a going concern basis;
e. proper internal financial controls were in place and that the financial controls were adequate and were operating effectively; and
f. systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.
Board Meetings
During the year under review, five Board Meetings were convened and held, the details of which are given in the Corporate Governance Report, which forms part of this report.
The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time.
Composition of various Committees
Details of various committees constituted by the Board as per the provisions of Companies Act, 2013, as amended from time to time, and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time, and their meetings are given in the Corporate Governance Report which forms part of this report.
Pursuant to the provisions of the Companies Act, 2013 and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, the annual evaluation of the performance of the Board, its Committees and of individual directors has been carried out by the Board. The process was carried out by circulating questionnaires on the Board and Committees functioning on certain parameters. The performance evaluation of the Independent Directors was carried out by the entire Board, except the director being evaluated. The performance evaluation of the non-Independent Directors including Executive Directors was carried out by the Independent Directors.
The Independent Directors met on January 31, 2022, without the presence of non-Independent Directors and members of the management. The Independent Directors, inter alia, discussed matters pertaining to the Company''s affairs and reviewed the performance of non-Independent Directors, the Chairman and the Board as a whole, and assessed the quality, quantity and timeliness of flow of information between the Company Management and the Board that is necessary for the Board to effectively and reasonably perform their duties.
The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence prescribed under the Companies Act, 2013 and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 as amended. Further, they have affirmed compliance to the code of conduct for Independent Directors as prescribed in Schedule IV of the Act. The terms and conditions of appointment of Independent Directors is available on the website of the Company.
None of the Directors of your Company is disqualified as per provisions of Section 164(2) of the Companies Act, 2013, as amended from time to time. Your directors have made necessary
disclosures to this effect as required under Companies Act, 2013, as amended from time to time.
During the year under review, four Audit Committee Meetings were convened and held. The details of the committee meetings and composition of the Audit Committee and its terms of reference are included in the Report on Corporate Governance annexed. All the recommendations made by the Audit Committee were accepted by the Board of Directors.
Nomination and Remuneration Committee
Your Company has a Nomination and Remuneration Policy as required under Section 178 of the Companies Act, 2013, as amended from time to time, for selection and appointment of Directors, Key Managerial Personnel, Senior Management and their remuneration. During the year under review, two Nomination and Remuneration Committee Meetings were convened and held. The details of the Nomination and Remuneration Committee are set out in the Report of Corporate Governance, forming part of this Report.
The Company has formulated a Nomination and Remuneration Policy which is available on the website of the Company at www.neulandlabs.com. Your Company''s Policy on Directors'' appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under Section 178(3) of the Act are covered in the policy.
Corporate Social Responsibility
The Company has in place a Corporate Social Responsibility Policy which is available on the website of the Company at www.neulandlabs.com. Further, your Company has met its CSR obligations for the FY 2021-22 under the provisions of the Companies Act, 2013 and rules made thereunder.
Annual report on CSR activities as required under Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 read with Section 134(3) and 135(2) of the Companies Act, 2013, as amended from time to time, has been appended as Annexure-1 and forms an integral part of this Board''s Report.
Business Responsibility Report
In accordance with regulation 34(2)(f) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 the Business Responsibility Report (BRR), is forming part of this report as Annexure-2 describing the detailed report on business responsibilities vis-avis the nine principles of the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business framed by the Ministry of Corporate Affairs.
Code of Conduct for Board of Directors and Senior Management Personnel
The directors and members of Senior Management have affirmed compliance with the Code of Conduct for Board of Directors and Senior Management Personnel of the Company. A declaration to this effect has been signed by the Vice Chairman & Chief Executive Officer and forms part of the Annual Report.
Vigil Mechanism/Whistle Blower Policy
Your Company has a Vigil Mechanism/Whistle Blower Policy which serves as a mechanism for its directors and employees to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. The policy also provides access to the Chairperson of the Audit Committee under certain circumstances. The Whistle Blower Policy is available on the website of the Company, www.neulandlabs.com. A brief note on the Whistle Blower Policy is also provided in the Report on Corporate Governance, which forms part of this Annual Report.
Pursuant to Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2018, the Company has adopted the Code of Internal Procedures and Conduct for Regulating, Monitoring and Reporting of Trading by Designated Persons and their Immediate Relatives along with Code of Fair Disclosures. Periodically, insider trading awareness sessions are conducted for the benefit of designated persons. Trading window closures, when the directors and designated persons are not permitted to trade in the securities of the Company, are intimated in advance to all concerned. Violations of the Code, if any, are appropriately acted on and reported to the SEBI/SEs.
Disclosure as per Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
The Company is committed to ensure that there is no scope for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules framed thereunder. The Company has not received any complaints on sexual harassment during the calendar year 2021 and as on the date of this report.
As on March 31,2022, no employee stock options available in the Company and hence no disclosures are required to be made under Regulation 14 of the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.
The financial statements have been audited by M/s. MSKA & Associates (Firm Registration No: 105047W), Chartered Accountants, Statutory Auditors of the Company.
The Statutory Auditors were appointed in the AGM held on July 5, 2019 to hold office from the conclusion of the thirty fifth Annual General Meeting until the conclusion of the fortieth Annual General Meeting.
There are no qualifications, reservations or adverse remarks made by M/s. MSKA & Associates, Statutory Auditors, in their report for the financial year ended March 31,2022.
Pursuant to provisions of Section 143(12) of the Companies Act, 2013, as amended from time to time, the Statutory Auditors have not reported any incident of fraud to the Audit Committee during the year under review.
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended from time to time, the Company has appointed M/s. P.S. Rao & Associates, a firm of Company Secretaries in Practice, to conduct the Secretarial Audit of the Company. The report of the Secretarial Audit for the financial year ended March 31, 2022 is annexed to the Corporate Governance Report and forms part of this report. There are no qualifications, reservations or adverse remarks made by the Secretarial Auditor in their report.
Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Amendment Rules, 2014, as amended from time to time, subject to the approval of the Central Government, if any required, the Audit Committee has recommended and the Board of Directors had appointed M/s. Nageswara Rao & Co. (Registration No. 000332), Cost Accountants, Hyderabad, being eligible and having sought re-appointment, as Cost Auditors of the Company, to carry out the cost audit of the products manufactured by the Company during the financial year 2022-23.
Your Company has taken necessary steps to mitigate risks and obtained appropriate insurances and the Board is kept appraised of the risk assessment and minimization procedures. The assets of the Company have been adequately covered under insurance. The policy values have been determined taking into consideration the value of the assets of the Company.
There have been no material changes and commitments affecting the financial position of the Company between the end of the financial year of the Company to which the financial statements relate and the date of the report. Further, it is hereby confirmed that there has been no change in the nature of business of the Company.
Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo
The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule, 8 of the Companies (Accounts) Rules, 2014, as amended from time to time, is annexed herewith as Annexure-3.
Pursuant to Section 92 and Section 134 of the Companies Act, 2013, as amended from time to time, the Annual Return as on March 31,2022 in form MGT-7 is available on the website of the Company at www.neulandlabs.com.
Particulars of Employees and related disclosures
The information relating to remuneration and other details as required pursuant to Section 197 of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, is provided as an Annexure-4 to this report.
In terms of the provisions of Section 197 of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules are provided in the Annual Report, which forms part of this Report.
Pursuant to the provisions of the first proviso to Section 136(1) of the Act, the Annual Report is being sent to the members and other persons entitled thereto, excluding the information in respect of employees of the Company containing the particulars as specified in Rule 5 (2) of the said Rules. The said information is available for inspection on all working days, during business hours, at the Registered Office of the Company up to the date of the ensuing Annual General Meeting. Any member interested in obtaining such information, may write to the Company Secretary and the same will be furnished on request.
All contracts/arrangements/transactions entered into by the Company during the financial year with related parties were in the ordinary course of business and at an arm''s length basis.
During the year, the Company has not entered into any material contract or arrangements with related parties which could be considered material in accordance with the policy of the Company on materiality of related party transactions. Further, there were no materially significant related party transactions which could have potential conflict with interest of the Company at large.
The Policy on Materiality of Related Party Transactions and on dealing with Related Party Transactions as approved by the Board may be accessed on the Company''s website, www.neulandlabs.com
The particulars of transactions with related parties in the prescribed format is annexed to this report, as Annexure-5. Members may refer to Note No. 39 to the standalone financial statement which sets out related party disclosures pursuant to Ind AS.
Particulars of Loans, Guarantees and Investments
The Company has not given any loans and guarantees or made any investments under Section 186 of the Act during the year under review.
The Company has not accepted any deposits from the public and as such no amount of principal or interest on deposits from the public was outstanding as on the date of the Balance Sheet.
Significant and Material Orders passed by the Regulators or Courts
There are no significant material orders passed by the Regulators /Courts which would impact the going concern status of the Company and its future operations.
The Company has not proposed to transfer any amount to the general reserve.
The Board oversees Company''s processes for determining risk tolerance and review management''s action and comparison of overall risk tolerance to established levels. The framework is designed to enable risks to be identified, assessed and mitigated appropriately. Major risks identified by the businesses and functions are systematically addressed through appropriate actions on a continuous basis. For details, please refer to the Management Discussion and Analysis report which forms part of this Report.
Internal Financial Controls are an integral part of the risk management process, addressing financial and financial reporting risks. The internal financial controls have been embedded and
documented in the business processes. The controls in place include essential components of internal financial controls required under the Companies Act, 2013, as amended from time to time, and also the internal financial controls over financial reporting as per the Guidance Note on Audit of Internal Controls over Financial Reporting as issued by Institute of Chartered Accountants of India.
Assurance on the effectiveness of internal financial controls is obtained through management reviews, continuous monitoring by functional owners as well as testing of the internal financial control systems by the internal auditors during the course of their audits. We believe that these systems provide reasonable assurance that our internal financial controls are designed effectively and are operating as intended.
The Company has in place adequate internal financial controls with reference to financial statements. During the year under review such controls were tested and no reportable material weakness in the design or operation were observed.
Human Resources and Industrial Relations
Your Company''s relations with its employees continue to be cordial. Dedicated work by the workmen, supervisors and
executives of your Company made it possible to achieve success under trying and difficult circumstances.
Acknowledgement
The Board of Directors would like to place on record its sincere appreciation for the continued support and guidance received from the banks, financial institutions, statutory and regulatory authorities, Ministry of Corporate Affairs, Stock Exchanges and Depositories for their continued support and guidance. The Board places on record its appreciation to the members of the Company for their continued support and to its valued customers and vendors for their continued patronage. The Board of Directors also wish to place on record its deep sense of appreciation for the committed services by the Company''s employees at all levels.
For and on behalf of the Board
Dr. Davuluri Rama Mohan Rao
Place: Hyderabad Executive Chairman
Date: May 10, 2022 (DIN: 00107737)
Mar 31, 2019
The Board of Directors are pleased to present the Companyâs Thirty Fifth Annual Report along with the Companyâs audited financial statements (standalone and consolidated) for the financial year ended March 31, 2019.
Financial Performance
The Companyâs financial performance (standalone) for the year ended March 31, 2019, is summarised below:
(Rs. in lacs)
Particulars |
2018-19 |
2017-18 |
Total Income |
67,032.11 |
53,369.60 |
Profit before Finance Costs, Depreciation, Amortisation and Tax |
6,135.83 |
5,456.51 |
Finance costs |
1,566.31 |
1,892.13 |
Profit before Depreciation, Amortisation and Tax |
4,569.52 |
3,564.38 |
Less: Depreciation & Amortisation |
2,586.02 |
2,210.35 |
Profit before Tax |
1,983.50 |
1,354.03 |
Less: Current tax |
544.35 |
422.92 |
Deferred tax |
(175.19) |
(249.70) |
Profit after Tax |
1,614.34 |
1,180.81 |
Add: Other comprehensive income |
14.99 |
19.54 |
Total comprehensive income for the year |
1,629.33 |
1,200.35 |
For the financial year ended March 31, 2019, a Total Income of RS.67,032.11 lacs as against RS.53,369.60 lacs in the previous year.
For the year ended on March 31, 2019, the Company has reported Earnings Before Interest, Finance Cost, Depreciation & Amortization and Tax (EBIDTA) of RS.6,135.83 lacs as against the EBIDTA of RS.5,456.51 lacs during the previous year.
The Net Profit of the Company for the year 2018-19 was RS. 1,629.33 lacs compared to RS. 1,200.35 lacs during the previous year.
Business Review
The fiscal year under review saw your Company register good growth on the top line driven primarily by the GDS (Generic Drug Substances) business. However, the Company had to overcome challenges due to the raw material situation which led to escalating costs as well shortages of certain key intermediates. While this situation had a very significant impact on profitability, the company was able to maneuver the situation in its favor by ensuring customer requirements were met. Another factor which affected profitability was the subdued performance of the CMS business in first half of the financial year. However, the company has continued to add a number of new projects during the financial year and this bodes well for the future.
Dividend
Your Directors have recommended a final dividend of RS. 1.20/- per equity share (12% dividend) to the members for their approval. The dividend, if approved, will be paid to members within the period stipulated by the Companies Act, 2013, as amended from time to time. The outflow on account of dividend (inclusive of tax on distributed profits) will be aggregating to RS. 185.60 lacs.
Share Capital
During the year under review (a) 6,861,243 equity shares of RS.10/-each have been allotted to the shareholders of Neuland Health Sciences Private Limited (First Transferor Company) and Neuland Pharma Research Private Limited (Second Transferor Company) and 4,590,608 equity shares held by Neuland Health Sciences Private Limited in the Company before the amalgamation stand cancelled, pursuant to the approval of the Scheme of Amalgamation and Arrangement between the transferor companies and the Company, by the Honâble National Company Law Tribunal, Hyderabad Bench vide its Order dated March 21, 2018; and (b) 1,675,000 equity shares were issued and allotted under Qualified Institutional Placement (QIP). Accordingly, the issued and paid up capital of the Company as at March 31, 2019 stands at RS.1,290.05 lacs.
During the year under review, the Company has not issued any shares with differential voting rights nor granted stock options nor sweat equity.
Manufacturing Facility (Unit 3)
During the year under review, your Company has started commercialization of products (intermediate for captive consumption) from Block 1 of Unit III, manufacturing facility located at Gaddapotharam village, Jinnaram Mandal in Sanga Reddy District. It is a multi-product facility and has five production blocks for advance intermediate and API manufacturing.
Consolidated Financial Statements
The Audited Consolidated Financial Statements of your Company as on March 31, 2019, which forms part of the Annual Report, have been prepared as per the applicable Indian Accounting Standard (IndAS) on Consolidated Financial Statements (IndAS-110) as notified by the Ministry of Corporate Affairs.
The 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 and also available on the website of the Company, www.neulandlabs.com. Any member interested in a copy of the accounts of the subsidiaries may write to the Company Secretary at the Registered Office of the Company.
Subsidiaries
Your Company has two subsidiaries, Neuland Laboratories K.K., Japan and Neuland Laboratories Inc. USA, working on market development. Your Company does not have any joint venture or associate companies. Further there has been no material change in the nature of business of the subsidiaries.
A report on the performance and financial position of the subsidiaries, set out in the prescribed form AOC-1 in terms of proviso to sub section (3) of Section 129 of the Companies Act, 2013, as amended from time to time, is provided as Annexure to the consolidated financial statements and hence not repeated here.
Documents uploaded on the Website
The following documents are available on the website of the Company (www.neulandlabs.com) in compliance with Companies Act, 2013, as amended from time to time:
- Unpaid dividend details as per Section 124(2)
- Corporate Social Responsibility Policy as per Section 135(4)(a)
- Financial Statements of the Company and Consolidated Financial Statements along with relevant documents as per third proviso to section 136(1).
- Separate audited accounts in respect of subsidiaries as per fourth proviso to section 136(1)
- Details of vigil mechanism for directors and employees to report genuine concerns as per proviso to section 177(10)
- Policy on Material Subsidiaries
- The terms and conditions of appointment of independent directors as per Schedule VI to the Act.
Corporate Governance Report, Management Discussion & Analysis and Other Information Required under the Companies Act, 2013 and Listing Agreement
As per SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015, as amended from time to time Corporate Governance Report with Certificate from a Practicing Company Secretary thereon and Management Discussion and Analysis report are attached and form part of this report.
Directors and Key Managerial Personnel
During the year under review, the following changes have taken place in the Board of Directors:
Pursuant to the approval accorded by the shareholders by means of Postal Ballot, the Company has:
- Re-appointed Dr Davuluri Rama Mohan Rao, as the Chairman & Managing Director of the Company for a further period of 5 years with effect from April 1, 2019.
- Appointed Mr. Homi Rustam Khusrokhan, as a Non-Executive Independent Director of the Company for a period of five consecutive years with effect from February 12, 2019.
- Re-appointed Mr. Parampally Vasudeva Maiya, Mr. Humayun Dhanrajgir and Dr. William Gordon Mitchell as Non-Executive Independent Directors of the Company for a period of five consecutive years with effect from April 1, 2019 and Mrs. Bharati Rao as Non-Executive Independent Director of the Company for a period of five consecutive years from May 9, 2019.
In accordance with the provisions of Section 152 of the Companies Act, 2013, as amended from time to time, Dr Christopher M Cimarusti shall retire by rotation and being eligible offers himself for re-appointment.
Dr. Davuluri Rama Mohan Rao, Chairman & Managing Director, Mr. Davuluri Sucheth Rao, Vice Chairman & CEO, Mr. Davuluri Saharsh Rao, Joint Managing Director, Mr. Amit Agarwal, Chief Financial Officer and Ms.Sarada Bhamidipati, Company Secretary & Compliance Officer, are the Key Managerial Personnel of the Company as on the date of this Report.
Listing at Stock Exchanges
The equity shares of your Company continue to be listed and traded on the BSE Limited and National Stock Exchange of India Limited. The Annual Listing fee for the year 2019-20 has been paid to both the stock exchanges.
Directorsâ Responsibility Statement
Pursuant to Section 134(3)(c) of the Companies Act, 2013, as amended from time to time, your Directors confirm that to the best of their knowledge and belief and according to the information and explanation obtained by them:
a. in the preparation of the annual financial statements for the year ended March 31, 2019, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b. such accounting policies as mentioned in the Notes to the Financial Statements have been selected and applied consistently and judgement and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2019 and of the profit of the Company 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 Companies Act, 2013, as amended from time to time, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
d. the annual financial statements have been prepared on a going concern basis;
e. proper internal financial controls were in place and that the financial controls were adequate and were operating effectively; and
f. systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.
Board Meetings
During the year under review, five Board Meetings and four Audit Committee Meetings were convened and held, the details of which are given in the Corporate Governance Report, which forms part of this report. The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013, as amended from time to time.
Composition of various Committees
Details of various committees constituted by the Board as per the provisions of Companies Act, 2013, as amended from time to time, and SEBI (LODR) Regulations, 2015, as amended from time to time, and their meetings are given in the Corporate Governance Report which forms part of this report.
Board Evaluation
Pursuant to the provisions of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure requirements) Regulations, 2015, the annual evaluation of the performance of the Board, its Committees and of individual directors has been carried out by the Board. The process was carried out by circulating questionnaires on the Board and Committees functioning on certain parameters. The performance evaluation of the independent directors was carried out by the entire Board, except the director being evaluated. The performance evaluation of the non-Independent Directors including Executive Directors was carried out by the Independent Directors.
Independent Directors
The Independent Directors met on February 12, 2019, without the presence of Non-Independent Directors and members of the management. The Independent Directors discussed matters pertaining to the Companyâs affairs and reviewed the performance of non-independent directors, the Chairman and the Board as a whole, and assessed the quality, quantity and timeliness of flow of information between the Company Management and the Board that is necessary for the Board to effectively and reasonably perform their duties.
The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence prescribed under the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements), 2015.
Disclosures by Directors
None of the Directors of your Company is disqualified as per provisions of Section 164(2) of the Companies Act, 2013, as amended from time to time. Your Directors have made necessary disclosures to this effect as required under Companies Act, 2013, as amended from time to time.
Audit Committee
The composition of the Audit Committee and its terms of reference are included in the Report on Corporate Governance annexed. All the recommendations made by the Audit Committee were accepted by the Board of Directors.
Nomination and Remuneration Committee
The details of the Nomination and Remuneration Committee are set out in the Report on Corporate Governance, forming part of this Report.
Your Company has a Nomination and Remuneration Policy as required under section 178 of the Companies Act, 2013, as amended from time to time, for selection and appointment of Directors, Key Managerial Personnel, Senior Management and their remuneration.
Remuneration Policy
Pursuant to Section 178(3) of the Companies Act, 2013, and on recommendations of Nomination and Remuneration Committee, the Board adopted a remuneration policy for Directors, Key Management Personnel (KMPs) and Senior Management. Your Companyâs Policy on directorsâ appointment and remuneration includes criteria for determining qualifications, positive attributes, independence of a director and other matters provided under section 178(3) of the Act and the Policy is available on the website of the Company, www.neulandlabs.com.
Code of Conduct for Board of Directors and Senior Management Personnel
The Directors and members of Senior Management have affirmed compliance with the Code of Conduct for Board of Directors and Senior Management Personnel of the Company. A declaration to this effect has been signed by the Chairman & Managing Director and forms part of the Annual Report.
Vigil Mechanism/ Whistle Blower Policy
Your Company has a Vigil Mechanism / Whistle Blower Policy which serves as a mechanism for its Directors and employees to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. The policy also provides access to the Chairperson of the Audit Committee under certain circumstances. The Whistle Blower Policy is available on the website of the Company at www.neulandlabs.com. A brief note on the Whistle Blower Policy is also provided in the Report on Corporate Governance, which forms part of this Annual Report.
Prevention of Insider Trading
Pursuant to SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018, the Board of Directors have approved Code of Internal Procedures and Conduct for Regulating, Monitoring and Reporting of Trading by Designated Persons and their Immediate Relatives along with Code of Fair Disclosures, effective April 1, 2019.
Disclosure as per Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
The Company is committed to ensure that there is no scope for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules framed thereunder. The Company has not received any complaints on sexual harassment during the calendar year 2018.
Employee Stock Option Scheme
As on March 31, 2019, no employee stock options are available in the Company and hence no disclosures are required to be made under Regulation 14 of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (âthe Regulationsâ).
Statutory Auditors
In terms of Section 139 of the Companies Act, 2013 (âthe Actâ), and the Companies (Audit and Auditors) Rules, 2014, made thereunder, the term of the present Statutory Auditors of the Company, M/s. Walker Chandiok & Co LLP, Chartered Accountants (Registration No. 001076N/N500013), will be expiring at the conclusion of the 35th Annual General Meeting of the Company.
The Board of Directors had at its meeting held on May 16, 2019, upon the recommendation of Audit Committee have appointed of M/s MSKA & Associates (Firm Registration No: 105047W), Chartered Accountants, as the Statutory Auditors of the Company to hold office from the conclusion of the thirty fifth Annual General Meeting until the conclusion of the fortieth Annual General Meeting
M/s MSKA & Associates, Chartered Accountants, Hyderabad, have confirmed that the appointment, if made, would be within the prescribed limits under Section 141 of the Companies Act, 2013. Accordingly, the appointment of M/s MSKA & Associates, Chartered Accountants, Hyderabad, as the Statutory Auditors, is being proposed as an Ordinary Resolution.
The financial statements have been audited by M/s. Walker Chandiok & Co LLP, Chartered Accountants, Statutory Auditors of the Company. The Board would like to place on record its appreciation to M/s Walker Chandiok & Co LLP, Chartered Accountants, for giving their valuable insights and suggestions for the past five years, and also wishes them all success in their endeavours.
Auditorsâ Report
There are no qualifications, reservations or adverse remarks made by Walker Chandiok & Co LLP, Statutory Auditors, in their report for the financial year ended March 31, 2019.
Pursuant to provisions of Section 143(12) of the Companies Act, 2013, as amended from time to time, the Statutory Auditors have not reported any incident of fraud to the Audit Committee during the year under review.
Secretarial Audit
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended from time to time, the Company has appointed M/s.P.S.Rao & Associates, Company Secretaries, to conduct the Secretarial Audit of the Company. The report on the Secretarial Audit for the financial year ended March 31, 2019 is annexed to the Corporate Governance Report and forms part of this report. There are no qualifications, reservations or adverse remarks made by the Secretarial Auditor in their report.
Cost Auditors
Pursuant to Section 148 of the Companies Act,2013 read with the Companies (Cost Records and Audit) Amendment Rules, 2014, as amended from time to time, subject to the approval of the Central Government, if any required, the Audit Committee has recommended and the Board of Directors had appointed M/s. Nageswara Rao & Co. (Registration No. 000332), Cost Accountants, Hyderabad, being eligible and having sought reappointment, as Cost Auditors of the Company, to carry out the cost audit of the products manufactured by the Company during the financial year 2019-20.
Insurance
Your Company has taken necessary steps to mitigate risks and obtained appropriate insurances and the Board is kept appraised of the risk assessment and minimization procedures. The assets of the Company have been adequately covered under insurance. The policy values have been determined taking into consideration the value of the assets of the Company.
Material Changes
There have been no material changes and commitments affecting the financial position of the Company between the end of the financial year of the Company to which the financial statements relate and the date of the report. Further, it is hereby confirmed that there has been no change in the nature of business of the Company.
Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo
The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule, 8 of The Companies (Accounts) Rules, 2014, as amended from time to time, is annexed herewith as Annexure 1.
Extract of Annual Return
Pursuant to Section 92(3) and Section 134(3)(a) of the Companies Act, 2013, as amended from time to time, extract of the Annual Return as on March 31, 2019 in form MGT-9 is enclosed as Annexure 2 to this report.
Particulars of Employees and related disclosures
The information relating to remuneration and other details as required pursuant to Section 197 of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, is provided as an Annexure 3 to this report.
In terms of the provisions of Section 197 of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules are provided in the Annual Report, which forms part of this Report.
Pursuant to the provisions of the first proviso to Section 136(1) of the Act, the Annual Report is being sent to the members and other persons entitled thereto, excluding the information in respect of employees of the Company containing the particulars as specified in Rule 5 (2) of the said Rules. The said information is available for inspection on all working days, during business hours, at the Registered Office of the Company up to the date of the ensuing Annual General Meeting. Any member interested in obtaining such information, may write to the Company Secretary and the same will be furnished on request.
Related Party Transactions
All contracts / arrangements / transactions entered into by the Company during the financial year with related parties were in the ordinary course of business and at an armâs length basis.
During the year, the Company has not entered into any material contract or arrangements with related parties which could be considered material in accordance with the policy of the Company on materiality of related party transactions. There were no materially significant related party transactions which could have potential conflict with interest of the Company at large.
The Policy on materiality of Related Party Transactions and on dealing with Related Party Transactions as approved by the Board may be accessed on the Companyâs website, www.neulandlabs.com.
The particulars of transactions with related parties in the prescribed format is annexed to this report, as Annexure 5. Members may refer to Note No.38 to the standalone financial statement which sets out related party disclosures pursuant to Ind AS.
Particulars of Loans, Guarantees and Investments
The particulars of loans, guarantees and investments have been disclosed in the financial statements.
Deposits from Public
The Company has not accepted any deposits from the public and as such no amount of principal or interest on deposits from the public was outstanding as on the date of the Balance Sheet.
Significant and Material Orders passed by the Regulators or Courts
There are no significant material orders passed by the Regulators / Courts which would impact the going concern status of the Company and its future operations.
Risk Management
The Board oversees Companyâs processes for determining risk tolerance and review managementâs action and comparison of overall risk tolerance to established levels. The framework is designed to enable risks to be identified, assessed and mitigated appropriately. Major risks identified by the businesses and functions are systematically addressed through appropriate actions on a continuous basis. For details, please refer to the Management Discussion and Analysis report which forms part of this Report.
Internal Financial Controls
Internal Financial Controls are an integral part of the risk management process, addressing financial and financial reporting risks. The internal financial controls include have been embedded and documented in the business processes. The controls in place include essential components of internal financial controls required under the Companies Act, 2013, as amended from time to time, and also the internal financial controls over financial reporting as per the Guidance Note on Audit of Internal Controls over Financial Reporting as issued by Institute of Chartered Accountants of India.
Assurance on the effectiveness of internal financial controls is obtained through management reviews, continuous monitoring by functional owners as well as testing of the internal financial control systems by the internal auditors during the course of their audits. We believe that these systems provide reasonable assurance that our internal financial controls are designed effectively and are operating as intended.
The Company has in place adequate internal financial controls with reference to financial statements. During the year under review such controls were tested and no reportable material weakness in the design or operation were observed.
Corporate Social Responsibility
The Company has formulated a Corporate Social Responsibility Policy (CSR Policy) which is available on the website of the Company at www.neulandlabs.com. The Company has initiated CSR activities as per the CSR Policy and such activities are as per Schedule VII to the Companies Act, 2013, as amended from time to time. Annual report on CSR activities as required under the Companies (Corporate Social Responsibility Policy) Rules, 2014 has been appended as Annexure 4 and forms an integral part of this Boardâs Report.
Human Resources & Industrial Relations
Your Companyâs relations with its employees continue to be cordial. Dedicated work by the workmen, supervisors and executives of your Company made it possible to achieve success under trying and difficult circumstances.
Acknowledgement
The Board of Directors would like to place on record its sincere appreciation for the continued support and guidance received from the banks, financial institutions, statutory and regulatory authorities, stock exchanges and depositories for their continued support and guidance. The Board places on record its appreciation to the shareholders of the Company for their continued support and to its valued customers and vendors for their continued patronage. The Board of Directors also wish to place on record its deep sense of appreciation for the committed services by the Companyâs employees at all levels.
For on and behalf of the board
Hyderabad Dr Davuluri Rama Mohan Rao
May 16, 2019 Chairman and Managing Director
(DIN: 00107737)
Mar 31, 2018
The Board of Directors are pleased to present the Companyâs Thirty Fourth Annual Report and the Companyâs audited financial statements (standalone and consolidated) for the financial year ended March 31, 2018.
Financial Performance
Pursuant to the notification dated February 16, 2015 issued by the Ministry of Corporate Affairs, the Company has adopted the Indian Accounting Standards (âIndASâ) notified under the Companies (Indian Accounting Standards) Rules, 2015 with effect from April 1, 2017. The financial statements for the year ended and as at March 31, 2017 have been restated to conform to IndAS and also the Scheme of Amalgamation. Note 47 to the standalone financial statements provides further explanation on the transition to IndAS.
The Companyâs financial performance (standalone) for the year ended March 31, 2018 is summarised below:
(Rs. in lacs)
Particulars |
2017-18 |
2016-17 |
Total Income |
53,369.60 |
58,889.32 |
Profit before Finance Costs, Depreciation, Amortisation and Tax |
5,456.51 |
10,685.75 |
Finance costs |
1,892.13 |
2,107.77 |
Profit before Depreciation, Amortisation and Tax |
3,564.38 |
8,577.98 |
Less: Depreciation & Amortisation |
2,210.35 |
1,922.81 |
Profit before Tax |
1,354.03 |
6,655.17 |
Less: Current tax |
422.92 |
1,012.15 |
Deferred tax |
(249.70) |
1,004.62 |
Profit after Tax |
1,180.81 |
4,638.40 |
Add: Other comprehensive income |
19.54 |
16.46 |
Total comprehensive income for the year |
1,200.35 |
4,654.86 |
For the financial year ended March 31, 2018, a Total Income of Rs. 53,369.60 lacs against Rs. 58,889.32 lacs in the previous year.
For the year ended on March 31, 2018, the Company has reported Earnings Before Interest, Finance Cost, Depreciation & Amortization and Tax (EBIDTA) of Rs. 5,456.51 lacs as against the EBIDTA of Rs. 10,685.75 lacs during the previous year.
The Net Profit of the Company for the year 2017-18 was Rs. 1,200.35 lacs compared to Rs. 4,654.86 lacs during the previous year.
Business Review
The fiscal year under review was a challenging one for the industry as well as your Company. While the Company faced certain difficulties due to our customersâ forecasts getting impacted due to various business and regulatory dynamics, internally, there were challenges of mismatch in capacities whereby the order mix led to a constraint for certain products while there was free capacity elsewhere. These factors impacted performance in the first half of the year, while in the later half, especially, the fourth quarter we have seen pressure on the raw materials prices, resulting in higher costs. This was compounded by an unanticipated global shortage of key raw materials owing to increased environmental regulatory requirements in China. The Company responded to the challenges by taking mitigating actions which will hold the Company in good stead in the long term. These include the qualification of alternate site for key products, initiating work on backward integration for strategic raw materials and we also added to our capacity by acquiring Unit 3.
While the factors mentioned above did have a significant impact on the performance this year, we have also seen the business development efforts pay off in our CMS business as we started work on a number of new projects and increased the number of live projects.
We have also had increasing traction in terms of generating leads for the peptides business, as a result of the merger these peptide projects will now belong to NLL.
While it was a difficult year both in in terms of financial performance, the Company has taken significant actions where by the Company team is in a better place to drive sustained growth as well as face future challenges.
Amalgamation of Neuland Health Sciences Private Limited and Neuland Pharma Research Private Limited with Neuland Laboratories Limited
During the year under review, the Honâble National Company Law Tribunal, Hyderabad bench vide its Order dated March 28, 2018 has approved the Scheme of Amalgamation and Arrangement between Neuland Health Sciences Private Limited (First Transferor Company) and Neuland Pharma Research Private Limited (Second Transferor Company) and Neuland Laboratories Limited (Transferee Company) and their respective Shareholders and Creditors (âScheme of Amalgamationâ). The appointed date of the Scheme was April 1, 2016.
Acquisition of Manufacturing Facility (Unit 3)
In line with the companyâs 5-year operating plan, the Company has acquired a manufacturing facility located at Gaddapotharam village, Jinnaram Mandal in Sanga Reddy District, during the year under review. The facility is spread across approximately 12 acres and currently has a capacity of about 197 KL and can be expanded further. It was inspected by the United States Food and Drug Administration (USFDA) in 2015. It is a multi-product facility and has five production blocks for advance intermediate and active pharmaceutical ingredients (API) manufacturing. It also has capabilities for on-site development, analytical method development, quality control laboratory and a pilot plant. The acquisition would provide the requisite capacity for the Companyâs growth aspiration by serving as a base for strategic backward integration, risk mitigation for existing products, enlarged scope for addition of new products and enables increase of technical capabilities.
The Company expects to commence manufacturing operations in Unit 3 during the fiscal year 2018-19.
Share Capital
The equity shares of your Company continue to be listed and traded on the BSE Limited and National Stock Exchange of India Limited. The paid-up equity share capital as on March 31, 2018 was Rs. 895.49 lacs.
During the year under review, the Company has not issued any shares with differential voting rights nor granted stock options nor sweat equity.
Pursuant to the Scheme of Amalgamation, 45,90,608 equity shares held by Neuland Health Sciences Private Limited (First Transferor Company) in the Company were cancelled and the Company has allotted 68,61,243 equity shares to the shareholders of Neuland Health Sciences Private Limited and Neuland Pharma Research Private Limited (Second Transferor Company) on April 13, 2018. The Paid-up Equity Share Capital as on the date of this report stands at Rs. 1,122.55 lacs.
Further, the Board at its meeting held on April 9, 2018, has subject to the approval of the members, approved issuance of up to 16,75,000 fully paid-up equity shares of a face value of Rs. 10 each of the Company, through Qualified Institutional Placement, in accordance with the provisions of Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and applicable provisions of the Companies Act, 2013 (âthe Actâ) and Rules issued thereunder.
Outlook
The Company is continuing to take steps which will enable the growth of the Generic Drug Substance (GDS) and Custom Manufacturing Solutions (CMS) business. Even as both the branded and generic segments of the pharmaceutical industry are going
through challenges, we strongly believe that the Company is in a good position to achieve sustainable long-term growth. We believe that these challenging times pose an opportunity for the Company as it is viewed as a reliable API partner, is resulting in Neuland being viewed as a strategic alternative even by backward integrated formulators. With growing traction in the CMS business, and the Companyâs investment in peptides being recognized by the industry, the Company is in a good position to drive sustainable long-term growth.
Consolidated Financial Statements
The Audited Consolidated Financial Statements of your Company as on March 31, 2018, which forms part of the Annual Report, have been prepared pursuant to the provisions of SEBI (LODR) Regulations, 2015 and also as per the applicable Indian Accounting Standard (IndAS) on Consolidated Financial Statements (IndAS-110) as notified by the Ministry of Corporate Affairs.
The 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 and also available on the website of the Company, www.neulandlabs.com. Any member interested in a copy of the accounts of the subsidiaries may write to the Company Secretary at the Registered Office of the Company.
Subsidiaries
Your Company has two subsidiaries, Neuland Laboratories K.K., Japan and Neuland Laboratories Inc. USA, working on market development. Your Company does not have any joint venture or associate companies. Further there has been no material change in the nature of business of the subsidiaries.
A report on the performance and financial position of the subsidiaries, set out in the prescribed form AOC-1 in terms of proviso to sub section (3) of Section 129 of the Companies Act, 2013, is provided as Annexure to the consolidated financial statements and hence not repeated here.
Documents uploaded on the Website
The following documents are available on the website of the Company (www.neulandlabs.com) in compliance with Companies Act, 2013:
- Unpaid dividend details as per Section 124(2)
- Corporate Social Responsibility Policy as per Section 135(4)(a)
- Financial Statements of the Company and Consolidated Financial Statements along with relevant documents as per third proviso to section 136(1).
- Separate audited accounts in respect of subsidiaries as per fourth proviso to section 136(1)
- Details of vigil mechanism for directors and employees to report genuine concerns as per proviso to section 177(10)
- Policy on Material Subsidiaries
- The terms and conditions of appointment of independent directors as per Schedule VI to the Act.
Research & Development
The Research & Development (R&D) team continues to focus on three critical areas, which are New Product Development, Process Investigations & Development (life cycle management) and absorption of new technology/techniques. In terms of the Generic Drug Substance (GDS) business the team was able to file 4 new USDMFs this year, apart from work on processes for existing products. While on the CMS front, work was initiated on a number of new projects as we added a net of 10 live projects during the fiscal year.
In terms of progress on Peptides, the Company has been in the space for the last 10 years building capabilities, including a dedicated Analytical Research & Development (AR&D) lab. We have been able to further develop our capabilities in terms of Quality by Design, Process Development, Particle Engineering and overall Process Engineering, capitalizing further on the investment we made during the fiscal year 2016-17.
The team is working on integrating enzymatic capabilities, which will further enhance the synergies that we can derive from Unit-3. Considering the progress being made on various fronts, we are confident that the Companyâs R&D team work is helping steer the company in the right direction and towards the right opportunities.
Environment, Health & Safety
Your Company is committed to excellence in environment, health and safety (EHS) and believes it is integral to the companyâs philosophy. Environmental protection, prevention of occupational illness and prevention of work injuries is a corporate responsibility. As a responsible corporate citizen, your Company continuously strives to serve the society through responsibly managing EHS related expectations of internal and external customers. To achieve this, we ensure that all our activities, products and services are carried out considering appropriate EHS related concerns and addressing the same.
The Company implements the EHS policy in a continual and systematic manner through ISO 14001:2004 and BS OHSAS 18001:2007 management systems. EHS Policy communicates collective intentions to all Neulanders in key areas of EHS compliance, environment, health, safety, continual improvement and community development.
During the last 18 months, we have opened the Process Safety lab in our R&D centre, where processes with any element of risk are replicated at a very miniature scale and simulated so as that we have the safest possible processes for new products.
Your Company takes utmost care of health and safety of all persons working with the Company and is committed to protect health of persons and protect environment and actively seek to identify means and ways to minimize resource consumptions and waste generations. While developing processes at R&D, the Company adopts âGreen Chemistryâ Through this method, input materials like various chemicals, solvents, water, energy and process conditions are selected aiming at minimization of potential environmental aspects and safety and health hazards. To assess process hazard at developmental stage, Process Safety Laboratory has set up in R&D center under Technology Transfer Department. Process is being tested at different environmental condition & consider least hazard process for operation. Once processes are developed, process improvement initiatives are taken up continuously to optimize consumption of raw materials, solvents, water and energy in manufacturing processes to make them sustainable.
On Occupational Health front, your Company operates a full-fledged occupational health Centre with physician, support staff and required infrastructure. The occupational health team is spearheading initiatives like exposure assessment, work place monitoring, health awareness campaigns and medical surveillance programme aiming to make your Companyâs work environment comfortable, safe and healthy for employees. Pre-employment, periodical and product specific health checkups have been customized for nature of work to strengthen the Companyâs medical surveillance program.
The manufacturing units of your Company are equipped with adequate pollution control facilities like biological treatment plant, stripper, multi-effect evaporators, vertical thin film dryer and reverse osmosis facilities. Effluents generated in the Companyâs facilities are treated in these effluent treatment facilities and such treated effluents are fully recycled, thus helping to achieve your Companyâs aim to become Zero Liquid Discharge units. Your Company has implemented co-processing of certain hazardous wastes as fuel substitutes in authorized cement plants in their kilns to support energy resource conservation and reduce greenhouse gas emissions. This beneficial use of hazardous wastes is helping environment in conserving precious energy resources and reducing greenhouse gas emissions.
Information Management Systems
Your Companyâs information technology platform is a key component in offering customers transparency, accountability and reliability while executing their orders. The system design and architecture are kept updated and customers are encouraged to track the progress in execution of their orders.
In view of EU-GDPR (European Union-General Data Protection Regulations), which will come into force from May 25, 2018, various initiatives, with respect to review of privacy policy, related procedures, implementation of various safeguards to protect personal data etc., are being undertaken.
Your Company appreciates the importance of intellectual property rights and has put in place procedures to protect intellectual properties. This includes comprehensive user awareness training for Information Security Management System (ISMS) adoption and its adherence followed by internal ISMS audit of all functions.
Corporate Governance Report, Management Discussion & Analysis and Other Information Required under the Companies Act, 2013 and Listing Agreement
As per SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015, Corporate Governance Report with Certificate from a Practicing Company Secretary thereon and Management Discussion and Analysis report are attached and form part of this report.
Directors and Key Managerial Personnel
The changes taken place in the key managerial personnel during the financial year 2017-18 and as on the date of this report are as under:
Sl. No. |
Name |
Designation |
Appointment / Cessation |
Date of appointment / cessation |
1 |
Mr. Amit |
Chief |
Appointment |
22-November- |
Agarwal |
Financial Officer |
2017 |
||
2 |
Mr. D.Saharsh |
Chief |
Cessation |
22-November- |
Rao* |
Financial |
2017 |
||
Officer |
Appointment |
17-Aug-2017 |
* Mr.D.Saharsh Rao was given the additional responsibility as the Chief Financial Officer in addition to his role of Joint Managing Director, till a full time Chief Financial Officer has been appointed, with no change in the terms and conditions of his appointment.
In accordance with the provisions of Section 152 of the Companies Act, 2013, Mr.D.Saharsh Rao shall retire by rotation and being eligible offers himself for re-appointment.
The Board had at its meeting held on May 11, 2018, subject to the approval of the shareholders, re-appointed Mr. D. Sucheth Rao as the Whole Time Director designated as Vice Chairman & Chief Executive Officer of the Company for a further period of 5 years from August 1, 2018. The Board, on the recommendation of the Nomination and Remuneration Committee, has recommended the re-appointment.
Details of the proposal for appointment / re-appointment of Mr.D.Saharsh Rao and Mr.D.Sucheth Rao are mentioned in the Explanatory Statement under Section 102 of the Companies Act, 2013 of the Notice of the 34th Annual General Meeting (AGM). The profile of the Directors for re-appointment is included in the Report on Corporate Governance annexed. Your Board recommends the above appointment / re-appointment of Directors in the best interest of the Company.
Dr.D.R.Rao, Chairman & Managing Director, Mr.D.Sucheth Rao, Vice Chairman & CEO, Mr.D.Saharsh Rao, Joint Managing Director, Mr.Amit Agarwal, Chief Financial Officer and Ms.Sarada Bhamidipati, Company Secretary & Compliance Officer, are the Key Managerial Personnel of the Company as on the date of this Report.
Listing at Stock Exchanges
The equity shares of your Company continue to be listed and traded on the BSE Limited and National Stock Exchange of India Limited. The Annual Listing fee for the year 2018-19 has been paid to both the stock exchanges.
Directorsâ Responsibility Statement
Pursuant to Section 134(3)(c) of the Companies Act, 2013, your Directors confirm that to the best of their knowledge and belief and according to the information and explanation obtained by them:
a. in the preparation of the annual financial statements for the year ended March 31, 2018, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
b. such accounting policies as mentioned in the Notes to the Financial Statements have been selected and applied consistently and judgement and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at March 31, 2018 and of the profit of the Company 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 Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
d. the annual financial statements have been prepared on a going concern basis;
e. proper internal financial controls were in place and that the financial controls were adequate and were operating effectively; and
f. systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.
Board Meetings
During the year under review, six Board Meetings and five Audit Committee Meetings were convened and held, the details of which are given in the Corporate Governance Report, which forms part of this report. The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013.
Composition of Various Committees
Details of various committees constituted by the Board as per the provisions of Companies Act, 2013 and SEBI (LODR) Regulations, 2015 and their meetings are given in the Corporate Governance Report which forms part of this report.
Board Evaluation
Pursuant to the provisions of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure requirements) Regulations, 2015, the Board has carried out an evaluation of the directors as well as the evaluation of the Board and its Committees. The process was carried out by circulating questionnaires on the Board and Committees functioning on certain parameters. The performance evaluation of the independent directors was carried out by the entire Board, except the director being evaluated. The performance evaluation of the non-Independent Directors including Executive Directors was carried out by the Independent Directors.
Independent Directors
The Independent Directors met on March 22, 2018 without the presence of Non-Independent Directors and members of the management. The Independent Directors discussed matters pertaining to the Companyâs affairs and reviewed the performance of Non-Independent Directors, the Chairman and the Board as a whole, and assessed the quality, quantity and timeliness of flow of information between the Company Management and the Board that is necessary for the Board to effectively and reasonably perform their duties.
The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence prescribed under the Act and the Listing Regulations.
Disclosures by Directors
None of the Directors of your Company is disqualified as per provisions of Section 164(2) of the Companies Act, 2013. Your Directors have made necessary disclosures to this effect as required under Companies Act, 2013.
Audit Committee
The composition of the Audit Committee and its terms of reference are included in the Report on Corporate Governance annexed. All the recommendations made by the Audit Committee were accepted by the Board of Directors.
Nomination and Remuneration Committee
The details of the Nomination and Remuneration Committee are set out in the Report of Corporate Governance, forming part of this Report.
Your Company has a Nomination and Remuneration Policy as required under section 178 of the Companies Act, 2013, for selection and appointment of Directors, Key Managerial Personnel, Senior Management and their remuneration.
Remuneration Policy
The policy for remuneration of Directors, Key Managerial Personnel and Senior Management Personnel is set out as an Annexure in the Corporate Governance Report, which forms part of this Report.
Your Companyâs Policy on Directorsâ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under section 178(3) of the Act are covered in the Corporate Governance Report which forms part of this Report.
Code of Conduct for Directors and Senior Management
The Directors and members of Senior Management have affirmed compliance with the Code of Conduct for Directors and Senior Management of the Company. A declaration to this effect has been signed by the Chairman & Managing Director and forms part of the Annual Report.
Vigil Mechanism
Your Company has a vigil mechanism to deal with instances of fraud and mismanagement, if any. The Whistle Blower Policy enables reporting of unethical behaviour, actual or suspected fraud or violation of the Companyâs code of conduct or ethics policy, to the management. The Vigil mechanism also ensures strict confidentiality is maintained and provides adequate safeguards against victimization of employees who avail of the mechanism and also provided for direct access to the Chairman of the Audit committee in exceptional cases.
Prevention of Insider Trading
The Company has adopted (i) Code of Internal Procedures and Conduct for Regulating, Monitoring and Reporting of Trading by Insiders and (ii) Code of Fair Disclosures with a view to serve as a guiding charter for all concerned persons associated with the functioning of the Company pursuant to the SEBI (Prohibition of Insider Trading) Regulations, 2015. The Company Secretary & Compliance Officer is responsible for implementation of the Code.
Disclosure as per Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
Your Company is committed to ensure that there is no scope for sexual harassment at workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the rules framed thereunder.
The Company has not received any complaints on sexual harassment during the year under review.
Employee Stock Option Scheme
As on March 31, 2018, no employee stock options available in the Company and hence no disclosures are required to be made under Regulation 14 of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (âthe Regulationsâ).
Statutory Auditors
The financial statements have been audited by Walker Chandiok & Co LLP (ICAI Firmâs Registration No. 001076N/N500013), Chartered Accountants, Statutory Auditors of the Company.
Pursuant to the notification dated May 7, 2018 issued by Ministry of Corporate Affairs, the requirement of seeking ratification of appointment of statutory auditors by members at each AGM has been done away with. Accordingly, no such item has been considered in notice of the 34th AGM.
Auditorsâ Report
There are no qualifications, reservations or adverse remarks made by Walker Chandiok & Co LLP, Statutory Auditors, in their report for the financial year ended March 31, 2018.
Pursuant to provisions of Section 143(12) of the Companies Act, 2013, the Statutory Auditors have not reported any incident of fraud to the Audit Committee during the year under review.
Secretarial Audit
Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed M/s.P.S.Rao & Associates, a firm of Company Secretaries in Practice, to conduct the Secretarial Audit of the Company. The report of the Secretarial Audit for the financial year ended March 31, 2018 is annexed to the Corporate Governance Report and forms part of this report. There are no qualifications, reservations or adverse remarks made by the Secretarial Auditor in their report.
Cost Auditors
Pursuant to Section 148 of the Companies Act,2013 read with the Companies (Cost Records and Audit) Amendment Rules, 2014, subject to the approval of the Central Government, if any required, the Audit Committee has recommended and the Board of Directors had appointed M/s. Nageswara Rao & Co. (Registration No. 000332), Cost Accountants, Hyderabad, being eligible and having sought reappointment, as Cost Auditors of the Company, to carry out the cost audit of the products manufactured by the Company during the financial year 2018-19.
Insurance
Your Company has taken necessary steps to mitigate risks and obtained appropriate insurances and the Board is kept appraised of the risk assessment and minimization procedures. The assets of the Company have been adequately covered under insurance. The policy values have been determined taking into consideration the value of the assets of the Company.
Material Changes
There have been no material changes and commitments affecting the financial position of the Company between the end of the financial year of the Company to which the financial statements relate and the date of the report. Further, it is hereby confirmed that there has been no change in the nature of business of the Company.
Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo
The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule, 8 of The Companies (Accounts) Rules, 2014, is annexed herewith as Annexure 1.
Extract of Annual Return
Pursuant to Section 92(3) and Section 134(3)(a) of the Companies Act, 2013, extract of the Annual Return as on March 31, 2018 in form MGT-9 is enclosed as Annexure 2 to this report.
Particulars of Employees and related disclosures
The information relating to remuneration and other details as required pursuant to Section 197 of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, is provided as an Annexure 3 to this report.
In terms of the provisions of Section 197 of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said rules are provided in the Annual Report, which forms part of this Report.
Pursuant to the provisions of the first proviso to Section 136(1) of the Act, the Annual Report is being sent to the members and other persons entitled thereto, excluding the information in respect of employees of the Company containing the particulars as specified in Rule 5 (2) of the said Rules. The said information is available for inspection on all working days, during business hours, at the Registered Office of the Company up to the date of the ensuing Annual General Meeting. Any member interested in obtaining such information, may write to the Company Secretary and the same will be furnished on request.
Related Party Transactions
All contracts / arrangements / transactions entered into by the Company during the financial year with related parties were in the ordinary course of business and at an armâs length basis.
During the year, the Company has not entered into any material contract or arrangements with related parties which could be considered material in accordance with the policy of the Company on materiality of related party transactions. There were no materially significant related party transactions which could have potential conflict with interest of the Company at large.
The Policy on Materiality of Related Party Transactions and on dealing with Related Party Transactions as approved by the Board may be accessed on the Companyâs website, www.neulandlabs. com.
The particulars of transactions with related parties in the prescribed format is annexed to this report, as Annexure 4. Members may refer to Note 39 to the standalone financial statement which sets out related party disclosures pursuant to Ind AS.
Particulars of Loans, Guarantees and Investments
The Company has not given any loans and guarantees or made any investments under Section 186 of the Act during the year under review.
Deposits from Public
The Company has not accepted any deposits from the public and as such no amount of principal or interest on deposits from the public was outstanding as on the date of the Balance Sheet.
Significant and Material Orders passed by the Regulators or Courts
There are no significant material orders passed by the Regulators / Courts which would impact the going concern status of the Company and its future operations.
Risk Management
The Board oversees Companyâs processes for determining risk tolerance and review managementâs action and comparison of overall risk tolerance to established levels. The framework is designed to enable risks to be identified, assessed and mitigated appropriately. Major risks identified by the businesses and functions are systematically addressed through appropriate actions on a continuous basis. For details, please refer to the Management Discussion and Analysis report which forms part of this Report.
Internal Financial Controls
Internal Financial Controls are an integrated part of the risk management process, addressing financial and financial reporting risks. The internal financial controls include have been embedded and documented in the business processes. The controls in place include essential components of internal financial controls required under the Companies Act, 2013 and also the internal financial controls over financial reporting as per the Guidance Note on Audit of Internal Controls over Financial Reporting as issued by Institute of Chartered Accountants of India.
Assurance on the effectiveness of internal financial controls is obtained through management reviews, continuous monitoring by functional owners as well as testing of the internal financial control systems by the internal auditors during the course of their audits. We believe that these systems provide reasonable assurance that our internal financial controls are designed effectively and are operating as intended.
The Company has in place adequate internal financial controls with reference to financial statements. During the year under review such controls were tested and no reportable material weakness in the design or operation were observed.
Corporate Social Responsibility
The Company has formulated a Corporate Social Responsibility Policy (CSR Policy) which is available on the website of the Company at www.neulandlabs.com. The Company has initiated CSR activities as per the CSR Policy and such activities are as per Schedule VII to the Companies Act, 2013. Annual report on CSR activities as required under the Companies (Corporate Social Responsibility Policy) Rules, 2014 has been appended as Annexure 5 and forms an integral part of this Boardâs Report.
Human Resources & Industrial Relations
Your Companyâs relations with its employees continue to be cordial. Dedicated work by the workmen, supervisors and executives of your Company made it possible to achieve success under trying and difficult circumstances.
Acknowledgement
The Board of Directors would like to place on record its sincere appreciation for the continued support and guidance received from the Banks, Financial Institutions, Statutory and Regulatory Authorities, Ministry of Corporate Affairs, Stock Exchanges and Depositories for their continued support and guidance. The Board places on record its appreciation to the Shareholders of the Company for their continued support and to its valued customers for their continued patronage. The Board of Directors also wish to place on record its deep sense of appreciation for the committed services by the Companyâs executives, staff and workers.
For and on behalf of the Board
Sd/-
Dr. Davuluri Rama Mohan Rao
Chairman & Managing Director
(DIN: 00107737)
May 11, 2018, Hyderabad
Mar 31, 2014
The Directors have pleasure in presenting the Thirtieth Annual Report
of your Company and the audited statement of accounts for the year
ended March 31, 2014.
Financial Results
Rs. in crores
2013-2014 2012-2013
Profit before Depreciation and Tax 49.16 30.12
Less: Depreciation 14.94 14.62
Profit before Tax 34.22 15.50
Prior period adjustments - -
Provision for current tax and deferred tax 7.55 1.86
Profit after Tax 26.67 13.64
Add: Balance brought forward from the
previous year 21.93 8.22
Add: Adjustments to Opening Reserves - 1.48
Profit available for appropriation 48.60 23.34
Appropriation 5.34 1.41
Balance carried forward to Balance Sheet 43.26 21.93
For the financial year ended March 31, 2014, while there was a marginal
growth in revenues, the EBIDTA grew by 17.16% to reach Rs. 72.80 crores
and Profit after tax (PAT) increased to Rs. 26.67 crores from Rs. 13.64
crores in the previous financial year, recording a growth of 95.51%.
Business Review
Your Company continued to take key initiatives on product mix changes,
scaling up new processes and improving manufacturing processes, which
enabled the Company to improve the profitability.
Your Company has completed all necessary modifications to enable
manufacturing and sales as envisaged in the Joint Business arrangement
with API Corporation, Japan, which is part of the Mitsubishi Chemical
for manufacturing and selling of APIs and Intermediates to Japan, it is
anticipated that actual sales would commence by end of Q1 FY2015.
Your Company is in the process of taking further systemic improvements,
like product mix changes, cost optimisation and process improvements,
which are expected to have a positive impact on the profit margins,
efficiencies and overall profitability. The management is working with a
focus to build a sustainable business model which would add value to
all stakeholders over the years to come.
During the year under review, your Company also successfully completed
inspections by various regulatory authorities including USFDA, EMA
(Europe), ANVISA (Brazil) and Cofepris (Mexico).
Dividend
The Board of Directors has recommended a final dividend of Rs. 3.00 per
share (30% dividend, i.e., 15% dividend plus a special dividend of 15%)
to the members for their approval. The dividend, if approved, will be
paid to members within the period stipulated by the Companies Act,
2013. The outflow on account of dividend (inclusive of corporate tax on
dividend distribution) will be Rs. 2.67 crores.
Outlook
Your Company is in a competitive environment, however its portfolio mix
provides it with opportunities for growth and your Company is building
on that potential by scaling up a further 9 products in the next year
which will add to the pipeline and could boost growth prospects.
Your Company''s quest for growth has been further aided by the
significant custom manufacturing opportunities received by your Company.
The research and development work done in the past has helped your
Company to become a significant competitor in the custom manufacturing
market as the Company has gained a better understanding of its
customers'' needs. Your Company''s forays in this segment have yielded
considerable success in the form of securing contracts for
manufacturing commercial compounds as well as clinical development
candidates.
Your Company has the requisite capabilities to build on its success so
far and use the momentum for driving further growth.
Consolidated Financial Statements
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 Offce 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.
Subsidiaries
Your Company''s subsidiaries, Neuland Laboratories K.K., Japan and
Neuland Laboratories Inc. USA, are working on market development. The
efforts of the subsidiaries have been to build Neuland''s business by
being close to the customers and market the products as well as respond
immediately to their needs. Your Company sees long term sustainable
opportunities in these regions and has strengthened the organizational
resources.
Joint Venture
The Regulatory environment with regard to Clinical Trials continues to
be evolving and there are significant challenges in this area due to
evolving regulations, Cato Research Neuland India Private Limited
formed in collaboration with Cato Research Israel Limited, a wholly
owned subsidiary of Cato Research Limited, a global contract research
and development organization based in USA. The members are aware that
your Company''s share in the joint venture is 70% as per the Share
Subscription and Shareholder Agreement.
Your Company is optimistic with the prospects for the business,
primarily in clinical research in India. Publicly available information
suggests that global health care companies have been reaching out to
competent research- led companies to bring innovative drugs to the
market, using high quality and cost-effective resources available in
India.
Holding Company
Your Company is a Subsidiary Company of Neuland Health Sciences Private
Limited (Formerly Sucheth and Saharsh Holdings Private Limited).
Research & Development
The Research and Development ("R&D") team of your Company is venturing
to ensure that identified products are scaled up at the appropriate time
such that there is a steady stream of new products.
During the year under review, the R&D team focused on creating a
portfolio of niche as well as in-demand products so as to enable
customers to launch new products. This focused analysis led to a
healthy product development portfolio of 22 molecules/ APIs that were
created for an anticipated launch between 2013 and 2016. The R&D team
took care to ensure that each of the products in the portfolio
underwent a rigorous test of preliminary analysis, market and customer
feedback.
During the year under review, six of the existing products were taken
up for process improvement involving cycle time reduction, recovery and
reuse of solvents, adoption of green chemistry, yield improvement and
backward integration of key starting material.
The increase in the Custom Manufacturing Solutions ("CMS") business
coupled with customer satisfaction is significantly on account of your
team showing utmost importance to the customer needs without
compromising on the quality and timelines.
R&D has set a few key focus areas apart from creating new molecules and
process improvements with intent on quality and optimization for
competitiveness. Significant success was evident in such areas including
designing and developing manufacturing processes, route scouting as per
customer requirement, fling of DMF/CEP for the API and patent
protection for non-infringing processes.
Environment, Health & Safety
Your Company is committed to excellence in environment, health and
safety ("EHS") and considers environmental protection, prevention of
occupational illness and prevention of work injuries as pillars of
corporate responsibility. As a responsible corporate citizen, your
Company continuously strives to serve the society through responsibly
managing EHS related expectations of internal and external customers.
To achieve this, we ensure that all our activities, products and
services are carried out considering appropriate EHS related concerns
and addressing same by involving employees at all levels.
Your Company recognizes EHS stewardship as an integral part of
everything it does to run its business and continually evaluates EHS
related aspects and risks as part of organizational decision making
process. EHS management systems drive the initiatives in areas of
resource conservation, pollution prevention and prevention of work
related ill health and injury. EHS management has been integral part of
the business of your Company. EHS division has been set up at units and
corporate levels with competent team members for facilitating various
EHS initiatives all across the organization.
To address the EHS related concerns, your Company has formulated an EHS
Policy, which is implemented in a continual and systematic manner
through ISO 14001:2004 and BS OHSAS 18001:2007 management systems. EHS
Policy communicates collective intentions of all Neulanders in key
areas of EHS compliance, environment, health, safety, continual
improvement and community development. All employees of your Company
are expected to take personal responsibility for meeting the
requirement of the EHS management systems and required competencies are
developed and performances are monitored. EHS policy acts as a guiding
principle for identifying, analyzing and mitigating any environmental
impacts and/or safety and health risks arising from our activities,
products and services.
Your Company takes utmost care for health and safety of all persons
working with the Company and is committed to protect health of persons
and protect environment and actively seek to identify means and ways to
minimize resource consumptions and waste generations. While developing
processes at R&D, we adopt concept of "Green Chemistry". Through this
method, input materials like various chemicals, solvents, water, energy
and process conditions are selected aiming at minimization of potential
environmental aspects and safety and health hazards. Once processes are
developed, process improvement initiatives are taken up continuously to
optimize consumption of raw materials, solvents, water and energy in
manufacturing processes to make them sustainable.
In occupational health front, your Company has established a
full-fledged occupational health center with physician, support staff
and required infrastructure. The occupational health team is
spearheading initiatives like exposure assessment, work place
monitoring, health awareness campaigns and medical surveillance program
aiming to make our work environment comfortable, safe and healthy for
employees. Pre-employment, periodical and product specific health
checkups have been custom made for nature of work to strengthen our
medical surveillance program.
Hazard & Operability (HazOp) and Hazard Identification & Risk Assessment
(HIRA) studies are carried out for processes and activities to minimize
health and safety risks from such processes and activities. Any
incident are followed up through a structured incident investigation
process and the recommendations on corrective and preventive actions
shared and implemented in all locations aiming to prevent recurrence of
similar incidents.
The manufacturing units of your Company are equipped with adequate
pollution control facilities like stripper, multi- effect evaporators,
vertical thin film dryer and reverse osmosis facilities. Effluents
generated in our units are treated in these effluent treatment
facilities and such treated effluents are fully recycled, thus helping
us to achieve our aim to become Zero Liquid Discharge units. Your
Company continually invests in pollution control and safety related
infrastructures depending on need and invested Rs. 5.77 crores equal to
1.2% of revenue in FY 2014. Your Company has spent Rs. 6.14 crores equal
to 1.3% of revenue in FY 2014 towards operation and maintenance of
these infrastructures.
Your Company has implemented co-processing of certain hazardous wastes
as fuel substitutes in authorized cement plants in their kilns to
support energy resource conservation and reduce greenhouse gas
emissions. This beneficial use of hazardous wastes has helping
environment in conserving precious energy resources and reducing
greenhouse gas emissions. Regular pollution monitoring is carried out
to ensure compliance with permitted norms.
The employees of your Company are encouraged to promote EHS actively
through various platforms made available in the organization viz.,
Akshaya, Samanvay, S-Connect, NeuLeaders, NeuRisers and Neu Excellence.
Employees also take part in celebrations like the National Safety Day,
World Environment Day, World Water Day, etc. as part of promoting EHS.
The manufacturing facilities of your Company have successfully
completed the re-certification audits as part of continued compliance
with the ISO 14001:2004 and BS OHSAS 18001:2007 management systems.
Your Company has been making consistent investments in its communities
focusing on three primary areas of community development, healthcare
and empowerment of rural women & youth.
Information Management Systems
Your Company''s information technology platform is a key component in
offering customers transparency, accountability and reliability while
executing their orders. The system design and architecture is kept
updated and customers are encouraged to track the progress in execution
of their orders.
All employees are aware and have been sensitized that all assets of
your Company generate confidential information and therefore information
security is viewed with great importance. Your Company appreciates the
importance of intellectual property rights and has put in place
procedures to protect strictly intellectual properties.
Your Company successfully completed the ISO 27001:2005 surveillance
audit Information Security Management Systems (ISMS) Audit.
Management Discussion and Analysis
Management Discussion and Analysis as required under the Listing
Agreement with the stock exchanges forms part of the Annual Report.
Change in Capital Structure and Listing at Stock Exchanges
The equity shares of your Company continue to be listed and traded on
the BSE Limited and National Stock Exchange of India Limited. During
the year under review, 10,700 equity shares were allotted on January
21, 2014 in exercise of the options by the eligible Employees under the
ESOS 2008, and admitted for trading in NSE and BSE.
Issue of Shares on Rights Basis
Pursuant to the approval of the Board of Directors on February 5, 2014,
the Company has fled a Draft Letter of Offer dated March 26, 2014 with
the Securities Exchange Board of India (SEBI).
Corporate Governance
The report on Corporate Governance as per Clause 49 of the Listing
Agreement with the Stock Exchanges forms part of the Annual Report.
Certificate from the Statutory Auditors of the Company, M/s. K.S. Aiyar
& Co., Chartered Accountants confirming the compliance with Corporate
Governance is attached to this report.
Directors
Mr.S.B.Budhiraja, who has been on the Board of Directors for 17 years,
has resigned from the Board on May 9, 2014. The Board place son record
its profound appreciation for the contribution made by Mr.Budhiraja
during his tenure by providing guidance and valuable inputs as and when
required for the growth of the Company from 1997 to 2014.
In accordance with the provisions of Section 152 of the Companies Act,
2013, Mr.G.V.K.Rama Rao retires by rotation and being eligible, has
offered himself for re-appointment.
Mrs. Bharati Rao has been appointed as an Additional Director on May 9,
2014 and shall hold the office up to this Annual General Meeting. Your
Company is in receipt of notice under section 160 of the Companies Act,
2013, for her appointment as Director of the Company. Mrs. Rao fulfils
the conditions specified in the Companies Act, 2013 and the rules
thereon for appointment as an Independent Director.
Pursuant to the notification of Section 149 and other applicable
provisions of the Companies Act, 2013 read with Rules thereon, your
Directors are seeking appointment of Dr.William Gordon Mitchell, Mr.
P.V.Maiya and Mr. Humayun Dhanrajgir, as Independent Directors for five
consecutive years for a term up to March 31, 2019.
The Board had at its meeting held on February 5, 2014 has, subject to
the approval of the shareholders, re-appointed Dr.D.R.Rao as the
Chairman & Managing Director of the Company for a further period of five
years from April 1, 2014.
Details of the proposal for appointment of Mrs. Bharati Rao, Dr.
William Gordon Mitchell, Mr. P.V.Maiya, Mr. Humayun Dhanrajgir and
Dr.D.R.Rao, are mentioned in the Explanatory Statement under Section
102 of the Companies Act, 2013 of the Notice of the 30th Annual General
Meeting.
The profiles of the Directors for appointment/reappointment are included
in the Report on Corporate Governance annexed. Your Board recommends
the above appointments/ reappointment of Directors in the best interest
of the Company.
Directors'' Responsibility Statement
Pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000,
your Directors confirm that to the best of their knowledge and belief
and according to the information and explanation obtained by them,
a. In preparation of the annual accounts for the year ended March 31,
2014 the applicable accounting standards have been followed;
b. Such accounting policies as mentioned in the notes to the financial
statements have been selected and applied consistently and judgments
and estimates that are reasonable and prudent made so as to give a true
and fair view of the state of the affairs of the Company for the year
ended March 31, 2014 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 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;
d. The annual accounts for the year ended March 31, 2014 has been
prepared on a going concern basis.
Employee Stock Option
As per the resolution passed by Annual General meeting on July 20,
2007, your Company has granted 34,500 stock options to its employees
under the Employee Stock Options Scheme ("ESOS"). Your Company has
allotted 10,700 equity shares to the employees on January 21, 2014
under ESOS, 2008. 16,500 vested options have been terminated by the
Compensation Committee on account of retirement / resignation of the
employees from the Company. The fair value as on March 31, 2014 worked
out to Rs. 179.18 per share.
Details of the options granted, exercised and terminated 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.
Statutory Auditors
Pursuant to the provisions of Section 139(2) of the Companies Act,
2013, on rotation of audit forms, and based on the recommendation of the
Audit Committee, the Board has at its meeting held on May 9, 2014
recommended the appointment of M/s. Walker Chandiok & Co., LLP,
Chartered Accountants, Hyderabad, as the Statutory Auditors of the
Company to hold office from conclusion of this Annual General Meeting
for a period of 5 years in accordance with the Act.
Walker Chandiok & Co., LLP, Chartered Accountants, Hyderabad, have
confirmed that the appointment, if made, would be within the prescribed
limits under Section 141 of the Companies Act, 2013. Accordingly, the
appointment of Walker Chandiok & Co., LLP, Chartered Accountants,
Hyderabad, as the Statutory Auditors, is being proposed as an Ordinary
Resolution.
The financial statements have been audited by M/s. K.S. Aiyar & Co.,
Chartered Accountants, Statutory Auditors of the Company. The Board
would like to place on record its appreciation to M/s K.S. Aiyar & Co.,
Chartered Accountants, for giving their valuable insights and
suggestions for the past eleven years, and also wishes them all success
in their endeavors.
The Audit Committee of your Company meets periodically with the
Statutory Auditors and Internal Auditors to review the performance of
Internal Audit, to discuss the nature and scope of statutory auditor''s
functions, and to discuss auditing, internal control and financial
reporting issues. To ensure complete independence, the statutory
auditor and the internal auditor have full and free access to the
Members of the Audit Committee to discuss any matter of substance.
Cost Auditors
In accordance with Section 141 of the Companies Act, 2013
(corresponding section 233B of the Companies Act, 1956) and the MCA
General Circular No. 15/2011 dated April 11, 2011, (as amended vide
General Circular No. 36/2012 dated November 6, 2012), subject to the
approval of the Central Government, the Audit Committee has recommended
and the Board of Directors had appointed M/s. Nageswara Rao & Co., Cost
Accountants, Hyderabad, being eligible and having sought
re-appointment, as Cost Auditors of the Company, to carry out the cost
audit of the products manufactured by the Company during the financial
year 2014-15.
Insurance
Your Company has taken wherever possible to mitigate risks, appropriate
insurances and the Board is kept appraised of the risk assessment and
minimization procedures.
The assets of the Company have been adequately covered under insurance.
The policy values have been enhanced taking into consideration the
expanded and upgraded facilities of the Company.
Fixed Deposits
During the year the Company has not accepted any fixed deposits from the
public. There are no fixed deposits outstanding with the Company as on
March 31, 2014 as the matured but unclaimed fixed deposits pertaining to
earlier years have been transferred to the Investor Education and
Protection Fund.
Disclosure Particulars
As required by your Company (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988, the relevant information and data are
given in Form - A & B to this report.
Industrial Relations
Your Company''s relations with its employees continue to be cordial.
Dedicated work by the workmen, supervisors and executives of your
Company made it possible to achieve success under trying and difficult
circumstances.
Particulars of Employees
The particulars of employees required to be furnished under Section
217(2A) of the Companies Act, 1956, read with the Rules there under,
forms part of this Report. However, as per the provisions of Section
219(1)(b)(iv) of the Companies Act, 1956, the reports and accounts are
being sent to all the shareholders of the Company excluding the
statement of particulars of employees. Any shareholder interested in
obtaining a copy may write to the Company Secretary at the Registered
Office of the Company.
Acknowledgement
Your Company acknowledges the significant contribution made by the
employees. The trust reposed in your Company by its esteemed customers
helped stabilize growth during the year under review. Your Company also
acknowledges the support and guidance received from State Bank of
India, Bank of India, Indian Overseas Bank, Export Import Bank of
India, SBI Global Factors Limited and all government agencies and looks
forward to their continuing support.
For and on behalf of the Board
Sd/-
Dr. D. R. Rao
Hyderabad, May 9, 2014 Chairman & Managing Director
Mar 31, 2013
The Directors have pleasure in presenting the Twenty Ninth Annual
Report of your Company along with the audited statement of accounts for
the year ended March 31, 2013.
FINANCIAL RESULTS
Rs.in Million
Financial year Financial year
2012-13 2011-12
Profit before
Depreciation and Tax 301.15 150.73
Less: Depreciation 146.22 148.91
Profit before Tax 154.93 1.82
Prior period adjustments
Provision for current tax and
deferred Tax
Profit after Tax 136.37 20.32
Add: Balance brouqht
forward from 82.16 61.84
the previous year
Add: Adjustments to Opening
Reserves
Profit available for
appropriation 233.32 82.16
Appropriation 14.07
Balance carried forward
to Balance 219.25 82.16
Sheet
For the financial year ended March 31, 2013, standalone revenues grew
by 3.10% to reach Rs.4,639.04 million. Earnings before Interest, Tax,
Depreciation and Amortization (EBITDA) recorded a growth of 27.09% to
reach Rs.614.45 million and Profit after Tax (PAT) grew to Rs.136.37
million, recording a growth of 571.11% over Rs.20.32 million achieved in
the previous financial year.
BUSINESS REVIEW
Your Company recorded its highest ever revenue of Rs.4,639.04 million.
This was the third consecutive instance of the Company scaling record
revenue benchmark. While the Compounded Annual Growth Rate (CAGR) of
revenue for three years was 8%, the Profit before Taxes (PBT) has grown
at a CAGR of 82% over the same period to reach Rs.154.93 million.
Your Company had taken several initiatives (product mix changes,
scaling up new processes and improving existing manufacturing
processes) that enabled it to improve the profitability. Your Company
also successfully completed inspections by various regulatory
authorities including USFDA, ANVISA (Brazil), KFDA (Korea), AIFA
(Italy) and ANSM (France).
Your Company also undertook a major re-organisation of businesses aimed
at de-leveraging on one hand and on the other hand narrowing the focus
on core activities: APIs, Intermediates and Contract Manufacturing.
Consequently, the Company divested its
R&D activities by selling its Land and Building and some identified
intellectual properties to Neuland Pharma Research Private Limited and
its Peptides Research activities along with identified intellectual
properties to Neuland Health Sciences Private Limited.
The above re-organisation enabled the Company to improve the cash flow
by Rs.363 million during the year. This, coupled with Rs.101.18 million
raised through the Rights Issue, enabled the Company to de-leverage and
also improve its Credit Rating, a key objective of the re-organisation
exercise.
In another strategic move, your Company entered into a Joint Business
Arrangement with API Corporation, Japan - a part of Mitsubishi
Chemical, for manufacturing and sale of APIs and Intermediates. The
benefits of this arrangement are likely to start accruing towards the
last quarter of FY 2014.
Your Company has self-identified itself all the Manufacturing
facilities with US FDA in compliance with the Generic Drug Users Fee
Act 2012 (GDUFA) and also registered with the Central Drugs Standard
Control Organisation (CDSC0) in compliance with the EU directive on
standards for import of bulk drugs to EU.
Your Company remains steadfast on continuous systemic improvements,
with an aim to enhance efficiencies, profit margins and overall
profitability. The management is striving to build a sustainable
business model that should enhance value for all our stakeholders over
coming years.
DIVIDEND
The Board of Directors has recommended a final dividend of Rs.1.20 per
share (i.e., 12 per cent) to the members for their approval. The
dividend, if approved, will be paid to members within the period
stipulated by the Companies Act, 1956. The outflow on account of
dividend (inclusive of corporate tax on dividend distribution) will be
Rs.10.66 million.
OUTLOOK
Your Company continues to see traction for its existing products with
the momentum built over the past few years. There are nine more
products that are expected to be scaled up commercially in FY14
supplementing your Company''s offerings to the market. With your Company
being perceived as a preferred and reliable supplier by its customers,
the order flow remains encouraging and is being met with improved
manufacturing efficiencies of both intermediates and active
pharmaceutical ingredients through process improvements and
developments.
There is very significant potential for your Company as a contract
manufacturing organization. The development work done in earlier years
has helped your Company understand the needs of the customers and, in
recent times your Company has broken new ground by securing projects
for commercial compounds and Late phase clinical development
candidates.
HOLDING COMPANY
Your Company has become a Subsidiary Company of Neuland Health Sciences
Private Limited (Formerly Sucheth and Saharsh Holdings Private
Limited), in terms of section 4(l)(b)(ii) of the Companies Act, 1956,
pursuant to the reorganization of shareholding of the Promoter Group.
REORGANIZATION
During the year under review, your Company as part of its strategic
plan, decided to discontinue the operations in Contract Research and
Peptide Research activities to de-leverage the Company''s balance sheet
and improve profitability, focus on new product development and improve
its credit rating.
Your Company sought approval of the members vide resolution dated May
30, 2012, through Postal Ballot and pursuant to the approval of the
members, your Company has completed the business set out in the Postal
Ballot Notice: Sale of Land together with the Building thereon and the
fixtures thereto pertaining to Research and Development, along with
identified Intellectual Property rights to Neuland Pharma Research
Private Limited ("NPRPL"). Your Company has transferred its Peptide
Research activities along with identified Intellectual Property rights
to Neuland Health Sciences Private Limited ("NHSPL"). Your Company has
also leased certain identified movable assets to NPRPL.
Also, Trade Marks and Copyrights have been licensed to NHPSL and NPRPL
on a non-exclusive basis.
Your Company would be the exclusive contract manufacturer for both
NHSPL and NPRPL for their manufacturing requirements. Further, your
Company has entered into a Research Services Agreement for its Lab
Scale research with NPRPL.
The above changes became effective from December 1, 2012. NHSPL is the
Holding Company and NPRPL is a Fellow Subsidiary Company.
CONSOLIDATED FINANCIAL STATEMENTS
The reports and accounts of the subsidiary companies are not annexed to
this Report. The Board of Directors of the Company has 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.
SUBSIDIARIES
Your Company''s subsidiaries, Neuland Laboratories K.K., Japan and
Neuland Laboratories Inc. USA, are working aggressively on market
development. Efforts continue to build Neuland''s business by being
close to the customers and market the products as well as respond
immediately to their needs. Your Company sees long term sustainable
opportunities in these regions andis further strengthening the
organizational resources.
JOINT VENTURE
The outlook is positive for the joint venture, Cato Research Neuland
India Private Limited formed in collaboration with Cato Research Israel
Limited, a wholly owned subsidiary of Cato Research Limited, a global
contract research and development organization based in USA. The
members are aware that your Company''s share in the joint venture is 70%
as per the Share Subscription and Shareholder Agreement.
Currently, there are no significant activities in this JV, however your
Company is optimistic with the prospects for the business, primarily in
clinical research in India. Global healthcare companies have been
reaching out to competent research-led companies to bring innovative
drugs to the market in the shortest possible time span, using
high-quality and cost-effective resources available in India. Neuland
is confident for the long-term since it has the best available partner
in Cato Research.
RESEARCH & DEVELOPMENT
The proactive and results-oriented Research and Development team of
your Company is endeavouring to ensure that there is a continuous flow
of new products. The team works in anticipation of emerging
opportunities as well as in improving processes for existing products
and customer needs.
During the year under review, the R&D team focused on creating a
portfolio of niche, in-demand products to enable customers to launch
new products. This focused analysis led to a healthy product
development portfolio of 19 molecules/ APIs that were created for
launch between 2013 and 2016. The R&D team took care to ensure that
each of the products in the portfolio underwent a rigorous test of
preliminary analysis, market and customer feedback, and was determined
to be a best fit with respect to our chemistry expertise.
Further, nine existing products were taken up for process improvement
involving cycle time reduction, recovery and reuse of solvents,
adoption of green chemistry and yield improvement. R&D realized savings
and enhanced quality in all nine. The teams are working on 27 products
for such enhancements/savings in 2013-14.
As part of the services in the area of the process development and
scale-up, R&D is supporting innovator and generic companies. R&D has
expertise in developing the cutting-edge technologies suited for the
each phase of new drug discovery and development programs. This covers
the milligram-scale synthesis to multi-ton scale production.
R&D has set a few key focus areas apart from creating new molecules and
process improvements with intent on quality and optimization for
competitiveness. Significant success was evident in such areas
including designing and developing manufacturing processes, route
scouting as per customer requirement, filing of DMF/CMC for the API and
patent protection for non-infringing processes.
ENVIRONMENT, HEALTH & SAFETY
Your Company views EHS as an integral part of everything it does to run
its business. It continually evaluates EHS related aspects and risks as
part of organizational decision making as one of the best in the sector
in terms of its EHS performance.
The EHS Policy communicates the collective intentions in key areas of
compliance, environment, health, safety, continual improvement and
community development. Your Company has implemented its EHS Policy
through a systemic approach with visible top management commitment and
rigorous implementation, measurement and reporting with various
programs to maintain a high level of awareness and conformity with
best-in-class industry standards. There has been significant progress
over the past five years in improving the systems, training and
participative responses from all Neulanders.
Your Company has taken utmost care for safety and health of every
person working with the Company and provided them a safe and healthy
workplace. Every person is provided with need based training program on
EHS for awareness and competency development. Your Company is committed
to protecting the environment and actively seek to identify means and
ways to minimize resource consumptions and waste generations. It is
adopting the concept of Green Chemistry by carefully selecting the raw
materials to minimize potential hazards. To achieve this, a number of
process improvement initiatives are being undertaken to minimise
consumption of raw materials, solvents, water and energy in the
manufacturing processes, thus making them less consumptive and
sustainable. Your Company stands committed to resource usages in an
environmentally sound, operationally safe and socially responsible
manner. Company''s units are equipped with pollution control devices:
stripper, multi-effect evaporators, agitated thin film dryer, reverse
osmosis facilities for treating effluent generated in the processes and
recycling the treated effluent within the plant premises.
Occupational health surveillance study has been carried out with the
support of external experts. Quantitative exposure assessment and work
place monitoring has been carried out to monitor industrial hygiene
exposure levels and ensure environments are comfortable, safe and
healthy for the employees. Hazard Identification and Risk Assessment
(HIRA) and Hazard and Operability (HazOp) studies have also been
carried out in the units targeted to minimize health and safety risks
from manufacturing activities. Any incident has been followed up
through a structured incident investigation process and the
recommendations on corrective and preventive actions shared across all
locations for learning from past incidents and to avert recurrence of
similar incidents.
Employees are encouraged to actively take part in the promotion of EHS
through ''Akshaya'' a suggestion scheme, regular EHS inspections and
celebration of National Safety Day, World Environment Day, World Water
Day, etc.
Company''s manufacturing facilities located at Bonthapally (Unit-I) and
Pashamylaram (Unit-II) have successfully completed the periodical
surveillance audits as part of continued compliance with the ISO
14001:2004 and BS 0HSAS 18001:2007 management system certifications.
INFORMATION MANAGEMENT SYSTEMS
Your Company''s information technology platform is a key component in
offering customers transparency, accountability and reliability while
executing their orders. The system design and architecture is kept
updated and customers are encouraged to track the progress in execution
of their orders.
All employees are aware and have been sensitized that all assets of
your Company generate confidential information, therefore, information
security is to be viewed with great importance. Your Company
appreciates the importance of intellectual property rights and has put
in place procedures to protect strictly its intellectual properties and
those of customers.
Your Company has successfully completed ISO 27001:2005 second
surveillance audit (ISMS Audit).
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis as required under the Listing
Agreement with the stock exchanges forms part of the Annual Report.
LISTING AT STOCK EXCHANGES
The equity shares of your Company continue to be listed and traded on
the BSE Limited and National Stock Exchange of India Limited. The
Annual Listing fee for the year 2013-14 has been paid to both the stock
exchanges.
CORPORATE GOVERNANCE
The report on Corporate Governance as per Clause 49 of the Listing
Agreement with the Stock Exchange forms part of the Annual Report.
Certificate from the Statutory Auditors of the Company, M/s. K.S.
Aiyar & Co., Chartered Accountants, confirming the compliance with the
Corporate Governance is attached to this report.
DIRECTORS
Mr. P.V. Maiya and Mr. Humayun Dhanrajgir retire as Directors by
rotation at the forthcoming Annual General Meeting and being eligible,
offer themselves for re-appointment. Your Directors recommend their
appointment/ re-appointment at the ensuing Annual General Meeting.
The profiles of the Directors are included in the Report on Corporate
Governance annexed.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000,
your Directors confirm that to the best of their knowledge and belief
and according to the information and explanation obtained by them:
a. in preparation of the annual accounts for the year ended March 31,
2013, the applicable accounting standards have been followed;
b. such accounting policies as mentioned in the notes to the financial
statements have been selected and applied consistently and judgments
and estimates that are reasonable and prudent made so as to give a true
and fair view of the state of the affairs of the Company for the year
ended March 31, 2013, 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, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;
d. the annual accounts for the year ended March 31, 2013, has been
prepared on a going concern basis.
EMPLOYEE STOCK OPTION
As per the resolution passed at the Annual General meeting on July 20,
2007, your Company has granted 34,500 stock options to its employees
under the Employee Stock options Scheme.However 25,500 vested options
have been terminated by the Compensation Committee on account of
retirement / resignation of the employees from the Company. The fair
value as on March 31,2013, worked out to Rs.38.28 per share.
Details of the options granted and terminated 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.
AUDITORS
The financial statements have been audited by M/s. K.S. Aiyar& Co.,
Chartered Accountants, the Statutory Auditors.
The Audit Committee of your Company meets periodically with the
Statutory Auditors and Internal Auditors to review the performance of
internal audit, to discuss the nature and scope of the statutory
auditor''s functions, and to discuss auditing, internal control and
financial reporting issues. To ensure complete independence, the
statutory auditor and the internal auditor have full and free access to
the Member of the Audit Committee to discuss any matter of substance.
Cost Audit under Section 233B of the Companies Act, 1956, is a regular
annual audit. The cost audit for the current financial year is under
progress.
The Auditors M/s. K. S. Aiyar & Co, Chartered Accountants, retire at
the ensuing Annual General Meeting and have confirmed their eligibility
and willingness to accept office for the financial year ended March 31,
2014.
INSURANCE
Your Company has taken reasonable steps to prevent risks and the Board
is kept appraised of the risk assessment and minimization procedures.
The assets of the Company have been adequately covered under insurance.
The policy values have been enhanced taking into consideration the
expanded and upgraded facilities of the Company.
FIXED DEPOSITS
During the year, the Company has not accepted any fixed deposits from
the public. There are no fixed deposits outstanding with the Company as
on March 31, 2013, as the matured but unclaimed fixed deposits
pertaining to earlier years have been transferred to the Investor
Education and Protection Fund.
DISCLOSURE PARTICULARS
As required by your Company (Disclosure of Particulars in theReport of
Board of Directors) Rules, 1988, the relevant information and data are
given in Form - A & B to this report.
INDUSTRIAL RELATIONS
Your Company''s relations with its employees continue to be cordial.
Dedicated work by the workmen, supervisors and executives of your
Company made it possible to achieve success under trying and difficult
circumstances.
PARTICULARS OF EMPLOYEES
The particulars of employees required to be furnished under Section
217(2A) of the Companies Act, 1956, read with the Rules thereunder,
forms part of this Report. However, as per the provisions of Section
219(l)(b)(iv) of the Companies Act, 1956, the reports and accounts are
being sent to all the shareholders of the Company excluding the
statement of particulars of employees. Any shareholder interested in
obtaining a copy may write to the Company Secretary at the Registered
Office of the Company.
ACKNOWLEDGEMENT
Your Company acknowledges the significant contribution made by the
employees. The trust reposed in your Company by its esteemed customers
helped stabilize growth during the year under review. Your Company
also acknowledges the support and guidance received from State Bank of
India, Bank of India, Indian Overseas Bank, Export Import Bank of
India, SBI Global Factors Limited and all government agencies and looks
forward to their continuing support.
For and on behalf of the board
Dr. D. R. Rao Hyderabad,
May 10, 2013 Chairman & Managing Director
Mar 31, 2012
The Directors are please to present their Twenty Eighth Annual Report
of your Company and the audited statement of accounts for the year
ended March 31, 2012.
FINANCIAL RESULTS Rs in Million
(Standalone financials)
2011-12 2010-11
Profit before Depreciation and Tax 150.73 201.06
Less: Depreciation 148.91 154.11
Profit/(Loss) before Tax 1.82 46.95
Prior period adjustments à Ã
Provision for current tax and
deferred Tax (18.5) (3.74)
Profit after Tax 20.32 50.69
Add: Balance brought forward from
the previous year 61.84 11.15
Profit available for appropriation 82.16 61.84
Appropriation
Balance carried forward to
Balance Sheet 82.16 61.84
Previous year figures have been regrouped wherever necessary as per the
Revised
Schedule VI.
BUSINESS REVIEW
Despite the challenges of the global and domestic economy, your
Company's revenue for the year was the highest ever at Rs4540.5 million,
an increase of 13% over the previous year revenue of Rs4017.6 million, a
record being achieved for the second consecutive year. Remarkably, the
growth is on a base of 41.2% increase in the previous year.
Raw materials as a percentage of income at Rs2898.6 million constituted
64.4% of income, while it was lower at 63.3% in 2010-11. With marginal
increases in manufacturing and employee costs, the operating margin was
lower at 10.7% as against 12.5% reported in the previous year. The
operating profit was hence lower at Rs483.5 million as against Rs499.6
million.
Members would appreciate that the year witnessed inflationary pressures
which impacted raw material prices, all of which could not be passed on
to the customers. The tight money policy followed by the central bank,
tended to firm up the interest rates affecting finance costs. Your
Company incurred finance costs of Rs332.7 million, approximately 11.5%
higher than the previous year. The higher incidence was despite
repayment of Rs368.3 million during the financial year, over and above
an amount of Rs259.7 million repaid in the previous year.
The impact of the prevailing external challenging conditions did impact
your Company's business, and despite being productivity oriented and
raising the level of cost consciousness, the profit after tax was Rs20.3
million for the year, lower than Rs50.7 million reported in 2010-11.
Your Company has taken several systemic initiatives which are
favourably impacting the efficiencies, profit margins and overall
profitability, most of which were visible from the last quarter of the
financial year 2011-12. The focus is on what adds value to the
customers and optimize results for Neuland. The management is striving
to make the transformation enduring while shaping the future.
DIVIDEND
Members will appreciate that in view of the liquidity situation of your
Company, the Board of Directors has decided not to recommend any
dividend for the year under review.
OUTLOOK
Neuland has extraordinary assets for growth: your Company's people,
products, pipeline and relationship with some of the big pharma
companies across the globe. The Company has a common set of values
inspired by The Neuland Way and a restructured, streamlined operating
model with a commitment to respond to customers, even as it is bottom
line focused.
There is a increased emphasis on marketing niche products, keeping
costs under control and an organization wide culture that seeks to
improve the due date delivery of products and services. The high-value
products have already started enhancing the revenue stream, while there
is a commitment to shed products that tend to lower the contribution.
The order book for API is robust with visibility of healthy earnings
for several months ahead.
While growing the business, the teams are working on thoughtful,
disciplined actions to streamline and improve on cost structure,
realize savings and de-risk the business. There is substantial progress
in increasing the strategic focus of the Company. From early 2012,
there is perceptible savings from standardization initiatives, which
over the ensuing quarters is likely to manifest in rising free cash
flow. Higher margins, lower costs, improved cycle-time on the
production floor and lowering of debt are estimated to sustainably
enhance the bottom line commencing with the financial year 2012-13.
CONSOLIDATED FINANCIAL STATEMENTS
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 of the Companies Act, 1956 is annexed.
The Consolidated Financial Statements for the year ended March 31, 2012
for part of the Annual Report. 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.
SUBSIDIARIES
Your Company's subsidiaries, Neuland Laboratories K.K., Japan and
Neuland Laboratories Inc. USA, have come into operation and started
working aggressively on market development. The efforts have been to
build Neuland's business by being close to the customers and market the
products as well as respond immediately to their needs. During the year
under review, contract manufacturing business was given an additional
thrust, with encouraging response in Japan as well as at North America.
Your Company sees long term sustainable opportunities in these regions
and is further strengthening the organizational resources.
JOINT VENTURE
The outlook is positive for the joint venture, Cato Research Neuland
India Private Limited formed in collaboration with Cato Research Israel
Limited, a wholly owned subsidiary of Cato Research Limited, a global
contract research and development organization based in USA. As already
known to Members, your Company's share in the joint venture is 70% as
per the Share Subscription and Shareholder Agreement.
The joint venture company commenced operation and your Company is
excited with the prospects for the business, primarily in clinical
research in India. Global health care companies have been reaching out
to competent research-led companies to bring innovative drugs to the
market in the shortest possible time span, using high quality and
cost-effective resources available in India. Neuland is confident for
the long term since it has the best available partner in Cato Research.
RESEARCH & DEVELOPMENT
One of the key priorities of the R&D team during the year under review
was to create a portfolio of niche products that are in demand that
would facilitate customers to meet their need to launch new products. A
focused detailed approach to product selection led to a healthy product
development portfolio. The R&D team took care to ensure that each of
the products in the portfolio underwent a rigorous test of preliminary
analysis, market and customer feedback and fitment with chemistry and
technological profile. 20 molecules/APIs were created for launch
between 2013 and 2016.
Further, existing eight products were taken up for process improvement
involving cycle time reduction, recovery & reuse of solvents, adoption
of green chemistry and yield improvement. Of these in seven products,
R&D realized savings and enhanced quality in all eight of them. The
teams are working on 24 products for such enhancements/savings in
2012-13.
R&D has set for itself a few key focus areas apart from creating new
molecules and process improvements with intent on quality and
optimization for competitiveness. Significant success was evident in
such areas including, designing & developing manufacturing processes,
route scouting as per customer requirement, filing of DMF/CMC for the
API and patent protection for non-infringing processes.
ENVIRONMENT, HEALTH & SAFETY (EHS)
Your Company has a systemic approach to environment protection and
employees' health and safety with rigorous implementation, measurement
and reporting, with strong programs in place to maintain a high level
of awareness and conformity with best-in class industry standards.
Neuland has made significant progress over the past five years in
improving the systems, training and participative response from all
employees.
Environmental aspect and impact analysis are carried out at both
manufacturing units with an aim to minimize environmental impacts from
our manufacturing activities. The units are provided with pollution
control facilities like stripper, multi effect evaporator, reverse
osmosis facilities for treating effluent generated in our processes and
recycling the treated effluent within plant premises.
Your Company has undertaken a number of process improvement
initiatives, which has helped consume less raw materials, solvents,
water and energy in the manufacturing processes, thus making them less
consumptive and sustainable. Neuland stands committed to resource
usages in environmentally sound, operationally safe and socially
responsible manner.
Occupational health surveillance study was carried out with the support
of external experts. Quantitative exposure assessment and work place
monitoring is carried out to watch over industrial hygiene exposure
levels and ensure environments are comfortable, safe and healthy for
the employees. Hazard identification and risk assessment studies were
carried out in the units targeted to minimize health and safety risks
from the manufacturing activities.
The Companies facilities at Bonthapally facility (Unit-I) and
Pashamylaram (Unit-II) have been successfully audited and certified for
ISO 14001:2004 and OHSAS 18001:2007.
INFORMATION MANAGEMENT SYSTEMS
Your Company is aware that all assets of the Company generate
confidential information and hence, information security is viewed with
great importance. Neuland appreciates the importance of intellectual
property rights and has put in place standard operating procedures to
strictly protect intellectual properties.
The initiatives taken to manage risk and institutionalize them Include:
- Employees have been trained through orientation programmes, with
refresher training programmes on ISMS standards on a regular basis.
- Neuland signs confidentiality disclosure agreements with all its
customers, employees, suppliers and consultants.
- Neuland is certified for ISO 27001:2005 standard and has very
recently completed its first surveillance audit successfully.
The IT Infrastructure is on the SAP ERP platform for effective
information transfer across functions while ensuring high security
standards. A robust web-based intranet application has been developed
in-house and used for key business processes to infuse transparency,
speedier communication and review.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis as required under the Listing
Agreement with the stock exchanges forms part of the Annual Report.
LISTING AT STOCK EXCHANGES
The equity shares of your Company continue to be listed and traded on
the BSE Limited and National Stock Exchange of India Limited. The
Annual Listing fee for the year 2012-13 has been paid to both the stock
exchanges.
CORPORATE GOVERNANCE
The report on Corporate Governance as per Clause 49 of the Listing
Agreement with the Stock Exchange forms part of the Annual Report.
Certificate from the Statutory Auditors of the Company M/s. K.S. Aiyar
& Co., Chartered Accountants confirming the compliance with the
Corporate Governance is attached to this report.
DIRECTORS
Mr. G.V.K. Rama Rao and Dr. Christopher M. Cimarusti retire as
Directors by rotation at the forthcoming Annual General Meeting and
being eligible, offer themselves for re-appointment. The profiles of
the Directors are included in the Report on Corporate Governance and
the Notice of the AGM.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000,
your Directors confirm that to the best of their knowledge and belief
and according to the information and explanation obtained by them,
a. in preparation of the annual accounts for the year ended March 31,
2012 the applicable accounting standards have been followed;
b. such accounting policies as mentioned in the notes to the financial
statement have been selected and applied consistently and judgments and
estimates that are reasonable and prudent made so as to give a true and
fair view of the state of the affairs of the Company for the year ended
March 31, 2012 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, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;
d. the annual accounts for the year ended March 31, 2012 has been
prepared on a going concern basis.
EMPLOYEE STOCK OPTION
As per the resolution passed at the Annual General Meeting on July 20,
2007 your Company had granted 34,500 stock options to its employees
under the Employee Stock Options Scheme. However 25,500 vested options
have been terminated by the Compensation Committee on account of
retirement/resignation of the employees from the Company. The fair
value as on March 31, 2012 worked out to Rs25.44 per share.
Details of the options granted and terminated 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.
AUDITORS
The financial statements have been audited by M/s. K.S. Aiyar & Co.,
Chartered Accountants, the Statutory Auditors.
The Audit Committee of your Company meets periodically with the
Statutory Auditors M/s. K.S. Aiyar & Co. and Internal Auditors, M/s.
Grant Thornton & Co., to review the performance of internal audit, to
discuss the nature and scope of the statutory auditor's functions, and
to discuss auditing, internal control and financial reporting issues.
To ensure complete independence, the statutory auditor and the internal
auditor have full and free access to the Members of the Audit Committee
to discuss any matter of substance.
Cost Audit under Section 233B of the Companies Act, 1956, is a regular
annual audit. The cost audit for the current financial year is under
progress.
The Auditors M/s. K. S. Aiyar & Co, Chartered Accountants, retire at
the ensuing Annual General Meeting and have confirmed their eligibility
and willingness to accept office for the financial year ended March 31,
2013.
INSURANCE
Your Company has taken reasonable steps to prevent risks and the Board
is kept appraised of the risk assessment and minimization procedures.
The assets of the Company have been adequately covered under insurance.
The policy values have been enhanced taking into consideration the
expanded and upgraded facilities of the Company.
FIXED DEPOSITS
There are no fixed deposits outstanding with the Company as on March
31, 2012. The matured but unclaimed fixed deposits amounting to Rs0.07
million, which have become due for transfer to the Investor Education
and Protection Fund (IEPF) have been transferred to IEPF during the
year under review.
DISCLOSURE PARTICULARS
As required by your Company (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988, the relevant information and data are
given in Form - A & B to this report.
INDUSTRIAL RELATIONS
Your Company's relations with its employees continue to be cordial.
Dedicated work by the workmen, supervisors and executives of your
Company made it possible to achieve success under trying and difficult
circumstances.
PARTICULARS OF EMPLOYEES
As required under the provisions of Section 217(2A) of the Companies
Act, 1956 read with Companies (Particulars of employees) Rules 1975 as
amended, there are no employees drawing remuneration in excess of
Rs500,000 per month during the year under review.
ACKNOWLEDGEMENT
Your Directors place on record their deep appreciation for the hard
work, commitment and dedication of the employees at all levels. The
Company did well on several fronts only because of their enthusiasm and
efforts. The Board appreciates the support and co-operation received
from the customers, vendors, business partners and others associated
with the Company. The Directors take the opportunity to thank the
bankers and financial institutions, regulatory and government
authorities and the stock exchanges for their continued support.
For and on behalf of the board
Dr. D. R. Rao
Hyderabad, May 3, 2012 Chairman & Managing Director
Mar 31, 2011
Dear Members,
The Directors are pleased to present their Twenty Seventh Annual
Report of your Company and the audited statement of accounts for the
year ended March 31, 2011.
FINANCIAL RESULTS Rs. in Million
2010-11 2009-10
Profit before Depreciation and Tax 201.28 24.03
Less: Depreciation 154.12 135.60
Profit/(Loss) before Tax 47.16 (111.57)
Prior period adjustments à 11.97
Provision for current tax and
deferred Tax (3.53) 29.15
Profit/(Loss) after Tax 50.69 (70.45)
Add: Balance brought forward from
the previous year 11.15 81.60
Profit available for appropriation 61.84 11.15
Appropriation
Balance carried forward to
Balance Sheet 61.84 11.15
BUSINESS REVIEW
Your Company achieved satisfactory results with growth in volumes,
revenues and improved market share and reach for its major products.
Investments made in earlier years to increase capacities paid off with
elevated sales of high-value and niche products and by stepping up the
market share in volume led markets. However the Company had a tight
liquidity situation due to the burden of the repayment of loans taken
for increased capacities.
During the year under review, your Company intensely focused on ramping
up sales volumes for its top six products by effectively employing
several initiatives including competitive bidding, volume-price
optimization, emphasis on quality enhancement and aggressively helping
customers to launch their generics. Simultaneously, successful efforts
were made to enhance operational economies by optimizing processes and
improving manufacturing efficiencies.
Raw material cost pressures continued throughout the year. Your Company
managed the raw material and sourcing challenges and met production
schedules with stringent quality inputs and cost advantage. The efforts
to contain costs, minimize inventory, improve efficiencies together
with higher capacity utilization led to favorable material variances.
The strong performance in the market translated in robust financials
with highest ever revenues of Rs.3985.41 million, an improvement of 41.7%
over Rs.2812.53 million in the previous year. Better customer
relationships, strong demand for products and operational efficiencies
enabled your Company to report profit after tax of Rs.50.69 million.
Members would recall the
Company had incurred a loss of Rs.70.45 million in 2009-10. The earnings
per share for the year under review is Rs.9.38.
As Members are aware, your Company's foray into synthetic peptide realm
has been distinguished by successfully developing technologies that
meet the highest standards of multinational companies. The strategic
alliance with a global pharmaceutical company has improved visibility
of earnings and your Company responded during the year by producing 28
Fluorenylmethyloxycarbonyl (Fmoc)-pseudoproline dipeptide building
blocks in kilogram quantities.
It is gratifying to report that the ability to produce pseudoproline
building blocks helped in the procurement of DSIR (Department of
Scientific and Industrial Research, Government of India) funding of Rs.25
million for scale up of technology for generic peptide APIs. Your
Company has also initiated steps to build a suitable peptide plant to
meet the future needs of the business.
DIVIDEND
Members will appreciate that given the liquidity situation, your
Company needs to conserve resources and hence your Board of Directors
recommend that no dividend be declared for the year under review.
OUTLOOK
Your Company continues to see traction for its existing products with
the momentum built over the past few years. There are eleven more
products that are expected to be scaled up commercially in 2011-12,
supplementing your Company's offers to the market. With Neuland being
perceived as a preferred & reliable source by its customers, the order
flow remains encouraging and is being met with scaling up of production
volume and manufacturing efficiencies of both intermediates and active
pharmaceutical ingredients.
There is immense potential for your Company as a contract manufacturing
organization. The development work done in earlier years has helped
Neuland understand the needs of the customers and in recent times your
Company has made breakthrough to secure projects for commercial
compounds and late phase execution.
The peptide business has its platform ready for non-linear growth,
currently this business contributes to less than 1% of total revenues.
Your Company currently produces about 70 high value building blocks
encompassing 28 pseudoprolines, 32 isoacyl dipeptides, several
dimethoxybenzyl-amino acids and dipeptides, Fmoc-amino acids, and side
chain modified Fmoc-Lysine derivatives. Neuland intends to increase
this offering to include 20-Fmoc-N-Methyl amino acids during 2011-12.
Sales of USP and EP grade generic peptide APIs are expected to commence
in the second half of 2011-12 both to the domestic and international
customers.
CONSOLIDATED FINANCIAL STATEMENTS
The Ministry of Corporate Affairs (MCA) vide Circular No.2/2011 dated
February 8, 2011 has granted general exemption under Section 212(8) of
the Companies Act, 1956 to companies from attaching the accounts of
their subsidiaries in their annual reports subject to fulfillment of
certain conditions prescribed.
Accordingly the reports and accounts of the subsidiary companies are
not annexed to this Report. The Board of Directors of your Company has
approved and passed a resolution in this regard. The Consolidated
Financial Statements for the year ended March 31, 2011 form part of the
Annual Report. A summary of key financials of the Company's
subsidiaries is also 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.
SUBSIDIARIES
Your Company's subsidiaries, Neuland Laboratories K.K., Japan and
Neuland Laboratories Inc. USA, continue the market development efforts
in respective geographies, and being close to customers has enabled to
improve the customer responsiveness and given significant thrust for
the contract manufacturing business.
JOINT VENTURE
Cato Research Neuland India Private Limited formed in collaboration
with Cato Research Israel Limited, a wholly owned subsidiary of Cato
Research Limited, a global contract research and development
organization based in USA. The joint venture company has recruited its
initial team and is now working on creating business in collaboration
with the JV Partner.
RESEARCH & DEVELOPMENT
Your Company has a proactive and result oriented research and
development team to ensure that there is a continuous flow of products
that are in demand amongst Neuland's customers. The team has been able
to bring complex molecules with efficient processes to market in
anticipation of emerging opportunities as well as in improving
processes for existing products and customer needs.
The in-house R&D team has identified 11 new products for development in
2011-12 based on Neuland Product Development Funnel. Development of
cost effective processes for existing products is another area which
would favorably impact productivity and yield.
The team ensures that the processes so developed meet customer needs,
stringent regulatory requirements and environmental challenges.
Custom synthesis is one area where Neuland has been focusing and is
undertaking several projects. Your Company has been working in close
association with clients, under strict confidentiality conditions to
bring products early to markets. The R&D team offers services,
know-how, and technology comparable with industry standards.
ENVIRONMENT, HEALTH & SAFETY
The Pashamylaram facility (Unit-II) has been successfully audited and
is certified in 2010 for ISO 14001:2004 and OHSAS 18001:2007. As
Members are already aware, the Bonthapally facility (Unit-I) already
stands certified. The certifications demonstrate Neuland's commitment
and care towards environment protection and health and safety
management systems.
As in earlier years, both facilities maintained their zero accident
record and in April 2011, the Department of Factories, Government of
Andhra Pradesh conferred the Zero Accident Special Category award on
Neuland in recognition of its achievement.
Safety release valves and automated systems form part of the systemic
improvements incorporated to minimize the possibility of accidents.
Training of employees and contract workers to elevate their awareness
levels is a major cause of continuous improvement in securing better
health and safety standards.
Your Company continues to maintain zero effluent discharge and has kept
the particulate matter emissions within prescribed norms. A firm of
reputed consultants was employed to study the industrial hygiene in
both units during the year. Their report is being acted upon and
corrective and preventive actions have been initiated.
INFORMATION MANAGEMENT SYSTEMS
Neuland's information technology platform is a key component in
offering customers transparency, accountability and reliability while
executing their orders. The system design and architecture is kept
updated and customers are encouraged to track the progress in execution
of their orders.
All employees are aware and have been sensitized that all assets of the
Company generate confidential information and therefore information
security is viewed with great importance. Neuland appreciates the
importance of intellectual property rights and has put in place
procedures to protect strictly intellectual properties.
Your Company has successfully completed ISO 27001:2005 second
surveillance audit (ISMS Audit).
REPORT ON CORPORATE GOVERNANCE AND MANAGEMENT DISCUSSION AND ANALYSIS
The report on Corporate Governance and Management Discussion and
Analysis as required under the Listing Agreement with the stock
exchange forms part of the Annual Report.
LISTING AT STOCK EXCHANGES
The equity shares of your Company continue to be listed and traded on
the Bombay Stock Exchange Limited and National Stock Exchange of India
Limited. The annual listing fees for the year 2011-12 have been paid
for the both exchanges.
DIRECTORS
Dr. Will Mitchel and Mr. S. B. Budhiraja retire as Directors by
rotation at the forthcoming Annual General Meeting and being eligible,
offer themselves for re-appointment.
The EXIM Bank has appointed Mr. Nadeem Panjetan as Nominee Director in
the place of Mrs. Daya Chandrahas effective from April 29, 2011. The
Board places on record its appreciation for the services rendered by
Mrs. Daya Chandrahas during her tenure as Director of the Company.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to Section 217 (2AA) of the Companies (Amendment) Act, 2000
your Directors confirm that to the best of their knowledge and belief
and according to the information and explanation obtained by them,
a. in preparation of the annual accounts for the year ended March 31,
2011 the applicable accounting standards have been followed;
b. such accounting policies as mentioned in Schedule M of the Notes to
the financial statement have been selected and applied consistently and
judgments and estimates that are reasonable and prudent made so as to
give a true and fair view of the state of the affairs of the Company
for the year ended March 31, 2011 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, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;
d. the annual accounts for the year ended March 31, 2011 has been
prepared on a going concern basis.
EMPLOYEE STOCK OPTION
As per the resolution passed by Annual General meeting on July 20,
2007, your Company has granted 34,500 stock options to its employees
under the Employee Stock Options Scheme. Of the above, 6,000 (Previous
year 5,500) options have lapsed on account of resignation of the
employees from the Company which has been noted by the Remuneration
Committee. Details of the options and other disclosures as required
under Clause 12 of the Securities and Exchange Board of India (Employee
Stock
Options Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are
set out in the annexure to this report.
AUDITORS
The financial statements have been audited by M/s. K.S. Aiyar & Co.,
Chartered Accountants, the statutory auditors.
The Audit Committee of your Company meets periodically with the
Statutory Auditors M/s. K.S. Aiyar & Co. and Internal Auditors, M/s.
Grant Thornton & Co., to review the performance of internal audit, to
discuss the nature and scope of the statutory auditor's functions, and
to discuss auditing, internal control and financial reporting issues.
To ensure complete independence, the statutory auditor and the internal
auditor have full and free access to the Members of the Audit Committee
to discuss any matter of substance.
Cost audit under Section 233B of the Companies Act, 1956, is a regular
annual audit. The cost audit for the current financial year is under
progress.
The Auditors M/s. K. S. Aiyar & Co, Chartered Accountants, retire at
the ensuing Annual General Meeting and have confirmed their eligibility
and willingness to accept office for the financial year ended March 31,
2012.
The Statutory Auditors have in the Annexure to the Auditors' Report
arising out of the requirements of the Companies (Auditor's Report)
Order, 2003 (CARO) have recommended further strengthening of controls
in the ERP system and also to adhere to the planned audit program. The
company has initiated appropriate steps to comply with the same.
Further the auditors have stated that an amount of Rs.0.07 Million are
amounts payable against unclaimed matured fixed deposits which are to
be deposited to Investor Education and Protection Fund (IEPF) related
to and due on various dates. The steps initiated by the Company to
further strengthen the control mechanism are intended to enhance the
effectiveness of compliance management and avoid any unintended and
inadvertent omissions. The Company has made necessary arrangements to
transfer the said amount to IEPF forthwith.
The delays in repayments of certain installments of loans could not be
avoided on account of liquidity issues due to rapid growth of business.
Your Company is making arrangements to make good these installments at
the earliest.
INSURANCE
Your Company has taken reasonable steps to prevent risks and the Board
is kept appraised of the risk assessment and minimization procedures.
The assets of the Company have been adequately covered under insurance.
The policy values have been enhanced taking into consideration the
expanded and upgraded facilities of the Company.
FIXED DEPOSITS
There are no fixed deposits outstanding as on March 31, 2011.The
provisions of Section 58A of the Companies Act, 1956 have been complied
with.
The matured but unclaimed fixed deposits relating to eight deposit
holders amounting to Rs.0.07 million have become due for transfer to
the Investor Education and Protection Fund (IEPF) established by the
central government. This amount having remained unclaimed for a period
of over seven years from the date they became due for payment is being
transferred to the IEPF.
DISCLOSURE PARTICULARS
As required by your Company (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988, the relevant information and data are
given in Form - A & B to this report.
INDUSTRIAL RELATIONS
Your Company's relations with its employees continue to be
cordial. Dedicated work by the workmen, supervisors and executives of
your Company made it possible to achieve success under trying and
difficult circumstances.
PARTICULARS OF EMPLOYEES
During the year under review, there were no employees drawing salary in
excess of the prescribed limit and whose particulars is required to be
given under Section 217(2A) of the Companies Act, 1956 read with
Companies (Particulars of employees) Rules 1975 as amended.
ACKNOWLEDGEMENT
Your Company acknowledges the significant contribution made by the
employees. The trust reposed in your Company by its esteemed customers
helped stabilize growth during the year under review. Your Company also
acknowledges the support and guidance received from State Bank of
India, Bank of India, Indian Overseas Bank, Export Import Bank of
India, SBI Global Factors Limited and all government agencies and looks
forward to their continuing support.
For and on behalf of the board
Dr. D. R. Rao
Hyderabad, May 20, 2011 Chairman & Managing Director
Mar 31, 2010
The Directors submit their Twenty Sixth Annual Report of your Company
and the audited statement of accounts for the year ended March 31,
2010.
FINANCIAL RESULTS Rs. in Million
2009-2010 2008-2009
Profit before Depreciation and Tax 24.03 217.81
Less: Depreciation 135.60 73.70
Profit/(Loss) before Tax (111.57) 144.11
Prior period adjustments 11.97 0.00
Provision for current tax and
deferred Tax 29.15 26.21
Profit/(Loss) after Tax (70.45) 117.89
Add: Balance brought forward from
the previous year 81.60 74.22
Profit available for appropriation 11.15 192.11
Appropriation
General Reserve - 88.42
Dividend (including Tax on Dividend) - 22.10
Balance carried forward to
Balance Sheet 11.15 81.60
BUSINESS REVIEW
The financial year 2009-10 was a challenging year for the global
economy and for several players in the pharmaceutical industry with
drop in selling prices, reduced margins and liquidation of inventories.
These had a cascading effect on several suppliers, including your
Company. The circumstances in the market place coupled with your
Companys recent investments in new assets created a situation where
your Company has posted a net loss for the financial year.
There are three major factors that have contributed to the wide gap
between expected performance and actual results. First, couple of
product launches into the market fell significantly short of
expectations. These products were developed for several of the leading
players in the generic space and was expected to contribute
significantly to the sales and profitability of your Company in the
financial year 2009-10. A new production facility was commissioned in
Q3 of 2008-09 to support the manufacture of the active ingredients.
Members are aware, it is not possible to obtain alternative customers
or substitute markets immediately since regulatory and customer
approvals entail long lead times. However, your Company sees this as a
temporary setback and has stepped up its marketing thrust to regain
ground, modified its production facilities, established alternative
products and created new revenue streams for the future. Also, the
facilities that have been commissioned for this product were
multi-product facilities and are being utilized for other current and
future products.
Second, during the year under review, almost all products witnessed
added and unanticipated price erosion, margin compression and
competitive risks. The situation was compounded with a stiff mark up in
costs of raw materials, especially from China. The product mix
underwent a change with demand growth for low value products, while in
the previous year, the sales mix had larger quantities of high value
products. In the best interest of its customers, your Company worked
at tighter margins and offered competitive prices, enabling them to
compete better in their markets.
Third, the currency market remained volatile and the rupee tended to
weaken intermittently throughout the year against the US$. Rupee which
was around Rs.51.50 in March 2009, closed the year ending March 2010 at
approximately Rs.44.90. It was challenging to manage the forex
transactions and in the year under review your Company reported a loss
on foreign exchange of Rs.22.34 million (debited to Administrative,
Selling & Other Expenses). In contrast, there was a net foreign
exchange gain of Rs.60.65 million in the year ended March 2009.
Overall, your Company reported lower revenues at Rs.2812.53 million
which was a 9.8% decline over Rs.3120.26 million achieved in the
previous year. Neuland attempted to improve productivity and yield in a
bid to contain the costs. Despite cost optimization steps initiated
throughout the value chain, better sourcing of materials and effective
risk management, your Company recorded lower Earnings Before Interest,
Taxes, Depreciation and Amortization (EBITDA) of Rs.280.76 million in
2009-10 as compared to Rs.361.41 million in 2008-09.
Members would recall, your Company has been steadily investing for its
future growth. In the past three years, your Company has added to its
gross block with fresh investment of Rs.1547 million, which is
approximately twice the total investment made in the first 23 years.
Your Company has invested in products, product pipeline, R&D,
regulatory and compliance standards, manufacturing capabilities and
environmental systems and is now better equipped to offer higher volume
of a larger number of products and services.
In the pharmaceutical industry, additional capacities, regulatory and
customer approvals are the primary steps in commercializing products,
and invoicing takes 18 to 24 months. In the initial period, the Return
on Investment takes time and effort, with skewed cash flows.
During the year, with additional borrowing for capital expenditure as
well as working capital, your Company incurred interest costs of
Rs.256.73 million. Depreciation accounted for another Rs.135.60
million. In the previous year, interest cost was Rs.143.59 million,
while depreciation amounted to Rs.73.70 million. Neuland ended the
financial year 2009-10 with a loss of Rs.70.45 million as compared to
profit after tax of
Rs.117.90 million in the previous year. The loss per share in 2009-10
was Rs.13.03.
DIVIDEND
Considering the need to conserve resources, your Board has recommended
skipping of dividend for the financial year under review.
OUTLOOK
Investments made in capacities are now paying off, with your Company
better placed to offer high-value and niche products as well as service
volume led markets. While several initiatives taken in 2009-10 are
likely to positively impact revenues and net income, incremental gains
are more likely to be visible from around the quarter ending September,
2010. The newly created manufacturing facilities are now being utilized
for APIs with higher demands as well as for executing contract
manufacturing projects.
Your Company has started ramping up selling volumes for its active
pharmaceutical ingredients, especially its top six products.
Simultaneously, seven new active ingredients are being scaled up and
commercialized during 2010-11. Another eight active pharmaceutical
ingredients are ready for scale up activity. The order book is robust
and the endeavor is to achieve 30% incremental growth in revenues.
Your Company has also recently made a foray into the area of peptides.
As a first step, your Company has been able to develop economical
manufacturing processes for multi-kilogram production of high value
peptide building blocks called pseudoproline dipeptides. Your Companys
high quality standards together with competitive prices have been
recognized and would be leveraged to offer these high quality peptide
building blocks to other pharmaceutical companies that are active in
the area of peptides. In order to fully exploit the market opportunity
in this area, Neuland has entered into a commercial manufacturing
agreement with one of the leading global biotechnology companies, a
pioneer in developing and making available high-value building blocks,
to be their exclusive producer of pharmaceutical grade pseudoproline
dipeptides. This is a high-value high-growth segment and your Company
is technically equipped and has the skill sets to create a niche for
itself in a growing market. Neuland has commenced commercializing its
products, and expects to ramp up volumes in calendar year 2011. Success
in commercializing the peptide building blocks will lead to expansion
of your Companys interests into other area in peptides such as generic
peptide APIs, etc.
Today your Company offers contract manufacturing services to innovator
companies and presently executes projects for pharmaceutical companies
in Europe, North America and Japan.
Neulands execution capabilities have been recognized and this is a
segment that is showing encouraging signs of growth.
Your Company has a robust platform for growth and perceives several
opportunities to ramp up the business in each of its verticals.
Aggressive efforts are being made to improve revenues, offer more
products and leverage on customer relationships. At the same time,
Neuland is working to improve manufacturing processes, optimize costs,
reduce waste and operational expenses, increase cash flow, rationalize
manpower, protect margins, report positive earnings, and derisk the
business.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements for the year ended March 31, 2010
form part of the Annual Report.
The reports and accounts of the subsidiary companies and joint venture
entity are not annexed to this Report. The Company has obtained in
writing an exemption in this regard from the Ministry of Corporate
Affairs vide its letter No. 47/478/2010- CL-III dated June 8, 2010. A
statement pursuant to Section 212(8) of the Companies Act, 1956 is
annexed. Annual accounts of the subsidiary companies and the joint
venture entity are kept for inspection by any investor at the
Registered Office of your Company as well as at the Registered Office
of the respective companies. Any investor interested in a copy of the
accounts of the subsidiaries or joint venture entity may write to the
Company Secretary at the Registered Office of the Company.
SUBSIDIARIES
Your Companys subsidiaries, Neuland Laboratories K.K., Japan and
Neuland Laboratories Inc. USA, have come into operation and started
working aggressively on market development. The efforts have been to
build Neulands business by being close to the customers and market the
products as well as respond immediately to their needs. In 2009-10,
contract manufacturing business was given an additional thrust, with
encouraging response in Japan as well as at North America. Your Company
sees long term sustainable opportunities in these regions and is
further strengthening the organizational resources.
JOINT VENTURE
The outlook is positive for the joint venture, Cato Research Neuland
India Private Limited formed in collaboration with Cato Research Israel
Limited, a wholly owned subsidiary of Cato Research Limited, a global
contract research and development organization based in USA. As already
known to Members, your Companys share in the joint venture is 70% as
per the Share Subscription and Shareholder Agreement.
The joint venture company commenced operation and your Company is
excited with the prospects for the business, primarily in clinical
research in India. Global health care companies have
been reaching out to competent research-led companies to bring
innovative drugs to the market in the shortest possible time span,
using high quality and cost-effective resources available in India.
Neuland is confident for the long term since it has the best available
partner in Cato Research.
RESEARCH & DEVELOPMENT
Your Company has made organizational changes and strengthened its
research and development team during the year under review. The
in-house R&D team has identified 13 new products for development in
2010-11 and focused efforts are being made to develop processes for new
bulk drugs of various therapeutic categories identified after an
extensive analysis of the market. Development of cost effective
processes for the existing products is another area which would
favorably impact productivity and yield.
ENVIRONMENT, HEALTH & SAFETY
Effluent treatment capacities have been enhanced during the year,
considering the larger volume of business being undertaken. Multiple
effect evaporator has been installed and all regulatory norms are being
met. The effort now is to go beyond compliant standards and actively
reduce consumption of resources.
The Bonthapally Unit (Unit I) has been successfully audited and is
certified for ISO 14001:2004 and 0HSAS 18001:2007. As Members are
aware, ISO 14001 is a series of International Standards on environment
management system and 0HSAS 18001 is an Occupational Health & Safety
Assessment Series for health & safety management system. These
certifications are a testimony to Neulands commitment towards
environment protection and health and safety management along with the
quality of products.
At the Pashamylaram Unit (Unit-II), Stage-1 and Stage-2 audits have
been successfully completed and formal certification is awaited.
INFORMATION MANAGEMENT SYSTEMS
Information technology is a critical component in data management and
decision making at Neuland. Your Company offers a uniquely transparent
facility to its customers to update themselves on the progress of their
orders. The system is updated on an on-going basis, and a few of the
initiatives taken up during the year under review are as follows:
a. Both hardware and applications were upgraded to enhance the
performance of the SAP platform, create robust back- up solutions, and
augment connectivity across Neulands locations;
b. Users dealing with various projects from across the locations can
submit their analytical related tests or tasks, using AR&D scheduling
application. These tasks/requests are automatically scheduled as per
the load and assigned to the analyzer of A R&D Department. Upon
completion of the task/request, the end results are generated through
the system for the benefit of the end user;
c. In order to monitor contract research projects, a new version of
software has been launched with facilities such as customer reviews,
category based analysis, category monitoring services, customer
interaction process and analysis dash board;
d. Given the expansion of operational resources at the production
facilities, a new logic for due date calculation has been implemented
taking both the locations, alternative and consequent resources into
consideration. By implementing this new logic, the due date derived is
realistic and helps improve production control;
e. Based on the estimated quarterly/half yearly sales plan, reports
are generated to estimate the load on the reactors to help the
production team in scheduling/execution of plans;
f. The vendor/customer outstanding report provides information about
the payables and receivables with aging. This report helps the finance
team to plan for funds and helps to follow up with customers for
release of payments due to Neuland;
g. In order to support supply chain and logistics team, daily/
conditional mail alerts have been enabled for quotation approval beyond
48 hours, procurement of top 20 raw materials and month closing alerts.
Every process is focused towards providing updated information to the
operations team, to significantly add to transparency in operations and
improve delivery mechanisms. The customer has been at the core of the
initiatives and has been a beneficiary with improved due date
performance.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis as required under the Listing
Agreement with the stock exchanges forms part of the Annual Report.
LISTING AT STOCK EXCHANGES
The equity shares of your Company continue to be listed and traded on
the Bombay Stock Exchange Limited and National Stock Exchange of India
Limited. The annual listing fees for the financial year 2010-11 have
been paid to both the exchanges.
CORPORATE GOVERNANCE
Your Company has an eminent Board which insists on following the
highest standards of Corporate Governance in its deliberations. There
is clear accountability at various management levels and care is taken
to ensure compliance with statutory requirements and to adhere to the
highest standard of business ethics.
Your Company has engaged a professional team to assess its corporate
governance practices. The assignment is in progress.
Managerial remuneration as per paragraph (1) (B) IV (2) of Section II
of Part II of Schedule XIII to Companies Act, 1956 is mentioned below:
S.
No. Particulars Managerial Persons
Dr.D.Rao Mr. D. Sucheth Rao Mr. D. Sahars Rao
1 Salary (Rs.) 3,50,000 p.m. 3,50,000 p.m. 3,00,000 p.m.
2 Perquisites
(Rs.) 50,000 p.m. 50,000 p.m. 50,000 p.m.
3 Contract period 3 years 3 years 3 years
4 Notice Period 12 months 12 months 12 months
5 Fixed component
and performance
linked
incentives
along with the Nil Nil Nil
performance
criteria
6 Stock option
with details
if any and
whether issued
at discount as
well as Nil Nil Nil
the period
over which
accrued and
over which
exercisable.
7 Severance
fees Nil Nil Nil
Including of the above, each managerial person is entitled for
remuneration not exceeding the overall limit of 5% of the net profits
of the Company for each financial year, payable by way of salary,
deamess allowance, bonus, commission, perquisites or any other
allowances subject to overall ceiling of 10% of the net profit of the
Company for all of them together.
DIRECTORS
Or. Russell E. Kaufman resigned on January 25, 2010 from the
directorship of the Company. The Board placed on record its
appreciation of the valuable services rendered by Dr. Russell E.
Kaufman during his tenure as Director of the Company.
Mr. H. Dhanrajgir and Mr. P. V. Maiya retire as Directors by rotation
at the forthcoming Annual General Meeting and being eligible, offer
themselves for re-appointment.
Dr. Christopher M. Cimarusti was co-opted as a member of the Board at
their meeting held on October 20, 2009. Your Company has received a
notice under Section 257 of the Companies Act, 1956 from a Member
proposing to appoint Dr. Christopher M. Cimarusti as a Director
retiring by rotation, subject to the approval of Members. Appropriate
resolutions are being placed before the Members at the ensuing Annual
General Meeting.
The profiles of the Directors are included in the Report on Corporate
Governance annexed.
DIRECTORS RESPONSIBILITY STATEMENT
Pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000,
your Directors confirm that to the best of their knowledge and belief
and according to the information and explanation obtained by them,
a. in preparation of the annual accounts for the year ended March 31,
2010 the applicable accounting standards have been followed;
b. such accounting policies as mentioned in Schedule N of the notes of
the financial statement have been selected and applied consistently and
judgments and estimates that are reasonable and prudent made so as to
give a true and fair view of the state of the affairs of the Company
for the year ended March 31, 2010 and of the loss 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 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;
d. the annual accounts for the year ended March 31, 2010 has been
prepared on a going concern basis.
EMPLOYEE STOCK OPTION
As per the resolution passed by Annual General meeting on July 20,
2007, your Company has granted 34,500 stock options to its employees
under the Employee Stock options Scheme. However 5,500 unvested
options have been terminated by the Compensation Committee on account
of resignation of the employees from the Company. The fair value as on
March 31, 2010 worked out to Rs.44.67 per share.
Details of the options granted and terminated 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.
AUDITORS
The financial statements have been audited by M/s. K.S. Aiyar & Co.,
Chartered Accountants, the statutory auditors.
The Audit Committee of your Company meets periodically with the
Statutory Auditors M/s. K.S. Aiyar & Co. and Internal Auditors, M/s.
Grant Thornton & Co., to review the performance of internal audit, to
discuss the nature and scope of the statutory auditors functions, and
to discuss auditing, internal control and financial reporting issues.
To ensure complete independence, the statutory auditor and the internal
auditor have full and free access to the Members of the Audit Committee
to discuss any matter of substance.
Cost audit under Section 233B of the Companies Act, 1956, is a regular
annual audit. The cost audit for the current financial year is under
progress.
The Auditors M/s. K. S. Aiyar & Co, Chartered Accountants, retire at
the ensuing Annual General Meeting and have confirmed their eligibility
and willingness to accept office for the financial year ended March 31,
2011.
The Statutory Auditors in their report on the accounts for the year
ended March 31, 2010 stated that although internal control system is
commensurate with the size of the Company and nature of business,
further strengthening is recommended in the environment of E R P with
reference to all the key areas of control. The Company has implemented
E R P package of S A P in September 2007. We are now revisiting the
areas of control where ever required so that the system becomes robust
and further strengthened.
Further, they stated that the Company has defaulted in repayments of
dues to the banks and fund raised on short-term basis aggregating to
Rs.66.52 million have been utilized for financing long term investments
including repayments of loans taken for fixed assets and capital work
in progress. In order to honor the repayment of term loans apart from
providing the margin money for expansion of facilities, the Company had
to utilize short term funds due to insufficient internal accruals. The
Company has expanded its facilities to avail the market opportunities
for Ciprofloxacin and to comply with certain statutory requirements.
INSURANCE
Your company has taken reasonable steps to prevent risks and the Board
is kept appraised of the risk assessment and minimization procedures.
The assets of the Company have been adequately covered under insurance.
The policy values have been enhanced taking into consideration the
expanded and upgraded facilities of the Company. *
FIXED DEPOSITS
There are no fixed deposits outstanding as on March 31, 2010. There
are matured but unclaimed fixed deposits amounting to Rs.0.07 million
being the deposit amount, which may come up for repayments. The
provisions of Section 58A of the Companies Act, 1956 have been complied
with.
DISCLOSURE PARTICULARS
As required by your Company (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988, the relevant information and data are
given in Form - A & B to this report.
INDUSTRIAL RELATIONS
Your Companys relations with its employees continue to be cordial.
Dedicated work by the workmen, supervisors and executives of your
Company made it possible to achieve success under trying and difficult
circumstances.
PARTICULARS OF EMPLOYEES
As required under 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
Annexure to this report.
ACKNOWLEDGEMENT
Your Company acknowledges the significant contribution made by the
employees. The trust reposed in your Company by its esteemed customers
helped stabilize growth during the year under review. Your Company also
acknowledges the support and guidance received from State Bank of
India, Bank of India, Indian Overseas Bank, Export Import Bank of India
and all government agencies and looks forward to their continuing
support.
For and on behalf of the board
Dr.D.R.Rao
Hyderabad,May 29,2010 Chairman &Managing Director