The Directors are pleased to present the Twenty Second Annual Report and the Financial Statements for the financial year ended on March 31, 2017.
The financial statements of the Company have been prepared in accordance with the Indian Accounting Standards (Ind AS) notified under section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014. The financial statements for the Financial Year ended on March 31, 2017 are the Company’s first Ind AS compliant annual financial statements with comparative figures for the year ended March 31 2016 also under Ind AS. The transition date of Ind AS is April 1, 2015.
The disclosure and effects of first time adoption of Ind AS are provided in Note 46 and Note 47 of the standalone financial statements and Note 52 and Note 53 of the consolidated financial statements.
The standalone and consolidated financial performance of the Company, for the Financial Year ended on March 31, 2017 is summarized below:
For the year ended on March 31, 2017
For the year ended on March 31, 2016
For the year ended on March 31, 2017
For the year ended on March 31, 2016
Revenue from Operations and other Income
Profit before Interest, Depreciation, Amortisation and Impairment Expenses & Tax [PBIDT]
Less: Finance Cost
Less: Depreciation, Amortisation and Impairment Expenses
Profit Before Tax [PBT]
Less: Tax Expenses
Profit After Tax [PAT]
Share of Profit of Joint Venture (Net of Tax)
Profit After Tax including share of Joint Venture
Owners of the Parent
Other Comprehensive Income/(Loss) (Net of Tax)
Total Comprehensive Income
Owners of the Parent
Opening balance in Retained Earnings
Amount available for appropriation
Interim - FY 2016-17
Interim - FY 2015-16
Final - FY 2014-15
Corporate Dividend Tax on Interim Dividend (Net of CDT Credit)
Closing Balance in Retained Earnings
Earnings Per Share [EPS] [Face Value of shares of Re. 1/- each]
The Company proposes to retain an amount of Rs. 47,315 mio in the Statement of Profit and Loss.
Results of Operations
During the year under review, the consolidated revenue from operations and other income was Rs. 97,539 mio. The company has achieved consolidated Profit Before Tax of Rs. 16,119 mio and Profit After Tax of Rs. 14,830 mio. The Company achieved a consolidated Total Comprehensive Income of Rs. 15,219 mio. The EPS on consolidated financials for the year ended on March 31, 2017 was Rs. 14.82.
During the year under review, your Directors had declared and paid an interim dividend of Rs. 3.20 per equity share of face value Re. 1 each to the shareholders holding shares in physical form and whose names were listed on the Register of Members of the Company as on March 17, 2017, being the Record Date fixed for the purpose. Those shareholders holding shares in electronic form were paid dividend as per the beneficiary data provided by the Depositories. Your Directors did not recommend final dividend. The dividend payout ratio for the current year [inclusive of corporate dividend tax on dividend distribution] is 16.08%.
During the year, the unclaimed dividend pertaining to the dividend for the year ended March 31, 2009 was transferred to Investors Education and Protection Fund after giving notice to the members to claim their unpaid / unclaimed dividend.
As per SEBI Notification, the Company has formulated Dividend Distribution Policy, which is approved by the Board of Directors and is uploaded on Company’s website www.zyduscadila.com. The link for the same is https://zyduscadila.com/wp-content/ uploads/2017/05/Dividend-Distribution-Policy-CHL.pdf.
Scheme of Arrangement between Company and Zydus Healthcare Limited
In order to bring more focused and concentrated efforts, the management has decided to consolidate India Human Formulation Business of Zydus Group in one entity. To achieve this objective, during the year Biochem Pharmaceutical Industries Limited, a wholly owned subsidiary Company was amalgamated with Zydus Healthcare Limited, another wholly owned subsidiary Company. As a part of the consolidation, pursuant to order dated May 18, 2017 passed by the Hon’ble National Company Law Tribunal, Bench at Ahmedabad [NCLT], the India Human Formulations Undertaking [as defined in the Scheme of Arrangement] was transferred and merged into Zydus Healthcare Limited, on a cash consideration, pursuant to approval of the Scheme of Arrangement between the Company and Zydus Healthcare Limited and their respective shareholders and creditors sanctioned by the NCLT.
Management Discussion and Analysis (MDA)
MDA, for the year under review, as stipulated under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [Listing Regulations] is presented in a separate section, which forms a part of the Annual Report.
Consolidated Financial Statements
In accordance with the Ind AS-110 on Consolidation of Financial Statements read with Ind AS-28 on Accounting for Investments in Associates and Joint Ventures and as provided under the provisions of the Companies Act, 2013 [hereinafter referred to as “Act”] read with Schedule III to the Act and Rules made thereunder and the Listing Regulations, the Audited Consolidated Financial Statements are provided in the Annual Report, which show the financial resources, assets, liabilities, income, profits and other details of the Company, its associate companies and its subsidiaries after elimination of minority interest, as a single entity.
As provided in section 136 of the Act, the Balance Sheet, Statement of Profit and Loss and other documents of the subsidiary companies are not being attached with the Balance Sheet of the Company. The Company will make available free of cost the Audited Financial Statements of the subsidiary companies and the related detailed information to any member of the Company who may be interested in obtaining the same. The Financial Statements of the subsidiary companies will also be kept open for inspection at the Registered Office of the Company and that of the respective subsidiary companies. The Consolidated Financial Statements presented by the Company include financial results of its subsidiary companies.
During the year, Biochem Pharmaceutical Industries Limited merged with Zydus Healthcare Limited [formerly known as German Remedies Limited], both wholly owned subsidiary Companies pursuant to Scheme of Amalgamation approved by the Hon’ble National Company Law Tribunal, Bench at Ahmedabad vide its final order dated March 15, 2017.
During the year, the Company has incorporated Zydus Holdings Inc., USA, which has acquired 100% shareholding of US specialty Company-Sentynl Therapeutics Inc., USA (“Sentynl”). After acquisition, Zydus Holdings Inc., USA was merged with Sentynl. Sentynl is now a wholly owned subsidiary Company.
During the year, the Company has acquired all shares held by its subsidiary companies in (1) Zydus Pharmaceuticals USA Inc., USA, (ZPUI), (2) Zydus Healthcare USA LLC, USA, (ZHUL), (3) Zydus Noveltech Inc., USA (ZNI) and (4) Bremer Pharma GmbH, Germany (Bremer) and therefore these four entities have become direct overseas subsidiary companies.
As provided under section 129 of the Act and Rules made thereunder a statement containing the salient features of the financial statements of its subsidiaries in the format prescribed under the rules is attached to the financial statements. The policy relating to material subsidiaries as approved by the Board may be accessed on the Company’s website at the link: http://zyduscadila. com/wp/content/uploads/2015/05/Policy-on-Material-Subsidiary. pdf.
Particulars of Loans, Guarantees and Investments
Details of loans, guarantees and investments covered under section 186 of the Act are given in the notes to the financial statements.
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 on an arm’s length basis. As provided under section 134[h] of the Act and Rules made thereunder disclosure of particulars of material transactions with related parties entered into by the Company in the prescribed format is annexed to this report as Annexure-A. Disclosures on related party transactions are set out in Note No. 41 to the financial statements.
The Policy on materiality of related party transactions and dealing with related party transactions as approved by the Board may be accessed on the Company’s website at the link: http://zyduscadila. com/wp-content/uploads/2015/05/Policy-on-Related-Party-Transactions.pdf.
i) Retirement by rotation:
In accordance with the provisions of section 152 of the Act and in terms of the Articles of Association of the Company, Mr. Mukesh M. Patel, Non-Executive Director [DIN-00053892] will retire by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment. The Board recommends his reappointment.
The Board of Directors of the Company has, subject to the approval of the shareholders at the ensuing Annual General Meeting reappointed Dr. Sharvil P. Patel, as a Joint Managing Director of the Company for a period of five years with effect from April 1, 2017.
ii) Declaration of independence:
The Company has received declarations of independence as stipulated under section 149 of the Act and regulation 16[b] of the Listing Regulations from Independent Directors confirming that they are not disqualified for continuing as an Independent Director.
iii) Profile of Director seeking appointment / re-appointment:
As required under regulation 36  of the Listing Regulations, particulars of Directors seeking appointment / re-appointment at the ensuing Annual General Meeting are annexed to the notice convening Twenty Second Annual General Meeting.
iv) Key Managerial Personnel:
The following persons are the Key Managerial Personnel:
1. Mr. Pankaj R. Patel, Chairman and Managing Director,
2. Dr. Sharvil P. Patel, Joint Managing Director,
3. Mr. Nitin D. Parekh, Chief Financial officer and
4. Mr. Upen H. Shah, Company Secretary.
There is no change in the Key Managerial Personnel during the year.
v) Board Evaluation:
Pursuant to provisions of the Act and Rules made thereunder and as provided in Schedule IV to the Act and the Listing Regulations, the Nomination and Remuneration Committee / Board has carried out the annual performance evaluation of itself, the Directors individually as well as the evaluation of its committees. The manner in which the evaluation was carried out has been provided in the Corporate Governance Report, which is a part of this Annual Report.
vi) Nomination and Remuneration Policy:
The Board has, on the recommendation of the Nomination and Remuneration Committee, framed a policy on selection and appointment of Directors, Senior Management Personnel and their remuneration. The Remuneration Policy is stated in the Corporate Governance Report, which is a part of this Annual Report.
Directors’ Responsibility Statement
In terms of section 134[c] of the Act and to the best of their knowledge and belief, and according to the information and explanations provided to them, your Directors hereby make the following statements:
(a) that in preparation of the Financial Statements, the applicable accounting standards have been followed along with proper explanations relating to material departures, if any,
(b) that such accounting policies have been selected and applied consistently and judgments and estimates made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on March 31, 2017 and of the profit of the Company for the year ended on that date,
(c) that proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for prevention and detection of fraud and other irregularities,
(d) that the annual financial statements have been prepared on going concern basis,
(e) that proper internal financial controls were in place and that the financial controls were adequate and were operating effectively, and
(f) that the systems to ensure compliance with the provisions of all applicable laws were in place and were adequate and operating effectively.
Information of meetings of the Board of Directors is given in Corporate Governance Report, forming a part of this report.
As provided in section 177 of the Act, the information about composition of Audit Committee and other details are given in Corporate Governance Report, forming a part of this report. The Board has accepted the recommendations of the Audit Committee. The Audit Committee comprises of Mr. Nitin R. Desai, Chairman, Mr. Humayun R. Dhanrajgir, Mr. Mukesh M. Patel, Mr. Apurva S. Diwanji and Ms. Dharmishta N. Rawal as members.
The Company has complied with the Corporate Governance requirements under the Act and as stipulated under Listing Regulations. A separate section on detailed report on the Corporate Governance practices followed by the Company under the Listing Regulations along with a certificate from the Statutory Auditors, confirming the compliance forms a part of this Annual Report.
i) Statutory Auditors and Audit Report:
Mukesh M. Shah & Co., Chartered Accountants, the existing Statutory Auditors, have been in the office for a period of more than 10 years at the commencement of the Companies Act, 2013, which provides a transition period of 3 years for appointing new Statutory Auditors.
Further, as per the Companies (Removal of Difficulties) Third Order, 2016 dated June 30, 2016 of Ministry of Corporate Affairs, the Company is required to appoint new Statutory Auditors at the ensuing Annual General Meeting (AGM).
Based on the recommendation of the Audit Committee, the Board of Directors have approved the appointment of Deloitte Haskins & Sells LLP, Chartered Accountants, as Statutory Auditors of the Company for a period of five years from the conclusion of ensuing Twenty Second AGM till the conclusion of Twenty Seventh AGM, subject to approval of the members at the ensuing AGM. Further, the appointment shall be ratified by the members at each AGM.
Deloitte Haskins & Sells LLP, Chartered Accountants have informed to the Company that their appointment, if made, would be within the limits prescribed under section 141 of the Act. They have also furnished a declaration confirming that their independence as well as their arm’s length relationship with the Company and that they have not taken up any prohibited non-audit assignments for the Company.
The Board has duly reviewed the Statutory Auditor’s Report of Mukesh M. Shah & Co., Chartered Accountants and the observations and comments, appearing in the report are self-explanatory and do not call for any further explanation / clarification by the Board of Directors as provided under section 134 of the Act.
ii) Cost Auditors:
Pursuant to provisions of section 148 of the Act read with the Companies [Cost Records and Audit] Amendment Rules, 2014, the cost audit records maintained by the Company in respect of the Drugs and Pharmaceuticals are required to be audited. The Board had, on the recommendation of the Audit Committee, appointed Dalwadi & Associates, Cost Accountants to audit the cost records of the Company for the Financial Year 2016-2017 on a remuneration of Rs. 1.00 mio. As required under the Act and Rules made thereunder, the remuneration payable to the Cost Auditors is required to be placed before the Members in a general meeting for ratification. Accordingly, a resolution seeking ratification by members for the remuneration payable to Dalwadi & Associates is included at Item No. 6 of the Notice convening Twenty Second AGM.
iii) Secretarial Auditors and Secretarial Audit Report:
Pursuant to provisions of section 204 of the Act and the Companies [Appointment and Remuneration of Managerial Personnel] Rules, 2014, the Board has appointed Manoj Hurkat and Associates, a firm of Company Secretaries in Whole-time Practice to undertake the Secretarial Audit of the Company for the Financial Year 2016-2017. The Secretarial Audit Report is annexed herewith as Annexure-B. The Board has duly reviewed the Secretarial Auditors’ Report and the observations and comments, appearing in the report are self-explanatory and do not call for any further explanation / clarification by the Board of Directors as provided under section 134 of the Act.
Business Responsibility Reporting
As per Regulation 34[f] of the Listing Regulations, a separate section on Business Responsibility Reporting forms a part of this Annual Report.
Corporate Social Responsibility [CSR]
Your Company, being a Pharmaceutical Company, having objective as “Dedicated to Life” has contributed for healthcare, education and research in cancer as a part of initiatives under “Corporate Social Responsibility” for the year under review. Pursuant to section 135 of the Act and the relevant rules, the Board has constituted a Corporate Social Responsibility [CSR] Committee under the Chairmanship of Mr. Pankaj R. Patel. The other members of the Committee are Dr. Sharvil P. Patel and Ms. Dharmishta N. Rawal. CSR Policy has been framed and placed on the Company’s website. Other details of the CSR activities, as required under section 135 of the Act, are given in the CSR Report at Annexure-C.
Business Risk Management
Pursuant to provisions of section 134[n] of the Act and requirements under the Listing Regulations, the Company has constituted a Risk Management Committee. The details of the Committee and its terms of reference are set out in the Corporate Governance Report, which forms a part of this Annual Report.
A well-defined risk management mechanism covering the risk mapping and trend analysis, risk exposure, potential impact and risk mitigation process is in place. The objective of the mechanism is to minimize the impact of risks identified and taking advance actions to mitigate them. The mechanism works on the principles of probability of occurrence and impact, if triggered. A detailed exercise is being carried out to identify, evaluate, monitor and manage both business and non-business risks. The Company has formally framed a Risk Management Policy to identify and assess the key risk areas, monitor and report compliance and effectiveness of the policy and procedure.
Discussion on risks and concerns are covered in the Management Discussion and Analysis Report, which forms a part of this Annual Report.
Internal control system and its adequacy
The Company has designed and implemented a process driven framework for Internal Financial Controls [IFC] within the meaning of the explanation to section 134[e] of the Act. For the year ended on March 31, 2017, the Board is of the opinion that the Company has sound IFC commensurate with the size, scale and complexity of its business operations. The IFC operates effectively and no material weakness exists. The Company has a process in place to continuously monitor the same and identify gaps, if any, and implement new and / or improved internal controls whenever the effect of such gaps would have a material effect on the Company’s operations.
Managing the Risks of fraud, corruption and unethical business practices
i) Vigil Mechanism / Whistle Blower Policy:
The Company has established vigil mechanism and framed whistle blower policy for Directors and employees to report concerns about unethical behavior, actual or suspected fraud or violation of the Company’s Code of Conduct or Ethics Policy. Whistle Blower Policy is disclosed on the website of the Company.
ii) Zydus Business Conduct Policy:
The Company has framed “Zydus Business Conduct Policy” and is monitored by the Group President [Human Resources and Corporate Communication]. Every employee is required to review and sign the policy at the time of joining and an undertaking shall be given for adherence to the Policy. The objective of the Policy is to conduct the business in an honest, transparent and ethical manner. The policy provides for anti-bribery and avoidance of other corruption practices by the employees of the Company.
Disclosure as per the Sexual Harassment of Women at Workplace [Prevention, Prohibition and Redressal] Act, 2013
The Company has zero tolerance towards sexual harassment at the workplace and has adopted a policy on prevention, prohibition and redressal of sexual harassment at workplace in line with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules thereunder.
The Company always endeavors to create and provide an environment that is free from discrimination and harassment including sexual harassment. The Company has in place a robust policy on prevention of sexual harassment at workplace. The policy aims at prevention of harassment of employees as well as contractors and lays down the guidelines for identification, reporting and prevention of sexual harassment.
During the Financial Year 2016-2017, the Company has not received any complaint of sexual harassment.
Extract of annual return
As per the provisions of section 92 of the Act, an extract of the Annual Return in the proscribed form MGT 9 is attached to this report as Annexure-D.
Particulars of Employees
The information required under section 197 of the Act read with rule 5 of the Companies [Appointment and Remuneration of Managerial Personnel] Rules, 2014 is given in Annexure-E.
Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo
Information on conservation of energy, technology absorption, foreign exchange earnings and outgo, as required to be disclosed under section 134[m] of the Act read with rule 8 of the Companies [Accounts] Rules, 2014, is provided in Annexure-F and forms a part of this Report.
Your Directors state that the Company has made disclosures in this report for the items prescribed in section 134 of the Act and rule 8 of the Companies [Accounts] Rules, 2014 to the extent the transactions took place on those items during the year.
There are no material changes and commitments affecting the financial position of the Company between the end of the financial year and the date of this report.
Your Directors place on record their sincere appreciation for the continued co-operation and support extended to the Company by various Banks. Your Directors also thank the Medical Profession, the Trade and Consumers for their patronage to the Company’s products. Your Directors also place on record sincere appreciation of the continued hard work put in by the employees at all levels. The Directors also thank the Company’s vendors, investors, business associates, Stock Exchanges, Government of India, State Government and various departments and agencies for their support and co-operation.
On behalf of the Board of Directors
Pankaj R. Patel
Place : Ahmedabad
Date : May 27, 2017