To the Members
The Directors have pleasure in presenting their report on the business and operations of your Company for the year ended March 31, 2017.
(Rs. in million)
Profit before interest, depreciation and tax
Less: Interest and finance charges
Less: Depreciation and amortisation
Profit before tax
Less: Provision for taxation (including deferred tax)
Net Profit before share of profit from Jointly Controlled Entity and non-controlling interest
Add: Share of Profit from Jointly Controlled Entity
Less: Non-controlling Interest
Net Profit attributable to shareholders of the Company
Your Company touched new heights in terms of sales and profits for the year ended March 31, 2017. Consolidated sales clocked Rs.171198.0 million as against Rs.137578.7 million of the previous year, higher by 24%. International business now contributes 75%. Profit before interest, depreciation and tax was higher at Rs.45996.5 million as against Rs.38705.4 million in the previous year. Profit before tax was Rs.35348.9 million. Net profit after taxes but before share of profit from Jointly Controlled Entity and non-controlling interest was Rs.25563.8 million. Net profit after share of profit from Jointly Controlled Entity and non-controlling interest was Rs.25574.6 million, higher by 13%. Earnings per share for the year was Rs.56.69.
Your Company has a good track record of paying dividends. Continuing with this trend, Directors are pleased to recommend dividend at Rs.7.50 per equity share of Rs.2/- each, absorbing an amount of Rs.3386.8 million. Corporate tax on proposed dividend is Rs.689.5 million.
In compliance with Regulation 43A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’), the Company formulated Dividend Distribution Policy, which has been hosted on Company’s website www.lupin.com (web link: http://www.lupin.com/pdf/16/08/policy-for-dividend-distribution.pdf).
New Registered Office
With a view to promote greater efficiency and operational convenience, effective June 1, 2016, the Company shifted its Registered Office from 159, C.S.T. Road, Kalina, Santacruz (East), Mumbai - 400 098, to Kalpataru Inspire, 3rd Floor, Off Western Express Highway, Santacruz (East), Mumbai - 400 055.
During the year, the paid-up equity share capital of the Company rose by Rs.2.0 million consequent to the allotment of 993,900 equity shares of Rs.2/- each to eligible employees of the Company and its subsidiaries upon their exercising stock options under ‘Lupin Employees Stock Option Plan 2003’, ‘Lupin Employees Stock Option Plan 2005’, ‘Lupin Employees Stock Option Plan 2011’, ‘Lupin Employees Stock Option Plan 2014’, ‘Lupin Subsidiary Companies Employees Stock Option Plan 2005’ and ‘Lupin Subsidiary Companies Employees Stock Option Plan 2011’. Paid-up equity share capital as on March 31, 2017 was Rs.903.2 million.
ICRA Limited (ICRA) assigned the rating “ICRA A1 ” (pronounced ‘ICRA A one Plus’) for the Company’s short-term credit facilities of Rs.13100 million, indicating very strong degree of safety regarding timely payment of financial obligations and “ICRA AAA” (pronounced ‘ICRA triple A’) for long-term credit facilities of Rs.1900 million, indicating highest degree of safety regarding timely servicing of financial obligations. The outlook on the long-term rating is ‘Stable’.
ICRA assigned the rating “ICRA AAA” to the Company’s Non-Convertible Debenture programme of Rs.1000 million, indicating highest degree of safety regarding timely servicing of financial obligations. The outlook on the rating is ‘Stable’.
Indian Accounting Standards (Ind AS) - IFRS Converged Standards
As notified by the Ministry of Corporate Affairs, the Company adopted Indian Accounting Standards (‘Ind AS’) with effect from April 01, 2016. Accordingly, financial statements of the Company, its subsidiaries and a joint venture were prepared with comparative data for the year ended March 31, 2016, in compliance with ‘Ind AS’.
Subsidiary Companies/Joint Venture
As on March 31, 2017, the Company had 31 subsidiaries and a joint venture.
On July 13, 2016, Lupin Atlantis Holdings SA, Switzerland (‘LAHSA’) and Lupin Holdings BV, Netherlands, wholly-owned subsidiaries of the Company jointly incorporated a distribution company viz. Lupin Ukraine LLC, Ukraine.
On December 15, 2016, LAHSA incorporated Lupin Latam, Inc., USA, to support the business initiatives of the Company’s affiliates in Latin America.
On March 13, 2017, LAHSA incorporated Lupin Japan & Asia Pacific K.K., to support the affiliates of the Company in the Asia-Pacific region, including Japan.
For administrative and operational convenience, effective February 24, 2017, VGS Holdings Inc., USA and Edison Therapeutics, LLC, USA, wholly-owned subsidiaries of the company were amalgamated with Novel Laboratories Inc., USA and Gavis Pharmaceuticals, LLC, USA, wholly-owned subsidiaries of the Company, respectively.
Pursuant to the first proviso to Section 129(3) of the Companies Act, 2013 (‘Act’) and Rules 5 and 8(1) of the Companies (Accounts) Rules, 2014, salient features of the financial statements, performance and financial position of each subsidiary and joint venture are given in Form AOC - 1 as Annexure ‘A’ to this Report.
The policy for determining material subsidiaries has been hosted on the Company’s website www.lupin.com (web link: http://www.lupin.com/pdf/Policy_for_determining_material_ subsidiaries.pdf).
Management Discussion and Analysis
In compliance with Regulation 34(3) read with Schedule V(B) of the Listing Regulations, a Management Discussion and Analysis forms part of this Annual Report.
In compliance with Regulation 34(3) read with Schedule V(C) of the Listing Regulations, a Report on Corporate Governance forms part of this Annual Report. Annexed to the Corporate Governance Report is the Auditors’ certificate certifying compliance with the conditions of corporate governance as prescribed under Schedule V(E) of the Listing Regulations.
Your Company was conferred the coveted ‘Golden Peacock Award for Excellence in Corporate Governance’ by the Institute of Directors. The Award validates the ‘Best-in-class’ Corporate Governance practices followed by the Company and reflects on the transparent dealings with all its stakeholders.
Business Responsibility Report
In compliance with Regulation 34(2)(f) of the Listing Regulations, the Business Responsibility Report forms part of this Annual Report.
Corporate Social Responsibility (CSR)
The Company is a pioneer in CSR work in rural India, committed to ethical values which go beyond just compliance. The Company has been promoting CSR activities through its CSR arm, Lupin Human Welfare and Research Foundation (LHWRF). The Company is vigorously operative in CSR activities and adopts a holistic development approach across 8 states, 21 districts and 59 blocks of India. LHWRF became the first CSR foundation in India to publish Global Reporting Initiative (GRI 4) sustainability report. It has undertaken various projects in partnership with government and semi-government agencies. Various CSR activities and initiatives implemented aimed at achieving the objective of enhancing quality of life of the disadvantaged communities.
Pursuant to the provisions of Section 135 of the Act read with Companies (Corporate Social Responsibility Policy) Rules, 2014, the Company ought to have spent Rs.662.5 million on CSR activities during the year. The actual spend was Rs.196.8 million. The Company undertakes the following CSR activities: -
- Economic upgradation, Social development and Natural Resource Management;
- Rural infrastructure development (including areas near the plant locations of the Company);
- Learn and Earn programme;
- Rural industry and Skill development;
- Women health, empowerment and education;
- Financial inclusion; and
- TB awareness and detection.
The Company is committed to help the poorest of the poor and the marginalised sections of the society. In this pursuit, it would be accelerating the pace of its CSR spends. In this direction, the Company has set up ‘Lupin Foundation’, a charitable trust, with the objective of undertaking deeper sustainable projects like hospitals, educational institutes, etc.
Particulars of CSR activities undertaken by the Company are given in Annexure ‘B’ to this Report. The policy on CSR as approved by the Board has been hosted on the Company’s website www.lupin.com.
Directors’ Responsibility Statement
In compliance with the provisions of Section 134(3(c) read with Section 134(5) of the Act, your Directors confirm:-
i) that in the preparation of the annual financial statements for the year ended March 31, 2017, the applicable accounting standards have been followed along with proper explanations relating to material departures;
ii) that they had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company at the end of the financial year March 31, 2017 and of the profit of your Company for that year;
iii) that they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
iv) that the annual financial statements have been prepared on a going concern basis;
v) that they had laid down proper internal financial controls and that the same are adequate and were operating effectively; and
vi) that they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
Pursuant to the provisions of Section 152 of the Act, Dr. Kamal K. Sharma, Vice Chairman, retires by rotation at the forthcoming Annual General Meeting (AGM) and is eligible for re-appointment.
Independent Directors hold office till the conclusion of the 38th AGM and are not liable to retire by rotation. In compliance with the provisions of Section 149(7) of the Act, Independent Directors have given declarations that they meet the criteria of independence prescribed by Section 149(6) of the Act.
During the year, six Board meetings were held on May 18, 2016, May 19, 2016, August 1, 2016, August 9, 2016, November 9, 2016 and February 9, 2017, the details of which are given in the Corporate Governance Report which forms part of the Annual Report.
In compliance with the provisions of Section 134(3)(p) of the Act read with Rule 8(4) of the Companies (Accounts) Rules, 2014, the Board carried out annual evaluation of its own performance, that of its Committees and individual directors.
The performance of the Board and its Committees was evaluated by the Board after seeking inputs from all the Directors on the basis of the criteria, such as composition and structure of the Board, quality of deliberations, effectiveness of the procedures adopted by the Board, participation at the Board and Committee meetings, governance reviews etc. Performance of individual directors was evaluated on the basis of criteria like transparency, analytical abilities, qualifications, leadership qualities, experience, participation in the long-term strategic planning and responsibilities shouldered. Pursuant to Regulation 17(10) of Listing Regulations, the Board carried out performance evaluation of Independent Directors without the participation of the director being evaluated.
The Audit Committee comprises Dr. K. U. Mada, Chairman, and Mr. Dileep C. Choksi both independent directors and Dr. Kamal K. Sharma. The functions performed by the Audit Committee, particulars of meetings held and attendance thereat are given in the Corporate Governance Report which forms part of the Annual Report. All recommendations made by the Audit Committee were accepted by the Board.
Nomination and Remuneration Policy
In compliance with Section 178(3) of the Act and Regulation 19(3) of the Listing Regulations and on the recommendation of the Nomination and Remuneration Committee, the Board framed a Policy relating to the remuneration of directors, key managerial personnel and other employees. The Policy includes criteria for determining qualifications, positive attributes and independence of a director and other matters. The functions of the Nomination and Remuneration Committee are disclosed in the Corporate Governance Report, which forms part of the Annual Report.
Related Party Transactions
All related party transactions entered into by the Company during the year were on an arm’s length basis and in the ordinary course of business. During the year, no transaction was entered into by the Company with its Key Managerial Personnel. The Company did not enter into any related party transaction which was in conflict with its interest. Statements of transactions with related parties in summary form are periodically placed before the Audit Committee and are approved by the Committee. Material related party transactions were entered into by the Company only with its subsidiaries. In compliance with Section 134(3)(h) of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014, particulars of related party transactions are given in Form No. AOC-2, as Annexure ‘C’ to this Report. The policy on materiality of Related Party Transactions as also on dealing with Related Party Transactions as approved by the Board has been hosted on the Company’s website www.lupin.com (web link: http://www.lupin.com/pdf/POLICY-RELATED_PARTY_TRANSACTIONS.pdf).
The Risk Management framework of the Company defines roles and responsibilities for arriving at risk rating criteria for assessing risk impact, likelihood of risks and effectiveness of mitigation plans. The process includes identification of risks involved in various areas, zeroing on ‘risks that matter’, assessing mitigation plans and preparedness to face ‘risks that matter’. The Board has defined the role and responsibilities of the Risk Management Committee which was formulated in compliance with Regulation 21 of the Listing Regulations and delegated to it, monitoring and reviewing the risk management plan. Particulars of the Risk Management Committee and its terms of reference are set out in the Corporate Governance Report, which forms part of the Annual Report.
Particulars of loans/guarantees/investments/securities
Pursuant to the provisions of Section 134(3)(g) of the Act, particulars of loans, guarantees, investments and securities given under Section 186 of the Act are given in the notes to the Financial Statements forming part of the Annual Report.
Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo
Particulars relating to conservation of energy, technology absorption and foreign exchange earnings and outgo as stipulated in Section 134(3)(m) of the Act read with Rule 8 of the Companies (Accounts) Rules, 2014, are given in Annexure ‘D’ to this Report.
Your Company firmly believes that human capital is its most valuable resource whose efficiency plays a key role in building a competitive business environment. In the surveys jointly conducted by ‘Great Places to Work Institute’ and ‘The Economic Times’ the Company continues to be ranked high on a pan-industry basis. The Company has been consistently ranked no. 1 or 2 in the pharmaceutical and biotech sector. It was ranked 15th best company to work for in Asia by the survey conducted by the ‘Great Places to Work Institute’. It again featured in the Golden List of India’s Top 50 companies to work for.
The Company has made it to the elite list of top 25 Best Employers and bagged the ‘AON Best Employers in India 2016’ across all sectors/industries, in the detailed study conducted by AON Hewitt, in collaboration with Business World magazine. In its pursuit to create a vibrant work culture and with a view to attract, retain and develop best available talents, the Company regularly conducts various manpower development programs across all levels as also adopts employee-friendly policies.
Employees Stock Options
Pursuant to the provisions of SEBI (Share-Based Employee Benefits) Regulations, 2014, details of stock options as on March 31, 2017 are given in Annexure ‘E’ to this Report.
Vigil Mechanism/Whistleblower Policy
In compliance with the provisions of Section 177(9) of the Act read with Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Regulation 22 of the Listing Regulations, the Company formulated a vigil mechanism for directors and employees to report concerns details of which are covered in the Corporate Governance Report which forms part of the Annual Report. Whistleblower Policy has been hosted on Company’s website www.lupin.com. Policies on Code of Conduct and Prevention of Workplace Harassment are on Company’s Intranet.
Particulars of Employees Remuneration
Particulars of remuneration of employees required to be furnished pursuant to the provisions of Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in Annexure ‘F’ to this Report. Particulars of remuneration of employees required to be furnished in terms of Rules 5(2) and 5(3) of the said Rules, forms part of this Report, which shall be provided to Members upon written request pursuant to the second proviso of Rule 5. Particulars of remuneration of employees are available for inspection by Members at the Registered office of the Company during business hours on all working days up to the date of the forthcoming AGM.
At the 34th AGM held on Wednesday, August 3, 2016, Members appointed B S R & Co. LLP, Chartered Accountants (Firm Registration No. 101248W/W-100022), as Statutory Auditors of the Company, for a period of five years from the conclusion of 34th AGM till the conclusion of 39th AGM, subject to ratification of their appointment by Members at every AGM.
Pursuant to the provisions of Sections 139(1) and 141 of the Act, the Company has received a Certificate from B S R & Co. LLP, certifying that if they are appointed as Auditors, their appointment would be as per the conditions prescribed by the said Sections.
Pursuant to the provisions of Section 139 of the Act read with Rule 6 of the Companies (Audit and Auditors) Rules, 2014, Members will ratify the appointment of B S R & Co. LLP as Statutory Auditors of the Company, from the conclusion of the 35th AGM till the conclusion of the 36th AGM or any adjournment thereof.
Ernst & Young LLP, Mumbai, are Internal Auditors of the Company for India operations. During the year, Price Waterhouse & Co., Bangalore, LLP were appointed as Internal Auditors to conduct audit of international subsidiaries of the Company. Local Chartered Accountant firms were also appointed as Internal Auditors to conduct audits of Carrying & Forwarding Agents and Central Warehouses of the Company in India.
On the recommendation of the Audit Committee, the Board of Directors appointed Mr. S. D. Shenoy, practising Cost Accountant (FCMA, Membership No. 8318), to conduct cost audit for the year ended March 31, 2017, pursuant to the provisions of Section 148 of the Act read with the Companies (Cost Records and Audit) Amendment Rules, 2014. Mr. Shenoy has confirmed that he is free from disqualifications specified by Section 141 read with Section 148 of the Act and that his appointment meets requirements of Section 141(3)(g) of the Act. He has further confirmed that he is independent and maintains an arm’s length relationship with the Company and that no orders are pending against him relating to professional matters of conduct before the Institute of Cost Accountants of India or any court of competent authority.
Pursuant to Rule 14 of the Companies (Audit and Auditors) Rules, 2014, remuneration payable to the Cost Auditor is required to be placed before Members in a General Meeting for ratification. Accordingly, an Ordinary Resolution was passed by Members approving remuneration payable to Mr. Shenoy at the 34th AGM.
Pursuant to Section 148(6) of the Act and Rule 6(6) of the Companies (Cost Records and Audit) Rules, 2014, Cost Audit Report, in Form CRA-4 (in XBRL mode), for the year ended March 31, 2016, under the head ‘Drugs and Pharmaceuticals’ was filed with the Central Government on October 19, 2016, well within the prescribed time.
Pursuant to the provisions of Section 204 of the Act and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company appointed Ms. Neena Bhatia, Company Secretary in Practice, to undertake Secretarial Audit of the Company for the year ended March 31, 2017. Secretarial Audit Report in prescribed Form No. MR-3 is given in Annexure ‘G’ to this Report. The Company continues to have an unqualified Secretarial Audit Report.
Extract of Annual Return
Pursuant to the provisions of Sections 134(3)(a) and 92(3) of the Act read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of the Annual Return as on March 31, 2017, in prescribed Form No. MGT-9 is given in Annexure ‘H’ to this Report.
Your Directors convey a sense of high appreciation to all the employees of the Company for their hard work, dedication, continued commitment and significant contributions. Your Directors gratefully acknowledge the support and cooperation received from various departments of the Central and State governments, members, business associates, analysts, banks, financial institutions, medical professionals, customers, distributors and suppliers.
For and on behalf of the Board of Directors
Dr. Desh Bandhu Gupta
Mumbai, May 24, 2017