You are here » Home » Companies » Company Overview » Cipla Ltd

Cipla Ltd.

BSE: 500087 Sector: Health care
NSE: CIPLA ISIN Code: INE059A01026
BSE 16:01 | 27 Mar 2018 Cipla Ltd
NSE 05:30 | 01 Jan 1970 Cipla Ltd
OPEN 550.70
PREVIOUS CLOSE 540.75
VOLUME 377007
52-Week high 663.00
52-Week low 479.00
P/E 34.43
Mkt Cap.(Rs cr) 43,717
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 550.70
CLOSE 540.75
VOLUME 377007
52-Week high 663.00
52-Week low 479.00
P/E 34.43
Mkt Cap.(Rs cr) 43,717
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Cipla Ltd. (CIPLA) - Director Report

Company director report

DIRECTORS

The Directors take pleasure in presenting the Seventy-Eighth Annual Report of theCompany along with the Audited Accounts for the financial year ended 31st March2014.

Financial Summary

Rs in crore

Year ended 31st March 2014 Year ended 31st March 2013
Standalone Consolidated Standalone Consolidated
Gross total revenue 9760 10483 8524 8610
Profit before tax 1818 1880 2012 2095
Profit for the year 1389 1389 1507 1545
Surplus brought forward from last balance sheet 4269 4351 3110 3154
Profit available for appropriation 5658 5740 4617 4699
Appropriations:
Dividend 161 161 161 161
Tax on dividend 27 27 27 27
Transfer to general reserve 140 140 160 160
Surplus carried forward 5330 5412 4269 4351

DIVIDEND

The Directors recommend a dividend of Rs 2 per share on 802921357 equity shares ofRs 2 each for the year 2013-14 amounting to Rs 1605842714.

MANAGEMENT DISCUSSION AND ANALYSIS

Global Business Review

With a footprint across five continents Cipla is moving fast towards its goal ofmaking affordable healthcare available to all.

The Company’s revenue from operations on a consolidated basis during the financialyear 2013-14 amounted to Rs 10218 crore against Rs 8388 crore in the previous yearrecording a growth of 21.8%. The income from operations for domestic business increased by14.7% from Rs 3569 crore in the previous financial year to Rs 4094 crore in thefinancial year under review. Total exports increased by 25.0% during the year to Rs 5659crore.

During the year under review operating margin reduced by 5.4%. This was primarily dueto the change in product mix higher investments in R & D and talent acquisition. As aresult profit for the year reduced by 10.1% to Rs 1389 crore from Rs 1545 crore in theprevious financial year.

India Ratings and Research Private Limited a Fitch Group Company assigned a Long-TermIssuer Rating of ‘IND AAA’ with a stable outlook to the Company. The rating isthe highest assigned in Fitch’s rating scale and indicates the highest degree ofsafety regarding timely servicing of financial obligations and lowest credit risk.

Global Roundup

1. Robust revenue from operations growth (22% vs. previous year); crossed Rs 10000crore mark

2. Strong operating cash flow of more than 60% of operating profit for the year

3. More than 1000 global filings

4. Completed three acquisitions

5. New organisation structure in place

6. Increase in efficiency and productivity levels in R&D and manufacturing

India

As India’s second largest pharmaceutical company Cipla is in a strong position tofulfil its commitment to provide modern medicine to everyone in the country. This yeardespite the challenges Cipla’s domestic branded generics business revenues grew15.5% versus industry growth of 9%. The generics business also performed well.

Over the last six months the market share for Cipla’s branded generics grew 5.3%rising steadily from the previously recorded 4.7%. Cipla continues to maintain itsleadership in respiratory paediatric and urology therapies. Legacy brands continue toperform well. The progressive product portfolio grew 23% while the share of new productlaunches increased from 1.5% in Q1 2012-13 to 3.5% in Q4 2013-14. India businesscontributed 39.4% to overall revenues.

Cipla successfully launched Etacept the Company’s first biosimilar for thetreatment of rheumatoid arthritis. As part of an in-licensing transaction Cipla enteredinto a strategic alliance to market MSD’s HIV drug raltegravir in India.Raltegravir is an important part of the third-line salvage regimen for HIV patients. Itshould be available to patients from mid-2015.

In the coming years the domestic business will continue to focus on these themes:

• Growth ahead of market growth

• Strengthen our leadership in therapy and geography by empowering our people

• Increase sales force productivity with the rollout of Customer RelationshipManagement (CRM) and Sales Force Automation (SFA) systems.

South Africa

The Company completed the acquisition of 100% of the share capital of Cipla Medpro inSouth Africa at ZAR 10 per share amounting to a total investment of Rs 2757 crore. Thisinvestment is aimed at further strengthening the Company’s commitment to the Africancontinent and is aligned with the strategy of ascending the value chain by managing afront-end sales force in a market outside India. The acquisition enables Cipla tostrengthen Medpro’s position in the South African pharmaceutical market support theoptimisation of Medpro’s manufacturing capability and drive Medpro’s expansioninto other African markets.

As one of the largest pharmaceutical companies in South Africa Cipla Medpro has amarket share of more than 5%. South Africa now contributes 13.2% to overall Cipla revenueson a consolidated basis. The Company has grown at 12% in the private market over the lastthree years. The Cipla brand inspires trust and has become a household name amongconsumers pharmacies prescribers and key opinion leaders.

The Company’s revolutionary three-in-one antiretroviral treatment has helped Ciplaentrench itself at the forefront of the fight against HIV/AIDS in South Africa. Itsmanufacturing facility at Durban provides the Company a competitive edge and is the firstPharmaceutical Inspection Convention (PIC) compliant facility in the country.

Capitalising on its defined future portfolio key development and in-licensingprojects and streamlined global organisational structure Cipla will leverage synergiesfrom its international family. Plans are on track and the integration across manufacturingsupply chain finance and human resources is complete. The Company has leveraged its skilland scale to drive down costs in areas such as procurement.

Europe

Cipla is making innovative affordable medication accessible in over 30 countriesacross Europe. The European business contributed 5.7% to the overall revenues and recorded40.9% growth for the year. As part of its European growth strategy Cipla acquiredCeleris a pharmaceutical distribution company based in Croatia.

Cipla is focused on adding innovative elements to products services and informationthrough research and partnerships.

North America

In 2013-14 the Company’s active pipeline has expanded from 36 to more than 50products including several key respiratory products and other complex generics. Cipla has16 filings in North America this year and received 13 approvals.

Cipla intends to bring its intellectual capacity and range of product technologiesdirectly to the US market both under the Cipla label and those of its partnerorganisations. North America business contributed 6.8% to overall revenues and recorded18.2% growth for the year excluding a one-off impact in FY 2012-13.

International (rest of the world)

With a diverse range of more than 1000 products and 180 global partners across 120countries Cipla has a presence in Africa the Middle East Latin America Asia PacificChina and Russia. International contributes 24.5% of global organisation revenues andgrew 30.3% over last year. Cipla’s products are currently helping more than 1.7million HIV patients 55 million malaria patients and 0.3 million patients in the area ofreproductive and women’s health.

This year saw us increase our shareholding in Quality Chemical Industries Limited(QCIL) Uganda to 51%. The Company also strengthened its pan-African network of partners.

Strategic Business Units

Core Areas of Competence

Restructuring the Company’s core business areas into Strategic Business Unitspresents an opportunity to streamline and innovate across Cipla’s global operations

Active Pharmaceutical Ingredients (API)

As the company that showed the way in manufacturing active pharmaceutical ingredients(APIs) in India Cipla has expanded its portfolio to more than 200 products. Cipla’sstate-of-the-art API plants meet stringent quality and current good manufacturingpractices (cGMP) requirements and environment and safety standards. All of them areapproved by various international regulatory agencies including US Food and DrugAdministration (USFDA).

With the capacity to manufacture nearly 1000 metric tonnes of APIs annually theplants are geared to meet the diverse needs of both Indian and international customers.

A significant portion of the APIs manufactured by Cipla are consumed internally. Thethird-party API business contributed 7.5% to the overall revenue and recorded 29% growthfor the year.

Cipla has key strategic alliances in place with big pharmaceutical companies to supportthe development of new entities as an additional focus area. It has a robust portfolioprocess to create a pipeline of complex products.

The gastroenterology and antiretroviral segments continue to be major contributors tothe business. By building deeper engagements Cipla will develop and strengthen its keyrelationship with existing and new partners.

Respiratory

Cipla has delivered treatments for chronic obstructive airway diseases throughinnovative delivery mechanisms for over 30 years. This has resulted in the Company’sability to meet diverse needs of various patient types all over the world. Cipla hasfurther strengthened its capabilities in development and commercialisation and now has adedicated team of world-class specialists focused on driving Respiratory care.

The Company offers more than 65 different inhaled products and has the world’slargest range of inhaled medications and devices. Across markets Cipla offers a selectionof metered dose inhalers (pMDIs) with dose indicators innovative dry powder inhalersnasal sprays nebulisers non-electrostatic spacers and infant and baby masks. Today theCompany is one of the largest producers of pMDIs in the world.

Ensuring access and affordability is key to our mission and over the years we havedeveloped and implemented an operating model in several markets. This focuses on patientawareness and education physician training patient clinics and counselling.

Global Access

Since its inception Cipla’s ethos has been firmly rooted in the "None shallbe denied" philosophy. The Company strongly believes that access to high qualityaffordable medicines is a basic human right and not just a privilege for a few. CiplaGlobal Access (C-GA) concentrates on four key therapy areas: HIV/ AIDS Malaria MultiDrug-Resistant Tuberculosis and Reproductive Health. In FY 2013-14 Cipla’smedicines in these therapies touched nearly 58 million lives. The Company aims toreach out to 80 million patients in these four therapies by 2020. Cipla has developed andfostered robust relationships with all the major global organisations and funding agenciesthat work toward this common cause. Additionally Cipla has partnered with several globalscientific research organisations to develop innovative effective and affordableformulations for these four therapy areas.

Cipla is among the leading manufacturers of ARV drugs in the world. In 2001 we werethe first pharmaceutical company to supply ARVs to countries with a high HIV burden atless than a dollar a day. In financial year 2013-14 alone Cipla covered around 1.7million HIV patients in 32 countries across the globe. Currently we have 22 ARVs in ourportfolio and about a dozen more in the development pipeline.

Cipla is one of the largest suppliers of antimalarial drugs in the world. We suppliednearly 55 million malaria treatments across all malaria endemic countries in FY 2013-14.Cipla has managed to quickly identify develop manufacture and supply low cost andstate-of-the-art artemisinin-based combination therapy (ACTs) drugs in order to meet thechallenge of drug-resistant malaria. All the ACTs supplied by Cipla are approved by WHOand we are currently developing more antimalarials coupled with novel drug deliverysystems.

The Company also has a strong second line TB (SLTB) portfolio and is expanding itsproduct portfolio for HIV/MDRTB co-infected patients. In FY 2013-14 Cipla’s SLTBdrugs catered to a moderate patient base globally and this base is likely to increasesignificantly with the arrival of new diagnostic methods. Future development in the TBtherapy area will be focused on newer molecules which can significantly reduce treatmenttimelines. Cipla’s initiative also provides medication to 0.3 million patients in thearea of reproductive and women’s health. Cipla has aligned its strategy withinternational development initiatives to provide safe and effective contraceptive drugsfor 120 million more women by 2020. Cipla also makes medications for infections such ashepatitis and schistosomiasis which pose major health threats in the Least DevelopedCountries (LDC).

Cipla New Ventures (CNV)

Incubators of Growth

This year Cipla launched its business-incubating unit Cipla New Ventures (CNV). Thedivision is aimed at bringing to Cipla a long-term direction for research and innovationin future therapies. Through Cipla New Ventures the Company has started to build moreinnovation-led business streams with investments in biologicals regenerative medicineand consumer health. As an example the Company recently invested in ChasePharmaceuticals an early stage drug development company in the US focused on creatingnovel approaches to improve treatments for Alzheimer’s.

Integrated Product Development (IPD)

Investing in Knowledge

Cipla’s IPD organisation includes formulations and API R&D clinicalanalytical and regulatory functions.

Cipla’s R&D expense increased from 5.1% of total revenue in FY 2012-13to 5.4% in FY 2013-14. The Company has undertaken a major expansion of its R&D Centrewith new buildings and facilities at Vikhroli Mumbai.

Overall Cipla made significant progress across these priority areas:

Development and regulatory approval processes were on track. Currently there are over200 development projects underway indicating a robust pipeline. In FY 2013-14 we had over90 filings for formulations in Europe and North America and over 1000 filings in otherinternational markets. We also received more than 50 approvals in Europe and North Americaand more than 800 approvals in other international markets.

Cipla has increased efficiency across all teams resulting in reduced timelinesdevelopment costs and more timely regulatory approvals. Process improvements in R&Danalytics regulatory procurement and the new project management division have helpedimprove turnaround time and throughput levels.

Cipla has filed several formulation patent applications and is working on developingnanotechnology-based oral systems microsphere-based and suspension-based depotinjections and sprinkle technology.

To help identify and define our portfolio priorities a portfolio screening process wasestablished to evaluate high potential opportunities evaluate product rationalisationopportunities and assess high return innovations and in-licensing opportunities.Cipla’s Innovation Board which was established with the intent of evaluating new andinnovative opportunities has now completed a full year of operation.

Manufacturing

Taking it to the next level

Cipla’s productivity improved significantly in the past year. The manufacturingdivision delivered 25% more by volume as compared to FY 2012-13 while keeping costs atlevels similar to last year.

In order to build a strong foundation for growth Cipla launched Jaagruti a programmefor transformation across various functions. This programme is aimed at reducing businesscomplexity and strengthening operations. Under this initiative the manufacturing divisionfreed up valuable resources using strategies of network optimisation energy efficiencybetter management of human resources and a review of capital and operational expenses.

This also involved conducting sustainability reviews for Cipla’s Goa and Kurkumbhoperations with recommendations being made in areas that could be improved. Jaagrutiinitiatives have also been extended to Cipla’s subsidiary locations in SataraKundaim and Sikkim.

Cipla’s operations in Cipla Medpro South Africa and in Cipla QCIL Uganda werealso aligned with practices in India for greater uniformity across the Company’sglobal operations.

During the year under review the Company has set up additional capacity for ActivePharmaceutical Ingredients (APIs) at Patalganga and Kurkumbh in Maharashtra. Inparticular at Kurkumbh Cipla has recently increased API capacity for antiretrovirals(ARVs). Besides the new facilities all the existing facilities are upgraded regularly tomeet current cGMP safety and environmental standards. The Company has also scaled up itsanti-cancer formulations facility at Goa.

Regulatory approvals: Several dosage forms and APIs manufactured at the Company’sfacilities continue to enjoy the approval of major international regulatory agencies.These agencies include the US FDA MHRA (UK) PIC (Germany) MCC (South Africa) TGA(Australia) the Department of Health (Canada) ANVISA (Brazil) SIDC (Slovak Republic)the Ministry of Health (Kingdom of Saudi Arabia) the Danish Medical Agency and the WHO.

Threats Risks Concerns

The pharmaceutical industry is subject to constant scrutiny by regulatory authoritiesboth Indian and international. The Company continues to be vigilant in maintaining thehighest quality standards.

The implementation of the new pricing regulations has impacted Cipla’s domesticbusiness and the Company continues to take all measures to mitigate its effect.

With the recent change of the Central Government the Indian pharmaceutical industry iseagerly awaiting new forward-looking policies which will encourage growth.

Cipla has some pending legal cases related to alleged overcharging in respect ofcertain drugs under the Drugs (Prices Control) Order 1995. The aggregate amount of thedemand notices received is about Rs 1768.51 crore (inclusive of interest). The Companyhas been legally advised that based on several High Court decisions and considering thetotality of facts and circumstances these demand notices may not be enforceable. Howeverany unfavourable outcome in these proceedings could have an adverse impact on the Company.

Health Safety & Environment (HSE)

HSE measures remain an utmost priority for Cipla. During the year under review nomajor hazardous accident at the workplace was recorded. HSE benchmarking at Cipla isachieved by strict adherence to national and international standards.

Cipla’s manufacturing facilities including Goa Bengaluru Baddi IndoreKurkumbh Patalganga and Sikkim are certified for ISO 14001 and OHSAS 18001 standards.The Company continues to upgrade HSE standards at all locations. Specialised safetytraining programmes such as process safety road safety and behavioural safety areregularly imparted to increase safety awareness at all working levels. Safety Week FireService Day and Electrical Safety Day are celebrated at the manufacturing units to createawareness among employees. Learning visits across different industrial sectors areconducted with a view to strengthen the HSE knowledge base and implement best HSEpractices.

Villagers and school children living around the Company’s units across India alsoparticipate in such programmes. A well-equipped ambulance service is also madeavailable to nearby villages in emergency situations. Medical camps covering variousaspects like polio asthma blood donation and dental are conducted in the surroundingvillages. World Environment Day and Earth Day are celebrated by conducting a green driveprogramme of mass tree-plantation. The Company continues to maintain modern well-equippedeffluent treatment plant and effluent testing systems at its manufacturing facilities.Treated water from these zero-discharge facilities is recycled for utility purpose.

Internal Control Systems

The Company’s internal control procedures ensure compliance with various policiespractices and statutes in keeping with the organisation’s pace of growth andincreasing complexity of operations. Cipla’s internal audit team carries outextensive audits throughout the year across all functional areas and submits its reportsto the Audit Committee of the Board of Directors.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Cipla’s Corporate Responsibility policy is aligned to the nine principles of theNational Voluntary Guidelines on Social Economic and Environmental Responsibilities aglobal ISO 26000 accredited standard endorsed by the Government of India.

The Company’s Corporate Responsibility policy seeks to ensure compliance withethical standards in business practices research and development and marketing;addressing the challenges of improved access to medicines and their affordability;minimising environmental impacts and waste; and helping underprivileged communities tobecome resilient and self-reliant.

Initiatives executed in 2013-14 were grouped into five central themes of educationpublic health occupational health and safety environmental compliance and employeewelfare. The Company has an on-going drive to increase sustainability practices in energywater conservation and waste minimisation across all its ISO 14001 certified plants. Itsupports health welfare and educational activities in the communities around itsfacilities.

In the reporting period Cipla donated medicines as a part of the relief work followingthe floods and landslides that hit Uttarakhand in northern India in June 2013.

In the last one year Cipla offered grants to 23 NGOs mainly engaged in education andhealth. The foundation helped with the construction of an English-medium school to provideeducation to more than 400 children of marginalised and vulnerable communities includingthose living with HIV/AIDS. Cipla extended financial support to underprivileged patientsincluding children with thalassaemia needing bone marrow transplants. Cipla employees areencouraged to contribute to society through a volunteering programme. Last year employeeshelped to rebuild a school and distribute solar lanterns to households in the village ofPapra in Uttarakhand.

The Cipla Palliative Care and Training Centre in Pune has been offering free palliativecare since 1997 and has provided care to more than 8500 patients.

Cipla was recognised at the Global CSR Excellence & Leadership Awards 2014 in thecategory of ‘Organisations with Best Corporate Social Responsibility Practices’.

As mandated by the Securities and Exchange Board of India (SEBI) a standalone BusinessResponsibility Report (BRR) forms part of the Annual Report and is available on theCompany’s website - www.cipla.com. The BRR contains a detailed report on BusinessResponsibilities vis--vis the nine principles of the National Voluntary Guidelines onSocial Environmental and Economic Responsibilities of Business framed by the UnionMinistry of Corporate Affairs. Any shareholder interested in obtaining a copy may write tothe Company Secretary at the Registered Office of the Company.

CORPORATE MATTERS

Responsibility Statement

Pursuant to section 217(2AA) of the Companies Act 1956 it is confirmed that theDirectors have:

i. followed applicable accounting standards in the preparation of the annual accounts;

ii. selected such accounting policies and applied them consistently and made judgementsand estimates that are reasonable and prudent so as to give a true and fair view of thestate of affairs of the Company at the end of the financial year ended 31st March 2014 andof the profit of the Company for that period;

iii. taken proper and sufficient care for maintenance of adequate accounting records inaccordance with the provisions of the Companies Act 1956 for safeguarding the assets ofthe Company and for preventing and detecting fraud and other irregularities;

iv. prepared the annual accounts on a going concern basis.

Particulars of employees

Particulars of employees required to be furnished under section 217(2A) of theCompanies Act 1956 read with the Companies (Particulars of Employees) Rules 1975 asamended form part of this report. Any shareholder interested in obtaining a copy maywrite to the Company Secretary at the Registered Office of the Company.

Change of Registered Office

The Registered Office of the Company was shifted from Mumbai Central Mumbai-400 008 toCipla House Peninsula Business Park Ganpatrao Kadam Marg Lower Parel Mumbai-400 013effective 1st April 2014.

Subsidiary Companies

The Company had 49 subsidiaries/step-down subsidiaries as on 31st March2014. In accordance with the general circular issued by the Ministry of Corporate Affairsthe Balance Sheets including annexures and attachments thereto of the Company’ssubsidiaries are not being attached with the annual report of the Company. The annualaccounts of the subsidiary companies and the related detailed information will be madeavailable to any member of the Company seeking such information. These documents will alsobe available for inspection by any member at the Registered Office of the Company and thatof the respective subsidiary companies. The consolidated financial statements presented inthis annual report include financial results of the subsidiary companies. A statementcontaining information on the Company’s subsidiaries is included in this annualreport.

Corporate Governance

The Company is committed to good corporate governance practices. The report oncorporate governance as stipulated under Clause 49 of the Listing Agreement forms part ofthis report.

Energy Conservation; R&D and Technology Absorption Adaptation & Innovation;and Foreign Exchange Earnings & Outgo

As required by the Companies (Disclosure of Particulars in the Report of Board ofDirectors) Rules 1988 the relevant information and data are annexed to this report.

Disclosure under The Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013

The Company has in place a Policy on Prevention Prohibition and Redressal of SexualHarassment at workplace in line with the requirements of The Sexual Harrasment of Women atWorkplace (Prevention Prohibition and Redressal) Act 2013. An Internal ComplaintsCommittee (ICC) has been set up to redress complaints received regarding sexualharassment. The policy has set guidelines on the redressal and enquiry process that is tobe followed by complainants and the ICC whilst dealing with issues related to sexualharassment at the work place towards any women employees. All women employees (permanenttemporary contractual and trainees) are covered under this policy. All employees aretreated with dignity with a view to maintain a work environment free of sexual harassmentwhether physical verbal or psychological.

The following is a summary of sexual harassment issues raised attended and dispensedduring the year 2013-14:

• No. of complaints received: 4 No. of complaints disposed off: 4

• No. of cases pending for more than 90 days: Nil

• No. of workshops or awareness programme against sexual harassment carried out: 4

Nature of action taken by the employer or District Officer: Out of 4 cases onerespondent was suspended second was warned third has resigned and the fourth was acontract employee who has also resigned.

Employee Stock Option Scheme

As required under the Securities and Exchange Board of India (Employee Stock OptionScheme and Employee Stock Purchase Scheme) Guidelines 1999 the applicable disclosures ason 31st March 2014 are annexed to this report.

Directors

In March 2014 Mr. M.K. Hamied decided to move from an Executive position to the roleof Non-Executive Vice-Chairman. He has contributed immensely to the company over the last30 years and he will continue to contribute and support the Company.

Mr. Rajesh Garg was appointed as an Additional Director with effect from 1stApril 2014 and holds office up to the date of the ensuing Annual General Meeting. He wasappointed as Whole-time Director designated as "Executive Director and Global ChiefFinancial Officer" for a period of five years with effect from 1st April2014 subject to the approval of the shareholders at the ensuing Annual General Meeting.

Dr. Peter Mugyenyi and Mr. Adil Zainulbhai were appointed as Additional Directors witheffect from 12th February 2014 and 23rd July 2014 respectively. Theyhold office up to the date of the ensuing Annual General Meeting.

Dr. Ranjan Pai resigned from the Board of Directors effective 30th August2013 due to his increasing business commitments. Mr. M.R. Raghavan resigned from theBoard of Directors effective 23rd July 2014 due to increase in workload owingto various initiatives on the social front that he has been associated with. The Directorsplace on record their appreciation of their contributions as members of the Board.

A brief resume of the Directors seeking appointment/re-appointment is provided in theNotice.

Cost Auditors

Pursuant to the provisions of section 233B of the Companies Act 1956 and with theprior approval of the Central Government Mr. D.H. Zaveri a practising Cost Accountant(Fellow Membership No. 8971) has been appointed to conduct the audit of cost records ofpharmaceutical products for the financial year ended 31st March 2014. The duedate for filing the Cost Audit Report for the year ended 31st March 2014 is 27thSeptember 2014.

The due date for filing Cost Audit Report for the year ended 31st March 2013was 27th September 2013 and the same was filed on 27th September2013.

Auditors

Messrs. V. Sankar Aiyar & Co. and Messrs. R.G.N. Price & Co. joint statutoryauditors of the company retire at the conclusion of the forthcoming Annual GeneralMeeting and are eligible for re-appointment.

On behalf of the Board
Y.K. Hamied
23rd July 2014 Chairman

ANNEXURE TO THE DIRECTORS’ REPORT

Information under section 217(1)(e) of the Companies Act 1956 read with the Companies(Disclosure of Particulars in the Report of Board of Directors) Rules 1988

I. CONSERVATION OF ENERGY

a) The Company is striving continuously to conserve energy by adopting innovativemeasures to reduce wastage and optimize consumption. Some of the specific measuresundertaken are:

i. Saving in gas due to reduction in utilisation of steam in utilities anddehumidifiers in Indore Factory.

ii. In-house modification of auto dumping system for purified water distribution systemand water for injection distribution system in Indore factory.

iii. Implementation of electrical dehumidification instead of steam dehumidification inIndore factory.

iv. Relocation as well as pipeline modification of air compressor near VAS area inKurkumbh factory.

v. Requisition-based usage of HVAC and utilities in Bommasandra Sikkim Baddi andPatalganga factories.

vi. Substantial savings in electricity consumption achieved by improvingthe powerfactor.

vii. Reduction in fuel and water consumption by running the boilers on manual mode inSikkim factory.

b) Impact of the above measures for reduction of energy consumption and consequentimpact on the cost of production of goods: The adoption of the above energy conservationmeasures has helped to curtail the proportionate increase in total energy usage consequentto overall increase in production. This has made it possible to maintain cost ofproduction at improved levels.

c) Total energy consumption and energy consumption per unit of production as per FormA: Considering that the Company has a multi-product multi-facility production system itis not possible to determine product-wise energy consumption. Therefore the consumptionis categorized under different classes of goods as shown below. The figures for the yearare not exactly comparable with the previous year’s figures because of changes in theproduct mix.

A. Power and Fuel Consumption

2014 2013
1. Electricity
a. Purchased
Units kwh 169560810 163844487
Total amount Rs in crore 104.35 104.93
Rate/Unit Rs 6.15 6.40
b. Own generation
Through diesel generator
Units kwh 16397002 35239864
Units per litre of diesel oil kwh 3.01 3.53
Cost/Unit Rs 15.42 14.64
2. Others/Internal generation
Light diesel oil/diesel oil/furnace oil
Quantity kl 13119 20523
Total cost Rs in crore 67.10 91.73
Average rate Rs /kl 51149 44695

B. Consumption per Unit of Production

2014 2013
1. Electricity
Bulk drugs (kwh/mt) 54293 62395
2. Light diesel oil/diesel oil/furnace oil
Bulk drugs (kl/mt) 4.78 5.77

It is not feasible to classify energy consumption data of formulations on the basis ofproduct categories since the Company manufactures a large range of formulations withdifferent energy requirements.

II. RESEARCH & DEVELOPMENT AND TECHNOLOGY ABSORPTION

A. Research & Development

1. Specific areas in which R&D work is carried out:

The focus of the Company’s R&D efforts was on the following areas:

i. Development of new formulations for existing and newer active drug substances.

ii. Patenting of newer processes/newer products/newer drug delivery systems/newermedical devices/newer usage of drugs for both local and international markets.

iii. Development of new products in APIs as well as formulations specifically forexport.

iv. Development of new innovative technology for the manufacture of existing APIs andtheir intermediates.

v. Development of new drug delivery systems for existing and newer active drugsubstances as also newer medical devices.

vi. Development of methods to improve safety procedures effluent control pollutioncontrol etc.

2. Some of the major benefits derived as a result of R&D include:

i. Successful commercial scale-up of several new APIs and formulations.

ii. Development of new drug delivery systems and devices.

iii. Improved processes and enhanced productivity in both APIs and formulations.

3. Future plan of action:

The Company will continue its R&D efforts in the various areas indicated in (1)above. The major thrust would be on developing new products and drug delivery systems.

4. Expenditure on R&D:

Rs in crore
a. Capital 5.58
b. Recurring 511.93
Total 517.51

The total R&D expenditure as a percentage of total revenue is around 5.4%.

B. Technology Absorption Adaptation and Innovation

1. Efforts in brief made towards technology absorption adaptation and innovation: a.Development and patenting of new molecular forms and methods of synthesis. b. Developmentof new drug delivery systems.

2. Benefits derived as a result of the above efforts: i. Improvement in effluenttreatment pollution control and all-round safety standards. ii. Improvement inoperational efficiency through reduction in batch hours increase in batch sizes bettersolvent recovery and simplification of processes. iii. Meeting norms of externalregulatory agencies to facilitate more exports. iv. Development of products for importsubstitution. v. Maximum utilisation of indigenous raw materials.

III. FOREIGN EXCHANGE EARNINGS AND OUTGO

1. Activities relating to exports initiative taken to increase exports development ofnew export markets for products and services and export plans: Exports sales were Rs4947.96 crore for the financial year 2013-14. In addition the Company earned Rs 187.39crore towards Technical know-how and Licensing fees and Rs 14.53 crore for other services.The Company continues to leverage its strategic marketing alliances and partnerships inmore than 160 countries.

2. Total foreign exchange used and earned:

During the year the foreign exchange outgo was Rs 1894.30 crore and the earnings inforeign exchange was Rs 5149.88 crore. Details of the same have been given in Notes 22 31and 32 in the Notes to the Accounts.

On behalf of the Board
Y.K. Hamied
23rd July 2014 Chairman

Pursuant to the provisions of the Securities and Exchange Board of India (EmployeeStock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999

The details of stock options as on 31st March 2014 under the Employee StockOption Scheme 2013 ("ESOS 2013"); Employee Stock Option Scheme 2013-A("ESOS 2013-A") and Employee Stock Option Scheme 2013-B ("ESOS2013-B") are given below:

A. Summary of Status of ESOS granted

The position of the existing scheme is summarized as under -

Sr. No. Particulars ESOS 2013 ESOS 2013 - A ESOS 2013 - B
1. Options Granted 1000000 1502819 522194
2. The Pricing Formula 50% discount to Market Value Face Value 50% discount to Market Value
3. Options Vested and Exercisable - - -
4. Options Exercised - - -
5. Options Cancelled - 31022 -
6. Options Lapsed - - -
7. Total Number of Options in force 1000000 1471797 522194
8. Variation in terms of ESOS Not Applicable Not Applicable Not Applicable
9. Total number of shares arising as a result of exercise of options - - -
10. Money realised by exercise of options during the year 2013-14 Nil Nil Nil
11. Money realised by exercise of options till 31st March 2014 Nil Nil Nil

B. Employee-wise details of options granted during the financial year 2013-14 to: (i)Senior managerial personnel

Name of employee No. of options granted
Mr. Subhanu Saxena 1000000
Mr. Rajesh Garg 522194
Mr. S. Radhakrishnan 204196
Dr. Ranjana Pathak 81489
Mr. Christos Kartalis 62182
Mr. Sameer Goel 60171
Mr. Murali Neelakantan 53373
Mr. Sudhanshu Priyadarshi 40489
Mr. Davinder Singh 39061

 

Name of employee No. of options granted
Mr. Chandru Chawla 30809
Mr. Sanjay S Bhanushali 26896
Mr. Vilas Murlidhar Dholye 26487
Ms. Geena V Malhotra 26406
Dr. Jaideep A Gogtay 19767
Mr. Mital Sanghvi 4993

(ii) Employees who were granted during any one year options amounting to 5% ormore of the options granted during the year

Name of employee No. of options granted
Mr. Subhanu Saxena 1000000
Mr. Rajesh Garg 522194
Mr. S. Radhakrishnan 204196

 

(iii) Identified employees who were granted option during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant. None

 

C. Diluted earnings per share pursuant to the issue of share on exercise of option calculated in accordance with AS - 20 "Earnings Per Share" Diluted earnings per share of the company calculated after considering the effect of potential equity shares arising on account of exercise of options is Rs 17.27

D. Weighted average Fair Value of options granted during the year

Particulars ESOS 2013 ESOS 2013 - A ESOS 2013 - B
(a) Exercise price equals market price (Rs ) Nil Nil Nil
(b) Exercise price is greater than market price (Rs ) Nil Nil Nil
(c) Exercise price is less than market price (Rs ) 261.92 405.08 299.49

Weighted average Exercise price of options granted during the year

Particulars ESOS 2013 ESOS 2013 - A ESOS 2013 - B
(a) Exercise price equals market price (Rs ) Nil Nil Nil
(b) Exercise price is greater than market price (Rs ) Nil Nil Nil
(c) Exercise price is less than market price (Rs ) 197.50 2.00 220.78

E. The stock-based compensation cost calculated as per the intrinsic value methodfor the period 1st April 2013 to 31st March 2014 is Rs 21.65 crore(standalone Rs 18.40 crore). If the stock-based compensation cost was calculated as perthe fair value method prescribed by SEBI the total cost to be recognised in the financialstatements for the period 1st April 2013 to 31st March 2014 would beRs 24.44 crore (standalone Rs 21.26 crore). The effect of adopting the fair value methodon the net income and earnings per share is presented below:

Adjusted Net Income and Earning Per Share

Particulars Rs in crore
Net Profit as reported (standalone Rs 1388.34 crore) 1388.41
Add: Intrinsic Value Compensation Cost (standalone Rs 18.40 crore) 21.65
Less: Fair Value Compensation Cost (standalone Rs 21.26 crore) 24.44
Adjusted Net Profit (standalone Rs 1385.48 crore) 1385.60
Earnings Per Share: Basic
As Reported Rs 17.29
Adjusted Rs 17.26
Earnings Per Share: Diluted
As Reported Rs 17.27
Adjusted Rs 17.23

F. Method and Assumptions used to estimate the fair value of options granted during theyear:

The fair value has been calculated using the Black Scholes Option Pricing model.

The assumptions used in the model are as follows:

Variables ESOS 2013 ESOS 2013 - A ESOS 2013 - B
1. Risk Free Interest Rate 7.86% 8.62% 8.76%
2. Expected Life (in years) 5.70 4.33 5.70
3. Expected Volatility 31.24% 25.38% 29.96%
4. Expected Dividend Yield 0.51% 0.48% 0.45%
5. Price of the underlying share in market at the time of the option grant. (Rs ) 395.00 415.02 441.55

 

On behalf of the Board
Y.K. Hamied
23rd July 2014 Chairman