To the Members
Your Directors have pleasure in presenting their report on the business and operationsof your Company for the year ended March 31 2016.
| ||(Rs in million) |
| ||Standalone ||Consolidated |
| ||2015-16 ||2014-15 ||2015-16 ||2014-15 |
|Sales (Gross) ||109139.8 ||97050.5 ||138055.3 ||126932.2 |
|Profit before interest depreciation and tax ||42259.4 ||35538.8 ||39411.5 ||38593.4 |
|Less: Interest and finance charges ||147.8 ||49.0 ||446.2 ||98.1 |
|Less: Depreciation and amortisation ||3056.1 ||3367.9 ||4635.0 ||4347.0 |
|Profit before tax ||39055.5 ||32121.9 ||34330.3 ||34148.3 |
|Less: Provision for taxation (including deferred tax) ||10204.8 ||8148.4 ||11535.8 ||9704.0 |
|Net Profit before Minority Interest ||28850.7 ||23973.5 ||22794.5 ||24444.3 |
|Less: Minority Interest ||- ||- ||87.6 ||411.9 |
|Net Profit ||28850.7 ||23973.5 ||22706.9 ||24032.4 |
|Add: Surplus brought forward from previous year ||65951.2 ||46646.6 ||63764.5 ||44401.0 |
|Amount available for Appropriation ||94801.9 ||70620.1 ||86471.4 ||68433.4 |
|Appropriations: || || || || |
|Depreciation adjustment on transition to Schedule II of the ||- ||610.8 ||- ||610.8 |
|Companies Act 2013 || || || || |
|Add: Profit on disposal of partial investment in a subsidiary ||- ||- ||43.7 ||- |
|Proposed final dividend on Equity Shares ||3379.4 ||3371.2 ||3379.4 ||3371.2 |
|Dividend on Equity Shares for previous year ||3.0 ||0.5 ||3.0 ||0.5 |
|Corporate Tax on dividend ||688.6 ||686.4 ||688.6 ||686.4 |
|Balance carried to Balance Sheet ||90730.9 ||65951.2 ||82444.1 ||63764.5 |
| ||94801.9 ||70620.1 ||86471.4 ||68436.7 |
Your Company scaled new heights with consolidated sales clocking Rs 138055.3 million asagainst Rs 126932.2 million of the previous year higher by about 9%. Internationalmarkets accounted for 73% of sales. Profit before interest depreciation and tax was Rs39411.5 million. Profit before tax was Rs 34330.3 million. After providing for taxes andminority interest net profit was Rs 22706.9 million. Earnings per share was Rs 50.45.
Your Directors are pleased to recommend dividend at Rs 7.50 per equity share of Rs 2/-each absorbing an amount of Rs 3379.4 million. Corporate tax on the proposed dividend wasRs 688.0 million and Rs 0.6 million on dividend for the previous year.
As approved by the Members at the 33rd Annual General Meeting (AGM) of theCompany held on July 23 2015 the Authorised Share Capital of the Company was increasedfrom Rs 1000000000 (Rupees One Thousand million) divided into 500000000 (Five Hundredmillion) Equity Shares of Rs 2/- each to Rs 2000000000 (Rupees Two Thousand million)divided into 1000000000 (One Thousand million) Equity Shares of Rs 2/- each.
During the year the paid-up equity share capital of the Company rose by Rs 2.2 millionconsequent to the allotment of 1094634 equity shares of Rs 2/- each to eligibleemployees on exercise of stock options under the Lupin Employees Stock Option Plan2003 Lupin Employees Stock Option Plan 2005 Lupin SubsidiaryCompanies Employees Stock Option Plan 2005 Lupin Employees Stock Option Plan2011 Lupin Subsidiary Companies Employees Stock Option Plan 2011 andLupin Employees Stock Option Plan 2014.
ICRA Limited (ICRA) has assigned the rating "ICRA A1+" (pronouncedICRA A one Plus) for the Companys short-term credit facilities of Rs13100 million indicating very strong degree of safety regarding timely payment offinancial obligations and "ICRA AAA" (pronounced ICRA tripleA) for long-term credit facilities of Rs 1900 million indicating highest degree ofsafety regarding timely servicing of financial obligations. The outlook on the long-termrating is Stable. ICRA has assigned the rating "ICRA AAA" tothe Companys Non-Convertible Debenture programme of Rs 1000 million indicatinghighest degree of safety regarding timely servicing of financial obligations. The outlookon the rating is Stable.
Indian Accounting Standards (IND AS) - IFRS Converged Standards
The Ministry of Corporate Affairs vide notification dated February 16 2015 notifiedthe Companies (Indian Accounting Standard Rules) 2015 in pursuance of which theCompany its subsidiaries and the joint venture shall adopt IND AS with effect from April1 2016 with comparatives for the year ended March 31 2016. The implementation of IND ASis a major change and the Company has planned smooth transition to IND AS. The first INDAS financial results shall be published for the quarter ending June 30 2016.
In pursuit of achieving inorganic growth and with a view to accelerate progress byexpanding presence across select geographies your Company made the followingacquisitions: - a) The entire shareholding in Gavis Pharmaceuticals LLC USA NovelLaboratories Inc. USA VGS Holdings Inc. USA Edison Therapeutics LLC USA and NovelClinical Research (India) Private Limited India (collectively referred as Gavis) wasacquired through Lupin Inc. USA wholly-owned subsidiary of the Company. The transactionwas closed on March 8 2016 thereby making Gavis a wholly-owned subsidiary of theCompany. Gavis has an impressive portfolio of niche products with limited competition andhigh barriers to entry. It is a market leader in colonoscopy preparations with over 40%share and a strong pipeline of controlled substances. Gavis has a deep pipeline of severalproducts under development for oral/liquids dermatology injectables opthalamics nasaland MDI and has capability to produce tablets capsules controlled release product drypowder suspension nasal spray and liquid solutions. b) The entire shareholding inMedquimica Industria Farmaceutica LTDA Brazil (formerly known as Medquimica IndustriaFarmaceutica S.A. Brazil) (Medquimica) was acquired through Lupin Farmaceutica do BrasilLTDA Brazil a wholly-owned subsidiary of the Company on June 24 2015. Medquimica oneof the fastest growing broad based pharmaceutical companies in Brazil is engaged in thedevelopment manufacturing and commercialization of OTC products branded generics andgenerics which are sold through push and pull models. Medquimica is a trusted brand withan established distribution network of medium and small distributors and presence acrossdrug stores. It has a sound manufacturing facility with critical ANVISA-handling skillsand experience and requisite approvals are in place. As part of restructuring operationsLupin Farmaceutica do Brasil LTDA Brazil merged with Medquimica and the entireshareholding of Medquimica is now held by Lupin Atlantis Holdings SA Switzerlandwholly-owned subsidiary of the Company.
Subsidiary Companies/Joint Venture
As on March 31 2016 the Company had 30 subsidiaries and a joint venture.
On December 7 2015 Lupin Atlantis Holdings SA Switzerland and Lupin Holdings B. V.Netherlands wholly-owned subsidiaries of the Company jointly incorporated Lupin PharmaLLC Russia as a distribution company. On March 8 2016 Lupin Inc. USA wholly-ownedsubsidiary of the Company incorporated Lupin Research Inc. USA for carrying out R&Dactivities.
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 thesalient features of the financial statements performance and financial position of eachsubsidiary and the joint venture are given in Form AOC - 1 as Annexure Ato this Report. The Company has framed a policy for determining material subsidiarieswhich has been hosted on the Companys website (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 Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015 (Listing Regulations) Management Discussion and Analysis forms part ofthis Annual Report.
Corporate Governance Report
In compliance with Regulation 34(3) read with Schedule V(C) of the Listing Regulationsa Report on Corporate Governance forms part of this Annual Report. The Auditorscertificate certifying compliance with the conditions of corporate governance asprescribed under Schedule V(E) of the Listing Regulations is annexed to the CorporateGovernance Report.
Business Responsibility Report
In compliance with Regulation 34(2)(f) of the Listing Regulations the BusinessResponsibility Report forms part of this Annual Report.
Corporate Social Responsibility (CSR)
The Company is one of the pioneers in the CSR field having been engaged in socialwelfare activities for over 30 years. It has been implementing its CSR activities mainlythrough the Lupin Human Welfare and Research Foundation (LHWRF). LHWRF has a well-setimplementation mechanism at the grass-root level with an objective of transforming rurallives. LHWRF reaches out to 2.8 million living in 3500 villages.
During the year a programme was also undertaken to detect Tuberculosis and createawareness in the slum areas of Mumbai. Various CSR activities/initiatives were taken up atselect centres with district development oriented approach for rural development in thebackward areas as also at Companys plant locations.
The Company undertakes the following CSR activities: -
Economic and Social Development and Natural Resource Management;
Rural Infrastructure development at various locations (including areas near theplant locations of the Company);
Learn and Earn programs with a view to provide opportunities and monetarysupport to needy students particularly in small towns and rural areas to enable them topursue higher studies;
Rural Industry and Skill Development; and
Women Health Empowerment and Education.
Pursuant to the provisions of Section 135 of the Companies Act 2013 (theAct) read with Companies (Corporate Social Responsibility Policy) Rules 2014during the year the Company ought to have spent Rs 541.5 million on CSR activities. Ofthis a sum of Rs 205.1 million was spent. With a view to further support the poor andmarginalised sections of the society the Company would be accelerating its pace of CSRspend. The Company has set up a Charitable Trust known as Lupin Foundationwith a purpose of setting-up deeper sustainable projects like hospitals educationalinstitutions which will substantially enhance its CSR spend. Details of CSR activities aregiven in Annexure B to this Report. The policy on CSR as approved bythe Board has been hosted on the Companys website www.lupin.com.
Directors Responsibility Statement
In compliance with the provisions of Section 134(3)(c) read with Section134(5) of theAct your Directors confirm: -
i) that in the preparation of the annual financial statements for the year ended March31 2016 the applicable accounting standards have been followed along with properexplanations relating to material departures;
ii) they had selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fair viewof the state of affairs of your Company at the end of the financial year March 31 2016and of the profit of the Company for that year;
iii) that proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities;
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 areadequate and were operating effectively; and
vi) they had devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating effectively.
Pursuant to the provisions of Section 152 of the Act Mr. Nilesh Gupta ManagingDirector retires by rotation at the forthcoming AGM and is eligible for re-appointment.
Mr. Ramesh Swaminathan Chief Financial Officer & Executive Director and Mr.Jean-Luc Belingard an Independent Director who were appointed as Additional Directorsw.e.f. October 27 2015 hold office up to the date of the forthcoming AGM. Notices alongwith requisite deposits under Section 160(1) of the Act have been received from certainmembers proposing their names for appointment as Directors.
The Company has received declarations from all the Independent Directors that they meetthe criteria of independence prescribed by Section 149(6) of the Act.
During the year five Board meetings were held on May 13 2015 June 22 2015 July 232015 October 27 2015 and February 5 2016 the details of which are given in theCorporate Governance Report forming part of the Annual Report.
Pursuant to the provisions of Section 134(3)(p) of the Act read with Rule 8(4) of theCompanies (Accounts) Rules 2014 the Board carried out an annual evaluation of its ownperformance and that of its Committees and individual directors. The performance of theBoard and Committees were evaluated by the Board after seeking inputs from all thedirectors on the basis of the prescribed criteria such as the composition and structureof the Board quality of deliberations effectiveness of the procedures adopted by theBoard participation at the Board and Committee meetings governance reviews etc. Theperformance of individual Directors was evaluated on the basis of criteria liketransparency analytical abilities qualifications leadership qualities experienceparticipation in the long-term strategic planning and responsibilities shouldered.
The Audit Committee comprises Dr. K. U. Mada Chairman and Mr. Dileep C. Choksiindependent directors and Dr. Kamal K. Sharma Vice Chairman of the Company. Thefunctions performed by the Audit Committee particulars of meetings held and attendancethereat is given in the Corporate Governance Report which forms part of the Annual Report.
Nomination and Remuneration Policy
The Board has on the recommendation of the Nomination and Remuneration Committeeframed a Policy relating to the remuneration of directors key managerial personnel andother employees. The Policy includes criteria for determining qualifications positiveattributes and independence of a director. The functions of the Nomination andRemuneration Committee are disclosed in the Corporate Governance Report which forms partof the Annual Report.
Related Party Transactions
All transactions entered into by the Company with related parties during the financialyear were in the ordinary course of business and on an arms length pricing basis. Notransaction with any related party was in conflict with the interest of the Company. TheCompany did not enter into any related party transaction with its Key ManagerialPersonnel. Material related party transactions were entered into by the Company only withits subsidiaries. In terms of the provisions of Section 134(3)(h) of the Companies Act2013 and Rule 8(2) of the Companies (Accounts) Rules 2014 particulars of related partytransactions are given in Form AOC - 2 as Annexure C to this Report.The policy on Related Party Transactions as approved by the Board has been hosted on theCompanys website www.lupin.com and web link for which ishttp://www.lupin.com/pdf/POLICY-RELATED_PARTY_TRANSACTIONS.pdf
Services of Ernst & Young LLP were engaged for framing monitoring and implementingthe risk management plan of the Company. The said firm is in the process of reviewing theexisting risk management process and structure including roles and responsibilities riskrating criteria for assessing impact and the likelihood of risks and effectiveness ofmitigation plans. The process includes documentation of risk prioritization and obtainingthe Managements assessments on risks that matter and assessingmitigation readiness for the risks that matter. The Risk Management Committeeconstituted by the Board pursuant to Regulation 21 of the Listing Regulations monitorsand reviews the risk management plan. The details of the Committee and its terms ofreference are set out in the Corporate Governance Report. The functions of the RiskManagement Committee are disclosed in the Corporate Governance Report which forms part ofthe Annual Report.
Particulars of loans/guarantees/investments/securities
Particulars of loans guarantees investments and securities pursuant to the provisionsof Section 186 of the Act are given in the notes to the Financial Statements forming partof the Annual Report.
Conservation of Energy Technology Absorption and Foreign Exchange Earnings and Outgo
The particulars as prescribed by Section 134(3)(m) of the Companies Act 2013 read withRule 8 of the Companies (Accounts) Rules 2014 relating to conservation of energytechnology absorption and foreign exchange earnings and outgo are given in AnnexureD to this Report.
There has been a steady rise in the ranking of the Company on a pan-industry basis inthe surveys jointly conducted by Great Places to Work Institute and TheEconomic Times. The Company has been consistently ranked No. 1 or 2 in thePharmaceutical and Biotech sector and it has also featured in the Golden List ofIndias Top 50 companies to work for. The Company was ranked 15th best company towork for in Asia by the survey conducted by the Great Places to WorkInstitute. Aon Hewitt in collaboration with Business World magazine through adetailed process ranks the top 25 companies across all sectors/industries. There is noranking among these companies. The Company has featured in the coveted list.
The Companys endeavor has been to provide its employees the best valueproposition and experience. It meaningfully engages them to deliver their best whichultimately results in superior business performance and building a competitive workenvironment. With a view to enthuse a vibrant work culture the Company instituted variousemployee-friendly policies and manpower development programs across all levels whichensured that employees remain motivated and invigorated.
Employees Stock Options
Pursuant to the provisions of the Securities and Exchange Board of India (Share-BasedEmployee Benefits) Regulations 2014 the details of stock options during the year endedMarch 31 2016 are given in Annexure E to this Report.
Vigil Mechanism/Whistleblower Policy
In order to promote a culture of honesty and fairness in its operations and incompliance with the provisions of Section 177(9) of the Act read with Rule 7 of theCompanies (Meetings of Board and its Powers) Rules 2014 and Regulation 22 of the ListingRegulations the Company has instituted P.L.E.D.G.E. (Preparing LupinEmployees to Demonstrate Governance and Ethical Conduct). The P.L.E.D.G.E.initiative encompasses three important policies viz. Code of Conduct Whistleblower Policyand Prevention of Workplace Harassment. The Whistleblower Policy provides an opportunityto the directors and all employees of the Company to raise concerns about unethical andimproper practices or any suspected wrongdoings in relation to the Company. The details ofCode of Conduct Whistleblower Policy and Prevention of Workplace Harassment Policy arestated in the Corporate Governance Report which forms part of the Annual Report.Whistleblower Policy has been hosted on the Companys website www.lupin.com. ThePolicies on Code of Conduct and Prevention of Workplace Harassment are on the LupinIntranet.
Particulars of Employees
Particulars of remuneration required to be furnished in terms of the provisions ofSection 197(12) of the Act read with Rules 5(1) 5(2) and 5(3) of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 are given in AnnexureF to this Report.
At the 32nd AGM the Members had appointed Deloitte Haskins & Sells LLPChartered Accountants (Firm Registration No. 117366W/W-100018) as Statutory Auditors ofthe Company for a period of two years from the conclusion of the 32nd AGM tillthe conclusion of the forthcoming AGM. In view of completion of the prescribed term ofDeloitte Haskins & Sells LLP on the recommendation of the Audit Committee the Boardof Directors appointed BSR & Co. LLP Chartered Accountants (Firm Registration No.101248W/W-100022) as the Statutory Auditors of the Company for a period of five yearsfrom conclusion of the 34th AGM till the conclusion of 39th AGM ofthe Company subject to ratification by Members at every AGM. Pursuant to the provisionsof Section 139(1) and Section 141 of the Act the Company has received a Certificate fromBSR & Co. LLP certifying that if they are appointed as Auditors their appointmentwould be as per the conditions prescribed by the said Sections. The Board records itssincere appreciation of the valuable services rendered by Deloitte Haskins & Sells LLPduring its long association with the Company.
Ernst & Young LLP and KPMG are the Internal Auditors of the Company for thedomestic and international operations respectively.
The Company appointed local Chartered Accountants firms as Internal Auditors to conductaudit of Carrying & Forwarding Agents and Central Warehouses located in various partsof the country.
The cost audit records maintained by the Company are required to be audited pursuant tothe provisions of Section 148 of the Act read with the Companies (Cost Records and Audit)Amendment Rules 2014. On the recommendation of the Audit Committee Mr. S. D. Shenoypractising Cost Accountant (FCMA Membership No.8318) was appointed to conduct cost auditfor the year ended March 31 2016.
Pursuant to Section 148(6) of the Act and Rule 6(6) of the Companies (Cost Records andAudit) Rules 2014 the Cost Audit Report in Form CRA-4 (in XBRL mode) for the yearended March 31 2015 under the head Drugs and Pharmaceuticals Industry wasfiled with the Central Government on October 16 2015 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 Ms. Neena BhatiaCompany Secretary in Practice was appointed to undertake the Secretarial Audit of theCompany for the year ended March 31 2016. There is no qualification in the SecretarialAudit Report which is given in Annexure G to this Report.
Extract of Annual Return
Pursuant to the provisions of Section 92(3) of the Act and the Rules made thereunderextract of the Annual Return in prescribed Form MGT-9 is given in AnnexureH to this Report.
Your Directors commend the commitment dedication contributions and hard work of allemployees of the Company across the globe. They express their deep gratitude to thevarious departments of the Central and State governments banks financial institutionscustomers medical professionals business associates analysts members suppliers anddistributors for their whole-hearted and continuous support.
For and on behalf of the Board of Directors
Dr. Desh Bandhu Gupta
Mumbai May 19 2016