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Hikal Ltd.

BSE: 524735 Sector: Health care
NSE: HIKAL ISIN Code: INE475B01022
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VOLUME 37386
52-Week high 256.10
52-Week low 181.00
P/E 26.19
Mkt Cap.(Rs cr) 1,813
Buy Price 0.00
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Sell Price 219.75
Sell Qty 25.00
OPEN 230.00
CLOSE 228.35
VOLUME 37386
52-Week high 256.10
52-Week low 181.00
P/E 26.19
Mkt Cap.(Rs cr) 1,813
Buy Price 0.00
Buy Qty 0.00
Sell Price 219.75
Sell Qty 25.00

Hikal Ltd. (HIKAL) - Director Report

Company director report

To

The Members

The Directors are pleased to present the 29th Annual Report with the Audited Accountsfor the financial year ended 31 March 2017.

Rs in Millions

1. FINANCIAL RESULTS
2016-17 2015-16
Turnover 10139 9257
Profit before interest and depreciation 2019 1828
Interest 498 622
Profit before depreciation 1521 1206
Depreciation 691 673
Profit before taxation 829 533
Provision for taxation
- Current tax 216 118
- Less MAT tax credit (84) (13)
- Deferred tax liability/(assets) 29 15
Profit after tax 668 413
Reserves and surplus 6048 5485
Dividend on equity share 49 82
Tax on dividend 10 17
Transferto general reserve 100 50

2. COMPANY PERFORMANCE

Hikal has achieved a significant milestone by generating Rs 10000 million in revenue.Our total revenue grew by 10% to Rs 10139 million over the last year. The growth wasmainly contributed by the Crop Protection division which grew by 15% and thePharmaceuticals division which grew by 6%. The growth in both the divisions was driven byhigher off take of our products. Increased demand from our customers along with launch ofnew products has set a positive trend fortheyears to come.

Based on the current demand of our customers we expect business to improve in both thePharmaceutical and Crop Protection divisions. Our EBITDA is up by 10% to Rs 2019 millionmainly due to increase in sales volumes to our customers.

We continue our cost rationalization initiatives introduced last year which will helpus to maintain our current margins with scope for improving it in coming years. For ourworking capital management we have instituted strict norms over the last year which haveshown results in the form of lower net operating working capital days as compared to thepreviousyear.

Depreciation for the year increased marginally to Rs 691 million from Rs 673 millionlast year. During the year gross fixed assets increased by Rs 1093 million due to anincrease in capital assets (buildings plants and equipment) in the Crop Protection andPharmaceuticals divisions. Investments in our Crop Protection division were mainly tocreate a facility for a new product for a multinational company increase capacity and toset up a new development and launch plant at Jigani Bangalore. Apart from these effortswe continue to invest in debottlenecking initiatives across our sites to improveperformance and increase manufacturing capacity on an ongoing basis.

Our financing cost has reduced to Rs 498 million vs. Rs 622 million last year mainlydue to replacing the high cost borrowings and reduction in interest rates and managementof working capital. Our total debt outstanding as on 31 March 2017 was Rs 5062 millionvs. Rs 5049 million on 31 March 2016 which has increased marginally due to freshborrowing for capex. Our debt / equity ratio has improved to 0.81 vs. 0.89 last year. Lastyear we worked on our debt consolidation program and consolidated our debt with fewerbanks which helped us to lower our blended rate of interest.

The tax expense increased from Rs 120 million to Rs 161 million.

Our operational net profit after tax on a YoY basis has increased by 62% to Rs 668million.

As part of our sustainability strategy we will be introducing several new productsevery year. Our product pipeline will enable us to introduce two new products in the nearterm (one to two years) two products in the medium term (three to five years) and twoproducts in the long term (five years). The pipeline will be replenished every year withnew products coming on stream non-performing and lower margin products being replaced ona continual basis. This strategy will enable us to increase our product offerings andreduce our dependence on several legacy products thereby de-risking the business. In cropprotection our target is to develop our own products which will help us to lower ourdependency on some of our key contract manufactured molecules the demand for whichsometimes is very volatile and cyclical.

With a marginal improvement in the current environment we were able to increase ourrevenues and maintain a healthy EBITDA margin of 20% along with lowering our workingcapital. The debt consolidation exercise helped us strengthen our balance sheet. With newproducts in our product pipeline we are poised to reap the benefits of our capitalinvestments.

The Company has consolidated its R&D operations at its Pune R&D Centre in thepast two years. During the year the Company sold the R&D unit at Bannerghatta RoadBangalore.

Our long-term business strategy is being executed according to our plan. Westrengthened our business development teams for the Crop Protection and Pharmaceuticaldivisions. Our primary objective is to develop a robust and diversified product mix ofcommercialized products. We recruited suitable talent for the Company to ensure that wewill meet our future goals of profitable sustainable growth. Our development productportfolio across both divisions is being commercialized which will enable a largerthroughput of products which contribute to the revenue stream.

The Board of Directors has recommended a dividend of 60% as compared to 50% for theprevious year.

3. EXPORTS

Exports for the year are Rs 6612 million (65%of total sales) as compared to Rs 7317million (79% of total sales) in the previous year. We have diversified our customer basewhich includes more local customers who in turn re-export our manufactured products.

4. MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis on the operations of the company is provided ina separate section and forms a part of the report.

5. DIVIDEND

The Board declared an interim dividend of 30% which was paid to shareholders inFebruary 2017 (previous year: 25%) and a final dividend of 60% including the interimdividend for the year (previous year: 50%) has been recommended for the year 2016-17.During the year your Company has transferred Rs 100 million to the General Reserve.

6. SHARE CAPITAL

The paid up Equity Share Capital as at 31 March 2017 stood at Rs 164.4 million. Duringthe year under review the Company has not issued shares with differential voting rightsnor granted any stock options or sweat equity. As on 31 March 2017 none of the Directorsof the Company hold instruments convertible into equity shares of the Company.

7. EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the Annual Return in form MGT-9 as requiredunder Section 92 of the Companies Act 2013 is included in this Report as "Annexure- A" and forms an integral part of this Report.

8. SUBSIDIARY ACCOUNTS

In terms of the approval granted by the Government of India Ministry of CompanyAffairs under Section 129 (3) of the Companies Act 2013 copies of the balance sheetprofit and loss account directors' report and the report of the auditors of thesubsidiary company Acoris Research Limited have not been attached with the balance sheetof the Company. The Company has sold its stake in Hikal International B.V. in the month ofDecember 2016. The Company will make available these documents/details upon request madeby any shareholder of the Company interested in obtaining the documents/details and theycan also be inspected at the registered office of the Company as well as of thesubsidiary. Pursuant to the approval a statement of the summarized financials of thesubsidiary is attached along with the consolidated financial statements. Pursuant toAccounting Standard (AS) - 21 issued by the Institute of Chartered Accountants of Indiathe Consolidated Financial Statements presented by the Company include the financialinformation of its subsidiary.

9. DIRECTORS

All Independent Directors have given declarations that they meet the criteria ofindependence as laid down under Section 149 (6) of the Companies Act 2013 and Securitiesand Exchange Board of India (Listing Obligations & Disclosure Requirements)Regulations 2015.

In accordance with the provisions of Section 152 of the Companies Act 2013 and theCompany's Articles of Association Mr. Amit Kalyani Director retires by rotation at theforthcoming Annual General Meeting and being eligible offers himself for re-appointment.

Details of the number of Board meetings held during 2016-17 forms part of the CorporateGovernance Report.

10. BOARD EVALUATION

Pursuant to the provisions of the Companies Act 2013 and Securities and Exchange Boardof India (Listing Obligations & Disclosure Requirements) Regulations 2015 astructured questionnaire was prepared after taking into consideration the various aspectsof the Board's functioning like composition of the Board and its Committees cultureexecution and performance of specific duties obligations and governance.

The performance evaluation of the Independent Directors was completed on the basis ofcriterion such as qualification experience knowledge skills professional achievementsetc. The performance evaluation of the Chairman and the Non-Independent Directors wascarried out by the Independent Directors. The Board of Directors expressed theirsatisfaction with the evaluation process.

11. WHISTLE BLOWER POLICY

The Company has a whistle blower policy to report genuine concerns or grievances. Thewhistle blower policy has been posted on the website of the Company (www.hikal.com ).

12. REMUNERATION AND NOMINATION POLICY

The Board of Directors has framed a policy which lays down a framework in relation toremuneration of Directors Key Managerial Personnel and Senior Management of the Company.This policy also lays down criteria for selection and appointment of Board members. Thedetails of this policy are explained in the Corporate Governance Report and is also put upon the website of the Company (www.hikal.com ).

13. RELATED PARTYTRANSACTIONS

All related party transactions that were entered into during the financial year were atan arm's length basis and were in the ordinary course of business. There are no materiallysignificant related party transactions made by the Company with Promoters Directors KeyManagerial Personnel or other designated persons which may have a potential conflict withthe interest of the Company at large.

All Related Party Transactions are placed before the Audit Committee as also the Boardfor approval.

During the year under review a relative of the Directors was reappointed to a place ofprofit for which shareholders' approval was obtained byway of postal ballot the result ofwhich was announced on 12 January 2017.

The policy on Related Party Transactions as approved by the Board is uploaded on theCompany's website http://www.hikal.com/investors/pdf/Related%20Party%20Policy.pdf None ofthe Directors has any pecuniary relationships or transactions vis-a-vis the Company.

14. SIGNIFICANT AND MATERIAL ORDERS PASSED BYTHE REGULATORS OR COURTS

There are no significant and material orders passed by the Regulators/Courts that couldimpact the going concern status of the Company and its future operations.

15. RISK MANAGEMENT

The Company has a robust business risk management framework in place to identify andevaluate all business risks. The company recognizes that risk management is a crucialaspect of the management of the Company and is aware that identification and management ofrisk effectively is instrumental to achieving its corporate objectives. The Company hasidentified the business risks and the business heads who are termed as risk ownersassess monitor and manage these risks on an ongoing basis. The risk owners assess theidentified risks and continually identify any new risks that can affect the business.Different risks such as technological operational maintenance of quality reputationalcompetition environmental foreign exchange financial human resource legal compliancesamong others are assessed on a continuous basis. The Risk Management Committee and AuditCommittee review and submit to the Board of Directors their findings in the form of riskregister at regular intervals. At the Board meetings the members have a detaileddiscussion to assess each risk and the measures that are in place to lower them toacceptable limits.

The strategies are reviewed discussed and allocation of appropriate resources is doneas and when necessary. The risk management program internal control systems and processesare monitored and updated on an ongoing basis. A built-up mechanism has been establishedto identify measure control monitor and report the risks. Business heads areresponsible for rolling out the risk assessment and management plan within theorganisation.

16. INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an Internal Control System commensurate with the size scale andcomplexity of its operations. To maintain its objectivity and independence the InternalAudit function reports to the Chairman of the Audit Committee of the Board.

The Internal Audit Department monitors and evaluates the efficacy and adequacy of theinternal control system in the Company its compliance with operating systems accountingprocedures and policies at all locations of the Company and its subsidiaries. Based on thereport of internal audit function process owners undertake corrective action in theirrespective areas and thereby strengthen the controls. Significant audit observations andcorrective actions thereon are presented to the Audit Committee of the Board.

The Audit Committee of the Board of Directors actively reviews them adequacy andeffectiveness of the internal control systems and suggests improvements to strengthenthem. The Company has a robust Management Information System which is an integral part ofthe control mechanism.

During the year a thorough audit of the internal financial controls was carried out byan independent firm of Chartered Accountants.

17. KEY MANAGERIAL PERSONNEL

The Company has appointed the following persons as Key Managerial Personnel.

Mr. Jai Hiremath Chairman &Managing Director

Mr. Sameer Hiremath President & Joint Managing Director (Whole Time Director)

Mr. ShamWahalekar Chief Financial Officer & Company Secretary

18. PARTICULARS OF LOANS GUARANTEES & INVESTMENTS BYTHE COMPANY

The details under Section 186 of the Companies Act 2013 are given in the notes to thefinancial statements.

19. DIRECTOR'S RESPONSIBILITY STATEMENT Your Directors state that:

(i) In the preparation of the annual accounts the applicable accounting standards readwith requirements set out under Schedule III to the Companies Act 2013 (the Act) havebeen followed and there are no material departures from the same;

ii) The Directors have selected such accounting policies and applied them consistentlyand made judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year ended 31March 2017 and of the profit of the Company for that year;

(iii) The Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) The annual accounts have been prepared on agoing concern basis;

(v) The Directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively; and

(vi) The Directors have devised a proper system to ensure compliance with the provisionof all applicable laws and that such systems are adequate and are operating effectively.

20. AUDITOR

M/s. B S R & Co. LLR Chartered Accountants have been appointed for a term of fiveyears commencing 2014-15 to 2018-19. Members are requested to ratify their appointment forthe year 2017-18.

The Auditor's report to the members on the accounts of the Company for the year ended31 March 2017 does not contain any qualifications adverse or disclaimer remarks.

21. COST AUDITOR

The Company has re-appointed M/s.V. J.Talati &Co. as the Cost Auditor to carry outthe audit of Cost Accounts for the financial year 2017-18. The Cost Audit report for thefinancial year 2015-16 was filed with the Ministry of Corporate Affairs Government ofIndia on 12 September 2016.

22. SECRETARIAL AUDITOR

The Board has appointed M/s. Ashish Bhatt & Associates Practicing CompanySecretaries to conduct a Secretarial Audit for the financial year 2016-17.

The Secretarial Audit Report for the financial year ended 31 March 2017 is annexedherewith as "Annexure - B" to this Report. The Secretarial Audit Report does notcontain any qualifications reservations or adverse remarks.

23. CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Corporate Social Responsibility Committee (CSR Committee) has formulated andrecommended to the Board a Corporate Social Responsibility Policy (CSR Policy) indicatingthe activities to be undertaken by the Company which has been approved by the Board. TheCSR Policy may be accessed on the Company's website at:

http://www.hikal.com/investors/corporate_governance/pdf/Corporate_Social_Responsibility_Policy.pdf

Policy Statement:

As a socially responsible corporate member of the world community with long termrelationships we believe that the future of our business is best served by respecting theinterests of society at large. Through our efforts we shall strive to improve the livingstandards of the community. Our CSR activities shall aim to make a difference to the livesof the needy under privileged members of society including children women and seniorcitizens and the environment.

The key philosophy of all CSR initiatives of the Company is guided by three corecommitments of Scale Impact and Sustainability. The Company has identified six focusareas of engagement which are as under:

• Health: Affordable solutions for healthcare through improved access awarenessand sanitation

• Education: Access to quality education training skill enhancement enhancementof vocation skills

• Environment: Environmental sustainability ecological balance conservation ofnatural resources

• Protection of National Heritage Art and Culture: Protection and promotion oftraditional art culture and heritage

• Overall development activities in surrounding areas of Hikal's manufacturingsites for the benefit of society

• Contribution to Prime Minister's National Relief Fund or any other fund set upby the Central Government for socio-economic development or welfare

Implementation of the CSR Program

1. Project activities identified under CSR are to be implemented either by personnel ofthe Company or through a registered trust or a registered society.

2. The time duration of each project / program shall depend on its nature and intendedimpact.

The Company will also undertake other need based initiatives in compliance withSchedule VII of the Act. During the year the Company has spent Rs 13.96 million on CSRactivities. Pursuant to the provisions of the Companies Act 2013 the Company should havespent Rs 13.07 million (being 2% of the average net profits of the last three financialyears) during the financial year2016-17.

The Annual Report on CSR activities is annexed herewith marked as "Annexure-C".

24. SAFETY &ENVIRONMENT

The Company continued to maintain the highest standards in environment health andsafety. The Company has become the first Indian life sciences Company to receive theResponsible Care certification. It is applicable to all manufacturing and research sitesof the Company. Continuous training and awareness programs for the employees areundertaken on afrequent basis.

25. PUBLIC DEPOSITS

The Company has not accepted any deposits and as such there are no overdue depositsoutstanding as on 31 March 2017.

26. EMPLOYEES

The Company considers its human capital as an invaluable asset. The Company continuedto have cordial relationships with all its employees. Management and employee developmentprograms and exercises were conducted at all sites. Employees had various team buildingexercises and were sponsored for various external seminars and other developmentalprograms to enhance their skill sets. The total workforce of the Company stood at 1319 ason 31 March 2017.

As required by the provisions of Section 197 (12) of the Companies Act 2013 read withRule 5 (1) of the Companies (Appointment and Remuneration of Management Personnel) Rules2014 as amended from time to time is enclosed herewith as "Annexure - D"

The statement containing particulars of employees as required under Section 197(12) ofthe Companies Act 2013 read with Rule 5(2) of the Companies (Appointment and Remunerationof Managerial Personnel) Rules 2014 forms part of this report. Further the report andthe financial statements are being sent to the members excluding the aforesaid statement.In terms of Section 136 of the Companies Act 2013 the said statement is open forinspection by the member at the registered office of the Company during business hours onworking days of the Company up to the date of ensuing Annual General Meeting. Any memberinterested in obtaining such particulars may write to the Company Secretary at theregistered office of the Company.

27. CONSERVATION OF ENERGY RESEARCH & DEVELOPMENT TECHNOLOGY ABSORPTION ANDFOREIGN EXCHANGE EARNINGS AND OUTGO

In accordance with the requirements of Section 134 (3) (m) of the Companies Act 2013read with rule 8 (3) of the Companies (Accounts) Rules 2014 a statement showingparticulars with respect to conservation of energy technology absorption and foreignearnings and outgo forming part of the Directors' Report is given in the enclosed"Annexure -E" which forms part of this report.

28. CORPORATE GOVERNANCE

A report on Corporate Governance along with a certificate from the Auditors of theCompany regarding the compliance of the code of Corporate Governance as also theManagement Discussion and Analysis Report as stipulated under the provisions of Regulation34 of the Securities and Exchange Board of India (Listing Obligations & DisclosureRequirements) Regulations 2015 are annexed to this Report.

29. ACKNOWLEDGEMENTS

The Board of Directors place on record their appreciation of the contribution andsincere support extended to the Company by our bankers financial institutions and valuedcustomers and suppliers.

The Board also places on record its appreciation for the impeccable service andgenerous efforts rendered by its employees at all levels across the Board towards theoverall growth and success of the Company.

30. CAUTIONARY STATEMENT

Statements in the Board's Report and the Management Discussion and Analysis describingthe Company's objectives expectations or forecasts may be forward-looking within themeaning of applicable securities laws and regulations. Actual results may differmaterially from those expressed in the statement. Important factors that could influencethe Company's operations include global and domestic demand and supply conditionsaffecting selling prices of finished goods input availability and prices changes ingovernment regulations tax laws economic developments within the country and otherfactors such as litigation and industrial relations.

For and on behalf of the Board of Directors
Jai Hiremath
Date : 10 May2017 Chairman & Managing Director
Place : Mumbai DIN:00062203