To the Members
Your Directors have pleasure in presenting their report on the business and operationsof your Company for the year ended March 31 2017.
(Rs. in million)
| ||Standalone ||Consolidated |
| ||2016-17 ||2015-16 ||2016-17 ||2015-16 |
|Sales ||123980.8 ||108828.7 ||171198.0 ||137578.7 |
|Profit before interest depreciation and tax ||45745.9 ||41738.5 ||45996.5 ||38705.4 |
|Less: Interest and finance charges ||294.2 ||241.1 ||1525.3 ||594.7 |
|Less: Depreciation and amortisation ||3661.1 ||3056.1 ||9122.3 ||4871.3 |
|Profit before tax ||41790.6 ||38441.3 ||35348.9 ||33239.4 |
|Less: Provision for taxation (including deferred tax) ||10377.3 ||10132.6 ||9785.1 ||10593.4 |
|Net Profit before share of profit from Jointly Controlled Entity ||31413.3 ||28308.7 ||25563.8 ||22646.0 |
|and non-controlling interest || || || || |
|Add: Share of Profit from Jointly Controlled Entity ||- ||- ||82.5 ||49.0 |
|Less: Non-controlling Interest ||- ||- ||71.7 ||87.6 |
|Net Profit attributable to shareholders of the Company ||31413.3 ||28308.7 ||25574.6 ||22607.4 |
Your Company touched new heights in terms of sales and profits for the year ended March31 2017. Consolidated sales clocked Rs. 171198.0 million as against Rs. 137578.7 millionof the previous year higher by 24%. International business now contributes 75%. Profitbefore 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. Netprofit after taxes but before share of profit from Jointly Controlled Entity andnon-controlling interest was Rs. 25563.8 million. Net profit after share of profit fromJointly Controlled Entity and non-controlling interest was Rs. 25574.6 million higher by13%. Earnings per share for the year was Rs. 56.69.
Your Company has a good track record of paying dividends. Continuing with this trendDirectors are pleased to recommend dividend at Rs. 7.50 per equity share of Rs. 2/- eachabsorbing an amount of Rs. 3386.8 million. Corporate tax on proposed dividend is Rs. 689.5million.
In compliance with Regulation 43A of SEBI (Listing Obligations and DisclosureRequirements) Regulations 2015 (Listing Regulations') the Company formulatedDividend 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 June1 2016 the Company shifted its Registered Office from 159 C.S.T. Road KalinaSantacruz (East) Mumbai - 400 098 to Kalpataru Inspire 3rd Floor Off Western ExpressHighway Santacruz (East) Mumbai - 400 055.
During the year the paid-up equity share capital of the Company rose by Rs. 2.0million consequent to the allotment of 993900 equity shares of Rs. 2/- each to eligibleemployees of the Company and its subsidiaries upon their exercising stock options underLupin Employees Stock Option Plan 2003' Lupin Employees Stock Option Plan2005' Lupin Employees Stock Option Plan 2011' Lupin Employees Stock OptionPlan 2014' Lupin Subsidiary Companies Employees Stock Option Plan 2005' andLupin Subsidiary Companies Employees Stock Option Plan 2011'. Paid-up equity sharecapital as on March 31 2017 was
Rs. 903.2 million.
ICRA Limited (ICRA) assigned the rating "ICRA A1+" (pronouncedICRA A one Plus') for the Company's short-term credit facilities of Rs. 13100million indicating very strong degree of safety regarding timely payment of financialobligations and "ICRA AAA" (pronounced ICRA triple A') forlong-term credit facilities of Rs. 1900 million indicating highest degree of safetyregarding timely servicing of financial obligations. The outlook on the long-term ratingis 'Stable'. ICRA assigned the rating "ICRA AAA" to the Company'sNon-Convertible Debenture programme of Rs. 1000 million indicating highest degree ofsafety 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 AccountingStandards (Ind AS') with effect from April 01 2016. Accordingly financialstatements of the Company its subsidiaries and a joint venture were prepared withcomparative 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 LupinHoldings BV Netherlands wholly-owned subsidiaries of the Company jointly incorporated adistribution company viz. Lupin Ukraine LLC Ukraine. On December 15 2016 LAHSAincorporated Lupin Latam Inc. USA to support the business initiatives of the Company'saffiliates in Latin America. On March 13 2017 LAHSA incorporated Lupin Japan & AsiaPacific K.K. to support the affiliates of the Company in the Asia-Pacific regionincluding Japan. For administrative and operational convenience effective February 242017 VGS Holdings Inc. USA and Edison Therapeutics LLC USA wholly-owned subsidiariesof the company were amalgamated with Novel Laboratories Inc. USA and GavisPharmaceuticals 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 thefinancial statements performance and financial position of each subsidiary and jointventure are given in Form AOC - 1 as Annexure A' to this Report. The policyfor determining material subsidiaries has been hosted on the Company's websitewww.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 Regulationsa Management Discussion and Analysis forms part of this Annual 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. Annexed to theCorporate Governance Report is the Auditors' certificate certifying compliance with theconditions of corporate governance as prescribed under Schedule V(E) of the ListingRegulations. Your Company was conferred the coveted Golden Peacock Award forExcellence in Corporate Governance' by the Institute of Directors. The Award validatesthe Best-in-class' Corporate Governance practices followed by the Company andreflects on the transparent dealings with all its stakeholders.
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 a pioneer in CSR work in rural India committed to ethical values whichgo beyond just compliance. The Company has been promoting CSR activities through its CSRarm Lupin Human Welfare and Research Foundation (LHWRF). The Company is vigorouslyoperative in CSR activities and adopts a holistic development approach across 8 states 21districts and 59 blocks of India. LHWRF became the first CSR foundation in India topublish Global Reporting Initiative (GRI 4) sustainability report. It has undertakenvarious projects in partnership with government and semi-government agencies. Various CSRactivities and initiatives implemented aimed at achieving the objective of enhancingquality of life of the disadvantaged communities. Pursuant to the provisions of Section135 of the Act read with Companies (Corporate Social Responsibility Policy) Rules 2014the Company ought to have spent Rs. 662.5 million on CSR activities during the year. Theactual 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 ofthe 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 sectionsof the society. In this pursuit it would be accelerating the pace of its CSR spends. Inthis direction the Company has set up Lupin Foundation' a charitable trust withthe objective of undertaking deeper sustainable projects like hospitals educationalinstitutes etc.
Particulars of CSR activities undertaken by the Company are given in AnnexureB' to this Report. The policy on CSR as approved by the Board has been hosted onthe 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 theAct your Directors confirm: -i) that in the preparation of the annual financialstatements for the year ended March 31 2017 the applicable accounting standards havebeen followed along with proper explanations relating to material departures; ii) thatthey 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 2017and of the profit of your Company for that year; iii) that they have taken proper andsufficient care for the maintenance of adequate accounting records in accordance with theprovisions of the Act for safeguarding the assets of the Company and for preventing anddetecting fraud and other irregularities; iv) that the annual financial statements havebeen prepared on a going concern basis; v) that they had laid down proper internalfinancial 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 allapplicable laws and that such systems were adequate and operating effectively.
Pursuant to the provisions of Section 152 of the Act Dr. Kamal K. Sharma ViceChairman retires by rotation at the forthcoming Annual General Meeting (AGM) and iseligible for re-appointment.
Independent Directors hold office till the conclusion of the 38th AGM and are notliable to retire by rotation. In compliance with the provisions of Section 149(7) of theAct Independent Directors have given declarations that they meet the criteria ofindependence prescribed by Section 149(6) of the Act.
During the year six Board meetings were held on May 18 2016 May 19 2016 August 12016 August 9 2016 November 9 2016 and February 9 2017 the details of which aregiven 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 itsown performance that of its Committees and individual directors.
The performance of the Board and its Committees was evaluated by the Board afterseeking inputs from all the Directors on the basis of the criteria such as compositionand structure of the Board quality of deliberations effectiveness of the proceduresadopted by the Board participation at the Board and Committee meetings governancereviews etc. Performance of individual directors was evaluated on the basis of criterialike transparency analytical abilities qualifications leadership qualities experienceparticipation in the long-term strategic planning and responsibilities shouldered.Pursuant to Regulation 17(10) of Listing Regulations the Board carried out performanceevaluation of Independent Directors without the participation of the director beingevaluated.
The Audit Committee comprises Dr. K. U. Mada Chairman and Mr. Dileep C. Choksi bothindependent directors and Dr. Kamal K. Sharma. The functions performed by the AuditCommittee particulars of meetings held and attendance thereat are given in the CorporateGovernance Report which forms part of the Annual Report. All recommendations made by theAudit 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 ListingRegulations and on the recommendation of the Nomination and Remuneration Committee theBoard framed a Policy relating to the remuneration of directors key managerial personneland other employees. The Policy includes criteria for determining qualifications positiveattributes and independence of a director and other matters. The functions of theNomination and Remuneration Committee are disclosed in the Corporate Governance Reportwhich forms part of the Annual Report.
Related Party Transactions
All related party transactions entered into by the Company during the year were on anarm's length basis and in the ordinary course of business. During the year no transactionwas entered into by the Company with its Key Managerial Personnel. The Company did notenter into any related party transaction which was in conflict with its interest.Statements of transactions with related parties in summary form are periodically placedbefore the Audit Committee and are approved by the Committee. Material related partytransactions were entered into by the Company only with its subsidiaries. In compliancewith Section 134(3)(h) of the Act and Rule 8(2) of the Companies (Accounts) Rules 2014particulars of related party transactions are given in Form No. AOC-2 as AnnexureC' to this Report. The policy on materiality of Related Party Transactions asalso on dealing with Related Party Transactions as approved by the Board has been hostedon 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 forarriving at risk rating criteria for assessing risk impact likelihood of risks andeffectiveness of mitigation plans. The process includes identification of risks involvedin various areas zeroing on risks that matter' assessing mitigation plans andpreparedness to face risks that matter'. The Board has defined the role andresponsibilities of the Risk Management Committee which was formulated in compliance withRegulation 21 of the Listing Regulations and delegated to it monitoring and reviewing therisk management plan. Particulars of the Risk Management Committee and its terms ofreference are set out in the Corporate Governance Report which forms part of the AnnualReport.
Particulars of loans/guarantees/investments/securities
Pursuant to the provisions of Section 134(3)(g) of the Act particulars of loansguarantees investments and securities given under Section 186 of the Act are given in thenotes 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 foreignexchange earnings and outgo as stipulated in Section 134(3)(m) of the Act read with Rule 8of the Companies (Accounts) Rules 2014 are given in Annexure D' to thisReport.
Your Company firmly believes that human capital is its most valuable resource whoseefficiency plays a key role in building a competitive business environment. In the surveysjointly 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 beenconsistently ranked no. 1 or 2 in the pharmaceutical and biotech sector. It was ranked15th best company to work for in Asia by the survey conducted by the Great Places toWork Institute'. It again featured in the Golden List of India's Top 50 companies to workfor.
The Company has made it to the elite list of top 25 Best Employers and bagged theAON Best Employers in India 2016' across all sectors/industries in the detailedstudy conducted by AON Hewitt in collaboration with Business World magazine. In itspursuit to create a vibrant work culture and with a view to attract retain and developbest available talents the Company regularly conducts various manpower developmentprograms across all levels as also adopts employee-friendly policies.
Employees Stock Options
Pursuant to the provisions of SEBI (Share-Based Employee Benefits) Regulations 2014details of stock options as on March 31 2017 are given in Annexure E' tothis Report.
Vigil Mechanism/Whistleblower Policy
In compliance 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 formulated a vigil mechanism for directors and employees toreport concerns details of which are covered in the Corporate Governance Report whichforms part of the Annual Report. Whistleblower Policy has been hosted on Company's websitewww.lupin.com. Policies on Code of Conduct and Prevention of Workplace Harassment are onCompany's Intranet.
Particulars of Employees Remuneration
Particulars of remuneration of employees required to be furnished pursuant to theprovisions of Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014 are given in Annexure F'to this Report. Particulars of remuneration of employees required to be furnished in termsof Rules 5(2) and 5(3) of the said Rules forms part of this Report which shall beprovided 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 theRegistered office of the Company during business hours on all working days up to the dateof 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 Auditorsof the Company for a period of five years from the conclusion of 34th AGM till theconclusion of 39th AGM subject to ratification of their appointment by Members at everyAGM. Pursuant to the provisions of Sections 139(1) and 141 of the Act the Company hasreceived a Certificate from B S R & Co. LLP certifying that if they are appointed asAuditors their appointment would be as per the conditions prescribed by the saidSections. Pursuant to the provisions of Section 139 of the Act read with Rule 6 of theCompanies (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 AGMtill the conclusion of the 36th AGM or any adjournment thereof.
Ernst & Young LLP Mumbai are Internal Auditors of the Company for Indiaoperations. During the year Price Waterhouse & Co. Bangalore LLP were appointed asInternal Auditors to conduct audit of international subsidiaries of the Company. LocalChartered Accountant firms were also appointed as Internal Auditors to conduct audits ofCarrying & 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 auditfor the year ended March 31 2017 pursuant to the provisions of Section 148 of the Actread with the Companies (Cost Records and Audit) Amendment Rules 2014. Mr. Shenoy hasconfirmed that he is free from disqualifications specified by Section 141 read withSection 148 of the Act and that his appointment meets requirements of Section 141(3)(g) ofthe Act. He has further confirmed that he is independent and maintains an arm's lengthrelationship with the Company and that no orders are pending against him relating toprofessional matters of conduct before the Institute of Cost Accountants of India or anycourt 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 beforeMembers in a General Meeting for ratification. Accordingly an Ordinary Resolution waspassed 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 andAudit) Rules 2014 Cost Audit Report in Form CRA-4 (in XBRL mode) for the year endedMarch 31 2016 under the head Drugs and Pharmaceuticals' was filed with the CentralGovernment 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 appointedMs. Neena Bhatia Company Secretary in Practice to undertake Secretarial Audit of theCompany 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 anunqualified Secretarial Audit Report.
Extract of Annual Return
Pursuant to the provisions of Sections 134(3)(a) and 92(3) of the Act read with Rule12(1) of the Companies (Management and Administration) Rules 2014 an extract of theAnnual Return as on March 31 2017 in prescribed Form No. MGT-9 is given in AnnexureH' to this Report.
Your Directors convey a sense of high appreciation to all the employees of the Companyfor their hard work dedication continued commitment and significant contributions. YourDirectors gratefully acknowledge the support and cooperation received from variousdepartments of the Central and State governments members business associates analystsbanks financial institutions medical professionals customers distributors andsuppliers.
For and on behalf of the Board of Directors
Dr. Desh Bandhu Gupta
Mumbai May 24 2017