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Natco Pharma Ltd.

BSE: 524816 Sector: Health care
NSE: NATCOPHARM ISIN Code: INE987B01026
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VOLUME 8972
52-Week high 1080.00
52-Week low 545.00
P/E 28.13
Mkt Cap.(Rs cr) 15,744
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Sell Price 0.00
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OPEN 907.40
CLOSE 894.55
VOLUME 8972
52-Week high 1080.00
52-Week low 545.00
P/E 28.13
Mkt Cap.(Rs cr) 15,744
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Natco Pharma Ltd. (NATCOPHARM) - Director Report

Company director report

Dear Members

Your Directors have pleasure in presenting the Thirty-Fourth Annual Report along withthe audited financial accounts of your Company for the financial year ended March 312017.

FINANCIAL HIGHLIGHTS (AS PER IND AS)

` in Millions except share data

Consolidated Standalone
2017 2016 Growth 2017 2016 Growth
Total Revenues 20789 10897 91% 20160 10721 88%
EBITDA 6973 2823 147% 7052 2936 140%
Profit after tax 4860 1571 209% 4948 1765 180%
Dividend (including Dividend Distribution Tax) 1416 262 - 1416 262 -
Transfer to General Reserve - 110 - - 110 -
Earnings Per Share-Basic 27.78 9.14 - 28.27 10.17 -

BRIEF REVIEW OF THE FINANCIAL YEAR

Revenues from formulations segment was the key driver of growth during the fiscal yearconstituting over 87% of total net revenue on standalone basis. This was largely driven bycontinued growth of domestic formulations segments of hepatitis C & oncology drugs aswell as the launch of generic Oseltamivir in the US market. API constituted just under 9%of total net revenue on standalone basis.

As of Mar 31st 2017 the Company has 43 ANDA filings of which (i) 20 Para IV filings(ii) 22 approved

ANDAs (1 yet to be launched); which have been filed in collaboration with globalpharmaceutical companies.

As of Mar 31st 2017 the Company filed 37 DMFs with the USFDA across therapeuticsegments such as oncology CNS anti-asthmatic anti-depressant anti-migraineanti-osteoporosis and gastrointestinal disorders and are currently working on several moreDMFs to be filed in near future.

DIVIDEND:

The Board of Directors of your Company declared two interim dividends for the FY 2017the details of which are as follows:

S. No. Date of Board Meeting Date of payment Interim Dividend Declared per equity share of face value Rs. 2/- each Dividend Payout (including DDT) (` in Millions)
1. 9th August 2016 31st August 2016 0.75 157.22
2. 14th February 2017 03rd March 2017 6.00 1258.76
TOTAL 6.75 1415.98

The Interim Dividend had been paid to all eligible shareholders and no furtherdividends are proposed/ recommended by the Board. Accordingly your Directors recommendthat the above two interim dividend amounts be treated as the final dividend of theCompany for the Financial Year 2016-17. The Board adopted a Dividend Distribution Policyfor the Company which is attached as "Annexure IX" to this Board's Report.

TRANSFER TO RESERVES

The Company has not transferred any amount to the general reserve during the currentfinancial year.

SHARE CAPITAL

The paid-up share capital of your Company increased to Rs. 349 million in FY2017 dueto allotment of 133555 shares of face value Rs. 2 each to the eligible employees of thecompany under Employee Stock Option Scheme 2015.

FIXED DEPOSITS

The Company has not accepted any deposits covered under Chapter V of the Companies Act2013. Accordingly no disclosure or reporting is required in respect of details relating todeposits covered under this Chapter

CHANGE IN THE NATURE OF BUSINESS IF ANY

During the year there was no change in the nature of business of the Company or any ofits subsidiaries.

The Company has introduced a new segment Cardiology and Diabetology (CnD) which willenhance our presence in India.

SUBSIDIARIES

The Company has five (5) international subsidiaries (excluding one (1) step downsubsidiary) as on 31 March 2017.The consolidated financial statement of the Company andall its subsidiaries prepared under Indian Accounting Standards (Ind AS) specified underSection 133 of the Companies Act2013 form part of the annual report. Further a statementcontaining the salient features of the financial statement of our subsidiaries in theprescribed Form AOC-1 is attached as "Annexure I" to the Board's Report. Thisstatement also provides the details of the performance and financial position of eachsubsidiary. In accordance with Section 136 of the Companies Act 2013 the auditedfinancial statements and related information of the subsidiaries where applicable willbe available for inspection during regular business hours at the Company's registeredoffice in Hyderabad India.

PARTICULARS OF INVESTMENTS LOANS & ADVANCES

The Company makes investments loans and advances to its subsidiaries for theirbusiness purpose. Details of loans investments and advances covered under Section 186 ofthe Companies Act 2013 form part of the notes to the financial statements provided inthis annual report.

CORPORATE GOVERNANCE AND ADDITIONAL SHAREHOLDERS INFORMATION

A detailed report on the corporate governance systems and practices of the Company isgiven under Corporate Governance Report which is part of this Annual Report. Similarlyother detailed information for shareholders is provided in the chapter AdditionalShareholders' Information.

A certificate from CS P. Renuka Company Secretary in Practice (C.P. No. 3460) on thecompliance with the conditions of corporate governance is attached to this Annual Report.

MANAGEMENT DISCUSSION AND ANALYSIS

A detailed report on the Management Discussion and Analysis is provided as a separatechapter in the annual report.

BOARD OF DIRECTORS

In accordance with the provisions of the Companies Act 2013 Mr. P. S. R. K. Prasad(DIN: 07011140) Director retires by rotation and being eligible offers himself forreappointment at the ensuing Annual General Meeting of the company.

Dr. B.S. Bajaj who will be attaining 90 years of age this September andDr.A.K.S.Bhujanga Rao who on superannuation requested the Company to relieve them asDirectors. Accordingly Board accepted their resignations.

BOARD EVALUATION

As per provisions of the Companies Act 2013 and the Listing Regulations an evaluationof the performance of the Board was undertaken.

The contribution and impact of individual Directors were reviewed through a peerevaluation on parameters such as level of engagement and participation flow ofinformation independence of judgment conflicts resolution and their contribution inenhancing the Board's overall effectiveness. The feedback obtained from the interventionswas discussed in detail and where required independent and collective action points forimprovement put in place.

APPOINTMENT OF DIRECTORS AND REMUNERATION POLICY

The assessment and appointment of members to the Board is based on a combination ofcriterion that includes ethics personal and professional stature domain expertisegender diversity and specific qualification required for the position. The potential Boardmember is also assessed on the basis of independence criteria defined in Section 149(6) ofthe Companies Act 2013 and SEBI (Listing Obligation and Disclosure Requirements)Regulations 2015 ("Listing Regulations").

In accordance with Section 178(3) of the Companies Act 2013 and on recommendations ofNomination and Remuneration Committee the Board adopted a remuneration policy forDirectors Key Management Personnel (KMPs) and Senior Management which is attached as "AnnexureVIII" to this Board's Report.

DECLARATION BY INDEPENDENT DIRECTORS

The Company has received necessary declaration from each independent Director underSection 149(7) of the Companies Act 2013 that he/she meets criteria of Independence laiddown in Section 149(6) of the Companies Act 2013 and Regulation 16(1)(b) of the ListingRegulations.

NUMBER OF BOARD MEETINGS

The Board of Directors met four times during the FY 2017. Details of Board meetings arelaid out in Corporate Governance Report which forms a part of this Annual Report.

BUSINESS RISK MANAGEMENT

The Company has a risk management mechanism in place to manage uncertainties throughidentification analysis assessment implementing and monitoring to reduce the impact ofrisks to the business which is discussed in detail in the Management Discussion andAnalysis section.

INTERNAL FINANCIAL CONTROL

The Company has laid down certain guidelines processes and structure which enablesimplementation of appropriate internal financial controls across the organisation. Suchinternal financial controls encompass policies and procedures adopted by the Company forensuring the orderly and efficient conduct of business including adherence to itspolicies safeguarding of its assets prevention and detection of frauds and errors theaccuracy and completeness of accounting records and the timely preparation of reliablefinancial information. These include control processes both on manual and IT applicationsincluding the ERP application wherein the transactions are approved and recorded.Appropriate review and control mechanisms are built in place to ensure that such controlsystems are adequate and are operating effectively. Because of the inherent limitations ofinternal financial controls including the possibility of collusion or improper managementoverride of controls material misstatements in financial reporting due to error or fraudmay occur and not be detected. The evaluation of the internal financial controls aresubject to the risk that the internal financial control may become inadequate because ofchanges in conditions or that the compliance with the policies or procedures maydeteriorate. The Company has in all material respects adequate internal financialcontrols over financial reporting and such internal financial controls over financialreporting were operating effectively as at 31 March 2017 as stated in the Guidance Noteon Audit of Internal Controls Over Financial Reporting issued by the Institute ofChartered Accountants of India.

The Statutory Auditors of the Company has audited the IFC over Financial Reporting andtheir Audit Report is annexed to the Independent Auditors' Report under StandaloneFinancial Statements and Consolidated Financial Statements.

INSURANCE

The Company's plant property equipments and stocks are adequately insured againstmajor risks. The Company also has appropriate liability insurance covers particularly forproduct liability and clinical trials. The Company has also taken Directors' and Officers'Liability Policy to provide coverage against the liabilities arising on them.

DIRECTORS RESPONSIBILITY STATEMENT

In terms of Section 134(3)(c) of the Companies Act 2013 in relation to financialstatements of the company for the year ended 31st March 2017 the board of directors statethat:-

a) The applicable accounting standards have been followed in preparation of thefinancial statements and there are no material departures from the said standards.

b) Reasonable and prudent accounting policies have been used in preparation of thefinancial statements and that they have been consistently applied and that reasonable andprudent judgments and estimates have been made in respect of items not concluded by theyear end so as to give a true and fair view of the state of affairs of the company as at31st March 2017 and of the profit for the year ended on that date.

c) Proper and sufficient care has been taken for the maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act 2013 for safeguarding theassets of the company and for preventing and detecting fraud and other irregularities.

d) The financial statements have been prepared on a going concern basis.

e) Proper internal financial controls were in place and were adequate and operatingeffectively; proper systems to ensure compliance with the provisions of applicable lawswere in place and were adequate and operating effectively.

RELATED PARTY TRANSACTIONS

In accordance with Section 134(3)(h) of the Companies Act 2013 and Rule 8(2) of theCompanies (Accounts) Rules 2014 the particulars of contract or arrangement entered intoby the Company with related parties referred to in Section 188(1) in Form AOC-2 isattached as "Annexure II" to this Board's Report.

The details of related party disclosures form part of the notes to the financialstatements provided in this Annual Report.

VIGIL MECHANISM / WHISTLE BLOWER POLICY

The Company has an Ombudsperson policy (Whistle-Blower/Vigil mechanism) to reportconcerns. Under this policy provisions have been made to safeguard persons who use thismechanism from victimization. An

Audit Committee member is the Chief Ombudsperson. The policy also provides access tothe Chairperson of the Audit Committee under certain circumstances. The details of theprocedures are also available on the website of the Company www.natcopharma.co.in.

AUDITORS

Statutory Auditors

The shareholders at their 31st Annual General Meeting (AGM) held on 27 September 2014approved the re-appointment of M/s. Walker Chandiok & Co LLP Chartered Accountants(Firm Registration No.: 001076N) as statutory auditors of the Company to hold officefrom the conclusion of the 31st AGM up to the conclusion of the 36th AGM to be held forthe year 2018-2019. In terms of first proviso of Section 139 of the Companies Act 2013the appointment of the auditors is subject to ratification by the shareholders at everysubsequent AGM.

Accordingly the appointment of M/s. Walker Chandiok & Co LLP CharteredAccountants as statutory auditors of the Company from the conclusion of the 34th AGM tillthe conclusion of the 35th AGM is put forward to the shareholders in the ensuing AGM fortheir ratification.

Secretarial Auditor

Pursuant to Section 204 of the Companies Act 2013 and the Companies (Appointment &Remuneration of Managerial Personnel) Rules 2014 CS Balachandra Sunku (CP No. 12745) apracticing Company Secretary conducted the secretarial audit of the Company for FY 2017.The Secretarial Audit Report in form No. MR-3 is attached as "Annexure III" tothis Board's Report.

The Board has re-appointed CS Balachandra Sunku a Practicing Company Secretary assecretarial auditor of the Company for FY 2018.

Cost Auditors

Pursuant to Section 148 of the Companies Act 2013 read with the Companies (Audit andAuditors) Rules 2014 and the Companies (Cost Records and Audit) Amendment Rules 2014the Company maintains the cost audit records in respect of its pharmaceutical business.The Board has on the recommendation of the Audit Committee appointed M/s. S.S. Zanwar& Associates (Firm Registration No.:100283) as cost auditors of the Company for FY2017. The provisions also require that the remuneration of the cost auditors be ratifiedby the shareholders and accordingly the same is put forward to the shareholders in theensuing AGM for their ratification. The cost audit report for the FY 2017 will be filedwith the Central Government within the stipulated timeline and the relevant cost auditreports for FY 2016 were filed within the due date to the Central Government.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE COURTS / REGULATORS

During FY2017 there were no significant and/or material orders passed by any Court orRegulator or Tribunal which may impact the going concern status or the Company'soperations in future.

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

The Board formulated a Corporate Social Responsibility (CSR) Policy which is in fullforce and operation and is subject to monitoring by the CSR Committee of Directors fromtime to time.

The details about the CSR initiates taken during the FY 2017 are discussed in aseparate chapter "Empowering our Communities" which forms a part of thisAnnual Report.

The Annual Report on CSR activities of the Company is attached as "AnnexureIV" to this Board's Report.

TRANSFER OF UNPAID AND UNCLAIMED AMOUNTS TO INVESTOR EDUCATION AND PROTECTION FUND

Pursuant to the provisions of Section 124(5) of the Companies Act 2013 the declareddividends which remained unpaid or unclaimed for a period of seven years have beentransferred by the Company to the Investor Education and Protection Fund (IEPF)established by the Central Government pursuant to Section 125 of the said Act the detailsof which are updated in the Company's website "www.natcopharma. co.in".

EMPLOYEES STOCK OPTION SCHEME

Details pertaining to the Employee Stock Option Schemes is disclosed in the CorporateGovernance Report which forms a part of this Annual Report.

CREDIT RATING

ICRA has upgraded their rating for various banking facilities from AA- to AA enablingyour company to avail facilities from banks at attractive rates indicating a very strongdegree of safety for timely payment of financial obligations.

PARTICULARS OF EMPLOYEES

Disclosures pertaining to remuneration and other details as required under Section197(12) of the Companies Act 2013 read with Rule 5(1) 5(2) & 5(3) of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 are attached as "AnnexureV" to this Board's Report.

CONSERVATION OF ENERGY RESEARCH AND DEVELOPMENT TECHNOLOGY ABSORPTION FOREIGNEXCHANGE EARNINGS AND OUTGO

The particulars as prescribed under Section 134(3) (m) of the Companies Act 2013 readwith Rule 8(3) of the Companies (Accounts) Rules 2014 are attached as "AnnexureVI".

EXTRACT OF THE ANNUAL RETURN

The details forming part of the extract of the annual return for the FY 2017 in FormMGT-9 is attached as "Annexure VII" to this Board's Report.

ACKNOWLEDGEMENT

Your Directors place on record their sincere appreciation for the significantcontribution made by our employees through their dedication hard work and commitment asalso for the trust reposed on us by the medical fraternity and patients. We alsoacknowledge the support extended to us by the analysts bankers government agenciesmedia customers suppliers shareholders and investors at large. We look forward tocontinued support in our endeavour to help people lead healthier lives.

For and on behalf of the Board of Directors

V.C.Nannapaneni

Chairman and Managing Director

Place: Hyderabad Date: 07.08.2017

ANNEXURE-I

FORM NO. AOC-1

(Pursuant to first proviso to sub-section (3) of Section 129 read with Rule 5 ofCompanies (Accounts Rules 2014)

Statement containing salient features of the financial statement of subsidiaries:

NATCO Pharma INC NATCO Pharma (Canada) Inc. Time cap Overseas Limited NATCO Farma Do Brasil NATCO Pharma Asia PTE LTD NATCO Pharma Australia PTY LTD
Share Capital 42 142 737 568 43 18
Reserves & Surplus 216 -48 -35 -383 -45 -40
Total Assets 278 251 36 294 2 0
Total Liabilities 20 157 0 109 5 22
Investments NIL NIL 666 NIL NIL NIL
Turnover - 359 - 269 NIL NIL
Profit before taxation 5 57 -1 -112 -16 -29
Provision for taxation 1 NIL NIL NIL NIL NIL
Profit after taxation 3 57 -1 -112 -16 -29
Proposed Divided NIL NIL NIL NIL NIL NIL
Report Currency USD CAD USD BRL SGD AUD
Closing exchange rate 64.72 48.55 64.72 20.55 46.31 49.47
Average exchange rate 66.97 51.02 66.97 20.32 48.39 50.39
% of Shareholding 100.00 99.71 89.43 86.91 100.00 93.76

For and on behalf of the Board of Directors

V.C.Nannapaneni

Chairman and Managing Director

Place: Hyderabad

Date: 07.08.2017

ANNEXURE II

Form No. AOC – 2

(pursuant to Clause (h) of Sub-Section (3) of section 134 of the Act and Rule 8(2) ofthe companies (Accounts) Rules 2014)

Disclosure of particular of contracts/arrangements entered into by the Company withrelated parties referred to in sub-section (1) of section 188 of the Companies Act 2013including certain arm's length transactions under third proviso thereto.

1. There are no contracts/arrangements/transactions entered into by the Company withrelated parties referred to in sub-section (1) of Section 188 of the Companies Act 2013which are not at arm's length basis.

2. The following are the contracts/arrangements/transactions entered into by theCompany with related parties referred to in sub-section (1) of Section 188 of theCompanies Act 2013 which are at arm's length basis.

Sl. No. Name(s) of the related party and nature of relationship Nature of Contract / arrangements / transaction Duration of the contracts / arrangements/ transactions Salient terms of the contracts or arrangements or transactions including the value if any: Date(s) of approval by the Board if any: Amount paid as advances if any:
1. Mr. V.C. Nannapaneni Renewal of Lease Agreement 2 years To locate western India Marketing Office and accommodation to Senior Executives visiting Mumbai – Rent payable - Rs. 2100000/- p.a. 14/02/2017 Nil
Chairman & Managing Director
2. Mr. Rajeev Nannapaneni Renewal of Lease Agreement 2 years To locate Chennai Marketing Office and Guest House- Rent payable -` 1200000/-p.a. 14/02/2017 Nil
Vice Chairman & CEO
3. Mr. Rajeev Nannapaneni Renewal of Lease Agreement 2 years To locate Chemical Division Chennai office Rent payable -` 120000/-p.a. 14/02/2017 Nil
Vice Chairman & CEO
4. M/s. Time Cap Pharma Renewal of Lease Agreement 2 years To locate Delhi Office and Guest House- Rent payable-` 2100000/-p.a. 14/02/2017 Nil
Labs Ltd Shareholding of Mr. V. C. Nannapaneni
5. M/s. Time Cap Pharma Renewal of Lease Agreement 2 years To locate godown at Kothur Rangareddy Dist. – Rent payable - Rs. 1200000/-p.a. 14/02/2017 Nil
Labs Ltd Shareholding of Mr. V. C. Nannapaneni
6. M/s. Time Cap Pharma Renewal of Lease Agreement 2 years To locate Company's Solar Panel Production at Kothur Rangareddy Dist. Rent payable - Rs. 1200000/-p.a. 14/02/2017 Nil
Labs Ltd Shareholding Of Mr. V. C. Nannapaneni
7. M/s.Time Cap Pharma Lease Agreement 2 years To locate Time Cap's C & F office at Sanathnagar Rent receivable -` 240000/- p.a. 14/02/2017 Nil
Labs Ltd. Shareholding of Mr. V.C.Nannapaneni
8. M/s.Time Cap Pharma Commissioning and expenses reimbursement 1 year To pay commission and reimburse expenses related to C&f services provided by M/s.Time Cap Pharma Labs Ltd. 14/02/2017 Nil
Labs Ltd. Shareholding of Mr. V.C.Nannapaneni
9. M/s.Time Cap Pharma Purchase of raw- materials 1 year To purchase raw material from Time Cap Pharma Labs Ltd. 14/02/2017 Nil
Labs Ltd. Shareholding of Mr. V.C.Nannapaneni
10. Natco Pharma (Canada) Inc. Sales 1 year To sell finished goods to Natco Pharma (Canada) Inc. 14/02/2017 Nil
11. Natco Pharma Asia Pte Ltd. Subsidiary Sales 1 year To sell finished goods to Natco Pharma Asia Pte Ltd. 14/02/2017 Nil
12. Natco Farma Do Brasil Step-down Subsidiary Commission 1 year Export Commission 14/02/2017 Nil

Information required under Section 197 (12) of the Companies Act 2013 read with Rule 5of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014

(i) The ratio of the remuneration of each director to the median remuneration of theemployees of the Company the percentage increase in remuneration of each director CEOCFO and CS for FY2017 and comparison of the remuneration of each Key Managerial Personnel(KMP) against the performance of the Company:

Name Designation Ratio of Remuneration of each Director/KMP to the median remuneration of employees % increase in remuneration during FY2017
Mr. V. C. Nannapaneni Chairman and Managing 63 Director 0
Mr. Rajeev Nannapaneni Vice Chairman and CEO 55 0
Dr. A.K.S. Bhujanga Rao Whole Time Director 44 14
Mr. P.S.R.K Prasad Whole Time Director 44 14
Dr. D Linga Rao Whole Time Director 44 14
Mr. M. Adinarayana Company Secretary 13 12
Mr. S.V.V.N Apparao Chief Financial Officer 16 10

Mr. T.V. Rao Mr. G.S. Murthy Dr. B.S. Bajaj Mr. D.G. Prasad Dr. Leela Digumarthiand Dr. M.U.R. Naidu Independent Directors were paid only sitting fees for attending theBoard / Committee Meetings.

(ii) The median remuneration of employees increased by 22% in FY2017.

(iii) The number of permanent employees on the rolls of Company as on 31 March 2017 is4411.

The average increase in remuneration paid to employees is 18.23 % for FY2017 ascompared to FY2016. Compared to FY2016 the standalone revenue in FY 2017 grew by 88% andprofit before tax grew by 186%

(iv) It is hereby affirmed that the remuneration paid during FY 2017 is as per theremuneration policy of the company

Statement required under Rule 5 (2) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014

Name of the Employee The age of employee Designation of the employee Gross remuneration received (Rs.) Nature of employment whether contractual or otherwise Qualifications of the employee Experience of the employee Date of Commencement of employment The last employment held by such employee before joining the Company
Mr. V C Nannapaneni 71 CMD 17832000 Regular MS (Pharmaceutical Administration) 48 03.10.1981 Time Cap Labs Inc
Mr. Rajeev Nannapaneni* 40 VC & CEO 15582000 Regular BA in Quantitative Economics & BA in History Tufts University 18 03.07.2000 Merrill Lynch and Natco Systems Inc
Dr. A K S Bhujanga Rao 65 Director & President - R&D & Technical 12499992 Regular Ph.D 35 11.10.2000 Director at Vera Laboratories Ltd.
Dr. D Linga Rao 64 Director & President - Technical Affairs 12499992 Regular Ph.D 42 11.02.1993 Sr. QC Executive at IDPL
Mr. P S R K Prasad 59 Director & EVP - Corporate Engineering Services 12499992 Regular B.Tech. 34 23.05.1995 Engineering Manager at Saudi Ceramics Ltd.Riyadh
Dr. M Pulla Reddy 59 EVP – R&D 12500016 Regular Ph.D 23 01.04.1994 -
Dr. B R Reddy 63 Director – Formulations 12500016 Regular Ph.D 32 29.01.2007 Director – Operations at Granules
Dr. Gopalkrishnan Vaidyanathan 55 VP – AR&D 6500004 Regular Ph.D 29 15.04.2015 VP – Technical Operations at Waters India Pvt. Ltd.
Mr. Narayan Rao C V 62 EVP – SCM/ IT/OD 6125016 Regular B.Tech. 38 02.01.2015 Sr. VP & Head – Global Supply Chain Management at Aurobindo Pharma Ltd.
Mr. Rajesh Chebiyam 46 VP - Acquisitions Institutional Investor Management & Corp. Comm. 6000012 Regular MS (Chemical Engg.) & MBA 21 01.02.2014 Business Development Head at SE Asia Cabot
Dr. Pavan Bhat Ganapati ** 50 E V P - Technical Operations 7291669 Regular Ph.D. (Pharmaceutics 21 01/09/2016 Sr. VP & Head – Regional Operations at Mylan Laboratories Bangalore

* Excludes Rs. 49 million provision towards commission on net profits.

** Empoyed for part of the financial year

None of the employee is related to the Directors except Mr. Rajeev Nannapaneni who isson of Mr. V. C. Nannapaneni.

For and on behalf of the Board of Directors

V.C.Nannapaneni

Chairman and Managing Director

Place: Hyderabad

Date: 07.08.2017

CONSERVATION OF ENERGY RESEARCH AND DEVELOPMENT TECHNOLOGY ABSORPTION FOREIGNEXCHANGE EARNINGS AND OUTGO

(A) CONSERVATION OF ENERGY –

a) During the year the Company has implemented energy conservation projects across itsvarious business units. A few of the key initiatives include:

1. Installation of Energy efficient equipment & optimization of processes consumingenergy: Major projects in this category:

a) Conducted energy audit at Chemical Division Mekaguda for FY 2016-17 and achievedsaving of INR 9 million in various utility areas.

b) Conversion of CFL based lighting to LED lighting has been taken up during FY 2016-17and being implemented in phased manner across all units.

c) Installed new high efficiency Screw chiller for Brine and chilled water during thelast fiscal year for energy saving and achieved significant saving annually.

2. Identifying cheaper power sources both in-house and external and Utilizing thealternate sources of energy:

a) Installed 1 Mw Solar plant at Chemical Division Mekaguda which lead to savings ofapproximately INR 4 million for part of the year since installation. Work under progressfor installation of an additional 1 MW Solar plant after which we expect totalsavings of INR 20 million per year going forward with a 2MW Solar energy utilization.

b) Third party Solar Power Purchase agreement done for 2.7 MW and the expected savingfor FY 2017-18 is INR 5 million

c) Commissioned 2.1 MW wind mill at Chemical Division Chennai. Expected saving for FY2017-18 is INR 20 million.

3. Steps in progress for increasing the utilization of alternate renewable sources ofenergy:

a) Propose to install 1.15 MW Solar plant at our injectables plant Nagarjuna Sagar.Expected saving per annum is approximately INR 10 million

b) Feasibility studies for Wind Power Generation for captive power utilization atChemical Division Mekaguda has been completed and the data evaluation is in progress bythird party consultant for generating Wind power.

(B) TECHNOLOGY ABSORPTION

i) Efforts made towards technology absorption: As part of the technologyabsorption the Company engages in in-house development of bulk drugs & formulationsconducts pilot studies for potential scale-up so as to improve efficiency both in terms oftime and productivity of products. Disclosure of particulars with respect to conservationof energy.

A: POWER AND FUEL CONSUMPTION For the year ended 31.03.2017 For the year ended 31.03.2016
1. Electricity
a) Purchased Units 51275626 47382277
Total amount (` million) 339.12 307.30
Rate / Unit (` ) 6.61 6.49
b) Own Generation:
i) Through Diesel
Generator Units 1398416 1529184
Units / ltr. Of Diesel Oil 3.53 3.35
Cost / Unit (` ) 16.11 15.62
2. Coal D/C grade
Quantity (Tonnes) 4821 3805
Total amount (` million) 34.84 33.08
Average rate per tonne (` ) 7227 8694
3. Furnace Oil
Quantity (Ltr) 664734 547738
Total amount (` million) 16.78 13.88
Average rate per Ltr (` ) 25.24 25.34
(` in Millions)
(C) Expenditure on R&D For the year ended 31.03.2017 For the year ended 31.03.2016
a) Total R&D expenditure including capital expenses 1216 703
b) Total R&D Expenditure as percentage of turnover 6.03 6.56

(D) FOREIGN EXCHANGE EARNINGS AND OUTGO

Foreign exchange earned in terms of actual inflows and foreign exchange outgo in termsof actual outflows during the year FY 2016-17: -

Foreign exchange earned in terms of actual Inflows Rs. 6792.84 million.

Foreign exchange outgo in terms of actual Outflows Rs. 2254.40 million.

For and on behalf of the Board of Directors

V.C.Nannapaneni

Chairman and Managing Director

Place: Hyderabad Date: 07.08.2017

ANNEXURE VIII

NOMINATION AND REMUNERATION POLICY

Our policy on the appointment and remuneration of directors and key managerialpersonnel provides a framework based on which our human resources management aligns theirrecruitment plans for the strategic growth of the Company. The nomination and remunerationpolicy is provided herewith pursuant to the Companies Act 2013 and SEBI (ListingObligations and Disclosure Requirements) Regulations 2015.

INTRODUCTION:

In pursuance of the Company's policy to consider human resources as its invaluableassets to pay equitable remuneration to all Directors Key Managerial Personnel (KMP) andemployees of the Company to harmonize the aspirations of human resources consistent withthe goals of the Company and in terms of the provisions of the Companies Act 2013 and thelisting agreement as amended from time to time this policy on nomination and remunerationof Directors and Key Managerial Personnel has been formulated by the Committee andapproved by the Board of Directors.

THE OBJECTIVE AND PURPOSE OF THIS POLICY ARE:

• To lay down criteria and terms and conditions with regard to identifying personswho are qualified to become Directors (Executive and Non-Executive) and persons who may beappointed as Key Managerial positions and to determine their remuneration.

• To determine remuneration based on the Company's size and financial position andtrends and practices on remuneration prevailing in peer companies in the Pharmaceuticalindustry.

• To carry out evaluation of the performance of Directors as well as KeyManagerial Personnel.

• To provide them reward linked directly to their effort performance dedicationand achievement relating to the Company's operations.

• To retain motivate and promote talent and to ensure long term sustainability oftalented managerial persons and create competitive advantage. In the context of theaforesaid criteria the following policy has been formulated by the Nomination andRemuneration Committee and adopted by the Board of Directors at its meeting held on 12thAugust 2014.

CONSTITUTION OF THE NOMINATION AND REMUNERATION COMMITTEE:

The Board has changed the nomenclature of Remuneration Committee by renaming it asNomination and Remuneration Committee on 12th August 2014. The Nomination andRemuneration Committee comprises of 4 members.

Sl.No. Name of the Member Category
1 Shri G.S.Murthy Independent Non- Executive Director
2 Dr.B.S.Bajaj Independent Non- Executive Director
3 Shri Vivek Chhachhi Non-Executive Director
4 Shri V.C.Nannapaneni Executive Director

The Board has the power to reconstitute the Committee consistent with the Company'spolicy and applicable statutory requirement.

DEFINITIONS:

• Board means Board of Directors of the Company.

• Directors means Directors of the Company.

• Committee means Nomination and Remuneration Committee of the Company asconstituted or reconstituted by the Board.

• Company means NATCO Pharma Limited.

• Independent Director means a director referred to in Section 149 (6) of theCompanies Act 2013.

• Key Managerial Personnel (KMP) means-

(i) Managing Director; (ii) Whole-time Director; (iii) Chief Financial Officer; (iv)Company Secretary; (v) Such other officer as may be prescribed.

• Senior Management means personnel of the Company who are members of its coremanagement team excluding the Board comprising all members of management one level belowthe executive directors including the functional heads.

Unless the context otherwise requires words and expressions used in this policy andnot defined herein but defined in the Companies Act 2013 as may be amended from time totime shall have the meaning respectively assigned to them therein.

APPLICABILITY:

The Policy is applicable to

• Directors (Executive and Non Executive)

• Key Managerial Personnel

• Senior Management Personnel

GENERAL:

• This Policy is divided in three parts: Part – A covers the matters to bedealt with and recommended by the Committee to the Board Part – B covers theappointment and nomination and Part – C covers remuneration and perquisites etc.

• This policy shall be included in the Board's Report.

PART – A

MATTERS TO BE DEALT WITH PERUSED AND RECOMMENDED TO THE BOARD BY THE NOMINATION ANDREMUNERATION COMMITTEE

The Committee shall:

• Formulate the criteria for determining qualifications positive attributes andindependence of a director.

• Identify persons who are qualified to become Director and persons who may beappointed in Key Managerial and Senior Management positions in accordance with thecriteria laid down in this policy.

• Recommend to the Board appointment and removal of Director KMP.

• Formulation of criteria for evaluation of Independent Directors and the Board.

• Devising a policy on Board diversity.

PART – B

POLICY FOR APPOINTMENT AND REMOVAL OF DIRECTOR KMP AND SENIOR MANAGEMENT

• Appointment criteria and qualifications:

1. The Committee shall identify and ascertain the integrity qualification expertiseand experience of the person for appointment as Director KMP or at Senior Managementlevel and recommend to the Board his / her appointment.

2. A person should possess adequate qualification expertise and experience for theposition he / she is considered for appointment. The Committee has discretion to decidewhether qualification expertise and experience possessed by a person is sufficient /satisfactory for the concerned position.

3. The Company shall not appoint or continue the employment of any person as Whole timeDirector who has attained the age of seventy years. Provided that the term of the personholding this position may be extended beyond the age of seventy years with the approval ofshareholders by passing a special resolution based on the explanatory statement annexed tothe notice for such motion indicating the justification for extension of appointmentbeyond seventy years.

• Term / Tenure:

1. CEO/Whole – Time Director

The Company shall appoint or re-appoint any person as its CEO or Whole –timeDirector for a term not exceeding five years at a time. No reappointment shall be madeearlier than one year before the expiry of the term

2. Independent Director: -

An Independent Director shall hold office for a term up to five consecutive years onthe Board of the Company and will be eligible for re-appointment on passing of a specialresolution by the Company and disclosure of such appointment in the Board's report.

- No Independent Director shall hold office for more than two consecutive terms of fiveyears each but such Independent Director shall be eligible for appointment after expiryof three years of ceasing to become an Independent Director. Provided that an IndependentDirector shall not during the said period of three years be appointed in or beassociated with the Company in any other capacity either directly or indirectly.

- At the time of appointment of Independent Director it should be ensured that numberof Boards on which such Independent Director serves is restricted to seven listedcompanies as an Independent Director and three listed companies as an Independent Directorin case such person is serving as a Whole-time Director of a listed company.

• Evaluation:

The Committee shall carry out evaluation of performance of every Director KMP andSenior Management Personnel at regular interval (yearly).

• Removal:

Due to reasons for any disqualification mentioned in the Companies Act 2013 rulesmade thereunder or under any other applicable Act rules and regulations the Committeemay recommend to the Board with reasons recorded in writing removal of a Director KMPor Senior Management Personnel subject to the provisions and compliance of the said Actrules and regulations.

• Retirement:

The Director KMP and Senior Management Personnel shall retire as per the applicableprovisions of the Companies Act 2013 and the prevailing policy of the Company. The Boardwill have the discretion to retain the Director KMP Senior Management Personnel in thesame position / remuneration or otherwise even after attaining the retirement age for thebenefit of the Company.

PART – C

POLICY RELATING TO THE REMUNERATION FOR THE WHOLE-TIME DIRECTOR KMP AND SENIORMANAGEMENT PERSONNEL

• General:

1. The remuneration / compensation / commission etc. to the Whole-time Director KMPand Senior Management Personnel will be determined by the Committee and recommended to theBoard for approval. The remuneration / compensation / commission etc. shall be subject tothe prior/post approval of the shareholders of the Company and Central Governmentwherever required.

2. The remuneration and commission to be paid to the Whole-time Director shall be inaccordance with the percentage / slabs / conditions laid down in the Articles ofAssociation of the Company and as per the provisions of the Companies Act 2013 and therules made thereunder.

3. Increments to the existing remuneration / compensation structure may be recommendedby the Committee to the Board which should be within the slabs approved by theShareholders as per Companies Act 2013 in the case of Whole- time Director..

4. Where any insurance is taken by the Company on behalf of its Whole-time DirectorChief Executive Officer Chief Financial Officer the Company Secretary and any otheremployees for indemnifying them against any liability the premium paid on such insuranceshall not be treated as part of the remuneration payable to any such personnel. Providedthat if such person is proved to be guilty the premium paid on such insurance shall betreated as part of the remuneration.

• Remuneration to Whole-time / Executive / Managing Director KMP and SeniorManagement Personnel:

1. Fixed pay:

The Whole-time Director / KMP and Senior Management Personnel shall be eligible for amonthly remuneration as may be approved by the Board on the recommendation of theCommittee. The breakup of the pay scale and quantum of perquisites including employer'scontribution to P.F pension scheme medical expenses club fees etc. shall be decided andapproved by the Board on the recommendation of the Committee and approved by theshareholders and Central Government wherever required.

2. Minimum Remuneration:

If in any financial year the Company has no profits or its profits are inadequatethe Company shall pay remuneration to its Whole-time Director in accordance with theprovisions of Schedule V of the Companies Act 2013 and if it is not able to comply withsuch provisions with the previous approval of the Central Government.

3. Provisions for excess remuneration:

If any Whole-time Director draws or receives directly or indirectly by way ofremuneration any such sums in excess of the limits prescribed under the Companies Act2013 or without the prior sanction of the Central Government where required he / sheshall refund such sums to the Company and until such sum is refunded hold it in trust forthe Company. The Company shall not waive recovery of such sum refundable to it unlesspermitted by the Central Government.

• Remuneration to Non- Executive / Independent Director:

1. Remuneration / Commission:

The remuneration / commission shall be fixed as per the slabs and conditions mentionedin the Articles of Association of the Company and the Companies Act 2013 and the rulesmade thereunder.

2. Sitting Fees:

The Non- Executive / Independent Director may receive remuneration by way of fees forattending meetings of Board or Committee thereof. Provided that the amount of such feesshall not exceed ` One lakh per meeting of the Board or Committee or such amount as may beprescribed by the Central Government from time to time and approved by the Board of theCompany.

3. Stock Options:

An Independent Director shall not be entitled to any stock option of the Company.

Policy review

This policy is framed in line with the provisions of the Companies Act 2013 and SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015.

In case of any subsequent changes in the provisions of the Companies Act 2013 or anyother regulation which makes any of the provisions in the policy inconsistent with the Actor regulations the provisions of the Act or regulations would prevail over the policy andthe policy would be modified in due course to make it consistent with the law.

This policy shall be reviewed by the Nomination and Remuneration Committee as and whenchanges need to be incorporated in the policy due to changes in the regulations or as maybefelt appropriate by the Committee.

ANNEXURE IX

NATCO DIVIDEND DISTRIBUTION POLICY

The Board of Directors (the "Board") of Natco Pharma Limited (the"Company") has adopted the Natco Dividend Distribution Policy (the"Policy") of the Company as required in terms of Regulation 43A of the SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 (the "ListingRegulations") in its meeting held on 11th November 2016.

EFFECTIVE DATE

The Policy shall become effective from the date of its adoption by the Board i.e. 11thNovember 2016.

PURPOSE

To help the investors in taking well informed investment decisions.

DEFINITIONS

Any term used in this policy shall have the meaning ascribed to it in the CompaniesAct 2013 or Rules made thereunder SEBI Act 1992 or Rules and Regulations madethereunder or any other relevant legislation/law applicable to the Company

STATUTORY PROVISIONS:

Chapter VIII of the Companies Act 2013 and rules made there under contain theprovisions pertaining to declaration and payment of dividend. The following points set outthe statutory obligations of a Company with respect to declaration / payment of dividend:

• Company shall declare or pay dividend for any financial year only out of theprofits of the Company for that financial year.

• Such profits shall be after providing for depreciation in accordance with theprovisions of the law.

• In case of inadequacy or absence of profits in any year a maximum of 10% ofpaid-up capital can be declared as dividend subject to other provisions contained in theCompanies (Declaration and Payment of Dividend) Rules 2014.

The SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 alsospecify certain conditions as to declaration of dividend such as prior intimation to thestock exchanges record date etc.

A. GENERAL POLICY OF THE COMPANY AND OTHER CONSIDERATIONS AS REGARDS DIVIDEND

The Board shall consider the following while taking decisions of a dividend pay-outduring a particular year-

1. STATUTORY REQUIREMENTS

The Company shall observe the relevant statutory requirements which may be applicableto the Company at the time of taking decision with regard to dividend declaration orretention of profit.

2. PRUDENTIAL REQUIREMENTS

Prior to declaration / recommendation of any dividend as per this policy the Companymay consider any applicable covenants / conditions or restrictions imposed by any lendersJV partners of the Company or its subsidiaries. The Company may decide to retain earningsin entirety for a particular year(s) for its growth / expansion consequently resulting inshareholders' wealth creation.

3. EXTENT OF REALIZED PROFITS AS A PART OF THE IND AS PROFITS OF THE COMPANY

The extent of realized profits out of its profits calculated as per IND AS affects theBoard's decision of determination of dividend for a particular year. The Board is requiredto consider such factors before taking any dividend or retention decision.

4. EXPECTATIONS OF STAKEHOLDERS INCLUDING SMALL SHAREHOLDERS

The Board while considering the decision of dividend pay-out or retention of a certainamount or entire profits of the Company shall as far as possible consider theexpectations of the stakeholders including the small shareholders of the Company whogenerally expects for a regular dividend payout.

B. OTHER FINANCIAL PARAMETERS

In addition to the aforesaid parameters such as realized profits and proposed majorcapital expenditures the decision of dividend payout or retention of profits shall alsobe based the following-

1) Current earnings of the Company

2) Operating cash flow of the Company

3) Dividend History

4) Repayment/Pre-payment of Borrowings

5) Future Earnings Expectation

6) Capital Expenditure Requirements requiring ploughing back of profits i.e. futurecapital expenditure program including

• Market expansion plan;

• Product expansion plan;

• Increase in production capacity;

• Modernization plan;

• Diversification of business;

• Long term strategic plans;

• Acquiring new businesses/products

7) Crystallization of contingent liabilities if any

8) Exchange Risk

9) Sale of businesses

10) Economic / Geo-political factors/risks

11) Regulatory requirements

C. INTERIM/FINAL DIVIDEND PAYOUT

Pursuant to the provisions of applicable laws and the Policy interim dividend approvedby the Board of Directors will be confirmed by the shareholders and final dividend ifany recommended by the Board of Directors will be subject to shareholders approval atthe relevant Annual General Meeting of the Company. The Company shall ensure compliance ofprovisions of Applicable Laws and this Policy in relation to Dividend declared by theCompany.

D. CLASSES OF SHARES

At present the issued and paid-up share capital of the Company comprises only ofequity shares. As and when the Company issues any other class(es) of shares the Board ofDirectors may suitably declare dividend on such class(es) in accordance with theprovisions of the Companies Act 2013 and this policy.

E. DISCLOSURES

Company is required to disclose this policy on its website and also in the AnnualReport of the Company. The Company shall make other appropriate disclosures pertaining todeclaration of dividend as required under the Companies Act 2013 and the rules madethereunder the SEBI Act 1992 or the rules and regulations made thereunder and any otherlaw applicable.

F. AMENDMENT

The Board shall have the power to amend any of the provisions of this Policysubstitute any of the provisions with a new provision or replace this Policy entirely witha new Policy in conformity with the provisions of Companies Act 2013 and the rules madethereunder the SEBI Act 1992 or the rules and regulations made thereunder and any otherlaw applicable.

G. DECLARATION OF DIVIDEND ON PARAMETERS NOT MENTIONED IN THE POLICY

If the Company proposes to declare dividend on the basis of parameters in addition tothose mentioned in the policy it shall disclose such changes along with the rationale forthe same in its annual report and on its website.

H. LIMITATIONS

The Policy shall not apply to:

• Special dividend if any to be outside the scope of this policy but would begoverned by the provisions under the Companies Act 2013.

• Distribution of dividend in kind i.e. by issue of fully or partly paid bonusshares or other securities subject to applicable law;

• Buyback of equity shares.