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Neuland Laboratories Ltd.

BSE: 524558 Sector: Health care
BSE 15:47 | 16 Jan 892.05 1.25






NSE 15:43 | 16 Jan 893.40 5.90






OPEN 899.85
52-Week high 1680.00
52-Week low 828.15
P/E 46.03
Mkt Cap.(Rs cr) 792
Buy Price 892.05
Buy Qty 15.00
Sell Price 0.00
Sell Qty 0.00
OPEN 899.85
CLOSE 890.80
52-Week high 1680.00
52-Week low 828.15
P/E 46.03
Mkt Cap.(Rs cr) 792
Buy Price 892.05
Buy Qty 15.00
Sell Price 0.00
Sell Qty 0.00

Neuland Laboratories Ltd. (NEULANDLAB) - Director Report

Company director report

Your Directors have pleasure in presenting the Thirty Second Annual Report of yourCompany along with the audited statement of accounts for the year ended March 312016.

Financial Results

(Rs. in Lacs)
2015-2016 2014-2015
Net Income 51158.92 46993.22
Profit before Depreciation and Tax 5702.28 3979.69
Less: Depreciation 1574.26 1531.98
Profit before Tax 4128.02 2447.70
Exceptional items - -
Prior period adjustments - -
Provision for current tax and deferred Tax 1486.54 869.58
Profit after Tax 2641.48 1578.14
Add: Balance brought forward from the previous year 5584.62 4325.96
Profit available for appropriation 8226.10 5904.10
Appropriation 213.84 319.48
Balance carried forward to Balance Sheet 8012.26 5584.62

For the financial year ended March 31 2016 the total income was Rs. 51158.92 lacs ascompared to Rs. 46993.22 lacs in the corresponding period of the previous year. TheEBITDA for the financial year 2015-16 stood at Rs. 8148.88 lacs with a margin of 15.91%compared to EBIDTA of Rs. 6714.55 lacs and margin of 14.3% during the correspondingperiod of previous year. The Net profit was Rs. 2641.48 lacs for the year under review ascompared to Rs. 1578.14 lacs in the corresponding period of the previous year.

Business Review

The last financial year saw your Company take further steps towards achieving itsvision of being the Leading Non-Competing API partner to the Pharmaceutical Industry inIndia and abroad. We have seen that as our relationships with key partners mature Neulandis putting its best foot forward to reap the benefits. During the last year your Companyhas seen key players come forward to seek a more strategic relationship with Neuland. YourCompany is also seeing the initial effects of the improvements made in terms of productmix changes cost optimisation and process improvements that are expected to have apositive impact on the profit margins efficiencies and overall profitability.

Your Company has continued its track record with leading Regulatory Authoritiessuccessfully clearing an Audit by the USFDA during the year under review. Based on thetrack-record and the steps being taken to ensure compliance on various fronts we areconfident that the management is leading your Company in the right direction which willsee all the stakeholders gaining both in the short and the long term.


The Board of Directors has recommended a final dividend of Rs. 2/- per equity share(20% dividend) to the members for their approval. The dividend if approved will be paidto members within the period stipulated by the Companies Act 2013. The outflow on accountof dividend (inclusive of tax on distributed profits) will be Rs. 213.84 lacs.

Share Capital

The equity shares of your Company continue to be listed and traded on the BSE Limitedand National Stock Exchange of India Limited. The paid up equity share capital as on March312016 was Rs. 895.39 lacs. Your Company has not issued or allotted any shares or grantedstock options or sweat equity during the year under review.


While the Pharmaceutical Industry continues to be a highly competitive space especiallyin India your Company has made significant strides in carving a niche for itself as apure-play API player. This clear strategy has enabled the Company to leverage itsportfolio with customers and the changes made over the past few years will lead totangible results. Your Company is well positioned to grow both the generic API businessand the Custom Manufacturing Solutions business. This is clear from the change in thebusiness mix over the last year and the prospects based on the projects on which theCompany is working.

Your Company is well-equipped to take advantage of the opportunity which presentsitself before the Company.

Consolidated Financial Statements

The Consolidated Financial Statements of the Company prepared in accordance withrelevant Accounting Standards (AS) issued by the Institute of Chartered Accountants ofIndia and approved by the Board of Directors of the Company form part of this AnnualReport.

Annual accounts of the subsidiary companies are kept for inspection by any member atthe Registered Office of the Company as well as at the Registered Office of the respectivesubsidiary companies. Any member interested in a copy of the accounts of the subsidiariesmay write to the Company Secretary at the Registered Office of the Company.

A report on the performance and financial position of the subsidiaries set out in theprescribed form AOC-1 in terms of proviso to sub section (3) of Section 129 of theCompanies Act 2013 is provided as Annexure A to the consolidated financial statement andhence not repeated here.

Subsidiaries & Joint Venture

Your Company has two subsidiaries Neuland Laboratories K.K. Japan and NeulandLaboratories Inc. USA working on market development. There are no associate companieswithin the meaning of Section 2(6) of the Companies Act 2013 ("Act"). Furtherthere has been no material change in the nature of business of the subsidiaries.

Your Company's joint venture Cato Research Neuland India Private Limited did not haveany operations in the past couple of years. It was decided to dissolve the joint ventureas it was not able to generate any business due to significant challenges in the clinicaltrials environment in India and necessary steps have been taken in respect of the same.

Holding Company

Your Company is a Subsidiary Company of Neuland Health Sciences Private Limited as perSection 2(87) of the Companies Act 2013.

Documents uploaded on the Website

The following documents are available on the website of the Company( in compliance with Companies Act 2013:

• Unpaid dividend details as per Section 124(2)

• Corporate Social Responsibility Policy as per Section 135(4)(a)

• Financial Statements of the Company and Consolidated Financial Statements alongwith relevant documents as per third proviso to section 136(1)

• Separate audited accounts in respect of subsidiaries as per fourth proviso tosection 136(1)

• Details of vigil mechanism for directors and employees to report genuineconcerns as per proviso to section 177(10)

• Policy on Material Subsidiaries

• The terms and conditions of appointment of independent directors as per ScheduleVI to the Act.

Research & Development

The Research and Development (R&D) team of your Company continues its ventures toensure that identified products are scaled up at the appropriate time such that there is asteady stream of new products.

During the year under review six of the existing products were taken up for processimprovement involving cycle time reduction recovery and reuse of solvents adoption ofgreen chemistry yield improvement and backward integration of key starting materials.

The increase in the Custom Manufacturing Solutions (CMS) business coupled with customersatisfaction is due in large measure to your team showing utmost importance to thecustomer needs without compromising on the quality and timelines.

There is a great emphasis on QBD (Quality by Design) for robust processes. The team hasbeen working on acquiring new capabilities prominent among them being enzymatic research.It has initiated work on the same while forging strong collaborative links which couldplay a key role in the future.

Environment Health & Safety

Your Company is committed to excellence in environment health and safety (EHS) andbelieves it is an important pillar for good corporate governance. Environmentalprotection prevention of occupational illness and prevention of work injuries arecorporate responsibilities. As a responsible corporate citizen your Company continuouslystrives to serve the society through responsibly managing EHS related expectations ofinternal and external customers. To achieve this we ensure that all our activitiesproducts and services are carried out considering appropriate EHS related concerns andaddressing the same. In this financial year no reportable accident/incident happened inyour Company.

Your Company recognizes EHS stewardship as an integral part of everything it does torun its business and continually evaluates EHS related aspects and risks as part of theorganizational decisionmaking process. All employees of your Company are enjoined to takepersonal responsibility for meeting the requirement of the EHS management systems andrequired competencies are developed and performances are monitored. EHS policy acts as aguiding principle for identifying analyzing and mitigating any environmental impactsand/or safety and health risks arising from our activities products and services.

While developing processes at R&D the Company adopts Rs. Green Chemistry' Throughthis method input materials like various chemicals solvents water energy and processconditions are selected aiming at minimization of potential environmental aspects andsafety and health hazards. Once processes are developed process improvement initiativesare taken up continuously to optimize consumption of raw materials solvents water andenergy in manufacturing processes to make them sustainable.

On the Occupational Health front your Company has a full-fledged occupational healthcenter with a physician(s) support staff and required infrastructure. Hazard &Operability (HazOp) and Hazard Identification & Risk Assessment (HIRA) studies arecarried out for processes and activities to minimize health and safety risks from suchprocesses and activities.

Your Company has implemented co-processing of certain hazardous wastes as fuelsubstitutes in authorized cement plants in their kilns to support energy resourceconservation and reduce greenhouse gas emissions. This beneficial use of hazardous wastesis helping the environment in by conserving precious energy resources and reducinggreenhouse gas emissions. Regular pollution monitoring is carried out to ensure compliancewith permitted norms.

Your Company continually invests in pollution control and safety relatedinfrastructures depending on need and invested Rs. 654.70 lacs equal to 1.28 % of revenuein the financial year 2016. Your Company has spent Rs. 961.11 lacs equal to 1.87 % ofrevenue in the financial year 2016 towards operation and maintenance of theseinfrastructures.

Information Management Systems

Your Company's information technology platform is a key component in offering customerstransparency accountability and reliability while executing their orders. The systemdesign and architecture is kept updated to track the progress in execution of theirorders.

In view of Rs. mobile handset' increasingly becoming standard device of computingMobile Device Management (MDM) & Mobile Application Management (MAM) solutions havebeen implemented using Enterprise Mobility Suite (EMS) in a secure and manageableenvironment along with Microsoft Office 365 and Azure cloud services.

Most of the current manual business processes have been automated to bringtransparency which helps to improve productivity. A new employee portal has been plannedto be launched shortly which will cater to various Employee Self Service (ESS) relatedactivities from anywhere and any device.

Key business functions like Plant Maintenance (PM) Production Planning (PP) are in theprocess of being automated using SAP ERP.

To secure end points (PC laptop mobile etc.) and information flow over e-mail &web various measures including Data Leak Prevention (DLP) Rights Management Systems(RMS) Mobile Device Management (MDM) and Media Encryption are in the process of beingimplemented to protect IPR Customer Data and Confidentiality.

All the employees are aware and have been sensitized that all assets of your Companygenerate confidential information and therefore information security is viewed with greatimportance. Your Company appreciates the importance of intellectual property rights andhas put in place procedures to protect strictly intellectual properties. This includescomprehensive user awareness training for Information Security Management System (ISMS)adoption and its adherence followed by internal ISMS audit of all functions.

Your Company successfully completed ISO 27001:2013 second surveillance audit ofInformation Security Management System.

Corporate Governance Report Management Discussion & Analysis and Other InformationRequired under the Companies Act 2013 and Listing Agreement

As per SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015Corporate Governance Report with Certificate from a Practicing Company Secretary thereonand Management Discussion and Analysis report are attached and form part of this report.

Directors and Key Managerial Personnel

Dr.Nirmala Murthy was appointed as an Independent NonExecutive Director of the Companywith effect from May 8 2015 at the previous Annual General Meeting for a period of fiveconsecutive years for a term up to May 7 2020.

In accordance with the provisions of Section 152 of the Companies Act 2013Mr.D.Saharsh Rao shall retire by rotation and being eligible offers himself forre-appointment.

Details of the proposal for re-appointment of Mr.D.Saharsh Rao are mentioned in theExplanatory Statement under Section 102 of the Companies Act 2013 of the Notice of the32nd Annual General Meeting. The profile of the Directors for re-appointment is includedin the Report on Corporate Governance annexed. Your Board recommends the abovere-appointment of Director in the best interest of the Company.

Dr.D.R.Rao Chairman & Managing Director Mr.D.Sucheth Rao Vice Chairman &CEO Mr.D.Saharsh Rao Joint Managing Director Mr.Anil Kumar Chief Financial OfficerMs.Sarada Bhamidipati Company Secretary & Compliance Officer are Key ManagerialPersonnel of the Company.

Independent Directors' Declaration

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

Listing at Stock Exchanges

The equity shares of your Company continue to be listed and traded on the BSE Limitedand National Stock Exchange of India Limited. The Annual Listing fee for the year 2016-17has been paid to both the stock exchanges.

Directors' Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act 2013 your Directors confirm thatto the best of their knowledge and belief and according to the information and explanationobtained by them:

a) in the preparation of the annual financial statements for the year ended March 312016 the applicable accounting standards have been followed along with proper explanationrelating to material departures if any;

b) such accounting policies as mentioned in the Notes to the Financial Statements havebeen selected and applied consistently and judgement and estimates have been made that arereasonable and prudent so as to give a true and fair view of the state of affairs of theCompany as at March 312016 and of the profit of the Company for the year ended on thatdate;

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 annual financial statements have been prepared on a going concern basis;

e) proper internal financial controls were in place and that the financial controlswere adequate and were operating effectively; and

f) systems to ensure compliance with the provisions of all applicable laws were inplace and were adequate and operating effectively.

Board Meetings

During the year under review four Board Meetings and four Audit Committee Meetingswere convened and held the details of which are given in the Corporate Governance Reportwhich forms part of this report. The intervening gap between the Meetings was within theperiod prescribed under the Companies Act 2013.

Board Evaluation

Pursuant to the provisions of the Companies Act 2013 and SEBI (Listing Obligations andDisclosure requirements) Regulations 2015 the Board has carried out an evaluation of thedirectors as well as the evaluation of the Board and its Committees. The process wascarried out by circulating questionnaires on the Board and Committees functioning oncertain parameters. The performance evaluation of the independent directors was carriedout by the entire Board except the director being evaluated. The performance evaluationof the non-Independent Directors including Executive Directors was carried out by theIndependent Directors.

Independent Directors' Meeting

A separate meeting of the independent directors was convened which reviewed theperformance of the Board the nonindependent directors and the Chairman.

Audit Committee

The composition of the Audit Committee and its terms of reference are included in theReport on Corporate Governance annexed.

Nomination and Remuneration Committee

The details of the Nomination and Remuneration Committee are set out in the Report ofCorporate Governance forming part of this report.

Your Company has a Nomination and Remuneration Policy as required under section 178 ofthe Companies Act 2013 for selection and appointment of Directors Key ManagerialPersonnel Senior Management and their remuneration.

Policy of Directors' Appointment and Remuneration

Your Company's Policy on Directors'appointment and remuneration including criteria fordetermining qualifications positive attributes independence of a director and othermatters provided under section 178(3) of the Act are covered in the Corporate GovernanceReport which forms part of this report. Further information about elements ofremuneration package of individual directors is provided in the extract of Annual Returnas provided under Section 92(3) of the Act is enclosed at Annexure-3 in the prescribedform MGT-9 and forms part of this Report.

Code of Conduct for Directors and Senior Management

The Directors and members of Senior Management have affirmed compliance with the Codeof Conduct for Directors and Senior Management of the Company. A declaration to thiseffect has been signed by the Chairman & Managing Director and forms part of theAnnual Report.

Internal Financial Controls

The Company has in place adequate internal financial controls with reference tofinancial statements. During the year under review such controls were tested and noreportable material weakness in the design or operation were observed.

Vigil Mechanism

Your Company has a vigil mechanism to deal with instances of fraud and mismanagementif any. The Whistle Blower Policy enables reporting of unethical behaviour actual orsuspected fraud or violation of the Company's code of conduct or ethics policy to themanagement. The vigil mechanism also ensures that strict confidentiality is maintained andprovides adequate safeguards against victimization of employees who avail of the mechanismand also provides for direct access to the Chairman of the Audit committee in exceptionalcases.

Prevention of Insider Trading

The Company has adopted (i) Code of Internal Procedures and Conduct for RegulatingMonitoring and Reporting of Trading by Insiders and (ii) Code of Fair Disclosures with aview to serve as a guiding charter for all concerned persons associated with thefunctioning of the Company pursuant to the SEBI (Prohibition of Insider Trading)Regulations 2015. The Company Secretary & Compliance Officer is responsible forimplementation of the Code.

Disclosure as per Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013

Your Company is committed to ensure that there is no scope for sexual harassment atworkplace and has adopted a policy on prevention prohibition and redressal of sexualharassment at workplace in line with the provisions of Sexual Harassment of Women atWorkplace (Prevention Prohibition and Redressal) Act 2013 and the rules framedthereunder.

The Company has not received any complaints on sexual harassment during the year underreview.

Employee Stock Option Scheme

During the year under review your Company has not granted any stock options and noneof the eligible employees have exercised options under the Company's Employee StockOption Scheme 2008 ("ESOS 2008").

Disclosures with respect to Stock Options as required under Regulation 14 of theSecurities and Exchange Board of India (Share Based Employee Benefits) Regulations 2014('the Regulations') are given in Annexure-2 to this report.

Statutory Auditors

The financial statements have been audited by Walker Chandiok & Co LLP (ICAI Firm'sRegistration No. 001076N/N500013) Chartered Accountants Statutory Auditors of theCompany.

Pursuant to the provisions of Section 139 of the Act and the rules framed thereunderWalker Chandiok & Co LLP Chartered Accountants were appointed as Statutory Auditorsof the Company from the conclusion of the 30th Annual General Meeting (AGM) of the Companyfor a period of five years i.e. till the conclusion of the 35th AGM to be held in theyear 2019 subject to ratification of their appointment by the members at every AGM.

Cost Auditors

Pursuant to Section 148 of the Companies Act 2013 read with the Companies (CostRecords and Audit) Amendment Rules 2014 subject to the approval of the CentralGovernment if any required the Audit Committee has recommended and the Board ofDirectors had appointed M/s. Nageswara Rao & Co. (Registration No. 000332) CostAccountants Hyderabad being eligible and having sought re-appointment as Cost Auditorsof the Company to carry out the cost audit of the products manufactured by the Companyduring the financial year 2016-17.

Secretarial Audit Report

Your Company has obtained Secretarial Audit Report for the financial year 2015-16 fromthe Company Secretary in practice for compliance with Section 204(1) of the Companies Act2013 Listing Agreement SEBI Regulations on Takeover Insider Trading and Depositories& Participants. A text of the Annual Secretarial Audit Report is annexed to theCorporate Governance Report and forms part of this report.


Your Company has taken necessary steps to mitigate risks and obtained appropriateinsurances and the Board is kept appraised of the risk assessment and minimizationprocedures. The assets of the Company have been adequately covered under insurance. Thepolicy values have been determined taking into consideration the value of the assets ofthe Company.

Material Changes

There have been no material changes and commitments affecting the financial position ofthe Company since the close of financial year i.e. since March 31 2016. Further it ishereby confirmed that there has been no change in the nature of business of the Company.

Extract of Annual Return

The extract of Annual Return required under Section 134(3)(a) of the Companies Act2013 read with Rule 12(1) of the Companies (Management and Administration) Rules 2014 isenclosed as Annexure-3 in Form No.MGT-9 and forms part of this report.

Transactions with Related Parties

All related party transactions which were entered into during the year under reviewwere on arm's length basis and in the ordinary course of business. There were nomaterially significant related party transactions made by the Company with its PromotersDirectors Key Managerial Personnel or other designated persons which may have a potentialconflict with the interest of the Company at large.

Prior omnibus approval of the Audit Committee is obtained for the transactions whichare of a repetitive nature and a statement giving details of all related partytransactions is placed before the Audit Committee and the Board of Directors for theirapproval on a quarterly basis and deviations if any were ratified.

The Company has Related Party Transaction Policy for purpose of identification andmonitoring of such transactions. The Policy on materiality of related party transactionsand dealing with related party transactions as approved by the Board may be accessed onthe Company's website

Your Directors draw attention of the members to Note 29 to the financial statementwhich sets out related party disclosures. Further the prescribed details of related partytransactions of the Company in Form No. AOC-2 in terms of Section 134 of the Act readwith Rule 8 of the Companies (Accounts) Rules 2014 is given in the Annexure-6 to thisreport.

Internal Control

The information about internal controls is set out in the Management Discussion &Analysis report which is attached and forms part of this report.

Particulars of Loans Guarantees and Investments

Your Company has not given any loans and guarantees or made any investments underSection 186 of the Act during the year under review.

Deposits from Public

Your Company has not accepted any deposits from the public and as such no amount ofprincipal or interest on deposits from the public was outstanding as on the date of theBalance Sheet.

Significant and Material Orders passed by the Regulators or Courts

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

Risk Management

The Board oversees Company's processes for determining risk tolerance and reviewmanagement's action and comparison of overall risk tolerance to established levels. Majorrisks identified by the businesses and functions are systematically addressed throughappropriate actions on a continuous basis. For details please refer to the ManagementDiscussion and Analysis report which forms part of the Board Report.

Corporate Social Responsibility

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 is available on your Company's website www.

Your Company has initiated CSR activities as per the CSR Policy and in compliance withSchedule VII to the Companies Act 2013. The details of the CSR initiatives and activitiesand the amounts spent during the financial year 2015-16 are given in the Annual Report ofCSR activities in Annexure 5 to this Report.

Energy Conservation Technology Absorption and Foreign Exchange Earnings and Outgo

The information on conservation of energy technology absorption and foreign exchangeearnings and outgo stipulated under Section 134(3)(m) of the Companies Act 2013 read withRule 8 of The Companies (Accounts) Rules 2014 is annexed herewith as Annexure-1.

Industrial Relations

Your Company's relations with its employees continue to be cordial. Dedicated work bythe workmen supervisors and executives of your Company made it possible to achievesuccess under trying and difficult circumstances.

Particulars of Employees

Disclosures pertaining to remuneration and other details as required under Section197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 are provided in the Annexure-4 of this report.

In terms of the provisions of Section 197(12) of the Act read with Rules 5(2) and 5(3)of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 astatement showing the names and other particulars of the employees drawing remuneration inexcess of the limits set out in the said rules is annexed herewith as Annexure-4.


Your Board is appreciative of the passion dedication and commitment demonstrated onthe job by all the employees. The trust reposed in your Company by its esteemed customershelped stabilize growth during the year under review. Your Directors wish to place onrecord their gratitude to the Customers Vendors Government Financial InstitutionsBanks and Shareholders for their continuing support guidance and assistance over theyears.

For and on behalf of the Board
Dr. Davuluri Rama Mohan Rao
Chairman & Managing Director
(DIN: 00107737)
Hyderabad May 20 2016