Your Directors have pleasure in presenting before you the 28th Annual Report of theCompany together with Audited Statement of Accounts for the year ended 31st March 2016.
A. FINANCIAL SUMMERY: (INR In lakh)
|Particulars ||Standalone |
| ||2015-16 ||2014-15 |
| ||(INR in Lakhs) ||(INR in Lakhs) |
|Gross Sales ||58246.88 ||55764.66 |
|Net Sales ||55607.10 ||53604.12 |
|Other Operating Income ||4712.23 ||4324.46 |
|Net Revenue from Operations ||60319.33 ||57928.58 |
|Other Income ||360.80 ||1632.00 |
|EBIDTA ||9280.35 ||10258.05 |
|Finance Charges ||1709.81 ||1793.09 |
|Depreciation ||1943.30 ||1716.61 |
|Profit Before Tax ||5627.24 ||6748.35 |
|Taxation ||1463.32 ||3223.89 |
|Profit After Tax ||4163.92 ||3524.46 |
|Balance brought forward from previous year ||8369.01 ||6073.30 |
|Less : Adjustment of depreciation reserve as per Schedule II of Companies Act 2013 ||- ||24.98 |
|Balance available for Appropriations. ||12532.93 ||9572.78 |
|Appropriations: || || |
|Proposed Dividend ||169.30 ||169.30 |
|Dividend Tax ||34.47 ||34.47 |
|General Reserve ||1000.00 ||1000.00 |
|Profit carried to Balance Sheet ||11329.16 ||8369.01 |
|Earnings per share - Basic/Diluted ||4.92 ||4.16 |
B. STATE OF Company AFFAIRS
B.1) In Financial & Production terms
During the year 2015-16 the Company had achieved production of 2375 M.T. of APIs andtheir Intermediates in comparison with 2026 M.T of FY 2014-15 and registered a growth of17.22% The net sales of the Company has reached to Rs 55607.10 lakhs as against`53604.12 lakhs registering a growth of 3.74% and the net revenue from operations haveincreased by 4.12%. With this EPS has increased to Rs 4.92 as against Rs 4.16during the year 2014-15.
The management believes that the profitablility margins from the operations aresustainable and it will continue to strengthen its leadership position.
B.2) Awards and Approval
Your Company had won first "India Pharma Award 2015" in the following twocategories:
1. INDIA PHARMA BULK DRUG Company OF THE YEAR AWARD.
2. INDIA PHARMA BULK DRUG EXPORT Company OF THE YEAR AWARD.
During the year under review the facility located at kandivalasa has completed USFDAInspection and there were no observations in this regard. Apart from this our facility atbachupally also had the USFDA approval.
B.3) Subsidiaries and Associates:
Your Company is having one associate Company. The said associate Company viz. "VKTPharma Private Limited" is under the same management. Your Company is holding 34.33%equity shares in the said associate Company and the share of loss for your Company forfinancial year 2015-16 was Rs 7471033/-. SMS Life sciences India Limited has become thewholly owned subsidiary of your Company during the Financial Year 2016-17. Theconsolidated financial statements had been prepared as per Accounting Standard (AS) 23 "Accounting for Investment in Associates in Consolidated FinancialStatements" specified under Section 133 of Companies Act 2013 for considering thefinancials of Associate Company. The required form as per the provisions of the Sec.129(3) read with rule 5 of Companies (Accounts) Rules 2014 viz. AOC-1 is formpart of this report as Annexure 1
B.4) Change in Nature of Business
There is no change in Nature of Business. A detailed report on the same viz.Management Analysis and Discussion Report is form part of this report asAnnexure 2
B.5) Share Capital
During the year under review the Company had neither issued fresh equity/sweat equityshares nor any debentures Employees Stock Option Scheme or any share based employeebenefits. The Company had sub divided the face value of share of Rs 10/- each into facevalue of Rs 1/- of each with record date of 18th December 2015. A report on the same viz.Equity Buildup Report is form part of this report as Annexure 3
C. TRANSFER TO RESERVES:
Your Company has transferred an amount Rs 1000 Lakhs (previous year Rs 1000 Lakhs) toGeneral Reserve out of the amount available for appropriations.
Your Directors have pleasure in recommending the dividend of Rs 0.20/- (i.e. 20%) perequity share of Rs 1/- face value aggregating to Rs 16930406/- which shall bepaid within 30 days after the conclusion of the Annual General meeting subject to theapproval of the shareholders of the Company. The total cash outflow on account of dividendincluding dividend distribution tax is Rs 203.77 lakhs.
E. PROPOSAL FOR DE-MERGER OF SEMI REGULATED UNITS:
The Board has approved the "Draft Scheme of Arrangement for Demerger of SemiRegulated Units (Unit - I IV & V) along with other Assets to transfer the same to SMSLifesciences India Limited (Resulting Company) with an object to reduce the impact ofSemi Regulated Units on Regulated Units achieving operational efficiencies sitesynergies and streamlining its current structure. The Draft Scheme of Arrangement issubject to the Approvals of Stock Exchanges Securities Board of India Limited ReserveBank of India and other regulatory authorities and also Honble High Court ofJudicature at Hyderabad for the State of Telangana and Andhra Pradesh.
F. DIRECTORS RESPONSIBILITY STATEMENT:
Pursuant to the provisions of Section 134(3)(c) of the Companies Act 2013 as amendedthe Board of Directors confirm that:
1. In preparation of the Financial Statements for the year ended 31st March 2016 theapplicable accounting standards had been followed along with proper explanation relatingto material departures if any.
2. They had selected such accounting policies as notified & modified by ICAI andapplied them consistently and made judgments and estimates that are reasonable and prudentso as to give a true and fair view of the state of affairs of the Company at the end ofthe financial year and of the profit and loss of the Company for that period;
3. They had taken proper and sufficient care for the maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act 2013 as amended form timeto time for safeguarding the assets of the Company and for preventing and detecting fraudand other irregularities;
4. The Annual Accounts had been prepared on going concern basis.
5. The Company has developed an effective mechanism for internal financial controls ithas been followed by the Company consistently; such internal financial controls areadequate and operating effectively.
6. They had devised proper systems to ensure compliance with the provisions of allapplicable laws and that such systems were adequate and operating effectively.
G. LOANS GUARANTEES AND INVESTMENTS:
Your Company had made investment in its associate Company viz. M/s. VKT PharmaPrivate Limited for its business purpose. During the year under review your Company hadacquired 511400 equity shares of face value of Rs 10/- each in the said associate at anaverage price of Rs 157.21. Further your Company had also made an investment in 1000equity shares of Sireen Drugs Private Limited of Rs 10/- each. The Particulars ofloans/advances given are provided in the Standalone Financial Statements. Please refer(Note no. 16.1) of the Standalone Financial Statements. The Company is maintaining thedetails of investments made during the year in Statutory Form MBP 2. The details ofloans / advances given and investments made during the financial year ended on 31st March2016 are furnished as Annexure 4.
H. RELATED PARTY TRANSACTIONS
All contracts/arrangements/transactions entered by the Company during the financialyear 2015-16 with related parties were in the ordinary course of business and at anarms length basis and are in compliance with the provisions of the Companies Act andthe SEBI (Listing Obligation & Disclosure Requirement) Regulation 2015. There are nomaterially significant related party transactions made by the Company with PromotersDirectors and Key Managerial Personnel etc. which may have potential conflict with theinterest of the Company. All related party transactions are presented to the AuditCommittee and to the Board on quarterly basis. A statement of all Related PartyTransactions is being presented before the Audit Committee on Quarterly basis specifyingthe nature value and terms and conditions of the transactions. A Policy on Related PartyTransactions approved by the Board on 14th May 2016 is uploaded on the Companyswebsite at the web link http://www.smspharma.com/investors/downloads/policy-on-related-party-transactions. pdf. The particulars of contracts orarrangements entered into by the Company with related parties referred to in Section188(1) are kept by the Company in Statutory Form AOC-2. Further details required todisclose as per Accounting Standard18 (as issued & modified by ICAI) form partof the notes to the financial statements provided in the annual report. The required formviz. AOC-2 is form part of this report as Annexure 5
I. STATE OF BOARD AFFAIRS
I.1) Board of Directors and Key Managerial Personnel:
Your Company is maintaining an optimum combination of Independent and Executivedirectors in the Board who have vast experience in pharma and other relevant fields.During the year under review following changes occurred in the position of Independentdirectors:
a) Sri A. P. Rao resigned from the Board on 9th October 2015.
b) The Board had appointed Sri Potluri Venkata Subba Rao (P.S. Rao) as an additionalIndependent Director on Board w.e.f. 7th November 2015.
c) Sri K.S. Rao having a long association with the Company had demised on 29thNovember 2015 due to illness.
Further in accordance with the provisions of Section 152(6)(a) of the Companies Act2013 and revised Articles of Association as approved by the shareholders at their meetingheld on 29th September 2015. All the Executive Directors are compulsorily liable toretire by rotation. Accordingly Sri Ramesh Babu Potluri and Sri TVVSN Murthy whole timedirectors are liable to retire by rotation at the forthcoming/ensuing Annual GeneralMeeting scheduled on 30th September 2016 and being eligible seeks reappointment. A briefprofile of directors and managers seeking re-appointment are given along with the AGMNotice for the reference of the shareholders.
The board had been appointed Sri Saurav Roy in place of Sri P. Prabhakar Rao on 4thAugust 2015 and designated him as Company Secretary of the Company pursuant to provisionsof Section 203 of the Companies Act 2013. Sri P. Prabhakar Rao resigned from the Companyw.e.f. 31st July 2015. Further the Board has affirmed the Compliance of the Code ofConduct as applicable on the Directors & Senior Management Personnel.
1.2) Independent Directors:
In accordance with the provisions of the Section 149 (7) of the Companies Act 2013each independent director had confirmed to the Company that he/ she meets the criteria ofIndependence laid down in the Section 149 (6) of the Companies Act 2013 and Regulation25(1) of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. Allthe independent Directors of the Company have given declarations under sub-section (6) ofSection 149 of the Act and the same had been considered and taken on record by the Board.
1.3) Annual Evaluation:
Your Company had conducted a separate Meeting of Independent Directors on 9th February2015 in which they had evaluated the performance of Executive directors and Non-Executive/Nominee Directors. Further in the Board Meeting held on 14th May 2016the Board had evaluated the performance of Independent Directors and their contribution inthe Board. The evaluation had been made on specified standards.
1.4) Risk Management Policy
In accordance with the provisions of the Regulation 21 of SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 your Company is not required to form theseparate Risk Management Committee and accordingly Risk Management Policy is also notapplicable to the Company.
The Company has adequate internal control systems and procedures to mitigate thefinancial risk (if any) arise in near future. The Risk Management procedure will bereviewed by the Audit Committee and the Board of Directors on a Quarterly basis.
1.5) KMP Appointment and Remuneration Policy
During the year under review your Company had adopted a Nomination andRemuneration Committee Charter in its Board meeting held on 5th December 2015. TheNomination and Remuneration Committee abide by the said Charter for appointing any KeyManagerial Persons (KMP). During the year under review the Committee had recommended forappointment of Company Secretary and one Independent Director. The appointment made by theCompany for the position of Independent Director in compliance with the relevantprovisions of Companies Act 2013 its allied rules and other applicable norms of theSEBI.
Appointment of any KMP is made by the Nomination and Remuneration Committee incommensuration of the requirement of the position and experience of the candidate. TheCommittee has not formulated any formal policy for appointment of KMP it is more as andwhen basis.
1.6) Composition and Number of Meetings of the Board and Audit Committee:
During the year under review the Board of directors met seven times. The dates on whichthe Board Meetings were held on 30th May 2015 8th August 2015 9th October 2015 7thNovember 2015 5th December 2015 11th February 2016 30th March 2016. A detailed reporton the above mentioned along with reporting required under Sec. 177(8) and 177(10) of theCompanies Act 2013 and composition of various committees formed part of the report viz.Corporate Governance Report is form part of this report as Annexure 6
1.7) Extract of Annual Return:
In accordance with the provisions of the Companies Act 2013 and Rule 12 of Companies(Management and Administration) Rules 2014 the extract of Annual Return is prepared inprescribed form i.e. Form MGT-9. The said form part of this report as Annexure7
Your Company had not accepted/invited any deposits from the public during the yearunder review. As such no amount of principal or interest was outstanding on the date ofthe Balance Sheet.
K. CORPORATE SOCIAL RESPONSIBILITY
As per the provisions of Section 135 and ScheduleVII of the Companies Act 2013and Companies (Corporate Social Responsibility Policy) Rules 2014 your Company hadformulated a Corporate Social Responsibility Policy (CSR Policy). The said policy containsthe scope of CSR Expenditure and provides guidance for way forward for expending the same.The composition of CSR committee and other details mentioned under CorporateGovernance Report is form part of this report as Annexure 6 Asper the provisions of the Section 135 of the Act the average net profits of the Companyduring the preceding three years stands as Rs 923.75 lakhs hence the Company is requiredto spend a sum of Rs 18.47 lakhs towards CSR Expenditure in FY 2015-16. The details of itare mentioned under CSR Expenditure in statutory format is form part of thisreport as Annexure8.
L. PARTICULARS OF EMPLOYEES:
Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act 2013 read with Rule 5 (1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 is mentioned under EmployeesRemuneration Report is form part of this report as Annexure 9.None of the employees is receiving salary of more than Rs 5 Lakh per month.
M. CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS ANDOUTGO:
The information required under Section 134(3)(m) of the Companies Act 2013 read withthe applicable Rules is form part of this report as Annexure- 10.
N.1) Statutory Auditors
The shareholders at their 27th Annual General Meeting (AGM) held on 29-09-2015approved the reappointment of M/s. Rambabu& Co. Chartered Accountants (ICAI FirmRegistration No. 002976S) as Statutory Auditors of the Company to hold the office tillthe conclusion of the 28th Annual General Meeting. M/s. Rambabu & Co. CharteredAccountants are eligible for reappointment and have confirmed their eligibility underSection 141 of the Companies Act 2013 read with Rule 4 of the Companies (Audit andAuditors) Rules 2014. They have consented to the said appointment. They have furtherconfirmed that they are not disqualified to be appointed as statutory auditor.
The Audit Committee of the Board of Directors recommended the appointment of M/s.Rambabu & Co. Chartered Accountants as Statutory Auditors of the Company from theconclusion of 28th Annual General Meeting till the conclusion of the 29th Annual GeneralMeeting.
N.2) Secretarial Auditor
Pursuant to Section 204 of the Companies Act 2013 and the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 M/s. SVVS & Associates CompanySecretaries LLP were appointed to conduct Secretarial Audit of the Company for theFinancial Year ended on 31st March 2016. Secretarial Audit Report for the financial year2015-16 is form part of this report as Annexure-11
N.3) Cost Auditor
Pursuant to Section 148 of the Companies Act 2013 read with the Companies (Audit andAuditors) Rules 2014 and the Companies (Cost Records & Audit) Amendment Rules 2014the Company maintains Cost Records Your Board has on the recommendations of the AuditCommittee appointed Sri K.S.N. Sarma having Registration No.102145 and MembershipNo.6875 as Cost Auditor of the Company for the financial year 2016-17. Theprovisions also require the remuneration of the Cost Auditor to be approved by theshareholders as mentioned under AGM Notice under item no. 12. As a matter of record theCost Audit Report for the year 2014-15 was filed with the Central Government within theprescribed time limit and for the year 2015-16 will be filed within the stipulated time.
O. INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY:
Your Company has laid down set of standards which enables to implement internalfinancial control across the organization and ensure that the same are adequate andoperating effectively (1) To provide reasonable assurance that: transactions are executedin conformity with generally accepted accounting principles/standards or any othercriteria applicable to such statements (2) to maintain accountability for assets; accessto assets is permitted only in accordance with managements general or specificauthorization and the maintenance of the records that in reasonable detail accurately andfairly reflect the transactions and dispositions of the assets of the Company (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisitionuse or disposition of the assets that could have a material effect on the FinancialStatements.
P. WHISTEL BLOWER POLICY/VIGIL MECHANISM
The Company has established a mechanism trough which all the stakeholders can reportthe suspected frauds and genuine grievances to the appropriate authority. The whistleBlower Policy which has been approved by the Board of Directors of the Company has beenuploaded on the Companys website of the Company (http://www.smspharma.com/investors/downloads/whistle-blower-protection-policy.pdf). During the year under review the Companyhas not received any complaint(s) under this policy.
Q. BOARDS RESPONSE ON AUDITORS QUALIFICATION RESERVATION OR ADVERSE REMARK ORDISCLAIMER MADE:
There are no qualifications reservations or adverse remarks made by the StatutoryAuditor Secretarial Auditor and Cost Auditor in their report.
R. REPORTING ON SEXUAL HARRASEMENT:
The Company has zero tolerance for sexual harassment at workplace and has adopted a"Policy on Prevention Prohibition and Redressal of Sexual Harassment of Women atWorkplace" in line with the provisions of the Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013 and the Rules thereunder for preventionand redressal of complaints of sexual harassment at workplace. The Company is committed toproviding equal opportunities without regard to their race caste sex religion colournationality disability etc. All women associates (permanent temporary contractual andtrainees) as well as any women visiting the Companys office premises or womenservice providers are covered under this policy. All employees are treated with dignitywith a view to maintain a work environment free of sexual harassment whether physicalverbal or psychological.
During the year under review the Company has not received any complaints on sexualharassments. No workshops were carried out against sexual harassment but awarenessprogramms were carried out at each manufacturing unit and corporate office for womenemployees regarding this policy and the said policy is also displayed on the websiteof the Company.
S. DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS ORTRIBUNALS IMPACTING THE GOING CONCERN STATUS AND COMPANYS OPERATIONS IN FUTURE:
No significant and material orders passed by the regulators or courts or tribunalsimpacting the going concern status and Companys operations in future. Further Nomaterial Changes and commitments which affecting the financial position of the Company.
Your Directors place on record their sincere appreciation for the significantcontribution made by the employees through their dedication hard work and commitments.Your Directors gratefully acknowledge and appreciate the support extended by the BanksFinancial Institutions various government authorities customers and also shareholders ofthe Company for their continued support and confidence reposed in the Company.
By the order of the Board
| ||Ramesh Babu Potluri |
| ||Chairman and Managing Director |
| ||(DIN:00166381) |
|Place: Hyderabad || |
|Date: 10-08-2016 || |