Aurobindo Pharma Ltd.
|BSE: 524804||Sector: Health care|
|NSE: AUROPHARMA||ISIN Code: INE406A01037|
|BSE 00:00 | 09 Apr||943.65||
|NSE 00:00 | 09 Apr||943.70||
|Mkt Cap.(Rs cr)||55,288|
|Mkt Cap.(Rs cr)||55288.45|
Aurobindo Pharma Ltd. (AUROPHARMA) - Director Report
Company director report
Your Directors are pleased to present the 33rd Annual Reportof your Company together with the audited accounts for the financial year ended 31 March2020.
Your Company has paid first interim dividend of 125% i.e. Rs.1.25 perequity share of Rs.1 and second interim dividend of 175% i.e. Rs.1.75 per equity share ofRs.1. The total dividend for the financial year 2019-20 comes to 300% i.e. Rs.3.00 perequity share of Rs.1 against 250% i.e. Rs.2.50 per equity share of Rs.1 paid in theprevious year.
Pursuant to Regulation 43A of the SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 top five hundred listed entities based onmarket capitalisation are required to formulate a Dividend Distribution Policy. The Boardhas approved and adopted the Dividend Distribution Policy and the same is available onyour Company's website: https://www.aurobindo.com/wp-content/uploads/2018/10/Dividend- Distribution-Policy.pdf
Your Company has carved a niche for itself in the global pharmaceuticalspace. Aurobindo is now the 7th largest generic company by sales globally andsecond largest listed Indian pharmaceutical company by revenues. In the US your Companyis the second largest generic company by Rx dispensed.
After a year of acquisitions FY20 was a year of continuityconsistency and consolidation for your Company. It successfully and seamlessly integratedApotex Inc.'s businesses in Europe and also consolidated branded injectable productsacquired from Spectrum Pharmaceuticals Inc. During the year through Auro Vaccines LLCUSA a wholly owned step down subsidiary of Aurobindo Pharma Limited India your Companyacquired valuable R&D assets from Profectus BioSciences Inc USA which is a clinicalstage vaccine development company.
On a standalone basis your Company's revenue registered a growthof 8.2% reaching Rs.132664.8 million in FY20 compared to Rs.122578.9 million in FY19.The Formulations business witnessed a growth of 14.2% to Rs.100253.4 million led byexports which are up by 14.3% to Rs.99698.5 million. The API business declined by 6.9%to Rs.32242.1 million due to higher captive consumption. EBITDA for FY20 increased by11.5% to Rs.26857.5 million vs. Rs.24092.9 million in FY19. Profit before Tax for theyear at standalone level was increased by 21% to Rs.23777.0 million. Your Company'snet profit (before OCI) increased by 22.4% to Rs.18727.4 million as against Rs.15297.3million in FY19. The diluted Earnings Per Share stood at Rs.31.96 compared to Rs.26.11 inFY19.
On a consolidated basis revenues for FY20 grew by 18.1% fromRs.195635.5 million in the previous year to Rs.230985.1 million. The healthy growth inrevenues was driven by new product launches across markets and increased market share ofexisting products. The Formulations business registered a revenue growth of 23.9% andimproved to Rs.200119.3 million from Rs.161570.3 million in the previous year. TheActive Pharmaceutical Ingredients (APIs) business sales stood at Rs.30833.7 million downfrom Rs.34030.3 million in the corresponding previous period.
EBITDA margin was at 21.1% vis-a-vis 20.2% in FY19. EBITDA before forexand other income stood at Rs.48643.1 million witnessing a 23.1% growth year-on-year.Your Company reported a Net Profit of Rs.28309.7 million an increase of 19.7% over thecorresponding previous period. The Diluted Earnings Per Share stood at Rs.48.32 comparedto Rs.40.36 in FY19.
Your Company's strong performance for the year was driven byhealthy growth across key geographies in the Formulations segment. Our Formulations salesincreased by 23.9% to Rs.200119.3 million. FY20 is the first full year of consolidationof businesses acquired from Apotex Inc and Spectrum Pharmaceuticals. Excluding the salesfrom acquired businesses your Company has witnessed a strong growth in the Formulationssegment.
The US is the largest market for your Company and accounted for 49.7%of total revenue. The US business reported 27.2% growth at Rs.114835.4 million. It has apresence across segments such as oral solids injectables branded injectables dietarysupplements and over-the-counter (OTC) businesses. With the acquisition of brandedinjectables from Spectrum Pharmaceuticals your Company's presence in injectables hassignificantly increased. The share of injectables (both branded and generic) has grown to23.3% of US sales in FY20 up from 17.2% of US sales in FY19. The dependency on oralsolids has reduced; the share of oral solids at 64.1% in FY20 is down from 69.2% in FY19.
The US business has maintained its growth momentum across businesssegments. New product launches coupled with an increase in the market share of existingproducts led to an improvement in the revenues. Your Company has launched 34 products inFY20. The Rx share in USA has increased to 8.5% for the 12 months ending April 2020 from7.0% for the 12 months ending April 2019 as per IQVIA data.
Acrotech Biopharma successfully transitioned seven USFDA approvedhematology-oncology products from Spectrum Pharmaceuticals. It also acquired awell-established and experienced branded commercial infrastructure to continue marketingthese brands. The Company is focused on commercialization by strategically differentiatingits key brands through various awareness and promotional initiatives.
Your Company continues to strengthen its pipeline for the globalmarkets including US market. As on 31 March 2020 your Company filed 586 Abbreviated NewDrug Applications (ANDAs) on a cumulative basis. Of the total count 397 have receivedfinal approvals and 28 have got tentative approvals including 8 ANDAs which aretentatively approved under the US President's Emergency Plan for AIDS Relief (PEPFAR)while 161 ANDAs are currently under review.
Your Company registered a 19.4% growth in its Europe formulationsbusiness as revenue touched Rs.59218.3 million in FY20 compared to the previous year'srevenue of Rs.49601.7 million on account of an increased portfolio of offerings. YourCompany reported healthy performance in Spain the UK Italy the Netherlands and France.The integration of Apotex Inc.'s businesses with Aurobindo has strengthened its presencein Europe. Your Company now operates in 11 countries and is present across multiplechannels including pharmacy (Rx) hospital (Hx) and tender (Tx). Your Company's focus willremain on filing more products on a consistent basis diversifying its existing productportfolio reaching out to critical markets and streamlining of sales marketing andchannels of operation.
Your Company's Formulations sales in Growth Markets including BrazilCanada Columbia and South Africa grew by 13.5% to Rs.13550.8 million as compared toRs.11936.5 million in FY19. In Canada your Company is the eighth largest generic companyin terms of value for the 12 months ended March 2020 as per IQVIA data. During the yearyour Company has launched 13 products and submitted dossier filings for 13 products.
The ARV Formulations business reported a growth of 28.7% with revenuesof Rs.12514.8 million vis-a-vis Rs.9724.8 million a year ago. The significant earlymover advantage Aurobindo had in TLD (Tenofovir 300mg + Lamivudine 300mg + Dolutegravir50mg tablet) single pill regimen along with rapid conversion of TLE to TLD in theinstitution segment has contributed towards this growth. South Africa being the singlelargest PLHIV market has adopted the new TLD combination in its National Guideline thisyear as the first line and began administering TLD therapy to both new and existingpatients taking TEE (Emtricitabine based regimen). Aurobindo has secured a good percentageshare in national ARV tender for both - TLD as well as for Dolutegravir single dose. It isexpected to generate more sales in the coming two years. The number of patients on TLD isexpected to move above 4 million since the time national procurement for the Dolutegravirregimen began in Q4FY20.
We have been constantly reviewing and upgrading our compliancestandards in all our processes and systems to ensure that our products meet theexpectations of customers and patient needs.
Aurobindo believes a diversified product basket helps to grow thebusiness consistently and continuously. Your Company has identified complex anddifferentiated products in multiple therapeutic areas from where it will launch the nextphase of growth. Aurobindo follows a strategy of filing for select differentiatedproducts and as the approvals are received commercialisation leads to market expansion.
Your Company is determined to build a diverse and robust specialtyproducts portfolio comprising oncology & hormonal products biosimilars depotinjections vaccines topicals transdermal patches inhalers nasals and complex peptideproducts. The recent acquisition of vaccine technologies will add more products and scaleto the vaccine portfolio.
The US and Europe are the key geographies for your Company which iscommitted to growing all its business segments. In the US over 180 ANDAs are awaiting forfinal approval and annual sales as per IQVIA data is US$ 80 billion as on 31 March 2020.Apart from this over 350 ANDAs are under development including the differentiatedpipeline.
In the Europe generic penetration continues to improve in countrieslike Italy Spain Portugal and France. Your Company will continue to expand its portfoliothrough launches of targeted Day 1 products in the oncology hormones injectables andorals segments. Your Company has a pipeline of over 250 products under development. Goingforward Aurobindo will start supplying Eugia Pharma's products in Europe. Your Companywill focus on driving topline growth and maintaining strong focus on improving profitmargins.
Aurobindo ramped up its ARV capacities in tune with market uptakethereby achieving a dominant market share in Dolutegravir segment. Majority of thecountries are rapidly converting to TLD first-line regimen and this is expected to growthis market in the coming years. Overall Aurobindo's strong presence in the global HIVspace has been growing at a consistent pace and your Company is on track to exceed itsobjective of helping treat more patients across the globe.
In its API business Aurobindo will continue to focus on complexproducts with varying volumes and continuous improvement in manufacturing processes. YourCompany has consistently increased production volumes and expects to improve further inthe coming years.
In R&D your Company will maintain focus on difficult tomanufacture differentiated products with possible low- competitive pressure. Filingmomentum is in line with the strategy of moving towards complex/specialty products.
In financial performance your Company will focus on improving EBITDAmargin driven by operational excellence and scale.
Your Company intends to strengthen cash flow and consistently reducedebt.
RESEARCH AND DEVELOPMENT (R&D)
With research and development being a major focus area Aurobindo has acommitted and talented team comprising more than 1600 scientists and experts who work ondeveloping a wide range of medications from generics to complex speciality products.Currently Aurobindo has eight Research and Development (R&D) centres of which fiveare in India and three are in the USA. During FY20 your Company invested 4.1% of itsconsolidated revenue or Rs.9580 million in research and development.
Aurobindo is developing several specialty products in the respiratoryand dermatological therapeutic areas including metered dose inhalers (MDIs) dry powderinhalers (DPIs) nasal sprays topical lotions creams ointments and transdermal patches.Your Company's focus is on developing affordable generic medications and productsthat would be accessible to all strata of society. Given the increasingly high cost ofhealthcare worldwide it is imperative that cost effective high- quality generics as wellas the branded generic products are made available to patients.
Your Company has identified six 505(b)(2) projects (which are oralsinjectable and topicals products) for development. These products are developed in yourCompany's India and North Carolina R&D centres. Most of these products requirepre-clinical safety apart from regular clinical studies and formulation development. APIsare being developed in-house wherever possible.
Your Company is also in the process of building manufacturingfacilities for topical transdermal and inhaler products in Hyderabad India and AurolifePharma Unit-II North Carolina USA. Besides this your Company has built a developmentlab in its Research Centre-II which is based at Hyderabad.
ENVIRONMENT HEALTH AND SAFETY (EHS)
Your Company has always been committed towards environmental healthand safety measures. This positive attitude is driven not only by our dedicated EHS Teambut also extends to our employees. Besides it is understood by all of us that theresponsibility and accountability for environment health and safety rests with eachindividual.
Performing work safely and responsibly starts with our managementsystems and standards and continues with the expertise and diligence of our employees andassociates worldwide. Each day it is our integrity attention to detail and concern forthe health and safety of personnel and the environment in which we live that enables us toprovide consistent superior performance quality services cost competitiveness andcustomer satisfaction.
Protecting our employees the public and the environment is held as acore value. We take a firm stance that no business objective will take priority overenvironment health and safety and no task is so important or urgent that it cannot becompleted safely.
Your Company strongly believes that compliance with environmentalregulations is the most important responsibility for an existing business entity. Wecontinuously monitor and regulate emissions as well as discharge of wastes. It is ensuredthat wastes get segregated at the very source of generation. Besides optimisingutilisation of natural resources such as water and coal we ensure effective and timelytreatment reuse or disposal of wastewater and wastes. We have been quick enough toembrace and integrate new technologies for collection storage treatment and managementof wastes. Database development on sustainability performance including environmental andresource utilisation has been initiated. We have initiated a process to increase exportshipments by sea and effectively reduce our carbon footprint.
Inorganic solid and hazardous wastes are disposed off to securelandfills whereas organic solid and liquid wastes are disposed off to cement units forco-processing. Biomedical wastes are sent to common biomedical waste treatment anddisposal facility (CBWTF) whereas recyclable wastes such as waste oils e-waste andbatteries are sold to authorised vendors or suppliers.
Using the Membrane Bio Reactor (MBR) technology introduced at one ofthe manufacturing facilities in the year FY19 we have been treating approximately 500kilolitres per day of wastewater.
At the API manufacturing units emission control and mitigationpractices are scrupulously followed whereas corporate inspections are done on afortnightly basis. Monitoring and review of all critical environmental managementattributes are done daily at the site level as well as at the corporate level.
Greenbelt development across our manufacturing facilities is an ongoingactivity. Continuous monitoring and maintenance activities resulted in more than 80%survival of the developed greenbelts. During FY20 we had planted around 11400 trees.In-house composting of garden waste is also done in some units and the same is used forthe greenbelt. Apart from this we are also involved in state government initiatives forpromoting green cover in schools and villages like Harithaharam' in Telanganaand VanamManam' in Andhra Pradesh.
Being an organisation that provides healthcare solutions to the entireworld we believe that it is our responsibility to care for the health and well-being ofour employees. Not only do we abide by the mandatory rules and regulations but alwaysstrive to go beyond.
We are in collaboration with The Access to MedicineFoundation' and are a member of the AMR Industry Alliance'. Via this
alliance we have continued our efforts towards aligning severalpharmaceuticals generic biotech and diagnostic companies towards carrying out researchwork and curbing antimicrobial resistance.
During FY20 we took up several new initiatives which included settingstandard requirements for occupational health monitoring exceeding the minimum legalrequirements performing trend analysis of employee health data to improve predictabilityetc.
Our fundamental belief is that the employees of Aurobindo Pharma shallbe provided a safe and healthy workplace. To that end we follow global safety guidelinesacross all our manufacturing units and offices.
As per our safety rules and policies it is a mandatory requirementthat all new projects be it construction of our office buildings manufacturing plants ordistribution centres get EHS clearance at the planning stage. Moreover a review of theseconstructed assets is done to certify that laid standards have been adhered with.
Safety is a must in all our production processes. The inclusion of oursafety guidelines in the Batch Production and Control Record (BPCR) ensures greaterworkplace safety and prevents the occurrence of any accident in the production process.
Several initiatives taken up during the year to enhance ourCompany's overall safety levels include enhancing fire fighting systems (sprinklersystems) fire detection systems automatically activating extinguishing systems etc.Employee awareness and training was given higher importance so that employees become awareof risk reduction measures and act accordingly. Software modelling was used to performquantitative risk assessment for flammable solvent storage areas and to ensure adequaterisk control.
We have initiated environmental management systems for effectiveenvironmental management and as a part of this 14 units of the company are alreadycertified for ISO 14001:2015 whereas the other units are awaiting ISO 14001:2015certification which will be completed by the end of the year 2020 except for unit XVII andXVIII where commercial production is yet to begin. Aurobindo has been participating in theECOVADIS Corporate Social Responsibility (CSR) rating system since 2017 and all ourcustomers have access to this assessment score.
Engagement in national and global initiatives on AntimicrobialResistance (AMR)
Aurobindo recognised that AMR is a threat and has taken proactive stepsto ensure it is at the forefront of the fight against it. The Company collaborated withThe Access to Medicine Foundation and participated in The Antimicrobial ResistanceBenchmark 2018 and 2020. Aurobindo has been among the generic medicine manufacturers outof 30 pharma companies that were selected for AMR Benchmark 2020 wherein the companieswere evaluated based on R&D Responsible Manufacturing and Appropriate Access &Stewardship. During the year 2019 Aurobindo became a member of AMR Industry Alliance acoalition of over 100 biotechnology diagnostic generics and research-basedbiopharmaceutical companies and trade associations across the world that was formed todrive and measure industry progresses to curb antimicrobial resistance. Aurobindo was oneof the 7 generic medicine manufacturers out of 65 Alliance members who participated in thesurvey report 2020. The Alliance's metrics on combating AMR have been developedacross four areas: Research and Science Access Appropriate Use and Manufacturing thatformed the basis of 2020 Progress Report published by the Alliance.
As a member of Bulk Drugs Manufacturers Association (India) Aurobindois contributing to the research studies taken up by the Association on AMR. Aurobindo asMember of BDMA (I) took participation in all technical interaction sessions/meetingsorganized by national level environmental regulatory agencies in their attempts to fixenvironmental standards with regard to antibiotics.
AWARDS AND ACCOLADES
Indian Pharmaceutical Association (IPA) ACG Worldwide (ACG)& SciTech (SciTech Centre) jointly announced awards for the best innovations in thedevelopment of packaging of pharmaceuticals for the year 2018. Aurobindo Pharma Limitedwon the Best Innovative Packaging Award for solid dosage form.
The Aurobindo Pharma Foundation has received a Gold Medal fromthe Hon'ble Governor of Andhra Pradesh & President of the Indian Red CrossSociety A.P. for providing the Brachytherapy Unit for cancer treatment.
UBM India a multinational media company and global B2B eventorganiser has announced the INDIAPACK awards. Aurobindo Pharma Limited has been awardedINDIAPACK-2018 by UBM India under the following three categories which is the highest interms of number of awards nationwide in the industry:
Excellence in Packaging Design Shapes & Structures oExcellence in Sustainable Packaging o Excellence in Design - POS
Aurobindo Pharma Ltd has bagged the coveted 14thNational BML Munjal Award for 'Business Excellence through Learning &Development' in the Private Sector Manufacturing category from Bharat Ratna PranabMukherjee Former President of India.
Aurobindo Unit-III has bagged the Special Commendation Award inthe Golden Peacock Environmental Management
Awards 2019 from the Institute of Directors (IOD). These awards areregarded as a benchmark of corporate excellence worldwide.
Aurobindo has been awarded as Best Energy Efficient Organizationunder Large Scale Industry Category in CII's 4th edition of National EnergyEfficiency Circle Competition. With more than 200 best case studies on energy efficiencyfrom business industry and institutions across India Aurobindo got national recognitionfor outstanding contributions made in the area of energy efficiency at Unit-I.
As per the provisions of Section 129 of the Companies Act 2013 readwith the Companies (Accounts) Rules 2014 a separate statement containing the salientfeatures of the financial statements of subsidiary companies/associate companies/jointventures is detailed in Form AOC-1 and is in Annexure-1 to this Report.
During the year the following are the changes in the subsidiaries ofthe Company:
Ceased subsidiaries / JVs
Aurobindo Pharma USA LLC USA a wholly owned subsidiary of AurobindoPharma USA Inc. was inoperative hence it was sold w.e.f. 15 November 2019.
New subsidiaries / JVs
Aurobindo NV/SA Belgium a wholly owned subsidiary of Agile PharmaB.V. has been incorporated w.e.f. 17 December 2019.
Longxiang Pharma Taizhou Co. Ltd China a joint venture under HelixHealthcare B.V. has been incorporated w.e.f. 28 October 2019.
Auro Packaging LLC USA a 100% subsidiary of Aurobindo Pharma USAInc. has been incorporated w.e.f. 1 April 2019.
Luoxin Aurovitas Pharm (Chengdu) Co. Ltd China a joint venture ofHelix Healthcare B.V. has been incorporated w.e.f. 25 March 2019.
Auroactive Pharma Private limited India a wholly owned subsidiary hasbeen incorporated w.e.f. 9 January 2020.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements have been prepared by the Company inaccordance with the Indian Accounting Standards (Ind AS) 110 and 111 as specified in theCompanies (Indian Accounting Standards) Rules 2015 and as per the provisions of CompaniesAct 2013. The Company has placed separately the audited accounts of its subsidiaries onits website www. aurobindo.com in compliance with the provisions of Section 136 of theCompanies Act 2013. Audited financial statements of the Company's subsidiaries willbe provided to the Members on request.
CODE FOR PREVENTION OF INSIDER TRADING
On 31 December 2018 Securities and Exchange Board of India amended theProhibition of Insider Trading Regulations 2015 prescribing various new requirementswith effect from 1 April 2019. In line with the amendments your Company has adopted anamended Code of Conduct to regulate monitor and report trading by Designated Persons andtheir Immediate Relatives under the Securities and Exchange Board of India (Prohibition ofInsider Trading) Regulations 2015. This Code of Conduct also includes code of practicesand procedures for fair disclosure of unpublished price sensitive information and has beenmade available on the Company's website at https://www.aurobindo.com/wp-content/uploads/2019/04/Code-Fair-Disclosure-PIT- Feb2019.pdf
The Board of Directors has adopted the Whistle Blower Policy which isin compliance with Section 177(9) of the Companies Act 2013 and Regulation 22 of the SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015. The Whistle BlowerPolicy aims to conduct the affairs in a fair and transparent manner by adopting thehighest standards of professionalism honesty integrity and ethical behavior. Allpermanent employees and whole-time directors of the Company are covered under the WhistleBlower Policy.
A mechanism has been established for employees to report their concernsabout unethical behavior actual or suspected fraud or violation of Code of Conduct andEthics and leak of price sensitive information under the Company's Code of Conductformulated for regulating monitoring and reporting by Insiders under SEBI (Prohibition ofInsider Trading) Regulations 2015 as amended from time to time. It also provides foradequate safeguards against the victimization of employees who avail of the mechanism andallows direct access to the Chairperson of the Audit Committee in exceptional cases. TheWhistle Blower Policy is available on the Company's website https://www.aurobindo.com/wp-content/uploads/2019/04/Whistle-Blower- Policy-APL-clean.pdf
Your Company has a policy and framework for employees to report sexualharassment cases at workplace and the said process ensures complete anonymity andconfidentiality of information. Your Company has constituted an Internal ComplaintsCommittee in compliance with the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013 and the Rules there under. The Company has a policyon prevention and prohibition of sexual harassment at the workplace. The policy providesfor protection against sexual harassment of women at the workplace and for the preventionand redressal of such complaints. During the year the Company has not received anycomplaint. The Company has been conducting regular awareness programmes aimed atprevention of sexual harassment.
MEETINGS OF THE BOARD
The Board and Committee meetings are prescheduled and a tentativecalendar of the meetings is created in consultation with the Directors. However in caseof special and urgent business needs approval is taken by passing resolutions throughcirculation. During the year under review four Board Meetings and five Audit CommitteeMeetings were convened and held. The details of the meetings including composition ofAudit Committee are provided in the Corporate Governance Report. During the year all therecommendations of the Audit Committee were accepted by the Board.
DETAILS OF DIRECTORS & KEY MANAGERIAL PERSONNEL
Key Managerial Personnel
Mr. K. Nithyananda Reddy Whole-time Director and Vice Chairman Mr. N.Govindarajan Managing Director Dr. M. Sivakumaran Whole-time Director Mr. M. MadanMohan Reddy Whole-time Director Mr. P. Sarath Chandra Reddy Whole-time Director Mr.Santhanam Subramanian Chief Financial Officer and Mr. B. Adi Reddy Company Secretary areKey Managerial Personnel of the Company in accordance with the provisions of Section(s)2(51) and 203 of the Companies Act 2013 read with the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014. During the year Mr. K.RagunathanDr(Mrs) Avnit Bimal Singh and Mrs.Savita Mahajan were re-appointed as IndependentDirectors of the Company. Mr. P.Sarath Chandra Reddy was re-appointed as Whole-timeDirector of the Company during the year.
None of the directors of the Company are disqualified under theprovisions of the Companies Act 2013 (Act') or under the SEBI (ListingObligations and Disclosure Requirements) Regulations 2015. All Independent Directors haveprovided confirmations as contemplated under section 149(7) of the Act.
As per the provisions of the Companies Act 2013 Mr. K. NithyanandaReddy and Mr. M. Madan Mohan Reddy will retire as directors at the ensuing Annual GeneralMeeting and being eligible seek re-appointment. The Board recommends their reappointment.
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to Section 134(3)(c) of the Companies Act 2013 your Directorsconfirm that:
a. i n the preparation of the annual accounts the applicableaccounting standards have been followed along with proper explanation relating to materialdepartures if any;
b. appropriate accounting policies have been selected and appliedconsistently. Judgement and estimates which are reasonable and prudent have been made soas to give a true and fair view of the state of affairs of your Company as at the end ofthe financial year and of the profit of your Company for the year;
c. proper and sufficient care has been taken for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act 2013for safeguarding the assets of your Company and for preventing and detecting fraud andother irregularities;
d. the annual accounts have been prepared on a going concern basis;
e. proper internal financial controls have been laid down to befollowed by your Company and such internal financial controls are adequate and areoperating effectively; and
f. proper systems to ensure compliance with the provisions of allapplicable laws have been devised and such systems are adequate and are operatingeffectively.
DECLARATION FROM INDEPENDENT DIRECTORS
The Independent Directors have submitted the declaration ofindependence stating that they meet the criteria of independence as provided insub-section (6) of Section 149 of the Companies Act 2013 as well as clause (b) ofsub-regulation (1) of Regulation 16 of the Listing Regulations (including any statutorymodification(s) or re-enactment(s) thereof for the time being in force). In terms ofRegulation 25(8) of the Listing Regulations the Independent Directors have confirmed thatthey are not aware of any circumstance or situation which exist or may be reasonablyanticipated that could impair or impact their ability to discharge their duties.
The Company recognizes and embraces the importance of a diverse boardin its success. The Board has adopted the Board Diversity Policy which sets out theapproach to diversity of the Board of Directors. The Board Diversity Policy is availableon the Company's website: https://www.aurobindo.com/wp-content/uploads/2018/10/Policy-on-Board-Diversity.pdf
SEBI (Listing Obligations and Disclosure Requirements) Regulations2015 mandates that the Board shall monitor and review the Board evaluation framework. TheCompanies Act 2013 states that a formal annual evaluation needs to be made by the Boardof its own performance and that of its committees and individual directors. Schedule IV ofthe Companies Act 2013 states that the performance evaluation of independent directorsshall be done by the entire Board of Directors excluding the director being evaluated.
The Annual Performance Evaluation was conducted for all Board Membersfor the Board and its Committees for the financial year 2019-20. This evaluation was ledby the Nomination and Remuneration / Compensation Committee of the Company. The Boardevaluation framework has been designed in compliance with the requirements under theCompanies Act 2013 and the Listing Regulations and in accordance with the Guidance Noteon Board Evaluation issued by SEBI in January 2017. The Board evaluation was conductedthrough questionnaire designed with qualitative parameters and feedback based on ratings.
Evaluation of Committees was based on criteria such as adequateindependence of each Committee frequency of meetings and time allocated for discussionsat meetings functioning of Board Committees and effectiveness of its advice/recommendation to the Board etc.
Evaluation of Directors was based on criteria such as participation andcontribution in Board and Committee meetings representation of shareholders interest andenhancing shareholders value experience and expertise to provide feedback and guidance totop management on business strategy governance risk and understanding of theorganization's strategy etc.
POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION
The policy of the Company on directors' appointment andremuneration including criteria for determining qualifications positive attributesindependence of a director and other matters are adopted as per the provisions of theCompanies Act 2013. The remuneration paid to the Directors is as per the terms laid outin the nomination and remuneration policy of the Company. The nomination and remunerationpolicy as adopted by the Board is placed on the Company's website: https://www.aurobindo.com/wp-content/uploads/2018/10/Nomination-and- Remuneration-Policy.pdf
TRANSFER TO RESERVES
Your Company has not transferred any amount to reserves during the yearunder review.
LOANS GUARANTEES AND INVESTMENTS
Loans guarantees and investments covered under Section 186 of theCompanies Act 2013 form part of the Notes to the financial statements provided in thisAnnual Report.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All transactions entered with Related Parties for the year under reviewwere on arm's length basis and in the ordinary course of business. All related partytransactions are mentioned in the Notes to the Financial Statements. The Company hasdeveloped a framework through Standard Operating Procedures for the purpose ofidentification and monitoring of such Related Party Transactions. A statement givingdetails of all Related Party Transactions are placed before the Audit Committee and theBoard for review and approval. The policy on Related Party Transactions as approved by theBoard of Directors has been uploaded on the website of the Company https://www.aurobindo.com/wp-content/uploads/2018/10/Related-Party- Transaction-Policy.pdf
The particulars of contracts or arrangements with related partiesreferred to in sub-section (1) of Section 188 of the Companies Act 2013 is prepared inForm No. AOC-2 pursuant to clause (h) of subsection (3) of Section 134 of the Act and Rule8(2) of the Companies (Accounts) Rules 2014 and is in Annexure-2 to this Report.
EXTRACT OF ANNUAL RETURN
As required under Section 134 (3) (a) and Section 92(3) of theCompanies Act 2013 read with Rule 12(1) of the Companies (Management and Administration)Rules 2014 the extract of Annual Return prepared in Form MGT-9 is in Annexure-3 to thisreport. The Annual Return of the Company is also available on the Company's website:www.aurobindo.com
CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGEEARNINGS & OUTGO
Information with respect to conservation of energy technologyabsorption foreign exchange earnings & outgo pursuant to Section 134(3)(m) of the Actread with Companies (Accounts) Rules 2014 is in Annexure-4 to this Report.
RISK MANAGEMENT COMMITTEE
Risk Management Committee of the Company consists of the followingDirectors viz. Mr. M. Sitarama Murty Mr. N. Govindarajan and Mr. P. Sarath Chandra Reddy.Mr. M. Sitarama Murty is the Chairman of the Committee. The Company has established aseparate department to monitor the enterprise risk and for its management. The Committeehad formulated a risk management policy for dealing with different kinds of risks whichthe Company faces in its day-to-day operations. Risk management policy of the Companyoutlines different kinds of risks and risk mitigating measures to be adopted by the Board.Risk is an integral part of the Company's business and sound risk management iscritical to the success of the organization. The Company has adequate internal financialcontrol systems and procedures to combat the risk. The risk management procedure isreviewed by the Audit Committee and Board of Directors on regular basis at the time ofreview of quarterly financial results of the Company. A report on the risks and theirmanagement is enclosed as a separate section forming part of this report.
AUDITORS & AUDITORS' REPORT
The statutory auditors' report is annexed to this report. Thenotes on financial statements referred to in the Auditors' Report are selfexplanatory and do not call for any further comments. There are no specificationsreservations adverse remarks on disclosure by the statutory auditors in their report.They have not reported any incident of fraud to the Audit Committee of the Company duringthe year under review.
Pursuant to Section 139 (2) of the Companies Act 2013 read withCompanies (Audit and Auditors) Rules 2014 the Company at its 30th Annual General Meeting(AGM) held on 31 August 2017 had appointed M/s. B S R & Associates LLP CharteredAccountants as Statutory Auditors for a period of 5 years i.e. up to the conclusion of the35th AGM to be held in the year 2022. Further as per Companies (Amendment) Act 2017effective from 7 May 2018 the provisions relating to ratification of the appointment ofStatutory Auditors at every AGM are not required to be followed.
Ernst & Young LLP are the internal auditors of the Company and tomaintain its objectivity and independence the Internal Auditors report to the Chairman ofthe Audit Committee. The scope and authority of the Internal Audit function is clearlydefined by the Audit Committee of the Board. The Internal Auditors monitor and evaluatethe efficacy and adequacy of internal control system of the Company its compliance withapplicable laws/ regulations accounting procedures and policies. Based on the reports ofthe Internal Auditors corrective actions were undertaken and thereby strengthened thecontrols. Significant audit observations and action plans were presented to the AuditCommittee of the Board on quarterly basis.
Pursuant to Section 148 of the Companies Act 2013 read with theCompanies (Audit and Auditors) Rules 2014 and the Companies (Cost Records and Audit)Rules 2014 the Company is maintaining the cost records as its business is covered underthe regulated sector viz. drugs and pharmaceuticals. Audit of the Company's costrecords is not applicable since the Company's revenues from exports in foreignexchange exceed 75% of its total revenues.
INTERNAL FINANCIAL CONTROLS
The internal financial controls (IFC) framework institutionalized inAurobindo has been evaluated in-depth for its adequacy and operating effectivenesswherein the Company has covered financial reporting controls operational controlscompliance related controls and also Information Technology (IT) controls comprising ITgeneral controls (ITGC) and application level controls. The ITGC would include controlsover IT environment computer operations access to programs and data program developmentand program changes. The application controls would include transaction processingcontrols in ERP Oracle system which supports accurate data input data processing and dataoutput workflows reviews and approvals as per the defined authorization levels.
In order to further strengthen the existing IFC framework and tosupport the growing business the Company has redefined all the process level controls atactivity level which has brought in more clarity and transparency in day-to-day processingof transactions and in addressing any related risks. All the controls so redefined &identified have been properly documented and tested with the help of an independentauditor to ensure their adequacy and effectiveness.
The internal auditors conduct Process & control review'on a quarterly basis as per the defined scope and submit the audit findings along withmanagement comments and action taken reports to Audit Committee for its review.
The IFC framework at Aurobindo ensures the following:
Establishment of policies & procedures assignment ofresponsibility delegation of authority segregation of duties to provide a basis foraccountability and controls;
Physical existence and ownership of assets at a specified date;
Enabling proactive anti-fraud controls and a risk managementframework to mitigate fraud risks to the Company;
Recording of all transactions occurred during a specific period.Accounting of assets liability and revenue and expense components at appropriateamounts;
Preparation of financial information as per the timelinesdefined by the relevant authorities.
These controls cover the policies and procedures adopted by the Companyfor ensuring the orderly and efficient conduct of its business including adherence to theCompany's policies safeguarding of its assets of the Company prevention anddetection of its frauds and errors accuracy and completeness of accounting records andtimely preparation of reliable financial information. The Company has an internal controlsystem commensurate with the size scale and complexity of its operation.
SECRETARIAL AUDIT REPORT
Pursuant to the provisions of Section 204 of the Companies Act 2013and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 the Company has appointed Mr. A. Mohan Rami Reddy a Company Secretary in Practiceto undertake the secretarial audit of the Company for the financial year 2019-20. TheSecretarial Audit Report issued in form MR-3 is in Annexure-5 to this Report.
There are no qualifications reservations or adverse remarks in theSecretarial Audit Report. Also pursuant to Regulation 24A of the SEBI (ListingRegulations) 2015 the Company has obtained Annual Secretarial Compliance Report from aPracticing Company Secretary and submitted the same to stock exchanges where the shares ofthe Company are listed.
CORPORATE SOCIAL RESPONSIBILITY
In compliance with Section 135 of the CA 2013 read with the Companies(Corporate Social Responsibility Policy) Rules 2014 the Company has established theCorporate Social Responsibility Committee (CSR Committee). Your Company is striving tohelp create a healthy improved life for people in its neighbourhood. Broadly theinitiatives are to execute on the stated CSR policy of give back to thesociety' and make an impact on the lives of people. The activities undertaken during2019-20 can be summarized under the following heads:
Supporting preventive health care;
Eradicating hunger poverty & malnutrition;
Making available safe drinking water;
Encouraging environment sustainability;
Sustaining ecological balance & conservation of naturalresources;
Developing rural sports; and
Setting up old age homes.
A detailed account of the CSR activities forms part of the annualreport and placed on the Company's website at: https://www.aurobindo.com/sustainability/. Report on Corporate Social Responsibility as per Rule 8 ofthe Companies (Corporate Social Responsibility Policy) Rules 2014 is in Annexure-6 tothis Report.
PARTICULARS OF EMPLOYEES
The statement of particulars of appointment and remuneration ofmanagerial personnel as required under Section 197(12) of the Companies Act 2013 readwith Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 is in Annexure-7 to this Report. The statement containing particulars of employeespursuant to Section 197(12) of the Companies Act 2013 read with Rule 5(2) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 is open forinspection at the Registered Office of the Company during business hours on all workingdays of the Company up to the date of the ensuing Annual General Meeting. Any shareholderinterested in obtaining such details may write to the Company Secretary of the Company.
Affirmation that the remuneration is as per the remuneration policy ofthe Company
In compliance with the provisions of the Companies Act 2013 and SEBIListing Regulations the Board on the recommendation of the Nomination andRemuneration/Compensation Committee approved the Policy for Selection Appointment ofDirectors KMPs and Senior Management persons. The said Policy provides a framework toensure that suitable and efficient succession plans are in place for appointment ofDirectors on the Board and other management members. The Policy also provides forselection and remuneration criteria for appointment of Directors and senior managementpersons.
The Company affirms that the remuneration is as per the remunerationpolicy of the Company.
All properties and insurable interests of the Company includingbuilding plant and machinery and stocks have been fully insured. The Company has alsotaken D&O Insurance Policy covering Company's Directors and Officers.
MATERIAL CHANGES AND COMMITMENTS
There are no material changes and commitments in the businessoperations of the Company from the financial year ended 31 March 2020 to the date ofsigning of the Board's Report.
A separate section on Corporate Governance standards followed by yourCompany as stipulated under Schedule V (C)
of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 is enclosed as a separate section forming part of this report. Thecertificate of the Practicing Company Secretary Mr. S. Chidambaram with regard tocompliance of conditions of corporate governance as stipulated under Schedule V(E) of theSEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 is annexed to theCorporate Governance Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis Report for the year under review asstipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015is presented in a separate section forming part of this report.
Your Company has not accepted any deposits from the public within thepurview of Chapter V of the Companies Act 2013.
Industrial relations at all units of the Company have been harmoniousand cordial. The employees are motivated and have shown initiative in improving theCompany's performance even during the prevalence of COVID-19 pandemic challenges.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF
The dividends that remained unpaid/unclaimed for a period of sevenyears have been transferred on due dates by the Company to the Investor Education andProtection Fund (IEPF) established by the Central Government. Section 124 of the CompaniesAct 2013 read with the Investor Education and Protection Fund Authority (AccountingAudit Transfer and Refund) Rules 2016 (the Rules') mandates that companiesshall apart from transfer of dividend that has remained unclaimed for a period of sevenyears from the unpaid dividend account to the Investor Education and Protection Fund(IEPF) also transfer the corresponding shares with respect to the dividend which has notbeen paid or claimed for seven consecutive years or more to IEPF.
Accordingly the dividends that remain unclaimed for seven years andalso the corresponding shares have been transferred to IEPF account on due dates. Thedetails of amount of unclaimed unpaid dividend and corresponding shares transferred toIEPF during the financial year 2019-20 have been provided in the AGM Notice.
During the financial year under review there has been no change in theAuthorised Share Capital of the Company. However the paid-up equity share capital of theCompany increased by Rs.23000 during the year consequent to the allotment of 23000equity shares of Rs.1 each on exercise of stock options under the Employee Stock OptionPlan-2006 (ESOP 2006) of the Company. The paid-up share capital of the Company as on
31 March 2020 was Rs.585938609 divided into 585938609 equity sharesof Rs.1 each. The Company has not issued any debentures bonds or any non-convertiblesecurities during the financial year under review.
EMPLOYEE STOCK OPTION SCHEME
The Members at the Annual General Meeting of the Company held on 18September 2006 approved formulation of Employee Stock Option Scheme - 2006 (ESOP 2006) forthe eligible employees and Directors of the Company and its subsidiaries. Details of thestock options as on 31 March 2020 are provided on the Company's website:https://www.aurobindo.com/about- us/corporate-governance/governance-policies/. The detailsof the employee stock options also form part of the notes to accounts of the financialstatements in this Annual Report.
BUSINESS RESPONSIBILITY REPORT
A detailed Business Responsibility Report in terms of the provisions ofRegulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015is available as a separate section in this Annual Report.
There were no significant material orders passed by the Regulators orCourts or Tribunals that would impact the going concern status of the Company and itsoperations in future.
The Company has complied with Secretarial Standards issued by theInstitute of Company Secretaries of India.
Acquisitions / Disinvestment/ demerger/merger
Acquisition of Certain R&D Assets from Profectus
The Company during the year through Auro Vaccines LLC 100%subsidiary of Aurobindo Pharma USA Inc. USA which in turn is 100% subsidiary of theCompany acquired certain R&D assets from Profectus BioSciences Inc'. USAa clinical- stage vaccine development company in the design and development of preventiveand therapeutic vaccines for an upfront cash consideration US$11.29 million with potentialearn outs on achieving certain milestones. This acquisition provided access to Proprietary& Innovative technology platforms for Prophylactic use & Therapeutic use alongwith Global R&D center to develop newer vaccines from basic discovery research intoFDA-approved product.
Mutual termination of acquisition of certain assets from Sandoz
During April 2020 the Company has mutually agreed with Sandozand terminated the definitive agreement entered into for acquisition of commercialoperations and three manufacturing facilities in USA from Sandoz Inc. USA a NovartisDivision since approvals from the U.S. Federal Trade Commission for the transaction wasnot obtained within anticipated timelines.
During the year the Board of Directors of the Company at itsmeeting held on 28 May 2019 has approved the Scheme of Amalgamation for Merger of itswholly owned subsidiaries viz. APL Healthcare Limited APL Research Centre LimitedAurozymes Limited Curepro Parenterals Limited Hyacinths Pharma Private Limited andSilicon Life Sciences Private Limited (a stepdown wholly owned subsidiary) with theCompany. Accordingly the Company has made application on 7 August 2019 with Hon'bleNational Company Law Tribunal at Hyderabad (NCLT). Pursuant to the orders dated 30September 2019 the required approvals of the Shareholders and unsecured creditors wereobtained at the meetings held on 30 November 2019.
Subsequently a joint petition was filed with NCLT on 9 December2019 which has been admitted. The matter was listed for final hearing on 28 February 2020and adjourned to 23 March 2020. Due to COVID-19 lockdown restrictions the matter ofsanction of the Scheme is yet to reach the bench of Hon'ble NCLT.
The outbreak of Coronavirus (COVID-19) pandemic globally and in Indiais causing significant disturbance and slowdown of economic activity in many countries.Suitable measures have been taken to derisk the impact of COVID-19 and lockdowns on theoperations of the Company. Your Company being a pharma company was permitted to operatenormally and during the lockdown periods Company's operations were not majorlyimpacted.
The Company has obtained the Credit ratings from India Ratings &Research Private Limited and it has assigned IND AA+/ RWE / IND A1+ / RWE on Rating WatchEvolving for Company's fund- based working capital facilities and IND A1+ / RWE onRating Watch Evolving for Company's non-fund-based working capital limits vide theirletter dated 23 October 2019.
Your Directors are grateful for the invaluable contribution made by theemployees and are encouraged by the support of the customers business associates banksand government agencies. The Directors deeply appreciate their faith in the Company andremain thankful to them. The Board shall always strive to meet the expectations of all thestakeholders.