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Divis Laboratories Ltd.

BSE: 532488 Sector: Health care
NSE: DIVISLAB ISIN Code: INE361B01024
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VOLUME 11063
52-Week high 1577.00
52-Week low 978.50
P/E 35.09
Mkt Cap.(Rs cr) 40,350
Buy Price 1520.15
Buy Qty 10.00
Sell Price 1521.50
Sell Qty 34.00
OPEN 1522.95
CLOSE 1522.95
VOLUME 11063
52-Week high 1577.00
52-Week low 978.50
P/E 35.09
Mkt Cap.(Rs cr) 40,350
Buy Price 1520.15
Buy Qty 10.00
Sell Price 1521.50
Sell Qty 34.00

Divis Laboratories Ltd. (DIVISLAB) - Director Report

Company director report

Dear Shareholders

Your Directors have pleasure in placing before you the Twenty Eighth Annual Report ofthe Company together with the Audited Accounts for the year ended 31 March 2018.

Financial Results

The Company's financial performance for the year ended 31 March 2018 is summarizedbelow:

Rs in Lakhs
Particulars Standalone Consolidated
2017-18 2016-17 2017-18 2016-17
Revenue 383723 406578 391278 410626
Other Income 11248 7594 11344 7489
Total Revenues 394971 414172 402622 418115
Expenditure 258660 262798 265107 266023
Profit before depreciation interest and tax (PBDIT) 136311 151374 137515 152093
Depreciation 14242 12326 14249 12333
Finance Cost 133 225 133 225
Profit before Tax (PBT) 121936 138823 123133 139534
Provision for Tax:
Current Tax 28713 28523 28983 28523
Deferred Tax 6265 4973 6449 4969
Total tax provision 34978 33496 35432 33492
Profit after Tax (PAT) 86958 105327 87701 106042
Other comprehensive Income (net of tax) 67 (140) 990 367
Total Comprehensive Income 87025 105187 88691 106409
Earnings per Share (EPS) Basic & Diluted (H) 32.76 39.68 33.04 39.95

Operations

Standalone

Total Revenues for the year decreased by 5% to H394971 lakhs.

Operating profit (PBDIT) for the year amounted to H136311 lakhs as against an operatingprofit of H151374 lakhs last year.

Profit before Tax (PBT) for the year amounted to H121936 lakhs as against a PBT ofH138823 lakhs for the last year. before depreciation

Tax Provision for the current year amounted to H34978 lakhs as against a tax provisionof H33496 lakhs.

Profit after Tax (PAT) before Other Comprehensive Income for the year amounted toH86958 lakhs as against a PAT of H105327 lakhs last year.

• Earnings Per Share of H2/- each works out to H32.76 for the year as againstH39.68 last year.

Out of the total revenue 29% came from North America 44% from Europe 9% from Asia13% from India and 5% from rest of the World.

Consolidated

Our total revenues on consolidated basis decreased by 4% to H402622 lakhs fromH418115 lakhs in the previous year.

Theoperatingprofit charges and tax(PBDIT) amounted to H137515 lakhs as against H152093lakhs in the previous year. Profit after Tax before Other ComprehensiveIncome for theyear accounted to H87701 lakhs as against H106042 lakhs in the previous year.

Subsidiaries

Our subsidiaries viz. M/s. Divis Laboratories (USA) Inc. in USA and

M/s. Divi's Laboratories Europe AG in Switzerland are engaged in marketing/distributionof nutraceutical products and to provide a greater reach to customers within theseregions.

During the year the subsidiaries have achieved aggregate turnover of H22593 lakhs asagainst H21678 lakhs in the previous year reflecting a growth of 4% for the nutraceuticalproducts in

North America and Europe.

Subsidiaries have been into profitable operations for the last few years and with theadditional capacities created at Visakhapatnam the planned growth of nutraceuticalbusiness and the support from the parent the companyisconfident of continuingprofitability at the subsidiaries and recovery of the investments/advances made in theforeseeable future. There has been no material change in the nature of the business of thesubsidiaries.

As per section 129(3) of the Companies Act 2013 read with Companies (Accounts) Rules2014 statement containing the salient features of the subsidiaries in form AOC-1 isannexed herewith as "Annexure I". Moreover pursuant to provisions ofSection 136(1) of the

Companies Act 2013 audited subsidiary companies are placed on the website of thecompany at www.divislabs.com. The Consolidated Financial Statements presented by theCompany include the subsidiary companies.

Policy for determining Material Subsidiaries is available on the Company's corporatewebsite at: http://www.divislabs.com/inside/pdf/Policy%20Subsidiary.pdf

Presently the Company does not have any material subsidiary.

Consolidated Accounts

As stipulated in the listing regulations and Companies Act 2013 the consolidatedfinancial statements have been prepared by theCompany in accordance with the relevantaccounting standards.

The audited consolidated financial statements together with

Auditors Report thereon form part of the Annual report. financial position of thecompany. Further there is no

Regulatory Inspections

We reported in the last Board's report that the company's Unit-II at Visakhapatnam wasinspected by US-FDA during Nov-Dec2016 and that an Import Alert was issued to thecompany. The US-FDA also exempted several products from the Import Alert. Subsequentlythe company received a warning letter from US-FDA summarizing the deviations from currentGood Manufacturing Practices (CGMP) for active pharmaceutical ingredients (APIs).

The company fileddetailed responses and given updates to theForm-483 and the warningletter within the stipulated time. The company along with its external regulatoryconsultants and subject matter experts has taken up appropriate remediation measures toaddress the deficiencies observed by US-FDA. During July 2017 the US-FDA has lifted theImport Alert under Clause 99-32 imposed on the company's Unit-II at Visakhapatnam.

The company's Unit-II was again inspected by the US-FDA during September 2017. Thisinspection was for full cGMP and verification of all corrective actions proposed againstthe previous Inspection observations. All previous observations have been confirmedascompleted and resolved. On completion of the current inspection statement of Company'sthe Investigators of US-FDA have issued a Form-483 with 6 observations and the companyfiled its response to the same within the stipulated time.statementsDuring Novemberof the2017 FDA has removed the import alert under clause 66-40 and also closed out the warningletter and issued Establishment Inspection Report

(EIR) for the Unit-II. results of its Unit-II was inspected by HPRA (Ireland) and JAZMP(Slovenia) during July/August 2017 and the inspection concluded successfully with nocritical observations.

The company's Unit-I at Choutuppal Telangana State has also been inspected by theUS-FDA during May 2018. This was a general cGMP inspection by the FDA and the inspectionwas concluded without any observations.

Material Changes and Commitments

No other material changes and commitments have occurred after the close of the yeartill the date of this Report which affect the in the nature of business of the Company.

Dividend

Your Directors are pleased to recommend a dividend of H10/- per equity share of H2/-each i.e. 500% for the 31 March 2018 subject to approval of members at the ensuingAnnual General Meeting.

The total dividend payout for the current year amounts to H32004 lakhs (inclusive oftax of H5457 lakhs) as against H31951 lakhs in the previous year. Dividend (includingdividend tax) as a percentage of profits is 37% as compared to 30% in the previous year.

Transfer to Reserves

The Directors have decided to retain the entire profit of H87025 lakhs in the RetainedEarnings.

Deposits

The Company has not accepted any deposits from public covered by provisions of Section73 of the Companies Act 2013.

Loans Guarantees or Investments

During the year the company has not given any loans or guarantees covered under theprovisions of section 186 of the Companies Act 2013.

The details of investments made by company are given in the notes to the financialstatements.

Related Party Transactions

There are no materially significant related party transactions made by the company withPromoters Key Managerial Personnel or other designated persons which may have potentialconflict with interest of the company at large. As a matter of policy your Companycarries out transactions with related parties on an arms' length basis. Statement of thesetransactions is given at Note No. 39 of the notes to Accounts.

Accordingly particulars of contracts or arrangements with related parties referred toin section 188(1) along with the for entering into such contract or arrangement in FormAOC-2 does not form a part of this report.

Internal Financial Controls

Information in respect of internal adequacy is included in the Management Discussionand Analysis which is a part of the Annual report.

Risk Management

The Company has an enterprise-wide approach to risk management which lays emphasis onidentifying and managingyearended key operational and strategic risks. The company hasbeen addressing various risks impacting the company and the policy and processes of thecompany on risk management is provided in the Management Discussion and Analysis.

The Risk Management Committee constituted by the Companyconstantlyevaluatesvariousrisks–businesscustomerconcentration supplierconcentration regulatory compliances confidentiality of processes consistency of cGMPpractices environment employee health and safety etc. monitors risk and deployappropriate control systems aimed at mitigating such risks to the extent possible.

Management Discussion and Analysis

In terms of provisions of regulation 34(2) of SEBI (Listing

Obligations and Disclosure Requirements) Regulations 2015 ("SEBI ListingRegulations") report on Management Discussion & Analysis for the year underreview is provided in a separate section forming part of this Annual Report.

Directors' Responsibility Statement

As required under Section 134 (5) of the Companies Act 2013 Directors of your companyhereby state and confirm that:

a) the applicable accounting standards have been followed in the preparation of theannual accounts;

b) accounting policies selected were applied consistently and the judgements andestimates made are reasonable and prudent so as to give a true and fair view of the stateof affairs of the Company as at the end of the financial year and of the profit of thecompany for the period;

c) proper and sufficient care has been taken for the maintenance of adequate accountingrecords in accordance with the provisions of the Act for safeguarding the assets of theCompany and for preventing and detecting fraud and other irregularities; justification d)the annual accounts have been prepared on a going concern basis.

e) internal financial controls are adequate and operating effectively; control andtheir f) proper systems have been laid down to ensure compliance with the provisions ofall applicable laws and such systems are adequate and operating effectively.

Number of Meetings of Board of Directors

The Board meets at least four times in a year at quarterly intervals and morefrequently if deemed necessary to transact its business. During the financial year theBoard has met five times i.e. on May 2017 27 June 2017 22 July 2017 31 October 2017and 27 January 2018.

Directors and Key Managerial Personnel

Retirement:

Smt. S. Sridevi has completed her tenure of appointment as Small ShareholderIndependent Director on 22 June 2017 and she is not eligible for re-appointment. YourBoard appreciates the contribution made by her during her tenure as Director of theCompany.

Re- Appointment:

As per the provisions of the Companies Act 2013 Mr. N.V. Ramana Executive Directorand Mr. Madhusudana Rao Divi Whole-timeDirector will retire by rotation at the ensuing28th Annual General Meeting and being eligible offer themselves for re-appointment.tions positive attributes and director's

Appointment:

Mrs. Nilima Motaparti has been appointed as Whole-time Director of the company in theAnnual General Meeting held on 25 September 2017 for a period of five years with effectfrom 27 June 2017.

Dr. Ramesh B.V. Nimmagadda and Dr. S. Ganapaty have been appointed as IndependentDirectors of the company in the Annual General Meeting held on 25 September 2017 for aperiod of five years with effect from 27 June 2017 and 22 July 2017 respectively.

Brief profile of the directors proposed for appointment/ reappointment is given in thenotice convening the 28th AGM for reference of the shareholders.

Declaration By Independent Directors

The Company has obtained declaration from all independent directors of the companyunder section 149(7) of the Companies

Act 2013 confirming that they meet the criteria of independence as provided in Section149(6) of the Companies Act 2013 and Regulation 25 of SEBI Listing Regulations.

Board Evaluation

The Board of Directors carried out an annual evaluation of its own performance of thecommittees of the Board and of the individual directors pursuant to the provisions of theCompanies Act 2013 and SEBI Listing Regulations.

Performance evaluation was carried out on the basis of criteria evolved as provided bythe Guidance Note on Board Evaluation issued by Securities and Exchange Board of Indiaseeking inputs from the directors individually and the committees through a structuredquestionnaire which provides a valuable feedback for contribution to the Board improvingboard effectiveness maximising strengths and highlighting areas for further improvementetc.

In a separate meeting of the Independent directors performance of the non-independentdirectors and the Board as a whole was evaluated taking into account the views of thenon-independent directors and the same was discussed in the Board meeting. Performanceevaluation of Independent Directors is done by the entire Board of Directors (excludingthe directors being evaluated)

Policy on Directors' Appointment and Remuneration

The Policy on appointment and remuneration of Directors Key Managerial Personnel andSenior Management including criteria fordetermining independence as required under section178(3) of the Companies

Act 2013 and Regulation 19 read with Schedule II Part D of SEBI Listing Regulationshas been formulated by the company:

• To identify persons who are qualified to become directors and who may beappointed in senior management in accordance with the criteria laid down.

• To ensure a transparent board nomination process with the diversity of thoughtexperience knowledge perspective and gender in the Board.

• To determine remuneration based on the Company's size and financial position andtrends and practices on remuneration prevailing in peer companies in the Pharma industrybesides qualifications skills capabilities etc.

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

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

• To retain motivate and promote talent and to ensure long term sustainability oftalented managerial personnel and create competitive advantage.

Policy on Nomination and Remuneration of Directors Key / Senior Managerial Personnelmay be accessed on the Company's website at:http://www.divislabs.com/inside/pdf/Nomination%20and%20 Remuneration%20policy18.pdf

Remuneration Details of Directors and KMP

Particulars required to be furnished under Rule 5(1) of the

Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 asamended are given in "Annexure – II" and forms part of this Report.

Particulars of Employees

Particulars of employees required to be furnished under Rule 5(2) and 5(3) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 as amendedare given in "Annexure – III" and forms part of this Report.

Corporate Social Responsibility

The Board of Directors has constituted Corporate Social Responsibility Committee (CSRCommittee) consisting of members viz. Mr. R. Ranga Rao (Chairman) Dr. Murali K. Divi Mr.N. V. Ramana and Mr. Madusudana Rao Divi.

Corporate Social Responsibility Policy (CSR Policy) indicating the activities to beundertaken by the Company was adopted by the Board on the recommendation of the CSRCommittee.

Report on Corporate Social Responsibility as Per Rule 8 of Companies (Corporate SocialResponsibility Policy) Rules 2014 is prepared and the same is enclosed as "Annexure– IV" to this Report.

Business Responsibility Report

Pursuant to the SEBI Listing Regulations Business Responsibility Report (BRR)describing the initiatives taken by the Company is enclosed as part of this Report.

Conservation of Energy Technology Absorption and Foreign Exchange Earnings & Outgo

Particulars required under Section 134 (3) (m) of the Companies

Act 2013 read with Rule 8(3) of the Companies (Accounts) Rules 2014 is given in the"Annexure – V" to this report.

Corporate Governance Report

The report on Corporate Governance as per regulation 34(3) read with Schedule V of theSEBI Listing Regulations is included as a part of this Annual Report. The requisitecertificate from Mr. V. Bhaskara Rao Practicing Company Secretary confirming thecompliance with the conditions of Corporate Governance is attached to the report onCorporate Governance.

Audit Committee

The details pertaining to the role objective and composition of the Audit Committeeare included in the Corporate Governance Report which is part of the Annual Report for theyear.

Vigil Mechanism

The Company has established a vigil mechanism and formulated a Whistle Blower Policy toprovide mechanism for directors and employees of the company to report their concernsabout any unethical behavior actual or suspected fraud or violation of the company's codeof conduct or ethics policy. The Policy provides that the company investigates suchincidents when reported in an impartial manner and takes appropriate action to ensurethat requisite standards of professional and ethical conduct are always upheld. Thismechanism also provides for adequate safeguards against victimization of director(s)/employee(s) who avail the mechanism and also provide for direct access to the Chairman ofthe Audit Committee in exceptional cases. The Whistle Blower

Policy may be accessed on the Company's website at: http://www.divislabs.com/inside/pdf/Whistle%20blower%20policy.pdf

Audit Reports

• Report of the Statutory Auditors for the year does not contain anyqualification reservation or adverse remark or disclaimer or reporting of any offence orfraud.

• The Secretarial Audit Report does not contain any qualification reservation oradverse remark or disclaimer.

Statutory Auditors

At the Annual General Meeting held on 25 September 2017 M/s Price Waterhouse CharteredAccountants LLP (Firm Registration No. 012754N/ N500016) were appointed as StatutoryAuditors of the Company to hold office for five consecutive years till the conclusion ofthe 32nd Annual General Meeting of the Company in the calendar year 2022 (subject toratification by the shareholders at each Annual General Meeting).

In terms of first proviso to Section 139 of the 2013 the appointment of the auditorsshall be placed for ratification at every Annual General Meeting. However (Amendment)Act 2017 omitted the first proviso to Section 139 of Companies Act 2013 that requiresratification of auditor at every annual general meeting.

Accordingly M/s. Price Waterhouse Chartered Accountants LLP will continue as theStatutory Auditors of the Company till conclusion of 32nd Annual General Meeting of theCompany.

Secretarial Audit

Pursuant to provisions of section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Board of Directorsof the Company has appointed Mr. V. Bhaskara Rao Practicing Company Secretary (PCSRegistration No. 4182) as the Secretarial Auditor of the Company to conduct theSecretarial Audit for the financial year 2017-18. The Secretarial Audit report for thefinancial year 2017-18 is annexed herewith as "Annexure VI".

Cost Audit

Pursuant to the Section 148 of the Act and rule 3 of the Companies (cost records andaudit) Rules 2014 as amended the company maintains cost records in its books of account.As per rule 4 of the said rules the requirement for cost audit is not applicable to acompany which is covered under rule 3 and whose revenue from exports in foreignexchange exceeds seventy five per cent of its total revenue or which is operating from aspecial economic zone. However company has voluntarily opted for audit of cost recordsand appointed M/s. E.V.S & Associates Cost Accountants as Cost Auditors.

Extract of Annual Return

An Extract of Annual Return in Form MGT-9 as per the provisions of Section 92(3) of theCompanies Act 2013 and Rule 12 of Companies (Management and Administration) Rules 2014is enclosed as "Annexure VII" to this report.

Other Disclosures

Information on Unclaimed Dividend and transfer to IEPF is provided in the CorporateGovernance Report

• No company has become or ceased to be its Subsidiary joint venture or associatecompany during the year

No significant and material orders were passed by the regulators or courts or tribunalsimpacting the going concern status and company's operations in future.

No cases were filedpursuant to the Sexual Harassment of

Women at Work Place (Prevention Prohibition and Redressal) Act 2013 during the yearunder review.

• As per Regulation 43A of the SEBI Listing Regulations the Dividend DistributionPolicy is disclosed in the Corporate Governance Report and on the website of the Company.

Directors of your company hereby state and confirm that the Company has complied withall the applicable Secretarial Standards.

Acknowledgements

The Board expresses its appreciation for the continued support received from Governmentauthorities Banks customers vendors and investors. The Board also appreciates and valuethe commitment and contribution of its employees at all levels.

For and on behalf of the Board
Dr. Murali K. Divi
Hyderabad Chairman & Managing Director
26 May 2018 (DIN: 00005040)