Your Directors have great pleasure in presenting the Nineteenth Annual Report of yourCompany together with the Audited Standalone and Consolidated Financial Statements and theAuditors' Report thereon for the financial year ended March 31 2017. The consolidatedperformance of the Company and its subsidiaries has been referred to wherever required.
1. Financial Results:
The highlights of consolidated financial results of your Company and its subsidiaries;and your Company as a standalone entity are as follows:
| ||2016-17 ||2015-16 |
|Consolidated ||(INR in millions) ||(INR in millions) |
|Income from operations ||7001.1 ||5841.7 |
|Total Expenditure excluding Depreciation Interest cost tax and exceptional items ||5951.2 ||4994.1 |
|Profit before other income Depreciation Interest cost tax and exceptional items ||1049.9 ||847.6 |
|Other income ||96.7 ||39.9 |
|Depreciation Finance Charges and exceptional items ||798.2 ||884.8 |
|Profit before tax ||348.4 ||2.7 |
|Profit after tax before share of profit of minority interest ||230.4 ||22.4 |
|Standalone || || |
|Income from operations ||5387.8 ||4711.3 |
|Total Expenditure excluding Depreciation Interest cost tax and exceptional items ||4537.6 ||4073.4 |
|Profit before other income Depreciation Interest cost tax and exceptional items ||850.2 ||638.0 |
|Other income ||72.2 ||33.9 |
|Depreciation Finance Charges and exceptional items ||571.2 ||758.2 |
|Profit/(Loss) before tax ||351.2 ||(86.4) |
|Profit/(Loss) after tax ||235.2 ||(47.3) |
2. Performance Overview
The consolidated income from operations for FY 2016 - 17 was INR 7001.1 million ascompared to INR 5841.7 million in the previous fiscal year reflecting a growth EBITDA inFY 2016- 17 was INR 1049.9 million as compared to INR 847.6 million in FY 2016-17reflecting a year-on-year increase of 23.9%. EBITDA margin for the year was 15.0% ascompared to 14.5% in FY 2015-16 reflecting an increase of 50 basis points. PAT (afterminority interest) in the fiscal year was INR 221.7 million as compared to a loss aftertax of INR 14.6 million in FY 2015-16.
The revenue growth was driven by 19.2% growth from HCG Centres (including themulti-specialty hospitals) while the Milann centres contributed growth of 27.8%. HCGCentres constituted 92% of the consolidated revenues for the Company and the remaining 8%of the consolidated revenue of 19.8%. was contributed by Milann Centres.
The Company ended the year FY 2016-17 with income from operations of INR 5387.8million as compared to INR 4711.3 million reflecting an increase of 14.4% compared tothe previous fiscal year. Our EBITDA before exceptional items for FY 2016-17 was INR 850.2million with EBITDA margin of 15.8%.
3. Indian Accounting Standards
The Ministry of Corporate Affairs (MCA) vide its notification in the Official Gazettedated February 16 2015 notified the Indian Accounting Standards ("Ind AS")applicable to certain class of companies. Ind AS has replaced the existing GAAP prescribedunder Section 133 of Companies Act 2013 read with Rule 7 of the Companies (Accounts)Rules 2014. For HCG Group Ind AS is applicable from April 01 2016 with a transitiondate of April 01 2015 and IGAAP as the previous GAAP.
The reconciliations and descriptions of the effect of the transition from IGAAP to IndAS have been provided in Note 3 in the notes to accounts in the standalone andconsolidated financial statements
4. Business and Strategy:
The Company is a provider of speciality healthcare in India focused on cancer andfertility. Under the "HCG" brand we operate the largest cancer care network inIndia in terms of the total number of private cancer treatment centres licensed by theAERB. Each of our comprehensive cancer centres offers at a single location comprehensivecancer diagnosis and treatment services (including radiation medical oncology andsurgical treatments). Our freestanding diagnostic centres and our day care chemotherapycentre offer diagnosis and medical oncology services respectively.
In our HCG network our specialist physicians adopt a technology-focused approach todiagnosis and treatment. For instance we use advanced technologies including molecularpathology and molecular imaging for accurate diagnosis and staging of cancer which enableus to decide upon the appropriate course of treatment for each patient. We also utilisetargeted nuclear medicine therapies as well as advanced radiation treatments to minimiseside effects and improve the outcome of treatments. By ensuring that we adopt thesediagnostic and treatment technologies throughout our HCG network we are able to provideconsistent quality of care to all patients.
Given the large number of patient cases treated across our utilise HCG network webelieve that we are able to efficiently our equipment technologies and human resourcesthereby deriving economies of scale. Furthermore through the adoption of a centraliseddrug and consumables formulary we are able to lower the overall cost of drugs andconsumables. We believe that our business model is scalable and when combined withefficient utilisation of resources it enables us to operate within a competitive coststructure.
We also provide fertility treatment under our Milann brand. Our Milann fertilitycentres provide comprehensive reproductive medicine services including assistedreproduction gynaecological endoscopy and fertility preservation; and follow amultidisciplinary and technology-focused approach to diagnosis and treatment. Our Milannnetwork also operates on a model similar to our HCG network wherein the various Milannfertility centres aim to provide medical services following established protocols with afocus on quality medical care across diagnosis and treatment.
Under our Triesta brand we provide clinical reference laboratory services in Indiawith a specialisation in oncology including molecular diagnostic services and genomictesting. Our Triesta central reference laboratory is located in our centre of excellencein Bengaluru. Our Triesta central reference laboratory is accredited by NABL in India aswell as by CAP for quality assurance of laboratory tests performed. Additionally Triestaoffers research and development services to pharmaceutical and biotechnology companies inthe areas of clinical trial management and biomarker discovery and validation. Triesta isled by a team of specialist oncopathologists molecular biologists and clinicalresearchers. We believe that Triesta is well-positioned to leverage the wide variety ofpatient cases across our HCG network to develop its capabilities and business.
4.2 NEW CANCER CARE CENTRES:
a) HCG Pinnacle Cancer Centre: In April 2016 HCG launched its first cancer centre inVisakhapatnam under its subsidiary company HCG Pinnacle Oncology Private Limited. HCGPinnacle Cancer Centre has a capacity of upto 88 beds and provide high quality andcomprehensive cancer care services. With the commencement of operations of the centre atVisakhapatnam the Company has expanded its presence in Andhra Pradesh to three centresalong with Ongole and Vijayawada. HCG Pinnacle Cancer Centre is the only centre in theState of Andhra Pradesh with a True Beam installation and is the most advanced andcomprehensive cancer care centre. The centre is also equipped with 16 slice PET CT machineDiscovery IQ from GE which enables effective cancer diagnostics.
b) HCG Cancer Centre Baroda: The Company in May 2016 has launched its new advancedcomprehensive cancer centre in Baroda under its subsidiary HCG Oncology LLP. The Centrehas a bed capacity of 65 beds and is one of the most advanced in terms of technology inthe HCG network. The centre is HCG's second comprehensive cancer centre in the state ofGujarat with Ahmedabad. The new centre features several advanced technologies such as theTrueBeam Radiotherapy system PET-CT for radiotherapy planning and diagnosis TrueBeamminimally invasive surgery system as well as an integrated cloud hosted oncology ITsystem.
c) HCG Manavata Cancer Centre: HCG has expanded its operations in Nashik in March 2017.The Company had established the first comprehensive cancer centre in Nashik in 2008. Thecentre has 65 beds offering advanced diagnostics radiation medical and surgicaloncology. The upgraded centre in a new building has additional 90 beds featuring advancedradiation therapy multi-disciplinary team of oncologists including sub specialistsbone-marrow transplant unit. The new centre is expected to commence operations later in2017. Also the centre which was operating under HCG is moved into a new legal entitynamed HCG Manavata Oncology LLP which is owned by HCG and Dr. Rajnish Nagarkar in theratio of 51:49 respectively.
d) Cancer Care Kenya Nairobi: HCG through its subsidiary HCG Kenya has signeddefinitive agreements in March 2017 to acquire a majority stake in Cancer Care Kenya (CCK)a leading cancer care centre in Nairobi Kenya subject to review and approval by theCompetition Authority of Kenya (CAK) and other requisite approvals. CDC the developmentfinanceinstitution of UK Government which has partnered with HCG for Africa investmentswould partner with HCG through HCG Kenya an off-shore subsidiary for the acquisition. MPShah Hospital a leading tertiary care hospital in Kenya will also participate in thetransaction. HCG Kenya has received necessary approvals from CAK in May 2017 for theacquisition. cost for private CCK which started operations in 2010 is the firstcomprehensive cancer centre in Kenya. CCK treats over a thousand patients annuallyincluding over two hundred patients from other African nations. CCK's team includesinternationally trained radiation medical and surgical oncologists physicists radiationtechnicians and oncology nurses.
e) HCG Regency Cancer Centre Kanpur: In May 2017 HCG launched its first cancer centrein Kanpur the largest the state of Uttar Pradesh under its subsidiary company HCGRegency Oncology Healthcare Private Limited. HCG Regency Oncology Centre is equipped with90 beds and features advanced radiation therapy a multi-disciplinary team of oncologistsincluding sub-specialists as well as the first PET-CT and bone marrow transplant unit.
a) Expand the reach of our cancer care network in India:
We plan to expand its network in India by establishing new cancer centres across Indiaand by expanding the capacity and service offering of the existing HCG cancer centres. Wecarry out a competitive assessment of the markets in which HCG plans to expand the networkbased on a number of factors including the estimated incidence of cancer in the primaryand secondary catchment population the number of comprehensive cancer centres if any inthe catchment; the average distance patients have to travel to avail of such comprehensivecancer care; affordability of healthcare generally and cancer care in particular; and theavailable third party payer options whether corporate government or private insurance.HCG will continue to expand its network through green field projects partnershiparrangements and acquisitions; and affirmed that the past experiences will aid theManagement in identifying potential opportunities in the future and assist HCG inintegrating new cancer centres into the existing HCG network.
b) Strengthen our HCG brand to reach more cancer patients
We believe that our HCG brand distinguishes us from our competitors. As we establishnew comprehensive cancer centres across India we plan to invest in building our brandenhancing our market presence brand image and visibility. We intend to strengthen ourpatient support groups comprising cancer survivors to further spread awareness of cancerscreening and to educate patients regarding cancer treatment options and their relativeoutcomes and benefits. Through these initiatives we seek to further strengthen our brandand our commitment to the community cancer patients and their families.
c) Expand our cancer care network overseas
We believe that despite the growing incidence of cancer there is a shortage of cancercentres in many countries in Africa. As a result patients suffering from cancer oftentravel outside the region at a significant quality cancer care including to ourcomprehensive cancer centres in India. In the past we have experienced an increase in thenumber of patients travelling from Africa and other regions to our centre of excellence inBengaluru as well as to our other comprehensive cancer centres in India for cancertreatment. We believe that this growing demand presents us with an opportunity toestablish a network of speciality cancer centres in Africa. In addition we periodicallyand selectively evaluate city in partnering opportunities in countries in the Middle Eastand South and Southeast Asia.
d) Upgrade and strengthen our information technology infrastructure
We are in the process of significantly upgrading our information technologyinfrastructure in order to enhance the quality of care delivered to patients and tofurther enhance our clinical best practices and research capabilities. Our plannedinformation technology infrastructure will be based on a private cloud-computing systemand will encompass a centralised EMR system seamlessly integrated with various othercentralised systems including HIS and ERP system. We believe that the implementation ofthese information systems will maximise efficiencies through the greater integration ofour network and help us fine tune protocols through knowledge sharing and collaboration.Further we believe that these initiatives will enhance our ability to conductlongitudinal research studies (which are long-term observational research studies) andassociate clinical outcomes with mutation and other genomic findings in cancer patienttissues maintained at our biorepository. We believe that this will position us as apartner of choice for cancer researchers and academia.
e) Expand our Milann network of fertility centres across India and strengthen Milannbrand
We believe that in expanding our Milann network we are well-positioned to leverageHCG's successful track record of growing through partnerships with specialist physiciansand hospitals as well as our relationship base within the medical community.
We intend to invest in building our Milann brand through targeted media campaignsfocusing on building patient awareness of fertility treatment primarily through patienttestimonials and socially relevant messages. We also intend to undertake communityoutreach programmes strengthen our patient support groups and undertake other awarenessbuilding activities among corporate entities. In addition we intend to undertake variousdirect consumer marketing activities including advertising in print television outdoorand digital media.
5. Management Discussion and Analysis Report
In terms of regulation 34 of the Listing Regulations the Management Discussion andAnalysis Report on the Company's financial and operational performance industry trendsbusiness outlook and Initiatives and other material changes with respect to the Companyand its subsidiaries wherever applicable are presented in separate section which formspart of the Annual Report.
6. Transfer to reserves
There are no appropriations to/from the General reserves of the Company during the yearunder review.
Keeping in view the growth strategy of the Company the Board of Directors of yourCompany have decided to plough back the profits and thus do not recommended any dividendfor the financial year under review.
As per Regulation 43A of the SEBI Listing Regulations the Company has adopted DividendDistribution Policy setting out the parameters and circumstances that will be taken intoaccount by the Board in determining the distribution of Dividend to the Shareholdersand/or retaining profits earned by the Company. The highlights of the Policy is enclosedas Annexure 7 to the Board's Report and is also available on the website of the Company(www.hcgel.com).
8. Transfer of unpaid and unclaimed amount to IEPF
Pursuant to the provisions of Section 124(5) of the Companies Act 2013 dividend andrefund of share application money due for refund which remains unpaid or unclaimed for aperiod of seven years from the date of its transfer to unpaid dividend/ unclaimed accountis required to be transferred by the Company to Investor Education and Protection Fund(IEPF) established by the Central Government under the provisions of Section 125 of theCompanies Act 2013. During the year no amount was due for transfer to IEPF.
9. Consolidated financial
In accordance with the Companies (Indian Accounting Standards) Rules 2015 of theCompanies Act 2013 the Company has started following the Indian Accounting Standards(Ind AS) for preparation of its financial statements from April 1 2016. The financialstatements both standalone and consolidated for the financial year ended March 31 2016have also been restated accordingly.
10. Subsidiaries and Associates
We along with our subsidiaries and Associates provide speciality healthcare focusedon cancer and fertility.
As on March 31 2017 the Subsidiaries and Associate Companies of the Company are asunder of which none are material subsidiaries.
|Sl. No. ||Name of the entity ||Country of Incorporation ||% of ownership held by the Company as at March 31 2017 |
|A ||HCG Medi-Surge Hospitals Private Limited ||India ||74.00% |
|B ||Malnad Hospital & Institute of Oncology Private Limited ||India ||70.25% |
|C ||HealthCare Global Senthil Multi Specialty Hospitals Private Limited ||India ||100.00% |
|D ||Niruja Product Development And Healthcare Research Private Limited (name changed with effect from November 10 2016 from MIMS HCG Oncology Private Limited) ||India ||100.00% |
|E ||BACC Healthcare Private Limited ||India ||50.10% |
|F ||HCG Regency Oncology Healthcare Private Limited ||India ||51.00% |
|G ||HCG Pinnacle Oncology Private Limited ||India ||50.10% |
|H ||HealthCare Diwan Chand Imaging LLP ||India ||75.00% |
|I ||APEX HCG Oncology Hospitals LLP ||India ||50.10% |
|J ||HCG NCHRI Oncology LLP ||India ||76.00% |
|K ||HCG Oncology LLP ||India ||74.00% |
|L ||Strand-Triesta Cancer Genomics LLP ||India ||30.00% |
|M ||HCG EKO Oncology LLP ||India ||50.50% |
|N ||HCG Manavata Oncology LLP (incorporated on August 10 2016) ||India ||51.00% |
|O ||DKR Healthcare Private Limited (formerly Parenthood Healthcare Private Limited) 100% subsidiary of BACC Healthcare Private Limited which is subsidiary of the Company ||India ||50.10% |
|P ||HCG (Mauritius) Pvt. Ltd. ||Mauritius ||100.00% |
|Q ||Healthcare Global (Africa) Pvt. Ltd. ||Mauritius ||100.00% |
|R ||HealthCare Global (Uganda) Private Limited (Wholly Owned Subsidiary of Healthcare Global (Africa) Pvt. Ltd) ||Uganda ||100.00% |
|S ||HealthCare Global (Kenya) Private Limited (Wholly Owned Subsidiary of Healthcare Global (Africa) Pvt. Ltd) ||Kenya ||100.00% |
|T ||HealthCare Global (Tanzania) Private Limited (Wholly Owned Subsidiary of Healthcare Global (Africa) Pvt. Ltd) ||Tanzania ||100.00% |
During the year the Board of Directors reviewed the affairs of the subsidiaries. Inaccordance with Section 129(3) of the Companies Act 2013 read with Regulation 33 of SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 and applicableaccounting standards the consolidated financial statements of the Company prepared inaccordance with the relevant accounting standards specified under Section 133 of theCompanies Act 2013 read with the rules made there under forms part of this AnnualReport. Further pursuant to the provisions of Section 136 (1) of the Companies Act 2013:a) The Annual Report of the Company containing therein its standalone and consolidatedfinancial statements is placed on the website of the Company being www.hcgel. com. b)The audited financial statements of subsidiary companies are posted on the website of theCompany being www. hcgel.com.
A statement containing the salient features of the financial statements of thesubsidiary companies in Form AOC-1 is annexed herewith as "Annexure 6" and formspart of the Report as per provisions of the Section 129(3) of the Companies Act 2013.
10.1 SUBSIDIARIES INCORPORATED DURING THE FINANCIAL YEAR
HCG Manavata Oncology LLP: HCG Manavata Oncology LLP was incorporated on August 102016 under The Limited Liability Partnership Act 2008 as a limited liability partnershipfirm.The Partners of the LLP are HCG and Dr. Rajnish Nagarkar in the capital contributionratio of 51:49 respectively. HCG Manavata Oncology LLP is authorised to primarily engagein the business of setting up hospitals at Nashik Maharashtra with high end linearaccelerators pharmacy and matters incidental and ancillary thereto.
10.2 CHANGES IN THE SHAREHOLDING IN THE SUBSIDIARIES DURING THE FINANCIAL YEAR
HCG NCHRI Oncology LLP: During the year under review the percentage of holding of theCompany in HCG NCHRI Oncology LLP subsidiary has increased from 51% to 76%.
10.3 DISINVESTMENTS MADE BY THE COMPANY DURING THE FINANCIAL YEAR
The Company has not made any disinvestments during the Financial Year.
11. Public deposits
Your Company has not accepted any deposits from public in terms of Section 73 of theCompanies Act 2013 and as such no amount on account of principal or interest on publicdeposits was outstanding as on the date of the balance sheet.
12. Particulars of loans guarantees or investments under Section 186 of the CompaniesAct 2013
Pursuant to Section 186 of the Companies Act 2013 and Schedule V of the Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015 ("Listing Regulations") disclosure on particulars relating toLoans/advances given guarantees provided and investments made are provided as part of thefinancial statements.
13. Related party transactions
In line with the requirements of the Companies Act 2013 and Listing Regulations yourCompany has formulated a Policy on Related Party Transactions which is also available onthe Company's website at www.hcgel.com. The Policy intends to ensure that properreporting approval and disclosure processes are in place for all transactions between theCompany and Related Parties.
All Related Party Transactions are placed before the Audit Committee for review andapproval. Prior omnibus approval is obtained for Related Party Transactions on yearlybasis for transactions which are of repetitive nature and / or entered in the ordinarycourse of business and are at arm's length. All Related Party Transactions entered duringthe year were in ordinary course of the business and at arm's length basis. No MaterialRelated Party Transactions i.e. transactions exceeding 10% of the annual consolidatedturnover as per the last audited financial statements were entered during the year byyour Company.
Disclosures as required under Section 134(3) (h) read with Rule 8(2) of the Companies(Accounts) Rules 2014 are given in Form AOC 2 as specified under Companies Act 2013which is annexed herewith as "Annexure 5" and forms part of the report.
14. Initial Public Offer
During the year 2015-16 the Company had completed its Initial Public Offering of29800000 equity shares of INR 10 each comprising of Fresh Issue of 11600000 equityshares and Offer for Sale of 18200000 equity shares at a premium of INR 208 per equityshare. The total issue size was INR 6496.4 million. The shares got listed on the NationalStock Exchange of India Limited and BSE Limited on March 30 2016. The proceeds of theinitial public offer are proposed to be utilized for the following purposes:
1. Purchase of medical equipment
2. Investment in IT software services and hardware
3. Pre-payment of debt; and
4. General Corporate Purposes
During the year under review the Company has not deviated in utilizing the proceeds ofissue.
15. Share capital
a) Authorized Share Capital: There is no change in the authorized share capital of theCompany during the year. As on the date of this report the authorized share capital ofthe Company is INR 1270000000 consisting of 127000000 equity shares of INR 10 each.b) The Issued Subscribed and Paid-up Share Capital of the Company has increased from INR850759860 consisting of 85075986 equity shares of INR 10 each to INR 857129860consisting of 85712986 equity shares of INR 10 each during the year.
The increase in the Issued Subscribed and Paid-up Share Capital was on account ofallotment of shares to employees pursuant to ESOP 2014.
16. Number of meetings of the Board
The Board met four times during the financial year 2016-17 viz. on May 26 2016August 12 2016 November 10 2016 and February 8 2017.
Detailed information regarding the meetings of the Board and meetings of the Committeesof the Board is included in the report on Corporate Governance which forms a part ofDirectors' Report.
17. Declaration by Independent Directors
The Company has received necessary declaration from each Independent Director inaccordance with Section 149(7) of the Companies Act 2013 that he/she met the criteria ofindependence as laid out in sub-section (6) of Section 149 of the Companies Act 2013 andthe Regulation 16(1)(B) of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015.The Company has received and taken on record the necessary declarationfrom each of the independent directors under Section 149 of the Companies Act 2013 thatthey meet with the criteria of their independence.
18. Extract of Annual Return
The extract of the Annual Return of your Company as on March 31 2017 as provided undersub-section (3) of Section 92 in the Form MGT 9 is annexed herewith as "Annexure1".
19. Director's Responsibility Statement
The financial statements have been prepared in accordance with Indian AccountingStandards ("Ind AS") notified under the Companies (Indian Accounting Standards)Rules 2015 and Companies (Indian Accounting Standards) Amendment Rules 2016 asapplicable. For periods up to and including the year ended March 31 2016 the Companyprepared its financial statements in accordance with the then applicable AccountingStandards in India (previous GAAP'). These are the Group's first Ind AS financialstatements. The date of transition to Ind AS is April 1 2015.
Pursuant to Section 134 (3) (C) and 134 (5) of the Companies Act 2013 the Board ofDirectors of the Company hereby state and confirm that:
a) in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures;
b) the Directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company at the end of the financial year and ofthe profit of the Company for that period;
c) the Directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;
d) the Directors had prepared the annual accounts on a going concern basis;
e) the Directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively. f) The Directors had devised proper systems to ensure compliance with theprovisions of all applicable laws and such systems are adequate and operating effectively.
20. Appointment of Directors
The Board of Directors of the Company have appointed Dr. Amit Varma and Dr. Ramesh S.Bilimagga as Additional Directors with effect from November 10 2016 liable to retire byrotation who shall hold office till the date of ensuing Annual General Meeting unlessreappointed by the shareholders. The Board of Directors have made necessary recommendationfor the appointment of Dr. Amit Varma and Dr. Ramesh S. Bilimagga as Directors of theCompany at the ensuing Annual General Meeting.
21. Resignation of Directors
Mr. Prakash Parthasarathy Non-Executive Director nominee of PI Opportunities Fundretired by rotation at the Annual General Meeting held on September 29 2016 and had notsought for reappointment at the Annual General Meeting. The Board place on record itsappreciation for the contribution made by Mr. Prakash Parthasarathy during his tenure asDirector of the Company.
Dr. Jennifer Gek Choo Lee Non-Executive Director nominee of V-Sciences InvestmentsPte Ltd and Mr. Rajesh Singhal Non-Executive Director nominee of Milestone PrivateEquity Fund have resigned from Directorships with effect from August 12 2016. The Boardplace on record its appreciation for the contributions made by Dr. Jennifer Gek Choo Leeand Mr. Rajesh Singhal during their tenure as Directors of the Company.
As per the provisions of the Companies Act 2013 Dr. B. S. Ajaikumar and Mr.Gangadhara Ganapati Directors of the Company retire at the forthcoming Annual GeneralMeeting and have sought for reappointment.
22. Key Managerial personnel
Mr. Krishnan S. Subramanian Chief FinancialOfficerhas resigned from the Company witheffect from August 16 2016. Mr. Yogesh Patel has been appointed as Chief FinancialOfficer of the Company with effect from October 6 2016. The Board hereby places on recordits appreciation for the contribution made by Mr. Krishnan S. Subramanian during histenure as Chief Financial Officer of the Company.
23. Committees of the Board and their constitution
The Board has formed the following five Committees:
1. Audit and Risk Management Committee
2. Nomination and Remuneration Committee
3. Stakeholders' Relationship Committee
4. Corporate Social Responsibility Committee and
5. Strategy Committee.
Details of terms of reference of the Committees attendance at meetings of theCommittees are provided in the Corporate Governance report. The Company Secretary acts asthe Secretary of all the Committees of the Board.
(a) Audit and Risk Management Committee
Pursuant to the requirements of Section 177 of the Companies Act 2013 and Rule 6 ofthe Companies (Meetings of Board and its Powers) Rules 2014 the Company has an Audit andRisk Management Committee and the composition of the committee is as under:
1. Mr. Suresh Chandra Senapaty Chairman
2. Dr. Sudhakar Rao
3. Mr. Shanker Annaswamy
The Audit committee was reconstituted and renamed as the "Audit and RiskManagement Committee" by a meeting of the Board of Directors held on May 29 2015.
(b) Nomination and Remuneration Committee
Pursuant to the requirements of Section 178 of the Companies Act 2013 and Rule 6 ofthe Companies (Meetings of Board and its Powers) Rules 2014 the Board of Directors havereconstituted the Nomination and Remuneration Committee on May 29 2015.
The members of the Nomination and Remuneration Committee are:
1. Mr. Shanker Annaswamy Chairman
2. Dr. Sampath Thattai Ramesh
3. Mr. Gangadhara Ganapati
(c) Stakeholders' Relationship Committee
The Stakeholders' Relationship Committee was constituted by our Board of Directors attheir meeting held on May 29 2015. The scope and function of the Stakeholders'Relationship Committee is in accordance with Section 178 of the Companies Act 2013.
The members of the Stakeholders' Relationship Committee are:
1. Mr. Gangadhara Ganapati Chairman
2. Dr. B.S Ajaikumar
(d) Corporate Social Responsibility Committee
The Corporate Social Responsibility Committee was constituted by our Board of Directorsat their meeting held on May 29 2015. The terms of reference of the Corporate SocialResponsibility Committee of our Company are as per Section 135 of the Companies Act 2013and the applicable rules thereunder.
The members of the Corporate Social Responsibility Committee are:
1. Dr. Sudhakar Rao Chairman
2. Dr. Sampath Thattai Ramesh
3. Ms. Bhushani Kumar
4. Dr. B S Ajaikumar
(e) Strategy Committee
The Committee was constituted by our Board of Directors at their Meeting held on May26 2016 with the scope of reviewing strategic initiatives; and for having an ooversightof the strategic direction of the Company.
The present members of the Committee are:
1. Dr. B. S. Ajaikumar Chairman
2. Mr. Gangadhara Ganapati assesses and mitigates risks that could
3. Mr. Suresh Senapaty
4. Mr. Shanker Annaswamy
5. Dr. Amit Varma
24. Board Evaluation
In terms of the requirement of the Companies Act 2013 and the Listing Regulations anannual performance evaluation of the Board was undertaken. The annual evaluation processcovered the evaluation of the Board as a whole Committees of the Board ChairpersonExecutive and Non- Executive
Directors and Independent Directors and were carried out through a structuredquestionnaire having qualitative parameters and feedback based on ratings. The Board hadduring the year opportunities to interact and make an assessment of its functioning as acollective body. In addition there were opportunities for Committees to interact forIndependent Directors to interact amongst themselves and for each Independent Director tointeract with the Chairman. The Board found that there was considerable value andrichness in such discussions and deliberations. The Board Evaluation discussion wasfocused around how to make the Board and its Committees more effective as a collectivebody in the context of the business and the external environment in which the Companyfunctions. From time to time during the year the Board was appraised of the businessissues and the related opportunities and risks. The Board discussed various aspects of thefunctioning of the Board and its Committees such as structure composition meetingsfunctions and interaction with Management and what needs to be done to further improve theeffectiveness of the Board's functioning.
Additionally during the evaluation discussion the Board also focused on thecontribution being made by the Board as a whole through its Committees and discussions ona one on one basis with the Chairman.
The process of Board Evaluation was led by the Chairman of the Nomination andRemuneration Committee. The overall assessment of the Board was that it was functioning asa cohesive body including the Committees of the Board that were functioning well withperiodic reporting by the Committees to the Board on the work done and progress madeduring the period. The Board acknowledged the efforts and contributions made by theChairperson Executive and Non- Executive Directors and Independent Directors towards theCompany's performance.
The Board also noted that the actions identified in the past evaluation had been actedupon. Subsequent to the evaluation done in the financial year 2016-17 given the changingexternal environment some areas have been identifiedfor the Board to engage itself withand these will be acted upon.
25. Risk Management
The Company has put in place an enterprise wide risk management framework. Thisholistic approach provides the assurance that to the best of its capabilities theCompany identifies impact its performance in achieving the stated objectives. The Auditand Risk Management Committee advises and guides the Company for taking appropriatemeasures to achieve prudent balance between risk and reward in both ongoing and newbusiness activities. The Committee reviews the Company's portfolio of risks and considersit against the Company's Risk Appetite. The Committee also recommends changes to the RiskManagement Technique and / or associated frameworks processes and practices of theCompany.
For further details on the enterprise wide risk management framework refer toManagement and Discussion Analysis Report forming part of the Annual Report.
26. Corporate Social Responsibility
The provisions of Corporate Social Responsibility ("CSR") under the CompaniesAct 2013 were not applicable to the Company for the financial year 2016-17.
However your Company has been over the years pursuing as a part of its corporatephilosophy an unwritten CSR policy voluntarily which goes much beyond mere philanthropicgestures and integrates interest welfare and aspirations of the community with those ofthe Company itself and create an environment of partnership for inclusive development.Over the years HCG has also been involved in a number of social initiatives to supportthe community and bring about a positive change in preventive healthcare througheducation and awareness building activities. Its CSR programmes are delivered through HCGFoundation which is committed to providing health services and subsidized medical care tothe socially and economically marginalized sections of society.
Free cancer detection and screening camps Continuous Medical Education (CMEs) are nowa regular feature in HCG's community outreach program. We believe that organizationalgrowth is impossible without the sharing and pooling of our knowledge and resources. Bestpractices are disseminated across our facilities through coordinated CMEs ContinuousNursing Education (CNEs) and seminars. HCG organizes such continuous education programmesevery year. The CSR Committee has formulated a Corporate Social Responsibility Policywhich indicates the activities the Company proposes to undertake as a part of its CSRprogramme.
27. Internal Control system and their adequacy
The Management has laid down internal financial controls to be followed by the Company.We have adopted policies and procedures for ensuring the orderly and efficient conduct ofthe business including adherence to the Company's policies the safeguarding of itsassets the prevention and detection of frauds and errors the accuracy and completenessof the accounting records and the timely preparation of reliable financial disclosures.
The internal control system commensurate with the nature of business size andcomplexity of operations and has been designed to provide reasonable assurance on theachievement of objectives in effectiveness and efficiency of operations reliability offinancial reporting and compliance with applicable laws and regulations.
As part of the Corporate Governance Report CEO/ CFO certification is provided forassurance on the existence of effective internal control systems and procedures in theCompany.
The internal control framework is supplemented with an internal audit program thatprovides an independent view of the efficacy and effectiveness of the process and controlenvironment and supports a continuous improvement program. The internal audit program ismanaged by an Internal Audit function and the Audit and Risk Management Committee of theBoard.
The scope and authority of the Internal Audit Function is derived from the AuditCharter approved by the Audit and Risk Management Committee of the Board. The InternalAudit function develops an internal audit plan to assess control design and operatingeffectiveness as per the risk assessment methodology. The Internal Audit functionprovides assurance to the Board and management that a system of internal control isdesigned and deployed to manage key business risks and is operating effectively.
28. Vigil Mechanism for Directors and employees
Section 177(9) of the Companies Act 2013 mandates every listed company or such classof companies as may be prescribed to establish a Vigil mechanism for its Directors andemployees which shall function as a channel for receiving and redressing of employees'complaints and shall be operated by the Audit and Risk management committee. The VigilMechanism provides for (a) adequate safeguards against victimization of persons who usethe Vigil Mechanism; and (b) direct access to the Chairperson of the Audit Committee ofthe Board of Directors of the Company in appropriate or exceptional cases.
Under this policy we encourage our employees to report their genuine concern of anyconduct that results in violation of the ethical behaviour or to report any act if notconducted in a fair transparent manner thereby compromising professionalism honesty andintegrity (on an anonymous basis if employees so desire).
Likewise under this policy we have prohibited discrimination retaliation orharassment of any kind against any employees who based on the employee's reasonablebelief that such conduct or practice have occurred or are occurring reports thatinformation or participates in the said investigation. No individual in the Company hasbeen denied access to the Audit and Risk Management Committee or its Chairman. This meetsthe requirement under Section 177(9) and (10) of the Companies Act 2013 and Regulation 22of SEBI (LODR) Regulations.
Mechanism followed under the process is appropriately communicated within the Companyacross all levels and has been displayed on the Company's intranet and website atwww.hcgel.com. The Audit and Risk Management Committee periodically reviews thefunctioning of this mechanism.
29. Company's Policy on Appointment and Remuneration of Directors
As on March 31 2017 the Board consists of 9 members of which 5 Directors areIndependent Directors and 3 are Non-Executive Directors. Dr. B. S. Ajaikumar Chairman& CEO is the only Executive Director on the Board.
An appropriate mix of Executive and Independent Directors ensures greater independenceof Board. The Company has been following well laid down policy on appointment andremuneration of Directors Key Managerial Personnel (KMPs) and Senior ManagementPersonnel.
The remuneration of Executive Director comprises of fixed remuneration and variablepay based on performance and adheres to the applicable provisions of the Companies Act2013 read with relevant rules as detailed in Corporate Governance Report which forms apart of this report. The remuneration of Independent Directors comprises of sitting feeswhich is paid for attending the meetings of the Board and the Committees of the Board inaccordance with the provisions of Companies Act 2013.
The Policy of the Company on the Director's appointment and remuneration includingcriteria for determining qualifications positive attributes independence of a directorand other matters as required under sub-section (3) of section 178 of the Companies Act2013 is available on our website www. hcgel.com. We affirm that the remuneration is asper the terms laid out in the nomination and remuneration policy of the Company.
30. Particulars of employees
The information required in terms of Section 197 (12) of the Companies Act 2013 readwith Rule 5 (1) of the Companies (Appointment and Remuneration of Managerial personnel)Rules 2014 for the year ended March 31 2017 is provided as Annexure 4 to this Report.
A statement containing inter alia names of employees employed financial year and inreceipt of throughout the remuneration of INR 12 million or more employees employed forpart of the year and in receipt of INR 1 million or more per month pursuant to Rule 5(2)the Companies (Appointment statements and Remuneration of Managerial Personnel) Rules2014 is also provided in Annexure 4 to this report.
31. Significant and Material orders
statements During the period under report there have been no material which orsignificant would have an impact on the going concern status and operations of the Companyin future.
32. Statutory Auditors
Under Section 139 of the Indian Companies Act 2013 and Rules made thereunder it ismandatory to rotate the Statutory Auditors on completion of the maximum term permittedunder the said section.
Since the tenure of M/s. Deloitte Haskins & Sells as Statutory Auditors would cometo an end with the conclusion of the ensuing Annual General Meeting (AGM) and cannot bereappointed as Statutory Auditors at the AGM the Audit and Risk Management Committee haverecommended and the Board of Directors subject to the approval of the shareholders haveapproved the appointment of M/s. B S R & Co. LLP (Firm Registration No.101248W/W-100022) as Statutory Auditors on February 08 2017 for a term of 5 yearscommencing from the conclusion of the Annual General Meeting of the Company scheduled tobe held on August 10 2017 till the conclusion of the Annual General Meeting to be heldin the year 2022. The first year of audit will be of the financial statements for the yearending March 31 2018 which will include the audit of the quarterly financial statementsfor the year. The Company has also received a confirmation from M/s. B S R & Co. LLPChartered Accountants Bangalore to the effect that their appointment if made at theensuing Annual General Meeting would be within the limits as mentioned in the provisionof Section 141 of the Companies Act 2013 and are eligible to be appointed.
Suitable resolution in this regard has been recommended by the Board of Directors ofthe Company for the consideration and approval of the shareholders at the ensuing AGM.
33. Auditors' Report
Paid to Directors
There are no qualifications reservations or adverse remarks made by M/s DeloitteHaskins & Sells Statutory Auditors in their report for the financial year ended March31 2017; and hence do not call for any further comments under Section 134 of theCompanies Act 2013.
Pursuant to provisions of Section 143(12) of the Companies Act 2013 the StatutoryAuditors have not reported any incident of fraud to the Audit and Risk ManagementCommittee during the year under review.
34. Material changes and commitments if any affecting the financial position of thecompany occurred between the end of the financial year to which these financial relate andthe date of the report:
There are no other material changes affecting the financial position of the Companybetween the end of the financial year relate and the date of the to which this financialreport.
35. Secretarial Audit
Pursuant to the provisions of Section 204 of the Companies Act 2013 and The Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 your Company hasappointed Mr. V Sreedharan Partner M/s V Sreedharan & Associates a firm of CompanySecretaries in Practice to undertake the Secretarial Audit of the Company for thefinancial year ended March 31 2017. The said Report of the Secretarial Audit in Form MR3 is annexed herewith as "Annexure 2" and forms part of the report.
There are no qualifications reservations or adverse remarks made by the SecretarialAuditor of the Company in their Secretarial Audit Report.
36. Cost Auditor
Pursuant to Section 148 of the Companies Act 2013 read with The Companies (CostRecords and Audit) Amendment Rules 2014 the cost records maintained by the Company inrespect of its hospital activity is required to be audited. Your Directors had on therecommendation of the Audit and Risk Management Committee appointed M/s. M.Thimmarayaswamy & Co. Cost Accountants to audit the cost records of the Company forthe Financial Year 2016-17. Cost Audit Report for the financial year ended 31st March 2016has been duly filed with the Registrar of Companies
37. Particulars regarding Conservation of energy Technology absorption and Foreignexchange earnings and outgo as per Section 134(3)(m) of the Companies Act 2013.
Conservation of energy: The operations of your Company measures are are notenergy-intensive. However significant being taken to reduce energy consumption by usingenergy efficient equipment. The Company has taken initiatives to conserve energy andconsume less energy.
Your Company constantly evaluates and invests in new technology to make theinfrastructure more energy efficient. As the cost of energy forms a very small portion ofthe total costs the financial implications of these measures material.
Technology absorption: Over the years your Company has brought into the country thebest and the world class equipments for the treatment of cancer.
Being at the forefront in the fight pioneering innovative treatments methods and theintroduction of industry-changing technologies that benefit both the medical expert andthe patient. HCG has led the march against cancer and set benchmarks in the industry byintroducing many new technologies like TrueBeam CyberKnife Da Vinci - Robotic Surgeryand Tomotherapy. Most of these equipments are imported.
The Company has a dedicated team of technically competent personnel who relentlesslywork on technology upgradation and development related fields. Your Company also deploysits resources from time to time and imparts necessary training to keep abreast of thecontinuously changing technology.
Research and Development:
The Research and Development is intellectual property driven accelerated bridge betweenbasic research and clinical implementation through high quality translational research tounderstand disease pathogenesis translate such knowledge into improvements in patientcare and set new paradigm in personalized medicine era through biospecimen banking.Putting a step forward for comprehensive cancer care the R&D focusses on high endmolecular diagnostics genomics and other high end technologies and platform to identifyand utilize genetic variability in cancer and genetic make-up of the individual toformulate personalized therapeutic approaches that would enable maximum efficacy with aconcomitant improvement in patient quality of life.
As a comprehensive cancer hospital dedicated to transforming cancer care HCG is at theforefront of cancer research ensuring our patients have access to cutting edge treatmentsthat deliver the best possible outcomes. We are focused on delivering patient-centred carethrough clinical academic and research excellence. Medicine is constantly evolving. Toensure we remain at the forefront of the latest approaches to cancer care and treatmentwe have dedicated research teams onsite that focus on medical physics radiation oncologyradiotherapy medical oncology as well as an integrated clinical trials department. Thisprovides the opportunity for our arenot patients and team members to get involved in vitalresearch including the trial of new drugs devices and other treatment techniques.
Triesta R&D offers the following range of services for Pharma biotech CRO anddiagnostic companies engaged in drug discovery drug development biomarker discovery andagainst cancer involves companion diagnostics development:
Targeted Gene sequencing
Exome sequencing services
Tumor profiling services
Enriched Clinical trial
Pharmacogenomics - Enable pharma in drug development
Our research is focused on the discovery of clinically relevant gene signatures tobring novel biomarkers of diagnostic prognostic and predictive value in cancer patients.We also carry out research on areas where an understanding of intracellular signallingmechanisms has the potential to yield breakthrough-targeted therapeutics. R&D team hassuccessfully written Investigator Initiated Research (IIR) projects for extramural grants.Triesta is actively publishing research papers case studies abstracts in international& national forums like ASCO AACR and Indian Cancer Congress. Having access to wellannotated and high quality clinical samples of various cancer types Triesta is thepreferred partner for global pharma companies academia diagnostic companies venture& technology groups for oncology research and clinical projects.
Foreign exchange earnings and outgo: The details of Foreign Exchange Earnings and Outgoduring the year ended March 31 2017 vis a vis during the year ended March 31 2016 is asunder.
|Particulars ||For the year ended (INR) |
| ||March 31 2017 ||March 31 2016 |
|Expenditure in Foreign Exchange || || |
|Interest ||2841133 ||5014116 |
|Travel expenses ||10833830 ||20859873 |
|Repairs and maintenance: Machinery ||23205150 ||19153402 |
|Professional charges ||24600351 ||21676217 |
|Business promotion expenses ||1927913 ||1681885 |
|Total ||63408377 ||68385493 |
|Imports || || |
|Capital Goods ||20978447 ||435057602 |
|Consumables ||15495448 ||17753402 |
|Earnings in foreign exchange || || |
|Medical service income ||361565939 ||356380654 |
38. Prevention of Sexual Harassment Policy
The Company has in place a Prevention of Sexual Harassment policy in line with therequirements of the Sexual Harassment of Women at the Workplace (Prevention Prohibitionand Redressal) Act 2013. An Internal Complaints Committee has been set up to redresscomplaints received regarding sexual harassment. All employees (permanent contractualtemporary trainees) are covered under this policy. During the year 2016-2017 twocomplaints were received at a group level and the same were investigated and resolved asper the provisions of the Act. There were no complaints pending as on March 31 2017.
In order to build awareness in this area the Company has been conducting programmes inthe organisation on a continuous basis.
39. Green initiative
As a green initiative in corporate governance Ministry of Corporate affairs havepermitted companies to send electronic copies of Annual Report notices etc. to thee-mail IDs of shareholders who have registered their e-mail id either with theirDepository Participants or with the Company/Registrars. We are accordingly arranging tosend soft copies of these documents to the e-mail IDs of shareholders available with us.
In case any of the shareholders would like to receive physical copies of thesedocuments the same shall be forwarded on request to the company by post or an e-mail.
We are also in the process of starting a sustainability initiative with the aim ofbeing carbon neutral and minimize our impact on the environment. Sustainability practiceswill be implemented and tracked diligently to ensure that we comply with the goals we setfor ourselves.
40. Employee Stock Option Schemes
As required under Securities and Exchange Board of India (Share Based EmployeeBenefits) Regulation 2014 the applicable disclosures as on March 31 2017 are annexed tothis Report as "Annexure 3".
During the financial year under review pursuant to regulation 12(1) of the Securitiesand Exchange Board of India (Share Based Employee Benefits) Regulation 2014 the Companyhas obtained the approval of the members at the previous Annual General Meeting held onSeptember 29 2016 for ratifying Employee Stock Option Scheme of the Company (HCG ESOS2014) the pre-IPO plan. HCG ESOS 2014 is in compliance with Securities and Exchange Boardof India (Share Based Employee Benefits) Regulation 2014.
The Nomination and Remuneration Committee of the board evaluates the performance andother criteria of employees and approves the grant of options. These options vest withemployees over a specified period subject to fulfilment of certain conditions. Uponvesting employees are eligible to apply and secure allotment of Company's shares at aprice determined on the date of grant of options.
The stock compensation cost is computed under fair value method and accounted in linewith graded vesting of options over the total vesting period of four years. For the yearended March 31 2017 the Company has recorded stock compensation expense of INR 9450182(2016: INR 5392740).
For further details on the Scheme refer Annexure 3 of the Director's report.
41. Corporate Governance
The Company is committed to observe good corporate governance practices. The report onCorporate Governance for the financial year ended March 31 2017 as per regulation 34(3)read with Schedule V of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 forms a part of this Annual Report.
Certificate from the Statutory Auditors of the Company confirming the compliance withthe conditions of Corporate Governance as stipulated by Regulation 34 (3) of SEBI (LODR)Regulations 2015 is attached to this report.
42. Acknowledgements and Appreciations
We stay committed to partnering for value creation and take this opportunity to thankone and all who have participated in our journey this far. Your Directors desire to placeon record its sincere appreciation to all employees at all levels who with sustaineddedicated effort and hard work enabled the Company to deliver a good all-roundperformance. Your
Directors also wish to place on record their appreciation and acknowledge withgratitude the support and co-operation extended by the vendors business associatesconsultants bankers regulatory and government authorities shareholders and investors atlarge and look forward to their continued support. We also take this opportunity toexpress sincere thanks to the medical fraternity and patients for their continuedco-operation patronage and trust reposed in the Company and its healthcare services.
| ||For and on behalf of the Board of Directors |
|Date: May 24 2017 ||Dr. B. S. Ajaikumar |
|Place: Bangalore ||Chairman |