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Hikal Ltd.

BSE: 524735 Sector: Health care
NSE: HIKAL ISIN Code: INE475B01022
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OPEN 465.55
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VOLUME 107304
52-Week high 520.50
52-Week low 112.00
P/E 41.94
Mkt Cap.(Rs cr) 5,585
Buy Price 452.55
Buy Qty 1.00
Sell Price 453.30
Sell Qty 110.00
OPEN 465.55
CLOSE 465.55
VOLUME 107304
52-Week high 520.50
52-Week low 112.00
P/E 41.94
Mkt Cap.(Rs cr) 5,585
Buy Price 452.55
Buy Qty 1.00
Sell Price 453.30
Sell Qty 110.00

Hikal Ltd. (HIKAL) - Director Report

Company director report

To

The Members

The Directors are pleased to present the 32nd Annual Report with the AuditedAccounts for the financial year ended 31 March 2020.

1. FINANCIAL RESULTS

Rs. in million

2019-20 2018-19
Revenue 15110 15919
Profit before interest & depreciation 2769 3004
Interest 524 584
Profit before depreciation 2245 2420
Depreciation 825 929
Profit before taxation before exceptional item 1420 1491
Exceptional item 154 -
Profit before taxation after exceptional item 1266 1491
Provision for taxation
- Current tax 347 455
- Deferred tax liability/(assets) 75 5
Profit after tax 844 1031
Reserves and surplus 7919 7316
Dividend on equity share 197 136
Tax on dividend 41 28

2. COMPANY PERFORMANCE

The Company achieved the revenue of Rs.15110 million in 2019-20 5% lower than that ofRs.15919 million in the previous year. The sales of the Pharmaceutical business recordeda degrowth by 6% to Rs.8869 million while the sales of the Crop Protection saw a degrowthby 5% to Rs.6204 million.

The EBIDTA margins stood at around 18% degrowing in line with the turnover fromRs.3004 million in the previous year to Rs.2769 million in 2019-20. Absolute EBITDA alsodecreased by 8% amounting to Rs.235 million. The Profit before Tax (PBT) went down by 5%from Rs.1491 million in the previous year to Rs.1420 million in 2019-20. Profit afterTax (PAT) witnessed a degrowth of 18% from Rs.1031 million in the previous year to Rs.844million in 2019-20. The Earning per Share (EPS) also declined from Rs.8.36 in the previousyear to Rs.6.85 in 2019-20.

The free cash generated by the Company out of operations is healthy and growing in linewith the turnover. The Company is incurring substantial capital expenditure for growth inthe Pharmaceutical and Crop Protection businesses to augment capacities for existingproducts and to create capacities for new products as well as investments in Research& Technology.

The Company has prudently been funding the growth capex with a mix between internalaccruals and long-term loans. In doing so the Company ensures that it maintains a healthyliquidity position and that its financial gearing and debt service coverage are atcomfortable levels.

The Current Ratio of the Company is at a healthy 1.14 for 2019-20 as against 1.25 forthe previous year. The Debt to Equity ratio improved from 0.83 in the previous year to0.71 in 2019-20 while the Debt Service Coverage Ratio (DSCR) strengthened from 2.85 inthe previous year to 2.21 in 2019-20.

The Long-Term Rating of the Company was reaffirmed by ICRA during the 2019-20 as‘A" with a stable outlook while the Short Term Rating was also reaffirmed as A1.The rating upgrades reflect the comfortable liquidity position and the overall strongfinancial health of the Company.

This year we faced several headwinds in our business. During the year the businessoperations in both divisions were impacted due to several reasons which resulted in lowerrevenues. In Q2 our Crop Protection Division was affected by severe flooding at our Mahadfacility and water cuts at our Taloja facility leading to loss of revenues. Also in Q2 inour Pharmaceutical division we took a major plant shutdown to increase capacities of someexisting products which led to a loss in revenues. We also incurred a one-time exceptionalitem of Rs 154 million. All the above have resulted in loss of profits. The nationwidelock-down imposed by the Government of India to constrain the Covid-19 pandemic furtherdisrupted the operations resulting in loss of revenue towards the end of the financialyear.

3. EXPORTS

Exports for the year 2019-20 were Rs.10892 million (72% of total sales) as compared toRs.11056 million (69% of total sales) in the previous year. We diversified our customerbase which included more local customers who in turn re-exported our manufacturedproducts.

4. MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis on the Company's operations is provided in aseparate section and forms a part of this Annual Report.

5. BUSINESS RESPONSIBILITY REPORT

The Company's Business Responsibility Report in terms of Regulation 34 of SEBI(Listing Obligations & Disclosure Requirements) Regulations 2015 (ListingRegulations) is provided in a separate section and forms a part of this Annual Report.

6. DIVIDEND

The Board declared an interim dividend of 50% (previous year: 30%) which was paid toshareholders in February 2020 and a final dividend of 60% (previous year: 60%) includingthe interim dividend for the year was recommended for the year 2019-20.

7. SHARE CAPITAL

There has been no change in the Company's paid-up share capital during the currentfinancial year. The paid-up equity share capital as at 31 March 2020 stood at Rs.246.6million. During the year under review the Company did not issue shares with differentialvoting rights nor granted any stock options or sweat equity. As on 31 March 2020 none ofthe Company's Directors held instruments convertible into equity shares of the Company.

8. EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the annual return in form MGT-9 as requiredunder Section 92 of the Companies Act 2013 is included in this Report as "Annexure- A" and forms an integral part of this Report.

9. SUBSIDIARY ACCOUNTS

In terms of the approval granted by the Government of India Ministry of CompanyAffairs under Section 129 (3) of the Companies Act 2013 copies of the Balance SheetProfit & Loss account Directors' Report and the Report of the Auditors of thesubsidiary Company Acoris Research Limited have not been attached with the Company'sBalance Sheet. The Company will make these documents/details available upon request madeby any Company shareholder interested in obtaining the documents/details. Alternatelythey can also be inspected at the Company's registered office as well as that of thesubsidiary.

Pursuant to the approval a statement of the summarised financials of the subsidiary isattached along with the consolidated financial statements. Pursuant to AccountingStandards (AS) - 21 issued by the Institute of Chartered Accountants of India theconsolidated financial statements presented by the Company includes the financialinformation of its subsidiary. The Financial Statements of Subsidiary are also hosted onthe website of the Company at www.hikal.com.

10. DIRECTORS

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

In accordance with the provisions of Section 152 of the Companies Act 2013 and theCompany's Articles of Association Mr. Amit Kalyani (DIN - 00089430) Director retires byrotation at the forthcoming Annual General Meeting and being eligible offers himself forre-appointment. The Board has in their meeting held on 18 June 2020 re-appointed Mr.Ranjit Shahani (DIN- 00103845) as an Independent Director of the Company for the secondconsecutive term of 5 years with effect from 8 February 2021 till 7 February 2026 and interms of Regulation 17(1A) of the Listing Regulations the Company has sought the approvalof the members of the Company by special resolution.

During the year under review Dr. Wolfgang Welter ceased to be Independent Director ofthe Company wef 30 September 2019 upon completion of his term and the Board places onrecord its appreciation for his invaluable contribution and guidance during his tenure asIndependent Director.

Details of the number of Board meetings held during 2019-20 form a part of theCorporate Governance Report.

11. BOARD EVALUATION

Pursuant to the provisions of the Companies Act 2013 and Securities and ExchangeBoard of India (Listing Obligations & Disclosure Requirements) Regulations 2015 astructured questionnaire was prepared after taking into consideration the various aspectsof the Board's functioning like composition of the Board and its Committees cultureexecution and performance of specific duties obligations and governance.

The performance evaluation of the Independent Directors was completed. In a separatemeeting of Independent Directors performance of Non-Independent Directors the Board as awhole and the Chairman of the Company was evaluated taking into account the views ofExecutive Directors and Non-Executive Directors. The Board of Directors expressed theirsatisfaction with the evaluation process.

12. WHISTLE BLOWER POLICY

The Company has a whistleblower policy to report genuine concerns or grievances. TheWhistle Blower Policy is posted on the Company's website (www.hikal.com).

13. REMUNERATION AND NOMINATION POLICY

The Company has a policy which lays down a framework in relation to remuneration ofDirectors Key Managerial Personnel and Senior Management of the Company. The Nominationand Remuneration Policy of the Company is attached as "Annexure - F" tothis Report. This policy also lays down criteria for selection and appointment of Boardmembers. The details of this policy are explained in the Corporate Governance Report andalso put up on the Company's website (www.hikal.com).

14. RELATED PARTY TRANSACTIONS

All related party transactions entered during the financial year were at an arm'slength basis and in the ordinary course of business. There were no materially significantrelated party transactions made by the Company with Promoters Directors Key ManagerialPersonnel or other designated persons which may have a potential conflict with theCompany's interest at large. Therefore the disclosure of Related Party Transactions asrequired under Section 134(3)(h) of the Act in Form AOC-2 is not applicable to theCompany for the Financial Year 2019-20.

All related party transactions were placed before the Audit Committee and also theBoard for approval.

The policy on Related Party Transactions as approved by the Board is uploaded on theCompany's website www.hikal.com

None of the Directors had any pecuniary relationships or transactions vis-a-vis theCompany.

15. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There were no significant and material orders passed by the regulators/courts thatcould impact the going concern status of the Company and its future operations.

16. RISK MANAGEMENT

The Company has a robust business risk management framework in place to identify andevaluate all business risks. The Company recognises risk management as a crucial aspect ofthe Company's management and is aware that identification and management of riskeffectively is instrumental to achieving its corporate objectives.

The Company has identified the business risks and the business heads who are termedas risk owners to assess monitor and manage these risks on an ongoing basis. The riskowners assess the identified risks and continually identify any new risks that can affectthe business. Different risks such as technological operational maintenance of qualityreputational competition environmental foreign exchange financial human resource andlegal compliances among others are assessed on a continuous basis. The Risk ManagementCommittee and Audit Committee review and submit to the Board of Directors their findingsin the form of risk register at regular intervals. At the Board meetings the members havea detailed discussion to assess each risk and the measures that are in place to lower themto acceptable limits.

The strategies are reviewed discussed and allocation of appropriate resources is doneas and when necessary. The risk management program internal control systems and processesare monitored and updated on an ongoing basis. A built-up mechanism has been establishedto identify measure control monitor and report the risks. Business heads areresponsible for rolling out the risk assessment and management plan within theorganisation.

17. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an internal control system commensurate with the size scale andcomplexity of its operations. To maintain its objectivity and independence the InternalAudit function reports to the Chairman of the Audit Committee of the Board.

The Internal Audit Department monitors and evaluates the efficacy and adequacy of theinternal control system in the Company its compliance with operating systems accountingprocedures and policies at all locations of the Company and its subsidiary. Based on thereport of internal audit function process owners undertake corrective action in theirrespective areas and thereby strengthen the controls. Significant audit observations andcorrective actions thereon are presented to the Audit Committee.

The Audit Committee actively reviews the adequacy and effectiveness of the internalcontrol systems and suggests improvements to strengthen them. The Company has a robustmanagement information system which is an integral part of the control mechanism.

During the year a thorough audit of the internal financial controls was carried out byan independent firm of chartered accountants.

18. KEY MANAGERIAL PERSONNEL

Pursuant to the provisions of Section 203 of the Act the Key Managerial Personnel ofthe Company as on 31 March 2020 are:

Mr. Jai Hiremath Chairman & Managing Director

Mr. Sameer Hiremath Joint Managing Director & CEO (Whole time Director)

Mr. Sham Wahalekar Chief Financial Officer & Company Secretary

19. PARTICULARS OF LOANS GUARANTEES AND INVESTMENTS BY THE COMPANY

The details under Section 186 of the Companies Act 2013 are given in the notes to thefinancial statements.

20. DIRECTOR'S RESPONSIBILITY STATEMENT

Your Directors state that:

(i) In the preparation of the annual accounts the applicable accounting standards readwith requirements set out under Schedule III to the Companies Act 2013 (the Act) werefollowed and there are no material departures from the same;

(ii) The Directors have selected such accounting policies and applied them consistentlyand made judgements 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 ended 31March 2020 and of the profit of the Company for that year;

(iii) The Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) The annual accounts have been prepared on a going concern basis;

(v) The Directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively; and

(vi) The Directors have devised a proper system to ensure compliance with the provisionof all applicable laws and that such systems are adequate and are operating effectively.

21. AUDITOR

At 31st Annual General Meeting held on 1 August 2019 M/s. S R B C & COLLP Chartered Accountants Mumbai (FRN : 324982E/E300003) were appointed as StatutoryAuditors of the Company to hold office from the conclusion of 31st AnnualGeneral Meeting of the Company till the conclusion of 36th Annual GeneralMeeting to be held in the year 2024.

The Auditor's report prepared by M/s. S R B C & CO. LLP to the members on theaccounts of the Company for the year ended 31 March 2020 does not contain anyqualifications adverse or disclaimer remarks. No fraud has been reported by the Auditorsto the Audit Committee or the Board.

22. COST AUDITOR

The Company has re-appointed M/s. V J. Talati & Co. as the Cost Auditor to carryout the audit of cost accounts for the financial year 2020-21. The requisite resolutionfor ratification of remuneration payable to Cost Auditors for the year 2020-21 by theshareholders has been set out in the Notice of AGM. The cost audit report for thefinancial year 2018-19 was filed with the Ministry of Corporate Affairs Government ofIndia on 22 August 2019.

23. SECRETARIAL AUDITOR

The Board has appointed M/s. Ashish Bhatt & Associates Practicing CompanySecretaries to conduct a Secretarial Audit for the financial year 2019-20.

The Secretarial Audit Report for the financial year ended 31 March 2020 is annexedherewith as "Annexure-B" to this Report. The Secretarial Audit Reportdoes not contain any qualifications reservations or adverse remarks.

24. CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Corporate Social Responsibility Committee (CSR Committee) has formulated andrecommended to the Board a Corporate Social Responsibility Policy (CSR Policy) indicatingthe activities to be undertaken by the Company which has been approved by the Board. TheCSR Policy may be accessed on the Company's website at:https://www.hikal.com/uploads/documents/corporate-social-responsibility-polic- srijan.pdf

Policy Statement:

As a socially responsible corporate member of the world community with long-termrelationships we believe that the future of our business is best served by respecting theinterests of society at large. Through our efforts we shall strive to improve the livingstandards of the community. Our CSR activities shall aim to make a difference to the livesof the needy underprivileged members of society including children women and seniorcitizens and the environment.

The key philosophy of all CSR initiatives of the Company is guided by three corecommitments of scale impact and sustainability. The Company has identified six focusareas of engagement which are as under:

• Health: Affordable solutions for healthcare through improved access awarenessand sanitation

• Education: Access to quality education training skill enhancement enhancementof vocation skills

• Environment: Environmental sustainability ecological balance conservation ofnatural resources

• Protection of national heritage art and culture: Protection and promotion oftraditional art culture and heritage

• Overall development activities in surrounding areas of Hikal'smanufacturing sites for the benefit of society

• Contribution to Prime Minister's National Relief Fund or any other fundset up by the Central Government for socio-economic development or welfare

Implementation of the CSR Program

1. Project activities identified under CSR are to be implemented either by personnel ofthe Company or through a registered trust or a registered society.

2. The time duration of each project/program shall depend on its nature and intendedimpact.

The Company will also undertake other need-based initiatives in compliance withSchedule VII of the Act. During the year the Company has spent Rs.22.73 million on CSRactivities. Pursuant to the provisions of the Companies Act 2013 the Company should havespent Rs.21.70 million (being 2% of the average net profits of the last three financialyears) during the financial year 2019-20.

The Annual Report on CSR activities is annexed herewith marked as "Annexure -C".

25. PREVENTION OF SEXUAL HARASSMENT AT WORKPLACE

Pursuant to the provisions of the Prevention of Sexual Harassment of Women at Workplace(prevention prohibition and redressal) Act 2013 ("POSH Act") the Companyadopted a ‘Policy on Appropriate Social Conduct at Workplace'. The policy isapplicable for all employees of the organisation which includes corporate office andmanufacturing units among others. The policy is applicable to non-employees as well i.e.business associates vendors and trainees among others.

A Complaints Committee has also been set up to redress complaints received on sexualharassment as well as other forms of verbal physical written or visual harassment.

During the financial year under review the Company did not receive any complaints ofsexual harassment and no cases were filed under the POSH Act.

26. TRANSFER TO INVESTOR EDUCATION AND PROTECTION FUND ("IEPF")

• Transfer of Unclaimed Dividend to IEPF During the year under review dividendamounting to Rs.342876/- pertaining to the year ended 31 March 2012 that had not beenclaimed by the shareholders was transferred to the credit of IEPF as required underSections 124 and 125 of the Act

• Unclaimed dividend as on 31 March 2020 The Shareholders are requested to lodgetheir claims with the Registrar and Share Transfer Agents of the Company i.e. UniversalCapital Securities Pvt. Ltd. for unclaimed dividend. Pursuant to the provisions ofInvestor Education and Protection Fund (Uploading of Information regarding unpaid andunclaimed amounts lying with Companies) Rules 2012 the Company has uploaded the detailsof unpaid and unclaimed amounts lying with the Company on 1 August 2019 (date of the lastAnnual General Meeting) on the website of the Company www.hikal.com. The same are alsoavailable on the website of the Ministry of Corporate Affairs www.mca.gov.in.

• Transfer of Equity Shares As required under Section 124 of the Act 246959Equity Shares in respect of which dividend has not been claimed by the members for sevenconsecutive years or more have been transferred by the Company to the IEPF Authority.Details of such shares transferred have been uploaded on the website of the Companywww.hikal.com. The same are also available on the website of the Ministry of CorporateAffairs www.mca.gov.in.

27. SAFETY AND ENVIRONMENT

The Company continued to maintain the highest standards in environment health andsafety. The Company has become the first Indian life sciences Company to receive theResponsible Care certification. It is applicable to all manufacturing and research sitesof the Company. Continuous training and awareness programs for the employees areundertaken on a frequent basis.

28. PUBLIC DEPOSITS

The Company did not accept any deposits and as such there were no overdue depositsoutstanding as on 31 March 2020.

29. EMPLOYEES

The Company considers its human capital as an invaluable asset. The Company continuedto have cordial relationships with all its employees. Management and employee developmentprograms and exercises were conducted at all sites. Employees had various team buildingexercises and were sponsored for various external seminars and other developmentalprograms to enhance their skill sets. The total workforce of the Company stood at 1629 ason 31 March 2020.

The information in terms of Section 197(12) of the Companies Act 2013 read with Rule5(1) of the Companies (Appointment and Remuneration of Management Personnel) Rules 2014as amended from time to time is enclosed herewith as "Annexure - D."

The statement containing particulars of employees as required under Section 197(12) ofthe Companies Act 2013 read with Rule 5(2) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 forms a part of this Report. Furtherthe Report and the financial statements are being sent to the members excluding theaforesaid statement. In terms of Section 136 of the Companies Act 2013 the saidstatement is open for inspection. Any member interested in obtaining such particulars maywrite to the Company Secretary at: secretarial_agm@hikal.com.

30. CONSERVATION OF ENERGY RESEARCH & DEVELOPMENT TECHNOLOGY ABSORPTION ANDFOREIGN EXCHANGE EARNINGS AND OUTGO

In accordance with the requirements of Section 134(3)(m) of the Companies Act 2013read with rule 8(3) of the Companies (Accounts) Rules 2014 a statement showingparticulars with respect to Conservation of Energy Technology Absorption and ForeignEarnings and Outgo forming a part of the Directors' Report is given in the enclosed"Annexure E" which forms a part of this Report.

31. CORPORATE GOVERNANCE

A report on Corporate Governance along with a certificate from the Auditors of theCompany regarding the compliance of the code of Corporate Governance and also theManagement Discussion and Analysis Report as stipulated under the provisions ofRegulation 34 of the Securities and Exchange Board of India (Listing Obligations &Disclosure Requirements) Regulations 2015 are annexed to this Annual Report.

32. SECRETARIAL STANDARDS

The Company has complied with the applicable Secretarial Standards issued by theInstitute of Company Secretaries of India during the Financial Year 2019-20.

33. ACKNOWLEDGEMENTS

The Board of Directors place on record their appreciation of the contribution andsincere support extended to the Company by our bankers financial institutions and valuedcustomers and suppliers.

The Board also places on record its appreciation for the impeccable service andgenerous efforts rendered by its employees at all levels across the Board towards theoverall growth and success of the Company.

34. CAUTIONARY STATEMENT

Statements in the Board's Report and the Management Discussion and Analysis describingthe Company's objectives expectations or forecasts may be forward-looking within themeaning of applicable securities laws and regulations. Actual results may differmaterially from those expressed in the statement. Important factors that could influencethe Company's operations include global and domestic demand and supply conditionsaffecting selling prices of finished goods input availability and prices changes ingovernment regulations tax laws economic developments within the country and otherfactors such as litigation and industrial relations.

For and on behalf of the Board of Directors
Jai Hiremath
Date: 18 June 2020 Chairman & Managing Director
Place Mumbai DIN: 00062203