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Hikal Ltd.

BSE: 524735 Sector: Health care
NSE: HIKAL ISIN Code: INE475B01022
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OPEN 131.45
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VOLUME 40623
52-Week high 187.15
52-Week low 100.75
P/E 15.06
Mkt Cap.(Rs cr) 1,602
Buy Price 129.25
Buy Qty 50.00
Sell Price 129.95
Sell Qty 100.00
OPEN 131.45
CLOSE 130.25
VOLUME 40623
52-Week high 187.15
52-Week low 100.75
P/E 15.06
Mkt Cap.(Rs cr) 1,602
Buy Price 129.25
Buy Qty 50.00
Sell Price 129.95
Sell Qty 100.00

Hikal Ltd. (HIKAL) - Director Report

Company director report

To

The Members

The Directors are pleased to present the 30th Annual Report with theAudited Accounts for the financial year ended

31 March 2018.

` in Millions

1. FINANCIAL RESULTS

2017-18

2016-17

Turnover

13001

10339

Profit before interest and depreciation

2462

2006

Interest

491

482

Profit before depreciation

1971

1524

Depreciation

856

691

Profit before taxation

1115

833

Provision for taxation
- Current tax

447

217

- Deferred tax liability/(assets)

(104)

(91)

Profit after tax

772

707

Reserves and surplus

6529

5885

Dividend on equity share

107

132

Tax on dividend

22

27

Transfer to general reserve

-

100

2. COMPANY PERFORMANCE

Last year we crossed a milestone of ` 10000 million in revenues Thisyear Hikal made a quantum jump in revenues to cross `13000 million an all-time high. Aswe look forward to celebrating 30 years of Hikal this year we are working towardsmaintaining the growth momentum.

Hikal saw its revenue increase from ` 10339 million in previousfinancial year to ` 13001 million (a growth of 25.7%). The sales of the Pharmaceuticalbusiness grew by 23.3% to ` 7528 million and that of our Crop Protection business grew by29.3% to ` 5473 million (Details of business performance provided in the MDA).

Introduction of new products addition of new customers and increasedmarket demand for existing products contributed to this growth. The EBITDA (` 2462million) also showed a growth of 22.7% over previous financial year which was achievedthrough manufacturing efficiencies and scale on the operating side. Our gross profitmargins however faced downward pressures due to an unprecedented and unexpected priceincrease of several key raw materials imported from China due to shutdowns of factories onenvironmental concerns faced by our suppliers. We have tried to make up the margin withproductivity improvements. We expect the raw material situation to stabilise in the nearfuture however as part of risk diversification plan we are actively involved in alternatevendor development for some of our key raw materials.

This impact of the raw material rise is reflected in the margin. TheEBITDA margin was 18.9% (last FY: 19.4%). In spite of this our PBT has increased from `833 million to ` 1115 million an increase of 33.9%. Our PAT increased from ` 707 millionto ` 772 million an increase of 9.19%. PAT margins were negatively impacted due toreduction in R&D tax benefits and withdrawal of investment allowance. This resulted inour effective tax rate increasing from 15.1% in the previous financial year to 30.7% inthis year. Despite this increase in tax expenses our EPS has increased from ` 8.55 to `9.40. Based on our improved credit rating (ICRA A- from the earlier rating of BBB+) andhealthy cash flows generated we managed to save significantly on the total cost of ourfinances. We expect our credit rating to further improve this year which should provide usadditional benefits on the cost of our borrowings. We have made considerable capitalinvestments in both our businesses Pharmaceutical and Crop Protection as well and inResearch and Technology. In line with our long-term strategy we are investing in addingmore production capacity for existing as well as new products that are in the pipeline andwe expect this trend of Capital expenditure to continue for the next couple of years. Overthe last one year we have further improved our debt to equity ratio from 0.95 to 0.91 andour interest coverage ratio from 2.75 to 3.27 and our efforts to improve them further areon track.

3. EXPORTS

Exports for the year are ` 9115 million (70% of total sales) ascompared to ` 6612 million (65% of total sales) in the previous year. We have diversifiedour customer base which includes more local customers who in turn re-export ourmanufactured products.

4. MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis on the operations of the Companyis provided in a separate section and

forms a part of the report.

5. BONUS ISSUE

Based on the healthy cash flows of the company and the positiveprospects for growth in the near future the directors have recommended the issuing onebonus share for every two equity shares held. The Bonus issue is subject to approval ofthe share holders in the ensuing Extra Ordinary General Meeting of the company.

6. DIVIDEND

The Board declared an interim dividend of 35% which was paid toshareholders in February 2018 (previous year: 30%) and recommended a final dividend of25% on expanded capital post bonus issue thus making total dividend for the year 2017-1860% (previous year: 60%) .

7. SHARE CAPITAL

The paid-up equity share capital as at 31 March 2018 stood at ` 164.4million. During the year under review the Company has not issued shares with differentialvoting rights nor granted any stock options or sweat equity. As on 31 March 2018 none ofthe Directors of the Company hold instruments convertible into equity shares of theCompany.

8. EXTRACT OF ANNUAL RETURN

The details forming part of the extract of the annual return in formMGT-9 as required under 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 Ministryof Company Affairs under Section 129 (3) of the Companies Act 2013 copies of the balancesheet profit and loss account directors' report and the report of the auditors of thesubsidiary company Acoris Research Limited have not been attached with the balance sheetof the Company. The Company will make available these documents / details upon requestmade by any shareholder of the Company interested in obtaining the documents / detailsand they can also be inspected at the registered office of the Company as well as of thesubsidiary. Pursuant to the approval a statement of the summarized financials of thesubsidiary is attached along with the consolidated financial statements. Pursuant toAccounting Standards (Ind AS) 110 issued by the Institute of Chartered Accountants ofIndia the consolidated financial statements presented by the Company includes thefinancial information of its subsidiary.

10. DIRECTORS

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

In accordance with the provisions of Section 152 of the Companies Act2013 and the Company's Articles of Association Mrs. Sugandha Hiremath Director retiresby rotation at the forthcoming Annual General Meeting and being eligible offers herselffor re-appointment.

Mr. Ranjit Shahani was appointed as Additional Director (Independent)of the Company on 8 February 2018. Prof. Dr. Axel Kleemann resigned from the Board ofDirectors w.e.f. 5 May 2018. The Board places on record the valuable advice and guidancegiven by Dr. Kleemann during his tenure. Details of the number of Board meetings heldduring 2017-18 form part of the Corporate Governance Report.

11. BOARD EVALUATION

Pursuant to the provisions of the Companies Act 2013 and Securitiesand Exchange Board of India (Listing Obligations & Disclosure Requirements)Regulations 2015 a structured questionnaire was prepared after taking into considerationthe various aspects of the Board's functioning like composition of the Board and itsCommittees culture execution and performance of specific duties obligations andgovernance.

The performance evaluation of the Independent Directors was completed.The performance evaluation of the Chairman and the Non-independent Directors was carriedout by the Independent Directors. The Board of Directors expressed their satisfaction withthe evaluation process.

12. WHISTLE BLOWER POLICY

The Company has a whistleblower policy to report genuine concerns orgrievances. The whistleblower policy has

been posted on the website of the Company (www.hikal.com).

13. NOMINATION AND REMUNERATION POLICY

The Board of Directors has framed a policy which lays down a frameworkin relation to remuneration of Directors key managerial personnel and senior managementof the Company. The Nomination and Remuneration Policy of the Company is attached as“Annexure F” to this report. This policy also lays down criteria for selectionand appointment of Board members. The details of this policy are explained in theCorporate Governance Report and also put up on the website of the Company (www.hikal.com).

14. RELATED PARTY TRANSACTIONS

All related party transactions that were entered into during thefinancial year were at an arm's length basis and were in the ordinary course of business.There are no materially significant related party transactions made by the Company withpromoters directors key managerial personnel or other designated persons which may havea potential conflict with the interest of the Company at large.

All related party transactions are placed before the Audit Committee asalso the Board for approval.

The policy on Related Party Transactions as approved by the Board isuploaded on the Company's website

http://www.hikal.com/investors/pdf/Related%20Party%20Policy.pdf

None of the Directors has any pecuniary relationships or transactionsvis-a-vis the Company.

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

There are no significant and material orders passed by the regulators /courts that could 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 toidentify and evaluate all business risks. The Company recognizes that risk management is acrucial aspect of the management of the Company and is aware that identification andmanagement of risk effectively is instrumental to achieving its corporate objectives.

The Company has identified the business risks and the business headswho are termed as risk owners assess monitor and manage these risks on an ongoing basis.The risk owners assess the identified risks and continually identify any new risks thatcan affect the business. Different risks such as technological operational maintenanceof quality reputational competition environmental foreign exchange financial humanresource legal compliances among others are assessed on a continuous basis. The RiskManagement Committee and Audit Committee review and submit to the Board of Directors theirfindings in the form of risk register at regular intervals. At the Board meetings themembers have a detailed discussion to assess each risk and the measures that are in placeto lower them to acceptable limits.

The strategies are reviewed discussed and allocation of appropriateresources is done as and when necessary. The risk management program internal controlsystems and processes are monitored and updated on an ongoing basis. A built-up mechanismhas been established to identify measure control monitor and report the risks. Businessheads are responsible for rolling out the risk assessment and management plan within theorganization.

17. INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an internal financial control system commensurate withthe size scale and complexity of its operations. To maintain its objectivity andindependence the Internal Audit function reports to the Chairman of the Audit Committeeof the Board.

The Internal Audit Department monitors and evaluates the efficacy andadequacy of the internal financial control system in the Company its compliance withoperating systems accounting procedures and policies at all locations of the Company andits subsidiaries. Based on the report of internal audit function process owners undertakecorrective action in their respective areas and thereby strengthen the controls.Significant audit observations and corrective actions thereon are presented to the AuditCommittee of the Board.

The Audit Committee of the Board of Directors actively reviews theadequacy and effectiveness of the internal financial control systems and suggestsimprovements to strengthen them. The Company has a robust management information systemwhich is an integral part of the control mechanism.

During the year a thorough audit of the internal financial controlswas carried out by an independent firm of

Chartered Accountants.

18. KEY MANAGERIAL PERSONNEL

The Company has appointed the following persons as key managerialpersonnel. Mr. Jai Hiremath Chairman & Managing Director Mr. Sameer Hiremath JointManaging Director & CEO (Whole time Director) Mr. Sham Wahalekar Chief FinancialOfficer & Company Secretary

19. PARTICULARS OF LOANS GUARANTEES & INVESTMENTS BY THE COMPANY

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

20. DIRECTOR'S RESPONSIBILITY STATEMENT

Your Directors state that:

(i) In the preparation of the annual accounts the applicableaccounting standards read with requirements set out under Schedule III to the CompaniesAct 2013 (the Act) have been followed and there are no material departures from thesame;

(ii) The Directors have selected such accounting policies and appliedthem consistently and made judgements and estimates that are reasonable and prudent so asto give a true and fair view of the state of affairs of the Company at the end of thefinancial year ended 31 March 2018 and of the profit of the Company for that year;

(iii) The Directors have taken proper and sufficient care for themaintenance of adequate accounting records in accordance with the provisions of the Actfor safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities;

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

(v) The Directors have laid down internal financial controls to befollowed by the Company and that such internal

financial controls are adequate and are operating effectively; and

(vi) The Directors have devised a proper system to ensure compliancewith the provision of all applicable laws and

that such systems are adequate and are operating effectively.

21. AUDITOR

M/s. B S R & Co. LLP Chartered Accountants have been appointed fora term of five years commencing 2014-15 to

2018-19. Members are requested to ratify their appointment for the year2018-19.

The Auditor's report to the members on the accounts of the Company forthe year ended 31 March 2018 does not

contain any qualifications adverse or disclaimer remarks.

22. COST AUDITOR

The Company has re-appointed M/s. V. J. Talati & Co. as the CostAuditor to carry out the audit of cost accounts for the financial year 2018-19. The costaudit report for the financial year 2016-17 was filed with the Ministry of CorporateAffairs Government of India on 8 September 2017.

23. SECRETARIAL AUDITOR

The Board had appointed M/s. Ashish Bhatt & Associates PracticingCompany Secretaries to conduct a

secretarial audit for the financial year 2017-18.

The secretarial audit report for the financial year ended 31 March 2018is annexed herewith as “Annexure - B” to this

Report. The secretarial audit report does not contain anyqualifications reservations or adverse remarks

24. CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Corporate Social Responsibility Committee (CSR Committee) hasformulated and recommended to the Board a Corporate Social Responsibility Policy (CSRPolicy) indicating the activities to be undertaken by the Company which has been approvedby the Board. The CSR Policy may be accessed on the Company's website at:http://www.hikal.com/investors/corporate_governance/pdf/Corporate_Social_Responsibility_Policy.pdf

Policy Statement:

As a socially responsible corporate member of the world community withlong-term relationships we believe that the future of our business is best served byrespecting the interests of society at large. Through our efforts we shall strive toimprove the living standards of the community. Our CSR activities shall aim to make adifference to the lives of the needy underprivileged members of society includingchildren women and senior citizens and the environment.

The key philosophy of all CSR initiatives of the Company is guided bythree core commitments of Scale Impact

and Sustainability. The Company has identified six focus areas ofengagement which are as under:

Health: Affordable solutions for healthcare through improved accessawareness and sanitation

Education: Access to quality education training skill enhancementenhancement of vocation skills

Environment: Environmental sustainability ecological balanceconservation of natural resources

Protection of national heritage art and culture: Protection andpromotion of traditional 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 eitherby personnel of the Company or through a registered trust or a registered society.

2. The time duration of each project / program shall depend on itsnature and intended impact.

The Company will also undertake other need-based initiatives incompliance with Schedule VII of the Act. During the year the Company has spent ` 12.02million on CSR activities. Pursuant to the provisions of the Companies Act 2013 theCompany should have spent ` 11.98 million (being 2% of the average net profits of the lastthree financial years) during the financial year 2017-18.

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

25. SAFETY &ENVIRONMENT

The Company continued to maintain the highest standards in environmenthealth and safety. The Company has become the first Indian life sciences company toreceive the Responsible Care certification. It is applicable to all manufacturing andresearch sites of the Company. Continuous training and awareness programs for theemployees are undertaken on a frequent basis.

26. PUBLIC DEPOSITS

The Company has not accepted any deposits and as such there are nooverdue deposits outstanding as on

31 March 2018.

27. EMPLOYEES

The Company considers its human capital as an invaluable asset. TheCompany continued to have cordial relationships with all its employees. Management andemployee development programs and exercises were conducted at all sites. Employees hadvarious team building exercises and were sponsored for various external seminars and otherdevelopmental programs to enhance their skill sets. The total workforce of the Companystood at 1405 as on 31 March 2018.

As required by the provisions of Section 197 (12) of the Companies Act2013 read with Rule 5 (1) of the Companies (Appointment and Remuneration of ManagementPersonnel) Rules 2014 as amended from time to time is enclosed herewith as“Annexure D”.

The statement containing particulars of employees as required underSection 197 (12) of the Companies Act 2013 read with Rule 5 (2) of the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 forms part of thisreport. Further the report and the financial statements are being sent to the membersexcluding the aforesaid statement. In terms of Section 136 of the Companies Act 2013 thesaid statement is open for inspection by the members at the registered office of theCompany during business hours on working days of the Company up to the date of the ensuingAnnual General Meeting. Any member interested in obtaining such particulars may write tothe Company Secretary at the registered office of the Company.

28. CONSERVATION OF ENERGY RESEARCH & DEVELOPMENT TECHNOLOGYABSORPTION AND

FOREIGN EXCHANGE EARNINGS AND OUTGO

In accordance with the requirements of Section 134 (3) (m) of theCompanies Act 2013 read with rule 8 (3) of the Companies (Accounts) Rules 2014 astatement showing particulars with respect to conservation of energy technologyabsorption and foreign earnings and outgo forming part of the Directors' Report is givenin the enclosed “Annexure- E” which forms part of this report.

29. CORPORATE GOVERNANCE

A report on Corporate Governance along with a certificate from theAuditors of the Company regarding the compliance of the code of Corporate Governance asalso the Management 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 Report.

30. ACKNOWLEDGEMENTS

The Board of Directors place on record their appreciation of thecontribution and sincere support extended to the

Company by our bankers financial institutions and valued customers andsuppliers.

The Board also places on record its appreciation for the impeccableservice and generous efforts rendered by its

employees at all levels across the Board towards the overall growthand success of the Company.

31. CAUTIONARY STATEMENT

Statements in the Board's Report and the Management Discussion andAnalysis describing the Company's objectives expectations or forecasts may beforward-looking within the meaning of applicable securities laws and regulations. Actualresults may differ materially from those expressed in the statement. Important factorsthat could influence the Company's operations include global and domestic demand andsupply conditions affecting selling prices of finished goods input availability andprices changes in government regulations tax laws economic developments within thecountry and other factors such as litigation and industrial relations.

For and on behalf of the Board of Directors

Jai Hiremath

Chairman & Managing Director

DIN:00062203

Date : 9 May 2018

Place : Mumbai