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Lupin Ltd.

BSE: 500257 Sector: Health care
NSE: LUPIN ISIN Code: INE326A01037
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OPEN 916.65
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VOLUME 388001
52-Week high 1090.00
52-Week low 723.55
P/E 28.33
Mkt Cap.(Rs cr) 40,230
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 916.65
CLOSE 909.00
VOLUME 388001
52-Week high 1090.00
52-Week low 723.55
P/E 28.33
Mkt Cap.(Rs cr) 40,230
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Lupin Ltd. (LUPIN) - Director Report

Company director report

To the Members

Your Directors have pleasure in presenting their report on the businessand operations of your Company for the year ended March 31 2018.

Financial Results

( Rs in million)

Standalone Consolidated
2017-18 2016-17 2017-18 2016-17
Sales 98539.0 123980.8 155598.4 171198.0
Profit before interest depreciation and tax 22169.8 45745.9 32978.6 45996.5
Less: Finance Costs 332.4 294.2 2043.5 1525.3
Less: Depreciation and amortisation 3898.1 3661.1 10858.7 9122.3
Profit before share of profit from Jointly 17939.3 41790.6 20076.4 35348.9
Controlled Entity and exceptional items
Add: Share of Profit from Jointly Controlled Entity - - 35.2 82.5
Less: Exceptional Items (Impairment of intangible assets) - - 14643.5 -
Less: Provision for taxation (including deferred tax) 4492.7 10377.3 2884.6 9785.1
Profit after tax and before non-controlling interest 13446.6 31413.3 2583.5 25646.3
Less: Non-controlling Interest - - 70.9 71.7
Net Profit attributable to shareholders of the Company 13446.6 31413.3 2512.6 25574.6

Performance Review

Consolidated sales for the year ended March 31 2018 were Rs 155598.4million. International business contributes 71%.

Consolidated profitbefore interest depreciation & amortisationexceptional item and tax was Rs 32978.6 million as against Rs 45996.5 million of theprevious year mainly on account of lower sales and margins in the USA. Net profit for theyear after exceptional item (impairment of certain intangible assets) was Rs 2512.6million.

Impairment provision

On March 8 2016 the Company through its wholly-owned subsidiaryLupin Inc. USA acquired Gavis Pharmaceuticals LLC USA Novel Laboratories Inc. USAVGS Holdings Inc. USA Edison Therapeutics LLC USA and Novel Clinical Research (India)Private Limited India (collectively ‘Gavis') for a consideration of USD 892million. The consideration paid was allocated between IPs for current marketed productsANDAs filed products under R&D fixed assets working capital and goodwill onacquisition. Significant pressure in the US generic pricing particularly in the opioidspace (large part resulted in impairment on certain intangible assets acquired as a partof Gavis acquisition. Each product in the Gavis portfolio was tested for its fair valuefactoring the current and expected market conditions by comparing the carrying value inthe books with the value in use. The fair value was determined by an independent externalvaluer after taking into consideration parameters like sales growth weighted average costof capital terminal growth rate etc. In line with conservative accounting principles animpairment provision of USD 227.2 million (Rs 14643 million) was made on certainintangible assets of Gavis portfolio. Deferred tax for the year ended March 31 2018includes deferred tax assets of Rs 3223 million created on the difference between tax andbook value of certain intangible assets of Gavis portfolio.

Dividend

Your Directors are pleased to recommend dividend at Rs 5/- per equityshare of Rs 2/- each absorbing an amount of Rs 2260.5 million. Corporate tax on proposeddividend is Rs 464.7 million.

As stipulated by Regulation 43A(1) of SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 (‘Listing Regulations') the DividendDistribution Policy has been hosted on the website of the Company www.lupin.com (weblink: http://www.lupin.com/pdf/16/08/policy-for-dividend-distribution.pdf).

Share Capital

During the year the paid-up equity share capital of the Company roseby Rs 1 million consequent to the allotment of 505981 equity shares of Rs 2/- each toeligible employees of the Company and its subsidiaries on exercising stock options under‘Lupin Employees Stock Option Plan 2003' ‘Lupin Employees Stock OptionPlan 2005' ‘Lupin Employees Stock Option Plan 2011' ‘Lupin EmployeesStock Option Plan 2014 ‘Lupin Subsidiary Companies Employees Stock Option Plan2005' and ‘Lupin Subsidiary Companies Employees Stock Option Plan 2011'.Paid-up equity share capital as on March 31 2018 was Rs 904.2 million.

Credit Rating

ICRA Limited (ICRA) assigned the rating ‘ICRA A1+'(pronounced ‘ICRA A one Plus') for the Company's short-term creditfacilities of Rs 13100 million indicating very strong degree of safety regarding timelypayment of financial obligations and

‘ICRA AAA' (pronounced ‘ICRA triple A') forlong-term credit facilities of Rs 1900 million indicating highest degree of safetyregarding timely servicing of financial obligations. The outlook on the long-term ratingis ‘Stable'.

ICRA assigned the rating ‘ICRA AAA' to theCompany's Non-Convertible Debenture programme of Rs 1000 million indicating highestdegree of safety regarding timely servicing of financial obligations. The outlook on therating is ‘Stable'.

Goods and Services Tax (GST)

GST which was implemented on July 1 2017 as ‘one nation onetax' is an all pervasive event. It has comprehensively impacted consumption of allgoods and services triggering a colossal change in the way business dealings take place.GST which is still evolving provides an opportunity to reset the way businesstransactions could be optimized for efficiency in cost and quality.

Due to its multifaceted impact GST has become an important factor incompetitive businesses environment.

GST on API and Formulations is 18% and 12% respectively. While theheadline indirect tax rate on API/Bulk drugs remains constant the rate increased from10.5% to 12% on Formulations. However the increase in headline tax is likely to be offsetby the tax efficiencies that may accrue on procurements.

Your Company is geared to deal with the challenges thrown up as aresult of numerous amendments made by the Government viz: implementation of E-Way Billsystem matching credit concepts anti-profiteering provisions etc.

Acquisitions

During the year the Company through its US subsidiary Lupin Inc.acquired Symbiomix Therapeutics LLC. The acquisition of Symbiomix and its SolosecTMfranchise significantly expands your Company's branded women health specialtybusiness.

Subsidiary Companies/Joint Venture

As on March 31 2018 the Company had 33 subsidiaries and a jointventure.

On February 5 2018 Lupin Atlantis Holdings SA Switzerlandwholly-owned subsidiary of the Company incorporated Lupin Europe Gmbh Germany forholding product registrations.

An application has been made to the Registrar of Companies Bangalorefor removal of the name of Novel Clinical Research (India) Pvt. Ltd. wholly-ownedsubsidiary of the Company from the Register of Companies w.e.f. March 27 2018 and Orderpursuant to the said application is awaited.

Pursuant to the first proviso to Section 129(3) of the Companies Act2013 (‘Act') and Rules 5 and 8(1) of the Companies (Accounts) Rules 2014salient features of the financial statements performance and financial position of eachsubsidiary and joint venture are given in Form No. AOC - 1 as Annexure ‘A'to this Report.

As stipulated by Regulation 46(2)(h) of the Listing Regulations thepolicy for determining material subsidiaries has been hosted on the Company's websitewww.lupin.com (web link: http://www.lupin.com/pdf/Policy_for_determining_material_subsidiaries.pdf).

Management Discussion and Analysis

As stipulated by Regulation 34(3) read with Schedule V(B) of theListing Regulations Management Discussion and Analysis forms part of this Annual Report.

Corporate Governance

As stipulated by Regulation 34(3) read with Schedule V(C) of theListing Regulations Corporate Governance Report forms part of this Annual Report. Annexedto the said Report is the Auditors' certificate as prescribed under Schedule V(E) ofthe

Listing Regulations certifying compliance with the conditions ofcorporate governance.

Business Responsibility Report

As stipulated by Regulation 34(2)(f) of the Listing Regulations theBusiness Responsibility Report forms part of this Annual Report.

Corporate Social Responsibility (CSR)

In dedication of high moral values Lupin Human Welfare and ResearchFoundation (LHWRF) the CSR arm of the Company has been undertaking social responsibilityactivities since 1988. LHWRF forges knowledge partnerships with domain experts and reputedacademic and technical institutes like IITs to develop and deploy appropriatetechnologies to the rural poor. LHWRF mobilizes resources from banks and government toachieve high impact in its chosen geographic area of operations. LHWRF which operatesacross 18 centers has touched lives of more than 2.5 million residing in more than 4171villages located in 62 blocks of 22 districts.

LHWRF carried out GRI 4 sustainability reporting process and it isfirst corporate foundation to do so in India. LHWRF possesses elaborate and well-setimplementation mechanism at grass-root level and creates replicable and ever-evolvingmodels for sustainable rural development for uplifting families living below the povertyline with a view to transform rural lives and improve Human Development Indices. LHWRFadopts a holistic development approach and focuses on rural development programmes whichhelp promote equitable economic and social development.

Pursuant to the provisions of Section 135 of the Act read withCompanies (Corporate Social Responsibility Policy) Rules 2014 the Company ought to havespent Rs 750.5 million on CSR activities during the year. The actual spend was Rs 216.8million. The Company undertakes the following CSR activities: -

Economic Development;

Social Development;

Natural Resource Management;

Rural Infrastructure Development;

Learn and Earn Programme; and

TB Eradication.

The Company plans to accelerate its CSR spend by setting-up astate-of-the-art JCI and NABH accredited hospital through ‘Lupin Foundation' acharitable trust set up by the Company. The proposed hospital would offer a wide mix oftherapies which shall entail huge investment in land infrastructure medicalequipments/instruments over the next few years.

The Company has also engaged services of a reputed consultancy firm forconducting preliminary feasibility study. The Company is in the process of identifying theright opportunity and is looking out for a suitable plot in Mumbai for setting-up ahospital. The Company has explored eight sites in Mumbai keeping in mind strategiclocation accessibility presence of major hospitals/nursing homes anddiagnostic/pathology centers in the vicinity etc. While some plots were narrow or toosmall others were reserved in the Development Plan or were encroached upon or haddisputed titles.

In the course of business the Company spent on a number of socialcauses which strictly may not qualify as CSR activities viz. ‘Punarjyoti'(‘Rebirth of Eyes') campaign which promotes the noble message of eye donationafter death ‘Respiratory Clinics' to increase awareness of respiratorydiseases ‘Focused Learning in lnterventional Pulmonology' programmes fordoctors multilingual website ‘Right2breathe' to educate patients about Asthmaand Allergies. With a view to provide affordable medicines to the common man the Companyconsistently spends large amounts on Research & Development which though is for asocial cause does not qualify as a CSR activity.

Particulars of CSR activities undertaken by the Company are given in Annexure‘B' to this Report. The CSR policy as approved by the Board has been hostedon the Company's website www.lupin.com.

Directors' Responsibility Statement

In compliance with the provisions of Section 134(3)(c) read withSection 134(5) of the Act your Directors confirm:

i) that in the preparation of the annual financial statements for theyear ended March 31 2018 the standards have been followed along with proper explanationsrelating to material departures;

ii) that they had selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of your Company at the end of thefinancial year March 31 2018 and of the profit of your Company for that year;

iii) that they 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) that the annual financial tatements have been prepared on agoing concern basis;

v) that they had laid down proper internal financialcontrols and thatthe same are adequate and were operating effectively; and

vi) that they had devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems were adequate and operatingeffectively.

Directors

The Board places on record the invaluable contributions of Late Dr.Desh Bandhu Gupta Founder & Chairman of the Lupin group and doyen of the IndianPharma Industry who passed away on June 26 2017. The exemplary vision and perseverance ofDr. Gupta helped the Company to become one of the most admired organisations. The Boardappointed Mrs. Manju D. Gupta as Non-Executive Chairman of the Company for a period oftwo years effective August 11 2017 considering her wide experience moderating influenceand quiet demeanor.

As recommended by the Nomination and Remuneration Committee the Boardat its meeting held on May 15 2018 re-appointed Mr. Nilesh Deshbandhu Gupta ManagingDirector for a period of five years effective September 1 2018 subject to approval ofthe Members. Mr. Gupta has been responsible for transforming the Company's researchprogramme and expanding its manufacturing operations as also instrumental in formulatingand executing the core strategy that helped the Company to emerge as a global specialtypharmaceutical major.

Pursuant to the provisions of Section 152 of the Act Mr. RameshSwaminathan Chief Financial Officer & Executive Director retires by rotation at theforthcoming Annual General Meeting (AGM) and is eligible for re-appointment.

Pursuant to the provisions of Section 149(7) of the Act theIndependent Directors have affirmed that they meet the criteria of independence prescribedby Section 149(6) of the Act.

During the year six Board meetings were held on May 23 2017 May 242017 August 2 2017 August 11 2017 October 30 2017 and February 6 2018 the detailsof which are given in the Corporate Governance Report which forms part of this AnnualReport.

Board Evaluation

Pursuant to the provisions of Section 134(3)(p) of the Act read withRule 8(4) of the Companies (Accounts) Rules 2014 an annual evaluation was carried out bythe Board of its own performance as also of its Committees and individual Directors. Theevaluation was done by the Board after seeking inputs from all Directors inter-aliacovering different aspects viz. composition and structure of the Board attendanceincluding participation of the Directors at the Board and Committee meetings observanceof governance quality of deliberations and effectiveness of the procedures adopted by theBoard. In evaluating the performance of individual Directors criteria such asqualifications knowledge attendance at meetings and participation in long-term strategicplanning leadership qualities responsibilities shouldered inter-personal relationshipsand analytical decision making ability were taken into consideration. In compliance withRegulation 17(10) of the Listing Regulations the Board carried out performance evaluationof Independent Directors without the participation of the Director being evaluated.

Audit Committee

In compliance with the provisions of Section 177(8) of the Act andRegulation 18 of the Listing Regulations the Audit Committee comprises Dr. K. U. MadaChairman and Mr. Dileep C. Choksi Independent Directors and Dr. Kamal K. Sharma ViceChairman. The functions performed by the Audit Committee details of meetings held andattendances thereat are given in the Corporate Governance Report which forms part of thisAnnual Report. The Board has accepted all the recommendations made by the Audit Committee.

Nomination and Remuneration Policy

As stipulated by Section 178(3) of the Act and Regulation 19(4) of theListing Regulations the Board has on the recommendation of the Nomination andRemuneration Committee framed a Policy relating to the remuneration of Directors keymanagerial personnel and other employees. The Policy includescriteriafordeterminingqualifications positive attributes and independence of directorsand other matters. The role of the Nomination and Remuneration Committee is disclosed inthe Corporate Governance Report which forms part of this Annual Report. In terms ofproviso to Section 178(4) of the Act the Nomination and Remuneration Policy has beenhosted on the Company's website www.lupin.com (web link: http://www.lupin.com/pdf/18/05/nomination-and-remuneration-policy-ll.pdf).

Related Party Transactions

During the year no transaction with related parties was inconflictwith the interests of the Company. All transactions entered into by the Companywith related parties during the financial year were in the ordinary course of business andon an arm's length pricing basis. The Company did not enter into any transaction withits Key Managerial Personnel. Statements of transactions with related parties areperiodically placed before the Audit Committee and are approved. Material related partytransactions were entered into by the Company only with its subsidiaries. As stipulated bySection 134(3)(h) of the Act read with Rule 8(2) of the Companies (Accounts) Rules 2014particulars of related party transactions are given in Form No. AOC - 2 as Annexure‘C' to this Report. In compliance with Regulation 46(2)(g) of the ListingRegulations the policy on dealing with Related Party Transactions as approved by theBoard has been hosted on the Company's website www.lupin.com and web link for thesame is http://www.lupin.com/pdf/POLICY-RELATED_PARTY_TRANSACTIONS.pdf.

Risk Management

The Company has a structured approach for handling risks. It has inplace a Risk Management framework which defines roles and responsibilities at variouslevels. Risk Management team reviews the overall risk canvas and identifies critical‘risks that matter' by assessing their probability impact and volatility. TheRisk Management Committee has a well-set monitoring process of the risk environmentthrough reviews discussions and deliberations and it deploys concrete mitigation plans.As stipulated by Regulation 21 of the Listing Regulations the roles andresponsibilities of the Risk Management Committee has been defined by the Board.Monitoring and reviewing the risk management plan was delegated to the Committee.

Particulars of the Risk Management Committee its terms of referencethe details of meeting held and attendance thereat are given in the Corporate GovernanceReport which forms part of this Annual Report.

Particulars of loans/guarantees/investments/securities

In compliance with provisions of Section 134(3)(g) of the Actparticulars of loans guarantees investments and securities given under Section 186 ofthe Act are given in the notes to the Financial Statements forming part of this AnnualReport.

Conservation of Energy Technology Absorption and Foreign ExchangeEarnings and Outgo

Particulars as prescribed under Section 134(3)(m) of the Act read withRule 8 of the Companies (Accounts) Rules 2014 relating to conservation of energytechnology absorption and foreign exchange earnings and outgo are given in Annexure‘D' to this Report.

Human Resources

Your Company firmlybelieves that human resources are invaluable assetsof the Company. In the surveys jointly conducted by ‘Great Places to WorkInstitute' and ‘The Economic Times' the Company continued to be rankedhigh on a pan-industry basis. The Company has been ranked no. 1 in the Pharmaceutical andBiotech sector and 4th Best amongst Large Employers. The Company'sprogressive ‘people practices' deep rooted value-driven culture and employeedevelopment efforts have been the prime reasons behind these laurels.

Employees Stock Options

Pursuant to the provisions of Regulation 14(B) of SEBI (Share BasedEmployee Benefits) Regulations 2014 details of stock options as on March 31 2018 aregiven in Annexure ‘E' to this Report.

Vigil Mechanism/Whistleblower Policy

As stipulated by Section 177(9) of the Act read with Rule 7 of theCompanies (Meetings of Board and its Powers) Rules 2014 and Regulation 22 of the ListingRegulations the Company has in place a vigil mechanism for Directors and employees toreport concerns and provides adequate safeguards against victimization of persons who usethe mechanism. The vigil mechanism provides for direct access to the Chairperson of theAudit Committee. Details of the same are covered in the Corporate Governance Report whichforms part of this Annual Report. Whistleblower Policy has been hosted on Company'swebsite www.lupin.com. Policy on Prevention of Sexual Harassment is on Company'sIntranet.

Particulars of Employees Remuneration

As prescribed by Section 197(12) of the Act read with Rule 5(1) of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 particularsof remuneration of employees required to be disclosed are given in Annexure‘F' to this Report. In terms of Rules 5(2) and 5(3) of the said Rulesstatement containing particulars of remuneration of employees for the year ended March 312018 which forms part of the Board Report shall be provided to Members upon writtenrequest pursuant to the second proviso of Rule 5. Particulars of remuneration of employeesare available for inspection by Members at the Registered Office of the Company duringbusiness hours on all working days up to the date of the forthcoming AGM.

Auditors

At the 34th AGM held on Wednesday August 3 2016 Membersappointed B S R & Co. LLP Chartered Accountants (Firm

Registration No. 101248W/W-100022) as Statutory Auditors of theCompany for a period of five years from the conclusion of the 34th AGM tillthe conclusion of the 39th AGM subject to ratification of their appointment byMembers at every AGM.

Pursuant to the provisions of Section 40 of the Companies AmendmentAct 2017 which was notified on May are not required to ratify appointment of StatutoryAuditors at every AGM.

Pursuant to the provisions of Sections 139(1) and 141 of the Act theCompany has received certifying that if they are appointed as Auditors their appointmentwould be as per the conditions prescribed by the said Sections.

Internal Audit

Ernst & Young LLP Mumbai are Internal Auditors of the Company forIndia operations. PricewaterhouseCoopers Private Limited are Internal Auditors of theCompany for international subsidiaries. The Company has appointed local Chartered

Accountants firms as Internal Auditors to conduct audits of Carrying& Forwarding Agents and Central Warehouses of the

Company in India.

Cost Auditors

Pursuant to the provisions of Section 148 of the Act read with theCompanies (Cost Records and Audit) Amendment Rules 2014 and as recommended by the AuditCommittee the Board had appointed Mr. S. D. Shenoy practising Cost Accountant

(FCMA Membership No. 8318) holding a valid certificate of practice toconduct cost audit for the year ended March 31 2018. Mr. Shenoy had confirmed that hisappointment met the requirements of Section 141(3)(g) of the Act and that he was free fromdisqualifications as specified under Section 141 read with Section 148 of the Act. He hadfurther confirmed that he was independent maintained an arm's length relationshipwith the Company and that no orders were pending against him relating to professionalmatters of conduct before the Institute of Cost Accountants of India or anycourt/competent authority.

In terms of Rule 14 of the Companies (Audit and Auditors) Rules 2014remuneration payable to the Cost Auditor is required to be ratified by Members.Accordingly an Ordinary Resolution was passed by Members at the 35th AGMapproving the remuneration payable to Mr. Shenoy.

In compliance with Section 148(6) of the Act and Rule 6(6) of theCompanies (Cost Records and Audit) Rules 2014 Cost Audit Report in Form CRA - 4 (XBRLmode) for the year ended March 31 2017 under the head ‘Drugs andPharmaceuticals' was filed with the Central Government on October 18 2017 wellwithin the prescribed time.

Secretarial Audit

In terms of the provisions of Section 204 of the Act and Rule 9 of theCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014 Ms. NeenaBhatia Company Secretary in Practice was appointed to undertake Secretarial Audit of theCompany for the year ended March 31 2018. Secretarial Audit Report in prescribed Form No.MR - 3 is enclosed as Annexure ‘G' to this Report. The Company continuesto have an unqualified Secretarial Audit Report.

Compliance with the Secretarial Standards

The Company has complied with all the provisions of SecretarialStandards on Board Meetings and General Meetings issued by the Institute of CompanySecretaries of India and approved by the Central Government.

Extract of Annual Return

In compliance with provisions of Sections 134(3)(a) and 92(3) of theAct read with Rule 12(1) of the Companies (Management and Administration) Rules 2014 anextract of the Annual Return as on March 31 2018 in prescribed Form No. MGT - 9 is givenin Annexure ‘H' to this Report.

Acknowledgements

Your Directors commend all employees of the Company for their continueddedication commitment hard work and significant contributions. They also wish to expresstheir deep gratitude to various departments of the Central and State governments banksfinancialinstitutions business associates customers distributors suppliers analystsmedical professionals and members for their whole-hearted support and cooperation.

For and on behalf of the Board of Directors
Manju D. Gupta
Chairman
(DIN: 00209461)
Mumbai May 15 2018