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Lyka Labs Ltd.

BSE: 500259 Sector: Health care
NSE: LYKALABS ISIN Code: INE933A01014
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VOLUME 500
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Mkt Cap.(Rs cr) 84
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Sell Qty 600.00

Lyka Labs Ltd. (LYKALABS) - Director Report

Company director report

To

The Members

Lyka Labs Limited

Your Directors are pleased to present their Thirty Ninth Annual Report along withAudited Financial Statements of the Company for the Financial Year ended 31st March 2018.

1. FINANCIAL RESULTS

[Rs in Lakhs]

Particulars For the Year ended 31.03.2018 For the Year ended 31.03.2017
Total revenue 4438.30 8634.57
Profit/(loss) before Interest provision for depreciation & Taxes and Write offs 137.51 2347.25
Less: Interest 775.94 1654.06
Operational Loss/Profit before Depreciation (638.43) 693.18
Less: Depreciation (630.89) (552.55)
Exceptional Items (Net) 147.12 (196.32)
Less: Tax Expenses 38.26 37.05
Less: Other Comprehensive Income (29.71) (5.55)
Loss for the year (1113.65) (24.18)

2. DIVIDEND

Due to loss during the year no dividend was declared for the financial year ended 31stMarch 2018.

3. RESERVE

No amount is transferred to Reserves.

4. OPERATIONS

During the year under review the total revenue earned by the Company was Rs. 4438.30lakhs as against total revenue of Rs. 8634.57 lakhs of previous year ended 31st March2017. The Company has reported Net Loss of Rs. 1113.65 lakhs for the year ended 31stMarch 2018 as against net loss of Rs. 24.18 lakhs for per previous year ended 31st March2017.

The Company’s current Financial situation has arisen due to repayment ofFD’s and Debentures in compliance with the changes in the Companies Act 2013. As aresult there has been significant outgo of funds resulting in Financial crunch impactingthe sales and performance of the Company.

Due to fire in Lypholized Plant at Ankleshwar the Company had to undergo huge loss andloss of Business which in turn impacted the performance of the Company. In the meanwhilecompetition from new domestic manufacturing had an impact on Company margin.

The Company manufactures its products & export through its subsidiary Lyka BDRInternational Limited (LBDR) whose performance for its last year has been on the lowerside mainly due to currency crisis in buying countries as well as more countries areencouraging domestic production. The unsatisfactory performance of LBDR has inturnaffected the sales of Lyka Labs Limited. Moreover to meet with the requirement ofdeveloped market company has suspended production of cepholosporins at its Ankleshwarplant causing loss of revenue/production. This will be made up in the coming years.

5. Key features

a. The Company is engaged in discovery manufacturing and marketing of formulations onP to P basis and

of it's own.

b. The Manufacturing activities are carried out with principles and practices ofhighest standards in production and testing of formulations.

c. The Products of various categories including cosmeceuticals external preparationsdry powder injections liquid and lyophilized injectable preparations are being producedin manufacturing facilities.

d. The Production of lyophilized injections including lyophilized bulk with outstandingoutput has been one of the important key features of the company.

6. Future Outlook

a. With overall growth of lyophilized product market demand for lyophilizedinjectables are expected to increase. Company proposes to enhance and improve it'sexisting infrastructure in order to cater increased requirement.

b. The Company plans to set up new world class manufacturing facility for injectable.After completion this facility intends to cater to Europe/US markets.

c. The Company plans to initiate further international GMP approvals from PhillipinesUkraine and EU for its current manufacturing facility. With these GMP approvals companylooks forward to expand it's global business.

d. The Company has converted it's cephalosporin production line into dry powderinjection production line after systematic decontamination. This will enable to producemore injections of general category by achieving higher capability of production withtechnical ease in coming years.

e. The Company proposes to go for more emphasis on injectable research leading todevelopment of new stable formulations. This shall be catering to future requirements.

f. The Company tends to increase business volume by entering into new businessrelationship with large and medium scale pharmaceutical companies in segment ofcosmeceuticals dermatology and injectables.

7. DIRECTORS

A. BOARD DIVERSITY

The Company recognize and embrace the importance of a diverse board in its success.Diverse Board comprising of professionals from various fields helps in guiding the Companyfrom time to time.

B. BOARD MEETINGS

During the year Eight Board Meetings were held. The details of which are given in theCorporate Governance Report.

C. POLICY ON APPOINTMENT AND REMUNERATION POLICY

The Company has appropriate mix of Executive Non-Executive and Independent Directors.As on 31st March 2018 the Board consist of 5 Directors one is Executive/ManagingDirector one is NonExecutive Director and three are Independent Directors.

D. DECLARATION BY INDEPENDENT DIRECTORS

The Company has received necessary declaration from each of Independent Directors underSection 149(7) of the Companies Act 2013 that they meet the criteria laid down underSection 149(6) of the Companies Act 2013 and Regulation 16(b) of the SEBI (ListingObligation and Disclosure Requirement) Regulations 2015.

E. RETIREMENT BY ROTATION

Smt. Nehal N Gandhi retire by rotation at the ensuing Annual General Meeting and beingeligible offers herself for reappointment. The Board recommends her re-appointment as aDirector for approval of members.

F. INDEPENDENT DIRECTORS FAMILIARIZATION PROGRAMME

The Company has framed policy on familiarization programme. The Independent Directorsare familiarized with company’s operation. They are provided with financial and otherinformation in the Board Meeting. They are also appraised about their role and function.This will help them to effectively discharge their responsibilities. Independent Directorshave visited our factory/plant located at Ankleshwar Gujarat and they were alsofamiliarised with production operations of the Company.

G. EVALUATION OF BOARD COMMITTEES AND DIRECTORS

The Board has carried out performance evaluation of its own the Committee and of theDirectors pursuant to the provisions of the Act and applicable provisions of ListingRegulations 2015.

The performance of the Board was evaluated after seeking inputs from all the Directorson the basis of factors which includes Active Participation Financial Literacycontribution by a Director positive Inputs effective deployment of knowledge andexpertise integrity and maintenance of confidentiality and independence of behaviour andjudgement.

In the meeting of Independent Directors performance of Non-Independent DirectorsPerformance of Board and Performance of the Chairman was evaluated.

H. COMMITTEE OF BOARD

Currently the Board has five Committees namely Audit Committee Nomination andRemuneration Committee Stakeholder Committee Share Transfer Committee and RiskManagement Committee. A detailed note on composition of the Board and its committee isprovided in the Corporate Governance Report which forms part of the Board Report.

I. CHANGES IN THE BOARD AND KMP

During the year under review Shri. Vinod Shanbhag Independent director on the Boardhas resigned with effect from 7th December 2017.

Subsequent to closing of Financial Year:

1. Smt. Neha Thakore is appointed as Additional Independent Director (DIN No: 00893957)w.e.f 5th April 2018.

2. Shri. Piyush G Hindia Company Secretary and Compliance Officer has retired afterclosing hours of 5th April 2018.

3. Shri. D. J. Darji is appointed as Company Secretary and Compliance Officer w.e.f 6thApril 2018.

8 AUDITORS

A. STATUTORY AUDITORS

M/s. Mehta Chokshi & Shah Chartered Accountants (Firm Registration No. 106201W)were appointed as Statutory Auditors of the Company in 38th AGM to hold office till theconclusion of the 43rd Annual General Meeting.

In terms of the first proviso to Section 139 (1) of the Companies Act 2013 theappointment of the auditors shall be placed for ratification at every Annual GeneralMeeting (AGM). Accordingly the appointment of M/s. Mehta Chokshi & Shah as StatutoryAuditors of the Company is placed for ratification of the shareholders at the AGM. TheCompany has received a certificate from the auditors to the effect that they fulfill theeligibility criteria of the provisions of Section 141 of the Companies Act 2013. TheAudit Committee has recommended their appointment for ratification.

B. BRANCH AUDITORS

M/s. M.I. Shah & Co. Chartered Accountants (Firm Registration No. 119025W) wereappointed as Branch Auditor of the Company in 38th AGM to hold office till the conclusionof the 43rd Annual General Meeting.

In terms of the first proviso to Section 139 (1) of the Companies Act 2013 theappointment of the auditors shall be placed for ratification at every Annual GeneralMeeting (AGM). Accordingly the appointment of M/s. M.I. Shah & Co as Branch Auditorsof the Company is placed for ratification of the

shareholders at the AGM. The Company has received a certificate from the auditors tothe effect that they fulfill the eligibility criteria of the provisions of Section 141 ofthe Companies Act 2013. The Audit Committee has recommended their appointment forratification.

C. COST AUDITORS

Pursuant to Section 148 of the Companies Act 2013 and the Companies (Cost Records andAudit) Rules 2014 as amended from time to time the cost audit records maintained by theCompany are required to be audited by cost accountant. The Company has appointed M/s.Kirit Mehta & Associates Cost Accountant (Firm Registration No.000048) to audit thecost records of the Company for the financial year 2018-19. The remuneration payable tothem is required to be ratified by the Shareholders at the ensuing Annual General Meetingand accordingly a resolution seeking ratification has been included as Item No. 6 of theNotice convening the Annual General Meeting.

D. SECRETARIAL AUDITOR

Pursuant to the provisions of Section 204 of the Act and the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 the Company had appointed M/s KaushalDoshi & Associates Practicing Company Secretaries to undertake the Secretarial Auditof the Company. The Secretarial Audit Report is annexed to this report as "AnnexureA".

10. MATERIAL CHANGES AND COMMITMENT AFTER THE END OF THE FINANCIAL YEAR WHICH HAVEIMPACT ON FINANCIAL POSITION

The Company has outstanding Term Loan and Working Capital Credit Facilities aggregatingRs. 73.43 crores plus interest with Dena Bank. The Company has approached to Bank forcompromise settlement of Accounts. The Bank has considered and granted ‘In Principleapproval’ for compromise settlement of our accounts.

11. EXPLANATION OR COMMENTS ON QUALIFICATIONS RESERVATION OR ADVERSE REMARKS ORDISCLAIMERS MADE BY THE AUDITORS IN THEIR REPORT

AUDITOR’S QUALIFICATION:

(i) Note no. 1 of the auditor's report for the quarter and year ended 31st March 2018regarding reversal of interest on term loan from two banks provided for the period fromApril 2017 to September 2017 amounting to Rs 469.92 Lakhs and non-provision of interest onterm loan from said two banks for the period from October 2017 to March 2018 amounting toRs 471.64 Lakhs aggregating to Rs 941.56 Lakhs.

Further the Company has reversed Interest expenses for earlier years for the periodfrom February 2016 to March 2017 amounting to Rs 344.35 Lakhs. There is non-provision forpenal interest on term loan from two banks and working capital limit from one bankamounting to Rs 80.04 Lakhs. These non- provisions/reversal of provision for interest isnot in compliance with Ind AS 109 Financial Instruments.

Accordingly loss for the year is understated by Rs. 1365.95 Lakhs.

(ii) Inventories include slow/non-moving raw material and packing materials procuredduring the earlier years amounting to 174.06 lakhs as on 31st March 2018 which are valuedat cost. This is not in accordance with Ind AS 2 inventories which requires suchinventories to be valued at lower cost or net realizable value. Accordingly we are unableto quantify the impact of reduction in profit for the quarter ended 31st March 2018 andincrease in the loss for the year.

MANAGEMENT EXPLANATIONS:

(i) As our account with some of the Banks have been classified as NPA we have on goingdiscussion with Banks for OTS / Restructuring and accordingly Company has not providedinterest in the current quarter as well as written back the interest provided in earlierquarters. The Company has approached to Bank for compromise settlement of Accounts. TheBank has considered and granted ‘In Principle approval’ for compromisesettlement of our accounts.

(ii) As regards to slow/non moving materials Company is taking necessary steps toutilize/realize the same.

12. CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS ANDOUTGO

The information pertaining to conservation of energy technology absorption foreignexchange earnings and outgo as required under Section 134 (3)(m) of the Companies Act2013 read with Rule 8(3) of the Companies (Accounts) Rules 2014 is attached to thisreport and marked as "Annexure B".

13. STATEMENT CONCERNING DEVELOPMENT AND IMPLEMENTATION OF RISK MANAGEMENT POLICY OFTHE COMPANY

The Company has formulated a policy on Risk Management and constituted Risk ManagementCommittee.

14. PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS MADE UNDER SECTION 186 OF THECOMPANIES ACT 2013

There were no loans and guarantees given by the Company during the year under reviewand details of Investment made under Section 186 of the Companies Act 2013 are given inthe notes to the Balance Sheet.

15. PARTICULARS OF CONTRACTS OR ARRANGEMENTS MADE WITH RELATED PARTIES

The Related Party Transactions effected during the financial year were on Arm’slength basis and in the ordinary course of business. Omnibus approval of Audit Committeeis obtained as per RPT Policy. The Related Party transactions effected during thefinancial year are disclosed in the notes to the Financial Statement.

The particulars of Contracts or Arrangements made with related parties pursuant toSection 188 is attached to this report as per "Annexure C".

The Company has obtained approval from the shareholders for the financial limit of therelated party transactions that was entered into during the year under review. TheCompany has formulated a policy for dealing with ‘Material Related Party’transaction and ‘Related Party’ transactions.

15 COMPANY’S POLICY

The highest ethical standards are followed by the Company in business transactions. TheSEBI (Listing Obligation and Disclosure Requirements) Regulations 2015 mandated theformulation of certain policies for all listed Companies. The Company has framed variouspolicies such as Nomination and Remuneration Policy Policy on materiality subsidiariesand related matters Policy on Materiality of events Related Party Transactions PolicyRisk Management Policy Whistle Blower Policy Insider Trading code etc which aredisplayed on the company’s Website i.e. www.lykalabs.com.

16 ANNUALRETURN

The extracts of Annual Return pursuant to the provisions of Section 92 read with Rule12 of the Companies (Management and administration) Rules 2014 is furnished as per"Annexure D" and attached to this Report. A Detailed Annual Return after filingwith ROC will be available on our website i.e. www.lykalabs.com.

17 DIRECTORS’ RESPONSIBILITY STATEMENT

In accordance with the provisions of Section 134(5) of the Companies Act 2013 theBoard hereby submits its responsibility statement:

(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 and loss of the company for that year;

(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; and

(e) the directors in case of a listed company had laid down internal financialcontrols to be followed by the company and that such internal financial controls areadequate and were operating effectively.

(f) that the Directors had devised proper systems to ensure compliance with theprovisons of all applicable laws were in place and were adequate and operatingeffectively.

18 SUBSIDIARIES JOINT VENTURES AND ASSOCIATE COMPANIES

The Company has three subsidiaries namely Lyka BDR International Limited Lyka ExportsLimited and Lyka Healthcare Limited. The details of their performance are as under:

LYKA BDR INTERNATIONAL LIMITED (LBDR)

Lyka Labs Ltd is holding 65.22% of the Issued capital of Lyka BDR InternationalLimited. During the year the Company has reported EBDITA of Rs. 301.08 Lakhs and Net Lossafter Tax is (Rs. 292.13 Lakhs) as against in previous year EBDITA of (Rs. 146.81 Lakhs)and Net Loss after Tax is (Rs. 501.33 Lakhs)

LYKA EXPORTS LIMITED (LEL)

Lyka Labs Ltd is holding 72.80% of Issued capital of Lyka Exports Limited. During theyear the Company has reported EBDITA of Rs. 17.03 Lakhs and Profit after Tax is Rs. 2.64Lakhs as against in previous year EBDITA of (Rs. 5.13 Lakhs) and Net Loss after Tax is(Rs. 16.15 Lakhs) which was due to progress in the Business of Generic Pharmaceuticalproducts meant for human consumption on PAN India basis.

LYKA HEALTHCARE LIMITED (LHL) - WHOLLY OWNED SUBSIDIARY

Lyka Labs Ltd is holding 100% of Issued capital of Lyka Healthcare Limited. During theyear under review the Company has reported EBDITA of (Rs. 151.77 Lakhs) and Net Lossafter Tax is (Rs. 317.20 Lakhs) as against in previous year EBDITA of (Rs. 188.70 Lakhs)and Net Loss after Tax is (Rs. 330.63 Lakhs).

Performance and financial position of each of the subsidiaries for the year ended 31stMarch 2018 attached in ‘Annexure E’ and forms part of this report.

19. DISCLOSURE OF CSR:

CSR is not applicable to the Company.

20. SHARE CAPITAL

During the year under review:

1. The Company has allotted 6100000 Equity Shares to Non-Promoters on preferentialbasis. Subsequent to allotment of 6100000 Shares the paid up capital of the Company isincreased to Rs. 281400000.

2. The Company has also allotted 550000 convertible equity warrants to one of thepromoters on preferential basis.

21. SCHEME OF MERGER (BY ABSORPTION)

The Board of Directors at their meeting held on 29th May 2017 had approved the Schemeof Merger of Lyka Healthcare Limited Wholly Owned Subsidiary ("the transferor")with Lyka Labs Limited Holding Company ("the T ransferee") and their respectiveshareholders (The Scheme of Amalgmation).

The Scheme was approved by Equity Shareholders Preference Shareholder and UnsecuredCreditors at their respective meetings held on 27th March 2018. The meeting of SecuredCreditors could not be proceeded with due to lack of quorum.

The Company’s management is taking necessary steps to implement merger.

22. DEPOSITS

During the year under review the Company has not accepted any deposits under CompaniesAct 2013 read with the Companies (Acceptance of Deposits) Rules 2014.

As of March 2018 the company has unclaimed fixed deposits of Rs. 4952000/-.

23. DEBENTURES

As per Order dated 22nd May 2017 passed by National Company Law Tribunal (NCLT)Ahmedabad the Company was required to make first payment of debentures of Rs. 3.85 Croresdue upto 31st March 2015 by 30th July 2017 second payment of debentures of Rs. 2.13crores due in between 1st April 2015 to 31st July 2015 by 31st December 2017 and thirdpayment of debentures of Rs. 1.39 crores due in between 1st August 2015 to 30th April2016 by 30th March 2018 aggregating outstanding debentures of Rs. 7.37 crores. TheCompany has made the payment as per NCLT order.

As of 31st March 2018 the Company has unclaimed debentures of Rs. 1200000/-

24. STATUS OF BANK LIABILITY Bank of Maharashtra:

1. Due to unforeseen circumstances as a result the Company has defaulted in makingrepayment of installment of term loan since June 2016 and Interest payment since February2016 to Bank of Maharashtra.

2. The Company has received a Notice from Bank for repayment of their outstanding duesof Rs.14 crores including interest. The Company has replied to the Notice.

3. Further Bank of Maharashtra has taken symbolic possession of the Company’spremises at 101 Shiv Shakti Industrial Estate Andheri Kurla Road Andheri East Mumbai(Andheri office). The Company had applied for Compromise Settlement which is pending forapproval.

4. Till date Bank of Maharashtra has invoked 160000 equity shares which were pledged bypromoter as a collateral security for giving Loan to the Company.

5. The Company has filed a securitisation application in Debt Recovery Tribunal inorder to restrict the Bank from taking any further action.

Dena Bank:

1. The payment of principal amount and interest to Dena Bank has become overdue. TheCompany has received a Notice from Dena Bank for repayment of their outstanding Term Loanand Working Capital Credit Facilities aggregating Rs. 73.43 crores plus interest.

2. Subsequently the Company has received In Principle approval from Dena Bank forcompromise of our accounts. The Company is in process of compliance of Terms &Conditions of In Principle approval of Compromise Settlement.

25. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS COURTS AND TRIBUNAL.

During the year under review the Company has received Order from National Company LawTribunal (NCLT) Ahmedabad dated 22nd May 2017 granting extension of time for repaymentof Debentures as follows:

Sr. No. Outstanding Amount
Debentures due (Rs.) Payable by
1 Upto 31st March 2015 38500000 30th July 2017
2 From 1st April 2015 to 31st July 2015 21300000 31st December 2017
3 From 1st August 2015 to 30th April 2016 13900000 30th March 2018
Total 73700000

The Company has complied with NCLT order.

26. DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION ANDPROHIBITION AND REDRESSAL) ACT 2013

The Company is complying with the Provisions of Sexual Harassment of Women at Workplace(Prevention Prohibition and Redressal) Act 2013. A Committee has been set up to redresscomplaints received regarding Sexual harassments. No Complaints has been received by theCommittee during the year under review.

27. PARTICULARS OF EMPLOYEES PURSUANT TO RULE 5(2) OF THE COMPANIES (APPOINTMENT ANDREMUNERATION OF MANAGERIAL PERSONNEL) RULES 2014.

Disclosure with respect to the remuneration of Directors and employees as requiredunder Section 197 of the Act and Rule 5(1) of Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 have been annexed to this report as "AnnexureF".

The information required pursuant to Section 197 (12) of the Act read with Rule 5(2)and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel)Rules 2014 as amended a statement showing the names and other particulars of theemployees drawing remuneration in excess of the Limits set out in the said rules if anywhich includes names of top 10 employees in terms of remuneration drawn forms part of thisReport. However as per the provision of Section 136(1) of the Act the Report andAccounts are being sent to the Members and others entitled thereto excluding the saidStatement i.e. the information on employees particulars which is available for inspectionby the members at the Registered Office of the Company during business hours on workingdays of the Company up to the date of the ensuing Annual General Meeting. Any memberinterested in obtaining a copy of such statement may write to the Company Secretary at theCompany’s Administrative Office at Mumbai.

28. CORPORATE GOVERNANCE

A Report on Corporate Governance along with certificate from Practising CompanySecretary confirming the Compliance of the condition of Corporate Governance as stipulatedin the Listing regulations is annexed in "Annexure G" and forms an integral partof this Annual report.

29. MANAGEMENT DISCUSSION ANALYSIS REPORT

Management Discussion and Analysis Report is attached in "Annexure H".

30. ACKNOWLDEGEMENTS

Your Directors place on record their appreciation of the continued assistanceco-operation and support received from various Ministries of the Government of IndiaGovernment of Maharashtra Government of Gujarat the Company’s Bankers CustomersShareholders Fixed Deposit Holders and loyal & committed Employees for theirunstinted support.

By Order of the Board
Place: Mumbai N. I. Gandhi
Date: 13th August 2018 Chairman & Managing Director
(DIN: 00021530)