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Neuland Laboratories Ltd.

BSE: 524558 Sector: Health care
NSE: NEULANDLAB ISIN Code: INE794A01010
BSE 00:00 | 12 Apr 2423.30 34.95
(1.46%)
OPEN

2380.00

HIGH

2543.10

LOW

2275.00

NSE 00:00 | 12 Apr 2420.65 32.90
(1.38%)
OPEN

2396.55

HIGH

2544.50

LOW

2275.00

OPEN 2380.00
PREVIOUS CLOSE 2388.35
VOLUME 15338
52-Week high 2543.10
52-Week low 288.00
P/E 57.88
Mkt Cap.(Rs cr) 3,109
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 2380.00
CLOSE 2388.35
VOLUME 15338
52-Week high 2543.10
52-Week low 288.00
P/E 57.88
Mkt Cap.(Rs cr) 3,109
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Neuland Laboratories Ltd. (NEULANDLAB) - Director Report

Company director report

The Board of Directors are pleased to present the Company's Thirty Sixth Annual Reportand the Company's audited financial statements (standalone and consolidated) for thefinancial year ended March 31 2020.

Financial Performance

The Company's financial performance (standalone) for the year ended March 31 2020 issummarised below:

(Amount inD lacs)

Particulars 2019-20 2018-19
Total Income 76659.65 67032.11
Profit before Finance Costs Depreciation Amortisation and Tax 10534.35 6135.83
Finance costs 2157.14 1566.31
Profit before Depreciation Amortisation and Tax 8377.21 4569.52
Less: Depreciation & Amortisation 3127.63 2586.02
Profit before Tax 5249.58 1983.50
Less: Current Tax 0.00 544.35
Deferred Tax 3661.57* (175.19)
Profit after Tax 1588.01* 1614.34
Add: Other comprehensive income (78.74) 14.99
Total comprehensive income for the year 1509.27 1629.33

*The Company elected to exercise the option under section 115BAA of the Income Tax Act1961 as introduced by the Taxation Laws (Amendment) Ordinance 2019. Accordingly theCompany has re-measured it's opening Deferred Tax Liability as on April 1 2019 andrecognised Provision for Income Tax for the year ended March 31 2020 at the revised‘effective' annual tax rate to it's pre-tax profits. This transition resulted inone-time tax charge of D2324.66 lacs.

For the financial year ended March 31 2020 a Total Income of Rs 76659.65 lacs asagainst Rs 67032.11 lacs in the previous year.

For the year ended on March 31 2020 the Company has reported Earnings BeforeInterest Finance Cost Depreciation & Amortization and Tax (EBIDTA) of Rs 10534.35lacs as against the EBIDTA of Rs 6135.83 lacs during the previous year.

The Net Profit of the Company for the year 2019-20 was Rs 1509.27 lacs compared to Rs1629.33 lacs during the previous year.

Business Review

The fiscal year under review saw your Company register good growth on the top linedriven primarily by the CMS (Custom Manufacturing Solutions) business and Specialtyproducts from the GDS (Generic Drug Substances) business. There has been very goodtraction in the CMS business as we added a number of new projects and the Company hasbeen able to capitalize on its reputation for quality and customer centricity. Themanagement of the company spent substantial time during the year to put in place theoutcomes of the learning from the last few years. Activities like de-risking the supplychain optimizing operational efficiencies and Solvent recovery were given prominenceduring the course of the year. Even as we were hit by the COVID-19 crisis towards the endof the year the company was able to respond to the situation to ensure that we able tomeet our customers' requirements.

Dividend

The Board of Directors had earlier approved payment of an Interim Dividend of Rs2.00per equity share (20% Interim Dividend) on the equity share capital of the Company for thefinancial year 2019-2020 amounting to Rs 25659778/- which was paid on February 272020. The outflow on account of Interim Dividend (inclusive of tax on distributed profits)was Rs30934222/-. Your Directors recommend that the interim dividend be treated as thefinal dividend of the Company for the Financial Year 2019-20.

Share Capital

The equity shares of your Company continue to be listed and traded on the BSE Limitedand National Stock Exchange of India Limited. The paid-up equity share capital of theCompany as on March 31 2020 is Rs1290.05 lacs. During the year under review the Companyhas not issued any shares with differential voting rights nor granted stock options norsweat equity.

Outlook

The Company is continuing to take steps which will enable the growth of the GenericDrug Substance (GDS) and Custom Manufacturing Solutions (CMS) business. Even as both thebranded and generic segments of the pharmaceutical industry are going through challengeswe strongly believe that the Company is in a good position to achieve sustainablelong-term growth. We believe that these challenging times pose an opportunity for theCompany as it is viewed as a reliable API partner is resulting in Neuland being viewed asa strategic alternative even by backward integrated formulators. With growing traction inthe CMS business and the Company's investment in peptides being recognized by theindustry the Company is in a good position to drive sustainable long-term growth.

Consolidated Financial Statements

The Audited Consolidated Financial Statements of your Company as on March 31 2020which forms part of the Annual Report have been prepared as per the applicable IndianAccounting Standard (IndAS) on Consolidated Financial Statements (IndAS-110) as notifiedby the Ministry of Corporate Affairs.

The annual accounts of the subsidiary companies are kept for inspection by any memberat the Registered Office of the Company as well as at the Registered Office of therespective subsidiary companies and also available on the website of the Companywww.neulandlabs.com. Any member interested in a copy of the accounts of the subsidiariesmay write to the Company Secretary at the Registered Office of the Company.

Subsidiaries

Your Company has two subsidiaries Neuland Laboratories K.K. Japan and NeulandLaboratories Inc. USA working on market development. Your Company does not have any jointventure or associate companies. Further there has been no material change in the nature ofbusiness of the subsidiaries.

A report on the performance and financial position of the subsidiaries set out in theprescribed form AOC-1 in terms of proviso to sub section (3) of Section 129 of theCompanies Act 2013 as amended from time to time is provided as Annexure to theconsolidated financial statements and hence not repeated here.

Documents uploaded on the Website

The following documents are available on the website of the Company(www.neulandlabs.com) in compliance with Companies Act 2013 as amended from time totime:

• Unpaid dividend including interim dividend details as per Section 124(2)

• Corporate Social Responsibility Policy as per Section 135(4)(a)

• Financial Statements of the Company and Consolidated Financial Statements alongwith relevant documents as per third proviso to section 136(1).

• Separate audited accounts in respect of subsidiaries as per fourth proviso tosection 136(1)

• Details of vigil mechanism for directors and employees to report genuineconcerns as per proviso to section 177(10)

• Policy on Material Subsidiaries

• The terms and conditions of appointment of independent directors as per ScheduleVI to the Act.

Corporate Governance Report Management Discussion & Analysis and Other InformationRequired under the Companies Act 2013 and Listing Agreement

As per SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 asamended from time to time Corporate Governance Report with Certificate from a PracticingCompany Secretary thereon and Management Discussion and Analysis report are attached andform part of this report.

Directors and Key Managerial Personnel

During the year under review Mr. Amit Agarwal ceased to be the Chief Financial Officerof the Company effective closing of business hours on March 6 2020.

The Board of Directors on the recommendation of the Nomination and RemunerationCommittee have approved the reappointment of following directors subject to approval ofthe shareholders sought in the Notice of the Thirty Sixth Annual General Meeting-

• Re-appointment of Dr. Nirmala Murthy as Non-Executive Independent Director ofthe Company for a further period of 5 years with effect from May 8 2020 and in terms ofSection 134 read with Rule 8 (5) of The Companies (Accounts) Rules 2014 your Boardconfirms its opinion on Dr. Nirmala Murthy as a person of high integrity with requisiteexpertise and experience.

• Re-appointment of Mr. Davuluri Saharsh Rao as Whole Time Director and JointManaging Director of the Company and remuneration thereof.

Mr. Davuluri Saharsh Rao retires by rotation at the forthcoming 36th Annual GeneralMeeting and being eligible seeks reappointment.

Dr. Davuluri Rama Mohan Rao Chairman & Managing Director Mr. Davuluri SuchethRao Vice Chairman & CEO Mr. Davuluri Saharsh Rao Joint Managing Director andMs.Sarada Bhamidipati Company Secretary & Compliance Officer are the Key ManagerialPersonnel of the Company as on the date of this Report.

Listing at Stock Exchanges

The equity shares of your Company continue to be listed and traded on the BSE Limitedand National Stock Exchange of India Limited. The Annual Listing fee for the year 2020-21has been paid to both the stock exchanges.

Directors' Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act 2013 as amended from time to timeyour Directors confirm that to the best of their knowledge and belief and according to theinformation and explanation obtained by them: a. in the preparation of the annualfinancial statements for the year ended March 31 2020 the applicable accountingstandards have been followed along with proper explanation relating to materialdepartures if any; b. such accounting policies as mentioned in the Notes to the FinancialStatements have been selected and applied consistently and judgement and estimates havebeen made that are reasonable and prudent so as to give a true and fair view of the stateof affairs of the Company as at March 31 2020 and of the profit of the Company for theyear ended on that date; c. proper and sufficient care has been taken for the maintenanceof adequate accounting records in accordance with the provisions of the Companies Act2013 as amended from time to time for safeguarding the assets of the Company and forpreventing and detecting fraud and other irregularities; d. the annual financialstatements have been prepared on a going concern basis; e. proper internal financialcontrols were in place and that the financial controls were adequate and were operatingeffectively; and f. systems to ensure compliance with the provisions of all applicablelaws were in place and were adequate and operating effectively.

Board Meetings

During the year under review four Board Meetings and four Audit Committee Meetingswere convened and held the details of which are given in the Corporate Governance Reportwhich forms part of this report. The intervening gap between the Meetings was within theperiod prescribed under the Companies Act 2013 as amended from time to time.

Composition of various Committees

Details of various committees constituted by the Board as per the provisions ofCompanies Act 2013 as amended from time to time and SEBI (LODR) Regulations 2015 asamended from time to time and their meetings are given in the Corporate Governance Reportwhich forms part of this report.

Board Evaluation

Pursuant to the provisions of the Companies Act 2013 and SEBI (Listing Obligations andDisclosure requirements) Regulations 2015 the annual evaluation of the performance ofthe Board its Committees and of individual directors has been carried out by the Board.The process was carried out by circulating questionnaires on the Board and Committeesfunctioning on certain parameters. The performance evaluation of the independent directorswas carried out by the entire Board except the director being evaluated. The performanceevaluation of the non-Independent Directors including Executive Directors was carried outby the Independent Directors.

Independent Directors

The Independent Directors met on February 10 2020 without the presence ofNon-Independent Directors and members of the management. The Independent Directorsdiscussed matters pertaining to the Company's affairs and reviewed the performance ofnon-independent directors the Chairman and the Board as a whole and assessed thequality quantity and timeliness of flow of information between the Company Management andthe Board that is necessary for the Board to effectively and reasonably perform theirduties.

The Company has received declarations from all the Independent Directors of the Companyconfirming that they meet the criteria of independence prescribed under the Companies Act2013 and the SEBI (Listing Obligations and Disclosure Requirements) 2015.

Disclosures by Directors

None of the Directors of your Company is disqualified as per provisions of Section164(2) of the Companies Act 2013 as amended from time to time. Your Directors have madenecessary disclosures to this effect as required under Companies Act 2013 as amendedfrom time to time.

Audit Committee

The composition of the Audit Committee and its terms of reference are included in theReport on Corporate Governance annexed. All the recommendations made by the AuditCommittee were accepted by the Board of Directors.

Nomination and Remuneration Committee

The details of the Nomination and Remuneration Committee are set out in the Report ofCorporate Governance forming part of this Report.

Your Company has a Nomination and Remuneration Policy as required under section 178 ofthe Companies Act 2013 as amended from time to time for selection and appointment ofDirectors Key Managerial Personnel Senior Management and their remuneration.

Remuneration Policy

The Company has formulated a Nomination & Remuneration Policy which is available onthe website of the Company at www.neulandlabs.com. Your Company's Policy on Directors'appointment and remuneration including criteria for determining qualifications positiveattributes independence of a director and other matters provided under section 178(3) ofthe Act are covered in the policy.

Business Responsibility Report

In accordance with regulation 34(2)(f) of the Securities and Exchange Board of India(Listing Obligations and Disclosure Requirements) Regulations 2015 the BusinessResponsibility Report (BRR) is forming part of this report as Annexure-5 describing thedetailed report on business responsibilities vis--vis the nine principles of the NationalVoluntary Guidelines on Social Environmental and Economic Responsibilities of Businessframed by the Ministry of Corporate Affairs.

Code of Conduct for Board of Directors and Senior Management Personnel

The Directors and members of Senior Management have afirmed compliance with the Code ofConduct for Board of Directors and Senior Management Personnel of the Company. Adeclaration to this effect has been signed by the Chairman & Managing Director andforms part of the Annual Report.

Vigil Mechanism/ Whistle Blower Policy

Your Company has a Vigil Mechanism / Whistle Blower Policy which serves as a mechanismfor its Directors and employees to report genuine concerns about unethical behaviouractual or suspected fraud or violation of the Code of Conduct without fear of reprisal.The policy also provides access to the Chairperson of the Audit Committee under certaincircumstances. The Whistle Blower Policy is available on the website of the Companyhttps:// www.neulandlabs.com/investors/board-of-directors/policies. A brief note on theWhistle Blower Policy is also provided in the Report on Corporate Governance which formspart of this Annual Report.

Prevention of Insider Trading

Pursuant to SEBI (Prohibition of Insider Trading) (Amendment) Regulations 2018 theCompany has adopted the Code of Internal Procedures and Conduct for Regulating Monitoringand Reporting of Trading by Designated Persons and their Immediate Relatives along withCode of Fair Disclosures.

Disclosure as per Sexual Harassment of Women at Workplace (Prevention Prohibition andRedressal) Act 2013

The Company is committed to ensure that there is no scope for sexual harassment atworkplace and has adopted a policy on prevention prohibition and redressal of sexualharassment at workplace in line with the provisions of Sexual Harassment of Women atWorkplace (Prevention Prohibition and Redressal) Act 2013 and the rules framedthereunder. The Company has not received any complaints on sexual harassment during thecalendar year 2019 and as on the date of this Report.

Employee Stock Option Scheme

As on March 31 2020 no employee stock options available in the Company and hence nodisclosures are required to be made under Regulation 14 of the Securities and ExchangeBoard of India (Share Based Employee Benefits) Regulations 2014 (‘the Regulations').

Statutory Auditors

The financial statements have been audited by M/s. MSKA & Associates (FirmRegistration No: 105047W) Chartered Accountants Statutory Auditors of the Company.

The Statutory Auditors were appointed in the AGM held on July 5 2019 to hold officefrom the conclusion of the thirty fifth Annual General Meeting until the conclusion of thefortieth Annual General Meeting.

Auditors' Report

There are no qualifications reservations or adverse remarks made by M/s. MSKA &Associates Statutory Auditors in their report for the financial year ended March 312020.

Pursuant to provisions of Section 143(12) of the Companies Act 2013 as amended fromtime to time the Statutory Auditors have not reported any incident of fraud to the AuditCommittee during the year under review.

Secretarial Audit

Pursuant to the provisions of Section 204 of the Companies Act 2013 read withcorresponding Rules framed thereunder M/s. P. S. Rao & Associates were appointed asthe Secretarial Auditors of the Company to carry out the secretarial audit for the yearending March 31 2020.

Annual Secretarial Audit Report

In terms of Section 204 of the Companies Act 2013 and Regulation 24A of the SEBI(Listing Obligations and Disclosure Requirements) Regulations 2015 a Secretarial AuditReport given by the Secretarial Auditors in Form No. MR-3 is annexed to the CorporateGovernance Report and forms part of this report. There are no qualifications reservationsor adverse remarks made by Secretarial Auditors in their Report.

Annual Secretarial Compliance Report

A Secretarial Compliance Report for the financial year ended March 31 2020 oncompliance of all applicable SEBI Regulations and circulars/ guidelines issued thereunderwas obtained from M/s. P. S. Rao & Associates Secretarial Auditors and submitted toboth the stock exchanges.

Cost Auditors

Pursuant to Section 148 of the Companies Act 2013 read with the Companies (CostRecords and Audit) Amendment Rules 2014 as amended from time to time subject to theapproval of the Central Government if any required the Audit Committee has recommendedand the Board of Directors had appointed M/s. Nageswara Rao & Co. (Registration No.000332) Cost Accountants Hyderabad being eligible and having sought reappointment asCost Auditors of the Company to carry out the cost audit of the products manufactured bythe Company during the financial year 2020-21.

Insurance

Your Company has taken necessary steps to mitigate risks and obtained appropriateinsurances and the Board is kept appraised of the risk assessment and minimizationprocedures. The assets of the Company have been adequately covered under insurance. Thepolicy values have been determined taking into consideration the value of the assets ofthe Company.

Material Changes

There have been no material changes and commitments affecting the financial position ofthe Company between the end of the financial year of the Company to which the financialstatements relate and the date of the report. Further it is hereby confirmed that therehas been no change in the nature of business of the Company.

Energy Conservation Technology Absorption and Foreign Exchange Earnings and Outgo

The information on conservation of energy technology absorption and foreign exchangeearnings and outgo stipulated under Section 134(3)(m) of the Companies Act 2013 read withRule 8 of The Companies (Accounts) Rules 2014 as amended from time to time is annexedherewith as Annexure-1.

Extract of Annual Return

Pursuant to Section 92(3) and Section 134(3)(a) of the Companies Act 2013 as amendedfrom time to time extract of the Annual Return as on March 31 2020 in form MGT-9 isenclosed as Annexure-2 to this report.

Particulars of Employees and related disclosures

The information relating to remuneration and other details as required pursuant toSection 197 of the Act read with Rule 5(1) of the Companies (Appointment and Remunerationof Managerial Personnel) Rules 2014 as amended is provided as an Annexure-3 to thisreport.

In terms of the provisions of Section 197 of the Act read with Rules 5(2) and 5(3) ofthe Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 asamended a statement showing the names and other particulars of the employees drawingremuneration in excess of the limits set out in the said rules are provided in the AnnualReport which forms part of this Report.

Pursuant to the provisions of the first proviso to Section 136(1) of the Act theAnnual Report is being sent to the members and other persons entitled thereto excludingthe information in respect of employees of the Company containing the particulars asspecified in Rule 5 (2) of the said Rules. The said information is available forinspection on all working days during business hours at the Registered Office of theCompany up to the date of the ensuing Annual General Meeting. Any member interested inobtaining such information may write to the Company Secretary and the same will befurnished on request.

Related Party Transactions

All contracts / arrangements / transactions entered into by the Company during thefinancial year with related parties were in the ordinary course of business and at anarm's length basis. During the year the Company has not entered into any materialcontract or arrangements with related parties which could be considered material inaccordance with the policy of the Company on materiality of related party transactions.There were no materially significant related party transactions which could have potentialconflict with interest of the Company at large. The Policy on Materiality of Related PartyTransactions and on dealing with Related Party Transactions as approved by the Board maybe accessed on the Company's website www.neulandlabs. com. The particulars oftransactions with related parties in the prescribed format is annexed to this report asAnnexure-6. Members may refer to Note No. 37 to the standalone financial statement whichsets out related party disclosures pursuant to Ind AS.

Particulars of Loans Guarantees and Investments

The Company has not given any loans and guarantees or made any investments underSection 186 of the Act during the year under review.

Deposits from Public

The Company has not accepted any deposits from the public and as such no amount ofprincipal or interest on deposits from the public was outstanding as on the date of theBalance Sheet.

Significant and Material Orders passed by the Regulators or Courts

There are no significant material orders passed by the Regulators / Courts which wouldimpact the going concern status of the Company and its future operations.

Risk Management

The Board oversees Company's processes for determining risk tolerance and reviewmanagement's action and comparison of overall risk tolerance to established levels. Theframework is designed to enable risks to be identified assessed and mitigatedappropriately. Major risks identified by the businesses and functions are systematicallyaddressed through appropriate actions on a continuous basis. For details please refer tothe Management Discussion and Analysis report which forms part of this Report.

Internal Financial Controls

Internal Financial Controls are an integral part of the risk management processaddressing financial and financial reporting risks. The internal financial controlsinclude have been embedded and documented in the business processes. The controls in placeinclude essential components of internal financial controls required under the CompaniesAct 2013 as amended from time to time and also the internal financial controls overfinancial reporting as per the Guidance Note on Audit of Internal Controls over FinancialReporting as issued by Institute of Chartered Accountants of India.

Assurance on the effectiveness of internal financial controls is obtained throughmanagement reviews continuous monitoring by functional owners as well as testing of theinternal financial control systems by the internal auditors during the course of theiraudits. We believe that these systems provide reasonable assurance that our internalfinancial controls are designed effectively and are operating as intended.

The Company has in place adequate internal financial controls with reference tofinancial statements. During the year under review such controls were tested and noreportable material weakness in the design or operation were observed.

Corporate Social Responsibility

The Company has in place a Corporate Social Responsibility Policy which is available onthe website of the Company at www.neulandlabs.com. Further your Company has incurred anexpenditure of 2.10% (D58.72 lacs) of the average net profit of the preceding three yearson CSR projects/activities during FY 2019-20 exceeding the government mandated 2% (D55.87lacs).

Annual report on CSR activities as required under Rule 8 of the Companies (CorporateSocial Responsibility Policy) Rules 2014 read with section 134(3) and 135(2) of theCompanies Act 2013 has been appended as Annexure-4 and forms an integral part of thisBoard's Report.

Human Resources & Industrial Relations

Your Company's relations with its employees continue to be cordial. Dedicated work bythe workmen supervisors and executives of your Company made it possible to achievesuccess under trying and difficult circumstances.

Acknowledgement

The Board of Directors would like to place on record its sincere appreciation for thecontinued support and guidance received from the Banks Financial Institutions Statutoryand Regulatory Authorities Ministry of Corporate Affairs Stock Exchanges andDepositories for their continued support and guidance. The Board places on record itsappreciation to the Shareholders of the Company for their continued support and to itsvalued customers and vendors for their continued patronage. The Board of Directors alsowish to place on record its deep sense of appreciation for the committed services by theCompany's employees at all levels.

For on and behalf of the board
Dr. Davuluri Rama Mohan Rao
Place: Hyderabad Chairman and Managing Director
Date: May 22 2020 (DIN: 00107737)

   

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