Your Directors are pleased to present the 32nd Annual Report and theAudited Financial Statements for the financial year ended March 31 2021.
1. FINANCIAL HIGHLIGHTS
A summary of the Company's financial results for the year ended March31 2021 vis-avis financial results for the previous year ended March 31 2020 is asunder
| || ||(Rs. in lakhs) |
| ||Financial Year 2020 - 21 ||Financial Year 2019 - 20 |
|Revenue from operations ||12650.07 ||13107.36 |
|Other Income ||56.12 ||442.14 |
|Total Income ||12706.21 ||13549.50 |
|Expenditure ||9906.11 ||11901.73 |
|Depreciation and amortisation expense ||394.59 ||438.62 |
|Total Expense ||10300.70 ||12340.36 |
|Profit before finance costs and tax ||2514.84 ||1527.19 |
|Finance costs ||109.33 ||318.05 |
|Profit Before Tax (PBT) ||2405.50 ||1209.14 |
|Tax Expense ||694.76 ||364.42 |
|Profit for the year ||1710.74 ||844.71 |
|Other Comprehensive Income (Net of Tax) ||Nil ||Nil |
|Total Comprehensive Income for the year ||1710.74 ||844.71 |
2. OPERATIONAL PERFORMANCE AND STATE OF COMPANY'S AFFAIRS
During the year under review Net Sales & Other Income of theCompany was Rs.12706.21 lakhs as compared to Rs.13549.50 lakhs in the previous yearregistering a decrease of 6.22 % over the previous year.
However the Profit for the year was Rs.1710.74 lakhs compared toRs.844.71 lakhs in the previous year. Improvement in profitability was due to decrease inmaterial consumption overheads and finance cost. A detailed overview has been providedunder Management Discussion and Analysis section.
Financial Year 2020-21 started on an uncertain note due to thelock-down on account of Covid-19.
The company experienced a few days of lost production due to nationwidelockdown in the first quarter of FY 2020-21. With the economy slowly opening up withprogressive lifting of lockdown in second half of the year the company revived itsoperations in a phased manner as per government orders.
Given majority of the company's products are in the chronicsegment the overall demand for the products was not significantly affected by thecontinuation of Covid-19 pandemic even during the current year. However supply of rawmaterials and labour were impacted even after opening of the economy. The Company willcontinue to monitor such impact on future economic conditions and inform the membersperiodically.
For FY 2020-2021 based on the Company's performance your Directorsrecommend a dividend of Rs 3 /- per equity share (30 %) on post bonus share capital of11446290 equity shares of Rs 10/- each. Outgo on account of dividend shall be Rs 3.43crores.
5. TRANSFER TO RESERVES
During the year under review the Company has not transferred anyamount to the General Reserve.
6. MATERIAL CHANGES AND COMMITMENTS IF ANY AFFECTING THE FINANCIALPOSITION OF THE COMPANY HAVING OCCURRED SINCE THE END OF THE YEAR AND TILL THE DATE OFTHE REPORT
There have been no material changes and commitments affecting thefinancial position of the Company which have occurred between the end of the financialyear of the Company to which the financial statements relate and the date of this Report.
7. SHARE CAPITAL
For enabling issuance of bonus shares members accorded their approvalon March 03 2021 through postal ballot for reclassification of unissued preference sharesof Rs. 5 crores into equity shares and increase in authorised share capital from Rs. 10crores to Rs.12 crores.
The Company issued and allotted 7630860 (Seventy-Six Lakh ThirtyThousand and eight hundred and sixty) equity shares of Rs. 10/- each as fully paid-upbonus equity shares by capitalisation of General Reserve Securities Premium Account andSurplus in Profit & Loss Account in the ratio of 2 (two) new bonus shares for every 1(one) equity share to the eligible members whose names appeared in the register ofmembers/ list of beneficial owners as on Wednesday March 17 2021 (record date).
The revised paid-up share capital pursuant to the above allotment isRs.114462900 i.e 11446290 equity shares of Rs 10/- each.
The Company has received Trading Approvals from both BSE Ltd andMetropolitan Stock Exchange of India Ltd.
Increase in the paid-up share capital shall enable the company to shiftits scrip from Periodic Call Auction Session (PCAS) to Main Board of BSE Ltd which willalso facilitate easy trading in shares of the company.
8. HUMAN RESOURCE DEVELOPMENT (HRD) & INDUSTRIAL RELATIONS
In view of the pandemic several initiatives for HRD were eitherpostponed or cancelled. However our HR department has been successful in conductingvarious programs by adopting technology particularly in training. After reduction in Covid- 19 cases to very low levels the company organized extracurricular activities in smallgroups to boost the morale and reduce lockdown / pandemic fatigue. The company alsointroduced various incentives to generate higher participation from the employees.
Company realizes the importance of strong human resources to achieveand maintain world class operations and facilities. The company's plans for FY 2021 - 22will result in increasing our team strength in the API division. The company shall beadding several people with required skills in various departments such as QA QC RA andR&D through lateral hiring. In addition the company is investing in its people byincreasing its training budget and resources to upgrade every team member's operationaland personnel skills particularly keeping in view the requirements for regulatoryapprovals.
The FDF marketing division has started with about 55 personnel. Mostpeople were recruited in FY 2020 - 21 and have started working on the field starting FY2021 - 22. We expect to see further additions to the team as time progresses.
The management has allocated the required budget for this increasedpersonnel expenditure in FY 2021 - 22.
9. QUALITY & REGULATORY INITIATIVES
In FY 2020 - 21 the company has fully implemented a LaboratoryInformation Management System (LIMS) which is accepted globally by regulatoryauthorities.
With an aim to secure regulatory approvals for its manufacturing sitethe company is working diligently to upgrade its quality systems and operations tointernationally acceptable standards. As mentioned earlier it is investing in humanresources as well as in upgrading infrastructure for the same. In addition the company isadopting several IT solutions that will help improve its quality management systems in FY2021 - 22. However the exact timeline for inspections and approvals is uncertain due toCovid - 19 and consequent travel restrictions.
The company will file multiple Drug Master Files (DMF) in FY 2021 - 22with the regulatory authorities in EU South Korea Brazil China and others for itslatest range of API. To undertake this activity we shall be increasing the strength ofour RA team.
10. RESEARCH AND DEVELOPMENT (R&D)
The company has increased its R&D operating spend to Rs. 3.1 crorein FY 2020 - 21 from Rs. 1.9 crore in FY 2019 - 20. The company's Hyderabad R&D unithas developed 5 products at the lab scale in the current year. The Solapur based ProcessDevelopment laboratory has also done an excellent job in developing cost effectiveprocesses of existing products which has resulted in significant savings and ultimatelyimproved net profits.
Company was able to scale up 3 products to commercial scale in FY 2020- 21. The company's plan to scale up more products was disrupted due to Covid - 19.However the company is better prepared to follow through with its plan to launch 4-5products at a commercial scale in FY 2021 - 22.
The company is expanding its R&D teams at both Hyderabad andSolapur in line with our future growth plans. The company is planning to develop 5-6molecules at the lab scale and continue its efforts to reduce cost by developing keystarting materials and intermediates in FY 2021 - 22. The R&D's focus area remainsdiabetic and anti - platelet molecules for FY 2021 - 22.
11. MANAGEMENT DISCUSSION AND ANALYSIS
Please refer to the detailed management discussion and analysis on page16.
12. INTERNAL CONTROL SYSTEMS
The Company has adequate internal control procedures commensurate withthe size of the company and the nature of its business with regard to purchases ofinventory fixed assets and with regard to the sale of goods. The company's ERP systemimplemented in FY 2019 - 2020 is helping in strengthening its internal control systems.
13. SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS
|Sr No. ||Ratio ||2020-21 ||2019-20 ||% Increase Y-o-Y ||Explanation |
|1 ||Interest Coverage Ratio ||23.1 ||4.8 ||380% ||Lower utilization of debt & rate of interest and overall increase in profitability |
|2 ||Current Ratio ||2.38 ||1.40 ||70% ||Reduction in short-term borrowing and current liabilities due to higher profits |
|3 ||Debt Equity Ratio ||0.24 ||0.50 ||-51% ||Reduction in long term and short-term borrowings and higher profits |
|4 ||Operating Profit Margin (%) ||19.9% ||11.6% ||71% ||Reduction in Raw Material cost other manufacturing expenses fixed overheads and finance expenses |
|5 ||Net Profit Margin (%) ||13.5% ||6.4% ||110% ||Increase in profit before tax due to reduction in Raw material cost manufacturing expenses fixed overheads and lower tax incidence. |
|6 ||Return on Net Worth ||33.2% ||21.4% ||55% ||Higher Profits |
14. DIRECTORS' RESPONSIBILITY STATEMENT
As stipulated under the provisions contained in Section 134 (3) (c)read with Section 134 (5) of the Companies Act 2013 ("Act") the Board ofDirectors to the best of its knowledge and belief and according to the information andexplanations obtained by it hereby states that:
1. In the preparation of the annual accounts the applicable accountingstandards have been followed and there are no material departures;
2. The directors have selected such accounting policies and appliedthem consistently and made judgments and estimates that are reasonable and prudent so asto give a true and fair view of the state of affairs of the Company for that period;
3. The directors have taken proper and sufficient care for themaintenance of adequate accounting records in accordance with the provisions of the Actfor safe guarding the assets of the Company and for preventing and detecting fraud andother irregularities;
4. The directors have prepared the annual accounts of the Company on agoing concern basis;
5. The directors have laid down internal financial controls to befollowed by the Company and that such internal financial controls are adequate and areoperating effectively; and
6. The directors have devised proper systems to ensure compliance withthe provisions of all applicable laws and that such systems are adequate and operatingeffectively.
15. DIRECTORS AND KEY MANAGERIAL PERSONNEL
The Board of Directors is chaired by Executive Promoter Chairman andhas an optimum combination of Executive Non- Executive and Independent Directors.
Mrs. E Vaishnavi (DIN: 00033669) is retiring by rotation and beingeligible offers herself for reappointment. You are requested to appoint her.
None of the Directors are disqualified from being appointed asDirectors as specified in Section 164 of the Companies Act 2013.
The composition of the Board meetings of the Board held during theyear and the attendance of the Directors thereat have been mentioned in the Report onCorporate Governance in the Annual Report.
The Company has Code of Conduct for Directors and senior managementpersonnel. All the Directors and senior management personnel have confirmed compliancewith the said code.
In terms of Section 203 of the Act the Company has the following KeyManagerial Personnel : Mr. Swapnil Eaga: Chief Financial Officer and Ms. Urvashi Khanna:Company Secretary.
16. DECLARATION OF INDEPENDENCE
Your Company has received declarations from all the IndependentDirectors confirming that they meet the criteria of independence as prescribed under theprovisions of the Companies Act 2013 read with the Schedules and Rules issued thereunderas well as Regulation 16(1) (b) of Listing Regulations (including any statutorymodification(s) or re-enactment(s) for the time being in force).
17. BOARD EVALUATION
In terms of the applicable provisions of the Act the SEBI ListingRegulations Nomination and Remuneration Committee and the Board of Directors haveapproved a framework which lays down a structured approach guidelines and processes tobe adopted for carrying out an evaluation of the performance of all the Directors theBoard as a whole and its Committees. The evaluation process has been separately explainedin this Annual Report as a part of the Report on Corporate Governance.
For the year under review the Board carried out the evaluation of itsown performance and that of its Committees and the individual Directors and the evaluationresults as collated and presented were noted by the Board.
18. MEETINGS OF THE BOARD
The Board met 5 (Five) times during the financial year. The meetingdetails are provided in the Report on Corporate Governance that forms part of this AnnualReport.
The maximum interval between any two meetings did not exceed 120 daysas prescribed in the Act and the SEBI Listing Regulations.
19. INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY
The details in respect of internal financial control and their adequacyare included in the Management Discussion and Analysis which is a part of this report.
Pursuant to the provisions of Section 139 of the Companies Act 2013read with Companies (Audit and Auditors) Rules 2014 in the 28th Annual General MeetingM/s. N. R. Waghchaure & Associates. Chartered Accountants Solapur (Reg.No.:114999W)were appointed as the Statutory Auditors of the Company for a term of five years.Company has however obtained confirmation from the said Auditors about their eligibilityto continue to hold the office during the current financial year.
21. AUDITOR'S REPORT AND SECRETARIAL AUDIT REPORT
The Statutory Auditor's report and the Secretarial Audit report do notcontain any qualifications reservations or adverse remarks or disclaimer. TheSecretarial Audit Report submitted by the Secretarial Auditor Mr. H. R. Thakur PracticingCompany Secretary Mumbai in the prescribed form MR-3 is attached as "Annexure -I" and forms part of this report. Observations and suggestions of the SecretarialAuditor have been considered by the management of the company.
Further the Company has also obtained the Annual Secretarial ComplianceReport for the financial year ended 31st March 2021 there by confirming compliance ofthe applicable SEBI Regulations and circulars / guidelines issued thereunder on behalf ofthe Company.
22. COST AUDIT
For Financial Year 2021-2022 the Company has re-appointed M/s.Shrinivas Diddi and Associates Cost Accountants Solapur for conducting cost audit of itscost records pertaining to the products falling under the product categories - Drugs andpharmaceuticals. M/s. Shrinivas Diddi and Associates are appointed on a remuneration of Rs55000 plus GST and out of pocket expenses.
The Company is seeking the ratification of the Shareholders for theremuneration to be paid to the cost auditors vide Resolution No. 4 of the Notice of theensuing Annual General Meeting.
23. CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION & FOREIGNEXCHANGE
The statement giving the particulars relating to conservation ofenergy technology absorption and foreign exchange earnings and outgo as required interms of Sectionl34(3)(m) of the Act read with Rule 8(3) of the Companies(Accounts) Rules2014 is annexed to this Report as "Annexure 11".
24. GENERAL SHAREHOLDER INFORMATION
General Shareholder Information is given as Item No. 9 of the Report onCorporate Governance forming part of this Annual Report.
25. PARTICULAR REGARDING EMPLOYEES REMUNERATION
Disclosure comprising particulars with respect to the remuneration ofdirectors and employees as required to be disclosed in terms of the provisions ofSectionl97(12)of the Act and Rule 5 of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 is annexed to this Report as "Annexure III".
26. PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS
Company did not give any loans guarantees and make any Investmentcovered under the provisions of Section 186 of the Companies Act 2013.
27. RELATED PARTY TRANSACTIONS
Related Party Transactions entered into during the year under reviewwere approved by the Audit Committee and the Board of Directors from time to time and thesame are disclosed in the Financial Statements of the Company for the year under review.Further pursuant to the provisions of the Act and the SEBI Listing Regulations the Boardof Directors has on recommendation of its Audit Committee adopted a Policy on RelatedParty Transactions and the said policy is available on the website of the Company i.e.www.smruthiorganics.com.
In terms of the provisions of Section 188(1) of the Act read with theCompanies (Meetings of Board and its Powers) Rules 2014 and Regulation 23 of the SEBIListing Regulations all contracts/ arrangements/ transactions entered into by the Companywith its related parties during the year under review were in the ordinary course ofbusiness of the Company and on an arm's length basis.
There were no material Related Party transactions during the year.
28. CORPORATE GOVERNANCE
The Company is in full compliance with the requirements and disclosuresthat have to be made in terms of the requirements of Corporate Governance specified inSEBI Listing Regulations.
Corporate Governance Report is enclosed as a part of the Annual Reportalong with the certificate from the Statutory Auditors M/s. N. R. Waghchaure &Associates Chartered Accountants Solapur confirming compliance of the code of CorporateGovernance as stipulated Para E of schedule V of the Securities and Exchange Board ofIndia (Listing obligations and Disclosure requirements) Regulations 2015.
29. AUDIT COMMITTEE
The Company has an Audit Committee in place in terms of the provisionsof Regulation 18 of SEBI Listing Regulations read with Section 177 of the Companies Act2013.
The recommendations made by the Audit Committee to the Board from timeto time during the year under review have accepted by the Board. Other details withrespect to the Audit Committee such as its terms of reference the meetings of the AuditCommittee and attendance thereat of the members of the Committee are separately providedin this Annual Report as a part of the Report on Corporate Governance.
Further detailed information with respect to the other Committees ofthe Board is also provided in this Annual Report as a part of the Report on CorporateGovernance.
30. REMUNERATION POLICY
The policy on remuneration and other matters provided in Section 178(3)of the Act has been disclosed in the Corporate Governance Report which is a part of thisreport and is also available on website of the company www.smruthiorganics.com
31. VIGIL MECHANISM - WHISTLE BLOWER POLICY
The Company has a Whistle Blower Policy to report genuine concerns andgrievances. The policy provides adequate safeguards against victimisation of persons whouse the Whistle Blower mechanism. Details with respect to implementation of the WhistleBlower Policy are separately disclosed in this Annual Report as a part of the Report onCorporate Governance. The same is also available on the website of the Company atwww.smruthiorganics.com.
32. RISK MANAGEMENT POLICY
The Company is aware of the risks associated with the business. Itregularly analyses and takes corrective actions for managing / mitigating the same. Therequirements of Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 with regard to the constitution of a Risk Management Committee are notapplicable to our Company.
33. CORPORATE SOCIAL RESPONSIBILITY (CSR)
The Board of Directors has constituted a Corporate SocialResponsibility ("CSR") Committee in terms of the provisions of Section 135 ofthe Act.
The Annual Report on CSR activities as required under Companies(Corporate Social Responsibility) Rules 2014 including a brief outline of the Company'sCSR Policy is annexed to this Report as "Annexure IV". For other detailsregarding the CSR Committee please refer to the Corporate Governance Report which is apart of this report. The CSR policy is available on the website of the companywww.smruthiorganics.com.
There was one meeting of the CSR Committee held on 16th January 2021which was attended by all members of the Committee.
34. EXTRACT OF ANNUAL RETURN
Pursuant to Section 92(3) read with Section 134(3)(a) of the Act theAnnual Return as on March 31 2021 is available on the Company's website on :https://smruthiorganics.com/investor- relation/
35. INVESTOR EDUCATION AND PROTECTION FUND (IEPF)
The Company had transferred a sum of Rs 112368 during the financialyear to the Investor Education and Protection Fund established by the Central Government(IEPF). The said amount represents Unclaimed Dividend for the year 2012-2013 with theCompany for a period of 7 years from their respective due dates of payment.
36. COMPLIANCE WITH SECRETARIAL STANDARDS
The Company has complied with the applicable Secretarial Standardsissued by the Institute of Company Secretaries of India.
Your Directors wish to express their grateful appreciation for thecooperation and continued support received from customers parent company collaboratorsvendors investors shareholders financial institutions banks regulatory authoritiesand the society at large during the year. We also place on record our appreciation for thecontribution made by our employees at all levels and for their commitment hard work andsupport in driving the growth of the Company.