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Updated:16 Aug, 2019, 15:59 PM IST

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Updated:16 Aug, 2019, 16:01 PM IST

DIRECTORS' REPORT

DEAR MEMBERS'

Your Directors are pleased to present the 28th Annual Report of the Company together with the audited accounts for the financial year ended March 31, 2015.

DIVIDEND

Your Directors have approved a third interim dividend of 100% i.e. Rs.1 per equity share and together with the first interim dividend of 150% i.e. Rs.1.50 per equity share and second interim dividend of 200% i.e. Rs.2.00 per equity share, the total dividend for the financial year 2014–15 comes to 450% i.e. Rs.4.50 per share on the equity share of Rs.1 against 300% i.e. Rs.3 per share of Rs.1 paid in the previous year.

PERFORMANCE REVIEW

Your Company delivered financially satisfactory results by executing on core strategies and setting the stage for long term growth. The revenue from operations was Rs.80,951 million on a standalone basis, an increase of 13.8% over 2013–14. On a standalone basis, the EBITDA for 2014–15 was Rs.23176.4 million, an increase of 16.2% over the previous year.

Profit before tax was increased to Rs.19,403.5 million from Rs.15,194.6 million in the previous year. This 27.7% increase was achieved by ramping up the volumes, improving productivity and saving on finance costs. Profit after tax was higher by 29.4% for the year under review at Rs.15,163.5 as compared to Rs.11,720.9 million in the previous fiscal. Diluted earnings per share on standalone basis is Rs.51.97 as compared to Rs.40.20 in the previous year.

Members will be pleased to know that the Company did well at the consolidated level, as well. In 2014–15, the consolidated revenues increased by 49.6% to Rs.121,205.2 million. EBITDA for the year grew 23.4% and was Rs.26,603.3 million as compared to Rs.21,552.1 million in 2013–14 and diluted earnings per share grew by 34.3% to Rs.54.0 reflecting strong execution and continued momentum in the business.

Your Company made the necessary long term investments to advance the geographical reach of formulations, to grow both in the US and Europe. The performance in 2014–15 was driven by competitive edge of the products across the portfolio. Over the financial year, formulation sales grew by 42% in the US and 375% in Europe, complimented by the acquisition of commercial operations from Actavis across seven Western European countries with effect from April 1, 2014.

Formulations in the US contributed 50.5% to the overall formulations revenues in the year under review and share of Europe has increased to 33.4% in 2014–15 from 12.5% in the previous year, demonstrating the focus on both the markets.

Formulation sales across all geographies grew by 77.7% to Rs.95,586 million as compared Rs.53,785 million in 2013–14. Formulations business constituted 77.9% of the revenues while active ingredients make the balance 22.1%.

In the US, Aurobindo Pharma continued to deliver strong revenue growth with its customer relationships and increased market penetration of existing products.

While sales of several generic products have been raised through the year, the growth has been more skewed towards controlled substances and non–institutional business. The injectable business in the US continued to outperform and grew by 88.7% over fiscal 2013–14.

In addition to the US, your Company is now present in over 150 countries with growing visibility in advanced markets such as France, Germany, Spain and Italy.

Aurobindo has delivered to expectations in Europe. The revenues from Europe stood at X31,947 million, significantly growing over the previous year. This has been primarily on account of the acquisition of the products from Actavis in Western European markets. Presently, France is the biggest market in Europe for Aurobindo followed by Germany, Netherlands, Spain, UK and Portugal. A concerted effort is being made to create an impact in Western Europe, and reach a critical  ,mass.

Aurobindo has been supporting several multilateral agencies to provide cost effective treatment of HIV/AIDS patients. Your Company started executing a few notable tenders and stepped up deliveries across regions, of triple combination products. Anti–retroviral formulations sales increased by about 14.7% over the previous year. Your Company's products are estimated to have targeted treatment of over 2 million HIV/AIDs affected people across 110 countries.

In the emerging markets such as Africa, CIS, Latin America and MENA (Middle East and North Africa), there was a major shift from tenders/generics to more sustainable and better valued branded generics, especially in the high value therapy areas of cardiovasculars and neuro–psychiatry ailments. Close customer interaction helped gain traction in markets such as Malaysia, Myanmar, Philippines, Vietnam and Cambodia.

Proportion of revenue from active ingredients came down from 34.7% to about 22.1%, since there was an exponential growth in the formulations business, as compared to the API business. Your Company sees opportunities for growth of API business. Hence, the manufacturing capacities of API are being further expanded.

During the year, your Company completed the acquisition of the assets of nutritional supplement maker Natrol LLC, which was acquired for a consideration of Rs.8,344 million. Natrol manufactures and sells quality nutritional supplements in the US and select international markets. It offers branded products including vitamins, minerals, and supplements; diet and weight management products; sports nutrition products; and products for hair, skin, and nails. This acquisition is a strategic move to gain an entry for Aurobindo into the growing nutraceutical segment.

The US based Natrol is a leading 35 year old nutraceuticals manufacturer with established brands and was acquired with all the manufacturing assets, personnel and commercial infrastructure

Aurobindo has been supporting several multilateral agencies to provide cost effective treatment of HIV/AIDS patients. Your Company started executing a few notable tenders and stepped up deliveries across regions, of triple combination products. Anti–retroviral formulations sales increased by about 14.7% over the previous year. Your Company's products are estimated to have targeted treatment of over 2 million HIV/AIDs affected people across 110 countries.

In the emerging markets such as Africa, CIS, Latin America and MENA (Middle East and North Africa), there was a major shift from tenders/generics to more sustainable and better valued branded generics, especially in the high value therapy areas of cardiovasculars and neuro–psychiatry ailments. Close customer interaction helped gain traction in markets such as Malaysia, Myanmar, Philippines, Vietnam and Cambodia.

Proportion of revenue from active ingredients came down from 34.7% to about 22.1%, since there was an exponential growth in the formulations business, as compared to the API business. Your Company sees opportunities for growth of API business. Hence, the manufacturing capacities of API are being further expanded.

During the year, your Company completed the acquisition of the assets of nutritional supplement maker Natrol LLC, which was acquired for a consideration of X8,344 million. Natrol manufactures and sells quality nutritional supplements in the US and select international markets. It offers branded products including vitamins, minerals, and supplements; diet and weight management products; sports nutrition products; and products for hair, skin, and nails. This acquisition is a strategic move to gain an entry for Aurobindo into the growing nutraceutical segment.

The US based Natrol is a leading 35 year old nutraceuticals manufacturer with established brands and was acquired with all the manufacturing assets, personnel and commercial infrastructure including the well established brands of Natrol along with an agreement to take on certain liabilities. The due approval was obtained from authorities and the acquisition was completed on December 4, 2014. In the consolidated financial statements, the financials of the acquired entity have been integrated effective that date.

OUTLOOK

Aurobindo is shaping its future, by ensuring sustainable growth with niche and differentiated basket of products, offering the highest product quality while being cost competitive, to meet the needs of customers and patients.

Your Company has already demonstrated its capabilities by creating a portfolio of very large number of generic products, including 193 ANDA approvals from the US FDA. The product profile includes wide range of injectables and more difficult to develop complex products and drug delivery systems.

The existing manufacturing capacities have helped reach revenues of almost USD 2 billion. Three new plants are being commissioned over the next 12 months, while three more are being expanded to double their existing capacities. Systems and processes are being improved with the help of a well–known consultant. Aurobindo aims to service its customers with performance standards in deliveries that meet their expectations.

The developed markets of US, Europe and Japan will remain the focus on the organisational dash board for generics and APIs. There are huge opportunities for your Company's ARV products which are being addressed. Emerging markets will be another thrust area for growth. Overall, Team Aurobindo is striving to create an impact in all these key markets.

As Members are aware, your Company develops, manufactures, markets and distributes store brand Over–the–Counter (OTC) products. The mission is to develop as many OTC products for most of US retail market as possible, providing a consistent and reliable supply, at a fair price and of the highest quality.

The plans are to include Rx to OTC switch molecules, ANDA & Monograph OTC products in various dosage forms/formats – solids (tablets, capsules, soft gels), liquids, semi solids & nasal sprays. The manufacturing sites are located in New Jersey, US at Lawrenceville with facility to make liquids, semi solids & nasal sprays (about 52 million units per year); another manufacturing site is at Dayton with facility to make solids including Drug Enforcement Administration (DEA) controlled products (about 3 billion doses per year); and the third facility is set up at Jedcherla, near Hyderabad, with capacity to manufacture solids (about 8 billion doses a year). This business is supported with adequate infrastructure including 200,000 sq ft of packaging & distribution facilities for solids & liquids.

70 liquid products have been developed, exhibit batches have been made for a few solids and some are undergoing stability tests. Your Company has also commenced marketing a few products through well–established chain stores in the US. Aurobindo will work to get a strong foothold in this competitive but attractive market.

Streamlining of the newly acquired Natrol's current operation would expand operating margin in the near term. The management aims to enlarge the market, improve revenues and enhance efficiencies significantly.

Your Company is making determined foray into oncology and hormonal products, penems and peptides technology. In all the newer ventures, Aurobindo will build and leverage on its inherent strengths augmented by a team of generic industry–seasoned professionals. Your Company has strong relationships in the market that would help to create businesses with a broad, unique product portfolio in record time. In essence, the new business models are founded on core competencies.

Your Company has set a vision to build businesses that meaningfully impact their addressable markets, are respected for customer centric products and services, meet industry benchmarks in productivity of resources, are recognized for quality and compliance standards and in the ultimate analysis, create societal wealth for all stakeholders.

In financial terms, the objective is to lower earnings volatility, strive for higher predictable and calibrated growth, and improve EBITDA margin and Return on Investment higher than industry average. The target is to stay cash flow positive, improve the quality of the balance sheet, lower the leverage, reduce interest outgo and expand earnings year–on–year.

RESEARCH & DEVELOPMENT

Clearly your Company's best investment for future growth has been and remains in research and development, and in order to maintain the momentum, allocation of funds was increased during the year under review. R&D expenses constituted 3.9% of the gross revenue for the year. In absolute amount, the expenditure in 2014–15 on standalone basis was Rs.3,182.4 million, while it was Rs.2,550.5 million in the previous year. More importantly, the resource base was ramped up by adding experienced scientists and researchers.

Aurobindo's expertise in R&D has given your Company the edge in designing the product basket, process technology, drug delivery systems, anticipation of customer and patient needs of the future and intellectual property challenges. Every effort has been made to ensure quality and compliance standards are met both at the lab and on the production floor, while reviewing the costs and time to launch the products in to the market.

During the year, 15 molecules (API/Intermediates) were taken up to modify/optimize the manufacturing technology to bring down the raw materials cost. Four new CRAMS API projects were taken up for development during 2014–15. Process for one complex API was successfully commercialized for a Japanese customer.

First half of the financial year saw large number of ANDA filings, especially for difficult to develop niche products, primarily in the steriles portfolio as well as oncology and hormonal products. Such products are highly development intensive, hold high risk in bioequivalence, but are rewarding from a business perspective. Cost optimization continued to be a focus area with alternate APIs, excipients and packs being worked upon, for both the US and EU markets.

In order to execute the requirements of products for which marketing rights were acquired for the key western European markets from Actavis, your Company has set up a dedicated formulation R&D. The objective is to design and develop cost effective compositions to compete with generics in the EU tender market. Development work has been initiated to create a pipeline of 60–70 products to be manufactured at Vizag and commercialized in the next 12 to 18 months.

Development work is on–going, on as many as 20 products in the oncology and hormone segments, both injectable and solid dosage forms. Dossier filings are expected to start in the financial year  2015–16.

Your Company is deepening the integration of the products acquired from Actavis and it will remain a priority in 2015–16 to grow the business profitably and create value for shareholders. The value is being realized through a combination of cost and growth synergies and excellence in deliveries.

In terms of the filings to US FDA, a total of 376 ANDAs have been filed as on March 31, 2015 out of which 166 final approvals had been received and another 27 tentative approvals (including 21 ANDA approved under PEPFAR, which are not for sales in the US market) too have been received. The balance 183 ANDAs are under review for approval.

The filings with regulatory authorities across all products are in excess of 2,100 generic registrations and over 2,500 API filings. In addition, 594 process patent applications have been filed so far.

ENVIRONMENT, HEALTH & SAFETY

The year under review ended on a satisfactory note in environmental management across API and formulations divisions. In respect of environment management operations at manufacturing locations and R&D establishments, activities and operations across all sites are adequately stabilized.

This was yet another year that witnessed competencies and commitment demonstrated by Aurobindo in sustained environmental management in its manufacturing locations.

From a regulatory perspective, environment regulatory approvals have been obtained well on time for all green field projects. State and central level environmental approvals have been obtained for one of the acquired API units. Process for central level environmental clearance for one of the expansion projects of an API unit is completed and awaiting consideration of the Expert Technical Committee concerned.

Investments continued to be made for up–gradation of existing environmental infrastructure and development of new projects in line with planned manufacturing activities. Planned activity of establishment of sewerage treatment plants at API units is completed for one unit and the project is nearing completion in one more unit. With an objective to reduce wastewater disposal to CETP and reuse treated wastewater, installation of RO plant was taken up in one of the formulations unit. One major achievement in the year is reduction of disposal costs of organic solid wastes by 50% which was made possible due to increased awareness, discipline and efforts in environmental management practices at manufacturing locations.

The EHS team of your Company prepared and implemented 'Guidelines for EHS risk assessment'. This framework provides methodologies to be followed to:

a. perform risk assessment of all activities of Aurobindo;

b. rank and prioritize activities;

c. identify and define risk controls;

d. ensure that the controls are working effectively to maintain risk within acceptable levels.

Several training programs were initiated to increase employee awareness and knowledge. Safety videos were used extensively to make an impact. A separate EHS training matrix was prepared for contract workmen based on work activities they perform.

Chemical exposure risk assessment was initiated to determine hazardous effects of chemical exposure. This risk assessment has been completed for 129 materials.

SUBSIDIARIES/JOINT VENTURES

As per the provisions of Section 129 of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014, a separate statement containing the salient features of the financial statements of the subsidiary companies/associate companies/joint ventures is detailed in Form AOC–1 and is in Annexure–1 to this Report.

The following companies have become the Company's subsidiaries during the year: Aurovitas Spain S.A.U., Spain; Actavis France SAS, France; Arrow Generiques SAS, France; Actavis Deutschland GmbH & Co., Germany; Actavis B.V., The Netherlands; Actavis Management GmbH, Germany; Aurovitas S.L., Spain; Aurex B.V., Spain and Natrol, LLC, U.S.A.

The following companies have ceased to be the Company's subsidiaries during the year: Aurobindo Pharma Limited S.R.L., Dominican Republic; Aurobindo Pharma France SARL, France merged into Arrow Generiques SAS, France; Aurovitas SL, Spain while Agile Malta Holdings Limited, Malta merged into Aurobindo Pharma (Malta) Limited, Malta.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated financial statements have been prepared by the Company in accordance with the requirements of Accounting Standards 21 issued by the Institute of Chartered Accountants of India (ICAI) and as per the provisions of Companies Act, 2013. As per the provisions of Section 136 of the Companies Act, 2013, the Company has placed separately, the audited accounts of its subsidiaries on its website www.aurobindo.com and copy of audited financial statements of its subsidiaries will be provided to the Members at their request.

HUMAN RESOURCE DEVELOPMENT

Your Company has the necessary managerial bandwidth to navigate the growth opportunities. Planning ahead of the requirement has ensured that Aurobindo has a strong team in many markets, in manufacturing facilities, research labs, supply–chain management and in fact, in every functional area. However, considering the potential opportunities and the organizational growth targets, there is a constant review being done to be ahead of the curve. Talent acquisition and talent retention are being given considerable emphasis in people management.

The strength of the organization is manifest in the enthusiasm to overcome competitive pressures, in building a robust pipeline of products, in the focus to monitor and control quality, in the premium attached to data governance, in the commitment to improve On–Time–In–Full (OTIF) performance and in the hunger to deliver results.

To strengthen the alignment between strategy, accountability, performance and recognition, there is a challenging but participative target setting, and the progress is closely tracked on a dashboard of milestones and actions, key operational metrics and financial performance. Individual goals are getting aligned to corporate results. The goal setting has ring fenced the risks, driven the business model towards sustainable growth and made the enterprise collaborative.

At every level in the hierarchy, learning & development inputs ensure that people stay agile and resilient to the challenges of growth.

While Team Aurobindo seeks new opportunities to extend geographies and build on the existing relationships, at every level, in every transaction, your Company will strive to minimize risks. The team is being sensitized to do whatever it takes to anticipate and pre–empt challenges. The measure of this approach is in the full involvement of the management at the senior most level. For instance, the team makes no compromise on quality and compliance. This approach is targeted to achieve predictable growth.

VIGIL MECHANISM

The Board of Directors has adopted the Whistle Blower Policy which is in compliance with Section 177(10) of the Companies Act, 2013 and Clause 49 of the Listing Agreement with the stock exchanges. The Whistle Blower Policy aims for conducting the affairs in a fair and transparent manner by adopting highest standards of professionalism, honesty, integrity and ethical behavior. All permanent employees and whole–time directors of the Company are covered under the Whistle Blower Policy.

A mechanism has been established for employees to report concerns about unethical behavior, actual or suspected fraud or violation of Code of Conduct and Ethics. It also provides for adequate safeguards against the victimization of employees who avail of the mechanism and allows direct access to the Chairperson of the audit committee in exceptional cases. The Whistle Blower Policy is available on the Company's website <http://www.aurobindo.com/about–us/corporate–>governance.

POLICY ON SEXUAL HARASSMENT

Your Company has constituted an Internal Complaints Committee as per the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules there under. The Company has a policy on prevention & prohibition of sexual harassment at workplace The policy provides for protection against sexual harassment of women at workplace and for prevention and redressal of such complaints. During the year, no complaints have been received under the policy.

RATING

The National Long–term Fitch Rating of your Company has been upgraded to 'IND AA' from 'IND AA–' indicating stable outlook of the Company.

MEETINGS OF THE BOARD

The Board and Committee meetings are pre–scheduled and a tentative calendar of the meetings finalized in consultation with the Directors to facilitate them to plan their schedule. However, in case of special and urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, nine Board Meetings and five Audit Committee Meetings were convened and held. The details of the meetings including composition of Audit Committee are given in the Corporate Governance Report. During the year, all the recommendations of the Audit Committee were accepted by the Board.

DIRECTORS

As per the provisions of the Companies Act, 2013 Mr. P. Sarath Chandra Reddy and Dr. M. Sivakumaran will retire at the ensuing annual general meeting and being eligible, seek re–appointment. The Board of Directors recommends their re–appointment.

The re–appointments of Mr. K. Nithyananda Reddy, Dr. M. Sivakumaran and Mr. M. Madan Mohan Reddy, Whole–time Directors and Mr. N. Govindarajan, Managing Director are being proposed at the ensuing Annual General Meeting.

DETAILS OF DIRECTORS & KEY MANAGERIAL PERSONNEL

The Members of the Company at the 27th Annual General Meeting of the Company held on August 27, 2014 have re–appointed Mr. K. Ragunathan, Mr. M. Sitarama Murty and Dr. Rajagopala Reddy as independent directors of the Company for a period of five years up to March 31, 2019.

Dr. C. Channa Reddy ceased to be a Director due to his resignation from the Board of the Company for personal reasons with effect from January 27, 2015. The Board places on record its appreciation of the services rendered by him as a Director during his association with the Company.

Dr. (Mrs.) Avnit Bimal Singh was appointed by the Board as an Additional Director (Independent Director) of the Company with effect from March 25, 2015 and being eligible, her appointment as an independent director for a period of five years up to March 24, 2020 is being proposed at  the ensuing Annual General Meeting. The Board of Directors recommends her appointment.

Mr. Sudhir B. Singhi relinquished his responsibilities as Chief Financial Officer of the Company

4.5  with effect from July 1, 2014 and was re–designated as Head of Global Finance & Operations Department. Mr. Santhanam Subramanian was appointed as Chief Financial Officer of the Company I with effect from July 1, 2014

DECLARATION FROM INDEPENDENT DIRECTORS

The independent directors have submitted the declaration of independence stating that they meet the criteria of independence as provided in sub–section (6) of Section 149 of the Companies  Act, 2013.

BOARD DIVERSITY

The Company recognizes and embraces the importance of a diverse board in its success. The Board has adopted the Board Diversity Policy which sets out the approach to diversity of the Board of Directors. The Board Diversity Policy is available on the Company's website <http://www.aurobindo.com/about–us/corporate–governance>.

BOARD EVALUATION

Clause 49 of the Listing Agreement mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated. The evaluation of all the directors and the Board as a whole was conducted based on the criteria and framework adopted by the Board including performance and working of its Committees.

POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION

The policy of the Company on directors' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters are adopted as per the provisions of the Companies Act, 2013. The remuneration paid to the directors is as per the terms laid out in the nomination and remuneration policy of the Company. The nomination and remuneration policy as adopted by the Board is placed on the Company's website <http://www.aurobindo.com/about–us/corporate–governance>.

TRANSFER TO RESERVE

The Company has not transferred any amount to general reserve out of the profit of the Company.

LOANS, GUARANTEES OR INVESTMENTS

The details of loans, guarantees, investments given during the financial year ended on March 31, 2015 is in Annexure–2 to this Report in compliance with the provisions of Section 186 of the Companies Act, 2013 read with Companies (Meetings of Board and its Powers) Rules, 2014.

CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES

The particulars of contracts or arrangements with related parties referred to in sub–section (1) of Section 188 of the Companies Act, 2013 is prepared in Form No. AOC–2 pursuant to clause (h) of sub–section (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014 and is in Annexure–3 to this Report.

EXTRACT OF ANNUAL RETURN

As required under Section 92(3) of the Companies Act, 2013 and Rule 12(1) of the Companies (Management and Administration) Rules, 2014, the extract of Annual Return prepared in Form MGT–9 is in Annexure–4 to this Report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND  OUTGO

Information with respect to conservation of energy, technology absorption, foreign exchange earnings and outgo pursuant to Section 134(3)(m) of the Act read with Companies (Accounts) Rules, 2014 is in Annexure–5 to this Report.

RISK MANAGEMENT COMMITTEE

Risk Management Committee of the Company consists of the following Directors namely Mr. M. Sitarama Murty, Mr. N. Govindarajan and Mr. P. Sarath Chandra Reddy. The Company has established a separate department to monitor the enterprise risk and its management.

The Committee had formulated a risk management policy for dealing with different kinds of risks which it faces in day–to–day operations of the Company. Risk management policy of the Company outlines different kinds of risks and risk mitigating measures to be adopted by the Board. The Company has adequate internal financial control systems and procedures to combat the risk. The risk management procedure is reviewed by the Audit Committee and Board of Directors on regular basis at the time of review of quarterly financial results of the Company. A report on the risk and their management is enclosed as a separate section forming part of this report.

AUDITORS & AUDITORS' REPORT

The statutory auditors' report is annexed to this report. The notes on financial statements referred to in the Auditors' Report are self–explanatory and do not call for any further comments. There are no specifications, reservations, adverse remarks on disclosure by the statutory auditors in their report. They have not reported any incident of fraud to the Audit Committee of the Company during the year under review.

The members of the Company at the 27th Annual General Meeting had appointed M/s. S.R. Batliboi & Associates LLP, Chartered Accountants as Statutory Auditors of the Company up to the conclusion of 30th Annual General Meeting of the Company subject to ratification of the appointment by the members at every Annual General Meeting. The ratification of the appointment of statutory auditors is proposed at the ensuing Annual General Meeting.

COST AUDIT

M/s. Sagar & Associates, Cost Accountants, were appointed as Cost Auditors of the Company to conduct cost audit of the Company for the year 2013–14. The due date for filing Cost Audit Report of the Company in XBRL format for 2013–14 was September 30, 2014 and the same was filed with the Ministry of Corporate Affairs on September 26, 2014.

INTERNAL AUDITORS

The Board of Directors of the Company has appointed M/s. KPMG to conduct internal audit of the Company for the financial year ended March 31, 2015.

INTERNAL FINANCIAL CONTROLS

The internal financial controls (IFC) framework at Aurobindo encompasses internal controls over financial reporting (ICOFR) as well as operational controls that have been put in place across all key business processes of the Company. The internal controls are designed to facilitate and support the achievement of the Company's business objectives and such controls do enable the Company to adapt to changing and operating environment, to mitigate risks to acceptable levels and to support sound decision making and good governance.

Details in respect of adequacy of internal financial controls with reference to the financial statements are briefly iterated below:

a. The Company maintains all its major records in ERP System (Oracle Financials) and the work flow and approvals are routed accordingly

b. The Company has appointed internal auditors to examine the internal controls, whether the workflow of the organization is being done through the approved policies of the Company. In every quarter, during the approval of financial statements, internal auditors present the internal audit report and the management comments on the internal audit observations; and

c. The Board of Directors of the Company has adopted various SOPs and policies such as related party transactions policy, whistle blower policy, policy to determine material subsidiaries and such other procedures for ensuring the orderly and efficient conduct of its business for safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.

SECRETARIAL AUDIT REPORT

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr. S. Chidambaram, Practicing Company Secretary (C.P.No: 2286), Company Secretary in Whole–time Practice, to undertake the Secretarial Audit of the Company for the financial year 2014–15. The Secretarial Audit Report issued in form MR–3 is in Annexure–6 to this Report. There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report.

CORPORATE SOCIAL RESPONSIBILITY

Your Company has formulated a corporate social responsibility policy with the objective 'give back to the society'. In line with this approach, Aurobindo has undertaken social activities such as promoting education, hygiene, preventive health care, eradicating hunger, poverty & malnutrition, making available safe drinking water, environment sustainability, ecological balance & conservation of natural resources, rural sports and setting up of old age homes etc.

Pursuant to the provisions of Section 135 and Schedule VII of the Companies Act, 2013, the Corporate Social Responsibility (CSR) Committee of the Board of Directors has been formed consisting of following members namely Mr. K. Nithyananda Reddy, Mr. K. Ragunathan (Independent Director), Dr. M. Sivakumaran and Mr. P. Sarath Chandra Reddy to recommend the policy on Corporate Social Responsibility and monitor its implementation. Your Company has initially decided to focus on education, health, drinking water and sanitation as key areas which require attention. The objective is to make an impact on the quality of life of the common people in its neighborhood.

Your Company assesses each project for feasibility, organizes the volunteers and support staff before initializing the activity. Being the first year of a co–ordinated approach, the earmarked monies i.e. the stipulated two per cent of the average net profit of the last three financial years, could not be spent in full and hence is being carried forward.

Corporate Social Responsibility policy was adopted by the Board of Directors on the recommendation of Corporate Social Responsibility Committee and it is placed on the Company's website at: <http://www.aurobindo.com/about–us/corporate–governance>.

Annual report on the CSR activities of the Company during the year are also placed on the Company's website at: <http://www.aurobindo.com/social–responsibility/csr–activities>.

Report on Corporate Social Responsibility as per Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is in Annexure–7 to this Report.

STATEMENT OF PARTICULARS OF APPOINTMENT AND REMUNERATION OF MANAGERIAL

PERSONNEL

The statement of particulars of appointment and remuneration of managerial personnel as per Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is in Annexure–8 to this Report.

INSURANCE

All properties and insurable interests of the Company including building, plant and machinery and stocks have been fully insured.

MATERIAL CHANGES AND COMMITMENTS

There are no material changes and commitments in the business operations of the Company from the financial year ended March 31, 2015 to the date of signing of the Director's Report.

There were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Company's operations in future.

CORPORATE GOVERNANCE

A separate section on Corporate Governance standards followed by your Company, as stipulated under Clause 49 of the Listing Agreement with the stock exchanges is enclosed as a separate section forming part of this report.

The certificate of the Practicing Company Secretary Mr. S. Chidambaram with regard to compliance of conditions of corporate governance as stipulated under Clause 49 of the Listing Agreement with the stock exchanges in India is annexed to the Corporate Governance Report.

MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis Report for the year under review as stipulated under Clause 49 of the Listing Agreement with the stock exchanges is presented in a separate section forming part of this report.

FIXED DEPOSITS

Your Company has not accepted any fixed deposits from the public within the purview of Chapter V of the Companies Act, 2013.

INDUSTRIAL RELATIONS

Industrial relations at all units of the Company have been harmonious and cordial. The employees are motivated and have shown initiative in improving the Company's performance.

TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF

The dividends which remain unpaid/unclaimed for a period of seven years, have been transferred on due dates by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government.

SHARE CAPITAL

The paid up share capital of the Company increased by Rs.525,254 during the year due to the allotment of 525,254 equity shares of Rs.1 each on exercise of stock options under the Employee

Stock Option Plan – 2006 (ESOP 2006) of the Company.

EMPLOYEE STOCK OPTION SCHEME

The Members at the Annual General Meeting of the Company held on September 18, 2006 approved formulation of Employee Stock Option Scheme – 2006 (ESOP 2006) for the eligible employees and Directors of the Company and its subsidiaries. Details of the stock options as on March 31, 2015 is in Annexure–9 to this Report. The details of the employee stock options form part of the notes to accounts of the financial statements in this Annual Report.

ACKNOWLEDGEMENTS

Your Directors would like to thank the employees of Aurobindo for the dedication they have shown to accelerate the Company towards sustainable growth and shaping the future. The Directors are also grateful to the customers, business associates, banks and government agencies for their support and co–operation. Every day, the investors have shown their trust in Aurobindo. The Board shall continue to reciprocate their trust in the Company.

For and on behalf of the Board

K. Ragunathan

Chairman

DIN: 00523576

place Hyderabad

date : May 28, 2015

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