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Your Directors have pleasure in placing before you the Twenty Fifth Annual Report of the Company together with the Audited Accounts for the year ended 31st March 2015.
RESULTS OF OPERATIONS
• Sales for the year increased by 23% to Rs. 307230.09 lakhs.
• PBDIT for the year increased by 9% at Rs. 120489.29 lakhs.
• Profit before Tax (PBT) for the year amounted to Rs.106717.62 lakhs as against a PBT of Rs.100864.07 lakhs for the last year.
• Tax Provision for the current year amounted to Rs. 20934.13 lakhs (net of MAT credit entitlement of Rs.679.91 lakhs). Provision for last year was Rs. 18179.80 lakhs (net of a MAT credit entitlement of Rs.2436.08 lakhs).
• An amount of Rs. 1077.96 lakhs has been provided towards Deferred Tax Liability for the year as against Rs. 3511.96 lakhs during the previous year.
• Forex loss was Rs.104.50 lakhs as against a forex gain of Rs.5041.79 lakhs during the last year.
• Profit after Tax for the year amounted to Rs.84705.53 lakhs.
• Earnings Per Share of Rs.2/– each works out to Rs. 63.82 for the year as against Rs. 59.65 last year.
• Out of the total revenue, 38% came from North America, 35% from Europe, 10% from Asia, 13% from India and 4% from Rest of the World.
Depreciation : The company has revised charging of depreciation on fixed assets according to the useful life as specified in Schedule II to the Companies Act, 2013 which came into effect from 1st April, 2014.
In view of the amendment to the Schedule II vide Notification dated 29–08–2014 issued by the Ministry of Corporate Affairs and the Application Guide issued by the ICAI on 10–04–2015, which gave the company an option to charge–off depreciation of assets, whose useful life has already been exhausted before 1st April, 2014, after retaining residual value, either to the opening balance of retained earnings or to the Statement of Profit and Loss, your company has decided to charge–off such depreciation to the Profit and Loss Account for the year.
Our total income on consolidated basis increased to Rs. 315963.69 lakhs from Rs. 260274.36 lakhs in the previous year, recording a growth of 21%. PBDIT amounted to Rs. 120994.07 lakhs as against Rs. 108508.78 lakhs in the previous year. Profit after Tax for the year accounted to Rs. 85152.18 lakhs as against Rs. 77333.81 lakhs in the previous year.
Our subsidiaries viz., M/s. Divis Laboratories (USA) Inc., in USA and M/s. Divi's Laboratories Europe AG in Switzerland are engaged in marketing/distribution of nutraceutical products and to provide a greater reach to customers within these regions.
During the year, the subsidiaries have achieved a turnover of Rs.16835.44 lakhs as against previous year turnover of Rs. 12618.50 lakhs, resulting in growth of 33% for the nutraceutical products in North America and Europe.
Subsidiaries have achieved good growth in operating profit. Loss on forex currency translation for the year accounted to Rs. 225 Lakhs for US subsidiary and forex gain on currency translation of Rs. 515 Lakhs for Europe subsidiary.
Auditors of these subsidiaries have observed that the subsidiaries have suffered recurring losses, lack sufficient liquidity to continue operations and to continue as a going–concern depends on the temporary funding by the parent and successful realization of their business plans.
This year, the company has increased the subordination of its loans to Divi's Laboratories Europe to an aggregate to CHF 5.00 million.
As stated above, with the significant efforts having been made in stabilizing operations and qualifications from several customers, the company is confident of achieving profitability at the subsidiaries and recovery of the investments/advances made in the foreseeable future.
As per section 129(3) of the Companies Act, 2013, statement containing the salient features of the financial statement of Company's subsidiaries in form AOC–1 is annexed herewith as "Annexure I". Moreover, pursuant to provisions of Section 136(1) of the Companies Act, 2013, audited financial statements of the subsidiary companies are placed on the website of the company at www.divislaboratories.com . Shareholders who wish to have a copy of the full report and accounts of the subsidiaries will be provided the same on receipt of a written request from them. These documents will be available for inspection at the Registered Office of the Company on any working day during business hours. The Consolidated Financial Statements presented by the Company include the financial results of its subsidiary companies.
Emphasis of Matter
Our Auditors have observed that the networth of the subsidiaries has eroded and consequent possibility of any temporary impairment of investment by way of equity in subsidiaries amounting to Rs.281.61 lakhs and non–recovery or partial recovery of loans of Rs.4358.08 lakhs given to the subsidiaries.
Over the last few years, we have made significant progress in terms of implementing the nutra facility and stabilising operations. Approvals have since been received from several major users and the outlook now looks very positive.
During the year, the subsidiaries have achieved good growth of business and have achieved operating profit. Net loss could have reduced significantly, but for the loss on account of foreign currency translation. With the significant efforts having been made towards optimizing operations and cost efficiency, the company is confident of achieving profitability at the subsidiaries and recovery of the loans given in the foreseeable future.
As stipulated in the listing agreement with the stock exchanges and Companies Act, 2013, the consolidated financial statements have been prepared by the Company in accordance with the relevant accounting standards. The audited consolidated financial statements together with Auditors Report thereon form part of the Annual report.
Your Directors are pleased to recommend a dividend of Rs.20/– per equity share of Rs.2/– each, i.e., 1000% for the financial year ended 31st March, 2015, subject to approval of members at the ensuing Annual General Meeting.
The total dividend payout for the current year amounts to Rs. 31951.17 lakhs (inclusive of tax of Rs. 5404.31 lakhs) as against Rs. 31058.50 lakhs in the previous year. Dividend (including dividend tax) as a percentage of profits is 38% as compared to 39% in the previous year.
The dividend on equity shares, if declared at the AGM, will be paid to members whose names appear in the Register of Members as on 8t August, 2015. In respect of shares held in dematerialised form, it will be paid to members whose names are furnished by Depositories as beneficial owners as on that date.
TRANSFER TO GENERAL RESERVES
We propose to transfer an amount of Rs.20000.00 lakhs to General Reserve for facilitating the dividend for the year.
Your Directors wish to inform that the Company has not accepted any deposits from public covered by provisions of Section 73 of the Companies Act, 2013.
PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS
During the year, the company has not given any loans or guarantees covered under the provisions of section 186 of the Companies Act, 2013. The details of investments made by company are given in the notes to the financial statements.
RELATED PARTY TRANSACTIONS
As a matter of policy, your Company carries out transactions with related parties on an arms' length basis. There are no materially significant related party transactions made by the company with Promoters, Key Managerial Personnel or other designated persons which may have potential conflict with interest of the company at large. Statement of these transactions is given in other explanatory information attached in compliance of Accounting Standard No.AS–18.
MANAGEMENT DISCUSSION AND ANALYSIS
A report on Management Discussion & Analysis for the year under review, as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is provided in a separate section forming part of this Annual Report.
MATERIAL CHANGES AND COMMITMENTS
No material changes and commitments have occurred after the close of the year till the date of this Report, which affect the financial position of the company.
INTERNAL FINANCIAL CONTROLS
The Company has in place adequate internal financial controls with reference to financial statements. During the year, such controls were tested and no reportable material weakness in the design or operation was observed.
Divis has an enterprise–wide approach to risk management, which lays emphasis on identifying and managing key operational and strategic risks. Through this approach, the company strives to identify opportunities that enhance organisational values while managing or mitigating risks that can adversely impact its future performance. The company has been addressing various risks impacting the company and the policy of the company on risk management is provided elsewhere in this annual report in Management Discussion and Analysis.
Pursuant to section 134 (3) (n) of the Companies Act, 2013 & Clause 49 of the listing agreement, the company has constituted a business risk management committee to review the processes and procedures for ensuring that all strategic and operational risks are properly identified and that appropriate systems of monitoring and control are in place and to oversee and review the risk management framework, assessment of risks and minimization procedures.
DIRECTORS' RESPONSIBILITY STATEMENT
As required under Section 134 (5) of the Companies Act, 2013, Directors of your company hereby state and confirm that :
a) the applicable accounting standards have been followed in the preparation of the annual accounts;
b) the accounting policies selected were applied consistently and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2015 and its profit for the year ended on that date;
c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
d) the annual accounts have been prepared on a going concern basis.
e) internal financial controls have been laid down and such controls are adequate and operating effectively;
f) proper systems have been laid down to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively.
NUMBER OF MEETINGS OF BOARD OF DIRECTORS
The Board meets at least four times in a year at quarterly intervals and more frequently if deemed necessary, to transact its business. During the financial year the Board has met five times, i.e. on 24th May 2014, 23rd June, 2014, 11th August 2014, 1st November 2014 and 31st January 2015.
DIRECTORS AND KEY MANAGERIAL PERSONNEL
Pursuant to the provisions of Section 149 and other applicable provisions of the Companies Act, 2013, Dr. G. Suresh Kumar, Mr. R. Ranga Rao, Mr. K.V.K. Seshavataram and Smt. S. Sridevi were appointed as Independent Directors in the Annual General Meeting held on 25th August, 2014 for a period of five years.
As per the provisions of the Companies Act, 2013 Mr. N.V. Ramana, Executive Director will retire by rotation at the ensuing Annual General Meeting and, being eligible, offers himself for re–appointment.
Members of the Company in the Annual General Meeting held on 25th August, 2014, approved the re–appointment of Dr. Murali K. Divi as Chairman & Managing Director of the Company for a further period of five years from October 10, 2014 and Mr. N. V. Ramana as Executive Director of the company for a further period of five years from December 26, 2014.
Members of the Company through Postal Ballot Resolution (declared on 20th March, 2015) approved the re–appointment of Mr. Madhusudana Rao Divi as Director – Projects of the Company for a further period of five years from April 1, 2015 and Mr. Kiran S. Divi as Director & President – Operations of the company for a further period of five years from April 1, 2015.
Dr. K. Satyanarayana, Independent Director has resigned from the Board with effect from 23rd June, 2014. Dr. K. Satyanarayana joined the Board on 08.08.1995 and has been part of Divi's journey for 19 years. The Board would like to thank him for his long association with the company.
Mr. S. Vasudev, Independent Director has resigned from the Board with effect from 23rd June, 2014. Mr. S. Vasudev has been part of the Board from 09.08.2004. The Board sincerely appreciates his contribution to the company during his tenure as member of the Board. DECLARATION BY INDEPENDENT DIRECTORS
In terms of provisions of section 149(7) of the Companies Act, 2013, the company has obtained declaration from all independent directors of the company confirming that they meet the criteria of independence as provided in Section 149(6) of the Companies Act, 2013 and clause 49 of the Listing Agreement with Stock Exchanges.
MECHANISM FOR EVALUATION OF BOARD
Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Nomination and Remuneration Committee laid down criteria for performance evaluation of individual directors, the board and its committees. Accordingly, the Board has carried out an evaluation of its own performance, the directors individually as well as the evaluation of the working of its Committees. Evaluation of all Directors is carried on an annual basis. Performance evaluation of Directors shall be done by the entire Board of Directors excluding the director being evaluated.
Board performance evaluation is carried out through a structured questionnaire which provides a powerful and valuable feedback for improving board effectiveness, maximising strengths and highlighting areas for further development.
The following are some of the broad issues that are considered in performance evaluation :
Criteria for evaluation of Board and its Committees :
• Ability to act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders.
• Optimum combination of knowledge, skill, experience and diversity on the Board as well its Committees.
• Relationships and effective communication among the Board members.
• Effectiveness of individual non–executive and executive directors and Committees of Board.
• Quality of the discussions, general information provided on the company and its performance, papers and presentations to the board.
• Stakeholders' engagement.
• Risk and Crisis management as well processes for identifying and reviewing risks.
• Well– defined mandate and terms of reference of Committee.
Criteria for evaluation of Individual Directors :
• Attendance at Board as well as Committee Meetings
• Procurement of Information, preparation for Board Meetings and value of contribution at meetings
• Relationships with fellow board members, the company secretary and senior management and mutual trust and respect they stimulated within the Board.
• Keeping update with the latest developments in the areas of governance and financial reporting
Additionally, Independent directors are expected to provide an effective monitoring role and to provide help and advice for the executive directors. In evaluating independent Directors it is necessary to address the following aspects as well :
• Willingness to devote time and effort to understand the company and its business
• Providing necessary guidance using their knowledge and experience in development of corporate strategy, major plans of action, risk policy, and setting performance objectives.
• Independence exercised in taking decisions, listening to views of others and maintaining their views with resolute attitude
• Ability in assisting the Company in implementing the best corporate governance practices.
• Capability in exercising independent judgement to tasks where there is a potential for conflict of interest.
• Commitment in fulfilling the director's obligations fiduciary responsibilities.
POLICY ON DIRECTORS' APPOINTMENT AND REMUNERATION
The Board has, on the recommendation of the Nomination & Remuneration Committee, framed a policy for appointment and remuneration of Directors, Key Managerial Perosnnel and other employees including criteria for determining qualifications, positive attributes and director's independence. The Remuneration Policy is annexed herewith as "Annexure II".
REMUNERATION DETAILS OF DIRECTORS AND KMP
Particulars required to be furnished under Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in "Annexure – III" and forms part of this Report.
PARTICULARS OF EMPLOYEES
Particulars of employees required to be furnished under Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in "Annexure – IV" and forms part of this Report.
CORPORATE SOCIAL RESPONSIBILITY
The Board of Directors has constituted Corporate Social Responsibility Committee (CSR Committee) consisting of members Mr. R. Ranga Rao (Chairman), Dr. Murali K. Divi, Mr. N. V. Ramana and Mr. Madusudana Rao Divi. The said Committee has formulated and recommended to the Board, a Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company, which has been approved by the Board.
As per the requirements of Companies Act, 2013, Company needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility activities. During the last several years, your Company has already been spending resources to improve the quality of life and sustainable development of the communities living in the villages around the manufacturing units.
Report on Corporate Social Responsibility as Per Rule 8 of Companies (Corporate Social Responsibility Policy) Rules, 2014 is prepared and the same is enclosed as "Annexure – V" to this Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS & OUTGO
Particulars required under Section 134 (3) (m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is given in the "Annexure – VI" to this report.
The primary objective of the Audit Committee of the company is to monitor and provide effective supervision of the management's financial reporting process with a view to ensure accurate, timely and proper disclosures and transparency, integrity and quality of financial reporting. Composition of the Audit Committee is as follows :
The Company has established a vigil mechanism and accordingly, formulated a Whistle Blower Policy to provide mechanism for directors and employees of the company to report their concerns about unethical behaviour, actual or suspected fraud or violation of the company's code of conduct or ethics policy and disclosed the details of establishment of such mechanism on its website. This mechanism also provides for adequate safeguards against victimization of director(s) / employee(s) who avail of the mechanism and also provide for direct access to the Chairman of the Audit Committee in exceptional cases. The Whistle Blower Policy may be accessed on the company's website at the link: <http://www.divislabs.com/inside/pdf/Whistle%20blower%20policy.pdf>.
At the Annual General Meeting held on 25th August, 2014, M/s. P.V.R.K. Nageswara Rao & Co., Chartered Accountants, Hyderabad (Firm's Regn. No 002283S) were appointed as statutory auditors of the Company to hold office for three consecutive years till the conclusion of the 27th Annual General Meeting. In terms of first proviso to Section 139 of the Companies Act, 2013, the appointment of the auditors shall be placed for ratification at every Annual General Meeting.
Accordingly, the appointment of M/s. P.V.R.K. Nageswara Rao & Co., Chartered Accountants as statutory auditors of the company is placed for ratification by shareholders.
The Company has received a communication from the Auditors to the effect that their re–appointment, if made, would be within the prescribed limits under Section 141(3)(g) of the Companies Act, 2013 and that they are not disqualified for re–appointment.
Pursuant to provisions of section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board of Directors of the Company has appointed M/s. V. Bhaskara Rao & Co., Company Secretaries as the Secretarial Auditor of the Company for the financial year 2014–15. The Secretarial Audit report for the financial year 2014–15 is annexed herewith as "Annexure VII". The secretarial Audit Report does not contain any qualification, reservation or adverse remark.
Pursuant to the Section 148 of the Act and rule 3 of the Companies (cost records and audit) Rules, 2014, the company maintains cost records in its books of account. As per rule 7 of the said rules, the requirement for cost audit shall not be applicable to a company which is covered under rule 3, and whose revenue from exports, in foreign exchange, exceeds seventy five per cent of its total revenue or which is operating from a special economic zone. However, company has voluntarily opted for audit of cost records and appointed M/s. E.V.S & Associates, Cost Accountants as cost auditors.
CORPORATE GOVERNANCE AND SHAREHOLDERS' INFORMATION
A report on Corporate Governance is included as a part of this Annual Report. Certificate from M/s. V. Bhaskara Rao & Co., Company Secretaries confirming the compliance with the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is attached to the report on Corporate Governance.
EXTRACT OF ANNUAL RETURN
The Extract of Annual Return in Form MGT–9 as per the provisions of the Companies Act, 2013 and Rule 12 of Companies (Management and Administration) Rules, 2014 is annexed herewith as "Annexure VIII".
• No company has become or ceased to be its Subsidiary, joint venture or associate company during the year
• No significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and company's operations in future.
• No cases were filed pursuant to the Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressal) Act, 2013 during the year under review.
The Board expresses its gratefully appreciation for the continued assistance and co–operation received from Government authorities, Financial Institutions, Banks, customers, suppliers and investors. The Board also wishes to place on record its appreciation for the dedication and commitment extended by its employees at all levels and their contribution to the growth and progress of the company.
For and on behalf of the Board
Dr. MURALI K. DIVI
Chairman and Managing Director
(DIN : 0005040)
Date : 23.05.2015
Place : Hyderabad