The Directors are pleased to present the 32nd annual report for the
year ended 31 March 2016.
Table 1 gives the financial highlights of the Company for FY2016 as
compared to the previous financial year, on Indian GAAP consolidated
and standalone basis.
The Company''s standalone net revenue for the year was Rs.104.53
billion, up 2% over the previous year. In US$ terms, this amounted to
.58 billion. Profit before taxes (PBT) was Rs.15.80 billion, a
decline of 23% over the previous year. In US$ terms, this translates
into 8 million.
The Company''s consolidated net revenue for the year was X 159.67
billion, up 4% over the previous year. In US$ terms, this amounted to
.4 billion. PBT was X 26.75 billion, a decline of 8% over the
previous year. In US$ terms, this translates into 4 million.
Revenue from Global Generics increased by 7% and stood at X 128.06
billion, driven largely by North America, Europe and India.
Revenue from North America grew by 19% turning in X 75.45 billion. This
growth was largely driven by sustained performance by injectable
franchise and market share gains in some of the key molecules. During
the year, the Company launched 4 products namely esomeprazole,
memantine, pramipexole ER and pravastatin. FY2016 also saw 14 product
fi lings in the USA; 13 Abbreviated New Drug Applications (ANDAs) and 1
New Drug Application (NDA). Cumulatively, 82 generic fillings (79 ANDAs
and 3 NDAs under 505(b)(2) route) are currently awaiting approval from
the U.S. Food and Drug Administration (USFDA). Of these 79 ANDAs, 52
are Para IVs, out of which the Company believes 18 are potentially
Revenue from Emerging Markets was X 23.59 billion, decline of 25% on a
year- on-year basis. Revenue from India stood at X 21.29 billion,
registering a year-on- year growth of 19%.
Revenues from PSAI stood at X 22.38 billion, decline of 12% on a
year-on-year basis. During the year, 50 Drug Master
TABLE 1 FINANCIAL HIGHLIGHTS (Rs. MILLION)
FY2016 FY2015 FY2016 FY2015
Total revenue 159,671 152,974 104,525 102,338
Profit before depreciation,
amortisation and tax 36,456 36,595 22,291 25,501
Depreciation and amortisation 9,705 7,599 6,491 4,902
Profit before tax 26,751 28,996 15,800 20,599
Tax expense 5,237 5,632 2,255 3,805
Net profit for the year 21,514 23,364 13,545 16,794
Add: Surplus at the
beginning of the year 57,467 39,890 67,619 56,599
Total available for
appropriation 78,981 63,254 81,164 73,393
Proposed dividend on equity
shares 3,405 3,408 3,405 3,408
Tax on proposed dividend 693 694 693 694
Credit of dividend
distribution tax - - (32) (13)
Dividend of previous
years (including tax) 5 6 5 6
Transfer to General Reserve 1,355 1,679 1,355 1,679
Balance carried forward 73,523 57,467 75,738 67,619
Note: FY2016 represents fiscal year 2015-16, from 1 April 2015 to 31
March 2016, and analogously for FY2015 and other such labeled years.
Files (DMFs) were filled globally, including 8 in the US, 3 in Europe
and 39 in other markets. The cumulative number of DMF fillings as on 31
March 2016 was 768.
Your Directors are pleased to recommend a dividend of Rs. 20/- per
equity share of Rs. 5/- (400%) for FY2016. The dividend, if approved at
the 32nd Annual General Meeting (AGM), will be paid to those
shareholders whose names appear on the Register of Members of the
Company as of the end of the day on 19 July 2016.
TRANSFER TO RESERVES
The Company proposes to transfer Rs. 1,355 million to the General
The paid-up share capital of the Company increased by Rs. 1.13 million
to Rs. 853.04 million in FY2016, due to the allotment of 226,479 equity
shares, on exercise of stock options by eligible employees of Dr.
Reddy''s, through the ''Employees Stock Option Scheme, 2002'' and ''Dr.
Reddy''s Employees ADR Stock Option Scheme, 2007''.
The Company has not accepted any deposits covered under Chapter V of
the Companies Act, 2013. Accordingly, no disclosure or reporting is
required in respect of details relating to deposits covered under this
CHANGE IN THE NATURE OF BUSINESS, IF ANY
During the year, there was no change in the nature of business of the
Company or any of its subsidiaries.
However, during the year, the Company adopted a new set of Articles of
Association in substitution, and to entire exclusion of the regulations
contained in the existing Articles of Association of the Company. This
was primarily done to align the Articles with the new Companies Act,
2013 and rules thereunder.
MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF
Given the Company''s strong cash flow position, its Board of Directors
at a meeting held on 17 February 2016, approved a proposal to buyback
equity shares of the Company, subject to approval by the shareholders,
for an aggregate amount not exceeding Rs. 15.69 billion, at a price not
exceeding Rs. 3,500 per share. The buyback is open to all shareholders
including those who become shareholders by cancelling their American
Depository Receipts and receiving underlying equity shares, but
excludes the promoters and promoter group of the Company. The buyback
is being conducted under the open market route according to the
provisions given in the SEBI (Buy Back of Securities) Regulations,
The Maximum Buyback price represents 18.6% premium, compared to the
average of the weekly high and low of the closing share price of the
Company during the last two weeks up to 16 February 2016.
Subsequently, the Company received the requisite approval from
shareholders on 1 April 2016 and the buyback process is in progress.
The Company has bought and extinguished 350,000 fully paid up equity
shares for an aggregate amount of Rs. 1.09 billion up to the date of
SUBSIDIARIES AND ASSOCIATES
The Company has 52 subsidiaries and 3 joint venture companies as on 31
March 2016. During FY2016,
Dr. Reddy''s Laboratories Japan KK, Japan and Reddy Pharma SAS, France
have become subsidiary companies and DRES Energy Private Limited has
become a joint venture company. Further, Reddy Specialties GmbH ceased
to be a subsidiary of the Company, upon its merger with Reddy Holding
As per Section 129(3) of the Companies Act, 2013, where the Company has
one or more subsidiaries, it shall, in addition to its financial
statements, prepare a consolidated financial statement of the Company
and of all the subsidiaries in the same form and manner as that of its
own and also attach along with its financial statement, a separate
statement containing the salient features of the financial statement
of its subsidiaries.
In accordance with the above, the consolidated financial statement of
the Company and all its subsidiaries and joint ventures, prepared in
accordance with Accounting Standard 21 and 27 as specified in the
Companies (Accounts) Rules, 2014, form part of the annual report.
Further, a statement containing the salient features of the financial
statements of our subsidiaries and joint ventures in the prescribed
Form AOC-1, is attached as Annexure I to the Board''s Report. This
statement also provides the details of the performance and financial
position of each subsidiary.
In accordance with Section 136 of the Companies Act, 2013, the audited
financial statements and related information of the subsidiaries,
where applicable, will be available for inspection during regular
business hours at our registered office in Hyderabad, India. These are
also available on Company''s website www.drreddys.com.
PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS
The Company makes investments or extends loans/guarantees to its wholly
owned subsidiaries for their business purpose. Details of loans,
guarantees and investments covered under Section 186 of the Companies
Act, 2013, along with the purpose for which such loan or guarantee is
proposed to be utilized by the recipient, form part of the notes to the
fi nancial statements provided in this annual report.
CORPORATE GOVERNANCE AND ADDITIONAL SHAREHOLDERS'' INFORMATION
A detailed report on the corporate governance systems and practices of
the Company is given in a separate chapter of this annual report.
Similarly, other detailed information for shareholders is provided in
the chapter Additional Shareholders''Information.
A certificate from the Auditors of the Company confirming compliance
with the conditions of corporate governance is attached to the report
on corporate governance.
MANAGEMENT DISCUSSION AND ANALYSIS
A detailed report on the Management Discussion and Analysis in terms of
the provisions of Regulation 34 of the SEBI (Listing Regulations and
Disclosure Requirements) Regulations, 2015 (Listing Regulations), is
provided as a separate chapter in the annual report.
BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL
The term of Dr. J P Moreau as an Independent Director of the Company
ended on 31 July 2015. The Board places on record its appreciation for
the services rendered by Dr. J P Moreau, during his tenure as a member
of the Board and its Committees.
During the year, the Board of Directors at its meeting held on 29
October 2015, had re-appointed Mr. G V Prasad as Whole-time Director
designated as Co- Chairman, Managing Director and CEO of the Company,
for a further period of five years with effect from 30 January 2016,
subject to approval of the shareholders at the forthcoming 32nd AGM
scheduled on 27 July 2016.
The Board of Directors appointed Mr. Bharat Narotam Doshi and Mr. Hans
Peter Hasler as Additional Directors of the Company, categorized as
Independent. The Board recommends appointment of Mr. Doshi and Mr.
Hasler as Independent Directors under Section 149 of the Companies Act,
2013 for a term of fi ve years each, with effect from 11 May 2016 and
17 June 2016, respectively for approval of the shareholders at the
forthcoming 32nd AGM.
In accordance with Section 149(7) of the Companies Act, 2013, each
Independent Director has confirmed to the Company that he or she meets
the criteria of independence as laid down in Section 149(6) of the
Companies Act, 2013 and Regulation 16(1)(b) of the Listing Regulations.
Mr. K Satish Reddy, retires by rotation at the forthcoming 32nd AGM and
being eligible, seeks re-appointment.
Brief profiles of Mr. G V Prasad, Mr. Bharat Narotam Doshi, Mr. Hans
Peter Hasler and Mr. K Satish Reddy are given in the Corporate
Governance section of the annual report and notice convening the 32nd
AGM, for reference of the shareholders.
As per provisions of the Companies Act, 2013 and Regulation 17(10) of
the Listing Regulations, an evaluation of the performance of the Board
and members was undertaken. The evaluation process was carried out
internally in FY2016, each Board member completed a questionnaire on
the other Board members for peer evaluation and a questionnaire to
provide feedback on Board, its Committees and their functioning. The
contribution and impact of individual Directors were reviewed through a
peer evaluation on parameters such as level of engagement and
participation, flow of information, independence of judgment,
conflicts resolution and their contribution in enhancing the Board''s overall
effectiveness. A 360 degrees feedback- cum-assessment of individual
Directors, the functioning of the Board as a whole and its Committees
was conducted. The peer ratings on certain parameters, positive
attributes and improvement areas for each Board member was also
provided to them in a confidential manner. The feedback obtained from
the interventions was discussed in detail and, where required,
independent and collective action points for improvement were put in
APPOINTMENT OF DIRECTORS AND REMUNERATION POLICY
The assessment and appointment of members to the Board is based on a
combination of criterion that includes ethics, personal and
professional stature, domain expertise, gender diversity and specific
qualifications required for the position. The potential Board member
is also assessed on the basis of independence criteria as defined in
Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of
the Listing Regulations.
In accordance with Section 178(3) of the Companies Act, 2013,
Regulation 9(4) of the Listing Regulations and on recommendations of
the Nomination, Governance & Compensation Committee, the Board adopted
a Remuneration Policy for Directors, Key Managerial Personnel (KMPs)
and senior management. The policy is attached as an annexure to the
Corporate Governance report.
NUMBER OF BOARD MEETINGS
The Board of Directors met six times during the year. In addition, an
annual Board Retreat was held to discuss strategic matters. Details of
Board meetings are laid out in Corporate Governance report, which forms
a part of this annual report.
The Audit Committee of the Board of Directors consists entirely of
Independent Directors. Presently, the Committee comprises of Mr. Sridar
Iyengar (Chairman), Mr. Ravi Bhoothalingam, Ms. Kalpana Morparia, Dr.
Omkar Goswami and Mr. Bharat Narotam Doshi (effective 11 May 2016).
The Board has accepted all recommendations made by the Audit Committee
during the year.
BUSINESS RISK MANAGEMENT
The Company has a Risk Management Committee of the Board, consisting
entirely of Independent Directors. The details of the Committee and its
terms of reference are set out in the Corporate Governance section,
which forms a part of the Board''s report.
The Audit and Risk Management Committees review the key elements of the
Company''s business, finance, operations and compliance risk(s) and
respective mitigation strategies. The Risk Management Committee reviews
key strategic, business, compliance and operational risks, while issues
around ethics & fraud, Internal Control over Financial Reporting
(ICOFR), as well as process risks and their mitigation are reviewed by
the Audit Committee.
The Company''s ''Finance Investment and Risk Management Council''
(FIRM Council) is a management level committee which operates under a
charter and focusses on risks associated with the Company''s business
and investments. The FIRM Council and management, periodically review
matters pertaining to ethics & fraud, compliance and internal audit.
Additionally, the Enterprise-wide Risk Management (ERM) function helps
the management and the Board to periodically prioritise, review and
measure business risks against a pre-determined risk appetite and to
suitably respond, depending on whether the risks are internal,
strategic or external.
During FY2016, focus areas of the management and the Board included
progress on strategy execution, quality and regulatory, geo-political,
compliance and patent infringement risk exposures, while safety and
health continued to remain a priority for the Company.
ADEQUACY OF INTERNAL FINANCIAL CONTROL SYSTEMS
The Company has in place adequate internal financial controls with
reference to financial statements. These controls ensure the accuracy
and completeness of the accounting records and preparation of reliable
In terms of Section 134(5) of the Companies Act, 2013 (''the Act''), your
Directors state that:
1. applicable accounting standards have been followed in the
preparation of the annual accounts;
2. accounting policies have been selected and applied consistently.
Judgments and estimates made are reasonable and prudent, so as to give
a true and fair view of the state of affairs of the Company at the end
of the FY2016 and of the profit of the Company for that period;
3. proper and sufficient care has been taken to maintain adequate
accounting records in accordance with the provisions of this Act for
safeguarding the assets of the Company and for preventing and detecting
fraud and other irregularities;
4. annual accounts have been prepared on a going concern basis;
5. adequate internal financial controls for the Company to follow,
have been laid down and these are operating effectively; and 6. proper
and adequate systems have been devised to ensure compliance with the
provisions of all applicable laws and these systems are operating
RELATED PARTY TRANSACTIONS
In accordance with Section 134(3) (h) of the Companies Act, 2013 and
Rule 8(2) of the Companies (Accounts) Rules, 2014, the particulars of
contract or arrangement entered into by the Company with related
parties referred to in Section 188(1) in Form AOC-2 is attached as
Annexure II. All such contracts or arrangements are in the interest of
The details of related party disclosures form part of the notes to the
financial statements provided in this annual report.
VIGIL MECHANISM/WHISTLE- BLOWER POLICY
The Company has an Ombudsperson policy (Vigil Mechanism/Whistle-Blower)
to report concerns. Accordingly, the Vigil Mechanism consists of a
hotline (both email ID and phone number) to report concerns. The
Company''s Ombudsperson policy outlines provisions to safeguard persons,
who use this mechanism, from victimization. An Audit Committee member
is the Chief Ombudsperson. The policy also provides access to the
chairperson of the Audit Committee under certain circumstances. The
details of the procedure are also available on the Company''s website
AUDITORS STATUTORY AUDITORS
M/s. B S R & Co. LLP, Chartered Accountants (Firm Registration No.
101248W/W-100022) were first appointed as auditors at Company''s 18th
AGM held on 26 August 2002. Currently, they are holding office of the
auditors up to the conclusion of the 32nd AGM.
As per second proviso to Section 139(2) of the Companies Act, 2013,
(the Act), a transition period of three years from the commencement of
the Act is provided to appoint a new auditor if the existing auditor''s
fi rm has completed two terms of five consecutive years.
Accordingly, as per the said requirements of the Act, M/s. S R Batliboi
& Associates LLP, Chartered Accountants (Firm Registration No.
101049W/E300004) are proposed to be appointed as auditors for a period
of 5 years commencing from the conclusion of 32nd AGM till the
conclusion of the 37th AGM, subject to ratification by shareholders
every year, as may be applicable, in place of M/s. B S R & Co. LLP,
M/s. S R Batliboi & Associates LLP, Chartered Accountants, have
consented to the said appointment, and confirmed that their
appointment, if made, would be within the limits specified under
Section 141(3)(g) of the Act. They have further confirmed that they
are not disqualified to be appointed as statutory auditor in terms of
the provisions of the proviso to Section 139(1), Section 141(2) and
Section 141(3) of the Act and the provisions of the Companies (Audit
and Auditors) Rules, 2014.
The Audit Committee and the Board of Directors recommend the
appointment of M/s. S R Batliboi & Associates LLP, Chartered
Accountants, as statutory auditors of the Company from the conclusion
of the 32nd AGM till the conclusion of 37th AGM, to the shareholders.
Pursuant to Section 204 of the Companies Act, 2013 and the Companies
(Appointment & Remuneration of Managerial Personnel) Rules, 2014, Dr. K
R Chandratre, Practicing Company Secretary (Membership No. FCS 1370 and
Certificate of Practice No. 5144) was appointed to conduct the
secretarial audit of the Company for FY2016. The secretarial audit
report for FY2016 is attached as Annexure III.
Based on the consent received from Dr. K R Chandratre, Practicing
Company Secretary and on the recommendations of the Audit Committee,
the Board has appointed Dr. K R Chandratre, Practicing Company
Secretary, as secretarial auditor of the Company for FY2017.
Pursuant to Section 148 of the Companies Act, 2013 read with the
Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost
Records and Audit) Amendment Rules, 2014, the Company maintains the
cost audit records in respect of its pharmaceutical business. Your
Board has, on the recommendation of the Audit Committee, appointed M/s.
Sagar & Associates, Cost Accountants (Firm Registration No. 000118) as
cost auditors of the Company for the FY2017 at a remuneration of Rs.7
lacs plus reimbursement of out of pocket expenses at actuals and
applicable taxes. The provisions also require that the remuneration of
the cost auditors be ratified by the shareholders.
As a matter of record, relevant cost audit reports for FY2015 were
filled on 29 September 2015, within the stipulated timeline. The cost
audit report for FY2016 will be filled with the Central Government
within the stipulated timeline.
BOARD''S RESPONSE ON AUDITOR''S QUALIFICATION, RESERVATION OR ADVERSE
REMARK OR DISCLAIMER MADE
There are no qualifications, reservations or adverse remarks made by
the statutory auditors in their report or by the Practicing Company
Secretary in the secretarial audit report.
During the year, there were no instances of frauds reported by auditors
under Section 143(12) of the Companies Act, 2013.
SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE COURTS/REGULATORS
During FY2016, the Company received a warning letter dated 5 November
2015 from the USFDA relating to cGMP deviations at its API
manufacturing facilities at Srikakulam, Andhra Pradesh and Miryalaguda,
Telangana, as well as its oncology formulation manufacturing facility
at Duvvada, Visakhapatnam, Andhra Pradesh, following inspections of
these sites by the USFDA in November 2014, January 2015 and
February-March 2015, respectively. The warning letter does not restrict
production or shipment of Company''s products from these facilities.
However, unless and until the Company correct these outstanding issues
to the USFDA''s satisfaction, the USFDA may withhold approval of the
Company''s new products and new drug applications, refuse admission of
products manufactured at these facilities into the US and/or take
additiona regulatory/legal action. Any such action may have a material
and negative impact on Company''s ongoing business and operations.
The Company continue to develop and implement corrective action plans
relating to the warning letter. The response to the warning letter was
submitted on 7 December 2015 and further updates on the progress of the
corrective actions were provided to the USFDA in January 2016, March
2016 and May 2016.
Apart from the above, there were no signifi cant and/or material
orders, passed by any Court or Regulator or Tribunal, which may impact
the going concern status or the Company''s operations in future.
INFORMATION REQUIRED UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE
(PREVENTION, PROHIBITION & REDRESSAL) ACT, 2013
The Company has an Apex Complaints Committee and Internal Complaints
Committees (ICCs) which operates under a defined Redressal System for
complaints pertaining to Sexual Harassment of Women at Workplace.
The details of concerns raised and resolved regarding sexual harassment
of women at the workplace are available in the Principle 3 under
Section 7 of the Business Responsibility Report.
CORPORATE SOCIAL RESPONSIBILITY INITIATIVES
As per Section 135 of the Companies Act, 2013, the Company has a
Corporate Social Responsibility (CSR) Committee of its Board of
Directors. The Committee comprises of Mr. Ravi Bhoothalingam
(Chairman), Mr. G V Prasad and Mr. K Satish Reddy.
During the year, the Committee monitored the implementation and
adherence to the CSR policy. The CSR policy provides a constructive
framework to review and organize our social outreach programs in the
areas of health, livelihood and education. The policy enables a deeper
understanding of outcome-focused social development through diverse
Details about the CSR policy and initiatives taken by the Company
during the year are available on Company''s website www.drreddys.com.
The report on CSR activities of the Company is attached as Annexure IV.
BUSINESS RESPONSIBILITY REPORT
A detailed Business Responsibility Report in terms of the provisions of
Regulation 34 of the Listing Regulations, is available as a separate
section in this annual report.
TRANSFER OF UNPAID AND UNCLAIMED AMOUNTS TO INVESTOR EDUCATION AND
PROTECTION FUND (IEPF)
Pursuant to the provisions of Section 205A(5) of the Companies
Act,1956, the declared dividends, which remained unpaid or unclaimed
for a period of seven years, have been transferred by the Company to
the IEPF established by the Central Government pursuant to Section 205C
of the said Act.
EMPLOYEES STOCK OPTION SCHEMES
During the year, there has been no material change in the ''Dr. Reddy''s
Employees Stock Option Scheme, 2002''and the ''Dr. Reddy''s Employees ADR
Stock Option Scheme, 2007''(both collectively referred as ''the
Schemes''). The Schemes are in compliance with the SEBI (Share Based
Employee Benefits) Regulations, 2014 and the details as required under
the said Regulations are available on website www.drreddys.com/
The said details also form part of the note 2.30 of the Notes to the
standalone financial statements.
PARTICULARS OF EMPLOYEES
Disclosures pertaining to remuneration and other details as required
under Section 197(12) of the Companies Act, 2013, read with Rule 5(1)
of the Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014 are attached as Annexure V.
In terms of Section 197(12) of the Companies Act, 2013, read with Rule
5(2) and 5(3) of the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014, a statement showing the names and
other particulars of the employees drawing remuneration in excess of
limits set out in said rules forms part of the annual report.
Considering the first proviso to Section 136(1) of the Companies Act,
2013, the annual report, excluding the aforesaid information, is being
sent to the shareholders of the Company and others entitled thereto.
The said information is available for inspection at the registered
office of the Company during business hours on working days of the Company
up to the date of the forthcoming 32nd AGM. Any shareholder interested
in obtaining a copy thereof, may write to the Company Secretary in this
CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY
ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
The particulars as prescribed under Section 134(3)(m) of the Companies
Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014
are attached as Annexure VI.
EXTRACT OF THE ANNUAL RETURN
The details forming part of the extract of the Annual Return in Form
MGT-9 are attached as Annexure VII.
Your Directors place on record their sincere appreciation for the
significant contribution made by our employees through their
dedication, hard work and commitment, as also for the trust reposed on
us by the medical fraternity and patients. We also acknowledge the
support extended to us by the analysts, bankers, government agencies,
media, customers, suppliers, shareholders and investors at large. We
look forward to continued support in our endeavor to accelerate access
to innovative and affordable medicines because Good Health Can''t Wait.
for and on behalf of the Board of Directors
K Satish Reddy
Date 12 May 2016