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Dr Reddys Laboratories Directors Report, Dr Reddys Labs Reports by Directors
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Dr Reddys Laboratories
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Download Annual Report PDF Format 2015 | 2014 | 2013 | 2012 | 2011
Directors Report Year End : Mar '15    « Mar 14
Dear Members,
 
 The Directors are pleased to present the 31st annual report for the
 year ended 31 March 2015.
 
 FINANCIAL HIGHLIGHTS
 
 Table 1 gives the financial highlights of the Company for FY2015 as
 compared to the previous financial year, on Indian GAAP consolidated
 and standalone basis.
 
 COMPANY AFFAIRS
 
 The Company''s standalone net revenue for the year was Rs. 102.34 billion,
 up 4% over the previous year. In US$ terms, this amounted to US$ 1.67
 billion. Earnings before interest, taxes, depreciation, amortization
 and impairment (EBITDA) decreased by 10% to Rs. 25.20 billion, or 26% of
 standalone revenue. Profit before taxes (PBT) was Rs. 20.60 billion, a
 decline of 16% over the previous year. In US$ terms, this translates to
 US$ 331 million.
 
 The Company''s consolidated net revenue for the year was Rs. 152.97
 billion, up 13% over the previous year. In US$ terms, this amounted to
 US$ 2.46 billion. EBITDA grew by 10% to Rs. 36.13 billion, or 25% of
 consolidated revenue. Profit before taxes (PBT) was Rs. 28.99 billion, an
 increase of 10% over the previous year. In US$ terms, this translates
 into US$ 465 million.
 
 Revenue from Global Generics increased by 15% and stood at Rs. 122.28
 billion, driven largely by North America, Venezuela and India.
 
 Revenue from North America grew by 17% turning in Rs. 64.72 billion. This
 growth was largely driven by ''complex to make'' injectable products
 launched during FY2014, market share gains in some of the key molecules
 and contribution from new product launched in FY2015.  During the year,
 the Company launched 12 products with Valganciclovir, Sirolimus and
 Habitrol® being the major ones.
 
 TABLE 1 FINANCIAL HIGHLIGHTS                              (Rs MILLION)
 
                                                      CONSOLIDATED
                                                    FY2015      FY2014
 
 Total revenue                                     152,974     135,850
 
 Profit before depreciation, amortization and tax   36,595      32,938
 
 Depreciation and amortization                       7,599       6,475
 
 Profit before tax                                  28,996      26,463
 
 Tax expense                                         5,632       6,831
 
 Net profit for the                                 23,364      19,632
 
 Add: Surplus at the beginning of the year          39,890      26,751
 
 Total available for appropriafion                  63,254      46,383
 
 Appropriations:
 
 Proposed dividend on equity shares                  3,408       3,062
 
 Tax on proposed dividend                              694         520
 
 Credit of dividend distribution tax                     -           -
 
 Dividend of previous years (including tax)              6           3
 
 Transfer to Debenture Redemption Reserve                -         827
 
 Transfer to Capital Redemption Reserve                  -         148
 
 Transfer to General Reserve                         1,679       1,933
 
 Balance carried forward                            57,467      39,890
 
                                                        STANDALONE
                                                    FY2015      FY2014
 
 Total revenue                                     102,338      98,795
 
 Profit before depreciation, amortization and tax   25,501      28,349
 
 Depreciation and amortization                       4,902       3,805
 
 Profit before tax                                  20.599      24,544
 
 Tax expense                                         3,805       5,216
 
 Net profit for the year                            16,794      19,328
 
 Add: Surplus at the beginning of the year          56.599      43,614
 
 Total available for appropriation                  73,393      62,942
 
 Appropriations:
 
 Proposed dividend on equity shares                  3,408       3,062
 
 Tax on proposed dividend                              694         520
 
 Credit of dividend distribution tax                  (13)         (2)
 
 Dividend of previous years (including tax)              6           3
 
 Transfer to Debenture Redemption Reserve                -         827
 
 Transfer to Capital Redemption Reserve                  -           -
 
 Transfer to General Reserve                         1,679       1,933
 
 Balance carried forward                            67,619      56,599
 
 FY2015 also saw 13 product filings in the USA. Cumulatively, 68
 Abbreviated New Drug Applications (ANDAs) are currently awaiting
 approval from the US Food and Drug Administration (USFDA). 43 of these
 are Para IVs, out of which the Company believes 13 are potentially
 ''First to File'' status.
 
 Revenue from Emerging Markets was Rs. 32.49 billion, registering
 year-on-year growth of 14%. Revenue from India stood at Rs. 17.87
 billion, registering year-on-year growth of 14%.
 
 PSAI revenue grew by 6% to Rs. 25.46 billion. Despite moderate sales
 growth, margins improved significantly due to better product mix.
 During the year, 77 Drug Master Files (DMFs) were filed globally, 
 including 12 in the USA, 16 in Europe and 49 in other markets. The 
 cumulative number of DMF filings as on 31 March 2015 was 735.
 
 DIVIDEND
 
 Your Directors are pleased to recommend a dividend amounting to Rs. 20/-
 on every equity share of Rs. 5/- (400%) for FY2015. The dividend, if
 approved at the 31st Annual General Meeting (AGM), will be paid to
 those shareholders whose names appear on the register of members of the
 Company as on 14 July 2015. The dividend will be tax-free in the hands
 of the shareholders.
 
 TRANSFER TO RESERVES
 
 The Company proposes to transfer Rs. 1,679 million to the general
 reserve.
 
 SHARE CAPITAL
 
 The paid-up share capital of your Company increased by Rs. 1.36 million
 in FY201 5, due to the allotment of 272,306 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''.
 
 FIXED DEPOSITS
 
 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
 Chapter.
 
 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.
 
 MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF
 THE COMPANY
 
 In April 2015, the Company entered into a definitive agreement with UCB
 India Private Limited and other UCB group companies (together referred
 to as UCB), to acquire a select portfolio of established product
 business in the territories of India, Nepal, Sri Lanka and Maldives.
 The purchased business was acquired on a slump sale basis (transfer of
 a business as a going concern without values being assigned to
 individual assets and liabilities). The transaction includes
 approximately 350 employees engaged in operations of the acquired India
 business. The acquisition, once completed is expected to strengthen our
 presence in the areas of dermatology, respiratory and pediatric
 products. The total purchase consideration is Rs. 8,000 million.
 
 SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
 
 The Company has 51 subsidiaries and 2 joint venture companies as on 31
 March 2015. During FY2015, Dr. Reddy''s Laboratories SAS, Columbia and
 DRSS Solar Power Private Limited have become a subsidiary and joint
 venture company respectively. Further, I-Ven Pharma Capital Limited
 ceased to be a subsidiary of the Company on its liquidation.
 
 As per Section 1 29(3) of the Companies Act, 201 3, 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 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 Standards 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 
 statement 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 1 36 of the Companies Act, 201 3, the
 audited financial statements and related information of the
 subsidiaries, where applicable, will be available for inspection during
 regular business hours at the Company''s registered office in Hyderabad,
 India. These will also be available on our 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
 financial 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 is provided
 as a separate chapter in the annual report.
 
 BOARD OF DIRECTORS AND KEY MANAGEMENT PERSONNEL
 
 As per the provisions of Sections 149 and 152 of the Companies Act,
 2013, the shareholders at their 30th Annual General Meeting held on 31
 July 2014, had approved the re-appointment of all the existing
 Independent Directors of the Company for tenure of up to five
 consecutive years. None of the Independent Directors are liable to
 retire by rotation.
 
 In accordance with Section 1 49(7) of the Companies Act, 201 3, each
 Independent Director has confirmed to the Company that he or she meets
 the criteria of independence laid down in Section 1 49(6) of the
 Companies Act, 201 3 and Clause 49 of the Listing Agreement.
 
 Further, in accordance with provisions of Section 152 of the Companies
 Act, 2013, the shareholders had also approved the variation in the
 terms of appointment of Mr. G V Prasad and Mr. Satish Reddy, Whole-time
 Directors, making them liable to retire by rotation.
 
 Accordingly, Mr. G V Prasad, Whole- time Director, retires by rotation
 at the forthcoming 31st Annual General Meeting scheduled on 31 July
 2015 and being eligible, seeks re-appointment. A brief profile of Mr. G
 V Prasad is given in the Corporate Governance section of the annual
 report for reference of the shareholders.
 
 BOARD EVALUATION
 
 As per provisions of the Companies Act, 2013 and Clause 49 of the
 Listing Agreement, an evaluation of the performance of the Board and
 members was undertaken. In order to ensure objectivity, an independent
 expert was engaged to manage the process. 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 enhancin g the Board''s overall effectiveness. A 360
 degree feedback- cum-assessment of individual directors, the Board as a
 whole and its committees was conducted. The feedback obtained from the
 interventions was discussed in detail and, where required, independent
 
 and collective action points for improvement put in place.
 
 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
 qualification required for the position. The potential Board member is
 also assessed on the basis of independence criteria defined in Section
 149(6) of the Companies Act, 2013 and Clause 49 of the Listing
 Agreement.
 
 In accordance with Section 178(3) of the Companies Act, 2013, Clause
 49(IV) (B) of the Listing Agreement and on recommendations of the
 Nomination, Governance & Compensation Committee, the Board adopted a
 remuneration policy for Directors, Key Management 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 four 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.
 
 AUDIT COMMITTEE
 
 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 and
 Dr. Omkar Goswami.
 
 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 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 has a management level committee - ''Finance Investment and
 Risk Management Council'' (FIRM Council) which operates under a charter
 and focusses on risks associated with the Company''s business and
 investments. The FIRM Council and/or the management, periodically
 reviews specific policies or charters for Fraud Risk Management,
 Compliance and Internal Audit.
 
 The Enterprise-wide Risk Management (ERM) function helps the management
 and the Board to periodically prioritize, review and measure risks
 against a pre-determined risk appetite and to suitably respond,
 depending on whether the risks are internal, strategic or external.
 Significant risks are prioritized on likelihood and severity, and their
 mitigation is reviewed regularly.
 
 During FY2015, 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 process 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
 financial statements.
 
 DIRECTORS'' RESPONSIBILITY STATEMENT
 
 In terms of Section 134(5) of the Companies Act, 2013, 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 FY2015 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 effectively.
 
 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.
 
 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 (Whistle-Blower/Vigil mechanism)
 to report concerns. Under this policy, provisions have been made 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 www.drreddys.com/ investors/pdf/cobe-booklet-201 4.pdf.
 
 AUDITORS
 
 STATUTORY AUDITORS
 
 The shareholders at their 30th Annual General Meeting (AGM) held on 31
 July 2014, approved the re-appointment of M/s. B S R & Co. LLP.,
 Chartered Accountants, as statutory auditors of the Company, to hold
 office from the conclusion of the 30th AGM up to the conclusion of the
 32nd AGM.
 
 In terms of first proviso of Section 1 39 of the Companies Act, 201 3,
 the appointment of the auditors is subject to ratification by the
 shareholders at every subsequent AGM. Accordingly, the statutory
 auditors, M/s. B S R &
 
 Co. LLP, Chartered Accountants, have confirmed their eligibility under
 Section 141 of the Companies Act, 2013, Rule 4 of the Companies (Audit
 and Auditors) Rules, 2014 and Clause 41 (I)(h) of the Listing
 Agreement.
 
 The Audit Committee and the Board of Directors recommend the
 appointment of M/s. B S R & Co. LLP, Chartered Accountants, as
 statutory auditors of the Company from the conclusion of the 31st AGM
 till the conclusion of the 32nd AGM, to the shareholders for
 ratification.
 
 SECRETARIAL AUDITOR
 
 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 was appointed to conduct the
 secretarial audit of the Company for FY2015. The secretarial audit
 report for FY2015 is attached as Annexure III.
 
 Basing on the consent received from Dr. K R Chandratre, practicing
 Company Secretary and the recommendations of the Audit Committee, the
 Board has appointed Dr. K R Chandratre, practicing Company Secretary,
 as secretarial auditor of the Company for FY2016.
 
 COST AUDITORS
 
 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 as cost auditors of
 the Company for FY2016. The provisions also require that the
 remuneration of the cost auditors be ratified by the shareholders.
 
 The cost audit report will be filed with the Central Government within
 the stipulated timeline. As a matter of record, relevant cost audit
 reports for FY2014 were filed on 26 September 2014, within the
 stipulated timeline.
 
 BOARD''S RESPONSE ON AUDITORS 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 Company Secretary in
 practice in the secretarial audit report.
 
 SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE COURTS/REGULATORS
 
 During FY2015, there were no significant 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.
 
 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. Satish Reddy.
 
 During the year, the Committee formulated and recommended a CSR policy
 to the Board. Our 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
 collaborations.
 
 Details about the CSR policy and initiatives taken by the Company
 during the year are available on the 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 is available as a separate
 section in this annual report.
 
 TRANSFER OF UNPAID AND UNCLAIMED AMOUNTS TO 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 Investor Education and Protection Fund (IEPF) established by the
 Central Government pursuant to Section 205C of the said Act.
 
 EMPLOYEES STOCK OPTION SCHEMES
 
 The applicable disclosures as stipulated under SEBI guidelines with
 regard to ''Dr. Reddy''s Employees Stock Option Scheme, 2002'' and the
 ''Dr. Reddy''s Employees ADR Stock Option Scheme, 2007'', as on 31 March
 2015 are attached as Annexure V.
 
 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 VI.
 
 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 members 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 ensuing Annual General Meeting. Any shareholder 
 interested in obtaining a copy thereof, may write to the Company 
 Secretary in this regard.
 
 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 VII.
 
 EXTRACT OF THE ANNUAL RETURN
 
 The details forming part of the extract of the annual return in Form
 MGT-9 is attached as Annexure VIII.
 
 ACKNOWLEDGEMENT
 
 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 help people lead
 healthier lives.
  
                          For and on behalf of the Board of Directors
 
                                                 K Satish Reddy
                                                    Chairman
 
 Place: Hyderabad 
 Date: 12 May 2015
 
 
Source : Dion Global Solutions Limited
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