The Directors are please to present their Twenty Eighth Annual Report
of your Company and the audited statement of accounts for the year
ended March 31, 2012.
FINANCIAL RESULTS Rs in Million
Profit before Depreciation and Tax 150.73 201.06
Less: Depreciation 148.91 154.11
Profit/(Loss) before Tax 1.82 46.95
Prior period adjustments – –
Provision for current tax and
deferred Tax (18.5) (3.74)
Profit after Tax 20.32 50.69
Add: Balance brought forward from
the previous year 61.84 11.15
Profit available for appropriation 82.16 61.84
Balance carried forward to
Balance Sheet 82.16 61.84
Previous year figures have been regrouped wherever necessary as per the
Despite the challenges of the global and domestic economy, your
Company''s revenue for the year was the highest ever at Rs4540.5 million,
an increase of 13% over the previous year revenue of Rs4017.6 million, a
record being achieved for the second consecutive year. Remarkably, the
growth is on a base of 41.2% increase in the previous year.
Raw materials as a percentage of income at Rs2898.6 million constituted
64.4% of income, while it was lower at 63.3% in 2010-11. With marginal
increases in manufacturing and employee costs, the operating margin was
lower at 10.7% as against 12.5% reported in the previous year. The
operating profit was hence lower at Rs483.5 million as against Rs499.6
Members would appreciate that the year witnessed inflationary pressures
which impacted raw material prices, all of which could not be passed on
to the customers. The tight money policy followed by the central bank,
tended to firm up the interest rates affecting finance costs. Your
Company incurred finance costs of Rs332.7 million, approximately 11.5%
higher than the previous year. The higher incidence was despite
repayment of Rs368.3 million during the financial year, over and above
an amount of Rs259.7 million repaid in the previous year.
The impact of the prevailing external challenging conditions did impact
your Company''s business, and despite being productivity oriented and
raising the level of cost consciousness, the profit after tax was Rs20.3
million for the year, lower than Rs50.7 million reported in 2010-11.
Your Company has taken several systemic initiatives which are
favourably impacting the efficiencies, profit margins and overall
profitability, most of which were visible from the last quarter of the
financial year 2011-12. The focus is on what adds value to the
customers and optimize results for Neuland. The management is striving
to make the transformation enduring while shaping the future.
Members will appreciate that in view of the liquidity situation of your
Company, the Board of Directors has decided not to recommend any
dividend for the year under review.
Neuland has extraordinary assets for growth: your Company''s people,
products, pipeline and relationship with some of the big pharma
companies across the globe. The Company has a common set of values
inspired by The Neuland Way and a restructured, streamlined operating
model with a commitment to respond to customers, even as it is bottom
There is a increased emphasis on marketing niche products, keeping
costs under control and an organization wide culture that seeks to
improve the due date delivery of products and services. The high-value
products have already started enhancing the revenue stream, while there
is a commitment to shed products that tend to lower the contribution.
The order book for API is robust with visibility of healthy earnings
for several months ahead.
While growing the business, the teams are working on thoughtful,
disciplined actions to streamline and improve on cost structure,
realize savings and de-risk the business. There is substantial progress
in increasing the strategic focus of the Company. From early 2012,
there is perceptible savings from standardization initiatives, which
over the ensuing quarters is likely to manifest in rising free cash
flow. Higher margins, lower costs, improved cycle-time on the
production floor and lowering of debt are estimated to sustainably
enhance the bottom line commencing with the financial year 2012-13.
CONSOLIDATED FINANCIAL STATEMENTS
The reports and accounts of the subsidiary companies are not annexed to
this Report. The Board of Directors of the Company have approved and
passed a resolution in this regard. A statement pursuant to Section
212 of the Companies Act, 1956 is annexed.
The Consolidated Financial Statements for the year ended March 31, 2012
for part of the Annual Report. Annual accounts of the subsidiary
companies are kept for inspection by any investor at the Registered
Office of the Company as well as at the Registered Office of the
respective subsidiary companies. Any investor interested in a copy of
the accounts of the subsidiaries may write to the Company Secretary at
the Registered Office of the Company.
Your Company''s subsidiaries, Neuland Laboratories K.K., Japan and
Neuland Laboratories Inc. USA, have come into operation and started
working aggressively on market development. The efforts have been to
build Neuland''s business by being close to the customers and market the
products as well as respond immediately to their needs. During the year
under review, contract manufacturing business was given an additional
thrust, with encouraging response in Japan as well as at North America.
Your Company sees long term sustainable opportunities in these regions
and is further strengthening the organizational resources.
The outlook is positive for the joint venture, Cato Research Neuland
India Private Limited formed in collaboration with Cato Research Israel
Limited, a wholly owned subsidiary of Cato Research Limited, a global
contract research and development organization based in USA. As already
known to Members, your Company''s share in the joint venture is 70% as
per the Share Subscription and Shareholder Agreement.
The joint venture company commenced operation and your Company is
excited with the prospects for the business, primarily in clinical
research in India. Global health care companies have been reaching out
to competent research-led companies to bring innovative drugs to the
market in the shortest possible time span, using high quality and
cost-effective resources available in India. Neuland is confident for
the long term since it has the best available partner in Cato Research.
RESEARCH & DEVELOPMENT
One of the key priorities of the R&D team during the year under review
was to create a portfolio of niche products that are in demand that
would facilitate customers to meet their need to launch new products. A
focused detailed approach to product selection led to a healthy product
development portfolio. The R&D team took care to ensure that each of
the products in the portfolio underwent a rigorous test of preliminary
analysis, market and customer feedback and fitment with chemistry and
technological profile. 20 molecules/APIs were created for launch
between 2013 and 2016.
Further, existing eight products were taken up for process improvement
involving cycle time reduction, recovery & reuse of solvents, adoption
of green chemistry and yield improvement. Of these in seven products,
R&D realized savings and enhanced quality in all eight of them. The
teams are working on 24 products for such enhancements/savings in
R&D has set for itself a few key focus areas apart from creating new
molecules and process improvements with intent on quality and
optimization for competitiveness. Significant success was evident in
such areas including, designing & developing manufacturing processes,
route scouting as per customer requirement, filing of DMF/CMC for the
API and patent protection for non-infringing processes.
ENVIRONMENT, HEALTH & SAFETY (EHS)
Your Company has a systemic approach to environment protection and
employees'' health and safety with rigorous implementation, measurement
and reporting, with strong programs in place to maintain a high level
of awareness and conformity with best-in class industry standards.
Neuland has made significant progress over the past five years in
improving the systems, training and participative response from all
Environmental aspect and impact analysis are carried out at both
manufacturing units with an aim to minimize environmental impacts from
our manufacturing activities. The units are provided with pollution
control facilities like stripper, multi effect evaporator, reverse
osmosis facilities for treating effluent generated in our processes and
recycling the treated effluent within plant premises.
Your Company has undertaken a number of process improvement
initiatives, which has helped consume less raw materials, solvents,
water and energy in the manufacturing processes, thus making them less
consumptive and sustainable. Neuland stands committed to resource
usages in environmentally sound, operationally safe and socially
Occupational health surveillance study was carried out with the support
of external experts. Quantitative exposure assessment and work place
monitoring is carried out to watch over industrial hygiene exposure
levels and ensure environments are comfortable, safe and healthy for
the employees. Hazard identification and risk assessment studies were
carried out in the units targeted to minimize health and safety risks
from the manufacturing activities.
The Companies facilities at Bonthapally facility (Unit-I) and
Pashamylaram (Unit-II) have been successfully audited and certified for
ISO 14001:2004 and OHSAS 18001:2007.
INFORMATION MANAGEMENT SYSTEMS
Your Company is aware that all assets of the Company generate
confidential information and hence, information security is viewed with
great importance. Neuland appreciates the importance of intellectual
property rights and has put in place standard operating procedures to
strictly protect intellectual properties.
The initiatives taken to manage risk and institutionalize them Include:
- Employees have been trained through orientation programmes, with
refresher training programmes on ISMS standards on a regular basis.
- Neuland signs confidentiality disclosure agreements with all its
customers, employees, suppliers and consultants.
- Neuland is certified for ISO 27001:2005 standard and has very
recently completed its first surveillance audit successfully.
The IT Infrastructure is on the SAP ERP platform for effective
information transfer across functions while ensuring high security
standards. A robust web-based intranet application has been developed
in-house and used for key business processes to infuse transparency,
speedier communication and review.
MANAGEMENT DISCUSSION AND ANALYSIS
Management Discussion and Analysis as required under the Listing
Agreement with the stock exchanges forms part of the Annual Report.
LISTING AT STOCK EXCHANGES
The equity shares of your Company continue to be listed and traded on
the BSE Limited and National Stock Exchange of India Limited. The
Annual Listing fee for the year 2012-13 has been paid to both the stock
The report on Corporate Governance as per Clause 49 of the Listing
Agreement with the Stock Exchange forms part of the Annual Report.
Certificate from the Statutory Auditors of the Company M/s. K.S. Aiyar
& Co., Chartered Accountants confirming the compliance with the
Corporate Governance is attached to this report.
Mr. G.V.K. Rama Rao and Dr. Christopher M. Cimarusti retire as
Directors by rotation at the forthcoming Annual General Meeting and
being eligible, offer themselves for re-appointment. The profiles of
the Directors are included in the Report on Corporate Governance and
the Notice of the AGM.
DIRECTORS'' RESPONSIBILITY STATEMENT
Pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000,
your Directors confirm that to the best of their knowledge and belief
and according to the information and explanation obtained by them,
a. in preparation of the annual accounts for the year ended March 31,
2012 the applicable accounting standards have been followed;
b. such accounting policies as mentioned in the notes to the financial
statement have been selected and applied consistently and judgments and
estimates that are reasonable and prudent made so as to give a true and
fair view of the state of the affairs of the Company for the year ended
March 31, 2012 and of the profit of your Company for the year;
c. proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;
d. the annual accounts for the year ended March 31, 2012 has been
prepared on a going concern basis.
EMPLOYEE STOCK OPTION
As per the resolution passed at the Annual General Meeting on July 20,
2007 your Company had granted 34,500 stock options to its employees
under the Employee Stock Options Scheme. However 25,500 vested options
have been terminated by the Compensation Committee on account of
retirement/resignation of the employees from the Company. The fair
value as on March 31, 2012 worked out to Rs25.44 per share.
Details of the options granted and terminated are set out in the
annexure to this report as required under Clause 12 of the Securities
and Exchange Board of India (Employee Stock Options Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999.
The financial statements have been audited by M/s. K.S. Aiyar & Co.,
Chartered Accountants, the Statutory Auditors.
The Audit Committee of your Company meets periodically with the
Statutory Auditors M/s. K.S. Aiyar & Co. and Internal Auditors, M/s.
Grant Thornton & Co., to review the performance of internal audit, to
discuss the nature and scope of the statutory auditor''s functions, and
to discuss auditing, internal control and financial reporting issues.
To ensure complete independence, the statutory auditor and the internal
auditor have full and free access to the Members of the Audit Committee
to discuss any matter of substance.
Cost Audit under Section 233B of the Companies Act, 1956, is a regular
annual audit. The cost audit for the current financial year is under
The Auditors M/s. K. S. Aiyar & Co, Chartered Accountants, retire at
the ensuing Annual General Meeting and have confirmed their eligibility
and willingness to accept office for the financial year ended March 31,
Your Company has taken reasonable steps to prevent risks and the Board
is kept appraised of the risk assessment and minimization procedures.
The assets of the Company have been adequately covered under insurance.
The policy values have been enhanced taking into consideration the
expanded and upgraded facilities of the Company.
There are no fixed deposits outstanding with the Company as on March
31, 2012. The matured but unclaimed fixed deposits amounting to Rs0.07
million, which have become due for transfer to the Investor Education
and Protection Fund (IEPF) have been transferred to IEPF during the
year under review.
As required by your Company (Disclosure of Particulars in the Report of
Board of Directors) Rules, 1988, the relevant information and data are
given in Form - A & B to this report.
Your Company''s relations with its employees continue to be cordial.
Dedicated work by the workmen, supervisors and executives of your
Company made it possible to achieve success under trying and difficult
PARTICULARS OF EMPLOYEES
As required under the provisions of Section 217(2A) of the Companies
Act, 1956 read with Companies (Particulars of employees) Rules 1975 as
amended, there are no employees drawing remuneration in excess of
Rs500,000 per month during the year under review.
Your Directors place on record their deep appreciation for the hard
work, commitment and dedication of the employees at all levels. The
Company did well on several fronts only because of their enthusiasm and
efforts. The Board appreciates the support and co-operation received
from the customers, vendors, business partners and others associated
with the Company. The Directors take the opportunity to thank the
bankers and financial institutions, regulatory and government
authorities and the stock exchanges for their continued support.
For and on behalf of the board
Dr. D. R. Rao
Hyderabad, May 3, 2012 Chairman & Managing Director