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Divis Laboratories Ltd.

BSE: 532488 | NSE: DIVISLAB |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE361B01024 | SECTOR: Pharmaceuticals

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Annual Report

For Year :
2019 2017 2016 2015 2014 2013 2012 2011 2010

Director’s Report

To

The Members,

The Directors have pleasure in presenting the Annual Report of Divi’s Laboratories Limited (the Company or Divi’s) along with the audited financial statements for the financial year ended March 31, 2019. The consolidated performance of the Company and its subsidiaries has been referred to wherever required.

Financial Results

Financial performance of the Company for the year ended 31 March 2019 is summarized below:

(Rs. lakhs)

Particulars

Standalone

Consolidated

2018-19 1

2017-18

2018-19

2017-18

Revenue

487966

383723

494626

391278

Other Income

15658

11248

15563

11344

Total Revenues

503624

394971

510189

402622

Expenditure

303070

258660

307442

265107

Profit before depreciation, interest and tax (PBDIT)

200554

136311

202747

137515

Depreciation

16881

14242

16890

14249

Finance Cost

350

133

350

133

Profit before Tax (PBT)

183323

121936

185507

123133

Provision for Tax:

Current Tax

47245

28713

47551

28983

Deferred Tax

2813

6265

2682

6449

Total tax provision

50058

34978

50233

35432

Profit after Tax (PAT)

133265

86958

135274

87701

Other comprehensive Income (net of tax)

105

67

(35)

990

Total Comprehensive Income

133370

87025

135239

88691

Earnings per Share (EPS) Basic & Diluted (Rs.)

50.20

32.76

50.96

33.04

Operations

Operations for the year reflect normalized operations after successful closure of audits by US-FDA for Company’s Unit-II at Visakhapatnam, Andhra Pradesh during the last year. The Company’s Unit-I at Choutuppal, Telangana State was also inspected by the US-FDA during May 2018 and was concluded without any observations.

Standalone

- Total Revenues for the year increased by 28% to RS.503624 lakhs.

- Operating profit (PBDIT) for the year grew by 47% to RS.200554 lakhs as against an operating profit of RS.136311 lakhs last year.

- Profit before Tax (PBT) for the year amounted to RS.183323 lakhs as against a PBT of RS.121936 lakhs for the last year.

- Tax Provision for the current year amounted to RS.50058 lakhs as against a tax provision of RS.34978 lakhs for the last year.

- Profit after Tax (PAT) before Other Comprehensive Income for the year amounted to RS.133265 lakhs as against a PAT of RS.86958 lakhs last year.

- Earnings Per Share of RS.2/- each works out to RS.50.20 for the year as against RS.32.76 last year.

- Out of the total revenue, 27% came from North America, 46% from Europe, 12% from Asia, 12% from India and 3% from rest of the World.

Consolidated

Our total revenues on consolidated basis Increased by 27% to RS.510189 lakhs from RS.402622 lakhs In the previous year.

The operating profit before depreciation, finance charges and tax (PBDIT) amounted to RS.202747 lakhs as against RS.137515 lakhs in the previous year. Profit after Tax, before Other Comprehensive Income, for the year accounted to RS.135274 lakhs as against RS.87701 lakhs in the previous year.

Subsidiaries

Our subsidiaries viz., M/s. Divi’s 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 aggregate turnover of RS.35638 lakhs as against RS.22593 lakhs in the previous year, reflecting a growth of 58% for the nutraceutical products in North America and Europe.

Subsidiaries have been having consistent profitable operations for the past few years, have cleared accumulated losses and turned into positive networth. There has been no material change in the nature of the business of the subsidiaries.

As per Section 129(3) of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014, 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.divislabs.com. The Consolidated Financial Statements presented by the Company include the financial results of its subsidiary companies.

Policy for determining Material Subsidiaries, is available on the Company’s corporate website at: https://www.divislabs.com/wp-content/uploads/2018/07/Policy-on-Material-Subsidiary 1.pdf Presently, the Company does not have any material subsidiary.

Consolidated Accounts

As stipulated in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations”) and the 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.

Capital Expenditure

In order to cater to the increasing opportunities in generic and big pharma business, the Company is taking up two brownfield projects with an aggregate investment of RS.1200 crores:

- An SEZ Unit at our Unit-II at Visakhapatnam, named as DCV SEZ Unit, with an investment of RS.600 crores. (revised from the estimate of RS.400 crores announced at the last General Meeting).

- Another SEZ Project with an investment of RS.600 crores in the available land at our Unit-1 in Bhuvangiri-Yadadri (erstwhile Nalgonda) District, Telangana State.

Work has already commenced and the Projects are expected to be completed by end of the year 2019-20 barring unforeseen circumstances. The Company has also taken up debottlenecking programs at Unit-I as well as Unit-II by investing an aggregate amount of RS.300 crores -which would also create additional capacities for existing products. In addition, we have also taken up augmentation of waste treatment infrastructure at Unit-II at an estimated cost of RS.150 crores.

Material Changes and Commitments

No other 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, Further, there is no change in the nature of business of the Company,

Dividend

Your Directors are pleased to recommend a dividend of RS.16/- per equity share of RS.2/- each, i.e., 800% for the financial year ended 31 March 2019, subject to approval of members at the ensuing Annual General Meeting.

The total dividend payout for the current year amounts to RS.51206 lakhs (inclusive of tax of RS.8731 lakhs) as against RS.32004 lakhs in the previous year. Dividend payout (including dividend tax) as a percentage of profits is 38% as compared to 37% in the previous year.

Transfer to Reserves

The Directors have decided to retain the entire total comprehensive income of RS.133370 lakhs in the Retained Earnings.

Deposits

The Company has not accepted any deposits from public covered by provisions of Section 73 of the Companies Act, 2013.

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 the Company are given in the notes to the financial statements.

Related Party Transactions

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. As a matter of policy, your Company carries out transactions with related parties on an arms’ length basis. Statement of these transactions is given at Note No. 39 of the Notes to Accounts.

Accordingly, particulars of contracts or arrangements with related parties referred to in Section 188(1) along with the justification for entering into such contract or arrangement in Form AOC-2 does not form part of this report.

Internal Financial Controls

Information in respect of internal financial controls and their adequacy is included in the Management Discussion and Analysis, which is a part of the Annual report.

Risk Management

The Company has an enterprise-wide approach to risk management, which lays emphasis on identifying and managing key operational and strategic risks. The aim is to avoid or minimise risks that pose a threat to Divi’s continued existence and to make improved managerial decisions to create value. The Company has been addressing various risks impacting the Company and the policy and processes of the Company on risk management is provided in the Management Discussion and Analysis.

The Risk Management Committee constituted by the Company constantly evaluates various risks - business, customer concentration, supplier concentration, regulatory compliances, confidentiality of processes, consistency of cGMP practices, environment, employee health and safety etc., monitors risk and deploy appropriate control systems aimed at mitigating such risks to the extent possible.

Management Discussion and Analysis

In terms of provisions of Regulation 34(2) of SEBI Listing Regulations report on Management Discussion & Analysis for the year under review is provided in a separate section forming part of this Annual Report.

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) 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 the end of the financial year and of the profit of the Company for the period;

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 six times, i.e. on 26 May 2018, 04 August 2018, 27 October 2018, 02 February 2019, 09 March 2019 and 28 March 2019.

Directors and Key Managerial Personnel

Re- Appointment:

As per the provisions of the Companies Act, 2013 Mr. Wran S. Divi and Ms. Nilima Motaparti, Whole-time Directors will retire by rotation at the ensuing 29th Annual General Meeting (AGM) and, being eligible, offer themselves for re-appointment.

Members have approved the re-appointment of Dr. G. Suresh Kumar and Mr. R. Ranga Rao as Non-executive Independent Directors of the Company by special resolution passed through postal ballot for a second term of five years with effect from 31 March 2019.

Members have approved the continuance of directorship and reappointment of Mr. K. V, K. Seshavataram as Non-executive Independent Director of the Company by special resolution passed through postal ballot for a second term of five years with effect from 23 June 2019.

Appointment:

Your Board has appointed Prof. Sunaina Singh as an Additional Independent Director, at its meeting held on 28 March 2019 on the recommendation of the Nomination and Remuneration Committee. The Board commends her appointment as an Independent Director for your approval.

Brief profile of the directors proposed for appointment/ re-appointment is given in the notice convening the 29th AGM for reference of the members.

Declaration by Independent Directors

The Company has obtained declaration from all independent directors of the Company under Section 149(7) of the Companies Act, 2013 confirming that they meet the criteria of independence as provided in Section 149(6) of the Companies Act, 2013 and Regulation 25 of SEBI Listing Regulations.

Board Evaluation

The Board of Directors carried out an annual evaluation of its own performance, of the committees of the Board and of the individual directors pursuant to the provisions of the Companies Act, 2013 and SEBI Listing Regulations.

Performance evaluation was carried out on the basis of criteria evolved, as provided by the Guidance Note on Board Evaluation issued by Securities and Exchange Board of India, seeking inputs from the directors individually and the committees through a structured questionnaire which provides a valuable feedback for contribution to the Board, improving board effectiveness, maximising strengths and highlighting areas for further improvement etc.,

In a separate meeting of the Independent Directors, performance of the non-independent directors and the Board as a whole was evaluated taking into account the views of the non-independent directors and the same was discussed in the Board Meeting. Performance evaluation of Independent Directors is done by the entire Board of Directors (excluding the directors being evaluated).

Policy on Directors’ Appointment and Remuneration

The Policy on appointment and remuneration of Directors, Key Managerial Persons and Senior Management including criteria for determining qualifications, positive attributes and director’s independence as required under Section 178(3) of the Companies Act, 2013 and Regulation 19 read with Schedule II Part D of SEBI Listing Regulations has been formulated by the Company:

- To identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down.

- To ensure a transparent board nomination process with the diversity of thought, experience, knowledge, perspective and gender in the Board.

- To determine remuneration based on the Company’s size and financial position and trends and practices on remuneration prevailing in peer companies, in the Pharma industry besides qualifications, skills, capabilities etc.,

- To carry out evaluation of the performance of Directors, as well as Key Managerial and Senior Management Personnel.

- To provide them rewards linked directly to their effort, performance, dedication and achievement relating to the Company’s operations.

- To retain, motivate and promote talent and to ensure long term sustainability of talented managerial persons and create competitive advantage.

Policy on Nomination and Remuneration of Directors, Key / Senior Managerial Personnel may be accessed on the Company’s website at: https://www.divislabs.com/wp-content/uploads/2018/07/Nomination-and-Remuneration-policy18-1.pdf

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, as amended are given in “Annexure - II” 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, as amended are given in “Annexure - III” and forms part of this Report.

Corporate Social Responsibility

The Board of Directors has constituted Corporate Social Responsibility Committee (CSR Committee) consisting of members viz. Mr. R. Ranga Rao (Chairman), Dr. Murali K. Divi, Mr. Madhusudana Rao Divi and Dr. Ramesh B.V, Nimmagadda.

Corporate Social Responsibility Policy (CSR Policy) indicating the activities to be undertaken by the Company was adopted by the Board on the recommendation of the CSR Committee.

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 - IV” to this Report.

Business Responsibility Report

Pursuant to the SEBI Listing Regulations, Business Responsibility Report (BRR) describing the initiatives taken by the Company is enclosed as part of 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 - V” to this report.

Corporate Governance Report

The report on Corporate Governance as per Regulation 34(3) read with Schedule V of the SEBI Listing Regulations is included as a part of this Annual Report. The requisite certificate from Mr. V, Bhaskara Rao, Practicing Company Secretary confirming the compliance with the conditions of Corporate Governance is attached to the report on Corporate Governance.

Audit Committee

The details pertaining to the role, objective and composition of the Audit Committee are included in the Corporate Governance Report which is part of the Annual Report for the year.

Vigil Mechanism

The Company has established a vigil mechanism and formulated a Whistle Blower Policy to provide mechanism for directors and employees of the Company to report their concerns about any unethical behavior, actual or suspected fraud or violation of the Company’s code of conduct or ethics policy. The Policy provides that the Company investigates such incidents, when reported, in an impartial manner and takes appropriate action to ensure that requisite standards of professional and ethical conduct are always upheld. This mechanism also provides for adequate safeguards against victimization of director(s)/ employee(s) who avail 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:

https://www.divislabs.com/wp-content/uploads/2019/03/Whistle-blower-policy.pdf

Audit Reports

- Report of the Statutory Auditors for the year does not contain any qualification, reservation or adverse remark or disclaimer or reporting of any offence or fraud.

- The Secretarial Audit Report does not contain any qualification, reservation or adverse remark or disclaimer.

Statutory Auditors

At the Annual General Meeting held on 25 September 2017, M/s Price Waterhouse Chartered Accountants LLP (Firm Registration No. 012754N/ N500016) were appointed as Statutory Auditors of the Company to hold office for five consecutive years till the conclusion of the 32nd Annual General Meeting of the Company in the calendar year 2022 (subject to ratification by the members at each 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. However, Companies (Amendment) Act, 2017 omitted the first proviso to Section 139 of Companies Act, 2013 that requires ratification of appointment of auditor at every annual general meeting.

Accordingly, M/s. Price Waterhouse Chartered Accountants LLP will continue as the Statutory Auditors of the Company till conclusion of 32nd Annual General Meeting of the Company.

Secretarial Audit

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 Mr. V. Bhaskara Rao, Practicing Company Secretary (PCS Registration No. 4182) as the Secretarial Auditor of the Company to conduct the Secretarial audit for the financial year 2018-19. The Secretarial Audit report for the financial year 2018-19 is annexed herewith as “Annexure VI”.

Cost Audit

Pursuant to the Section 148 of the Act and Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 as amended, the Company maintains cost records in its books of account. As per Rule 4 of the said rules, the requirement for cost audit is not 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.

Extract of Annual Return

An Extract of Annual Return in Form MGT-9 as per the provisions of Section 92(3) of the Companies Act, 2013 and Rule 12 of Companies (Management and Administration) Rules, 2014, is enclosed as “Annexure VII” to this report and is also available on the website of the Company at https://www.divislabs.com/wp-content/ uploads/2019/07/FR0M-N0.-MGT-9.pdf.

Other Disclosures

- Information on Unclaimed Dividend and transfer to IEPF is provided in the Corporate Governance Report.

- 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.

- Company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and rules made thereunder.

- No cases remain unresolved pursuant to the Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressal) Act, 2013 during the year under review,

- As per Regulation 43A of the SEBI Listing Regulations, the Dividend Distribution Policy is disclosed in the Corporate Governance Report and on the website of the Company.

- Directors of your company hereby state and confirm that the Company has complied with all the applicable Secretarial Standards.

Acknowledgements

The Directors thank the customers, vendors, various Government departments and agencies, investors and its banks for their continuous support. The Directors also appreciate and value the commitment and contribution by its employees at all levels.

For and on behalf of the Board

Dr. Murali K. Divi

Place: Hyderabad Chairman & Managing Director

Date: 25 May 2019 (DIN: 00005040)

Director’s Report