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Laurus Labs Ltd.

BSE: 540222 | NSE: LAURUSLABS |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE947Q01028 | SECTOR: Pharmaceuticals

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Annual Report

For Year :
2019 2018 2017 2016

Director’s Report

To

The Members of

Laurus Labs Limited

The Directors have pleasure in presenting the 12th Annual Report of the Company together with the Audited Financial Statements for the Financial Year ended 31st March 2017.

Financial Highlights

_ _ (Rs. in Millions)

Particulars

2016-17

2015-16

Gross Income

19,183

18,081

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)

4,461

3,740

Finance Charges

970

1,110

Depreciation/Amortization

1,030

858

Net Profit Before Tax

2,476

1,796

Provision for Tax

451

349

Net Profit After Tax carried to Balance Sheet

2,026

1,447

Proposed Dividend amount

159

49

Proposed Dividend Tax amount

32

10

Company’s Affairs:

(i) Initial Public Offer (IPO):

Your Company has successfully completed its Initial Public Offering (IPO) and Offer for Sale (OFS) and the Equity Shares of the Company have been listed on the National Stock Exchange of India Limited (NSE) and BSE Limited (BSE) with effect from December 19, 2016. Further details are provided below under the heading “Share Capital.

(ii) Operations:

During the year under review, your Company achieved the following:

Growth of 6.1% in income and 19.29% in Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)

Expansion of R&D Centre at Hyderabad is completed

Unit 5 (dedicated manufacturing facility for Aspen) was inaugurated and operational from November 2016.

Initiated ARV API supply into the European market

USFDA and WHO-Geneva Inspections completed successfully at Unit-2

Under Profit sharing arrangement with Natco for Hepatitis-C Segment, Natco launched Velpatasvir and Sofosbuvir combination in Nepal and launched in India in May 2017.

Partnering with Dr. Reddy''s for development and marketing of several anti-retroviral formulations on profit-and cost sharing basis

Signed manufacturing and supply agreement for Oncology NCE for clinical phase and commercial supplies

Unit 4 for API/Intermediate manufacturing facility is under construction

Filed 3 ANDAs with USFDA and one dossier with WHO-Geneva

(iii) Outlook:

Business prospects will remain positive because of the growing global demand for generics and opportunities provided by expiry of patents in developed markets.

Various business aspects including market conditions, business opportunities, challenges etc. have been discussed at length in the Management''s Discussion and Analysis (MDA), which forms part of this Annual Report.

Dividend:

Your directors are pleased to recommend a dividend @ 15% (i.e. Rs. 1.50/- per share of face value of Rs. 10/- each) for the Financial Year ended March 31, 2017. The dividend, if approved by the Members, in their forthcoming Annual General Meeting to be held on July 12, 2017, will be paid to the Members on or after July 18, 2017, whose names appear on the Register of Members as on Book Closure Date.

Transfer to Reserves:

Your Company does not propose to transfer any portion of profits to Reserves.

Share Capital:

During the year under review, your Company had successfully completed its Initial Public Offering (IPO) of equity shares of the Company and the equity shares have been listed on National Stock Exchange of India Limited (NSE) and BSE Limited (BSE) with effect from December 19, 2016. In the process, the Company had offered 7,009,345 Equity Shares for an aggregate amount of Rs. 2,997.10 Million (6,936,775 equity shares of Rs. 10/- at a price of Rs. 428 per equity share to the Public and 72,570 equity shares of Rs. 10/each at a price of Rs. 388 per equity share to the employees under employee reservation category). The Private Equity Investors, namely Aptuit (Asia) Private Limited, FIL Capital Management (Mauritius) Limited, Fidelity India Principals and Bluewater Investment Ltd., have together offered 24,107,440 equity shares in the Offer For Sale (OFS) in the IPO for an aggregate amount of Rs. 10,308 Million. Therefore, the total IPO including Offer For Sale was for 31,116,785 equity shares of Rs. 10/- each for a total amount of Rs. 13,305.10 Million.

Prior to IPO, the Company converted all Series A, Series B and Series C Preference Shares into equity Shares in July 2016.

Further, the Company has also allotted three bonus equity shares of Rs. 10/- each for every one the then existing equity share of Rs. 10- each held i.e. in the ratio of 3:1 in July 2016 by capitalizing the reserves to the extent of Rs. 739,713,030/-. This Corporate Action of Bonus Issue was extended to the ESOP Schemes 2011 and 2016 as well. The ESOP 2016 was originally approved by the Members in the 11th Annual General Meeting held on June 9, 2016. In September 2016, the Company has also allotted 118,500 equity shares of Rs. 10/- each at a price of Rs. 10/- each to the employees of the Company pursuant to exercise of vesting rights by the employees under ESOP Scheme 2011.

The Authorized Share Capital of the Company has been increased from Rs. 914 Mn to Rs. 1,110 Million by creation of additional 19,600,000 equity shares of Rs. 10/- each. Further, entire authorized preference capital of Series A, Series B and Series C has been converted into authorized equity share capital of the Company. As a result, the Authorized Share Capital as on the date stands at 111,000,000 equity shares of Rs. 10/- each aggregating to Rs. 1,110,000,000/- (Rupees One Billion One hundred and ten million only).

The movement in Authorized Share Capital is as follows:

Authorized Capital as on March 31, 2016

Movement during the year 2016-17

Cumulative Authorized Capital post-such movement

24,787,037 equity shares of Rs. 10/ each

2,259,060 0.001% CCPCPS of Rs. 10/- each -Series A

2,477,387 0.001% CCPCPS of Rs. 243/- each -Series B

4,153,399 0.001% CCPCPS of Rs. 10/- each -Series C

Nil

Increase of 19,600,000 equity shares of Rs. 10/each on June 6, 2016

Converted into 2,259,060 equity shares of Rs. 10/- each on July 20, 2016

Converted into 60,200,504 equity shares of Rs. 10/- each on July 20, 2016

Converted into 4,153,399 equity shares of Rs. 10/- each on July 20, 2016

24.787.037 equity shares of Rs. 10/- each

44.387.037 equity shares of Rs. 10/- each

46,646,097 equity shares of Rs. 10/- each

106,846,601 equity shares of Rs. 10/- each

111,000,000 equity shares of Rs. 10/- each (as on March 31, 2017)

The movement in paid up share capital is as follows:

Paid Up Capital as on March 31, 2016

Movement during the year 2016-17

Cumulative Paid Up Capital after such movement

15,767,255 equity shares of Rs. 10/ each 2,259,060 0.001% CCPCPS of Rs. 10/- each -Series A

2,477,387 0.001% CCPCPS of Rs. 243/- each -Series B

4,153,399 0.001% CCPCPS of Rs. 10/- each -Series C

Nil

Allotted 2,259,060 equity shares of Rs. 10/- each on July 15, 2016 pursuant to conversion Allotted 2,477,387 equity shares of Rs. 10/- each on July 15, 2016 pursuant to conversion Allotted 4,153,399 equity shares of Rs. 10/- each on July 15, 2016 pursuant to conversion Allotment of 73,971,303 equity shares of Rs. 10/each as Bonus Shares on July 27, 2016 in the ratio of 3:1

Allotment of 118,500 equity shares of Rs. 10/each on September 26, 2016 under ESOP Scheme 2011

Allotment of 7,009,345 equity shares of Rs. 10/on December 15, 2016 in IPO

15,767,255 equity shares of Rs. 10/- each 18,026,315 equity shares of Rs. 10/- each

20,503,702 equity shares of Rs. 10/- each

24,657,101 equity shares of Rs. 10/- each

98,628,404 equity shares of Rs. 10/- each

98,746,904 equity shares of Rs. 10/- each

105,756,249 equity shares of Rs. 10/- each

The movement in Securities Premium Account is as follows:

Rs. in Millions

Particulars

Amount

Cumulative Amount

Balance as on March 31, 2016

4,070.93

4,070.93

Add: Premium on conversion of 2,477,387 Series B Preference Shares @ Rs. 233/- per Share

577.23

4,648.16

Less: Issue of 73,971,303 Bonus equity Shares of Rs. 10/- each

(739.71)

3,908.45

Add: Transfer from Stock Options

5.94

3,914.39

Add: Allotment of 7,009,345 equity Shares of Rs. 10/- each at premium

2927.01

6,841.40

Less: IPO Expenses

(137.86)

6,703.54

Balance as on March 31, 2017

6,703.54

Utilization of IPO Proceeds:

The details of utilization of IPO proceeds - Rs. 2,859.24 Million (net off IPO related expenses including service tax - Rs. 137.86 Million) are as follows:

Rs. in Millions

Particulars

As per Prospectus

Utilized up to March 31, 2017

Unutilized amount as at March 31, 2017

Pre-payment of term loans

2,262.90

2,262.90

-

General corporate purposes

596.34

596.34

-

Total

2,859.24

2,859.24

-

Change in the nature of business, if any:

There is no change in the nature of business of the Company or any of its subsidiaries or associates, during the year under review.

Material Changes and commitments, affecting the financial position of the Company:

There are no material changes and commitments affecting the financial position of the Company that have occurred between the end of the financial year of the Company to which the financial statements relate and the date of the Report i.e. between March 31, 2017 to May 18, 2017

Fixed deposits:

The Company did not accept any fixed deposits.

Subsidiaries, Associates and Joint Ventures:

The Company had two Wholly Owned Subsidiaries, namely, (i) Viziphar Biosciences Private Limited and (ii) Laurus Synthesis Inc., USA. During the year, the Company has disinvested its 100% stake in Viziphar Biosciences Private Limited vide Agreement dated April 18, 2016 and the effective date of Agreement was April 1, 2016 and therefore Viziphar Biosciences Private Limited ceased to be the Subsidiary of the Company w.e.f. April 1, 2016. Further, during the year, your Company has acquired balance 73% of equity shareholding of its Associate Company, namely Sriam Labs Private Limited with effect from November 1, 2016, thereby Sriam Labs Private Limited became 2nd 100% wholly Owned Subsidiary of the Company. Therefore, as on March 31, 2017, the Company has two subsidiaries, namely

(i) Laurus Synthesis Inc., USA; and (ii) Sriam Labs Private Limited, India.

As per Sec. 129(3) of the Companies Act, 2013 the consolidated financial statement of the Company and all its Subsidiaries and Associates prepared in accordance with the applicable accounting standards forms part of this Annual Report. Further, a statement containing salient features of the financial statements of our subsidiaries and associates in the prescribed form in AOC-1 is attached as Annexure-1 to the Directors'' Report.

Consolidated financial Statements:

Consolidated Financial Statements have been prepared by the Company in accordance with the requirements of applicable Accounting Standards and the provisions of Companies Act, 2013. As per the provisions of Section 136 of the Companies Act, 2013, the Company has placed separately the audited financial statements of its subsidiaries on its website www.lauruslabs.com and copies of audited financial statements of the subsidiaries will be provided to the Members at their request.

Particulars of Loans, Guarantees and Investments:

During the year, your Company has provided a Corporate Guarantee to Citi Bank, India and, in turn, Standby Letter of Credit issued by Citi Bank, India to Citi Bank Inc. USA on behalf of the Subsidiary Company, namely Laurus Synthesis Inc. USA, for US Dollars 2 Million, to meet the objectives of the said Subsidiary Company.

Further, the Company has also issued a Corporate Guarantee to the Bankers of Sriam Labs Private Limited for an amount of Rs. 690.60 Million, both of which are well within the limits prescribed under Sec.186 of the Companies Act, 2013.

Board of Directors and Key Management Personnel:

As per the provisions of the Companies Act, 2013, Mr.Rajesh Kumar Dugar (DIN:00307729) and Mr. Narendra Ostawal (DIN:06530414) will retire at the ensuing annual general meeting and being eligible, seek reappointment. The Board of Directors recommends their re-appointment.

During the year, Mr. Amal Ganguli, Mrs. Aruna Bhinge, Mr. Rajesh Chandy and Mr. Ramesh Subrahmanian were appointed as Independent Directors of the Company for a period of 5 years from the dates of their respective appointments. Mr. Chandrakanth Chereddi was appointed as Whole-time Director for a period of 5 years from August 9, 2016.

Dr. Satyanarayana Chava, Dr. Raju Srihari Kalidindi and Mr. VV Ravi Kumar, all of who have been appointed as Whole Time Directors for a period of 5 years with effect from April 1, 2015 and whose appointments have been approved by the Members in their 10th Annual General Meeting held on July 31, 2015 continue to function as Whole Time Directors of the Company. The Board has appointed Dr. Satyanarayana Chava as Chief Executive Officer of the Company and Mr. VV Ravi Kumar as Chief Financial Officer of the Company.

Mr. Niten Malhan, Mr. Robert Weisskoff, Mr. Conner Town Mulvi, Mr. Frank Wright - all of them being Non-Executive and Nominee Directors have resigned as Directors during the year under review. Mr. Amal Ganguli has passed away on May 8, 2017 and your Board regret the information of Mr. Amal Ganguli''s demise and pay homage and extend its heart-felt condolences to the bereaved family.

Your directors have appreciated the immense contributions made by the above directors for the growth of the Company.

The Board of Directors, in their Meeting held on May 18, 2017, have appointed Dr. M. Venu Gopala Rao (DIN.00012704) and Dr. Ravindranath Kancherla (DIN:00117940), subject to approval of the Members, as Non-Executive and Independent Directors for a period of 5 years with effect from May 18, 2017.

Board Meetings:

The Board and Committee meetings are pre-scheduled and a tentative calendar of the meetings shall be finalized in consultation with the Directors to facilitate them to plan their schedule. However, in case of urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, 20 (twenty) board meetings were held. The details of the meetings including composition of various committees are provided in the Corporate Governance Report.

Declaration from Independent Directors:

The independent directors have submitted the declaration of independence stating that they meet the criteria of independence as provided in sub-section (6) of Section 149 of the Companies Act, 2013.

Policy on Directors’ Appointment and Remuneration:

The policy of the Company on directors'' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a director and other matters are adopted as per the provisions of the Companies Act, 2013. The remuneration paid to the Directors is as per the terms laid out in the nomination and remuneration policy of the Company. The nomination and remuneration policy is adopted by the Board is placed on the Company''s website

http://www.lauruslabs.com/sites/all/themes/lauruslab// Investors/PDF/Policies/Remuneration Policy.pdf

Risk Management:

Your Company had formulated a risk management policy for dealing with different kinds of risks which it faces in day-to-day operations of the Company. Risk Management Policy of the company outlines different kinds of risks and risk mitigating measures to be adopted by the Board. The Company has adequate internal financial control systems and procedures to mitigate the risk. The risk management procedure is reviewed by the Audit Committee and Board of Directors on regular basis at the time of review of quarterly financial results of the Company. Further, your Company had constituted a Risk Management Committee which lays down various risk mitigating practices that your Company is required to implement in the Company.

Adequacy of Internal Financial Controls:

The internal financial controls with reference to the Financial Statements, apart from statutory audit, internal audit and cost compliance, are adequate to the size and operations of the Company.

Directors’ Responsibility Statement:

In terms of Section 134(3)(c) of the Companies Act, 2013, the Board of Directors of the Company states that:

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that 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 financial year and of the profit and loss of the Company for that period;

(c) t he directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of Companies Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(d) t he directors had prepared the annual accounts on a going concern basis;

(e) the directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operative effectively; and

(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operative effectively.

Related Party Transactions:

In accordance with Sec 134(h) of the Companies Act, 2013 and Rule 8(2) of Companies (Accounts) Rules, 2014, the particulars of contracts or arrangements entered into by the Company with the Related Parties referred to in Sec.188(1) of the Act, have been provided in Form AOC-2 and attached the same as Annexure-2

The details of related party disclosures as stated in the notes to the financial statements forms part of this annual report.

Vigil Mechanism:

The Company established whistle blower policy in order to assure that the business is conducted with integrity and that the Company''s financial information is accurate.

Auditors:

(i) Statutory Auditors:

S. R. Batliboi & Associates LLP, Chartered Accountants, the auditors of the Company have completed their term of 10 years under Sec.139(2) of the Companies Act, 2013 and therefore the Board of Directors of your Company, on the recommendation of the Audit Committee, have recommended to the members for appointment of Deloitte Haskins & Sells LLP, Firm Registration No.117366W/W-100018 as Statutory Auditors of the Company for a period five years from the conclusion of 12th Annual General Meeting till the conclusion of 17th Annual General Meeting of the Company.

(ii) Cost Auditors:

In accordance with Section 148 of the Companies Act, 2013 read with Companies (Audit & Auditors'') Rules, 2014 and the Companies (Cost Records and Audit) Amendments Rules, 2014, the Company maintains the cost records in respect of its business.

Your Board has appointed M/s. Bharathula & Associates, Cost Accountants, as the Cost Auditors of the Company for the Financial Year 2017-18. As required by the Act, the remuneration of the Cost Auditors have to be ratified by the Members and accordingly the resolution relating to the Cost Auditors is being placed before the Members for their ratification.

(iii) Secretarial Auditors & Secretarial Audit Report:

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Y. Ravi Prasada Reddy, Practising Company Secretary (CP No5360) proprietor of RPR & Associates, to undertake the Secretarial Audit of the Company for the financial year 2016-17. The Secretarial Audit Report issued in Form MR-3 is in Annexure-3 to this Report. There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report.

Auditors’ Qualifications/reservations/adverse remarks/Frauds reported:

There are no Auditors'' Qualifications or reservations or adverse remarks on the financial statements of the Company. The Auditors have not reported any frauds to the Audit Committee as prescribed under Sec. 143 (12) of the Companies Act, 2013.

Significant and material orders passed by the Courts/Regulators:

There are no significant and material orders passed by the Courts or Regulators against the Company.

Rating:

CARE has affirmed its rating as A i.e. Positive Outlook on the long term bank facilities of the Company and upgraded its rating from A1 to A1 on the short term bank facilities of the Company.

Insurance:

All properties and insurable interests of the Company including buildings, plant and machinery and stocks have been fully insured.

Corporate Social Responsibility initiatives:

Pursuant to the provisions of Section 135 and Schedule VII of the Companies Act, 2013, CSR Committee of the Board of Directors had framed the policy on Corporate Social Responsibility and the Projects and Programs undertaken by the Company during the year under review have been provided in Annexure-4 and forms part of this Report.

Extract of Annual Return:

As required pursuant to section 92(3) of the Companies Act, 2013 and rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of annual return in MGT 9 is given in the Annexure-5 and forms part of this Report.

Statement of Particulars of Appointment and Remuneration of Managerial Personnel/ employees:

In accordance with the provisions of Section 134 and Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the statement of particulars of appointment and remuneration of managerial personnel and employees is attached in Annexure-6 to this Report.

Human resources:

The management believes that the competent and committed human resources are vitally important to attain success in the organization. In line with this philosophy, utmost care is being exercised to attract quality resources and suitable training is imparted on various skill-sets and behavior. Annual sports and games were conducted across the organization to enhance the competitive spirit and encourage bonding teamwork among the employees.

Employee Stock Options:

During the year, the Company has allotted 118,500 (One hundred Eighteen thousand and five hundred only) equity shares of Rs. 10/- at a price of Rs. 10/- per share to various eligible employees of the Company under Employee Stock Option Scheme-2011 upon exercise of their vesting rights.

Further, the Shareholders have approved a new Employees Stock Option Scheme 2016 wherein 300,000 stock options have been reserved to the employees at an exercise price of 25% less than the Fair Market Value of the Share of the Company on the date of grant of options. During the year, the Company had granted 178,438 options as Grant-1 under this Scheme to the employees of the Company.

Both - ESOP Scheme 2011 and ESOP Scheme 2016 have been adjusted to the Bonus Issue as approved by the members during the year in the ratio of 3:1. Accordingly, the total options outstanding as on March 31, 2017 under ESOP Scheme 2011 were 935,000 and under ESOP Scheme 2016 were 1,200,000.

The details of stock options are as mentioned in Annexure 7 and forms part of this Report. Further, the details of the stock options stated in the notes to accounts of the financial statements also forms part of this Annual Report.

Conservation of energy, technology absorption and foreign exchange earnings/outgo:

The information required under Section 134 (3) (m) of the Companies Act, 2013, read with Rule 8(3) of Companies (Accounts) Rules, 2014, is appended hereto as Annexure 8 and forms part of this Report.

Policy on Prevention of Sexual Harassment:

The Company has formulated and implemented a policy for Prevention of Sexual Harassment of Women at workplace. During the year under review, the Company has not received any complaints under the policy.

The Company has many systems, processes and policies to ensure professional ethics and harmonious working environment. We follow Zero Tolerance towards Corruption and unethical conduct. These are ensured through Whistle Blower Policy, Anti-Corruption Policy, Gift Policy, Sexual Harassment Policy and Redressal Guidelines.

BSE 500:

The Equity Shares of your Company have been inducted in S&P BSE 500 indices with effect from March 31, 2017

Board Evaluation:

The Companies Act, 2013 states that a formal annual evaluation needs to be made by the Board of its own performance and that of its committees and individual directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of independent directors shall be carried out by the entire Board of Directors, excluding the director being evaluated. SEBI (LODR) Regulations, 2015 also mandates that the Board shall monitor and review the Board evaluation framework. The evaluation of all the Directors and the Board as a whole was conducted based on the criteria and framework adopted by the Nomination and Remuneration Committee including performance and working of its committees.

Corporate Governance:

A separate section on Corporate Governance practices followed by your Company, as stipulated under Schedule V(C) of the SEBI (LODR) Regulations, 2015 is enclosed forming part of this report.

The certificate of the Practicing Company Secretary Mr.Y.Ravi Prasada Reddy with regard to compliance of conditions of corporate governance as stipulated under Schedule V (E) of the SEBI (LODR) Regulations, 2015 is annexed to the Report on Corporate Governance.

Disclosure with respect to unclaimed suspense account:

The following are the details that are required to be provided under Schedule V (F) of the SEBI (LODR) Regulations, 2015:

No. of Shareholders and outstanding shares in the suspense account in the beginning of the year (19th Dec.2016) i.e. date of listing of shares of the Co.

No. of Shareholders approached for transfer of shares during the year

No. of Shareholders to whom shares were transferred and no. of shares transferred

No. of shareholders and the no. of outstanding shares in the suspense account at the end of the year (31st March 2017).

6 Shareholders and 210 Equity Shares

3 Shareholders

3 Shareholders and 105 Shares

3 Shareholders and 105 Shares

Business Responsibility Report (BRR)

The Listing Regulations mandate the inclusion of the BRR as part of the Annual Report for top 500 listed entities based on market capitalization. In accordance with the Listing Regulations, we have integrated BRR disclosures into our Annual Report.

Acknowledgements:

Your Directors would like to place on record their sincere appreciation to customers, business associates, bankers, vendors, government agencies and shareholders for their continued support.

Your Directors are also happy to place on record their sincere appreciation to the co-operation, commitment and contribution extended by all the employees of the Laurus family and look forward to enjoying their continued support and cooperation.

For and on behalf of the Board

Dr. Satyanarayana Chava Ravi Kumar V. V.

Executive Director & Executive Director &

Hyderabad Chief Executive Officer Chief Financial Officer

18th May 2017 DIN:00211921 DIN:01424180

Director’s Report