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Piramal Enterprises Ltd.

BSE: 500302 | NSE: PEL |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE140A01024 | SECTOR: Pharmaceuticals

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Annual Report

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Director’s Report

We take pleasure in presenting the 61st Annual Report and Audited Accounts for the Year ended 31st March 2008. At the outset, we are pleased to inform you that pursuant to your approval by Special Resolution which was passed through Postal Ballot and the Fresh Certificate of Incorporation consequent upon Change of Name issued by the Registrar of Companies, Maharashtra, the name of the Company has been changed from Nicholas Piramal India Limited to Piramal Healthcare Limited (PHL). PERFORMANCE HIGHLIGHTS: (Standalone) (Rs. in Million) Year ended March 31 2008 2007 %Growth Total operating income 19,300.2 16,379.0 17.8 OPBIDTA 4,124.9 3,018.6 36.6 % margin 21.4 18.4 Non-operating other income 80.5 19.8 306.6 EBIDTA 4,205.4 3,038.4 38.4 Less: Interest (Net) 173.0 109.0 58.7 Depreciation 704.8 705.0 (0.0) Profit before tax and Exceptional items 3,327.6 2,224.4 49.6 Less: Income tax provision 312.8 341.6 (8.4) - Current 400.3 265.5 - Deferred 52.7 166.0 - MAT Credit Entitlement (170.2) (111.6) - Fringe Benefits Tax 30.0 21.7 Profit after tax 3,014.8 1,882.8 60.1 % margin 15.6 11.5 Add: Profit brought forward from previous year 3,208.6 3,039.3 Profit available for appropriation 6,223.4 4,922.1 Appropriation: Interim Dividend Paid - Preference Share (On Redemption) 13.4 3.7 - Equity Shares -- 627.1 - Preference Shares -- 19.2 - Dividend Distribution Tax thereon 2.3 91.2 Proposed Dividend - Equity Shares 877.9 104.5 - Dividend Distribution Tax thereon 149.2 17.8 Transfer to General Reserve 1,626.7 700.0 Transfer to Capital Redemption Reserve 345.3 150.0 Balance carried to Balance Sheet 3,208.6 3,208.6 Earnings per share (Basic / Diluted) (Rs.) 14.3 8.9 DIVIDEND Preference Shares: The Company had on 9th January, 2008 redeemed the following Preference Shares alongwith pro-rata dividend @5% from 1st April 2007 upto i 9th January 2008, being the date of redemption, which is confirmed as final dividend: a) 15,00,000 - 5% Cumulative Redeemable Preference Shares of Rs.100 each (Series I Preference Shares). b) 2,33,72,280 - 5% Cumulative Redeemable Preference Shares of Rs.10 each (Series II Preference Shares). Equity Shares: The Board has recommended final Equity Dividend at 210% (i.e. Rs. 4.20 per share) on 20,90,13,144 equity shares of Rs.2A each, which will be paid to eligible members on June 27, 2008, after approval by the shareholders at the forthcoming Annual General Meeting. The total cash outflow on account of equity dividend & preference dividend payments, including distribution tax, will be Rs. 1,042.8 million. (FY2007 Rs.863.5 million) The Board recommends the above dividends for declaration/confirmation by the members. CORPORATE RESTRUCTURING: De-Merger of New Chemical Entity (NCE) Research Unit: During the year, the Companys NCE Research Unit was demerged to Piramal Life Sciences Limited (TLSL) [formerly known as NPIL Research and Development Limited] under a Composite Scheme of Arrangement (Demerger Scheme) duly sanctioned by the Honble Bombay High Court. The Appointed Date under the Demerger Scheme was 1st April, 2007 and the Effective Date was 21st January, 2008. Members of the Company have been issued and allotted on 25th February, 2008, one PLSL share of Rs.10 for every 10 equity shares of Rs.2/- each held in the Company as on 22nd February, 2008, which was the Record Date. The shares of PLSL are in the process of being listed on the Exchanges where the Company is listed i.e. BSE and NSE. Merger of Diagnostic Services (Pathlabs) subsidiaries During the year, all the pathlabs operations were consolidated in one subsidiary, viz. NPIL Laboratories and Diagnostics Pvt. Ltd., which name has now been changed to Piramal Diagnostic Services Private Limited (PDSL). Accordingly, NPIL Dr. Phadke Pathology Laboratory and Infertility Center Pvt Ltd (wholly-owned subsidiary of the Company) and Rana Diagnostics Pvt Ltd (which was acquired by PDSL during FY08 and was its wholly- owned subsidiary) merged with PDSL under a Scheme of Arrangement and Amalgamation sanctioned by the Honable Bombay High Court. Merger of NPCPPL and NPIL Healthcare: During the year, the Companys wholly-owned subsidiaries, Nicholas Piramal Consumer Products Private Limited (NPCPPL) and NPIL Healthcare Private Limited (NHPL) merged with the Company under a Scheme of Amalgamation sanctioned by the Honable Bombay High Court with effect from 1st April, 2007 which was the Appointed Date under the Scheme. They being wholly owned subsidiaries, no new shares have been issued by the Company pursuant to the Scheme. OPERATIONS REVIEW: Total Operating income for the year grew 17.8% to Rs 19.3 billion compared with Rs. 16.4 billion for the year ended 31 March 2007. Operating Profit (OPBIDTA) grew 36.6% to Rs.4.1 billion. Profit After Tax grew by 60.1% to Rs. 3.0 billion compared to Rs. 1.9 billion for the previous year. Earnings per share for the year was Rs. 14.3 per share vs. Rs. 8.9 in FY2007. A detailed discussion of operations for the year ended 31st March 2008 is given in the Management Discussion and Analysis section. RESEARCH & DEVELOPMENT: With the de-merger of the Companys New Chemical Entity (NCE) R&D division, the Company has discontinued all its activities relating to NCE R&D. The Company however, continues to conduct Research and Development related to: - Development of conventional and novel dosage forms for drug products across all the major therapeutic areas for the domestic market; - Preformulation and formulation development and clinical manufacturing of NCEs for external clients;Process optimisation / research and scale up, for the early phase projects from clients; - Development of cost effective and environmentally friendly process for commercial manufacturing of active pharmaceutical ingredients (APIs) 6k / or their intermediates. As a result, Total R&D expenditure during the year has come down significantly during the year. It was Rs. 352.8 million, including capital expenditure of Rs. 76.9 million. The corresponding previous year spends were Rs. 1,074.0 million and Rs. 195.1 million respectively. The research and development staff has also accordingly reduced to 131 people in FY2008 from 386 in FY2007. SUBSIDIARY COMPANIES: Piramal Diagnostic Services Private Limited (PDSL): We are aggressively building up this business. During the year we acquired 16 new laboratories and completed a three-way merger between Rana Diagnostics, Dr. Phadkes Laboratories and PDSL. PDSL also received during the year the prestigious certification from College of American Pathologists (CAP). The company can now take on pathology work related to Clinical Research Organisations. The Total Operating Income for Pathlabs grew by 71.8% from Rs. 695.0 million in FY2007 to Rs. 1.2 billion in FY2008. Operating Profit for the year was up by 112.5% to Rs 251.2 million from Rs. 118.2 million in FY2007. Acquisition of new labs and setting up Greenfield facilities have resulted in higher interest costs and depreciation. NPIL Pharmaceuticals (UK) Ltd.: Starting from this year, we have increased our focus on improving profitability in this business. The net sales for FY2008 for NPIL Pharmaceuticals (UK) Ltd. grew by 14.3% to Rs. 7.2 billion as against Rs. 6.3 billion for FY07. Operating profit for the year was up by 23.8% to Rs. 876.3 million as compared to an operating profit of Rs. 707.9 million in FY07. We have incurred one-time exceptional charge of Rs. 341.8 million during the year. As a result, PAT for the year was lower at 365.2 million, as compared to Rs. 515.0 million FY07. Torcan Chemical Limited: Adverse movement of Canadian Dollar against the US Dollar has significantly affected Torcans performance this year. Canadian Dollar had appreciated by 11% during the year. As a result, Net Sales for FY08 for Torcan was lower at Rs. 917 million as compared to Rs. 1.1 billion for FY07, Operating loss for the year was Rs. 9.2 million as compared to the operating profit of Rs. 106.1 million for FY07 and Net Loss for the year was Rs.68.2 million as compared to Net Profit of Rs. 65.2 million for FY07. We are now utilizing our Ennore facilities to complement Torcans offerings and to make it more competitive. The Central Government has granted exemption under section 212(8) of the Companies Act 1956, from attaching to the Balance Sheet of the Company, the Accounts and other documents of its subsidiaries. However, the Consolidated Financial Statements of the Company, which include the results of the said subsidiaries, are included in this Annual Report, Further, a statement containing the particulars prescribed under the terms of the said exemption for each of the Companys subsidiaries is also enclosed. Copies of the audited annual accounts of the Companys subsidiaries, can also be sought by any investor of the Company or its subsidiaries on making a written request to the Company Secretary at the registered office of the Company in this regard. The Annual Accounts of the subsidiary companies are also available for inspection for any investor at the Companys and/or concerned subsidiaries registered office. JOINT VENTURES: Allergan India Limited (AIL) AIL is a 51:49 Joint Venture between Allergan Inc., USA and Piramal Healthcare Limited. Net Sales of AIL grew by 19.0% to Rs. 913.3 million (FY2007 Net Sales; 767.1 million) PBIDT for FY2008 was up by 102% to Rs.211.7 million as compared to Rs.104.6 million in FY2007. Profit after tax for FY2008 was up by 150.0% to Rs. 109.8 million as compared to Rs. 43.9 million for FY2007. INDUSTRY OUTLOOK: The domestic pharmaceutical market continued to grow well as a result of rising income levels. As per ORG-IMS MAT March, the growth for the year was 14.8%. Chronic therapies continue to grow faster than acute. The year has seen players making investment in field-force to tap the rural markets. No major price increases were seen during the year, instead the focus has been on penetrating the markets. The Global Custom Manufacturing market continued to show good growth. Increased acceptance of Indian companies as manufacturing partners has resulted in higher growth. Larger pharmaceutical companies are now increasingly looking at outsourcing their manufacturing operations; faced by rising cost-pressures and patent expiry of blockbuster drugs. The year also marked the entrance of some Indian companies in the custom manufacturing business. However, custom manufacturing market is large and growing. The lead-times are also longer in this business which create a significant entry barrier. INTERNAL CONTROL SYSTEM: The Company has a sound internal control system, which ensures that all assets are protected against loss from unauthorized use and all transactions are recorded and reported correctly. The internal control systems are further supplemented by internal audit carried out by an independent firm of Chartered Accountants and periodical review by management. The Audit Committee of the Board addresses significant issues raised by both, the Internal Auditors and the Statutory Auditors. HUMAN RESOURCES MANAGEMENT: Employees are vital to our Company. We have created a favorable work environment that encourages innovation and meritocracy. We had staff strength of 7,061 employees (31 March 2007: 6,745 employees) as at 31 March 2008. Function March 200 8 31 March 2007 +/(-) Total Manpower 7,061 6,745 316 (a) Field staff 3,789 3,154 635 (b) R&D staff 131 387 -256* (c) Others 3,141 3,204 -63 *Reduction is on account of transfer to Piramal Life Sciences Limited on Demerger. Any shareholder interested in obtaining a copy of the statement of particulars of employees referred to in section 217 (2A) of the Companies Act 1956, may write to the Company Secretary at the Registered Office of the Company. Stock Options disclosures pursuant to the applicable requirements of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are given in the Annexure to this Report. CORPORATE SOCIAL RESPONSIBILITY: In the Piramal Group, we believe we exist to care for the world we share and serve. We aim to offer sustainable support to populations in need through programmes in disease prevention, education, development, hygiene and access to healthcare. As a Group, our Corporate Social Responsibility initiatives, channelled through the Piramal Foundation, are focused on the search for solutions to the most pressing challenges in India. In partnership with Indicorps, the Piramal Foundation has established a Grassroots Development Laboratory (GDL) in the village of Bagar, Rajasthan. Talented young change makers from around the world are empowered to implement scaleable and sustainable innovations in healthcare, education, livelihood, technology utilization, rural enterprise and community development - some of Indias toughest development challenges. This has resulted in the establishment of the Bagar Employment Institute, the Bagar Employment Exchange, an award-winning women-staffed rural BPO and an entrepreneurial, sustainable pilot programme for affordable, purified drinking water in rural areas. The Indian School of Education implements programmes such as a principals training programme in Rajasthan, and the Gandhi Fellowship, which will place highly talented new graduates in roles that assist government schools in effecting educational improvement in rural India. The Piramal Prize for Innovations that Democratize Healthcare is a competitive initiative in partnership with the Indian Institute of Management, Ahmedabad, that encourages innovators to explore and implement breakthrough ideas. It will incubate sustainable, scaleable business models that will make the highest standards of health accessible to Indias rural and marginalized urban communities. The Pratham India Education Initiative, seeded by UNICEF and the Mumbai Municipal Corporation, was initiated in 1994 to spread primary education. The societal mission, Every child in school and learning, and its replication in other parts of the country has attracted diverse supporters and volunteers. The Gopikrishna Piramal Memorial Hospital, built in 1982, focuses on serving handicapped children and those with chronic conditions, such as arthritis or kidney disease. This facility also conducts ophthalmology and pediatrics camps in slum areas. The Dialysis Training Institute, where dialysis technicians are certified and trained, has received major acclaim from the government. Give India is a non-profit organization dedicated to help the public contribute to causes of their choice. Through the Piramal Groups association with Give India, our employees are provided the opportunity to donate part of their monthly salary to abet and champion one of the diverse social causes espoused and listed by the NGO. The Piramal Group then matches this contribution. DIRECTORS RESPONSIBILITY STATEMENT: As required under section 217(2AA) of the Companies Act, 1956 we hereby state: a) that in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any; b) that the Directors have 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 as at 31 March 2008 and its profit for the year ended on that date; c) that the Directors have taken proper and sufficient care 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) that the Directors have prepared the annual accounts on a going concern basis. DIRECTORS: Mr. Y.H. Malegam and Mr. Deepak Satwalekar retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment, which the Board recommends. The following changes in the Board of Directors took place during FY08: * Mr. Rajesh Khanna - Director and Mr. Michael J. Fernandes - Executive Director (CMG) ceased to be Directors of the Company. Your Board places on record its appreciation of the contributions made by these Directors during their tenure with the Company; * Mr. N. Santhanam - Group President Finance & Legal and Chief Financial Officer was elevated to the Board and appointed as Executive Director & CFO for a period of 3 years w.e.f.25th October 2007; Dr. Swati A. Piramal was re-appointed as Director - Strategic Alliances & Communications during the year, for a further period of five years w.e.f.20th November 2007. The re-appointment / appointment of Dr. Swati A. Piramal and Mr. N. Santhanam were approved by members at the Extra Ordinary General Meeting held on 23rd November 2007. CORPORATE GOVERNANCE: The Company has complied with the applicable provisions of Corporate Governance under clause 49 of the Listing Agreement with the Stock Exchanges. A separate report on Corporate Governance compliance is included as a part of the Annual Report alongwith the Certificate from Mr. N.L. Bhatia, Practicing Company Secretary. In compliance with the Corporate Governance requirements, the Company has implemented a Code of Conduct for all its Board members, who have affirmed compliance thereto. A Code of Conduct has also been formulated and implemented for the senior management of the Company. The said Codes of Conduct have been posted on the Companys website. FIXED DEPOSIT: We had discontinued accepting / renewing fixed deposits. Unclaimed Fixed Deposits from the public / shareholders as on 31st March 2008 amounted toRs. 175,000 (FY2007: Rs.199,000) CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION: Particulars required under Section 217 (1) (e) of the Companies Act, 1956 read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is given in the Annexure to this Report. AUDITORS: Shareholders are requested to appoint the Auditors. Messrs. Price Waterhouse, Mumbai retire as Auditors of the Company at the ensuing Annual General Meeting and are eligible for reappointment. ACKNOWLEDGEMENTS: We take this opportunity to thank the employees for their dedicated service and contribution to the Company. Our sincere appreciation is also due to the Medical Profession and Distributors for the patronage of our products. We also thank our strategic alliance and joint venture partners, banks, financial institutions, business associates and our shareholders for their continued support towards conduct of efficient operations of the Company. By Order of the Board Ajay G. Piramal Chairman 16 May 2008

Director’s Report