Directors' Report Dear Members, Your Directors take pleasure in presenting the 53rd Annual Report on the business and operations of your Company for the financial year ended March 31,2016. Financial Highlights The table below gives the financial highlights of the Company on Standalone basis for the year ended March 31,2016 as compared to the previous financial year. Review of Operations During the year under review, Stand alone Sales/Income from operations (Net) increased to Rs. 1,22,241.14 lacs from ,09,098.46 lacs in 2014-2015, registering a growth of 12.05%. Consolidated Sales/Income from Operations (Net) stood at Rs. 1,33,456.38 lacs in 2015-2016 as compared to Rs. 1,20,179.34 lacs for the year ended March 31,2015, registering an increase of 11.05%. Research and Development (R&D) Kindly refer to the write up in the section, Management Discussion and Analysis. Management Discussion and Analysis A detailed review on the operations and performance of the Company is given in the Management Discussion and Analysis, which forms part of this Annual Report. Appropriations An amount of Rs. 74,071.11 lacs is proposed to be carried forward in the Profit & Loss Account. During the year under review, no amount was transferred to General Reserve. Dividend The Board of Directors at its Meeting held on March 9, 2016 declared an Interim Dividend of Rs. 2/-(100%) per equity share of Rs. 2/- each. The Dividend was paid to the shareholders on March 28, 2016. The said Interim Dividend has been confirmed by the Board as Final Dividend for the financial year ended March 31,2016. Employees Stock Option Scheme During the year under review, 6,74,451 options having a face value of Rs. 2/- were exercised and the same were allotted (on pari passu basis) under the Employees Stock Option Scheme - 2008. Details of the Employees Stock Option Scheme - 2008 are set out as Annexure A to this Report. Corporate Governance A detailed report on Corporate Governance as required under Regulation 34 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations"), forms part of this Annual Report. The Auditors' Certificate on compliance with the conditions of Corporate Governance requirements by the Company is attached to the Report on Corporate Governance. Consolidated Financial Statements In accordance with the Accounting Standards AS - 21 on Consolidated Financial Statements, and the Listing Regulations, your Directors provide the Audited Consolidated Financial Statements in the Annual Report. Review of Subsidiaries and Associates Your Company has five Subsidiaries and one Associate Company. Financials of the Subsidiaries and Associate Company are disclosed in the Consolidated Financial Statements, which form part of this Annual Report. A statement containing salient features of the Financial Statements of the Subsidiaries and Associate Company, pursuant to Section 129 of the Companies Act, 2013 and Rules made thereunder is annexed to this Report as Annexure B in the prescribed Form AOC -1 and hence not repeated here for the sake of brevity. Synchron Research Services Private Limited (Synchron) is an Associate Company in terms of Section 2 (6) of the Companies Act, 2013. Synchron is a leading contract research organization in India which offers competitive and high quality clinical trial services to domestic and international pharmaceutical and bio-pharmaceutical companies. Your Company avails such services from Synchron from time to time, on competitive terms. On internal assessment of long term strategic investments made by the Company in its Wholly Owned Subsidiary, Unichem Farmaceutica Do Brazil Ltda., considering its past performance, results, assets, expected cash flows, projections and having confidence in the business model and strategy of the said Subsidiary achieving its goals given favourable business opportunities, the management has determined an amount of Rs. 2,277.63 lacs as diminution for the year (previous year Rs. 434.55 lacs) taking the accumulated provision to Rs. 3,581.41 lacs (previous year : Rs. 1,303.77 lacs) on total investment of Rs. 5,695.88 lacs made therein and the same is considered adequate by the Board of Directors as at the balance sheet date. Particulars of Loans, Guarantees and Investments Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements. Deposits The Company has not accepted any deposits within the meaning of Section 73 of the Companies Act, 2013 read with the Companies (Acceptance of Deposits) Rules, 2014. Risk Management The Company has formulated a policy on Risk Management. Risks are classified in different categories such as Financial, Operational, Legal and Strategic risks. A risk register is prepared for identification of risk and formulating mitigating plans. Credit Rating ICRA has re-affirmed your Company's A1 +rating for short term debt (including Commercial Paper) Programme of Rs. 1,500 lacs. The rating indicates strong degree of safety regarding timely payment of financial obligations. Directors and Key Managerial Personnel At the Annual General Meeting of the Company held on July 11, 2015, the shareholders approved the Directors' Report UNICHEM appointment of Dr. (Mrs.) B. Kinnera Murthy as an I ndependent Director to hold office for a period of three (3) consecutive years upto March 20,2018. All the Independent Directors have furnished declarations that they meet the criteria of independence as laid down under Section 149 (6) of the Companies Act, 2013 and the Listing Regulations. Dr. Prakash A. Mody retires by rotation at the ensuing Annual General Meeting in terms of the provisions of Section 152 of the Companies Act, 2013 (the Act). The Act provides that Independent Directors are not subject to retirement by rotation and two thirds of the remaining Directors shall be subject to retirement by rotation. Since all the Directors except Dr. Mody are Independent Directors, Dr. Mody will retire by rotation and being eligible offers himself for re-appointment. Dr. Mody is the Chairman & Managing Director of the Company. Upon his re-appointment as a Director, he shall continue to hold office as the Chairman & Managing Director of the Company. Attention of the Members is invited to the relevant item in the Notice of the Annual General Meeting seeking your approval to the aforesaid re-appointment. The information required under Regulation 36 of the Listing Regulations is provided in the Notice of the 53rd Annual General Meeting and the statement annexed thereto. Dr. Prakash A. Mody, Chairman & Managing Director, Mr. Rakesh Parikh, Chief Finance & Compliance Officer and Mrs. Neema Thakore, Head - Legal & Company Secretary were the Key Managerial Personnel during the financial year. Directors' Responsibility Statement To the best of their knowledge and belief and according to the information and explanations obtained by them, your Directors make the following statements in terms of Section 134 (3) (c) of the Companies Act, 2013, (the Act): 1. that in preparation of annual accounts for the year ended March 31, 2016, the applicable accounting standards have been followed and no material departures, have been made from the same; 2. that such accounting policies have been selected and applied consistently and made judgements 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 March 31, 2016 and profit for the year ended on that date; 3. that 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; 4. that the annual accounts have been prepared on a going concern basis; 5. that the internal financial controls were in place and that they were adequate and operating effectively and; 6. that systems to ensure compliance with the provisions of all applicable laws were devised and such systems were adequate and operating effectively. Board Evaluation Pursuant to the provisions of the Companies Act, 2013 and the Listing Regulations, performance evaluation of the Board, it's Committees, the Chairman & Managing Director and the Independent Directors was carried out. The manner in which the evaluation is carried out has been explained in the Corporate Governance Report. Remuneration Policy The Board on the recommendation of the Nomination and Remuneration Committee has adopted a policy for selection, appointment and remuneration of Directors, Key Managerial Personnel and Senior Management. The details of this Policy are provided in the Corporate Governance Report. Meetings During the year, 5 (five) Board Meetings were held, the details of which are given in the Corporate Governance Report. Audit Committee The constitution of the Audit Committee, its scope, role and terms of reference are as per the provisions of the Companies Act, 2013, the Rules made thereunder and the Listing Regulations. All the recommendations made by the Audit Committee were accepted by the Board of Directors. Whistle Blower Policy The Company has in place a Whistle Blower/Vigil Mechanism through which its Stakeholders, Directors and Employees can report their genuine concerns about unethical behaviour and actual or suspected fraud or violation of the Company's 'Code of Business Conduct and Ethics'. The said Policy provides for adequate safeguards against victimization and also direct access to the Audit Committee. The e-mail id for reporting genuine concerns is whistleblower@unichemabs.com Significant and Material orders passed by the Regulators/Courts/Tribunals No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the Company's going concern status and its operations in the future. However the Board of Directors would like to inform that on July 9, 2014, the European Commission decided to impose an unjustified fine of € 13.97 million, jointly and severally on the Company and its subsidiary Niche Generics Ltd., (Niche) contending that they have acted in breach of EU competition law as Niche had, in early 2005 (when the Company was only a part owner and financial investor in Niche) agreed to settle a financially crippling patent litigation with Laboratories Servier. The Company vehemently denies any wrongdoing on the part of either itself or Niche. Both the Company and Niche have submitted appeals in September 2014, to the EU General Court seeking appropriate relief in the matter. Your Company has challenged this order and the proceedings are currently ongoing. Material changes and commitment, if any, affecting the financial position of the Company from the end of the financial year till the date of this Report There have been no material changes and commitments, if any affecting the financial position of the Company between the end of the financial year of the Company to which the Financial Statements relate and the date of this Report. Related Party Transactions All Related Party Transactions entered during the financial year under review were in the ordinary course of business and on arm's length basis, except for increase in remuneration payable to Ms. Supriya Mody, daughter of Dr. Prakash A. Mody, Chairman & Managing Director of the Company upto a sum not exceeding Rs. 65 lacs (Rupees Sixty Five Lacs Only) in a financial year starting from April 1, 2015 inclusive of perquisites ("Maximum Remuneration"). The said transaction, not being an arm's length transaction, but a transaction in the ordinary course of business was duly approved by the shareholders at the Annual General Meeting held on July 11,2015. All other Related Party Transactions that were entered into during the year under review were on an arm's length basis and in the ordinary course of business. The Audit Committee has given prior approval for Related Party Transactions. The Policy on Related Party Transactions (Policy) as approved by the Board is uploaded on the Company's website and the weblink is provided in the Corporate Governance Report. The Board of Directors of the Company has approved the criteria for omnibus approval of Related Party Transactions by the Audit Committee within the overall framework of the Policy. Details of Related Party Transactions not on arm's length basis but in the ordinary course of business for which prior approval of the Audit Committee and shareholders' approval has been sought and details of Material Related Party Transactions which are on arm's length basis and in the ordinary course of business entered during the financial year under review as required under Section 134(3)(h) of the Companies Act, 2013 are annexed as Annexure C in the prescribed format, Form AOC 2, forming an integral part of this Report. Except to the extent of the shares held in the Company and the remuneration if any, drawn from the Company none of the Directors and the Key Managerial Personnel have any pecuniary relationships or transactions vis-a-vis the Company. Disclosure under The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 The Company has in place a policy on Prevention, Prohibition and Redressal of Sexual Harassment at the Workplace in line with the requirements of The Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013. An Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. The policy has set guidelines on the redressal and enquiry process that is to be followed by complainants and the ICC, whilst dealing with issues related to sexual harassment at the work place. All women employees (permanent, temporary, contractual and trainees) are covered under this Policy. The Company has not received any complaints during the year under review. Auditors B. D. Jokhakar & Co., were appointed as Statutory Auditors to hold office from the conclusion of the 51 st Annual General Meeting (AGM) to the conclusion of the fourth consecutive AGM, (subject to ratification of the appointment by the Members at every AGM held after the 51st AGM). A proposal for ratification of the appointment of the Statutory Auditors for the financial year 2016-2017 is placed before the Members at the ensuing AGM. The said Auditors have confirmed their eligibility for appointment in terms of Section 139 of the Companies Act, 2013. During the year under review, the Auditors have not reported any matter under Section 143 (12) of the Companies Act, 2013 and therefore no details are disclosed under Section 134(3)(ca)of the Act. A Resolution seeking ratification of their appointment, forms part of the Notice convening the 53rd Annual General Meeting and the same is recommended for your consideration and approval. Cost Auditors The Board of Directors at its Meeting held on May 20, 2016, based on the recommendation of the Audit Committee, appointed Y. R. Doshi & Co., (Firm Registration No. 000003) Cost Accountants, Mumbai, as Cost Auditors for undertaking Cost Audit of the Cost Accounting Records maintained by the Company for the financial year 2016-2017 at a remuneration not exceeding Rs. 6.50 lacs (Rupees Six Lacs Fifty Thousand Only) plus service tax as may be applicable and out of pocket expenses at actuals. The said Auditors have confirmed their eligibility for appointment as Cost Auditors. The remuneration payable to the said Cost Auditors is required to be placed before the Members at the ensuing Annual General Meeting for ratification and a suitable Resolution has been set out in the Notice of the 53rd Annual General Meeting of your Company. The Cost Audit Report for the year ended March 31, 2015 was filed with the Ministry of Corporate Affairs on September 29,2015. Secretarial Audit Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Rules made thereunder, the Company has appointed Alwyn Jay & Co., Company Secretaries in Practice to undertake the Secretarial Audit of the Company. The Secretarial Audit Report is annexed as Annexure D to this Report. There is no qualification, reservation, adverse remark or disclaimer in the said Report. During the year under review, the Secretarial Auditors have not reported any matter under Section 143 (12) of the Act, and therefore no details are disclosed under Section 134 (3)(ca) of the Act. Internal control systems and their adequacy Kindly refer to the write up in the section Management Discussion and Analysis. Energy Conservation, Technology Absorption, and Foreign Exchange Earnings and Outgo The particulars as prescribed under Section 134 (3)(m) of the Companies Act, 2013 and Rules made thereunder are set out in Annexure E to this Report. Extract of Annual Return Form MGT-9 providing an extract of the Annual Return in terms of Section 92 of the Companies Act, 2013 and the Rules made thereunder is annexed as Annexure F to this Report. Particulars of Employees and related disclosures Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 and Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are annexed as Annexure G to this Report. In terms of the provisions of Section 197(12) of the Companies Act, 2013 and Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, in respect of employees of the Company, forms part of this Report. However, as per the provisions of Sections 134 and 136 of the Act, the Report and Financial Statements are being sent to the Members and others entitled thereto, excluding the information on employees particulars, which is available for inspection at the Registered Office of the Company as per details mentioned in the Notice of the 53rd Annual General Meeting on any working day of the Company upto the date of the 53rd Annual General Meeting. Any Member interested in obtaining a copy of the same may write to the Company Secretary at the Company's Registered Office. Human Resources and Employee Relations Kindly refer to the write up in the section Management Discussion and Analysis. Quality and Environment Your Company's mission envisages a strong sense of commitment to work towards being a caring pharmaceutical company, which will continuously strive to enhance health through quality products. Your Company aims at consistently providing products that meet customer needs as well as national and international regulatory requirements as may be applicable. It has been steadily raising the bar, setting higher goals for incremental performance and enlarging the scope of its initiatives. The environmental policy of your Company emphasizes at being a caring company, which shall protect and promote the environment by complying with applicable environmental regulations and preventing pollution in all its operations. With a view to meet this challenge, our manufacturing facilities plant trees and saplings in the Company premises. Our employees spread awareness amongst the locals about planting more trees and making less use of plastic bags. Similarly, various initiatives are taken at our manufacturing locations to reduce waste across the plants and reduce usage of paper by recycling waste paper. Training programmes are organised from time to time to create environmental awareness amongst the employees. To conserve water, the Company has devised various water saving methods which are monitored on day to day basis. Your Company continues to strive for energy saving and conservation of natural resources. In some of our Active Pharmaceutical Ingredients (API) Plants your Company has installed online effluent monitoring equipment which is connected to the system of the Central Pollution Control Board. At the manufacturing units, several green initiatives have been undertaken, most significant being soil conservation, recycling of treated effluent water and using solar energy for street lighting. Corporate Social Responsibility (CSR) Your Company believes in the philosophy of giving back. Being in the pharmaceutical industry your Company's primary focus is healthcare. Education and development of needy sections of the Society especially the economically backward section are the other areas in which your Company concentrates its CSR activities. While the focus of CSR efforts will be in the areas around Company operations, the Company may also undertake projects looking into other societal needs. The CSR policy is available on the website of the Company and the Annual Report on CSR activities, as required under Section 135 of the Companies Act, 2013, is annexed as Annexure H to this Report. The Company would also undertake other need based initiatives in compliance with Schedule VII to the Companies Act, 2013. During the year under review the total amount to be spent was Rs. 291.33 lacs. The Company spent Rs. 253 lacs on CSR which is 1.74% of the average profits, for the last three financial years. Balance amount of Rs. 38.33 lacs remained unspent. The Company has plans to scale up its CSR activities in areas of education and health in a structured manner to meet the objectives of its CSR Policy in the coming years. Further certain funds even though allocated to approved educational projects by the CSR committee, were not disbursed since there was no requirement for these funds from the organizations/institutions during the year under review. Health and Safety Health and Safety issues are addressed systematically, effectively and proactively. Your Company takes pride in providing various forms of medical assistance to the families of its employees and also to all those living in surrounding villages. Periodic health check ups are carried out for all employees and regular training programmes are organised on safety and precautionary measures. Fire fighting training programmes and first aid training camps are organised regularly to educate workers and employees at the plant locations and corporate office. Acknowledgement Your Directors acknowledge the support and wise counsel extended to the Company by analysts, bankers, Government agencies, shareholders, investors, suppliers, distributors, stockists and others associated with the Company as its business partners. Your Directors also acknowledge the trust reposed in the Company by the medical fraternity and patients. We look forward to having the same support in our mission to enhance health through quality products. Cautionary Statement Statements in this Directors' Report and Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations or predictions may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company's operations include raw material availability and its prices, cyclical demand and pricing in the Company's principle markets, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other ancillary factors. For and on behalf of the Board of Directors, Dr. Prakash A. Mody Chairman & Managing Director Mumbai May 20, 2016 |