DIRECTOR'S REPORT To, The Shareholders, Your Directors have pleasure in presenting herewith the 28th Annual Report on the business of Your Company together with the Audited Accounts for the financial year ended 31st March, 2015 REVIEW OF OPERATIONS: During the year under review the operational and financial performance is satisfactory. The Company is able to successfully launch new line of products apart from maintaining sales of the existing products which are facing competition from non-regulated suppliers. Being in the Pharmaceutical industry, the Company always focus on new products and improve the existing products for better margins. Expansion activities are progressing as per schedule. The Company expects that the investments made during the last two years would start yielding results in the next couple of years. Management continues to concentrate on expansion of operations, high-margin products, invention of new process, maintaining specified standards in production and quality of product and effective financial management to strengthen the base-line and to continue with growth path. During the year, the USFDA inspected the Company's both Active Pharmaceutical Ingredients (APIs) manufacturing facility situated at Raichur, Karnataka and Formulations manufacturing unit situated at FORMA SEZ, Jadcherla in the state of Telangana. The said units have been inspected and approved by Cofepris (Mexico), Anvisa (Brazil) and EU (Slovenia).During the year under review, anticipating increase in demand based on forecast, Oncology manufacturing facility for few products has been expanded significantly. Likewise, production capacity of other APIs have also been increased substantially to meet present and future demand. During the year under review, your Company continued its focus on various initiatives related to improvements in Employees Health and Safety Measures, Quality Management System i.e Clean Development Mechanism, adopting latest technologies for Effluent Treatment for conserving water by recycling the waste water, disposal of solid waste, spent solvents by biological treatment etc. R & D - SPENDING & DMF FILINGS : It is essential for any pharma company to focus on Research and Development. The Company has efficient team of scientists with two state of art research facilities recognized by DSIR for inventing new product processes/products beside improvement in quality of existing products. Keeping in view the essentiality your Company has been focusing and investing substantially on R&D since couple of years. During the financial year under review, your Company spent about Rs.2793.28 lacs on Research & Development. It has started yielding some encouraging results. During the year under review, projects of five products transfer executed successfully, other projects of eight products have been completed and ready for transfer to plant. Ten new molecules have been taken for development considering future demand. REGULATORY AFFAIRS : Your Company has set-up a full-pledged Department during the last 3 to 4 years to take care for filing of new DMF's/ Patents etc and to scrutinize the same in a systematic way to avoid any complaints/infringement resulting in suit/s against the Company and to contest cases filed against the Company. Filed DMFs for four products in US also filed application of EU-CP, EU-DCP, EDQM-CEP, Health Canada, New Zealand, and Australia. The Company also got eleven PCT and fifteen Indian patents. DIVIDEND: Your Directors recommended a dividend of Rs. 1.10 i.e. 55% per equity share of Rs.2/- each for the financial year 20142015 under review absorbing an amount of Rs.508.85lacs inclusive of dividend tax. TRANSFER TO RESERVES: We propose to transfer Rs.500 Lacs to the general reserve. An amount of Rs.7,400.92 Lacs is proposed to be retained in the surplus account. INFUSION OF CAPITAL: During the year under review, as part of mobilization of resources for the purpose of expanding the operations of the Company, fresh funds were raised by allotting 17,64,705 equity shares of Rs.2/- each to Tano Mauritius India FVCI II, the existing member of the Company, at a premium of Rs. 423/-each on 15th May, 2014 on preferential basis. DETAILS OF DIRECTORS OR KEY MANAGERIAL PERSONNEL Mr.Omprakash Inani, Director of the Company, retire by rotation at the ensuing Annual General Meeting and being eligible, offer himself for re-appointment. During the year Ms. Namrata Bhutada has been co-opted as Additional Director w.e.f. 28th February, 2015. Notice in writing under Section 160 of the Companies Act, 2013, proposing her candidature for the office of Director of the Company, has been received to appoint her as a Director of the Company whose period of office shall be determinable by retirement of Director by rotation. The Company has received declarations from all the Independent Directors of the Company confirming that they meet the criteria of independence as prescribed both under the Act and Clause 49 of the Listing Agreement with the Stock Exchanges. The Company has devised a Policy for performance evaluation of Independent Directors, Board Committees and other individual Directors which include criteria for performance evaluation of the non-executive directors and executive directors. AUDITORS Statutory Auditors At the Annual General Meeting (AGM) held on September 20, 2014, M/s. Bohara Bhandari Bung and Associates LLP, Chartered Accountants, were appointed as Statutory Auditor of the Company to hold office till the conclusion of the Annual General Meeting to be held in the calendar year 2017. In terms of the first proviso to Section 139 of the Companies Act, 2013, the appointment of the auditor shall be placed for ratification at every Annual General Meeting. Accordingly, the appointment of M/s. Bohara Bhandari Bung and Associates LLP, Chartered Accountants, as statutory auditors of the Company, is placed for ratification by the shareholders. In this regard, the Company has received a certificate from the auditors to the effect that if they are reappointed, it would be in accordance with the provisions of Section 141 of the Companies Act, 2013. Cost Auditors: The Board has appointed M/s. N.Ritesh & Associates, Cost Accountants for conducting the audit of cost records of the Company for various segments for the financial year 2015-16 as recommended by the Audit Committee. As required under section 148 and Rule 14 of the Companies (Audit and Auditors) Rules, 2014 a resolution is being placed at the ensuing AGM for ratification of remuneration payable to said Cost Auditors. Secretarial Auditors: M/s. P.S. Rao & Associates, Practicing Company Secretaries, were appointed to conduct the Secretarial Audit of the Company for the financial year 2014-15, as required under Section 204 of the Companies Act, 2013 and Rule 9 thereunder. The secretarial audit report for FY 2014-15 forms part of this Report as Annexure - 9. The Board has appointed M/s. P.S. Rao & Associates, Practicing Company Secretaries, as Secretarial Auditors of the Company for the financial year 2015-16. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE OUTGO Information required under section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, is enclosed herewith as Annexure - 7. RISK MANAGEMENT POLICY Pursuant to the requirement of Clause 49 of the Listing Agreement, the Company has formulated a policy on the Risk Management. The Risk Management Policy of the Company is posted on the Company's website: www.vbshilpa.com . Major risk to the Company apart from the general business risks related to pharmaceutical industry, is supplies at low cost countries like China and other unregulated suppliers. CONSOLIDATED FINANCIAL STATEMENT In accordance with the provisions of Section 129 (3) of the Companies Act, 2013, the Consolidated Financial Statements, drawn up in accordance with the applicable Accounting Standards, form part of the Annual Report. A separate statement containing the salient features of the financial statements of Subsidiaries, Associates and Joint Ventures in Form AOC-I, is annexed herewith as Annexure - 5. Further, the annual accounts of all the subsidiary companies have been posted on Company's website - www.vbshilpa.com . Annual accounts of the Subsidiary Companies and related detailed information will be available for inspection by the members, at the registered office of the Company and will also be made available to the members upon request. ADEQUACY OF INTERNAL FINANCIAL CONTROLS WITH REFERENCE TO THE FINANCIAL STATEMENTS: The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. Various Audit Systems in the Company monitor and evaluates the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Based on the audit reports the units undertake corrective action in their respective areas and strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board periodically. The Board of Directors of the Company have adopted various policies like Related Party Transactions policy, Whistle Blower Policy, Policy to determine material subsidiaries and such other procedures for ensuring the orderly and efficient conduct of its business for safeguarding its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. SUBSIDIARIES Raichem Medicare Private Limited (RMPL), India Raichem Medicare Private Limited (RMPL), a joint venture Company, has earned a profit of Rs. 83.37 lacs from investment of surplus funds. Installation of plant and machinery is in the final stage at manufacturing unit being set-up at Raichur, Karnataka and expected commercial production in the current financial year. Total fund exposure of the Company, to RMPL as on 31st March, 2015 is Rs.3,888.03 lacs (including equity investment, preference shares and unsecured loan). Further, the Company also extended Corporate Guarantee for the loan facilities obtained by RMPL from Standard Chartered Bank and Citibank. In this JV your Company's holding is 50.001% . Loba Feinchemie GmbH (Loba), Austria During the year M/s. LOBA Feinchemie GmbH, Austria has posted a loss of Rs.103.79 lacs as against loss of Rs.168.43 lacs in the previous year. The management is in the process of implementing various options to improve the sales and turn to profitability taking into consideration the statutory regulations of Austria. Total fund exposure of the Company, in Loba as on 31st March, 2015 is Rs.2261.79 lacs. It is a wholly owned subsidiary company Investment into Loba was made through a special purpose vehicle Company Zatortia Holding Limited (ZHL). ZHL does not have any specific activity. Makindus LLC, USA During the year under review, your Company remitted the balance amount as per Share Purchase Agreement. Your Company's holding in this JV is 70%. This Company has spent $10.86 lacs on research for developing Drug. It plans to file ANDA - under 505( b)(2) by end of 2017. MAIA Pharmaceuticals Inc., USA During the year under review, your Company remitted the balance amount as per Share Purchase Agreement. As on 31st March, 2015 your Company's holding is 49.8%. MAIA has spent $ 16.32 lacs on research. Research work at the unit is going on satisfactorily on 7 (Seven) products and the Company expect to file FDA under ANDA and 505 (b)(2) by Dec'16. NU Therapeutics Private Limited (NTPL), India NTPL, a subsidiary company has posted a loss of Rs.56.43 lacs against Rs.41.84 lacs. NTPL has manufacturing technology of 'fast dissolving oral films'. NTPL got registered some of its products in the countries Kenya, Uganda and Democratic Republic of Cango apart from India. NTPL is exploring various avenues to market its products. Total fund exposure of the Company, to NTPL as on 31st March, 2015 is Rs.1433.55 lacs (including investment in Equity and preference shares and Unsecured loans). Your Company holding is 67.94% in this company. Details of Companies which have become Subsidiary during the year INM Technologies Private Limited (INM) INM was formed on 23-01-2015, as a Subsidiary Company, with a view to develop new technologies. The Company holds 75% of equity in INM. INM has not yet started its commercial operations. Total fund exposure of the Company as on 31st March, 2015 is Rs.112.50 lacs. CORPORATE SOCIAL RESPONSIBILITY (CSR): A report on CSR Activities as required under Rule 9 of the Companies (Corporate Social Responsibility) Rules, 2014 is enclosed herewith as Annexure - 4. NOMINATION AND REMUENRATION POLICY A committee of the Board named as "Nomination and Remuneration Committee" has been constituted to comply with the provisions of section 178, Schedule IV of the Companies Act and Clause 49 of the Listing Agreement. It has been entrusted with the task to recommend a policy of the Company on Directors' appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a Director and other matters and to frame proper systems for identification, appointment of Directors & KMPs, Payment of Remuneration to them and Evaluation of their performance and to recommend the same to the Board from time to time. Nomination and Remuneration Policy of the Company is enclosed herewith as Annexure - 8. FORMAL ANNUAL EVALUATION MADE BY THE BOARD OF ITS OWN PERFORMANCE AND OF ITS COMMITTEES AND INDIVIDUAL DIRECTORS As required under the provisions of Schedule IV of the Companies Act, 2013 the performance evaluation of Independent Directors has been done by the entire Board of Directors, excluding the director being evaluated. The evaluation of all the Directors and the Board as a whole was conducted based on the criteria and framework adopted by the Board. The Board approved the evaluation results as collated by the Nomination and Remuneration Committee. None of the independent directors are due for re-appointment. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to Section 134 (5) of the Companies Act, 2013 Your Directors' confirm that: i. In preparation of annual accounts for the financial year ended 31st March, 2015 the applicable Accounting Standards have been followed along with proper explanation relating to material departures; ii. 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 true and fair view of the state of affairs of the Company at the end of the financial year ended 31st March, 2015 and of the profit and loss of the Company for the year; iii. The Directors have taken proper and sufficient care for their maintenance of adequate accounting records in accordance with the provisions of the Companies Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv. The Directors had prepared the annual accounts on a 'going concern' basis; v. The Directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and vi. The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. EXTRACT OF ANNUAL RETURN: The details forming part of the extract of the Annual Return in Form MGT-9 is annexed herewith as Annexure - 1. OTHER DISCLOSURES: Board Meetings During the year under review, seven Board Meetings were held. For further details, please refer Corporate Governance Report enclosed herewith. Committees of Board Your company has the following committees namely: 1. Audit Committee ; 2. Nomination and Remuneration Committee ; 3. Stakeholders Relationship Committee and 4. Corporate Social Responsibility Committee The constitution of all the committees are as per the Companies Act, 2013 and Listing Agreement with Stock Exchanges. The details of the Constitution are mentioned in Corporate Governance Report, which forms part of this Annual Report. Corporate Governance Report Your Company has complied with the requirements of Clause 49 of the Listing Agreement entered with the Stock Exchanges, Report on Corporate Governance including Auditor's Certificate on compliance with the code of Corporate Governance specified under the said Clause forms part of the Annual report. Management Discussion and Analysis A brief note on the Management discussion and analysis for the year is annexed hereto and forms part of the Annual Report. Vigil Mechanism: In pursuant to the provisions of section 117(9)( & (10) of the Companies Act, 2013 and Clause 49 of the Listing Agreement a Vigil Mechanism for directors and employees to report genuine concerns has been established. Protected disclosures can be made by a whistle blower to the Chairman of the Audit Committee. The Policy on vigil mechanism and whistle blower policy may be accessed on the Company's website at the link: <http://www.vbshilpa.com/pdf/Whistle_Blower_Policy.pdf>. Remuneration ratio of the Directors/Key Managerial Personnel/ Employees: Statement showing disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is enclosed herewith as Annexure - 2. PARTICULARS OF EMPLOYEES Statement of employees employed throughout the financial year and in receipt of remuneration of Rs. 60 lakh or more, or employed for part of the year and in receipt of Rs. 5 lakh or more a month, under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is enclosed as Annexure - 3 to the Board's report. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS: Details of the Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 are given in the notes to the financial statements pertaining to the year under review. DEPOSITS Your Company has not accepted any fixed deposits and as such no principal or interest was outstanding. RELATED PARTY TRANSACTIONS: Related party transactions entered during the financial year under review are disclosed in Note No.39 of the Financial Statements. These transactions entered were at an arm's length basis and in the ordinary course of business. There were no materially significant related party transactions with the Company's Promoters, Directors, Management or their relatives, which could have had a potential conflict with the interests of the Company. Form AOC-2, containing the note on the aforesaid related party transactions is enclosed herewith as Annexure - 6. The policy on materiality of Related Party Transactions and dealing with related party transactions as approved by the Board may be accessed on the Company's website <http://www.vbshilpa.com/policies.html>. GENERAL Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review: 1. Issue of equity shares with differential rights as to dividend, voting or otherwise. 2. Issue of shares (including sweat equity shares) to employees of the Company under any scheme. 3. Neither the Managing Director nor the Whole-time Director of the Company receive any remuneration or commission from any of its subsidiaries. 4. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future. 5. No material changes and commitments affecting the financial position of the Company have occurred between the end of the Financial year and date of report. Your Directors further state that during the year under review, there were no cases filed/registered pursuant to the Sexual Harassment of Women at Work place (Prevention, Prohibition and Redressal) Act, 2013. ACKNOWLEDGEMENT Your Directors wish to express their gratitude to the Central and State Governments, investors, analysts, financial institutions, banks, business associates and customers, the medical profession, distributors and suppliers for their whole-hearted support. Your Directors commend all the employees of your Company for their continued dedication, significant contributions, hardwork and commitment. For and on behalf of the Board of Directors OMPRAKASH INANI CHAIRMAN Place : Hyderabad Date : 07-08-2015 |