DIRECTORS REPORT Your Directors have pleasure in submitting the 32nd Annual Report together with the audited accounts of the Company for the year ended on 31st March, 2015 Company Affairs The Company's standalone revenue for the year was Rs.72912 lakhs, up 14% over the previous year. Earnings before interest, taxes, depreciation, amortisation and impairment (EBIDTA) before exceptional items increased by 20% to Rs.24213 lakhs compared to previous year in value terms, or 33% of standalone revenue. Profit before taxes (PBT) was Rs.15441 lakhs, up 9% over the previous year. The Company's consolidated revenue for the year was Rs.84018 lakhs, up 11% over the previous year. EBITDA before exceptional items grew by 16% as compared to previous in value terms, to Rs.22829 lakhs, or 27% of consolidated revenue. Profit before taxes (PBT) was Rs.13422 lakhs, an increase of 4% over the previous year. Revenue from API's constituted 30% of the revenue while formulations constituted 50% of the revenue. This growth was largely driven by domestic oncology segment, increase in market share in some of the key products and also contribution from new product launches in FY2015. During the year, the Company got the unique distinction of being the first company in India to launch the generic version of Gilead's Sovaldi under its brand "Hepcinat" for the treatment of Hepatitis C. As of Mar 31st, 2015, the Company has made 35 ANDA filings of which (i) 14 are approved (including 2 tentative approvals); (ii) 14 are Paragraph IV filings, which have been filed in collaboration with global pharmaceutical companies, such as, Mylan, Breckenridge, Alvogen, Actavis and Lupin. As of Mar 31st, 2015, the Company filed 31 DMFs with the USFDA across therapeutic segments such as oncology, CNS, anti-asthmatic, anti-depressant, anti-migraine, anti-osteoporosis and gastrointestinal disorders and are currently working on several more DMFs to be filed with USFDA in near future. Dividend Your Directors had recommended and paid an interim dividend of H5.00 per equity share (last year- H5.00 per equity share) during February, 2015. Your Directors recommend that this may be treated as the final dividend. Transfer to Reserves The Company transferred Rs.1100 lakhs to the general reserve during the current financial year. Share Capital The paid-up share capital of your Company increased to Rs.3323.49 lakhs in FY2015, due to the allotment of 161,775 equity shares of Rs.10 each fully paid at a premium of Rs.1190 per equity share to the erstwhile shareholders of Natco Organics Limited in exchange of 19,310,000 equity shares of Rs.10 each at face value held by them in Natco Organics Limited Fixed Deposits The Company has not accepted any deposits covered under Chapter V of the Companies Act, 2013. Accordingly no disclosure or reporting is required in respect of details relating to deposits covered under this Chapter Change in the nature of Business, if any During the year, there was no change in the nature of business of the Company or any of its subsidiaries. Subsidiaries The Company has one (1) domestic subsidiary and five (5) international subsidiaries (excluding one (1) step down subsidiary) as on 31 March 2015. During FY2015, Natco Organics Limited became a wholly owned subsidiary. The consolidated financial statement of the Company and all its subsidiaries prepared in accordance with Accounting Standards 21 and 27 as specified in the Companies (Accounts) Rules, 2014, form part of the annual report. Further, a statement containing the salient features of the financial statement of our subsidiaries in the prescribed Form AOC-1, is attached as "Annexure I" to the Board's Report. This statement also provides the details of the performance and financial position of each subsidiary. In accordance with Section 136 of the Companies Act, 2013, the audited financial statements and related information of the subsidiaries, where applicable, will be available for inspection during regular business hours at the Company's registered office in Hyderabad, India. Particulars of Investments, Loans & Advances The Company makes investments, loans and advances to its subsidiaries for their business purpose. Details of investments, loans and advances covered under Section 186 of the Companies Act, 2013, form part of the notes to the financial statements provided in this annual report. Corporate Governance and additional Shareholders Information A detailed report on the corporate governance systems and practices of the Company is given in a separate chapter of this annual report. Similarly, other detailed information for shareholders is provided in the chapter Additional Shareholders' Information. A certificate from the Secretarial Auditors of the Company on the compliance with the conditions of corporate governance is attached to the report. Management Discussion and Analysis A detailed report on the Management Discussion and Analysis is provided as a separate chapter in the annual report. Board of Directors Dr P. Bhaskara Narayana, Director and CFO passed away on 21st October, 2014. Your Board of Directors wishes to place on record the contribution made by him to the Company and place on record its deep sense of gratitude to him and conveyed the same to his family members Mr. Vivek Chhachhi is retiring at the ensuing Annual General Meeting and is eligible for re-appointment. Shri P S R K Prasad has been appointed as an Additional Director effective 12th November 2014. Dr. D Linga Rao and Dr M U R Naidu were appointed as Additional Directors effective 11th February, 2015. These Directors are being appointed in the ensuing Annual General Meeting. Board Evaluation As per provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, an evaluation of the performance of the Board and members was undertaken. The contribution and impact of individual Directors were reviewed through a peer evaluation on parameters such as level of engagement and participation, flow of information, independence of judgment, conflicts resolution and their contribution in enhancing the Board's overall effectiveness. The feedback obtained from the interventions was discussed in detail and, where required, independent and collective action points for improvement put in place. Appointment of Directors and Remuneration Policy The assessment and appointment of members to the Board is based on a combination of criterion that includes ethics, personal and professional stature, domain expertise, gender diversity and specific qualification required for the position. The potential Board member is also assessed on the basis of independence criteria defined in Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. In accordance with Section 178(3) of the Companies Act, 2013, Clause 49(IV) (B) of the Listing Agreement and on recommendations of Compensation Committee, the Board adopted a remuneration policy for Directors, Key Management Personnel (KMPs) and Senior Management. The policy is attached as an annexure. Declaration by Independent Directors The Company has received necessary declaration from each independent Director under Section 149(7) of the Companies Act, 2013, that he/she meets criteria of Independence laid down in Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. Number of Board Meetings The Board of Directors met four times during the year. Details of Board meetings are laid out in Corporate Governance report, which forms a part of this annual report. Business Risk Management The Company has a risk management mechanism in place which manage uncertainty and identify, assess, monitor to reduce the impact of risks to the business which is discussed in detail in the Management Discussion and Analysis section. Adequacy of Internal Financial Control Systems The Company has in place adequate internal financial controls with reference to financial statements. These controls ensure the accuracy and completeness of the accounting records and preparation of reliable financial statements. Directors Responsibility Statement In terms of Section 134(5) of the Companies Act, 2013, your Directors state that: 1. applicable accounting standards have been followed in the preparation of the annual accounts; 2. accounting policies have been selected and applied consistently. Judgments and estimates made 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 FY2015 and of the profit of the Company for that period; 3. proper and sufficient care has been taken to maintain adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; 4. annual accounts have been prepared on a going concern basis; 5. adequate internal financial controls for the Company to follow have been laid down and these are operating effectively; and 6. proper and adequate systems have been devised to ensure compliance with the provisions of all applicable laws and these systems are operating effectively. Related Party transactions In accordance with Section 134(3) (h) of the Companies Act, 2013 and Rule 8(2) of the Companies (Accounts)Rules, 2014, the particulars of contract or arrangement entered into by the Company with related parties referred to in Section 188(1) in Form AOC-2 is attached as "Annexure II". The details of related party disclosures form part of the notes to the financial statements provided in this annual report. Vigil Mechanism / Whistle Blower Policy The Company has an Ombudsperson policy (Whistle-Blower/ Vigil mechanism) to report concerns. Under this policy, provisions have been made to safeguard persons who use this mechanism from victimization. An Audit Committee member is the Chief Ombudsperson. The policy also provides access to the chairperson of the Audit Committee under certain circumstances. The details of the procedure are also available on the website of the Company. www.natcopharma com. Auditors Statutory Auditors The shareholders at their 31st Annual General Meeting (AGM) held on 27 September 2014, approved the re-appointment of M/s. Walker Chandiok & Co LLP, Chartered Accountants, as statutory auditors of the Company, to hold office from the conclusion of the 31st AGM up to the conclusion of the 36th Annual General Meeting for the year 2018-2019. In terms of first proviso of Section 139 of the Companies Act, 2013, the appointment of the auditors is subject to ratification by the shareholders at every subsequent AGM. Accordingly, the statutory auditors, M/s. Walker Chandiok & Co LLP Chartered Accountants, have confirmed their eligibility under Section 141 of the Companies Act, 2013, Rule 4 of the Companies (Audit and Auditors) Rules, 2014 and Clause 41(I) (h) of the Listing Agreement. The Audit Committee and the Board of Directors recommend the appointment of M/s. Walker Chandiok & Co LLP Chartered Accountants, as statutory auditors of the Company from the conclusion of the 32nd AGM till the conclusion of the 33rd AGM, to the shareholders for ratification. Secretarial Auditor Pursuant to Section 204 of the Companies Act, 2013 and the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, a, practicing Company Secretary was appointed to conduct the secretarial audit of the Company for FY2015. The secretarial audit report for FY2015 is attached as "Annexure III". Basing on the consent received from practicing Company Secretary and the recommendations of the Audit Committee, the Board has appointed CS Bala Chandra Sunku, a practicing Company Secretary, as secretarial auditor of the Company for FY2016. Cost Auditors Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Amendment Rules, 2014, the Company maintains the cost audit records in respect of its pharmaceutical business. Your Board has, on the recommendation of the Audit Committee, appointed M/s. S.S. Zanwar & Associates as cost auditors of the Company for FY2016. The provisions also require that the remuneration of the cost auditors be ratified by the shareholders accordingly your Board recommended the same. The cost audit report for the FY 2015 will be filed with the Central Government within the stipulated timeline. As a matter of record, relevant cost audit reports for FY2014 were filed within the due date. Significant and Material Orders passed by the courts / regulators During FY2015, there were no significant and/or material orders, passed by any Court or Regulator or Tribunal, which may impact the going concern status or the Company's operations in future. Corporate Social Responsibility Initiatives As per Section 135 of the Companies Act, 2013, the Company has a Corporate Social Responsibility (CSR) Committee of its Board of Directors. The Committee comprises of 1. Shri G.S.Murthy 2. Shri V.C.Nannapaneni 3. Shri Rajeev Nannapaneni The role & responsibilities of CSR Committee is: (a) to formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII of Companies Act, 2013; (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the Company from time to time. (d) Adhere to Section 135 of the Companies Act, 2013 & Companies (Corporate Social Responsibility Policy) Rules, 2014 (including any statutory modifications, amendments or re-enactments thereto for the time being in force). (e) All other activities as informed or delegated by the Board of Directors from time to time. The Company supported NATCO Trust, which continues to actively pursue its social welfare activities in the areas of education, health and hygiene, livelihood and employment generation, safe water and sanitation and need based community structure. The Company's in-house quarterly magazine "Spandana" continues to receive applauds. The Report on CSR activities of the Company is attached as "Annexure IV". Business Responsibility Report A detailed Business Responsibility Report is available as a separate section in this annual report Transfer of unpaid and unclaimed amounts to Investor Education and Protection Fund Pursuant to the provisions of Section 205A(5) of the Companies Act,1956, the declared dividends, which remained unpaid or unclaimed for a period of seven years, have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 205C of the said Act the details of which are available elsewhere in the Annual Report. Employees Stock Option Schemes No Employees Stock Option Scheme was in place in the reporting financial year. Particulars of Employees Disclosures pertaining to remuneration and other details as required under Section 197(12) ofthe Companies Act, 2013, read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are attached as "Annexure V". Conservation of Energy, Research andDevelopment, Technology Absorption, Foreign Exchange Earnings and Outgo The particulars as prescribed under Section 134(3) (m) of the Companies Act, 2013, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are attached as "Annexure VI". Extract of the Annual Return The details forming part of the extract of the annual return in Form MGT-9 is attached as "Annexure VII". Nomination and Remuneration Committee Your Board of Directors had framed Nomination and Remuneration Committee as per Section 178 of Companies Act 2013 and Clause 49 of the Listing Agreement. The Policy of the same is attached as "Annexure VIII" Acknowledgement Your Directors place on record their sincere appreciation for the significant contribution made by our employees through their dedication, hard work and commitment, as also for the trust reposed on us by the medical fraternity and patients. We also acknowledge the support extended to us by the analysts, bankers, government agencies, media, customers, suppliers, shareholders and investors at large. We look forward to continued support in our endeavor to help people lead healthier lives. For and on behalf of the Board of Directors V. C. Nannapaneni Chairman and Managing Director Date: 12-08-2015 Place: Hyderabad |