Director's Report
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Cipla LtdIndustry : Pharmaceuticals - Indian - Bulk Drugs & Formln
BSE Code:500087
ISIN Demat:INE059A01026
Book Value(Rs):175.27
NSE Symbol:CIPLA
Div & Yield %:0.47
Market Cap (Rs Cr.):51040.91
P/E(TTM):30.75
EPS(TTM):20.61
Face Value(Rs):2
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Dear Members,

The Board of Directors hereby submits its report on the performance of the Company along with the audited Standalone as well as Consolidated financial statements for the year ended 31st March, 2018.

Financial Summary and State of Affairs

H in Crore
Year ended 31st March, 2017 Particulars

Year ended 31st

March, 2018

Standalone Consolidated Standalone Consolidated
10974.58 14630.24 Gross total revenue 11444.81 15219.25
1186.94 1222.17 Profit before tax and exceptional item 1911.40 1746.98
974.94 1006.39 Profit for the year (after tax and attributable to shareholders) 1468.52 1410.53
6.93 7.46 Other comprehensive income for the year (not to be reclassified to P&L) 1.77 24.30
- 123.89 Other comprehensive income for the year (to be reclassified to P&L) 0.47 369.23
7145.00 6953.84 Surplus brought forward from last balance sheet 7933.29 7774.11
8126.87 7967.69 Profit available for appropriation 9403.58 9188.05
Appropriations:
(160.87) (160.87) Dividend (160.94) (160.94)
(32.71) (32.71) Tax on Dividend (28.33) (28.33)
7933.29 7774.11 Surplus carried forward 9214.31 8998.78

The financial results and the results of operations, including major developments have been further discussed in detail in the Management Discussion and Analysis section. The Standalone as well as the Consolidated financial statement have been prepared in accordance with the Indian Accounting Standards (‘Ind AS') under the historical cost convention on accrual basis except for certain financial instruments which are measured at fair value.

Share Capital

During the year under review, the Company cancelled the unsubscribed issued equity share capital of 10,03,395 equity shares of H2 each, aggregating to H 20,06,790. Upon cancellation, such unsubscribed capital became a part of the unissued share capital of the Company and is available for re-issue at a future date. 6,09,090 equity shares were issued and allotted under Employee Stock Option Schemes. The issued, subscribed and paid up share capital of the Company as on 31st March, 2018 stood at H 161,02,38,328 divided into 80,51,19,164 equity shares of H2 each.

Dividend

In line with the Dividend Policy of the Company, we recommend a final dividend of H3 per equity share

(i.e. 150% of Face Value) for the FY18. The dividend, if approved at the Annual General Meeting (AGM), will be paid to those members whose names will appear in the Register of Members on 14th August, 2018. The total dividend pay-out will amount to approximately H 241.54 crore (excluding dividend distribution tax) resulting in a pay-out of 16.45% of the Standalone profit after tax of the Company.

Reserve

The Company has not transferred any amount to the Reserve for the financial year ended 31st March, 2018.

Management Discussion and Analysis Report

Pursuant to Regulation 34 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) the Management Discussion and Analysis Report for the year under review, is presented in a separate section, forming part of the Annual Report.

Corporate Social Responsibility (CSR)

At Cipla, we consider it as our responsibility to support people facing challenges to live a life with dignity and quality. Cipla undertake its CSR activities primarily in quality health, education and skilling. A detailed report on Cipla's various CSR initiatives has been provided in a separate Section ‘Corporate Social Responsibility'. The Corporate Social Responsibility Report also contain the Annual Report on CSR initiatives as required under section 135 of the Companies Act, 2013 (Act) is annexed as Annexure I to this report.

The Company's CSR Policy is available on the website of the Company at https://www.cipla.com/templates/home_ tpl/images/Corporate_Social_Responsibility_Policy.pdf

Business Responsibility Report

As mandated by the Securities and Exchange Board of India (SEBI), the Business Responsibility Report (BRR) forms part of the Annual Report. Since the Company is publishing Annual Report under International Integrated Reporting Council (IIRC) framework this year, report on the nine principles of the National Voluntary Guidelines on social, environmental and economic responsibilities of business as framed by the Ministry of Corporate Affairs is provided in relevant sections of the IR with suitable references in the BRR.

Corporate Governance

Pursuant to the Listing Regulations, the Report on Corporate Governance for the year under review, is presented in a separate section, forming part of the Annual Report. A certificate from M/s. BNP & Associates, confirming compliance of conditions of Corporate Governance, as stipulated under the Listing Regulations, is annexed as Annexure II to this report.

Directors' Responsibility Statement

Pursuant to section 134(3)(c) of the Act it is confirmed that the Directors have: i. Followed applicable accounting standards in the preparation of the annual accounts and there are no material departures for the same; ii. Selected such accounting policies and applied them 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 on 31st March, 2018 and of the profit of the Company for the year ending 31st March, 2018; iii. Taken proper and sufficient care for 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; iv. Prepared the annual accounts on a going concern basis; v. 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. Devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

The details of Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo as required under section 134(3)(m) of the Act, read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is annexed to this report as Annexure III.

Employee Stock Option Scheme

The Company has an Employee Stock Option (ESOP) scheme, namely "Employee Stock Option Scheme 2013-A" (ESOP Scheme) which helps the Company to retain and attract right talent. The Nomination and Remuneration Committee administers the Company's ESOP scheme. There were no changes in the ESOP scheme during the financial year under review. The ESOP scheme is in compliance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014.

As required under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, the applicable disclosures as on 31st March, 2018 are available on the Company's website at https://www. cipla.com/en/investor-information/annual-report-and-chairman-s-speech.html Details of the Employee Stock Option Scheme 2013-A have been provided under Note No. 43 of the Standalone financial statement.

Human Resources

Details of remuneration as required under section 197(12) of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed as Annexure IV. Particulars of employee remuneration as required under section 197(12) of the Act read with rule 5(2) and rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this report. In terms of the provisions of the first proviso to section 136(1) of the Act, the Annual Report is being sent to shareholders excluding the aforementioned information. The information will be available on the Company's website www.cipla.com and is also available for inspection at the registered office of the Company during working hours 21 days before the Annual General Meeting. Any member interested in obtaining such information may write to the Company Secretary at the Registered Office of the Company.

Particulars of Loans, Guarantees and Investments

Particulars of loans, guarantees and investments under section 186 of the Act are provided in Note No. 45 to the Standalone financial statements.

Extract of Annual Return

As required under sections 92(3) and 134(3)(a) of the Act read with Rule 12 of Companies (Management and Administration) Rules, 2014, the extract of Annual Return in Form MGT-9 forms part of this report as Annexure V.

Vigil Mechanism

The Company believes in upholding professional integrity and ethical behaviour in the conduct of its business. To uphold and promote these standards, the Company has formulated a Whistle-Blower Policy which serves as a mechanism for its Directors and employees to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. The vigil mechanism consists of a dedicated email-id. Any director or employee who becomes aware of an unethical behaviour or fraud or violation of code shall report to the Ethics Committee either through email or by post. In case where directors or employees believe that such issue cannot be resolved by Ethics Committee or in exceptional cases, can be addressed directly to the Chairman of Audit Committee. An Ethics Committee consisting of the Global Chief People Officer (GCPO), Global Chief Financial Officer (GCFO), General Council (GC) and Chief Internal Auditor has been constituted to look into and investigate on the whistle-blower complaints. The complaints, reports and action taken are presented to the Audit Committee on a quarterly basis. The details of the Whistle-Blower Policy are available on the Company's website at https://www. cipla.com/images/cipla_pdf/Whistle-Blower.pdf A brief note on the highlights of Whistle-Blower Policy and compliance with the Code of Conduct is also provided in the Report on Corporate Governance, which forms part of this Annual Report.

Contracts and Arrangements with Related Parties

A detailed note on procedure adopted by the Company in dealing with contracts and arrangements with related parties is provided in the Report on Corporate Governance, which forms part of this Annual Report. All contracts, arrangements and transactions entered by the Company with related parties during FY18 were in the ordinary course of business and on an arm's length basis. During the year, the Company did not enter into any transactions, contracts or arrangements with related parties, that could be considered material in accordance with the Company's policy on related party transactions. Accordingly, the disclosure of related party transactions in Form AOC-2 is not applicable. However, detailed disclosure on related party transactions as per IND AS-24 containing name of the related party and details of the transactions have been provided under Note No. 42 of the Standalone financial statements on Page No. 211. The policy is available on the Company's website at https://www.cipla.com//uploads/investor/1532683654_ Cipla%20Limited%20-%20Policy%20on%20Dealing%20 with%20Related%20Party%20Transactions.pdf

Material changes and commitments affecting financial position between end of financial year and date of report

No material changes and commitments have occurred after the close of the year till the date of this report which may affect the financial position of the Company.

Significant and Material Orders

No significant or material orders were passed by the regulators or courts or tribunals which could impact the going concern status of the Company and its future operations.

Internal Financial Controls and its Adequacy

We have adopted policies and procedures for ensuring orderly and efficient conduct of its business, including adherence to the Company's policies, safeguarding our assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial disclosures and reporting mechanism. The current systems of internal financial controls are aligned with the requirement of the Act, in line with globally accepted risk-based framework as issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Risk Management

In terms of the provisions of Section 134 of the Act a detailed note on Risk Management has been provided on page no. 36 of this report.

Deposits

During FY18, the Company did not accept any deposit within the meaning of sections 73 and 74 of the Act read together with the Companies (Acceptance of Deposits) Rules, 2014.

Board Evaluation

The evaluation of all the Directors including the Chairman, the Executive Vice Chairperson and the Managing Director and Global CEO, Board committee and the Board as a whole was carried out based on the criteria and framework approved by the Nomination and Remuneration Committee. A detailed disclosure on the parameters and the process of the Board evaluation as well as the outcome has been provided in the Corporate Governance Report.

Subsidiaries and Associate

At the beginning of the year, the Company had 53 subsidiaries and 1 associate. As on 31st March, 2018, it has 49 subsidiaries and 1 associate.

During FY18, Anmarat (Pty) Limited was acquired in South Africa as a part of strategy to strengthen OTC portfolio and Cipla Technologies LLC was incorporated in USA to build speciality product portfolio for Cipla. During FY18, two non-operating companies viz., Meditab Specialities New Zealand Ltd and Cipla Pharma Nigeria Ltd were deregistered. As a part of strategy, the Company has divested its entire stake in Cipla Croatia d.o.o., Croatia, Al Jabal For Drugs And Medical Appliances Company Ltd, Yemen, Cipla Agrimed Proprietary Ltd and Cipla Vet Proprietary Ltd., in South Africa. Details of these subsidiaries and associate are set out on Page 250 of the Annual Report. Pursuant to section 129(3) of the Act read with rule 5 of the Companies (Accounts) Rules, 2014, a statement containing salient features of the financial statement of the subsidiary and associate companies is given on Page 300 of the Annual Report. The statement also provide details of the performance and the financial position of each of the subsidiaries and associate. The Consolidated financial statements presented in this annual report include financial results of the subsidiary and associate companies.

Copies of the financial statement of the subsidiary and associate companies will be available on the Company's website www.cipla.com and will also be available for inspection by the members at the registered office of the Company during business hours. Copies of the said financial statements will be made available to any member of the Company and those of the respective subsidiary companies upon request. The Policy for Determining Material Subsidiaries is available on the Company's website at https://www. cipla.com//uploads/investor/1443000071_Policy-for-determining-Material-Subsidiaries.pdf

Directors and Key Managerial Personnel

Mr Adil Zainulbhai was designated as the Lead Independent Director w.e.f 11th August, 2017 for a period of two years from the date of appointment, with an authority to the Board of Directors to renew his appointment for a further term of two years. Ms Punita Lal was designated as the Chairperson of the Nomination and Remuneration Committee in place of Mr Adil Zainulbhai, who relinquished the Chairmanship of the Committee to take charge as Lead Independent Director. Mr S. Radhakrishnan completed his term as a Whole-time Director on 11th November, 2017 and w.e.f 12th November, 2017, he continues as a Non-Executive Director of the Company, liable to retire by rotation, in terms of re-appointment approved by the Members at the 81st Annual General Meeting (AGM) held on 11th August, 2017. Pursuant to the recommendation of the Kotak Committee, the SEBI has recently amended the Listing Regulations. The amended Listing Regulations inter alia require every listed entity to seek consent of its members by way of special resolution for appointment / continuation of the non-executive directors on attaining the age of 75 years. In case of existing directors such consent is required to be taken before 1st April, 2019. Since both Dr Y. K. Hamied, Non-Executive Chairman and Mr M. K. Hamied, Non-Executive Vice-Chairman have attained the age of 75 years, consent of the shareholders by way of special resolution is required for their continuation as non-executive directors. The Board recommends the resolutions regarding continuation of Dr Hamied and Mr Hamied as the non-executive directors of the Company for approval of the shareholders. Ms Samina Vaziralli retires by rotation and, being eligible, offers herself for re-appointment. The Board recommends the re-appointment of Ms Samina Vaziralli as Director liable to retire by rotation.

A brief resume of the Directors seeking re-appointment / continuation is provided in the Notice of AGM.

The criteria for determining qualification, positive attributes and independence of a Director is given under Nomination, Remuneration and Board Diversity Policy.

Neither the Managing Director and Global CEO nor the Whole-time Directors, received any remuneration or commission from any of the Company's subsidiaries during the previous year.

The Nomination, Remuneration and Board Diversity Policy has been disclosed as Exhibit A to the Report on Corporate Governance.

Declaration by Independent Directors

All Independent Directors of the Company have submitted requisite declarations confirming that they continue to meet the criteria of independence as prescribed under section 149(6) of the Act and Regulation 16(1)(b) of the Listing Regulations. The Independent Directors have also confirmed that they have complied with the Company's Code of Conduct.

Committees of Board, Number of Meetings of the Board and Board Committees

The Board currently has six committees, namely, the Audit Committee, the Nomination and Remuneration Committee, the Corporate Social Responsibility Committee, the Stakeholders Relationship Committee, the Investment and Risk Management Committee and the Operations and Administrative Committee. All the recommendations made by the Committees of Board including the Audit Committee were accepted by the Board. During the year under review, the Board met five times. A detailed update on the Board, its composition, detailed charter including terms of reference of various Board Committees, number of Board and Committee meetings held during FY18 and attendance of the Directors at each meeting is provided in the Report on Corporate Governance, which forms part of this report.

Auditor and Auditor's Report

Walker Chandiok & Co LLP, Chartered Accountants was appointed as the Statutory Auditor of the Company at the AGM held on 28th September, 2016 to hold the office till the conclusion of 85th AGM of 2021. The Company has received a certificate from the Statutory Auditor confirming their appointment continues to be in accordance with the provisions of section 141 of the Act. The Auditor's Report for FY18 does not contain any qualification, reservation or adverse remark.

Secretarial Auditor and Secretarial Audit Report

The Board, on the recommendation of the Audit Committee, had appointed M/s BNP & Associates, Company Secretaries, Mumbai as the Secretarial Auditor for FY18. The Secretarial Audit Report for the financial year ended 31st March, 2018 is annexed to this report as Annexure VI. The Report does not contain any qualification, reservation, disclaimer or adverse remark

Cost Auditor

The Board, on the recommendation of the Audit Committee, had appointed Mr D. H. Zaveri, practising Cost Accountant (Fellow Membership No. 8971) as cost auditor to conduct the audit of Company's cost records for the financial year ended 31st March, 2018. The Cost Auditors will submit their report for the FY18 on or before the due date.

The Cost Audit Report, for the year ended 31st March, 2017, was filed with the Central Government within the prescribed time.

In accordance with the provisions of section 148 of the Act read with the Companies (Audit and Auditors) Rules, 2014, since the remuneration payable to the Cost Auditors for FY19 is required to be ratified by the shareholders, the Board recommends the same for approval by shareholders at the ensuing AGM.

Acknowledgements

We wish to place on record our appreciation to the Government of various countries where the Company has its operations. We thank the Ministry of Chemicals & Fertilizers, Central Government, State Government, and other regulatory bodies / authorities, banks, business partners, shareholders, medical practitioners and other stakeholders for the assistance, co-operation and encouragement extended to the Company. We also like to place on record our deep sense of appreciation to the employees for their contribution and services.

   

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