As on: Jun 02, 2023 08:38 PM
Dear Members,
The Board of Directors are pleased to submit its report on the performance of the Company along with the audited standalone and consolidated financial statements for the year ended 31st March, 2022.
Financial Summary and State of Affairs
(Rs in crores)
The financial results and the results of operations, including major developments have been discussed in detail in the Management Discussion and Analysis report.
The standalone, as well as the consolidated financial statements, have been prepared in accordance with the Indian Accounting Standards ("Ind AS").
Share Capital1
During the year under review, the Company issued and allotted 3,50,757 equity shares to its employees under the Employee Stock Option Scheme 2013-A. As a result, the issued, subscribed and paid-up share capital of the Company increased from Rs 1,61,29,26,558 (divided into 80,64,63,279 equity shares of Rs 2 each) to Rs 1,61,36,28,072 (divided into 80,68,14,036 equity shares of Rs 2 each). The equity shares issued under the Employee Stock Option Scheme 2013-A rank pari- passu with the existing equity shares of the Company.
Dividend
In line with the Dividend Distribution Policy of the Company, we recommend a final dividend of Rs 5 per equity share (250% of face value) for the financial year ended 31st March, 2022. The dividend is subject to the approval of members at the ensuing Annual General Meeting and shall be subject to deduction of income tax at source.
Upon approval, the dividend will be paid to those members whose names will appear in the Register of Members as on the close of 10th August, 2022. The total dividend pay-out will be approximately Rs 403.41 crores, resulting in a pay-out of 13.64% of the Standalone profit after tax of the Company. The Dividend Distribution Policy is uploaded on the website and is available on the Company's website at https://www.cipla.com/sites/ default/files/2019-01/Dividend%20Distribution%20Policy.pdf
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, has been presented in a separate section on page no. 107, forming a part of this report.
Corporate Social Responsibility (CSR)
A detailed report on Company's CSR initiatives has been provided in the Social Capital section forming a part of the Integrated Report on page no. 92 and Annual Report on CSR initiatives, as required under Section 135 of the Companies Act, 2013 ("Act") which is annexed as Annexure I to this report on page no. 130. Details of the CSR Committee composition, role and meetings, etc. have been provided in the Report on Corporate Governance on page no. 178.
Integrated Report
The Company has voluntarily provided the Integrated Report, which includes both financial and non-financial information. The Integrated Report also covers aspects such as stakeholder engagement, enterprise risk management, materiality assessment, value creation model, strategic business objective, strategy for sustainable growth, performance and prospects of value creation based on the six forms of capitals viz. financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital and natural capital.
The assurance report of DNV Business Assurance India Private Limited, an independent assurance partner is provided on page no. 193 The Report confirms that the non-financial information has been adequately presented.
Business Responsibility & Sustainability Report
The Company for FY 2021-22 has voluntarily presented a Business Responsibility & Sustainability Report ("BRSR"), in lieu of the Business Responsibility Report, provided under a separate section on page no. 145 of this report.
Corporate Governance
In compliance with Regulation 34 read with Schedule V of the Listing Regulations, a Report on Corporate Governance for the year under review, has been presented in a separate section on page no. 164 of this report.
A certificate from M/s. BNP & Associates, Company Secretaries, confirming compliance with corporate governance norms, 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.
i. in the preparation of the annual accounts for the year ended 31st March, 2022, followed the applicable accounting standards and there are no material departures from the same;
ii. 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 of 31st March, 2022 and of the profit of the Company for the year ended on that date;
iii. 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;
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 as Annexure III to this report.
Share-based incentive schemes
The Company has the following share-based incentive schemes in force:
Employee Stock Option Scheme 2013-A ("ESOS 2013 - A")
Cipla Employee Stock Appreciation Rights Scheme 2021 ("ESAR Scheme 2021")
The Nomination and Remuneration Committee ("NRC") administers the ESOS 2013 - A and the ESAR Scheme 2021 (collectively referred to as "Schemes"). The Schemes are compliant with the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 ("SEBI ESOP Regulations"). Details of the Schemes have been provided in Note No. 40 of the standalone financial statements. The disclosure in compliance with the SEBI ESOP Regulations is available on the Company's website at https://www.cipla.com/investors/annual-reports.
Pursuant to the provisions of the SEBI ESOP Regulations and the shareholders' approval dated 22nd August, 2013 for ESOS 2013 - A and 25th March, 2021 for ESAR Scheme 2021, the NRC, being authorised, approved the following non-material and non-detrimental amendments to the Schemes, for the welfare of employees:
allowed vesting of unvested options / ESARs till the last working day which earlier was restricted to the date of submission of resignation;
allowed the separated employees to exercise the vested options / ESARs within 3 months post separation which was earlier restricted to a day prior to the last working day of the employees with the Company;
allowed immediate vesting of unvested options / ESARs on the date of retirement (subject to a minimum one-year vesting period) which were earlier lapsed on such date. The employees are allowed to exercise the vested options within 6 months post retirement.
clarified to consider separation as formal termination and cancel all unexercised options / ESARs in case of misconduct/ breach of the Company policies/employment.
In compliance with the requirements of the SEBI ESOP Regulations, a certificate from the secretarial auditor, confirming implementation of the Schemes in accordance with the said regulations and shareholder's resolution is uploaded on the website of the Company at https://www.cipla.com/investors/ annual-reports. The certificate will also be available for electronic inspection by the members during the AGM of the Company.
Human Resources
Information 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 provided in Annexure IV to this report.
Information 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 is provided in a separate exhibit forming part of this report and is available on the website of the Company at https://www.cipla.com/ investors/annualreports.
Particulars of Loans, Guarantees and Investments
Particulars of loans, guarantees and investments under Section 186 of the Act have been provided in Note No. 42 to the standalone financial statements.
Annual Return
The Annual return for the FY 2021-22 has been placed on the website of the Company at https://www.cipla.com/investors/ annual-reports.
Vigil Mechanism
The Company has a Whistle Blower Policy, which lays down the process to convey genuine concerns and seek resolution towards the same without fear of retaliation.
A detailed update on the functioning of the Whistle Blower Policy and weblink of the Policy has been provided in the Report on Corporate Governance, on page no. 180.
Prevention of Sexual Harassment of Women at Workplace
The Company is committed to providing a safe and conducive work environment to all its employees and associates. The Company has
a policy on Prevention of Sexual Harassment at Workplace in place, which is available on the Company website at https://www.cipla. com/sites/default/files/1558508425_POSH-%20Cipla.pdf.
All employees, consultants, trainees, volunteers, third parties and/ or visitors at all business units or functions of the Company, its subsidiaries and/or its affiliated or group companies are covered by the said policy. Adequate workshops and awareness programmes against sexual harassment are conducted across the organisation.
The Company has constituted an Internal Complaints Committee in compliance with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and is fully compliant of the Committee composition requirements. The Audit Committee periodically reviews the complaints.
Details of complaints received/disposed during FY 2021-22 are provided in the Report on Corporate Governance on page no. 184.
Related Party Transactions
A detailed note on procedure adopted by the Company in dealing with contracts and arrangements with related parties has been provided in the Report on Corporate Governance on page no. 181.
All contracts, arrangements and transactions entered by the Company with related parties during FY 2021-22 were in the ordinary course of business and on an arm's length basis. During the year, the Company did not enter into any transaction, contract or arrangement with related parties, which could be considered material, in accordance with the Company's Policy on dealing with Related Party Transactions ("RPT Policy"). Accordingly, the disclosure of related party transactions in Form AOC-2 is not applicable. The disclosure on related party transactions as per Ind AS-24 has been provided under Note No. 39 of the standalone financial statements on page no. 262 and Note No. 48 of the consolidated financial statements on page no. 368
During the year, the Company revised its RPT Policy to align it with amendments in the RPT framework under the Listing Regulations. The RPT policy is available on the Company's website at https://www.cipla.com/sites/default/files/2022-05/ Policy-on-Related-Party-Transaction.pdf.
Internal Financial Controls and their adequacy
Cipla has laid down an adequate system of internal controls, policies and procedures for ensuring orderly and efficient conduct of the business, including adherence to the Company's policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial disclosures.
The current system of internal financial controls is aligned with the statutory requirements and is in line with the globally- accepted risk-based framework issued by the Committee of Sponsoring Organisations ("COSO") of the Treadway Commission. The internal financial controls are adequate and operating effectively.
Effectiveness of internal financial controls is ensured through management reviews, controlled self-assessment and independent testing by the internal audit team.
Risk Management
The Board of Directors has an Investment and Risk Management Committee ("IRMC") which oversees the Enterprise Risk Management ("ERM") process. An update on ERM activities is presented and deliberated upon in the IRMC meetings on a quarterly basis and periodically at the Board level at least once a year. The Audit Committee has an additional oversight in the area of financial risks and controls. The major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. In terms of the provisions of Section 134 of the Act, a detailed note on Risk Management has been provided on page no. 42 of this report.
Board Evaluation
A detailed disclosure on the parameters and the process of Board evaluation as well as the outcome has been provided in the Report on Corporate Governance on page no. 168.
Subsidiaries, Associates and Joint Ventures
At the beginning of the year, the Company had 46 subsidiaries and 5 associates as against 45 subsidiaries and 8 associates as on 31st March, 2022. Changes during the year were as follows:
Acquisition of 32.49% stake in AMP Energy Green Eleven Private Limited and 33% partnership interest in Clean Max Auriga Power LLP, in line with Cipla's commitment to enhance the share of renewable power source in its operation and to comply with regulatory requirement for being a captive user under Indian electricity laws.
Incorporation of Cipla Digital Health Limited as a wholly- owned subsidiary of the Company on 25th February, 2022 for creation of patient-facing Digital Therapeutics platform.
On 3rd May, 2021, GoApptiv Private Limited, existing associate of Cipla, incorporated wholly-owned subsidiary - Iconphygital Private Limited for providing manpower staffing services.
The following wholly-owned step down subsidiaries were voluntarily deregistered /dissolved as these were operationally inactive and not required:
Cipla Biotec South Africa (Pty) Limited with effect from 3rd February, 2022.
Inyanga Trading 386 (Pty) Limited with effect from 10th December, 2021.
Details of these subsidiaries and associates are set out on page no. 292 of the Annual Report. Pursuant to Section 129(3) of the Act read with Rule 5 of the Companies (Accounts) Rules, 2014, a statements containing the salient features of the financial statement of the subsidiary and associate companies in Form no. AOC-1 is provided on page no. 377 of the Annual Report.
The statement also provides details of the performance and the financial position of each of the subsidiaries and associates. The consolidated financial statements presented in this annual report include financial results of the subsidiary and associate companies.
Copies of the financial statements of the subsidiary companies will be available on the Company's website www.cipla.com.
Transfer of undertaking by way of a slump sale on a going concern basis
The Board approved a draft scheme of arrangement ("Scheme") which entailed the following:
(i) Demerger of the India-based US business undertaking (Demerged Undertaking 1) of Cipla Limited (Demerged Company) into its wholly-owned subsidiary, Cipla Pharma and Life Sciences Limited (formerly known as Cipla BioTec Limited) (herein after referred to as "CPLS") and
(ii) Demerger of the Consumer Business Undertaking (Demerged Undertaking 2) of Cipla Limited into its wholly- owned subsidiary, Cipla Health Limited (herein after referred to as "CHL").
Post approval, due to certain regulatory developments which made it feasible for this transaction to be effected through an alternate option, the Audit Committee and the Board approved to effect the above transfer of undertakings by way of a slump sale on a going concern basis instead of a Scheme of Arrangement.
The details of the proposed transactions are disclosed in Note No. 36 to the standalone financial statements.
Nomination, Remuneration and Board Diversity Policy
The Board has on the recommendation of the NRC, framed a Nomination Remuneration and Board Diversity Policy ('NRC Policy') for selection, appointment and remuneration of directors, key managerial personnel and senior management employees and other matters as provided under Section 178(3) of the Act.
During the year under review, the Board, based on the recommendation of the NRC Committee, revised the NRC Policy for including the revised sitting fees for non-executive directors for attending the board and board committee meetings.
The salient features of the NRC Policy are as follows:
To provide criteria and terms and conditions with regard to identifying persons who are qualified to become directors (executive and non-executive including independent directors), key managerial personnel and persons who may be appointed in senior management positions.
To recommend the remuneration of the directors, key managerial personnel and senior management personnel and align with the Company's business strategies, values, key priorities and goals.
To provide rewards linked directly to the effort, performance, dedication and achievement of the Company's targets by the employees.
To monitor and periodically review the Board Diversity and recommend to the Board to improve one or more aspects of its diversity and measure progress accordingly.
Undertake any other matters as the Board may decide from time to time.
The Policy is available on the website of the Company at https://www.cipla.com/sites/default/files/2021-06/Nomination- Remuneration-and-Board-Diversity-Policy.pdf.
Directors and Key Managerial Personnel
At the 85th Annual General Meeting of the Company held on 25th August, 2021 the shareholders approved (i) the reappointment of Mr M K Hamied as Non-executive Director liable to retire by rotation, (ii) the re-appointment of Mr Umang Vohra as Managing Director and Global Chief Executive Officer for a period of five years with effect from 1st April, 2021 (iii) the appointment of Mr Robert Stewart as an Independent Director for a period of five years with effect from 14th May, 2021 (iv) the appointment of Mr P R Ramesh as an Independent Director for a period of five years with effect from 1st July, 2021.
In accordance with the provisions of the Act and the Articles of Association of the Company, Ms Samina Hamied, is due to retire by rotation at the ensuing 86thAnnual General Meeting and being eligible, has offered herself for re-appointment. Based on the recommendation of the NRC, the Board of Directors recommends her re-appointment as Director, liable to retire by rotation.
In the opinion of the Board, all the directors, as well as the directors appointed / re-appointed during the year possess the requisite qualifications, experience and expertise and hold high standards of integrity. All Independent Directors, except Mr Robert Stewart, are exempt from the requirement of passing the proficiency test. Unless exempted, Mr Robert Stewart will be required to pass the proficiency test within the permissible time limit. The list of key skills, expertise and core competencies of the Board of Directors is provided in the Report on Corporate Governance at page no. 166 of this Annual Report.
Criteria for determining qualification, positive attributes and independence of a director is given under the NRC Policy.
Ms Naina Lal Kidwai resigned from the position of Independent Director of the Company w.e.f close of business hours on 31st March, 2022. The Board placed on record its sincere appreciation for the contribution made by her as a member of the Board.
Mr Kedar Upadhye, resigned from the position of Global Chief Financial Officer and Key Managerial Personnel of the Company w.e.f. close of business hours on 3rd May, 2022. The Board placed on record its sincere appreciation for the contribution made by him over the years.
Mr Dinesh Jain, Senior Vice-President and Head - Corporate Finance, was appointed by the Board as the Interim Chief Financial Officer, effective 10th May, 2022
As on the date of this report, the Company has the following Key Managerial Persons as per section 2(51) and 203 of the Act:
* Mr Dinesh Jain appointed as Interim Chief Financial Officer w.e.f. J0lh May 2022
Ms Samina Hamied, Mr Umang Vohra, Dr Peter Mugyenyi, Mr Ashok Sinha, Mr Robert Stewart and Mr S Radhakrishnan received remuneration/sitting fees from the Company's subsidiaries during FY 2021-22.
Declaration by Independent Directors
All Independent Directors have submitted requisite declarations confirming that they (i) 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 and are independent; and (ii) continue to comply with the Code of Conduct laid down under Schedule IV of the Act. Details on the same have also been provided in the Report on Corporate Governance, which forms a part of this report.
The Directors have further confirmed that they are not debarred from holding the office of director under any SEBI order or any other such authority.
Board Committees and number of meetings of the Board and Board Committees
As on the date of this report the Board has the following committees:
i) Audit Committee
ii) Nomination and Remuneration Committee
iii) Corporate Social Responsibility Committee
iv) Stakeholders Relationship Committee
v) Investment and Risk Management Committee
vi) Operations and Administrative Committee
The Committee of Independent Directors was constituted specifically for the purpose of the Scheme of Arrangement in FY 2020-21. The Committee was dissolved on 25th January, 2022 since it was approved to effect the transaction by way of slump sale and hence, no longer required.
All the recommendations made by the Board committees, including the Audit Committee, were accepted by the Board.
The Board met seven times during the year under review. The details of the meetings are provided in the Report on Corporate Governance, which forms a part of this report.
Statutory Auditor and their report
M/s Walker Chandiok & Co LLP, Chartered Accountants, (Firm Registration No 001076N/ N500013) were re-appointed as the Statutory Auditor of the Company at the 85th AGM held on 25th August, 2021, to hold the office till the conclusion of the 90th AGM to be held in year 2026.
The Statutory Auditor's Report does not contain any qualification, reservation, adverse remarks or observation.
Secretarial Auditor and their reports
M/s BNP & Associates, Company Secretaries, was appointed as the Secretarial Auditor for the financial year ended 31st March, 2022. The Secretarial Auditors have furnished their report annexed as Annexure V to this report.
Further, in compliance with Regulation 24A of the Listing Regulations, the Annual Secretarial Compliance Report issued by the Secretarial Auditor, was submitted to the stock exchanges within the statutory timelines.
The Secretarial Audit Report and the Secretarial Compliance Report does not contain any qualification, reservation, observation or adverse remarks.
The Board of Directors, on the recommendation of the Audit Committee, has re-appointed M/s BNP & Associates, Company Secretaries, to conduct the secretarial audit of the Company for FY 2022-23. They have confirmed their eligibility for the said re-appointment.
Cost Auditor and their report
Mr D H Zaveri, practising Cost Accountant (Fellow Membership No. 8971), was appointed as the Cost Auditor to conduct the audit of Company's cost records for the financial year ended 31st March, 2022. Mr Zaveri has confirmed his eligibility for the said appointment.
The Cost Auditor will submit their report by the due date. The Cost Audit Report, for the year ended 31st March, 2021, was filed with the Central Government within the prescribed time. The Company maintains the cost records as per the provisions of Section 148(1) of the Act.
In accordance with the provisions of Section 148 of the Act read with the Companies (Audit and Auditors) Rules, 2014, since the remuneration to be paid to the Cost Auditor for FY 2022-23 is required to be ratified by the members, the Board of Directors recommends the same for approval by members at the ensuing AGM. The proposal forms a part of the notice of the AGM.
During the year under review, the Statutory, Secretarial and Cost Auditors have not reported to the Audit Committee, under Section 143(12) of the Act, any instances of fraud committed against the Company by its officers or employees, the details of which need to be mentioned in the Board's report.
Other Disclosures
During the financial year under review:
There was no amount proposed to be transferred to the Reserves;
There were no changes made in the nature of business of the Company;
The Company has complied with the applicable Secretarial Standards, i.e., SS-1 and SS-2, relating to 'Meetings of the Board of Directors' and 'General Meetings', respectively;
The Company issued and allotted equity shares as per its ESOS 2013-A Scheme and there was no instance wherein the Company failed to implement any corporate action within the statutory time limit;
The Company did not accept any deposit within the meaning of Sections 73 and 74 of the Act read with the Companies (Acceptance of Deposits) Rules, 2014 and accordingly no amount on account of principal or interest on public deposits was outstanding as on 31st March, 2022;
The Company has not issued shares with differential voting rights and sweat equity shares during the year under review;
There were no significant or material orders passed by the regulators or courts or tribunals which could impact the going concern status of the Company and its future operations;
There were no material changes and commitments which occurred after the close of the year till the date of this report, which may affect the financial position of the Company.
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 and Fertilisers, India; Central Government; State Government and other regulatory bodies / authorities; banks; business partners; shareholders; medical practitioners and other stakeholders for the assistance, cooperation and encouragement extended to the Company. We would also like to place on record our deep sense of appreciation to the employees for their contribution and services.