REPORT OF THE BOARD OF DIRECTORS_ To, The Members, Lyka Labs Limited Your Directors are pleased to present their Thirty Sixth Annual Report and the Audited Accounts of the Company for the Financial Year ended 30th June, 2015. 2. DIVIDEND No Dividend was declared for the financial year ended 30th June, 2015 as the Company wants to plough back the profit for its working capital requirements. 3. OPERATIONS During the year under review, the total revenue earned by the Company was Rs. 9219.16 lacs as against total revenue of previous year of Rs. 7311.77 lacs on an annualised basis, an increase by 26%. The Company has reported Net Profit of Rs. 136.67 lacs as against net loss of Rs. 727.18 lacs of previous financial year. The lypholized products manufactured at Ankleshwar factory are well in demand and subsequent to sale of Tarapur Plant, the Company is focusing on expansion of Lypholization Plant by installing two new Lypholizers purchased from Italy. This will enhance the manufacturing capacity of Lypholization plant and cater the demand of the products. Lyka's Derma Products are well accepted by some of the leading pharma companies in India. Some of these products have already become market's leading brands in its moisturizing segment. Company has launched Cosmetological products for 'skin care' and 'hair care' segment. Dermatological products are growing very rapidly and has liquid margins. Company has tied up marketing arrangements for these products with renowned Companies. This segment will contribute significantly to the total revenue and profitability of the Company in the coming years. Company's P2P Business is facing acute competition from the Companies located in Tax Free Zones as they are enjoying benefits in Excise and Sales Tax, as a result the margin on this products are always under pressure affecting profitability of the Company. 4. FUTURE OUTLOOK Lyka has the technical expertise in Lyophilized products with all the latest machineries and equipments which enables it to give superior quality product. Lyka offers its Dermatology products to various Indian companies on the multi branding model. Lyka has a product range of 35 formulations with more than 80 formulation in its pipeline. Several formulations are registered in African and South East Asian Markets also. Lyka masters the art of development of 'Novel drug delivery system' in both topical preparation & lyophilized products. The innovations brought about by us in the topical formulation are the best amongst its class and offers an edge of benefits over other formulation of same class, this includes revolutionary development in creams, ointments, lotions, gels & foams. Lyka shall expand base in existing markets by entering into 'Distribution agreements' for new emerging and Non - Regulated markets. The products are under the process of registrations and new agreements have been initiated. Commercialization of the said will commence by end of Financial Year 2016. The focus markets will be South East Asia, Russia, CIS, Africa and Latin America. The Company's subsidiary namely Lyka BDR International Ltd have registration rights in various overseas markets. Currently, they have 401 registrations. During the year, 41 fresh registrations/renewals have been received by them. About 150 fresh registrations/dossiers/applications are submitted to the Health Authorities mainly in Asia and African markets of which approximately 50 registrations are expected to be received in Philippines, Myanmar, Kenya, Congo, Vietnam, Thailand and other various countries in the financial year 2015 - 2016, thereby increasing their intrinsic value. Company's another subsidiary viz Lyka Exports Limited has reorganized its activities and in pursuance of this, it has sold its Animal Healthcare Business. Company's wholly owned subsidiary, Lyka Healthcare Limited is in process of development of new therapy areas like Gastro, Intestinal, Anesthesia & Dermatological in the current year. Brand differentials will be added with Improved & increased coverage. Brand mix improvement is the key aspect in the coming year. In the coming years, substantial growth of Lyka Healthcare Limited, a subsidiary is expected which would further improve consolidated sales and profitability of the Company. 5. MATERIAL CHANGES AND COMMITMENT AFTER THE END OF THE FINANCIAL YEAR The Company had issued 230000 Equity Shares of Rs. 10/- each at a premium of Rs. 18/- on a Preferential basis to each of N. I. Gandhi (HUF) and Enai Trading & Investment Pvt. Ltd of Promoter Group on exercising their option to convert Warrants into Equity Shares. As a result, the Promoters holding had increased from existing 23.30% to 24.90% of the Issued Equity Capital of the Company. The Promoters have applied to Securities Exchange Board of India (SEBI) for seeking exemption for issue of 1040000 Warrants under Series II to them so that funds would come into the operation of the Company and liquidity would improve. Necessary submissions have been made to SEBI, outcome is awaited M/s. Lyka Exports Limited, a material Subsidiary of the Company had sold their Animal Healthcare Division to M/s. Alivira Animal Health Limited, a subsidiary of M/s. Sequent Scientific Limited. This had helped the Company to recover its outstanding dues of about Rs. 10 crores from Lyka Exports Limited and improved its liquidity 6. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO The information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgo as required under Section 134 (3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is furnished in Annexure A and is attached to this report. 7. STATEMENT CONCERNING DEVELOPMENT AND IMPLEMENTATION OF RISK MANAGEMENT POLICY OF THE COMPANY The Company has formulated a policy on Risk Management and constituted a Risk Management Committee. The objective and scope of the Committee is to oversee the Risk Management Policy of the Company, review the various risks and define the framework for identifying, assessing and monitoring the risk. 8. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS MADE UNDER SECTION 186 OF THE COMPANIES ACT, 2013 There were no loans or investments made by the Company under Section 186 of the Companies Act, 2013 during the year under review. The Company has given counter guarantee to Clearwater Capital Partners India Pvt Ltd who vide Deed of Assignment dated 24th September, 2014 assigned all receivables due from Lyka BDR International Limited, a subsidiary of Lyka Labs Ltd to Futuristic Solutions Ltd for a total amount of Rs. 25 crores. (The outstanding amount of the loan covered under this guarantee is Rs. 3,02,71,581 as on 30th June, 2015) and Rs. 2,91,30,222 as on 30th September, 2015. The Company has given a guarantee to Kapol Co-operative Bank Ltd for loan facility of Rs. 4,35,00,000 given to Lyka Exports Ltd, a subsidiary. (The outstanding amount of the loan covered under this guarantee is Rs. 4,23,20,000 as on 30th June, 2015) which have since been paid on 30th September, 2015. 9. PARTICULARS OF CONTRACTS OR ARRANGEMENTS MADE WITH RELATED PARTIES The particulars of Contracts or Arrangements made with related parties made pursuant to Section 188 is furnished in Annexure B and is attached to this report. 10. EXPLANATION OR COMMENTS ON QUALIFICATIONS, RESERVATIONS OR ADVERSE REMARKS OR DISCLAIMERS MADE BY THE AUDITORS AND THE PRACTICING COMPANY SECRETARY IN THEIR REPORTS A AUDITORS OBSERVATIONS: 1. Auditors pointed out Non-Compliance of the provisions of section 74 of the Companies Act, 2013 to the extent of non repayment of overdue Fixed Deposits mentioned at Note No. 28 to the Financial Statement. 2. Secretarial Auditor has also mentioned in their report regarding Non-Compliance of the provisions of section 74 of the Companies Act, 2013 by non payment of overdue Fixed Deposits. They also stated that the Company has not been regular in depositing statutory dues. B MANAGEMENT EXPLANATION: 1. Due to fire in lyophilization plant at Ankleshwar Factory, the operation of the plant was suspended for about 4 months which resulted into substantial loss of Production and sales affecting the liquidity of the Company thereby impacted the performance of the Company. 2. The Company was regular in making payment of Fixed Deposit and interest thereon upto 31st March, 2014. Subsequent to introduction of the new Companies Act, 2013 w.e.f 1st April, 2014 the Company was not eligible to accept/renew the Fixed Deposits as a result; the Company's cash flow was under pressure. The above factors delayed the payment of Fixed Deposits and Interest thereon. However, the Company has paid Fixed Deposits of Rs. 7.62 Crores during April, 2014 to 31st October, 2015 leaving overdue deposit of Rs. 3.25 Crores appx as of this date. The Company has also preferred an application under Section 74(2) of the Companies Act, 2013 for seeking extension of time for repayment of Fixed Deposit and Interest thereon before CLB Bench, Western Region. The hearing of an Application is pending. The Company is giving priority for making repayment of fixed deposits to senior citizens and small investors and also regularizing the interest payment. The Company is also in process of arranging funds to regularize the payment of outstanding deposits. The Company has already paid undisputed statutory dues upto 31st October, 2015. 11. COMPANY'S POLICY RELATING TO DIRECTORS APPOINTMENT, PAYMENT OF REMUNERATION AND DISCHARGE OF THEIR DUTIES The Board on recommendation of the Nomination and Remuneration Committee has adopted the policy for selection, appointment and remuneration of Directors, KMP and Senior Management. The policy is available on Company's website www.lykalabs.com 12. ANNUAL RETURN The extracts of Annual Return pursuant to the provisions of Section 92 read with Rule 12 of the Companies (Management and administration) Rules, 2014 is furnished in Annexure C and attached to this Report. 13. NUMBER OF BOARD MEETINGS CONDUCTED DURING THE YEAR UNDER REVIEW There were Nine Board meetings conducted during the financial year under review. The Information has been furnished in the Corporate Governance Report. 14. ANNUAL EVALUATION OF PERFORMANCE OF DIRECTORS, COMMITTEE AND BOARD The performance evaluation of Independent Directors were done.The Board is of the view that the Independent Directors who were on the Board during the year under report have contributed through the process of Board and Committee Meetings of which they are members in effective manner as per expertise of their field. The suggestions made by them are well accepted. The overall contributions made by Directors on the Board are satisfactory. 15. DIRECTORS RESPONSIBILITY STATEMENT In accordance with the provisions of Section 134(5) of the Companies Act, 2013 the Board hereby submits its responsibility statement: (a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) the directors had 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 at the end of the financial year and of the profit and loss of the company for that period; (c) the directors had taken proper and sufficient care for the maintenance of 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; (d) the directors had prepared the annual accounts on a going concern basis; (e) 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 (f) 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. 16. SUBSIDIARIES, JOINT VENTURES AND ASSOCIATE COMPANIES The Company has three subsidiaries namely Lyka BDR International Limited, Lyka Exports Limited and Lyka Healthcare Limited. The details of their financial performance is as under: LYKA BDR INTERNATIONAL LIMITED (LBDR) Lyka Labs is holding 65.22% of the Issued Capital of Lyka BDR International Limited. It has achieved a total revenue of Rs. 6673.72 lacs during the financial year ended on 31st March, 2015 as against Rs. 5046.65 lacs of the previous year thus recording a growth by 32% in the turnover. The Cash Profit for the financial year ended on 31st March, 2015, was Rs. 488.55 lacs and after considering depreciation of Rs. 304.88 lacs, exceptional expenses /write-off of Rs. 81.39 lacs and provision for tax of Rs. 56.21 lacs, the Company reported loss of Rs. 40.72 lacs. LYKA EXPORTS LIMITED (LEL) Lyka Labs is holding 72.80% of Issued Capital of Lyka Exports Limited. It has achieved total revenue of Rs. 1857.60 lacs as against Rs. 1211.91 lacs of previous year. The Company has reported a loss of Rs. 25.30 lacs due to increase in purchasing cost of materials and employee cost. As a measure of reorganization, Lyka Exports Limited has sold its Animal Healthcare business for an amount of Rs. 33.40 crores with an additional earn out of Rs. 8 crores based on the performance up to 31st March, 2016. LYKA HEALTHCARE LIMITED (LHL) Lyka Labs is holding 100% of Issued Capital of Lyka Healthcare Limited. Lyka Healthcare in its first year of Incorporation after getting separated from Lyka Labs Limited reported an Annual Turnover of Rs. 1259.80 Lacs during the financial year ending 31st March, 2015. This Company will further consolidate in the area of critical care and gastroenterology. Furthermore, newer therapy areas of dermatology and anesthesia as divisions will be launched with an expansion in current field operation and newer therapy areas. This Company is expected to be a revenue driving subsidiary. After providing for finance cost of Rs. 8.73 lacs and depreciation of Rs. 348.61 lacs, the Company has reported a loss of Rs. 6.55 crores for financial year ended 31st March, 2015,being its 1st year of operation as a wholly owned subsidiary. Performance and financial position of each of the subsidiaries for the year ended 31st March, 2015 is attached in Annexure D and forms part of this report. 18. DIRECTORS In accordance with the provision of Section 152(6) of the Companies Act, 2013, Smt. Nehal N. Gandhi, Director, retires by rotation at the ensuing Annual General Meeting and being eligible, has offered herself for re-appointment. Shri. Sandeep P. Parikh, an Independent Director has resigned as a Director w.e.f 11th March, 2014 due to his pre-occupations. Shri. Vinodkant A. Sanghani, an Independent Director has resigned as a Director w.e.f 7th April, 2014 on account of health ground. The Board records appreciation of their services rendered by them. The Board of Directors have appointed Shri. Yatin N. Shah as an additional director on 24th April, 2015. Shri. Atit N. Shukla and Shri. Ajit S. Bagadia have been appointed as Additional Directors on 11th August, 2015 to hold the said office till the date of the Annual General Meeting. The above Directors are meeting the criteria of Independence, as mentioned in Section 149(6) of the Companies Act, 2013. The Board recommends their appointment as Independent Directors of the Company at the 36th Annual General Meeting for the period of three years. 19. DECLARATION OF INDEPENDENT DIRECTORS The Independent Directors have submitted their declarations to the Board that they fulfill all the requirements as stipulated in Section 149(6) of the Companies Act, 2013 so as to qualify themselves to be appointed as Independent Directors under the provisions of the Companies Act, 2013 and the relevant rules. 20. AUDITORS M/s. M.A Parikh & Co., Chartered Accountants, who were appointed as Statutory Auditors of the Company and M/s. Thacker Butala Desai, Chartered Accountants who were appointed as Branch Auditors of the Company retires at the 36th Annual General Meeting. Your Company has received their eligibility certificates for reappointment pursuant to provisions of Section 139 and 141 of the Companies, Act 2013 read with Companies (Audit and Auditors) Rules, 2014. 21. COST AUDITOR M/s. Kirit Mehta & Associates, Cost Accountant have been appointed as Cost Auditor by the Board on the recommendation of the Audit Committee to conduct Cost Audit of Cost Records of Pharmaceutical products of the Company for the financial year 2015-16. 22. DISCLOSURE OF COMPOSITION OF AUDIT COMMITTEE AND PROVIDING VIGIL MECHANISM The Audit Committee consists of the following members (a) Shri Vinod S. Shanbhag (b) Shri Yatin N. Shah (c) Shri Narendra I. Gandhi Gandhi The above composition of the Audit Committee consists of Independent Directors viz., Shri. Vinod S. Shanbhag and Shri. Yatin N. Shah, who form the majority. The Company has established a vigil mechanism who oversees the genuine concerns expressed by the employees and other Directors. The Company has provided adequate safeguards against victimization of employees and Directors who express their concerns. The Company has also provided direct access to the Chairman of the Audit Committee on reporting issues concerning the interests of the employees. 23. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS. There are no significant, material orders passed by the courts during the year under report. 24. DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION AND PROHIBITION AND REDRESSAL) ACT, 2013 The Company is complying with the Provisions of Prevention and Prohibition and Redressal Act, 2013 and constituted a committee to redress the grievances of women employees. 25. RELATED PARTY TRANSACTIONS The Company has obtained approval from the shareholders by passing a special resolution approving the financial limit of all the related party transactions that was entered into, during the year under review. The Company has formulated a policy for dealing with 'Material Related Party' transaction and 'Related Party' transactions. 26. SECRETARIAL AUDIT REPORT As required under section 204 of the Companies Act, 2013 Secretarial Audit Report of the Company prepared by M/s V. Sundaram & Co. is attached as Annexure E. 27. MANAGEMENT DISCUSSION AND ANALYSIS REPORT As required under listing Agreement with the Stock Exchanges, the Management Discussion and Analysis Report is attached as Annexure F. 28. DISCLOSURE FOR RATIO OF REMUNERATION OF EACH DIRECTOR TO THE MEDIAN EMPLOYEES REMUNERATION AND OTHER DETAILS AS PER RULE 5(1) OF THE COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014 1. The percentage increase in remuneration of each Director, Chief Financial Officer and Company Secretary of the Company and ratio of the remuneration of each Director to the median remuneration of the employees of the Company for the financial year 2014-15: 2. The Percentage increase in the median remuneration of employees of the financial year: 2.35% 3. The number of permanent employees on the rolls of the Company: 182 4. Explanation on the relationship between average increase in remuneration and the Company's performance. The Increase in remuneration is considered based on the performance of the Company and available liquidity. 5. Comparison of the remuneration of the Key Managerial Personnel against performance of the Company. Remuneration of KMP against turnover of the Company is 0.74% 6. Variation in the market capitalization of the Company. Variation in the market capitalization of the Company is Rs. 96,39,78,600. 7 Price Earning Ratio: 109.48 8. Percentage increase or decrease in the market quotations of the shares of the Company in comparison to the rate at which the Company came out with the public offer. The Company came out with initial public offer (IPO) in the year 1985 at price of Rs. 10/- per share. The market price of the share as on 30th June, 2015 was Rs. 63.48/- on BSE and Rs. 63.50/- on National Stock Exchange of India Limited. Increase in percentage is 635%. 9. Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration. There is increase in the salaries of employees other than the senior managerial personnel in the financial year 2014-15 and hence comparison is not possible. 10. The key parameters for variable component of remuneration availed by the directors are as follow. The Managing Director is paid remuneration of Rs. 42 lacs p.a. as per Schedule V of the Companies Act, 2013 as the Company has loss/inadequate profit. The other Directors are paid sitting fees for attending Board Meeting. 11. The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year. Not Applicable. 30. CORPORATE GOVERNANCE As required under Clause 49 of the Listing Agreement entered into with the Stock Exchanges, a separate report on Corporate Governance along with the Certificate from the Auditor regarding compliance of the said conditions is given as per Annexure G. 31. ACKNOWLDEGEMENTS Your Directors place on record their appreciation of the continued assistance, co-operation and support received from various Ministries of the Government of India, Government of Maharashtra, Government of Gujarat, the Company's Bankers, Customers, Shareholders, Fixed Deposit Holders and loyal & committed Employees for their unstinted support. By order of the Board N. I. GANDHI Chairman and Managing Director (DIN: 00021530) Place: Mumbai Date: 28th November, 2015 |