aurobindo pharma ltd share price Directors report


Dear Members,

Your Directors are pleased to present the 36th Annual Report of your Company together with the audited accounts for the financial year ended March 31, 2023.

FINANCIAL HIGHLIGHTS

Consolidated & Standalone Financials

(Rs in million)

( in million)

Consolidated Standalone
2022-23 2021-22 H 2022-23 2021-22
Revenue from operations 2,48,554 2,34,555 1,27,923 1,12,871
Profit Before Depreciation, Interest, Tax and Exceptional Items* 39,976 46,759 21,647 21,444
Depreciation 12,446 11,265 4,354 4,153
Finance cost 1,405 486 1,150 169
Exceptional items - 1,280 - 747
Profit Before Tax 26,125 33,727 16,144 16,375
Provision for Tax 6,849 7,256 3,839 1,828
Net Profit After Tax 19,277 26,471 12,304 14,547
Other Comprehensive Income/ (Expense) 7,356 2,617 59 17
Total Comprehensive Income for the period 26,632.3 29,088 12,363 14,564

DIVIDEND

Your Company has paid an interim dividend of 300% i.e., 3.00 per equity share of 1 for the financial year 2022-23 against 900% i.e., 9.00 per equity share of 1 paid in the previous year. The dividend recommended for the financial year 2022-23 is in accordance with the Companys Dividend Distribution Policy. Higher dividends were paid during the previous year considering the profits made by the Company on disposal of Natrol LLC, USA, a wholly owned step-down subsidiary of the Company engaged in nutraceutical business.

Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, top 1,000 listed entities based on market capitalisation are required to formulate a Dividend Distribution Policy. The Board has approved and adopted the Dividend Distribution Policy and the same is available on the Companys website: https://www.aurobindo. com/api/uploads/disclosure_under_regulation/Dividend- Distribution-Policy.pdf

PERFORMANCE REVIEW

Your Company is one of the leading generic pharma companies globally. Your Company is also the largest supplier in the USA by prescription volume as per IQVIA data for the quarter ending March 31, 2023. Your Company maintained its growth momentum in revenue despite headwinds caused by the pandemic.

On a standalone basis, your Companys revenue increased by 13.3% to 127,923 million in FY22, as against 112,871 million in the corresponding previous period. The Formulations business increased by 14.8% to 76,653 million. The API business witnessed a growth of 8.2% to 47,410 million. Profit Before

Depreciation, Interest, Tax and Exceptional Items for FY23 increased by 0.9% to 21,647 million, compared to 21,444 million in FY22. Profit Before Tax for the year decreased by 1.4% Y-o-Y to 16,114 million. Your Companys Net Profit After Tax (before Other Comprehensive Income) decreased by 15.4% to 12,304 million as against 14,547 million in FY22.

On a consolidated basis, the revenues increased by 6.0% to 2,48,554 million. The formulations business increased by 5.4% to 210,074 million from 199,393 million in the corresponding previous period. The Active Pharmaceutical Ingredients (APIs) business posted a growth of 9.5% to 38,478 million vs. 35,156 million in FY22. Profit Before Depreciation, Interest, Tax and Exceptional Items stood at 39,976 million, witnessing a 14.5% decrease Y-o-Y. Profit Before Tax for the year stood at 26,125 million, compared to 33,727 million in the previous year.

Your Company reported a Net Profit After Tax (before Other Comprehensive Income) of 19,277 million in FY23, vs. 26,471 million in FY22. The Diluted Earnings Per Share (reported) stood at 32.9 in FY23, compared to 45.19 in FY22.

The US is the largest market for your Company and accounted for 46.9% of the total revenue. US revenue increased by 4.8% to 116,544 million. Your Company launched 34 products in FY23. Your companys market share by prescription volume (IQVIA TRX) in the US, for the quarter ending March 2023 stands at 8.7%, positioning your Company as the largest generic pharmaceutical player.

Your Company continues to strengthen its pipeline for the global markets including the US market. As on March 31, 2023, your Company filed 774 Abbreviated New Drug Applications (ANDAs) on a cumulative basis. Of the total count, 565 have received final approvals and 34 received tentative approvals and 175 ANDAs are currently under review.

Your Companys revenue in its Europe formulations business was 64,256 million in FY23 compared to 64,803 million in FY22. Your Company now operates in ten countries in EU/UK and is present across multiple channels including pharmacy, hospital and tender business.

The ARV Formulations business stood at 9,544 million in FY23, growing 14.6% compared to 8,330 million in FY22.

Growth Markets segment, including Brazil, Canada, Columbia and South Africa and others, grew by 31.2% Y-o-Y to 19,729 million.

OUTLOOK

FY23 was a challenging year for businesses, as the global economy slowly recovering from the pandemic was subjected to geo-political shocks leading to soaring inflation and hurting demand. Your companys effort in diversifying product portfolio and improving operational efficiency helped it to overcome the turbulent macro-economic environment significantly.

Your Company made significant progress in advancing the biosimilar and vaccine development program during the year. Through continued focus on R&D, the company has advanced the complex product portfolio and capacity further for commercialization.

Your company maintains its strong position in the key geographies of the US and Europe and is poised to grow through new launches and increasing access. In the US, your company has filed 774 ANDAs till March 31, 2023, with estimated total market potential of US$150 billion as per IQVIA data. 565 out of the total filed ANDAs have received final approval, while 209 ANDAs are in different stages of the review process. During the year, your company filed 49 ANDAs with the US FDA, including 10 ANDAs for injectable products, and received final approvals for 59 products including for 16 injectable products. The company remains committed to broaden the array of branded OTC products in line with the market trend.

For the Europe market, your Company now has Operations in ten countries with full-fledged pharmacy, hospital and tender sales infrastructure. It now ranks amongst the top 10 generic pharmaceutical companies in 8 countries of Europe. Your Company aims to expand its market share and growth, through new launches including day 1 launches, differentiated offerings, niche and complex products like Biosimilars. The company also completed building the Europe market focused injectable facility at Vishakhapatnam, India, which is in the process of commissioning.

Your company preserved its ARV market dominance by winning bids to supply in both the Global fund and PEPFAR allocation this year. Despite price erosion, its efficient capacities and pricing capability have been a key factor in maintaining leading position in the Dolutegravir-based regimen which is the standard therapy for HIV.

Among the key growth markets, your Company has completed building a Orals facility at Taizhou, China which is in the process of commissioning. Moreover, in China, the Company has filed 30 import products and has received 6 approvals till March 31, 2023, which will be manufactured in units in India. In Canada, your Company has 188 approved products while 52 products are awaiting final approval as at the end of FY23.

Your Company has long been focused on creating an efficient API business, which is a key component in the companys overall growth journey. As part of the ongoing strategy, the API business operations have been carved into a wholly owned subsidiary. This move is expected to bring higher management bandwidth and more emphasis on growth and productivity within the API segment.

Last year your Company had launched a Penicillin-G project in Kakinada, Andhra Pradesh, of 15,000 tonnes/annum capacity, as part of the Indian Governments production linked incentives (PLI) scheme. The project is progressing well on time and is expected to be completed in FY24.

RESEARCH AND DEVELOPMENT (R&D)

Aurobindo, over the years, has consistently invested in R&D for improving capabilities and on-boarding talented people across the globe. Your Company now has a team of more than 1,500 scientists and analysts. This enables your Company to develop a wide range of medications from generics to complex speciality products. Currently, Aurobindo has nine Research and Development (R&D) centres, of which five are in India and four are in the USA. The R&D centres are equipped with cutting- edge technologies where the talented scientists develop generics and difficult-to-develop products and strive to improve productivity. During FY23, your Company invested 5.7% of its consolidated revenue or 14,115 million as against 15,814 million or 6.7% of its consolidated revenue in FY22 in R&D.

Your Company is focused on developing specialty and difficult-to-develop complex products in the respiratory and dermatological therapeutic areas, including metered dose inhalers (MDIs), dry powder inhalers (DPIs), nasal sprays, topical lotions, creams, ointments and transdermal patches.

The products are developed for global markets, where your Company will be able to file the product, get approval and market the products. Your Company is further diversifying its product portfolio by working on multiple R&D initiatives.

During the year, your Company has continued to advance our Phase 3 clinical trials of two oncology and one ophthalmic biosimilar products, including completion of the treatment phase of our trastuzumab, a biosimilar to Herceptin.

To support future product launches, it has incurred a capacity expansion in both the microbial and mammalian drug substance manufacturing facilities. The additional microbial drug substance manufacturing capacities are commissioned for use already in FY23, while the two new mammalian production lines will be ready for use in FY24.

The 15 Valent Pneumococcal Conjugate Vaccine, developed by Tergene Biotech, a joint venture 80% owned by your Company, completed successful 3+0 trial in 1,130 pediatric subjects.

The vaccine received recommendation from Subjects Expert Committee, that operates under the aegis of CDSCO, for grant of permission to Tergene to manufacture and market the vaccine with three dose schedule in pediatric age group of 6, 10 and 14 weeks.

ENVIRONMENT, HEALTH AND SAFETY (EHS) Environment

Environmental preservation has been critical to your company and it has assigned the highest level of priority across the units. To accomplish this sustainability goal, we are leaning more towards Renewable Energy, improving the Co-Processing of Hazardous Waste, Reusing/Recycling 100% of NonHazardous waste, Managing Water resources responsibly, and expanding Green belts around our facilities. We have adopted the best standards of responsible manufacturing across our supply chain.

Health & Safety

Health, safety, and well-being of our employees and associates are a crucial material topic for us. We are committed towards instilling a healthy lifestyle, a safe working environment. Our EHS framework and management practices assure compliance while prioritizing product and process safety and safeguarding all employees. Each manufacturing facility has departmental and Plant safety committee. Every month Management review meetings are conducted which comprises top management from Corporate and representatives from all sites including site heads to examine safety performance and streamline operational procedures critical to safety requirements. In addition to the above Lean Daily Management meetings are also conducted daily with Senior leadership team to track the actions for continuous improvement. Health and safety training is provided to both permanent and contractual workers, ensuring that our team understands the significance of safe procedures and guidelines. Risk identification and assessments are undertaken as part of the process before scaling up. Before commencing any chemical process in the manufacturing area, a hazard and operability study (HAZOP) is conducted. Qualitative and Quantitative risk assessments are carried out for establishing effective controls.

Evaluation of Safety performance through EHS Score card on monthly basis. This EHS Score card provides insight to help an organization to understand its safety performance by evaluating on monthly basis based on Key Performance Indicators identified. Inter Unit audits are conducted for gap assessments and performance improvement. Regular Knowledge sharing session are conducted for sharing best practices among the manufacturing facilities.

Engagement in National and global initiatives on Antimicrobial Resistance (AMR)

As a healthcare service provider, the Company is partnering with ‘The Access to Medical Foundation, which is monitoring what the 30 most active firms in antimicrobial R&D and production are doing to combat antibiotic resistance. We participated in The Antimicrobial Resistance Benchmark 2018, 2020 and 2021.

The Company is also a member of the ‘AMR Industry Alliance, which is driving antimicrobial resistance progress via common objectives and commitment to increase access to high-quality antimicrobial products, encourage responsible usage, and reduce environmental concerns. We participated in AMR Industry Alliance Survey report 2020,2021 and 2022.

Membership with Pharmaceutical Supply Chain Initiative (PSCI):

The Pharmaceutical Supply Chain Initiative (PSCI) is a group of pharmaceutical and healthcare companies who share a vision of better social, health, safety and environmental outcomes in the communities. Aurobindo became Associate Member of PSCI in 2022.

Participation in Carbon Disclosure Project (CDP):

CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. CDP holds the largest environmental database in the world, and this year scored nearly 15,000 companies on their climate change, forests and water security disclosures.

Your company participated in the CDP Disclosure 2022 (Performance in Climate Change and Water security) and it has received a CDP score of ‘C for Climate Change and Water Security for exemplary performance as a First-Time responder.

AWARDS AND ACCOLADES

• Significant Achievement in HR Excellence, 13th CII National HR Excellence Award, 2022

• Excellence in Business Partnering, Economic Times Human Capital Awards, 2022

• IKON Talent Acquisition Awards - HR Guru, 2022

• L&D Excellence" and Best L&D Team " in 12th Edition Learning and development Summit & Awards 2023 organised by UBS FORUMS PVT LTD

• 23rd National Award for Excellence in Energy Management 2022" at CII Virtual Platform:

• Unit IX received the Excellence Energy Efficient Unit - Consistent in the same category in the last 02 years.

• Unit XIV received Excellence Energy Efficient Unit - Current year and Energy Efficient Unit category in the last year.

• Unit I received Energy Efficient Unit - Consistent in the same category in the last three Years.

• Unit V received Energy Efficient Unit Current Year.

• Unit XI received Energy Efficient Unit Consistent in the same category in the last two Years.

• Unit XIU received Energy Efficient Unit Current Year.

SUBSIDIARIES/JOINT VENTURES

As per the provisions of Section 129 of the Companies Act, 2013 read with the Companies (Accounts) Rules 2014, a separate statement containing the salient features of the financial statements of Subsidiary companies/Associate companies/Joint ventures is detailed in Form AOC-1 and is in Annexure-1 to this Report.

The Company has formulated a Policy for determining Material Subsidiaries. The Policy is available on the Companys website and can be accessed at https://www.aurobindo.com/api/uploads/disclosure_under_regulation/Policy-MaterialSubsidiary.pdf

During the year, the following were the changes in the subsidiaries of the Company:

Ceased subsidiaries / JVs

During the period under review, the following are the companies that ceased as subsidiaries/JVs:

• Auro PR I LLC (formerly known as Mylan LLC) Merged with Auro PR Inc w.e.f. May 23, 2022.

• Eugia Injectable Inc, is dissolved w.e.f. April 26, 2022

• Auro Steriles LLC, a wholly owned stepdown subsidiary in USA has been cancelled w.e.f. September 30, 2022.

New subsidiaries / JVs

During the period under review, following subsidiary/step-down subsidiary companies were incorporated/acquired:

• Theranym Biologics Private Limited was incorporated as wholly owned subsidiary of Curateq Biologics Private Limited w.e.f. September 22, 2022.

• PT Aurogen Pharma Indonesia was incorporated as a wholly owned stepdown subsidiary (99% held by Helix Healthcare BV and 1% held by Agile Pharma BV) w.e.f. July 1, 2022

• 51% share capital of GLS Pharma Limited was acquired and it became a subsidiary with effect from August 17, 2022

Name changes of Subsidiaries / JVs

During the period under review, names of the following subsidiary/JVs were changed:

• Acrotech Biopharma LLC name has been changed to Acrotech Biopharma Inc. w.e.f. June 2, 2022

• Auro Cure Private Limited name has been changed to Eugia Steriles Private limited w.e.f. July 26, 2022

• Wytells Pharma Private Limited name has been changed to Eugia SEZ Private Limited w.e.f. September 2, 2022

• Auro Medics Pharma LLC name has been changed to Eugia US LLC w.e.f. August 8, 2022

• Tergene Biotech Private Limited has been converted from private limited company to public limited company w.e.f. October 20, 2022, hence the name changed to Tergene Biotech Limited.

• Auro Pharma India Private Limited name has been changed to Apitoria Pharma Private Limited w.e.f. March 29, 2023.

Ownership changes in Subsidiaries

During the period under review, ownership of the following subsidiaries was changed from one subsidiary to other subsidiary:

• AuroMedics Pharma LLC (now Eugia US LLC) - Ownership changed from Aurobindo Pharma USA Inc to Auro Steriles LLC w.e.f. April 1, 2022. Consequent to cancellation of Auro Steriles LLC on September 30, 2022, ownership of Eugia US LLC changed from Auro Steriles LLC to Eugia Inc w.e.f. October 1, 2022

• Auro Steriles LLC - Ownership changed from Aurobindo Pharma USA Inc to Eugia Inc w.e.f. April 1, 2022

• Eugia US Manufacturing LLC - Ownership changed from Aurobindo Pharma USA Inc to Eugia Inc w.e.f. April 1, 2022

INTEGRATED ANNUAL REPORT

In compliance with the SEBI Circular SEBI/HO/CFD/CMD/ CIR/P/2017/10 dated February 6, 2017 and based on the International Integrated Reporting Framework, the Company Voluntarily adopted the Integrated Annual Report for the financial year 2022-23, which encompasses both financial and non-financial information to Members of the Company to view insight into the organizations strategy, governance framework, stakeholder relationship and future outlook and performance and prospects of value creation based on the six forms of capitals viz. financial capital, manufactured capital, intellectual capital, human capital, social capital, relationship capital and natural capital.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements have been prepared by the Company in accordance with the Indian Accounting Standards (Ind AS) 110 and 111 as specified in the Companies (Indian Accounting Standards) Rules, 2015 and as per the provisions of Companies Act, 2013. The Company has placed separately, the audited accounts of its subsidiaries on its website https:// www.aurobindo.com/investors/disclosures-under-regulation-46/financials-subsidiariesin compliance with the provisions of Section 136 of the Companies Act, 2013. Audited financial statements of the Companys subsidiaries will be provided to the Members, on request.

CODE FOR PREVENTION OF INSIDER TRADING

The Company adopted a Code of Conduct to regulate, monitor and report trading in securities of the Company by the designated persons and their immediate relatives pursuant the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015. This Code of Conduct also includes code of practices and procedures for fair disclosure of unpublished price sensitive information and has been made available on the Companys website at https://www. aurobindo.com/api/uploads/Code-Fair-Disclosure-PIT-Feb2019. pdf. Company has implemented System Driven Disclosures for monitoring dealings in the securities of the Company by the promoters, directors and designated persons and also structured digital database to keep record of the persons with whom the unpublished price sensitive information of the Company has been shared with.

VIGIL MECHANISM

The Board of Directors adopted the Whistle Blower Policy which is in compliance with Section 177(9) of the Companies Act, 2013 and Regulation 22 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Whistle Blower Policy aims to conduct the affairs of the Company in a fair and transparent manner by adopting the highest standards of professionalism, honesty, integrity, and ethical behaviour.

All permanent employees and Whole-time Directors of the Company are covered under the Whistle Blower Policy.

A mechanism has been established for employees and other stakeholders to report their concerns about unethical behaviour, actual or suspected fraud or violation of the Code of Conduct and Ethics, and leak of price-sensitive information under the Companys Code of Conduct formulated for regulating, monitoring, and reporting by Insiders under SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time. It also provides for adequate safeguards against the victimisation of employees who avail of the mechanism and allows direct access to the Chairperson of the Audit Committee and also Managing Director of the Company in exceptional cases. During the year, no complaints were reported under the Whistle Blower Policy. The Whistle Blower Policy is available on the Companys website https://www.aurobindo.com/investors/ disclosures-under-regulation-46/vigil-mechanism-whistle- blower-policy

PREVENTION AND PROHIBITION OF SEXUAL HARASSMENT

Your Company has a policy and framework for employees to report sexual harassment cases at the workplace and the said process ensures complete anonymity and confidentiality of information. Your Company has constituted an Internal Complaints Committee in compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules there under. The Company has a policy on prevention and prohibition of sexual harassment at the workplace. The policy provides for protection against sexual harassment of women at the workplace and for the prevention and redressal of such complaints. During the year, the Company has not received any complaint. The Company has been conducting regular awareness programmes aimed at prevention of sexual harassment.

MEETINGS OF THE BOARD

The Board and Committee meetings are prescheduled, and a tentative calendar of the meetings is created, in consultation with the Directors. However, in case of special and urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, five Board Meetings and six Audit Committee Meetings were convened and held.

The details of the meetings including composition of the Audit Committee are provided in the Corporate Governance Report. During the year, all the recommendations of the Audit Committee were accepted by the Board.

DETAILS OF DIRECTORS AND KEY MANAGERIAL PERSONAL

Key Managerial Personnel

Mr. K. Nithyananda Reddy, Vice Chairman & Managing Director, Dr. M. Sivakumaran, Whole-time Director, Mr. M. Madan Mohan Reddy, Whole-time Director, Mr. Santhanam Subramanian, Chief Financial Officer, and Mr. B. Adi Reddy, Company Secretary are Key Managerial Personnel of the Company in accordance with the provisions of Section(s) 2(51), and 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. In view of temporary inability to perform executive functions of the Company by Mr. P. Sarath Chandra Reddy, he has been relieved from his executive responsibilities with effect from November 12, 2022. However, he continues to remain as director on the Board of the Company.

None of the Directors of the Company are disqualified under the provisions of the Companies Act, 2013 (‘Act) or under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. All Independent Directors have provided confirmations as contemplated under section 149(7) of the Act. As required by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a certificate from the Company Secretary in practice, that none of the Directors on the Board of the Company have been debarred or disqualified from being appointed or continuing as Directors of companies by the Board/Ministry of Corporate Affairs or any such statutory authority, forms part of Corporate Governance Report as Annexure-A.

Appointments/Reappointments

During the year, the Members approved the reappointment of Mr. Girish Paman Vanvari (DIN: 07376482) as an Independent Director for second term of five years from November 5, 2022 to November 4, 2027 and approved the appointment of Mr. Santanu Mukherjee (DIN: 07716452) as an Independent Director for a period of two years from February 9, 2023 to February 8, 2025. In the opinion of the Board, both Mr. Girish Paman Vanvari and Mr. Santanu Mukherjee are the persons of integrity, fulfil requisite conditions as per applicable laws and are independent of the management and promoters of the Company

Further, as per the provisions of the Companies Act, 2013, Dr. M.Sivakumaran and Mr. P. Sarath Chandra Reddy will retire as Directors at the ensuing Annual General Meeting and being eligible, seek reappointment. The Board recommends their reappointment.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Section 134(3)(c) of the Companies Act, 2013 your Directors confirm that:

a. in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

b. appropriate accounting policies have been selected and applied consistently. Judgement and estimates which are reasonable and prudent have been made so as to give a true and fair view of the state of affairs of your Company as at the end of the financial year and of the profit of your Company for the year;

c. proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;

d. the annual accounts have been prepared on an on-going concern basis;

e. proper internal financial controls have been laid down to be followed by your Company and such internal financial controls are adequate and are operating effectively; and

f. proper systems to ensure compliance with the provisions of all applicable laws have been devised, and such systems are adequate and are operating effectively.

DECLARATION FROM INDEPENDENT DIRECTORS

The Independent Directors have submitted the declaration as to the compliance with the Companys Code of Conduct and the declaration of independence stating that they meet the criteria of independence as provided in sub-section (6) of Section 149 of the Companies Act, 2013 as well as clause (b) of sub-regulation (1) of Regulation 16 of the Listing Regulations (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) and confirmed that they have registered their names in the Independent Directors Data bank. In terms of Regulation 25(8) of the Listing Regulations, the Independent Directors have confirmed that they are not aware of any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge their duties.

BOARD DIVERSITY

The Company recognises and embraces the importance of a diverse Board in its success. The Board has adopted the Board Diversity Policy which sets out with an approach to diversify the Board of Directors. The Board Diversity Policy is available on the Companys website: https://www.aurobindo.com/api/uploads/ Policy-on-Board-Diversity.pdf

BOARD EVALUATION

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandates that the Board shall monitor and review the Board evaluation framework. The Companies Act, 2013 states that a formal annual evaluation needs to be conducted by the Board of its own performance and that of its committees and individual Directors. Schedule IV of the Companies Act, 2013 states that the performance evaluation of Independent Directors shall be conducted by the entire Board of Directors, excluding the Director being evaluated.

The Annual Performance Evaluation was conducted for all Board Members, for the Board and its Committees for FY23.

This evaluation was led by the Nomination and Remuneration/ Compensation Committee of the Company. The Board evaluation framework has been designed in compliance with the requirements under the Companies Act, 2013 and the Listing Regulations and in accordance with the Guidance Note on Board Evaluation issued by SEBI in January 2017 The Board evaluation was conducted through questionnaires designed with qualitative parameters and feedback based on ratings.

Evaluation of Committees was based on criteria such as adequate independence of each Committee, frequency of meetings and time allocated for discussions at meetings, functioning of Board Committees and effectiveness of its advice/ recommendation to the Board, etc.

Evaluation of Directors was based on criteria such as participation and contribution in Board and Committee meetings, representation of shareholders interest and enhancing shareholders value, experience, and expertise to provide feedback and guidance to top management on business strategy, governance, risk and understanding of the organisations strategy, etc.

POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION

The policy of the Company on Directors appointment and remuneration, including criteria for determining qualifications, positive attributes, independence of a Director and other matters are adopted as per the provisions of the Companies Act, 2013. The remuneration paid to the Directors is as per the terms laid out in the Nomination and Remuneration Policy of the Company. The Nomination and Remuneration Policy as adopted by the Board is available on the Companys website: https://www.aurobindo.com/api/uploads/NRC-Policy- AUROBINDO-09022023.pdf

TRANSFER TO RESERVES

Your Company has not transferred any amount to reserves during the year under review.

LOANS, GUARANTEES AND INVESTMENTS

Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the Notes to the financial statements provided in this Annual Report.

CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES

All transactions entered with Related Parties for the year under review were on arms length basis and in the ordinary course of business. All Related Party transactions are mentioned in the Notes to the Financial Statements. The Company has developed a framework through Standard Operating Procedures for the purpose of identification and monitoring of such Related Party Transactions. A statement giving details of all Related Party Transactions are placed before the Audit Committee and the Board for review and approval. The policy on Related Party Transactions, as approved by the Board of Directors, has been uploaded on the website of the Company https://www. aurobindo.com/investors/disclosures-under-regulation-46/ policy-on-rpt

The particulars of contracts or arrangements with Related Partie: referred to in sub-section (1) of Section 188 of the Companies Act, 2013 is prepared in Form No. AOC-2 pursuant to clause (h) of sub-section (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014 and is in Annexure-2 to this Report.

There were no materially significant Related Party Transactions which could have potential conflict with the interests of the Company at large.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS & OUTGO

Information with respect to conservation of energy, technology absorption, foreign exchange earnings & outgo pursuant to Section 134(3)(m) of the Act read with Companies (Accounts) Rules, 2014 is in Annexure-3 to this Report.

ANNUAL RETURN

The Annual Return of the Company as on March 31, 2023 is available on the Companys website and can be accessed at: https://www.aurobindo.com/investors/disclosures-under- regulation-46/annual-returns

RISK MANAGEMENT COMMITTEE

Risk Management Committee of the Company consists of the following Directors viz., Mr. Girish Paman Vanvari, Mr. P. Sarath Chandra Reddy and Mr. K. Ragunathan as on March 31, 2023.

The Risk Management Committee was re-constituted on April 1, 2023 with the following Directors viz., Mr. Girish Paman Vanvari, Mr. Santanu Mukherjee and Mrs. Savita Mahajan as members.

Mr. Girish Paman Vanvari is the Chairman of the Committee.

The Company has established a separate department to monitor the enterprise risk and for its management. The Committee had formulated a Risk Management Policy for dealing with different kinds of risks which the Company faces in its day-today operations. The Risk Management policy of the Company outlines a framework for identification of internal and external risks specifically faced by the Company, in particular including financial, operational, sectoral, sustainability (particularly, ESG- related risks), information, cyber security risks, or any other risk as may be determined by the Committee; measures for risk mitigation including systems and processes for internal control of identified risks; and Business continuity plan. Risk is an integral part of the Companys business, and sound risk management is critical to the success of the organisation. The Company has adequate internal financial control systems and procedures to combat the risk. The risk management procedure is reviewed by the Audit Committee and Board of Directors on a regular basis at the time of review of the quarterly financial results of the Company. A report on the risks and their management is enclosed as a separate section forming part of this report.

AUDITORS & AUDITORS REPORT

Pursuant to Section 139 (2) of the Companies Act, 2013, read with Companies (Audit and Auditors) Rules, 2014, the Company at its 35th Annual General Meeting (AGM) held on August 2, 2022, had appointed M/s. Deloitte Haskins & Sells, Chartered Accountants as Statutory Auditors for a period of 5 years i.e. up to the conclusion of the 40th AGM to be held in the year 2027 Further, as per the Companies (Amendment) Act, 2017 effective from May 7, 2018, the provisions relating to ratification of the appointment of Statutory Auditors at every AGM are not required to be followed. The Auditors have confirmed that they are not disqualified from continuing as Auditors of the Company. The Statutory Auditors report forms part of the Annual Report. The notes on financial statements referred to in the Auditors Report are self-explanatory and do not call for any further comments. There are no specifications, reservations, adverse remarks on disclosure by the statutory auditors in their report. They have not reported any incident of fraud to the Audit Committee of the Company during the year under review.

INTERNAL AUDITORS

Ernst & Young LLP are the Internal Auditors of the Company and to maintain its objectivity and independence, the Internal Auditors report to the Chairman of the Audit Committee. The scope and authority of the Internal Audit function is clearly defined by the Audit Committee of the Board. The Internal Auditors monitor and evaluate the efficacy and adequacy of the internal control system of the Company, its compliance with applicable laws/regulations, accounting procedures and policies on a standalone basis. Based on the reports of the Internal Auditors, corrective actions will be undertaken, thereby strengthening the controls. Significant audit observations and action plans were presented to the Audit Committee of the Board on a quarterly basis.

COST AUDIT

As per Section 148 of the Act, the Company is required to have the audit of its cost records conducted by a Cost Accountant. The Board of Directors of the Company has on the recommendation of the Audit Committee, approved the appointment of EVS & Associates, a firm of Cost Accountants in Practice (Registration No. 000175) as the Cost Auditors of the Company to conduct cost audit for relevant products prescribed under the Companies (Cost Records and Audit) Rules, 2014 for the year ending on March 31, 2024 at a remuneration of 650,000/- plus reimbursement of out-of-pocket expenses at actuals and applicable taxes. As per the provision of the Act, the remuneration payable to the Cost Auditor for audit of cost records, subject to ratification by the Members in the forthcoming AGM. The Cost Auditor, EVS & Associates have, under Section 139(1) of the Companies Act, 2013 and the Rules framed thereunder, furnished a certificate of their eligibility and consent for appointment.

INTERNAL FINANCIAL CONTROLS

The internal financial controls (IFC) framework institutionalised in Aurobindo has been evaluated in-depth for its adequacy and operating effectiveness, wherein the Company has covered financial reporting controls, operational controls, compliance- related controls and also Information Technology (IT) controls, comprising IT general controls (ITGC) and application-level controls. The ITGC would include controls over IT environment, computer operations, access to programmes and data, programme development and programme changes. The application controls would include transaction processing controls in ERP Oracle system which supports accurate data input, data processing and data output, workflows, reviews and approvals as per the defined authorisation levels.

To further strengthen the existing IFC framework and support the growing business, the Company has redefined all the process level controls at activity level which has brought in more clarity and transparency in day-to-day processing of transactions and in addressing any related risks. All the controls so redefined and identified have been properly documented and tested with the help of an independent auditor to ensure their adequacy and effectiveness.

The Internal Auditors conduct ‘Process & control review on a quarterly basis as per the defined scope and submit the audit findings along with management comments and action taken reports to the Audit Committee for its review.

The IFC framework at Aurobindo ensures the following:

• Establishment of policies and procedures, assignment of responsibility, delegation of authority, segregation of duties to provide a basis for accountability and controls;

• Physical existence and ownership of assets at a specified date;

• Enabling proactive anti-fraud controls and a risk management framework to mitigate fraud risks to the Company;

• Recording of all transactions occurred during a specific period. Accounting of assets, liability, and revenue and expense components at appropriate amounts;

• Preparation of financial information as per the timelines defined by the relevant authorities.

These controls cover the policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business including adherence to the Companys policies, safeguarding of its assets of the Company, prevention and detection of its frauds and errors, accuracy and completeness of accounting records and timely preparation of reliable financial information. The Company has an internal control system, commensurate with the size, scale and complexity of its operation.

SECRETARIAL AUDIT REPORT

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Company has appointed Mr. A. Mohan Rami Reddy, a Company Secretary in Practice, to undertake the secretarial audit of the Company for the financial year 2022-23. The Secretarial Audit Report issued in form MR-3 is in Annexure-4 of this Report.

As per regulation 24A(1) of SEBI Listing Regulations, your Company is required to annex a secretarial audit report of its material unlisted subsidiary incorporated in India to its Annual Report. Accordingly, the Secretarial Audit Report for the Financial Year 2022-23 of APL Healthcare Limited, a material subsidiary incorporated in India, is annexed along with Annexure-4 of this report.

There are no qualifications, reservations or adverse remarks in either of these Secretarial Audit Reports. Also, pursuant to Regulation 24A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company has obtained the Annual Secretarial Compliance Report from a Practicing Company Secretary and submitted the same to stock exchanges where the shares of the Company are listed.

CORPORATE SOCIAL RESPONSIBILITY

In compliance with Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules 2014, the Company has established the Corporate Social Responsibility Committee (CSR Committee).

The Board, on the recommendation of the CSR Committee, adopted a CSR Policy. The same is available on the Companys website at https://www.aurobindo.com/api/uploads/CSR-policy. pdf The CSR objectives are designed to serve societal, local and national goals in the locations that we operate in, to create a significant and sustained impact on local communities.

The Company undertakes its CSR activities through Aurobindo Pharma Foundation, a wholly-owned subsidiary of the Company incorporated under Section 8 of the Companies Act 2013.

The details of CSR projects approved by the Board for the financial year 2022-23 are available on the Companys website at https://www.aurobindo.com/sustainability/annual-action-plan. The Annual Report on Corporate Social Responsibility as per Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 is annexed as Annexure-5 to this Report.

PARTICULARS OF EMPLOYEES

The statement of particulars of appointment and remuneration of managerial personnel as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is in Annexure-6 to this Report. The statement containing particulars of employees pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is open for inspection at the Registered Office of the Company during business hours on all working days of the Company, up to the date of the ensuing Annual General Meeting. Any shareholder interested in obtaining such details may write to the Company Secretary of the Company at cs@aurobindo.com.

Affirmation that the remuneration is as per the remuneration policy of the Company.

In compliance with the provisions of the Companies Act, 2013 and SEBI Listing Regulations, the Board, on the recommendation of the Nomination and Remuneration/Compensation Committee approved the Policy for selection, appointment of Directors, KMPs and Senior Management persons. The said Policy provides a framework to ensure that suitable and efficient succession plans are in place for appointment of Directors on the Board and other management members. The Policy also provides for selection and remuneration criteria for the appointment of Directors and senior management persons. The Company affirms that the remuneration is as per the Remuneration Policy of the Company.

INSURANCE

All properties and insurable interests of the Company including building, plant and machinery and stocks have been fully insured. The Company has also taken D&O Insurance Policy covering Companys Directors and Officers.

MATERIAL CHANGES AND COMMITMENTS

There are no material changes and commitments in the business operations of the Company from the financial year ended March 31, 2023 to the date of signing of the Boards Report other than the transfer of certain Units of the Company viz. Unit 1, Unit 5, Unit 8, Unit 9, Unit 11, Unit 14, Unit 17 and R&D Unit 2, to the Companys wholly owned subsidiary Apitoria Pharma Private Limited for an aggregate consideration of 38,0979 million subject to necessary adjustments as prescribed in the business transfer agreements and on a cash free basis.

CORPORATE GOVERNANCE

A separate report on Corporate Governance standards followed by your Company, as stipulated under Schedule V (C) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is enclosed as a separate section forming part of this report. The certificate of the Practicing Company Secretary, Mr. S. Chidambaram with regard to compliance of conditions of corporate governance as stipulated under Schedule V(E) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed to the Corporate Governance Report.

MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis Report for the year under review as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is presented in a separate section forming part of this report.

DEPOSITS

Your Company has not accepted any deposits from the public within the purview of Chapter V of the Companies Act, 2013.

INDUSTRIAL RELATIONS

Industrial relations at all units of the Company have been harmonious and cordial. The employees are motivated and have shown initiative in improving the Companys overall performance during the year.

TRANSFER OF UNPAID AND UNCLAIMED AMOUNT TO IEPF

The dividends that remained unpaid/unclaimed for a period of seven years, have been transferred on due dates by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government. Section 124 of the Companies Act, 2013 read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (‘the Rules) mandates that companies shall apart from transfer of dividend that has remained unclaimed for a period of seven years in the unpaid dividend account to the IEPF, also transfer the corresponding shares with respect to the dividend, which has not been paid or claimed for seven consecutive years or more to IEPF.

Accordingly, the dividends that remain unclaimed for seven years and also the corresponding shares have been transferred to IEPF account on due dates. The details of amount of unclaimed unpaid dividend and corresponding shares transferred to IEPF during the financial year 2022-23 have been provided in the AGM Notice.

Further, in accordance with the IEPF Rules, the Board of Directors have appointed Mr. B. Adi Reddy, Company Secretary as Nodal Officer of the Company for the purpose of verification of claims of shareholders pertaining to shares transferred to IEPF and / or refund of dividend from IEPF Authority and for coordination with IEPF Authority. The details of the Nodal Officer are available on the website of the Company at https://www.aurobindo.com/api/ uploads/unpaiddividendaccountdetails/Nodal-Officer-IEPF.pdf

SHARE CAPITAL

During the financial year under review, there has been no change in the Authorised, Subscribed and Paid-up Share Capital of the Company. The paid-up share capital of the Company as on March 31, 2023 was 585,938,609 divided into 585,938,609 equity shares of 1 each. The Company has not issued any shares, debentures, bonds or convertible / non-convertible securities during the financial year under review.

BUSINESS RESPONSIBILITY AND SUSTAINABILITY REPORT

A detailed Business Responsibility and Sustainability Report in terms of the provisions of Regulation 34 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is available as a separate section in this Annual Report.

SIGNIFICANT/ MATERIAL ORDERS PASSED BY COURTS/ REGULATORS/TRIBUNALS

There were no significant material orders passed by the Regulators or Courts or Tribunals that would impact the going concern status of the Company and its operations in future.

SECRETARIAL STANDARDS

The Company has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India, i.e., SS-1 and SS-2, relating to ‘Meetings of the Board of Directors and ‘General Meetings respectively.

OTHER DISCLOSURES

Acquisitions / Disinvestment / merger / demerger

Acquisition of 51% equity stake in GLS Pharma Limited

The Board of Directors of the Company at its meeting held on June 17, 2022, approved the acquisition of 51% equity shares in GLS Pharma Limited, operating in oncology business and having manufacturing facility in Hyderabad for a cash consideration of 280.5 millions. GLS Pharma Limited is engaged in the business of Oncology products which include orals and injectables used in chemotherapy for solid malignancies, chemotherapy for hematological malignancies and chemo supportive products.

GLS Pharma Limited was incorporated on September 1, 2014 and initiated manufacturing in the year 2015. It had a total sales of 258 millions during the financial year 2021-22 and 273 millions during the financial year 2022-23.

Acquisition of business operations of Veritaz Healthcare Limited

The Company completed the acquisition of business and certain assets of Veritaz Healthcare Limited on slump sale basis in July 2022, for a consideration of 1,710 million as per the Business Transfer Agreement dated March 28, 2022. Veritaz operates in the pharmaceutical industry in India and sells branded generic formulations and other health care related products.

Merger Scheme

The Board of directors at its meeting held on August 12, 2021 had approved Scheme of Amalgamation providing for the amalgamation of two of its wholly owned subsidiaries viz., Auronext Pharma Private Limited and Mviyes Pharma Ventures Private Limited with the Company subject to the requisite statutory / regulatory approvals including the approval of the National Company Law Tribunal (Hyderabad Bench). Since there were other restructuring proposals in discussion, this amalgamation was put on hold and the Board of Directors at its meeting held on April 1, 2023 has decided to proceed with the aforesaid Scheme of Amalgamation.

CREDIT RATING

The Company has obtained the Credit ratings from India Ratings & Research Private Limited and it has assigned ND AA+/Stable/ IND A1+ on Rating Watch Evolving for Companys fund based working capital facilities and ND A1+ on Rating Watch Evolving for Companys non-fund-based working capital limits vide their letter dated October 20, 2022.

ACKNOWLEDGEMENTS

Your directors are grateful for the invaluable contribution made by the employees and are encouraged by the support of the customers, business associates, banks and government agencies. The Directors deeply appreciate their faith in the Company and remain thankful to them. The Board shall always strive to meet the expectations of all the stakeholders.

For and on behalf of the Board
K. Ragunathan
Date: May 27, 2023 Chairman
Place: Hyderabad DIN: 00523576