Laurus Labs Ltd Directors Report.

To,

The Members of

Laurus Labs Limited

Your Directors have pleasure in presenting the 15th Annual Report of the Company together with the Audited Financial Statements for the Financial Year ended March 31, 2020.

Standalone and Consolidated Financial Highlights:

(Rs. in Million)

Particulars Consolidated Standalone
2019-20 2018-19 2019-20 2018-19
Gross Income 28,317 22,919 27,973 22,361
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) 5,695 3,712 5,751 3,667
Finance Charges 896 882 877 858
Depreciation/Amortization 1,872 1,642 1,838 1,605
Net Profit Before Tax 2,936 1,198 3,045 1,212
Provision for Tax 383 260 374 262
Net Profit After Tax carried to Balance Sheet 2,553 938 2,670 950
Interim Dividend paid - - 160 -
Dividend Tax on Interim Dividend - - 33 -
Proposed Dividend amount - - 107 160
Proposed Dividend Tax amount - - - 33

Companys Affairs:

(i) Operations:

During the year under review, your Company achieved the following:

Formulation contributed significant revenue of 824 Cr serving to Africa, North America and Europe.

Formulation capacity utilization is at peak and we are planning for expansion of formulation capacity.

All the units are operating at optimum capacity.

Revenue in Foreign currency (Exports) increased by 166%

Received approvals (EIR) for all regulatory inspections except for Unit 1 &3.

Your Company is Certified as Great Place to Work by GPTW for the second time for the year 2019-20

(ii) Covid 19

The world is facing an unprecedented challenge in this century with Corona Virus (Covid 19). World Health Organization (WHO), Geneva has been guiding the world in handling Covid 19 and has finally declared on 11th Mar 2020 as a Pandemic through an outbreak in China during December 2019. Time will tell the cause for the origin and spread, but the world is on tender hook (or on its toes) to stop the spread through various measures including lock-down or work from home or isolation with the concept of social distancing. Health care professionals are struggling to manage increasing Covid 19 cases across the globe. The human being is trying to adopt a new way of life and may soon see a significant change in the lifestyle of the people post-Covid 19.

As Virus is novel, health regulators started screening of existing medications for the treatment. Hydroxychloroquine (HCQ) was shortlisted as one of the preferred first-line therapy for the treatment of Covid 19 by the ICMR along with Azithromycin and HCQ was also recommended for prophylaxis for health care professionals and members exposed to other quarantined persons with confirmed Covid-19. There are few other drugs evaluated and being used for treatment and Laurus is producing some of these drugs namely- Ritonavir and Lopinavir.

The pharmaceutical industry was categorized under essential commodities and allowed to operate during the lockdown.

At Laurus, steps have been initiated to monitor and control the operations including the travel ban, thermal screening, sanitation of buses, cafeteria and restrooms and awareness campaigns have been conducted through video, mailers, posters, etc. The initial period (about a week) of lockdown operations were at a slow pace due to streamlining of processes by the Government authorities for movement of materials and personnel. Post this, operations are started improving on a week by week basis. Sales of goods are almost normal even in the initial period of lockdown.

Created ‘Covid 19 Task Force with all internal risk committee members, functional heads and senior team including CEO and organized to have twice a day calls to take decisions on priority.

Team Laurus has exhibited very good teamwork to maintain and accelerate operations during these toughest days.

There is no significant impact on the operations of Laurus and the Company is poised to generate growth in the operations.

(iii) Outlook:

Business prospects may remain positive because of the growing global demand for generics and opportunities provided by the expiry of patents in developed markets. Post COVID-19, there may be new business opportunities for the pharmaceutical industry, in particular, our Company.

Management Discussion & Analysis:

Various business aspects including market conditions, business opportunities, challenges etc. have been discussed at length in the Managements Discussion and Analysis (MD&A), which forms part of this Annual Report.

Dividend:

Your directors are pleased to inform you that the Board has declared an interim dividend @ 15% (i.e. Rs.1.50 per share of the face value of C 10/- each) and paid to the Shareholders in March 2020 and also recommend a final dividend @ 10% (i.e. Rs.1 per share of the face value of Rs.10/- each) for the Financial Year ended March 31, 2020. The final dividend, if approved by the Members, in their forthcoming Annual General Meeting to be held on July 9, 2020, will be paid to the Members on or after July 14, 2020, whose names appear on the Register of Members as on Book Closure Date.

Transfer to Reserves:

Your Company does not propose to transfer any portion of profits to Reserves.

Share Capital:

During the year under review, the Company had allotted 4,77,750 equity shares of C10/- each to the eligible employees under ESOP Schemes, 2011 & 2016. Accordingly, the share capital has increased as follows:

Paid Up Capital as on March 31, 2019 Movement during the year 2019-20 Cumulative Paid Up Capital after such movement and as on March 31, 2020
106,436,749 equity shares of Rs.10/- each Allotted 4,77,750 equity shares of Rs.10/- each in September, 2019 under ESOP Schemes, 2011& 2016 106,914,499 equity shares of C10/- each

Change in the nature of the business, if any:

There is no change in the nature of the business of the Company or any of its subsidiaries or associates, during the year under review.

Material Changes and commitments, affecting the financial position of the Company:

There are no material changes and commitments affecting the financial position of the Company that have occurred between the end of the financial year of the Company to which the financial statements relate and the date of the Report i.e. between March 31, 2020 to April 30, 2020.

Fixed deposits:

The Company did not accept any fixed deposits.

Subsidiaries, Associates and Joint Ventures:

The Company has the following Wholly-Owned Subsidiaries, namely, (i) Sriam Labs Private Limited, India (ii) Laurus Synthesis Inc., USA and (iii) Laurus Holdings Ltd., United Kingdom (UK).

Laurus Holdings Ltd., UK, in turn, holds two Wholly-Owned Subsidiaries, namely (i) Laurus Generics Inc., USA; and (ii) Laurus Generics GmbH, Germany.

As per Section 129(3) of the Companies Act, 2013 the consolidated financial statement of the Company and all its Subsidiaries and Associates prepared in accordance with the applicable accounting standards forms part of this Annual Report. Further, a statement containing salient features of the financial statements of our subsidiaries and associates in the prescribed form in AOC-1 is attached as Annexure-1 to the Directors Report.

Consolidated financial Statements:

Consolidated Financial Statements have been prepared by the Company in accordance with the requirements of applicable Accounting Standards and the provisions of Companies Act, 2013. As per the provisions of Section 136 of the Companies Act, 2013, the Company has placed separately the audited financial statements of its subsidiaries on its website www.lauruslabs.com and copies of audited financial statements of the subsidiaries will be provided to the Members at their request.

Particulars of Loans, Guarantees and Investments:

During the year, your Company has continued the Corporate Guarantee to Citi Bank, India and, in turn, Standby Letter of Credit issued by Citi Bank, India to Citi Bank Inc. USA on behalf of the Subsidiary Company, namely Laurus Synthesis Inc. USA, for US Dollars 2 million, to meet the objectives of the said Subsidiary Company.

Further, the Company has also issued a Corporate Guarantee to the Bankers of Sriam Labs Private Limited in the previous financial year for an amount of C 500 million, both of which are well within the limits prescribed under Section186 of the Companies Act, 2013.

Board of Directors and Key Management Personnel:

As per the provisions of the Companies Act, 2013, Mr. Narendra Ostawal and Mr. Ravi Kumar V. V., Directors, will retire at the ensuing annual general meeting and, being eligible, seek reappointment. The Board of Directors recommends their re-appointment.

Mr. Ramesh Subrahmanian has resigned from the Board of the Company with effect from February 27, 2020 due to his pressing personal commitments. Mr. Chandrakanth Chereddi, who served in the capacity of Executive Director for a period of around 4 years and in various other capacities in the Company for a period of around 8 years, became a non-executive director with effect from April 1, 2020.

Board Meetings:

The Board and Committee meetings are pre-scheduled and a tentative calendar of the meetings shall be finalised in consultation with the Directors to facilitate them to plan their schedule. However, in case of urgent business needs, approval is taken by passing resolutions through circulation. During the year under review, five board meetings were held. The details of the meetings including the composition of various committees are provided in the Corporate Governance Report.

Performance Evaluation:

The formal annual evaluation of the performance of the Board as well as non-independent directors was undertaken by the Nomination and Remuneration Committee. The performance of Board Committees and of individual independent directors was undertaken by the Board members.

The manner of the evaluation of the Board and other Committees has been determined by the Nomination and Remuneration Committee as per SEBI circular dated January 5, 2017.

Declaration from Independent Directors:

The independent directors have submitted the declaration of independence stating that they meet the criteria of independence as prescribed in sub-section (6) of Section 149 of the Companies Act, 2013 as well as under Regulation 16(1)(b) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

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 is adopted by the Board and the salient features of the policy are as follows:

Non-Executive and Independent Directors ("NEDs") will be paid remuneration by way of sitting fees and commission. The remuneration/ commission/ compensation to the NEDs will be determined by the Nomination and Remuneration Committee ("Compensation Committee") and recommended to the Board for its approval.

As approved by the shareholders at the shareholders meeting held on July 20, 2016, commission will be paid at a rate not exceeding 1% per annum of the profits of the Company computed in accordance with Section 198 of the Act.

The payment of the Commission to the NEDs will be placed before the Board every year for its consideration and approval. The sitting fee payable to the NEDs for attending the Board and Compensation Committee meetings will be fixed, subject to the statutory ceiling. The fee will be reviewed periodically and aligned to comparable best in class companies.

NEDs will not be eligible to receive stock options under the existing employee stock option scheme(s) ("ESOP") of the Company.

The compensation paid to the executive directors (including the Managing Director) will be within the scale approved by the shareholders. The elements of the total compensation, approved by the Compensation Committee will be within the overall limits specified under the Act.

The Companys total compensation for Directors and Key Managerial Personnel as defined under the Act/other employees will consist of:

fixed compensation

variable compensation in the form of annual incentive

benefits

work related facilities and, perquisites

Changes made to the policy: Nil

The Nomination and Remuneration Policy is placed on the Companys website and the following is web address of the said policy.

http://www.lauruslabs.com/sites/all/themes/lauruslab//Investors/ PDF/Policies/Remuneration_Policy.pdf

Dividend Distribution Policy:

The Dividend Policy of the Company is attached as Annexure-2 to this Report.

The said Dividend Distribution policy is placed on the website of the Company https://lauruslabs.com/Investors/PDF/Policies/ Dividend_Policy.pdf.

Risk Management:

Your Company had formulated a risk management policy for dealing with different kinds of risks that it faces in the day-to-day operations of the Company. Risk Management Policy of the Company outlines different kinds of risks and risk mitigating measures to be adopted by the Board. The Company has adequate internal financial control systems and procedures to mitigate the risk. The risk management procedure is reviewed by the Risk Management Committee and Board of Directors on a regular basis at the time of review of quarterly financial results of the Company. Further, your Company had constituted a Risk Management Committee which lays down various risk mitigating practices that your Company is required to implement in the Company.

Adequacy of Internal Financial Controls:

The internal financial controls with reference to the Financial Statements, apart from statutory audit, internal audit and cost compliance, are adequate to the size and operations of the Company.

Directors Responsibility Statement:

In terms of Section 134(3)(c) of the Companies Act, 2013, the Board of Directors of the Company states that:

(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 judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company 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 Companies 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 operative 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 operative effectively.

Related Party Transactions:

In accordance with Sec 134(h) of the Companies Act, 2013 and Rule 8(2) of Companies (Accounts) Rules, 2014, the particulars of contracts or arrangements entered into by the Company with the Related Parties referred to in Section 188 (1) of the Act, have been provided in Form AOC-2 and attached the same as Annexure-3

The details of related party disclosures as stated in the notes to the financial statements forms part of this annual report.

Vigil Mechanism:

The Company established a whistle-blower policy in order to assure that the business is conducted with integrity and that the Companys financial information is accurate.

Auditors:

(i) Statutory Auditors:

M/s. Deloitte, Haskins & Sells LLP, Firm Registration No.117366W/W-100018 who were appointed as Statutory Auditors of the Company by the Shareholders of the Company in their 12th Annual General Meeting held in July 2017 for a period of five years shall be the Statutory Auditors of the Company.

The requirement under the proviso to Section 139(1) that "the Company shall place the matter relating to such appointment (of auditors) for ratification by members at every annual general meeting" has been omitted from the Companies Act, 2013. Therefore, the Company does not propose ratification of appointment of statutory auditors for the approval of the members.

(ii) Cost records and Auditors:

The Company is required under Section 148(1) of the Companies Act, 2013 read with Companies (Audit & Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Amendments Rules, 2014, the Company is required to maintain the cost records in respect of its business and accordingly such accounts and records are made and maintained.

Your Board has appointed M/s. Bharathula & Associates, Cost Accountants, as the Cost Auditors of the Company for the Financial Year 2020-21. As required by the Act, the remuneration of the Cost Auditors has to be ratified by the Members and accordingly the resolution relating to the Cost Auditors is being placed before the Members for their ratification.

(iii) Secretarial Auditors & 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 Y. Ravi Prasada Reddy, Practising Company Secretary (CP No. 5360) proprietor of RPR & Associates, to undertake the Secretarial Audit of the Company for the financial year 2019-20. The Secretarial Audit Report issued in Form MR-3 is in Annexure-4 to this Report. There are no qualifications, reservations or adverse remarks in the Secretarial Audit Report.

Auditors Qualifications/ reservations/ adverse remarks/ Frauds reported:

There are no Auditors Qualifications or reservations or adverse remarks on the financial statements of the Company. The Auditors have not reported any frauds to the Audit Committee as prescribed under Section 143(12) of the Companies Act, 2013.

Significant and material orders passed by the Courts/ Regulators:

There are no significant and material orders passed by the Courts or Regulators against the Company.

Rating:

CARE has reaffirmed its rating of AA- with a stable outlook on the long-term bank facilities of the Company and A1+ on the short-term bank facilities of the Company.

Insurance:

All properties and insurable interests of the Company including buildings, plant and machinery and stocks have been fully insured.

Corporate Social Responsibility initiatives:

Pursuant to the provisions of Section 135 and Schedule VII of the Companies Act, 2013, CSR Committee of the Board of Directors had framed the policy on Corporate Social Responsibility and the Projects and Programmes undertaken by the Company during the year under review have been provided in Annexure-5 and forms part of this Report.

Extract of Annual Return:

As required pursuant to Section 92(3) of the Companies Act, 2013 and rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of annual return in MGT 9 is given in the Annexure-6 and forms part of this Report.

Further, the Annual Return is placed on the Website of the Company at www.lauruslabs.com.

Statement of Particulars of Appointment and Remuneration of Managerial Personnel/employees:

In accordance with the provisions of Section 134 and Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the statement of particulars of appointment and remuneration of managerial personnel and employees is attached in Annexure-7 to this Report.

Human resources:

The management believes that competent and committed human resources are vitally important to attain success in the organisation. In line with this philosophy, utmost care is being exercised to attract quality resources and suitable training is imparted on various skill-sets and behaviour. Annual sports and games were conducted across the organisation apart from family day celebrations to enhance the competitive spirit and encourage bonding teamwork among the employees.

Employee Stock Options:

During the year, the Company has allotted 477,750 (Four Lakhs Seventy-Seven Thousand Seven Hundred and Fifty only) equity shares of C10/- to various eligible employees of the Company under Employee Stock Option Schemes– 2011 & 2016 upon exercise of their vesting rights.

The details of stock options are as mentioned in Annexure-8 and forms part of this Report. Further, the details of the stock options stated in the notes to accounts of the financial statements also forms part of this Annual Report.

Conservation of energy, technology absorption and foreign exchange earnings/outgo:

The information required under Section 134 (3) (m) of the Companies Act, 2013, read with Rule 8(3) of Companies (Accounts) Rules, 2014, is appended hereto as Annexure-9 and forms part of this Report.

Policy on Prevention of Sexual Harassment:

The Company has formulated and implemented a policy for Prevention of Sexual Harassment of Women at workplace. During the year under review, the Company has not received any complaints under the policy.

The Company has many systems, processes and policies to ensure professional ethics and harmonious working environment. We follow Zero Tolerance towards Corruption and unethical conduct. These are ensured through Whistle-Blower Policy, Anti-Corruption Policy, Gift Policy, Sexual Harassment Policy and Redressal Guidelines.

The Company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

BSE 500:

The Equity Shares of your Company have been inducted in S&P BSE 500 indices with effect from March 31, 2017.

Corporate Governance:

A separate Section on Corporate Governance practices followed by your Company, as stipulated under Schedule V(C) of the SEBI (LODR) Regulations, 2015 is enclosed and forming part of this report.

The certificate of the Practising Company Secretary Mr. Y. Ravi Prasada Reddy with regard to compliance of conditions of corporate governance as stipulated under Schedule V (E) of the SEBI (LODR) Regulations, 2015 is annexed to the Report on Corporate Governance.

Business Responsibility Report (BRR)

The Listing Regulations mandate the inclusion of the BRR as part of the Annual Report for top 500 listed entities based on market capitalisation. In accordance with the Listing Regulations, we have integrated BRR disclosures into our Annual Report.

Acknowledgements:

Your Directors would like to place on record their sincere appreciation to customers, business associates, bankers, vendors, government agencies and shareholders for their continued support.

Your Directors are also happy to place on record their sincere appreciation to the co-operation, commitment and contribution extended by all the employees of the Laurus family and look forward to enjoying their continued support and cooperation.

For and on behalf of the Board
Dr. Satyanarayana Chava Ravi Kumar V. V.
Executive Director & Chief Executive Officer Executive Director & Chief Financial Officer
DIN: 00211921 DIN: 01424180
Hyderabad
April 30, 2020