natco pharma ltd Directors report

The Board takes pleasure in presenting the 39th Annual Report of the Company along with the Audited Financial Statements and other reports for the year ended March 31, 2022.

Company Overview

Pharmaceuticals and agrochemicals are the two business segments of NATCO. The pharmaceutical business segment is an established business contributing a major portion of revenue. It comprises of FDFs and APIs. The Companys API business remains a strategic pillar, driving inhouse captive requirements for key molecules as well as direct customer sales. Among several know-how capabilities, multistep synthesis oligonucleotides, semisynthetic fusion technologies, high-potency APIs, and complex molecules are some of the key competences of the API division. In addition, the Companys formulations business remains steadfast on serving international customers in the markets of United States, Europe, Brazil, Canada, and the Philippines. The R&D team continues to widen the therapeutic basket. With robust pipeline of drugs in areas of cancer, pharma specialities, cardiology, and diabetology, the prospects of business growth remain strong for the company. The Companys crop health sciences division, is expected to grow with the launch of high value products in India.

Financial Summary

(H in Millions)

	Standalone		Consolidated
Particulars	Year ended 31st March 2022	Year ended 31st March 2021	Year ended 31st March 2022	Year ended 31st March 2021
Net Revenue /Income	18624	17546	20438	21557
Gross profit before interest and depreciation	3076	5187	3625	7098
Finance Cost	133	113	177	133
Profit before depreciation and amortisation - (Cash Profit)	2943	5074	3448	6965
Depreciation and Amortisation	1384	1152	1426	1169
PBT before exceptional items	1559	3922	2022	5796
Exceptional items	-	-	-	-
Profit before Tax (PBT)	1559	3922	2022	5796
Provision for Tax -Current	325	933	478	1478
Provision for Tax -Deferred	(157)	(106)	(156)	(106)
Profit after Tax	1391	3095	1700	4424
Other comprehensive income (OCI)	404	133	497	87
Total Comprehensive income for the year	1795	3228	2197	4511

The details of the Companys operations have been further discussed in detail in the Management Discussion and Analysis Report.

Impact of Covid-19

In March 2020, the World Health Organisation declared COVID-19 to be a pandemic. The Group has adopted measures to curb the spread of infection in order to protect the health of its employees and ensure business continuity with minimal disruption. The Group has considered internal and external information while finalising various estimates and recoverability of assets in relation to its financial statement captions up to the date of approval of the financial statements by the Board of Directors. Considering the Group is in the business of manufacturing and supplying of pharmaceutical products which is categorised under essential goods, there has been a minimal disruption with respect to operations including production and distribution activities. The actual impact of the global health pandemic may be different from that which has been estimated, as the

COVID-19 situation evolves in India and globally. The Group will continue to closely monitor any material changes to the future economic conditions.

Dividend

The Company declared three interim dividends for the FY 2021-22, the details of which are as follows:

(Amount in Rs)

S. Date of Board No. Meeting	Date of payment	Interim Dividend Declared per equity share of face value J 2/- each
1. 12th August, 2021	1st September, 2021	2.00
2. 11th November, 2021	2nd December, 2021	0.50
3. 14th February, 2022	4th March, 2022	2.00
TOTAL		4.50

The total dividend pay-out amounted to H 822 million resulting in a pay-out of 59% of the standalone profit after tax of the Company.

The three Interim Dividends have been paid to all eligible shareholders. Accordingly, your Directors recommend that the above three interim dividends be treated as the final dividend of the Company for the Financial Year 2021-22. The Dividend Distribution Policy is available on the website of the Company at https://www.natcopharma.co.in/wp-content/uploads/2019/08/Dividend-Distribution-Policy.pdf

Transfer to Reserves

The Company has not transferred any amount to the general reserve for the financial year ended March 31, 2022.

Share Capital

During the year under review 1,82,340 equity shares were issued and allotted under Employee Stock Option Schemes (ESOP- NATSOP 2016 & NATSOP 2017). Accordingly, the issued and subscribed share capital of the Company as on March 31, 2022, stood at H 365 million divided into 18,25,20,165 equity shares of H 2/- each as against H 364 million divided into 18,23,37,825 equity shares of H 2/- each as on March 31, 2021.

Deposits

During FY 2021-22, the Company did not accept any fixed deposit within the meaning of Sections 73 and 74 of the

Companies Act, 2013 read together with the Companies (Acceptance of Deposits) Rules, 2014 and therefore no amount of principal or interest was outstanding, as on the date of balance sheet.

Change in the nature of Business, if any

During the year, there was no change in the nature of business of the Company or any of its Subsidiaries.

Subsidiaries

The Company has Eight (8) international subsidiaries including (2) step-down subsidiaries as on 31st March,2022. The consolidated financial statement of the Company and all its subsidiaries prepared under Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 form part of the annual report.

During the FY 2021-22, the Company through NATCO Pharma Inc., USA a wholly owned Subsidiary of the Company has acquired Dash Pharmaceuticals LLC, USA on 1st January, 2022, and Dash Pharmaceuticals LLC, USA is a step-down wholly owned Subsidiary Company of the Company. Except the aforesaid acquisition, the Company has not acquired any other Subsidiary Company nor any of the existing Subsidiary Company(s) are ceased to become Subsidiary of the Company during the Financial Year 2021-22.

Further, a Statement containing the salient features of the financial statement of the Subsidiaries in the prescribed Form AOC-1, is attached as "Annexure - I" to the Boards Report. This Statement also provides the details of the performance and financial position of each Subsidiary.

In accordance with Section 136 of the Companies Act, 2013, the audited financial statements and related information of the subsidiaries, where applicable, will be available for inspection during regular business hours i.e., from 9:00 AM to 5:30 PM at the Companys registered office in Hyderabad, Telangana.

Material Subsidiaries

As per Regulation 16 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations"), a "material subsidiary" to mean a subsidiary, whose income or net worth exceeds ten percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. None of the Subsidiary Companies are material subsidiary to the Company based on the income or net worth as on March 31, 2022.

However, NATCO Pharma (Canada) Inc., Canada is the material subsidiary of the Company based on the income or net worth of the Company for FY 2021-22 and will continue as material subsidiary as per Regulation 3 of SEBI (LODR) Regulations, 2015.

In addition to the above, Regulation 24 of the Listing Regulations requires that at least one Independent Director on the Board of Directors of the listed entity shall be a Director on the Board of Directors of an unlisted material subsidiary, whether incorporated in India or not. For the purpose of this Regulation, material subsidiary means a subsidiary, whose income or net worth exceeds twenty percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. Accordingly, the said provision of the appointment of an Independent Director of the Company in the Board of the material subsidiary Company is not applicable as the prescribed limits are not exceeded by the Company.

The other requirements of Regulation 24 of the Listing Regulations with regard to Corporate Governance requirements for Subsidiary Companies have been complied with.

Particulars of Loans, Guarantees and Investments

The Company provides investments, loans and guarantees to its subsidiaries /other Companies for its business purpose. Details of investments, loans and guarantees covered under Section 186 of the Companies Act, 2013, form part of the notes to the financial statements provided in this annual report.

Corporate Governance and additional Shareholders Information

Pursuant to the Listing Regulations, a detailed report on the Corporate Governance systems and practices of the Company is given under Corporate Governance Report which is part of this Annual Report. Similarly, other detailed information for shareholders is provided in the chapter Additional Shareholders Information.

A certificate from Mrs. D Renuka, Company Secretary in Practice (C.P. No. 3460) on the compliance with the conditions of Corporate Governance is part of the Corporate Governance Report. A certificate from Mrs. D Renuka that none of the Directors on the Board of the Company are disqualified from being appointed or continuing as a Directors of Company by the Ministry of Corporate Affairs or any other statutory authority to that effect is attached to this Annual Report.

Management Discussion and Analysis Report

A detailed report on the Management Discussion and Analysis is provided as a separate chapter in this annual report.

Board of Directors

In accordance with the provisions of the Companies Act, 2013, Dr. D. Linga Rao (DIN: 07088404), Director is liable to retire by rotation and being eligible offers himself for reappointment at the ensuing Annual General Meeting of the Company.

Sri Sridhar Sankararaman, (DIN: 06794418), Non-Executive and Non-Independent Director of the Company has resigned from the Directorship of the Company with effect from 15th February, 2022 due to his professional obligations and other pre occupations.

Board Evaluation

As per the provisions of the Companies Act, 2013 and the Listing Regulations as amended from time to time, an evaluation of the performance of the Board was undertaken. The contribution and impact of individual Directors were reviewed through a peer evaluation on parameters such as level of engagement and participation in Board/Committee meetings, flow of information, independence of judgment, conflicts resolution, managing relationships within the Board and their contribution in enhancing the Boards overall effectiveness. The feedback obtained from the interventions was discussed in detail and, where required, independent and collective action points for improvement were put in place.

Appointment of Director(s), KMPs and Remuneration Policy

The assessment and appointment of members to the Board is based on a combination of criterion that includes ethics, personal and professional stature, domain expertise, gender diversity and specific qualification required for the position. The Independent Board member is also assessed on the basis of independence criteria defined in Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of the Listing Regulations

I n accordance with Section 178(3) of the Companies Act, 2013 and on recommendations of Nomination and Remuneration Committee, the Board adopted a remuneration policy for Directors, Key Management Personnel (KMPs) and Senior Management which is available on the website of the Company www.natcopharma.co.in.

Sri G.S. Murthy, Independent Director of the Company has been appointed as Chairman of the Company with effect from 1st April, 2022.

Upon recommendation of the Nomination and Remuneration Committee, the Board of Directors at their meeting held on 14th February, 2022 approved the appointment/re-appointment of the Sri V.C. Nannapaneni, Managing Director, Sri Rajeev Nannapaneni, Director and

Chief Executive Officer, Sri P.S.R.K Prasad, Director and Executive Vice President (Corporate Engineering Services) and Dr. D. Linga Rao, Director and President (Tech. Affairs) of the Company for a period of two (2) year from 1st April, 2022 to 31st March, 2024 and the same has been approved by the members of the Company through Postal Ballot on 25th March, 2022.

CS M. Adinarayana (FCS 3808), Company Secretary & Vice President (Legal & Corporate Affairs) of the Company has been superannuated from the Company w.e.f. the closure of business hours of 31st March, 2022 and upon the recommendation of the Nomination and Remuneration Committee, the Board of Directors at their meeting held on 31st March, 2022 have appointed CS Venkat Ramesh Chekuri (A41964) as the Company Secretary and Compliance Officer of the Company w.e.f. 1st April, 2022.

Declaration by Independent Directors

All Independent Directors of the Company have submitted requisite declarations confirming that they continue to meet the criteria of independence as prescribed under Section 149(6) of the Companies Act, 2013 and Regulation 16(1)(b) of the SEBI Listing Regulations. The Independent Directors have also confirmed that they have complied with the Companys Code of Conduct.

Registration of Independent Directors in Independent Directors Databank

All the Independent Directors have been registered and are members of Independent Directors Databank maintained by Indian Institute of Corporate Affairs.

Confirmation from the Board

All the Independent Directors of the Company have given their respective declaration/disclosures under Section 149(7) of the Act and Regulation 25(8) of the Listing Regulations and have confirmed that they fulfill the independence criteria as specified under Section 149(6) of the Act and Regulation 16 of the Listing Regulations and have also 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 with an objective independent judgment and without any external influence. Further, the Board after taking these declaration/disclosures on record and acknowledging the veracity of the same, concluded that the Independent Directors are persons of integrity and possess the relevant expertise and experience to qualify as Independent Directors of the Company and are Independent of the Management.

Opinion of the Board

The Board opines that all the Independent Directors of the Company strictly adhere to corporate integrity, possesses requisite expertise, experience and qualifications to discharge the assigned duties and responsibilities as mandated by the Companies Act, 2013 and Listing Regulations diligently.

Number of Meetings of the Board and its Committees and other Committees

The Board currently has eight (8) Committees, namely, Audit Committee, Stakeholders Relationship Committee, Nomination and Remuneration Committee, Compensation Committee, Corporate Social Responsibility Committee, Risk Management Committee, Committee Dealing with Land Property and Buyback Committee.

A detailed update on the Board, its composition, detailed charter including terms of reference of various Board Committees, number of Board and Committee meetings held during FY 2021-22 and attendance of the Directors is provided in the Corporate Governance Report, which forms part of the Annual report.

All the recommendations made by the Committees of Board including the Audit Committee were accepted by the Board.

Meeting of Independent Directors

A separate meeting of the Independent Directors was held on 14th February, 2022, inter-alia, to discuss evaluation of the performance of Non-Independent Directors, the Board as a whole, evaluation of the performance of the Chairman, taking into account the views of the Executive and Non- Executive Directors and the evaluation of the quality, content and timeliness of flow of information between the management and the Board that is necessary for the Board to effectively and reasonably perform its duties.

The Independent Directors expressed satisfaction with the overall performance of the Directors and the Board as a whole.

Business Risk Management

The Company has a risk management mechanism in place to manage uncertainties through identification, analysis, assessment, implementing and monitoring to reduce the impact of risks to the business which is discussed in detail in the Management Discussion and Analysis section of this Annual Report.

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

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

Business Responsibility and Sustainability Report

As recommended by SEBI, the Company has voluntarily adopted the Business Responsibility and Sustainability Report (BRSR) in the format specified by SEBI for FY 2021-22. The BRSR is forming part of this Annual Report.

Internal Financial Controls

The Company has in place adequate Internal Financial Controls commensurate with the business operations of the Company which are operating effectively. Your Company has adopted policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Companys policies, the safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and timely preparation of reliable financial disclosure.

Insurance

The Companys plant, property, equipment and stocks are adequately insured against all major risks. The Company also has appropriate liability insurance covers particularly for product liability and clinical trials. The Company has also taken Directors and Officers Liability Policy to provide coverage against the liabilities arising on them.

Directors Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act, 2013 in relation to Financial Statements of the Company for the year ended March 31, 2022, the Board of Directors state 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 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 the Companies Act, 2013 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.

Related Party Transactions

In accordance with Section 134(3)(h) of the Companies Act, 2013 and Rule 8(2) of the Companies (Accounts) Rules, 2014, the particulars of contract(s) or arrangement(s) entered into by the Company with related parties referred to in Section 188(1) in Form AOC-2 is attached as "Annexure - II" to this Boards Report.

The details of related party disclosures form part of the notes to the Financial Statements provided in this Annual Report.

Vigil Mechanism/Whistle Blower Policy

The Company believes in upholding professional integrity and ethical behavior in the conduct of its business. To uphold and promote these standards, the Company has a Vigil Mechanism / Whistle Blower Policy which serves as a mechanism for its Director(s) and employee(s) to report genuine concerns about unethical behavior, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. The policy also provides employee(s) access to the Chairperson of the Audit Committee under certain circumstances. The details of the procedures are also available on the website of the Company https://www.natcopharma.co.in/wp-content/uploads/2022/06/Whistle-Blower-Policy.pdf.

A brief note on the Whistle Blower Policy is also provided in the Report on Corporate Governance, which forms part of this Annual Report.

Internal Complaints Committee

The Company has Internal Complaints Committees in place in all the units in line with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. A brief note on the same is provided in the Report on Corporate Governance, which forms part of this Annual Report.

Auditors

Statutory Auditors

The members of the Company at their Annual General Meeting held on September 5, 2019 appointed M/s B S R & Associates LLP (Firm Registration No. 116231W/W-100024) as the Statutory Auditors of the Company to act as such from the conclusion of 36th Annual General Meeting (AGM) held for the financial year 2018-19 till the conclusion of the 41st AGM to be held for the FY 2023-24.

Secretarial Auditor

Pursuant to Section 204 of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, CS B. Kiran Kumar with Certificate of Practice (CP) No. 15876, Proprietor, M/s. BK & Associates, a Practicing Company Secretary conducted the Secretarial Audit of the Company for FY 2021-22. The Secretarial Audit Report in form No. MR-3 is attached as "Annexure - III" to this Boards Report.

Upon recommendation of the Audit Committee, the Board has re-appointed CS B. Kiran Kumar (CP No. 15876) Proprietor, M/s. BK & Associates, a Practicing Company Secretary as Secretarial Auditor of the Company for the FY 2022-23.

Cost Auditors

Pursuant to Section 148 of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and the Companies (Cost Records and Audit) Rules, 2014, the Company maintains the Cost Audit records in respect of its pharmaceutical business. The Board on the recommendation of the Audit Committee, appointed M/s. S.S. Zanwar & Associates (Firm Registration No.100283) as Cost Auditors of the Company for FY 2022-23. The provisions also require that the remuneration of the Cost Auditors be ratified by the shareholders and accordingly the same is put forward to the shareholders for their ratification in the ensuing AGM. The Cost Audit report for the FY 2021-22 will be filed with the Central Government within the stipulated timeline and the relevant Cost Audit report for FY 2020-21 were filed within the due date to the Central Government.

Auditors Qualifications/ reservations/ adverse remarks/ Frauds reported

There are no Auditors Qualifications or reservations or adverse remarks on the financial statements of the Company issued by the Statutory Auditors of the Company.

There is an observation by the Secretarial Auditor that as per Regulation 18(2)(a) of Listing Regulations, the Audit Committee shall meet at least four times in a year and not more than one hundred and twenty days shall elapse between two meetings. However, the gap between two consecutive Audit Committee Meetings was more than 120 days for quarter ended June 30, 2021, a system generated mail was received from National

Stock Exchange of India Limited (NSE) in this regard and the Company gave prompt reply with explanation, no further action was taken or correspondence received from NSE till date in furtherance thereto.

Explanations or Comments by the Board on qualification, reservation or adverse remark or disclaimer made

As per SEBI Notification reference No. SEBI/HO/CFD/ CMD1/P/CIR/2021/556 dated April 29, 2021 due to COVID-19 pandemic condition extended the deadline for announcing the Audited Financial Results for the Financial Year ended March 31, 2021 to June 30, 2021. Accordingly, your Company has conducted both the Audit Committee and Board of Directors Meeting on June 17, 2021 for consideration of Audited Financial Results for the FY 2020-21.

However, due to the severe pandemic situation and some unavoidable situations/circumstances, the gap between the two Audit Committee Meetings was more than 120 days (i.e., there was gap of 6 days). The gap that arose between the two meetings were unintentional for which your Company will take utmost care and caution in future.

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

During FY 2021-22, there were no significant and/or material orders, passed by any Court or Regulator or Tribunal, which may impact the going concern status or the Companys operations in future.

Corporate Social Responsibility Initiatives

The Board formulated a Corporate Social Responsibility (CSR) Policy which is in full force and operation and is subject to monitoring by the CSR Committee of Directors from time to time.

The details about the CSR initiatives taken during the FY 2021-22 are discussed in a separate head Responsible Societal Actions which forms a part of this Annual Report.

The Annual Report on CSR activities of the Company is attached as Annexure - IV and Impact Assessment report issued by M/s. Poverty Learning Foundation, Hyderabad is available on the website of the Company at https://www. natcopharma.co.in/investors/Impactassessmentreport

Transfer of unpaid and unclaimed dividend amounts to Investor Education and Protection Fund

Pursuant to the provisions of Section 124(5) of the Companies Act, 2013, the declared dividends which remained unpaid or unclaimed for a period of seven years, have been transferred by the Company to the Investor Education and Protection Fund (IEPF) established by the Central Government pursuant to Section 125 of the said Act the details of which are disclosed in the notice of ensuing Annual General Meeting of the Company.

Employees Stock Option Scheme

Details pertaining to the Employee Stock Option Schemes is disclosed in the Corporate Governance Report which forms a part of this Annual Report.

Credit Rating

ICRA Limited has reaffirmed their rating "AA" (which means high degree of safety regarding timely servicing of financial obligations and has very low credit risk) for various banking facilities enabling your Company to avail facilities from banks at attractive interest rates indicating a very strong degree of safety for timely payment of financial obligations such as payment of interest and repayment of principal, if any.

Particulars of Employees

The information as required under Section 197 of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are attached as "Annexure-V" to this Boards Report.

The information required under Rule 5(2) and (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in an Annexure forming part of this Report. In terms of the second proviso to Section 136 of the Act, the Report and Accounts are being sent to the Members excluding the aforesaid Annexure. The said annexure is open for inspection at the Registered Office of the Company and any member interested in obtaining the same may write to the Company Secretary at the Registered Office of the Company.

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

The details of Energy Conservation, Research and Development, Technology Absorption and 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 attached as "Annexure-VI" to this Boards Report.

Annual Return

Pursuant to Section 92(3) read with Section 134(3)(a) of the Act, the Annual Return as on 31st March, 2022 is available on the Companys website on https://www.natcopharma.co.in/investors/annualreturn

Compliance with Secretarial Standards

The Company has complied with Secretarial Standards issued by the Institute of Company Secretaries of India.

Green Initiative

To preserve environment, the Company has undertaken number of green initiatives which not only reduce burden on environment but also ensure secured dissemination of information. Such initiatives include energy saving, water conservation and usage of electronic mode in internal processes and control, statutory and other requirement(s).

Acknowledgements

The Board wish to place on record their appreciation to shareholders, Government Authorities, banks, business partners, medical practitioners and other stakeholders for the assistance, co-operation and encouragement extended to the Company. The Board also commend the continuing commitment and dedication of the employees at all levels, which has been critical for the Companys success. The Board look forward to their continued unstinted support in future also.

For and on behalf of the Board of Directors
V.C. Nannapaneni	Rajeev Nannapaneni
Managing Director	Director & Chief Executive Officer
DIN: 00183315	DIN: 00183872
Place: Hyderabad
Date: May 30, 2022