novartis india share price Directors report

Dear Members,

Your Directors are pleased to present the 75^th Annual Report along with the audited financial statement for the year ended March 31, 2023 ("year under review").

Summary of Financial Results

( in million)

Particulars	2022-23	2021-22
Revenue from Operations	3,787.4	3,998.7
Total Income	4,368.5	4,330.6
Profit/(Loss) before Tax	1,153.8	(38.2)
Profit/(Loss) after tax	1,033.6	(37.2)
Other Comprehensive Income for the year	31.1	81.9
Retained Earnings balance brought forward from previous year	6,779.4	6,981.6
Available for appropriation
The Directors have made the following appropriations:
Dividend	246.9	246.9
Carry forward	7,597.2	6,779.4

Dividend

Your Board of Directors has recommended payment of dividend of 10 (Rupees Ten Only) per equity share of 5 (Rupees Five Only) each as final dividend (200%) and 37.50 (Rupees Thirty-Seven and Paise Fifty) per equity share of 5 (Rupees Five Only) each as a one-time special dividend on occasion of Companys 75^th Anniversary (750%) for the financial year ended March 31, 2023. The total dividend amounts to 47.50 (Rupees Forty-Seven and Paise Fifty Only) per equity share of the face value of 5 (Rupees Five Only) each. The said dividend, if approved by the members at the Annual General Meeting (hereinafter referred to as ‘AGM), will result in a cash outflow of 1,172.8 million.

The Board continues to support a steady dividend policy and the recommended dividend is in accordance with the Dividend Distribution Policy of the Company. The Dividend Distribution Policy, in terms of Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as ‘SEBI Listing Regulations) is available on the website of the Company at: https://www.novartis.com/sites/novartis_in/files/Dividend%20Distribution%20policy.pdf

Transfer to General Reserves

Your Company does not propose to transfer any amount to the General Reserves for the financial year ended March 31, 2023.

Management Discussion and Analysis

For the financial year under review, the business operations of the Company comprise Pharmaceuticals.

a. Economy, Industry and Development

The COVID-19 pandemic has been the most impactful global public health crisis in decades, and yet it has illustrated the resilience of global health systems as they have readily adapted to peaks in demand.

The outlook is uncertain again amid financial sector turmoil, high inflation, ongoing effects of Russias invasion of Ukraine, and three years of COVID¹. However, the Indian Economy continues to show resilience amid global uncertainties, it is expected to be 6.7 percent in FY 2022-23².

Structural changes in policy, centered around financial inclusion, has created a solid foundation for long term growth in India.

Trends in medicine use and spending have been impacted by the immediate effects of COVID-19, with a seven-year cumulative reduction in spending of USD 175 billion through 2026 compared to the pre-pandemic outlook. Spending on COVID-19 vaccines and novel therapeutics are expected to generate more than USD 300 billion in spending over the same period, and the outlook is a cumulative USD 133 billion higher than projected prior to the pandemic³.

The global medicine market is expected to grow at 3 - 6 percent CAGR through 2026, reaching about USD 1.8 trillion in total market size in 2026, including spending on COVID-19 vaccines⁴. This will be supported by strong growth in pharmerging markets and new brands in developed markets will contribute to global spending through 20 26³.

The Indian Pharmaceutical Industry is currently valued at USD 42 billion and is expected to reach USD 65 billion by 2024 and ~USD 120 - 130 billion by 2030. Indian pharma exports witnessed a growth of 103 percent since 2013 to 2022. Exports achieved in 2021-22 is the Pharma Sectors best export performance ever. It is a remarkable growth with exports growing by almost USD 10 billion in 8 years⁵. Indian drugs are exported to more than 200 countries in the world, with the US being the key market⁶.

The Prime Minister of India announced the pilot project of the National Digital Health Mission (‘NDHM) on August 15, 2021, and launched the project on September 27, 2021⁷. It will also aim to digitally reconcile the gap among different stakeholders in Indias healthcare sector. NDHM comprises of five key components such as Health ID, Patient Health Record, Electronic Medical Record, Digi Doctor Platform, and Health Facility Registry. At a later stage, NDHM will also include e-pharmacy and telemedicine services⁸.

According to NDHM, individuals will get a health card (ABHA: Ayushman Bharat Health Account) containing personal details and current health record of the cardholder. This mission will connect medical practitioners and patients digitally. Additionally, it will promote stable and well-structured healthcare across the nation. The ABHA number will be used for the purposes of uniquely identifying persons, authenticate and threading their health records across multiple healthcare systems and stakeholders with a consent from patient⁸.

The health-tech start-up space in India is witnessing an exponential growth since COVID-19 pandemic. Pandemic has opened many opportunities for start-ups in the areas of online video consultations, ordering medicines online, managing chronic conditions using technology. The start-up ecosystem is well supported by start-up India, is an initiative of the Government of India.

b. Performance

Revenue from operations for the financial year ended March 31, 2023 was 3,787.4 million illustrating a decrease of 5.3 percent over the previous year.

The Profit/ (Loss) before tax for the year stood at 1,153.8 million versus (38.2) million in the previous year which is net of exceptional item.

Year 2022-23 witnessed the third wave of COVID-19 pandemic along with sporadic increase in cases across geographies. However, having learnt from the previous two waves, business was equipped to navigate this and ensure business continuity keeping in mind employee safety.

Novartis continues to engage Physicians for high brand recall and for dissemination of key scientific messages. This is done through differentiated campaigns channelized through RTEs (Rep Triggered Emails) and CMEs (Continuing Medical Education). We continue to create high differentiation for Novartis brands in a cluttered market for Transplant maintenance portfolio. Physicians have adapted well to digital engagements and we continue to implement them.

The Ministry of Health and Family Welfare, Government of India, has released the revised National List of Essential Medicines (NLEM), 2022. The revised list of NLEM has impacted 9 (Nine) brands marketed by the Company. These brands are majorly in the areas of Oncology and Neurology.

The Indian population currently has a very high burden of vascular risk factors, such as diabetes, hypertension and obesity, which can adversely impact the onset and progression of dementia¹. Offering great convenience and safety, our Neurosciences innovative medicine for Alzheimers disease dementia, Exelon Patch has seen greater patient acceptance and usability which is reflecting in the growth numbers.

1 Vijayalakshmi et al. Changing demography and the challenge of dementia in India. Nature Reviews Neurology 17, 747-758 2021

c. Operational performance

The Pharmaceuticals business registered Net Revenue from Operations of 3,787.4 million representing a decrease of 5.3 percent over the previous year.

Transplant business observed gradual recovery in the number of transplants done throughout the year post COVID-19. Transplant business growth was driven by the gain in induction therapy patient share where Simulect became a preferred choice of induction therapy especially in low to moderate risk patients. This was achieved by continuing to drive innovative medico-marketing initiatives focusing on ‘Prevention of Infection. The innovative ‘TRIO campaign aimed at driving a portfolio-based approach, has led to the revival of the maintenance portfolio.

It has been a year of the exclusive sales and distribution arrangement entered into with Dr. Reddys Laboratories (Dr. Reddys) for the Established Medicines Brand which include the Voveran range, the Calcium range and Methergine. The arrangement aimed to broaden access of these medicines to larger geographies to benefit many more patients, more efficiently through an expanded field force.

Pain portfolio with its flagship brand Voveran range rank improved by 2 points from April, 2022 to February 2023¹ and a 2.9 percent market share gain for Voveran range in February, 2023 vs October, 2022². There is an increase in share of voice and Voveran gaining prescription share among doctor specialties across India. This was an outcome of strong differentiation for Voveran Emulgel in a cluttered counter-irritant market with the ‘The Cool Movement demonstration campaign.

A high-pitched campaign contributing to better management of joint pain and stiffness by driving patient awareness programs, ‘Zindagi Se Milao Kadam further extended to enable patients to move beyond pain and stiffness through simple and handy exercise education tool. ‘Awareness for Life Corporate Awareness talks were conducted across India to raise awareness for joint pain at workplace. The premise is that 72 percent office workers experience joint pain at workplace³.

The following brands hold key positions in major therapeutic areas such as:

Therapeutic Area	Therapeutic Area Product
Bone and Pain	Voveran?
Transplantation Immunology	Simulect?, Certican?, Sandimmun?, Neoral?, Myfortic?
Neurosciences	Tegrital?, Exelon?

References:

1 IQVIA MAT Feb23

2 Healthplix report Feb23

3 Dr. Reddys reported information

d. Key Financial Indicators

Particulars	2022-23	2021-22
Operating profit margin (%)	15.6	4.4
Net profit margin (%)	27.3	-0.9
Debtors turnover ratio	9.4	9.6
Current ratio	4.2	3.3
Return on Equity (%)	14.1	-0.5
Inventory turnover ratio	6.6	7.1
Debt service coverage ratio	19.4	1.0
Debt equity ratio	0.03	0.03
Return on capital employed (%)	7.9	-2.8
Return on Investment	5.2	3.2

Reasons for change compared to the previous financial year in key financial ratios are as follows:

Operating profit margin

Operating profit margin is a profitability or performance ratio used to calculate the percentage of profit of a company produces from its operations. It is calculated by dividing the operating earnings before interest and tax by turnover. Margins have improved because of operational efficiencies.

Net profit margin

The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. It is calculated by dividing profit for the year by turnover. Net profit margin in the financial year 2022-23 has improved due to operational efficiencies, interest on income tax refund and an exceptional item relating to business transactions towards its erstwhile associates of Established Medicines Brand (‘EMB) under employee separation scheme in previous year 2021-22.

Debtors turnover ratio

It is calculated by dividing turnover by average trade receivables, to quantify a companys effectiveness in collecting its receivables. No major movement compared to previous year.

Current ratio

The current ratio is a liquidity ratio that measures a companys ability to pay short-term obligations or those due within one year. It is calculated by dividing the current assets by current liabilities. Current ratio has improved due to decrease in current liabilities due to inclusion of liability pertaining to exceptional item relating to business transaction towards its erstwhile associates of EMB under employee separation scheme in previous year.

Return on Equity

Return on equity is a measure of profitability of a company expressed in percentage. It is calculated by dividing profit for the year by average shareholders equity. Return on equity has improved due to operational efficiencies, interest on income tax refund in year 2022-23 and an exceptional item relating to business transactions towards its erstwhile associates of EMB under employee separation scheme in previous year.

Inventory turnover ratio

I nventory turnover is the number of times a company sells and replaces its inventory during a period. It is calculated by dividing turnover by average inventory. No major movement compared to previous year.

Debt service coverage ratio

The debt service coverage ratio measures how many times a company can cover its current interest payment with its available earnings. It is calculated by dividing earning available for debt service by lease payments. The ratio has been impacted positively due to exceptional item relating to business transactions towards its erstwhile associates of EMB under employee separation scheme in previous year.

Debt equity ratio

The ratio is used to evaluate a companys financial leverage. It is a measure of the degree to which a company is financing its operations through debt versus wholly owned funds. It is calculated by dividing lease liabilities by shareholders equity. No major movement compared to previous year.

Return on Capital employed

Return on equity is a measure of profitability of a company expressed in percentage. It is calculated by dividing profit before interest and tax for the year by capital employed. Return on capital employed has improved due to operational efficiencies, interest on income tax refund in year 2022-23 and an exceptional item relating to business transactions towards its erstwhile associates of EMB under employee separation scheme in previous year.

Return on Investment

Return on investment is defined as return earned on the investment done. It is calculated by dividing weighted average interest income on bank deposit by weighted average bank deposits. Return on investment has improved due to operational efficiencies.

e. Risks, Threats, and Concerns

Supply continuity, quality of drugs, increasing cost pressure, inflation, high price elasticity (especially in Transplant products), control of prices of certain drugs under the Drug Price Control Order (‘DPCO) continues to affect the profitability of the Pharmaceutical Industry. Revision of NLEM in September, 2022 has resulted in revision of ceiling prices, which would put further downward pressure on drug prices. Building investments in non-traditional opportunities, coupled with heightened competition and a rising cost of talent, will result in margin pressures.

The Indian Pharmaceutical Market (‘IPM) is dominated by generic formulations and these drugs account for nearly 75 percent of the pharma industry. Prescription by generic names could also have an impact on pharma companies and it could necessitate a change in the Companys promotional strategies.

Regulations to cap trade margins on non-scheduled products, could impact the business model for trade generics.

f. Outlook

Medicine spending in India is projected to grow 9-12 percent over the next five years, leading India to become one of the top 10 countries in terms of medicine spending¹.

The last two years have been difficult for the world economy on account of the COVID-19 pandemic. Repeated waves of infection, supply-chain disruptions and more recently, global inflation have created particularly challenging times for policy making. While government spending on healthcare has accelerated, the upward trend has been gradual rather than transformative, and medium-term targets - which envisage that public health expenditure will reach 2.5 percent of GDP by 2025² - are unlikely to be met. However, macroeconomic stability indicators suggest that the Indian economy is well placed to take on the challenges of the financial year 2023-24.

We are witnessing, Tier 2 and 3 towns are playing a pivotal role in Indias flourishing economy. As per the National Council of Applied Economic Researchs (NCAER) estimation by 2025, the contribution of Tier 2 and 3 cities will escalate to 45 percent by 2025, proving that even the underdogs can triumph against all odds³.

We have the optimism that with increased focus and harnessing the potential of the ecosystem, coupled with innovative lifecycle management, leveraging technology, capability building in the space of Health Technology Assessment and meaningful partnerships, we are poised to benefit and expand access for many more patients in India.

1 Indian Pharmaceuticals Industry Analysis Presentation : IBEF

2 https://pib.gov.in/PressReleasePage.aspx?PRID=1793820#:~:text=The National Health Policy%2C2017,1.3%25 in 2019-20

3 https://www.outlookindia.com/business-spotlight/breaking-the-mold-the-vital-role-of-tier-2-and-3-towns-in- india-s-flourishing-economy-news-267790

g. Internal control systems and their adequacy

The Company maintains appropriate systems of internal control, including monitoring procedures, to ensure that all assets are safeguarded against loss from unauthorised use or disposal. Company policies, guidelines and procedures provide for adequate checks and balances and are meant to ensure that all transactions are authorised, recorded and reported correctly.

The Internal Auditor reviews the effectiveness and efficiency of these systems and procedures to ensure that all assets are protected against loss and that the financial and operational information is accurate and complete in all respects. The Audit Committee approves and reviews audit plans for the year based on internal risk assessment. Audits are conducted on an ongoing basis and significant deviations are brought to the notice of the Audit Committee of the Board of Directors following which corrective action is recommended for implementation. All these measures facilitate timely detection of any irregularities and early remedial steps.

During the year, the Company conducted a detailed review of its internal control systems, evaluated the internal financial control systems with the Audit Committee and discussed relevant issues with internal and statutory auditors. Based on the recommendations of the Audit Committee, the Board has stated in its responsibility statement that the Company followed proper internal financial controls and that such internal financial controls are adequate and were operating effectively.

h. Personnel

The Company regards its employees as a great asset and accords high priority to training and development of employees.

Number of permanent employees in the Company as on March 31, 2023 was 67.

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 (hereinafter referred to as ‘the Act) read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are annexed to this report as an Annexure A.

In terms of the provisions of Section 197(12) of the Act read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of employees drawing remuneration in excess of the limits set out in the said Rules forms part of this Report. However, in terms of first provision of Section 136(1) of the Act, the Annual Report and Accounts are being sent to the members and others entitled thereto, excluding the aforesaid information. If any member is interested in obtaining a copy thereof, such member may write to the Company Secretary & Compliance Officer, stating their Folio No./ DP ID and Client ID, whereupon a copy would be sent.

Corporate Social Responsibility

The Company continues to support various initiatives in the areas of health. The CSR Policy adopted by the Board of Directors is available on the Companys website at: https://www.novartis.in/investors/novartis-india-corporate-policies

Health: The Government of India announced its commitment to eradicate leprosy from the country by year 2030. Aligned with this vision, the Company reinforced its commitment to leprosy as part of its CSR work in India. The Company continued its support to a non-profit organization with projects based in Andhra Pradesh and Maharashtra. The project gives students affected with leprosy the ability to get jobs through vocational training and build a community of empowered young people who can further empower their families and communities.

The Annual Report on Corporate Social Responsibility Activities in terms of Section 135 of the Act and Rule 8(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 as amended by Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, effective January 22, 2021 read with Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022, effective September 20, 2022 (hereinafter referred to as ‘CSR Rules) is annexed herewith as an Annexure B.

Related Party Transactions

The Audit Committee approved all the Related Party Transactions (‘RPTs) entered into during the year under review, from time to time.

The Audit Committee granted omnibus approval for RPTs as per the provisions and restrictions contained under the Act read with SEBI Listing Regulations.

The Company has formulated a ‘Policy for dealing with Related Party Transactions (‘Policy) which includes dealing with material RPTs. The Board at its meeting held on May 19, 2022, as recommended by the Audit Committee, considered and approved amendments to the said Policy in line with the amendments in the SEBI Listing Regulations vide SEBI Notification (SEBI/LAD-NRO/GN/2021/55) dated November 09, 2021 and Circular (SEBI/HO/CFD/ CMD1/CIR/P/2021/662) dated November 22, 2021 read with clarificatory SEBI Circular (SEBI/HO/CFD/CMD1/CIR/P/2022/40) dated March 30, 2022. The updated Policy is available on the website of the Company at: https://www.novartis.com/in-en/sites/novartis_ in/files/Policy%20for%20dealing%20with%20Related%20Party%20Transactions.pdf

Further, in terms of the provisions of Sections 177 and 188(1) of the Act read with the Companies (Meetings of Board and its Powers) Rules, 2014 and Regulation 23 of the SEBI Listing Regulations, all the requisite approvals were taken for the contracts/arrangements/ transactions entered into by the Company with its related parties, during the year under review.

All transactions with related parties were in accordance with the Policy formulated by the Company.

Pursuant to Clause (h) of sub-section (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014, the particulars of contracts/arrangements entered into by the Company with related parties referred to in sub-section (1) of Section 188 of the Act including certain arms length transactions under third proviso thereto are required to be disclosed in Form AOC-2. Form AOC-2 envisages disclosure of material contracts or arrangements or transactions on an arms length basis.

Details of the material RPTs in the financial year 2022-23, as per the Policy adopted by the Company, is disclosed as an Annexure C. The transactions disclosed in the said Annexure relates to material RPTs with Novartis Pharma AG for purchase, transfer or receipt of products, goods, active pharmaceutical ingredients, materials, services and other obligations as approved by members under erstwhile Clause 49(VII)(E) of the Listing Agreement at the 67^th AGM of the Company held on July 23, 2015.

Risk Management

Pursuant to the Regulation 21 of the SEBI Listing Regulations, your Company has constituted a Risk Management Committee (‘RMC) to identify elements of risk in different areas of operations and to develop policy for actions associated to mitigate the risks.

The RMC is supported by Internal Risk Steering Committee, risk champions and on some occasions supported by an external risk advisory firm. The teams undertake assessment of internal and external risks, adopts the risk mitigation plan and regularly monitors them in a structured and controlled environment. The Committee provides updates on risk management to the Audit Committee of the Board of Directors of the Company on a regular basis. There are no risks, which in the opinion of the Board, threaten the existence of your Company.

Details of composition of the RMC and the Risk Management Policy, adopted by the Board, is provided in the Report on Corporate Governance, which forms part of this Report.

Fixed Deposits

The Company has not accepted any deposits within the ambit of Section 73 of the Act and the Rules framed thereunder during the financial year 2022-23.

Particulars of Loans, Guarantees or Investments

As on March 31, 2023, there were no outstanding loans or guarantees covered under the provisions of Section 186 of the Act.

Board of Directors and Key Managerial Personnel Board of Directors:

Appointment of Director

The Board of Directors of the Company at its meeting held on November 09, 2022, based on the recommendation of the Nomination and Remuneration Committee, approved the appointment of Ms. Shilpa Joshi (DIN: 09775615) as Whole-Time Director (designated as Whole-Time Director and Chief Financial Officer) of the Company w.e.f. November 22, 2022. Ms. Joshi, aged about 53 years, is Cost and Management Accountant with an extensive and noteworthy career in the healthcare industry spanning over 30 years with an exposure to international and in-country roles. Out of her 30-year remarkable journey, Ms. Joshi has been associated with Novartis for the past 20 years, wherein she has shouldered various roles of increasing responsibilities and impact. In her last role, Ms. Joshi headed the finance and commercial excellence functions for India Oncology. In addition, she was also responsible for leading the commercial operations for Sri-Lanka & Maldives.

Ms. Joshi has also played an integral part in providing strategic direction in her brief stint as Franchise Head for Breast Cancer. She is the recipient of several Global & Regional Oncology awards recognizing her efforts and contributions on projects aimed at improving cost efficiencies. Her greatest strengths have been driving simplification of processes through digitization, designing astute insight-driven integrated strategies and bring them alive through robust planning and execution.

The shareholders approved the appointment of Ms. Shilpa Joshi as Director and Whole-Time Director through Postal Ballot conducted in accordance with Sections 108 and 110 and other applicable provisions of the Act read with the applicable Rules, Secretarial Standards and the SEBI Listing Regulations on December 23, 2022 with requisite majority.

Cessation of Director

Ms. Monaz Noble (DIN: 03086192) ceased to be Director (Non-Executive and Non-Independent) of the Company w.e.f. close of business hours of November 21, 2022. The Board places on record its immense appreciation for her contribution to the Company.

Re-appointment of Director retiring by rotation

Ms. Shilpa Joshi has been functioning on the Board of the Company as a Whole-Time Director and Chief Financial Officer capacity w.e.f. November 22, 2022. Ms. Joshi retires by rotation and being eligible, offers herself for re-appointment. The Board recommends her re-appointment. Her brief resume, nature of expertise, details of directorships held in other companies along with her shareholding in the Company, if any, as stipulated under Secretarial Standard-2 and Regulation 36 of the SEBI Listing Regulations are forming part of the Notice of the ensuing AGM.

Declarations by Independent Directors

The Company has received necessary declarations from all the Independent Directors of the Company confirming that they continue to meet the criteria of independence, as prescribed under Section 149(6) of the Act read with Regulations 25(8) and 16(1)(b) of the SEBI Listing Regulations. There has been no change in the circumstances affecting their status as Independent Directors of the Company. The Independent Directors have also confirmed that they have complied with Schedule IV to the Act and the Companys Code of Conduct.

They have further confirmed that they are not aware of any circumstance or situation which exists or may be reasonably anticipated that could impair or impact their ability to discharge their duties. Further, the Independent Directors have also submitted their declaration in compliance with the provision of Rule 6(3) of the Companies (Appointment and Qualification of Directors) Rules, 2014 which mandated the inclusion of an Independent Directors name in the data bank of Indian Institute of Corporate Affairs (‘IICA) for a period of one year or five years or lifetime till they continue to hold the office of an Independent Director.

Committees of Board; Meetings of the Board of Directors and Board Committees

The Board currently has 5 (five) Committees, namely, the Audit Committee, the Nomination and Remuneration Committee, the Corporate Social Responsibility Committee, the Stakeholders Relationship Committee, and the Risk Management Committee.

During the year under review, the Board of Directors met 5 (five) times to transact various affairs of the Company. A detailed update on the Board, its composition, including synopsis of terms of reference of various Board Committees, number of Board and Committee meetings held during the financial year 2022-23 and attendance of the Directors at each meeting is provided in the Report on Corporate Governance, which forms part of this Report.

Key Managerial Personnel (KMP):

In terms of provisions of Section 203 of the Act, the following are the KMP of the Company as on date:

i. Mr. Sanjay Murdeshwar - Vice Chairman and Managing Director

ii. Ms. Shilpa Joshi - Whole-Time Director and Chief Financial Officer

iii. Mr. Nikhil Malpani - Company Secretary and Compliance Officer There has been no change in the KMP of the Company.

Nomination and Remuneration Policy

The Company has in place a Nomination and Remuneration Policy (‘Policy) which provides guidance on selection and nomination of Directors to the Board of the Company; appointment of the Senior Management Personnel of the Company; and remuneration of Directors, KMP and other employees. The Board of Directors on April 18, 2023, as recommended by the Nomination and Remuneration Committee, considered and approved amendments to the said Policy. The updated Policy is also provided in the Report on Corporate Governance which forms part of this Report and is also available on the website of the Company and can be accessed at: https://www.novartis.com/sites/novartis_in/files/NRC%20Policy.pdf

Performance Evaluation of Board

Pursuant to the provisions of Section 178 read with Schedule IV of the Act and Regulation 17 read with Part D of Schedule II to the SEBI Listing Regulations, the Board of Directors have carried out the annual performance evaluation of its own performance, the Directors individually as well as working of its Audit, Nomination and Remuneration, Stakeholders Relationship, Risk Management and Corporate Social Responsibility Committees.

A structured questionnaire was prepared for the Board evaluation process for the financial year 2022-23, covering various aspects of the Boards functioning such as proper mix of competencies, sufficient diversity and reviewing of Companys business, financial performance, governance and compliance etc.

A separate exercise was carried out to evaluate the performance of individual Directors, who were evaluated on parameters such as level of engagement and contribution, independence of judgement, safeguarding the interest of the stakeholders of the Company etc.

The Independent Directors of the Company met on April 03, 2023, without the presence of Non-Independent Directors and members of the management to review the performance of Non-Independent Directors and the Board of Directors as a whole, to review the performance of the Chairperson, Managing Director and Whole-Time Director of the Company, and to assess the quality, quantity and timeliness of flow of information between the management and the Board of Directors for the financial year 2022-23. The performance evaluation of the Independent Directors was carried out by the entire Board.

The final outcome of the Board evaluation process for the financial year 2022-23 was placed before the Board of Directors at its meeting held on May 10, 2023 and the Directors expressed their satisfaction with the evaluation process carried out.

Directors Responsibility Statement

The Audited Financial Statement of your Company for the year under review (‘financial statement) are in conformity with the requirements of the Act read with the Rules made thereunder (‘Act) and the Accounting Standards. The financial statement fairly reflect the form and substance of transactions carried out during the year under review and reasonably present your Companys financial condition and results of operations.

Pursuant to Section 134(3)(c) of the Act, the Board of Directors, to the best of its knowledge and ability 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 and have made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company as at March 31, 2023 and of the profit of the Company for the year ended March 31, 2023

(c) proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities

(d) the annual accounts have been prepared on a going concern basis

(e) proper internal financial controls were laid down and followed by the Company and such internal financial controls are adequate and were operating effectively

(f) proper systems are devised to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively

Familiarisation programme for Independent Directors

The Company keeps its directors informed of the activities of the Company, its management and operations and provides an overall industry perspective on issues being faced by the industry including changes in regulatory landscape, in a proactive manner. Details of familiarisation programme provided to the Directors of the Company are available on the website of the Company at: https://www.novartis.com/in-en/investors/novartis-india-corporate-policies

Auditors and auditors report

(i) Statutory Auditors, Auditors Report and Statutory Audit Fees:

Pursuant to the provisions of Section 139 of the Act read with the Companies (Audit and Auditors) Rules, 2014, M/s B S R & Co. LLP Chartered Accountants (Firm Registration No. 101248W/ W100022), were appointed as Statutory Auditors of the Company at the AGM held on July 29, 2022 for a term of 5 (five) years to hold office from the conclusion of the 74^th AGM till the conclusion of the 79^th AGM of the Company.

The Auditors Report issued by M/s. B S R & Co. LLP to the shareholders on the Financial Statement of the Company for the year ended March 31, 2023 does not contain any qualification, reservation or adverse remark. The said Report for the financial year ended March 31, 2023 read with the explanatory notes therein are self-explanatory and therefore, do not call for any further explanation or comments from the Board under Section 134(3) of the Act. The Auditors Report is enclosed with the Financial Statement in this Annual Report.

During the financial year 2022-23, the total fees for the statutory audit rendered by the Statutory Auditors are given below:

Auditors Remuneration ( in million)

(Excluding GST, where applicable)

	2022-23	2022-23	2022-23	2021-22
	Deloitte Haskins & Sells LLP*	BSR & Co LLP	Total	Deloitte Haskins & Sells LLP
Period	April 22- June 22	July 22- March 23	FY 22-23	FY 21-22
Audit Fees	0.7	5.6	6.3	9.5
Tax Audit Fees	-	-	-	1.3
Reimbursement of expenses	-	0.5	0.5	-
Total	0.7	6.1	6.8	10.8

* The tenure of M/s Deloitte Haskins & Sells LLP expired at the conclusion of the 74^th AGM of the Company

(ii) Secretarial Auditor and Secretarial Audit Report:

Pursuant to the provisions of Section 204 of the Act and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board had appointed Saraf & Associates, Company Secretaries, for conducting Secretarial Audit of the Company for the financial year 2022-23. The Secretarial Audit Report is annexed herewith as an Annexure D. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark.

The Board has re-appointed Saraf & Associates, Company Secretaries, to conduct the Secretarial Audit of the Company for the financial year 2023-24. They have confirmed their eligibility for the said re-appointment.

(iii) Cost records and Cost Audit:

Maintenance of cost records and requirement of cost audit as prescribed under the provisions of Section 148(1) of the Act are not applicable for the business activities carried out by the Company for the financial year 2022-23.

During the year under review, neither the Statutory Auditors nor the Secretarial Auditor has reported to the Audit Committee or the Board, under Section 143(12) of the Act, any instances of fraud committed against the Company by its officers or employees.

Compliance with Secretarial Standards

During the financial year 2022-23, the Company has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India.

Annual Secretarial Compliance Report

The Company has undertaken an examination of all applicable compliances as per SEBI Listing Regulations and Circulars/Guidelines issued thereunder, for the financial year 2022-23.

The Annual Secretarial Compliance Report as issued by Saraf & Associates, Company Secretaries, is required to be submitted to the Stock Exchanges within 60 days of the end of the financial year. The Report does not contain any qualification, reservation or adverse remark.

Energy, Technology Absorption and Foreign Exchange

Information required under Section 134(3)(m) of the Act read with Rule 8(3) of the Companies (Accounts) Rules, 2014, with respect to conservation of energy, technology absorption and foreign exchange earnings/outgo is included in Annexure E, annexed herewith.

Corporate Governance

The Company is committed to follow best practices of Corporate Governance and is in compliance with the provisions on Corporate Governance specified in the SEBI Listing Regulations and Novartis Group Corporate Governance norms.

Pursuant to the SEBI Listing Regulations, the Report on Corporate Governance for the year under review, presented in a separate section, is forming part of the Annual Report. A certificate from Dr. K. R. Chandratre, Practising Company Secretary, confirming compliance of conditions of Corporate Governance, as stipulated under the SEBI Listing Regulations, also forms part of the Report on Corporate Governance.

Business Responsibility and Sustainability Reporting (‘BRSR)

In terms of amendment to regulation 34(2)(f) of the SEBI Listing Regulations vide Gazette notification no. SEBI/LAD-NRO/GN/2021/22 dated May 05, 2021, SEBI has introduced new reporting requirements on ESG parameters called the Business Responsibility and Sustainability Report (‘BRSR). SEBI further vide Circular SEBI/HO/CFD/CMD-2/P/CIR/2021/562 dated May 10, 2021 issued a guidance note on the new reporting requirements under BRSR. Per this circular, the BRSR seeks disclosures from listed entities on their performance against the nine principles of the ‘National Guidelines on Responsible Business Conduct (NGBRCs) and reporting under each principle is divided into essential and leadership indicators. In terms of the aforesaid amendment, with effect from the financial year 2022-2023, reporting of BRSR has been made mandatory for the top 1000 listed companies (by market capitalization) and shall replace the existing BRR. In view of the same, your Company has prepared the BRSR and the same forms part of the Annual Report.

Whistle Blower Policy: Vigil Mechanism

Pursuant to Section 177 of the Act read with Regulation 22 of the SEBI Listing Regulations, it is mandated for every listed entity to formulate Vigil Mechanism (‘Whistle Blower Policy) for Directors and employees to report genuine concerns. The Company has established a Vigil Mechanism and Whistleblower Policy which provides for (a) adequate safeguards against victimisation of persons who avail the Vigil Mechanism; and (b) direct access to the Chairperson of the Audit Committee of the Board of the Company in appropriate or exceptional cases. Details of the Vigil Mechanism and Whistleblower Policy are made available on the website of the Company at: https://www.novartis.com/in-en/investors/novartis-india-corporate-policies

Prevention of Sexual Harassment Policy

The Company has in place a Prevention of Sexual Harassment Policy in line with the requirements of the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013 and Rules made thereunder. An Internal Complaints Committee has been set up to redress complaints received regarding sexual harassment. All persons whether employed as permanent, contractual, temporary or trainees are covered under this Policy.

During the financial year 2022-23, no complaint was received by the Company related to sexual harassment. As on March 31, 2023, no compliant related to sexual harassment was pending for disposal.

Annual Return

Pursuant to the provisions of Sections 92(3) and 134(3)(a) of the Act read with Rule 12 of the Companies (Management and Administration) Rules, 2014, the draft Annual Return of the Company for the financial year ended March 31, 2023 is available on the website of the Company at: https://www.novartis.com/in-en/investors/novartis-india-financial-results

Significant and material orders passed by the Regulators or Court

There are no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Companys operations in future.

Other Disclosures

• There were no material changes and commitments affecting the financial position of the Company between the end of the financial year and the date of this Report

• The Company has not issued any shares with differential voting rights/sweat equity shares

• There was no revision in the Financial Statement

• There has been no change in the nature of business of the Company as on the date of this Report

• No application has been made under the Insolvency and Bankruptcy Code; hence the requirement to disclose the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) during the year along with their status as at the end of the financial year is not applicable

• The requirement to disclose the details of difference between amount of the valuation done at the time of one-time settlement and the valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof, is not applicable; and

• The Company does not have any subsidiary, associate companies and joint ventures for the year ended March 31, 2023

Green Initiative

We request all the shareholder to support the ‘Green Initiative of the Ministry of Corporate Affairs and Companys continuance towards greener environment by enabling the service of Annual Report, AGM Notice and other documents electronically to your email address registered with your Depository Participant/ RTA.

Cautionary Note

The statements forming part of the Boards Report may contain certain forward-looking remarks within the meaning of applicable securities laws and regulations. Many factors could cause the actual results, performances or achievements of the Company to be materially different from any future results, performances or achievements that may be expressed or implied by such forward looking statements.

Acknowledgement

The Board appreciates and places on record the contribution made by all stakeholders, particularly employees, shareholders, customers, the medical fraternity and all business partners, during the year under review and acknowledges the support received from the parent Company, Novartis AG.

	On behalf of the Board of Directors
	CHRISTOPHER SNOOK
	Chairman
Date: May 10, 2023	DIN: 00369790
Place: Mumbai