Sequent Scientific Ltd Directors Report.

Dear Members,

We hereby present the Thirty Fifth Annual Report of your Company along with the Audited Financial Statements of the Company for the financial year ended March 31, 2020.

1. Financial Summary

The summarised financial performance (Standalone and Consolidated) of your Company for financial year 2019-20 and financial year 2018-19 is given below:

(Rs. in Millions)

Standalone Consolidated
Particulars
2019-20 2018-19 2019-20 2018-19
Revenue from operations 2,273.33 1,662.60 11,792.44 10,393.07
Other income 145.61 139.56 100.89 86.72
Profit before interest, depreciation and tax 367.98 166.44 1,804.11 1,336.06
Less: Finance costs 50.35 32.20 357.14 328.02
Less: Depreciation and amortisation expenses 89.50 72.21 506.22 419.20
Profit before tax 228.13 62.03 940.75 588.84
Tax expenses / (credits) - Current tax 31.83 13.29 227.44 141.99
- Deferred tax (17.11) (13.29) (104.83) 59.83
- Current tax of prior period reversed - (13.83) (2.32) (181.75)
Profit after tax 213.41 75.86 820.46 568.77
Profit for the year attributable to:
Owners of the Company 213.41 75.86 699.05 486.60
Non-controlling interest - - 121.41 82.17

2. Business Performance Review

Financial year 2019-20 (FY 2019-20) was very significant year as we focused on building capabilities along with delivering strong performance. The year was full of challenges such as BREXIT, global shortage of API due to regulatory shutdown in China and COVID. Despite these challenges, we improved our margins significantly and our investments have also played out. We have significantly ramped up growth during the financial year and have delivered robust 13.5% growth in top-line.

During FY 2019-20, on consolidated basis, your Companys revenue stood at Rs.11,792 million as against Rs.10,393 million in the financial year 2018-19 (FY 2018-19). The Company posted an EBITDA of Rs.1,758 million as against Rs.1,327 million in FY 2018-19. EBITDA margin during the year stood at 14.9%, up by 210 bps over previous year.

On a standalone basis, your Companys revenues for FY 2019-20 stood at Rs.2,273 million as against Rs.1,663 million in FY 2018-19. The Company posted an EBITDA of Rs. 222 million in the FY 2019-20 as against Rs.27 million in FY 2018-19. The Company made a net profit of Rs.213 million.

A detailed analysis on the Companys operational and financial performance for the year is covered under ‘Management Discussion and Analysis Report which forms part of this Annual Report.

Business Overview:

• Indias only FDA approved API manufacturing facility in Vizag – received WHO-Geneva Approval.

• Completed 19 US filing from the USFDA approved facility – Key growth driver.

• Established relationship with top 10 veterinary companies with a steady customer base across US, Europe, LATAM & India.

• Filed worlds largest animal injectable product in EU with an addressable global market of ~USD 350mn.

• Dedicated infrastructure of formulation R&D established in Mumbai. Strengthened R&D program and capabilities (infrastructure & team).

• Wide range of products, predominantly in Anthelmintics & emerging NSAID portfolio.

• Strong presence across key geographies Europe, LATAM, Turkey, India, Africa & South East Asia.

• Commercialised nutrition business in EU.

3. Dividend

The Board of Directors of your Company, in order to conserve the funds for future business growth has decided that it would be prudent, not to recommend any Dividend for the year under review.

In accordance with Regulation 43A of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations), your Company has formulated a Dividend Distribution Policy which ensures a fair balance between rewarding its Shareholders and retaining enough capital for the Companys future growth. This Policy is available on the Companys website at http://www.sequent.in/pdf/policies/ Sequent_Dividend_Distribution_Policy.pdf

4. Transfer to Reserves

During the year under review, your Company has not made any transfer to the Reserves.

5. Share Capital

As on date, the authorised share capital of the Company is Rs.500,000,000/- divided into 250,000,000 equity shares of Rs.2/- each.

The issued, subscribed and paid-up equity capital of the Company as on date is Rs.496,741,990/- divided into 248,370,995 equity shares of Rs.2/- each.

During the year under review, there has been no change in the authorised share capital of your Company. Your Company had allotted 1,500,000 equity shares of Rs.2/- each to Sequent Scientific Employee Stock Option Plan Trust during the year.

Your Company has not issued any equity shares with differential voting rights or sweat equity shares. Further, your Company has not allotted any equity shares after the balance sheet date i.e. March 31, 2020.

6. Corporate Actions

Open Offer under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

On May 8, 2020, the Promoters of your Company have agreed to sell their entire Shareholding in the Company to CA Harbor Investments, which belongs to the group of entities doing business globally as, ‘The Carlyle Group, (the ‘Acquirer) who also intends to acquire control over the Company.

The proposed transaction attracted an obligation on the Acquirer to make an Open Offer as required under Regulations 3(1) and 4 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘SEBI SAST).

Pursuant to and in compliance with Regulations 3(1), 4 and other applicable Regulations of the SEBI SAST, the Acquirer together with the Person acting in concert made an Open Offer on May 8, 2020 for acquisition of up to 64,576,459 (Sixty Four Million Five Hundred Seventy Six Thousand Four Hundred and Fifty Nine) fully paid-up equity shares of face value of Rs.2 (Indian Rupees Two only) each of the Company, constituting 26% (twenty six percent) of the Expanded Voting Share Capital of the Company (as of the 10th working day from the closure of the tendering period for the Offer). The price agreed with the Promoters and offered to the Shareholders in open offer is Rs. 86/- per equity share.

7. Subsidiaries, Joint Ventures and Associate Companies

As at March 31, 2020, your Company has 22 (Twenty-Two) Subsidiaries, out of which 8 were Wholly Owned Subsidiaries and your Company does not have any Joint Ventures/ Associate Companies.

Following were the changes in Subsidiaries during the financial year ended March 31, 2020:

Sequent Antibiotics Private Limited Struck-off w.e.f. July 26, 2019
Sequent Pharmaceuticals Private Limited Struck-off w.e.f. July 26, 2019
Alivira UA Limited Struck-off w.e.f. August 18, 2019
Alivira Animal Health USA LLC Incorporated on March 25, 2020

8. Consolidated Financial Statements

In accordance with the provisions of the Companies Act, 2013 (hereinafter referred to as the "Act") read with the Companies (Accounts) Rules, 2014, applicable Accounting Standards prescribed by the Institute of Chartered Accountants of India and the provisions of the Listing Regulations, the Consolidated Audited Financial Statements forms part of this Annual Report.

9. Accounts of Subsidiaries

In accordance with Section 129(3) of the Act read with rules made thereunder, a statement containing salient features of the financial position of Subsidiaries is given in Form AOC-1 attached as an "Annexure 1" forming integral part of this Report. As required under Section 134 of the Act, the said form also highlights performance of the subsidiaries.

Further, in accordance to the provisions of Section 136(1) of the Act, the Annual Report of the Company, containing therein Audited Standalone and Consolidated Financial Statements of the Company and also the Audited Financial Statements of each of the Subsidiary Companies have been placed on the website of the Company at www.sequent.in.

10. Extract of Annual Return

Pursuant to Section 92(3) of the Act, read with Rule 12 of the Companies (Management and Administration) Rules, 2014, an extract of the Annual Return in Form MGT-9 for the year ended March 31, 2020 is annexed as an "Annexure 2" and is also available on the website of the Company at http://www.sequent.in/pdf/annual-report/MGT-9_%202019-20.pdf. Further, pursuant to Section 134(3)(a) of the Act, a copy of Annual Return for FY 2018-19 was hosted on the website of the Company and web-link to access the same is http://www.sequent.in/pdf/annual-report/MGT-7_%202018-19.pdf. Further, a copy of Annual Return for the year ended March 31, 2020 will be hosted on the website of the Company at www.sequent.in.

11. Credit Rating

As on March 31, 2020, for long-term bank facilities of the Company, credit rating assigned by India Ratings & Research (Fitch Group) was "IND A-" with outlook being "Stable". The said ratings signify a high degree of safety regarding the timely servicing of financial obligations.

Further, for the Companys short-term bank facilities, India Ratings & Research (Fitch Group) assigned the rating as "IND A2+", which signifies strong safety regarding timely payment of financial obligations and carry the lowest credit risk.

12. Public Deposit

During the year under review, your Company has not accepted or renewed any public deposits in terms of Sections 73 and 74 of the Act read with Rules framed thereunder.

13. Directors & Key Managerial Personnel

As on March 31, 2020, the Board comprises of 7 Directors out of which 2 Directors are Executive, 3 Directors are Non-Executive Independent including one Woman Director and 2 Directors are Non-Executive Non-Independent. The Board is headed by Dr. Gopakumar Nair, Independent Chairman of the Company.

During the year under review, there were following changes at the Board level:

• Dr. Gopakumar Nair (DIN: 00092637) was re-appointed as a Non-Executive Independent Director of the Company for a second term of three consecutive years w.e.f. September 29, 2019

• Dr. (Mrs.) Kausalya Santhanam (DIN: 06999168) was re-appointed as a Non-Executive Independent Director of the Company for a second term of five consecutive years w.e.f. October 28, 2019

• Mr. Manish Gupta (DIN: 06805265) was re-appointed as a Managing Director of the Company for a term of five years w.e.f. November 12, 2019

• Mr. Sharat Narasapur (DIN: 02808651) was re-appointed as a Joint Managing Director of the Company for a term of five years w.e.f. January 8, 2020 All the aforesaid re-appointments of Directors were duly approved by the Members of the Company at the Annual General Meeting held on August 29, 2019.

All the Independent Directors of the Company have given declarations that they meet the criteria of independence as prescribed under Section 149(6) of the Act and Regulation 16(1)(b) of Listing Regulations and that they are not aware of any circumstances or situations, which exist or may be reasonably anticipated, that could impair or impact their ability to discharge duties with an objective independent judgment and without any external influence. In the opinion of the Board, all Independent Directors are independent of the management.

During the year under review, Mr. Krupesh Mehta resigned from the position of Company Secretary & Compliance Officer of the Company w.e.f. close of working hours of June 29, 2019. In accordance with the provisions of Section 203 of the Act, Mr. Krunal Shah was appointed as Company Secretary & Compliance Officer of the Company w.e.f. November 13, 2019 by the Board pursuant to recommendation of Nomination and Remuneration Committee (NRC).

As on March 31, 2020, Mr. Manish Gupta, Managing Director, Mr. Sharat Narasapur, Joint Managing Director, Mr. Tushar Mistry, Chief Financial Officer and Mr. Krunal Shah, Company Secretary were the Key Managerial Personnel of the Company in terms of Section 203 of the Act.

14. Number of Board Meetings

During the year under review, 4 (Four) Board Meetings were held on May 14, 2019, July 31, 2019, November 13, 2019 and January 28, 2020. The maximum interval between any two consecutive Board Meetings did not exceed 120 days.

15. Companys Policy on Appointment and Remuneration of Directors and Key Managerial Personnel

Pursuant to Section 178 of the Act, Nomination and Remuneration Committee (NRC) has formulated "Sequents Policy on Directors Appointment and Remuneration" which deals inter-alia with appointment and remuneration of Directors, Key Managerial Personnel, Senior Management and other employees. The said Policy is uploaded on the website of the Company and web-link thereto is http://www.sequent.in/pdf/policies/ Nomination-Remuneration-Policy_2019.pdf

The salient features of the Policy are as under:

• NRC to identify persons who are qualified to become Directors and Senior Management of the Company;

• NRC to guide Board in relation to appointment, retention and removal of Directors, Key Managerial Personnel and Senior Management of the Company;

• NRC to evaluate the performance of the Members of the Board including Independent Directors to provide necessary information/ report to the Board for further evaluation;

• NRC to recommend to the Board on remuneration payable to the Directors and Key Managerial Personnel;

• To retain, motivate and promote talent and to ensure long term sustainability of talented managerial person and create competitive advantage;

• To devise a policy on Board diversity;

• To develop a succession plan for the Board and to regularly review the plan.

16. Board Evaluation Pursuant to provisions of Schedule IV of the Act and Rules made thereunder and provisions of Listing Regulations, the Company has formulated a policy called ‘SeQuent Board Performance Evaluation Policy (the ‘Policy). Based on this, your Company has prepared a questionnaire to carry out the evaluation of performance of every Director including the Independent Directors on an annual basis.

The questionnaire is structured to embed various parameters based on which the performance of a Board can be evaluated. Customised questionnaires are formulated for evaluating Independent Directors, Non-Executive Directors, Whole-time Directors, Chairperson of the Board, Committees of the Board and the Board as a Whole. Based on the Policy, the evaluation was conducted by the Company.

17. Committees of the Board

The Board of Directors have the following Committees:

i. Audit Committee

ii. Nomination and Remuneration Committee

iii. Stakeholders Relationship Committee iv. Corporate Social Responsibility Committee

The details of the Committees along with their composition, number and dates of the Meetings and attendance at the Meetings are provided in the Corporate Governance Report.

18. Auditors and Auditors Report

Statutory Auditors

In accordance with the provisions of Section 139 of the Act, at the Annual General Meeting held on August 29, 2019, M/s. S R B C & CO LLP, Chartered Accountants (Firm Registration No. 324982E/ E300003) were appointed as Statutory Auditors of the Company for a period of 5 years commencing from the conclusion of 34th Annual General Meeting (AGM) till the conclusion of 39th AGM.

The Company has received a letter from M/s. S R B C & Co. LLP, Chartered Accountants confirming that they are eligible for continuing as Statutory Auditors of the Company.

The Independent Auditors Report on Standalone and Consolidated Financial Statements for the year ended March 31, 2020 forms integral part of this Annual Report. The Independent Auditors Report on Standalone Financial Statements does not contain any qualifications, reservations, adverse remarks, disclaimer or emphasis of matter.

The Independent Auditors Report on Consolidated Financial Statements contains below mentioned Audit Qualification:

"As explained in note 12(b) of the results, due to travel restrictions on account of outbreak of Covid-19, we were neither able to observe the physical count of inventory as at the year-end nor verify the inventory by other means subsequent to the year end, in respect of subsidiaries in Germany and Belgium. Further, the auditors of subsidiaries in Spain and Turkey were neither able to observe the physical count of inventory as at the year-end nor could they verify the inventory by other means subsequent to the year end.

We and the auditors of such subsidiaries were unable to determine the effect thereof on the results of operations and total equities of respective subsidiary entities and consequently we were unable to determine adjustments that may be required to closing stock of Rs.12,083 lakhs included in the total inventories of Rs.21,942 lakhs in the consolidated financial results as at March 31, 2020."

The Management response on the above-mentioned Audit Qualification on Consolidated Financial Statements is given below:

Out of total inventory, around 55% has been covered through physical verification of inventory by respective auditors and no material differences have been observed. For the balance 45% inventory, though the respective auditors have not been able to conduct physical verification, the management has conducted the physical count and no material differences have been observed. Further, being part of pharmaceutical Industry, the inventory management is also part of review by the respective regulatory authorities. Hence the Management believes that there was no impact on the financial results for the year ended March 31, 2020.

The Statutory Auditors of the Company have not reported any fraud under Section 143(12) of the Act.

Secretarial Auditors

Pursuant to the provisions of Section 204 of the Act, read with Rules thereunder, the Board has appointed M/s. Nilesh Shah & Associates (Certificate of Practice No: 2631), Practicing Company Secretaries to conduct Secretarial Audit of the Company for the year ended March 31, 2020. The Secretarial Audit Report issued by them in Form No. MR-3 is provided as an "Annexure 3" to this Report. The Secretarial Audit Report does not contain any qualifications, reservations or adverse remark.

Cost Auditors

Pursuant to Section 148(1) of the Act, your Company needs to maintain cost records and accordingly your Company has maintained Cost Audit Records.

Pursuant to Section 148(3) of the Act read with Companies (Cost Records and Audit) Rules, 2014, M/s. Kirit Mehta & Co., Practicing Cost Accountants, were appointed as the Cost Auditors of the Company for the financial year 2019-20. The Cost Audit Report for the financial year ended March 31, 2020 would be filed within the due date prescribed by law.

The remuneration proposed to be paid to the Cost Auditors for the financial year 2020-21, forms part of the Notice of the ensuing AGM for approval of the Shareholders.

19. S egment

Your Company operates only in a single segment i.e. Pharmaceuticals Segment.

20. Particulars of Employees and Related Disclosures

The statement containing particulars of employees as required under Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided as an ‘Annexure 4 forming part of this report except the report as per Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. In terms of Section 136 of the Act, the said report is open for inspection at the Registered Office of the Company during working hours and any Member interested in obtaining a copy of the same may write to the Company Secretary at the Registered Office of the Company.

21. Vigil Mechanism / Whistle Blower Policy

Pursuant to the provisions of Section 177(9) of the Act and Listing Regulations, the Company has established Whistle Blower Policy, for the directors and employees to report concerns about unethical behaviour, actual or suspected fraud or violation of Companys Code of Conduct. It also provides adequate safeguards against the victimisation of employees who avail this mechanism and allows direct access to the Chairperson of the Audit Committee in exceptional cases. The Whistle-blower Policy is hosted on the Companys website and can be accessed at http://www.sequent.in/pdf/policies/ Sequent_Whistle%20Blower%20Policy_2019.pdf

22. Particulars of Loans given, Investments made, Guarantees given and Securities provided

Particulars of loans given, investments made, guarantees given and securities provided along with the purpose for which the loan or guarantee or security is proposed to be utilised by the Company are provided in Note nos. 5, 6, 12, 16 and 44 to the Standalone Financial Statements in the Annual Report.

23. Related Party Transactions

All the transactions entered with related parties are in the ordinary course of business and on arms length basis.

Further, there were no materially significant related party transactions with its promoters, the directors or the management, their subsidiaries or relatives etc. that may have potential conflict with the interests of the Company at large.

The particulars of material contracts or arrangements with related parties referred to in Section 188(1) of the Act, as prescribed in Form No. AOC-2 of the Rule 8(2) of Companies (Accounts) Rules, 2014 is given as an ‘Annexure 5 forming part of this report.

All transactions with the Related Parties are disclosed in Note No. 44 to the Standalone Financial Statements in the Annual Report.

24. Corporate Social Responsibility

As per Section 135(1) of the Act, your Company has constituted a Corporate Social Responsibility Committee comprising of Dr. Gopakumar G Nair, Mr. Manish Gupta, and Dr. (Mrs.) Kausalya Santhanam as its Members. Your Company has adopted a policy on Corporate Social Responsibility.

The disclosure as required under Companies (Corporate Social Responsibility Policy) Rules, 2014 is set out in ‘Annexure 6 forming part of this report.

25. Risk Management

Your Company has a risk management framework for identifying and managing risks. Additional details are provided in the ‘Management Discussion and Analysis report forming part of this report.

26. Internal Financial Controls

Your Company has in place adequate internal financial controls with reference to financial statements. During the year under review, such controls were tested and no reportable material weakness in the design or operations were observed.

Internal Financial Controls have been designed to provide reasonable assurance with regards to the recording and providing reliable financial and operational information complying with applicable Accounting Standards.

Your Company has adopted accounting policies which are in line with the Indian Accounting Standards notified under Section 133 of the Act read together with the Companies (Indian Accounting Standards) Rules, 2015.

27. Significant and Material Orders passed by the Regulators or Courts or Tribunals

There were no significant or material orders passed by the Regulators, Courts or Tribunals during the year under review which would impact the going concern status of your Company and its future operations.

28. Directors Responsibility Statement

Pursuant to the provisions of Section 134(3)(c) and 134(5) of the Act, your Directors, to the best of their knowledge and belief and according to the information and explanations obtained by them, state and confirm that:

a) In the preparation of the annual accounts for the year ended March 31, 2020, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

b) Such accounting policies as mentioned in the notes to the Financial Statements for the year ended March 31, 2020 have been selected and applied consistently and judgments and estimates have been made 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, 2020 and of the profit of the Company for the year ended on that date;

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

d) The annual financial statements for the year ended March 31, 2020 have been prepared on a going concern basis;

e) Internal financial controls to be followed by the Company have been laid down and that the said financial controls were adequate and were operating effectively;

f) Proper systems to ensure compliance with the provisions of all applicable laws have been devised and such systems were adequate and operating effectively.

29. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings/ Outgo and Expenditure on Research & Development

The particulars as prescribed under Section 134(3) (m) of the Act read with Rule 8(3) of the Companies (Accounts) Rules, 2014 is enclosed as an ‘Annexure 7 forming part of this report.

30. Policy on Prevention, Prohibition and Redressal of Sexual Harassment of Women at Workplace

Your Company always endeavours and provide conducive work environment that is free from discrimination and harassment including sexual harassment. Your Company has zero tolerance towards sexual harassment at workplace and has adopted a policy for prevention of Sexual Harassment of Women at workplace. The Company has set up an Internal Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 to look into complaints relating to sexual harassment at workplace of woman employee.

During the year under review, no complaints pertaining to sexual harassment were received and no complaint was pending as on March 31, 2020.

31. Corporate Governance Report

As per Regulation 34(3) read with Schedule V of the Listing Regulations, your Company has complied with the requirements of Corporate Governance. A Corporate Governance Report along with Statutory Auditors Certificate confirming compliance of Corporate Governance for the year ended March 31, 2020 is provided separately and forms integral part of this Annual Report.

32. Management Discussion and Analysis

Pursuant to Regulation 34 of the Listing Regulations, Management Discussion and Analysis containing information inter-alia on industry trends, your Companys performance, future outlook, opportunities and threats for the year ended March 31, 2020, is provided in a separate section forming integral part of this Annual Report.

33. Secretarial Standards

During the year under review, your Company has complied with all the applicable Secretarial Standards issued by the Institute of Company Secretaries of India. The same has also been confirmed by Secretarial Auditors of the Company.

34. Material changes and commitments affecting the financial position of the Company

There were no material changes and commitments affecting the financial position of your Company between the end of the FY 2019-20 and date of this report.

35. Employee Stock Option Scheme

Your Company has formulated an Employee Stock Option Plan titled "SSL ESOP Scheme 2010" (the "ESOP 2010") in accordance with the provisions of Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (the "SEBI ESOP Guidelines") and the scheme is administered through a Trust. During the year under review,

NRC has granted 11,35,000 options to identified employees and 9,02,250 options were lapsed due to resignation of employees. As at March 31, 2020, 41,38,500 Stock options are outstanding.

The ESOP Scheme of the Company is in compliance with the SEBI ESOP Guidelines.

Further disclosure under Section 62 of the Act read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 and SEBI ESOP Guidelines, is enclosed as an ‘Annexure 8 forming part of this report.

36. Transfer of Equity Shares of the Company to the Investor Education and Protection Fund (IEPF) Account

During the year under review, there were no amounts which were required to be transferred to the IEPF account by the Company pursuant to the provisions of Section 124(6) of the Act read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.

37. A ppreciation

Your Directors place on record their sincere gratitude and appreciation for all the employees at all levels for their staunch dedication and highly motivated performance across the globe which contributed greatly for persistent performance of the Company.

Your Directors also sincerely thank all the stakeholders, medical professionals, business partners, government & other statutory bodies, banks, financial institutions, analysts and shareholders for their continued assistance, cooperation and support.

For and on behalf of the Board of Directors of
SeQuent Scientific Limited
Place: Thane Dr. Gopakumar G Nair
Date: May 12, 2020 Chairman