Smruthi Organics Ltd Directors Report.

Dear Members,

Your Directors are pleased to present the 32nd Annual Report and the Audited Financial Statements for the financial year ended March 31, 2021.

1. FINANCIAL HIGHLIGHTS

A summary of the Companys financial results for the year ended March 31, 2021 vis-avis financial results for the previous year ended March 31, 2020, is as under

(Rs. in lakhs)
Financial Year 2020 - 21 Financial Year 2019 - 20
Revenue from operations 12650.07 13107.36
Other Income 56.12 442.14
Total Income 12706.21 13549.50
Expenditure 9906.11 11901.73
Depreciation and amortisation expense 394.59 438.62
Total Expense 10300.70 12340.36
Profit before finance costs and tax 2514.84 1527.19
Finance costs 109.33 318.05
Profit Before Tax (PBT) 2405.50 1209.14
Tax Expense 694.76 364.42
Profit for the year 1710.74 844.71
Other Comprehensive Income (Net of Tax) Nil Nil
Total Comprehensive Income for the year 1710.74 844.71

2. OPERATIONAL PERFORMANCE AND STATE OF COMPANYS AFFAIRS

During the year under review, Net Sales & Other Income of the Company was Rs.12706.21 lakhs as compared to Rs.13549.50 lakhs in the previous year registering a decrease of 6.22 % over the previous year.

However, the Profit for the year was Rs.1710.74 lakhs compared to Rs.844.71 lakhs in the previous year. Improvement in profitability was due to decrease in material consumption, overheads and finance cost. A detailed overview has been provided under Management Discussion and Analysis section.

3. COVID-19

Financial Year 2020-21 started on an uncertain note due to the lock-down on account of Covid-19.

The company experienced a few days of lost production due to nationwide lockdown in the first quarter of FY 2020-21. With the economy slowly opening up with progressive lifting of lockdown, in second half of the year, the company revived its operations in a phased manner as per government orders.

Given majority of the companys products are in the chronic segment, the overall demand for the products was not significantly affected by the continuation of Covid-19 pandemic even during the current year. However, supply of raw materials and labour were impacted even after opening of the economy. The Company will continue to monitor such impact on future economic conditions and inform the members periodically.

4. DIVIDEND

For FY 2020-2021, based on the Companys performance, your Directors recommend a dividend of Rs 3 /- per equity share (30 %) on post bonus share capital of 1,14,46,290 equity shares of Rs 10/- each. Outgo on account of dividend shall be Rs 3.43 crores.

5. TRANSFER TO RESERVES

During the year under review, the Company has not transferred any amount to the General Reserve.

6. MATERIAL CHANGES AND COMMITMENTS, IF ANY, AFFECTING THE FINANCIAL POSITION OF THE COMPANY, HAVING OCCURRED SINCE THE END OF THE YEAR AND TILL THE DATE OF THE REPORT

There have been no material changes and commitments affecting the financial position of the Company which have occurred between the end of the financial year of the Company to which the financial statements relate and the date of this Report.

7. SHARE CAPITAL

For enabling issuance of bonus shares, members accorded their approval on March 03, 2021 through postal ballot for reclassification of unissued preference shares of Rs. 5 crores into equity shares and increase in authorised share capital from Rs. 10 crores to Rs.12 crores.

The Company issued and allotted 76,30,860 (Seventy-Six Lakh Thirty Thousand and eight hundred and sixty) equity shares of Rs. 10/- each as fully paid-up bonus equity shares by capitalisation of General Reserve, Securities Premium Account and Surplus in Profit & Loss Account, in the ratio of 2 (two) new bonus shares for every 1 (one) equity share, to the eligible members whose names appeared in the register of members/ list of beneficial owners as on Wednesday, March 17, 2021 (record date).

The revised paid-up share capital pursuant to the above allotment is Rs.11,44,62,900 i.e 1,14,46,290 equity shares of Rs 10/- each.

The Company has received Trading Approvals from both BSE Ltd and Metropolitan Stock Exchange of India Ltd.

Increase in the paid-up share capital shall enable the company to shift its scrip from Periodic Call Auction Session (PCAS) to Main Board of BSE Ltd which will also facilitate easy trading in shares of the company.

8. HUMAN RESOURCE DEVELOPMENT (HRD) & INDUSTRIAL RELATIONS

In view of the pandemic, several initiatives for HRD were either postponed or cancelled. However, our HR department has been successful in conducting various programs by adopting technology particularly in training. After reduction in Covid - 19 cases to very low levels, the company organized extracurricular activities in small groups to boost the morale and reduce lockdown / pandemic fatigue. The company also introduced various incentives to generate higher participation from the employees.

Company realizes the importance of strong human resources to achieve and maintain world class operations and facilities. The companys plans for FY 2021 - 22 will result in increasing our team strength in the API division. The company shall be adding several people with required skills in various departments such as QA, QC, RA and R&D through lateral hiring. In addition, the company is investing in its people by increasing its training budget and resources to upgrade every team members operational and personnel skills, particularly keeping in view the requirements for regulatory approvals.

The FDF marketing division has started with about 55 personnel. Most people were recruited in FY 2020 - 21 and have started working on the field starting FY 2021 - 22. We expect to see further additions to the team as time progresses.

The management has allocated the required budget for this increased personnel expenditure in FY 2021 - 22.

9. QUALITY & REGULATORY INITIATIVES

In FY 2020 - 21, the company has fully implemented a Laboratory Information Management System (LIMS), which is accepted globally by regulatory authorities.

With an aim to secure regulatory approvals for its manufacturing site, the company is working diligently to upgrade its quality systems and operations to internationally acceptable standards. As mentioned earlier, it is investing in human resources as well as in upgrading infrastructure for the same. In addition, the company is adopting several IT solutions that will help improve its quality management systems in FY 2021 - 22. However, the exact timeline for inspections and approvals is uncertain due to Covid - 19 and consequent travel restrictions.

The company will file multiple Drug Master Files (DMF) in FY 2021 - 22 with the regulatory authorities in EU, South Korea, Brazil, China, and others for its latest range of API. To undertake this activity, we shall be increasing the strength of our RA team.

10. RESEARCH AND DEVELOPMENT (R&D)

The company has increased its R&D operating spend to Rs. 3.1 crore in FY 2020 - 21 from Rs. 1.9 crore in FY 2019 - 20. The companys Hyderabad R&D unit has developed 5 products at the lab scale in the current year. The Solapur based Process Development laboratory has also done an excellent job in developing cost effective processes of existing products, which has resulted in significant savings and ultimately improved net profits.

Company was able to scale up 3 products to commercial scale in FY 2020 - 21. The companys plan to scale up more products was disrupted due to Covid - 19. However, the company is better prepared to follow through with its plan to launch 4-5 products at a commercial scale in FY 2021 - 22.

The company is expanding its R&D teams at both Hyderabad and Solapur in line with our future growth plans. The company is planning to develop 5-6 molecules at the lab scale and continue its efforts to reduce cost by developing key starting materials and intermediates in FY 2021 - 22. The R&Ds focus area remains diabetic and anti - platelet molecules for FY 2021 - 22.

11. MANAGEMENT DISCUSSION AND ANALYSIS

Please refer to the detailed management discussion and analysis on page 16.

12. INTERNAL CONTROL SYSTEMS

The Company has adequate internal control procedures commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and with regard to the sale of goods. The companys ERP system implemented in FY 2019 - 2020 is helping in strengthening its internal control systems.

13. SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

Sr No. Ratio 2020-21 2019-20 % Increase Y-o-Y Explanation
1 Interest Coverage Ratio 23.1 4.8 380% Lower utilization of debt & rate of interest and overall increase in profitability
2 Current Ratio 2.38 1.40 70% Reduction in short-term borrowing and current liabilities due to higher profits
3 Debt Equity Ratio 0.24 0.50 -51% Reduction in long term and short-term borrowings and higher profits
4 Operating Profit Margin (%) 19.9% 11.6% 71% Reduction in Raw Material cost, other manufacturing expenses, fixed overheads and finance expenses
5 Net Profit Margin (%) 13.5% 6.4% 110% Increase in profit before tax due to reduction in Raw material cost, manufacturing expenses, fixed overheads and lower tax incidence.
6 Return on Net Worth 33.2% 21.4% 55% Higher Profits

14. DIRECTORS RESPONSIBILITY STATEMENT

As stipulated under the provisions contained in Section 134 (3) (c) read with Section 134 (5) of the Companies Act, 2013 ("Act"), the Board of Directors, to the best of its knowledge and belief and according to the information and explanations obtained by it, hereby states that:

1. In the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures;

2. The directors have 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 for that period;

3. The directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act, for safe guarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4. The directors have prepared the annual accounts of the Company on a going concern basis;

5. The directors have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and

6. The directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

15. DIRECTORS AND KEY MANAGERIAL PERSONNEL

The Board of Directors is chaired by Executive Promoter Chairman and has an optimum combination of Executive, Non- Executive and Independent Directors.

Mrs. E Vaishnavi (DIN: 00033669) is retiring by rotation and being eligible offers herself for reappointment. You are requested to appoint her.

None of the Directors are disqualified from being appointed as Directors, as specified in Section 164 of the Companies Act, 2013.

The composition of the Board, meetings of the Board held during the year and the attendance of the Directors thereat have been mentioned in the Report on Corporate Governance in the Annual Report.

The Company has Code of Conduct for Directors and senior management personnel. All the Directors and senior management personnel have confirmed compliance with the said code.

In terms of Section 203 of the Act, the Company has the following Key Managerial Personnel : Mr. Swapnil Eaga: Chief Financial Officer and Ms. Urvashi Khanna: Company Secretary.

16. DECLARATION OF INDEPENDENCE

Your Company has received declarations from all the Independent Directors confirming that they meet the criteria of independence as prescribed under the provisions of the Companies Act, 2013 read with the Schedules and Rules issued thereunder as well as Regulation 16(1) (b) of Listing Regulations (including any statutory modification(s) or re-enactment(s) for the time being in force).

17. BOARD EVALUATION

In terms of the applicable provisions of the Act, the SEBI Listing Regulations, Nomination and Remuneration Committee and the Board of Directors have approved a framework, which lays down a structured approach, guidelines and processes to be adopted for carrying out an evaluation of the performance of all the Directors, the Board as a whole and its Committees. The evaluation process has been separately explained in this Annual Report, as a part of the Report on Corporate Governance.

For the year under review, the Board carried out the evaluation of its own performance and that of its Committees and the individual Directors and the evaluation results, as collated and presented, were noted by the Board.

18. MEETINGS OF THE BOARD

The Board met 5 (Five) times during the financial year. The meeting details are provided in the Report on Corporate Governance that forms part of this Annual Report.

The maximum interval between any two meetings did not exceed 120 days, as prescribed in the Act and the SEBI Listing Regulations.

19. INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

The details in respect of internal financial control and their adequacy are included in the Management Discussion and Analysis, which is a part of this report.

20. AUDITORS

Pursuant to the provisions of Section 139 of the Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2014, in the 28th Annual General Meeting M/s. N. R. Waghchaure & Associates., Chartered Accountants, Solapur (Reg.No.: 114999W)were appointed as the Statutory Auditors of the Company for a term of five years. Company has however obtained confirmation from the said Auditors about their eligibility to continue to hold the office during the current financial year.

21. AUDITORS REPORT AND SECRETARIAL AUDIT REPORT

The Statutory Auditors report and the Secretarial Audit report do not contain any qualifications, reservations, or adverse remarks or disclaimer. The Secretarial Audit Report submitted by the Secretarial Auditor Mr. H. R. Thakur, Practicing Company Secretary, Mumbai, in the prescribed form MR-3 is attached as "Annexure - I" and forms part of this report. Observations and suggestions of the Secretarial Auditor have been considered by the management of the company.

Further the Company has also obtained the Annual Secretarial Compliance Report for the financial year ended 31st March, 2021, there by confirming compliance of the applicable SEBI Regulations and circulars / guidelines issued thereunder, on behalf of the Company.

22. COST AUDIT

For Financial Year 2021-2022, the Company has re-appointed M/s. Shrinivas Diddi and Associates, Cost Accountants, Solapur for conducting cost audit of its cost records pertaining to the products falling under the product categories - Drugs and pharmaceuticals. M/s. Shrinivas Diddi and Associates are appointed on a remuneration of Rs 55,000 plus GST and out of pocket expenses.

The Company is seeking the ratification of the Shareholders for the remuneration to be paid to the cost auditors vide Resolution No. 4 of the Notice of the ensuing Annual General Meeting.

23. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION & FOREIGN EXCHANGE

The statement giving the particulars relating to conservation of energy, technology absorption and foreign exchange earnings and outgo, as required in terms of Sectionl34(3)(m) of the Act read with Rule 8(3) of the Companies(Accounts) Rules, 2014, is annexed to this Report as "Annexure 11".

24. GENERAL SHAREHOLDER INFORMATION

General Shareholder Information is given as Item No. 9 of the Report on Corporate Governance forming part of this Annual Report.

25. PARTICULAR REGARDING EMPLOYEES REMUNERATION

Disclosure comprising particulars with respect to the remuneration of directors and employees, as required to be disclosed in terms of the provisions of Sectionl97(12)of the Act and Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is annexed to this Report as "Annexure III".

26. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Company did not give any loans, guarantees and make any Investment covered under the provisions of Section 186 of the Companies Act, 2013.

27. RELATED PARTY TRANSACTIONS

Related Party Transactions entered into during the year under review were approved by the Audit Committee and the Board of Directors, from time to time and the same are disclosed in the Financial Statements of the Company for the year under review. Further, pursuant to the provisions of the Act and the SEBI Listing Regulations, the Board of Directors has, on recommendation of its Audit Committee, adopted a Policy on Related Party Transactions and the said policy is available on the website of the Company i.e. www.smruthiorganics.com.

In terms of the provisions of Section 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 contracts/ arrangements/ transactions entered into by the Company with its related parties, during the year under review, were in the ordinary course of business of the Company and on an arms length basis.

There were no material Related Party transactions during the year.

28. CORPORATE GOVERNANCE

The Company is in full compliance with the requirements and disclosures that have to be made in terms of the requirements of Corporate Governance specified in SEBI Listing Regulations.

Corporate Governance Report is enclosed as a part of the Annual Report along with the certificate from the Statutory Auditors, M/s. N. R. Waghchaure & Associates, Chartered Accountants, Solapur confirming compliance of the code of Corporate Governance as stipulated Para E of schedule V of the Securities and Exchange Board of India (Listing obligations and Disclosure requirements) Regulations, 2015.

29. AUDIT COMMITTEE

The Company has an Audit Committee in place in terms of the provisions of Regulation 18 of SEBI Listing Regulations read with Section 177 of the Companies Act, 2013.

The recommendations made by the Audit Committee to the Board, from time to time during the year under review, have accepted by the Board. Other details with respect to the Audit Committee such as its terms of reference, the meetings of the Audit Committee and attendance thereat of the members of the Committee, are separately provided in this Annual Report, as a part of the Report on Corporate Governance.

Further, detailed information with respect to the other Committees of the Board is also provided in this Annual Report, as a part of the Report on Corporate Governance.

30. REMUNERATION POLICY

The policy on remuneration and other matters provided in Section 178(3) of the Act has been disclosed in the Corporate Governance Report, which is a part of this report and is also available on website of the company www.smruthiorganics.com

31. VIGIL MECHANISM - WHISTLE BLOWER POLICY

The Company has a Whistle Blower Policy to report genuine concerns and grievances. The policy provides adequate safeguards against victimisation of persons who use the Whistle Blower mechanism. Details with respect to implementation of the Whistle Blower Policy are separately disclosed in this Annual Report, as a part of the Report on Corporate Governance. The same is also available on the website of the Company at www.smruthiorganics.com.

32. RISK MANAGEMENT POLICY

The Company is aware of the risks associated with the business. It regularly analyses and takes corrective actions for managing / mitigating the same. The requirements of Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, with regard to the constitution of a Risk Management Committee are not applicable to our Company.

33. CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Board of Directors has constituted a Corporate Social Responsibility ("CSR") Committee in terms of the provisions of Section 135 of the Act.

The Annual Report on CSR activities as required under Companies (Corporate Social Responsibility) Rules, 2014, including a brief outline of the Companys CSR Policy, is annexed to this Report as "Annexure IV". For other details regarding the CSR Committee, please refer to the Corporate Governance Report, which is a part of this report. The CSR policy is available on the website of the company www.smruthiorganics.com.

There was one meeting of the CSR Committee held on 16th January 2021, which was attended by all members of the Committee.

34. EXTRACT OF ANNUAL RETURN

Pursuant to Section 92(3) read with Section 134(3)(a) of the Act, the Annual Return as on March 31, 2021 is available on the Companys website on : https://smruthiorganics.com/investor- relation/

35. INVESTOR EDUCATION AND PROTECTION FUND (IEPF)

The Company had transferred a sum of Rs 1,12,368 during the financial year to the Investor Education and Protection Fund established by the Central Government (IEPF). The said amount represents Unclaimed Dividend for the year 2012-2013 with the Company for a period of 7 years from their respective due dates of payment.

36. COMPLIANCE WITH SECRETARIAL STANDARDS

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

37. ACKNOWLEDGEMENTS

Your Directors wish to express their grateful appreciation for the cooperation and continued support received from customers, parent company, collaborators, vendors, investors, shareholders, financial institutions, banks, regulatory authorities and the society at large during the year. We also place on record our appreciation for the contribution made by our employees at all levels and for their commitment, hard work and support in driving the growth of the Company.