| Dear Members,
The Directors have pleasure in presenting the 16th Annual Report
together with the Audited Accounts of the Company for the financial
year ended March 31, 2012 and the Auditors Report thereon.
Financial results
Rs. Million
2011-12 2010-11
Income from operations 2799.28 2908.24
Excise duty (118.86) (181.59)
Other income 5.76 0.59
Total Income 2686.18 2727.24
Expenditure (before finance costs and
depreciation) 2302.88 2282.43
Profit before finance costs and depreciation
and tax 383.30 444.81
Finance costs 255.43 165.62
Profit before depreciation and tax 127.87 279.19
Depreciation 58.79 27.64
Profit before tax 69.08 251.55
Provision for taxation 29.07 78.58
Profit after tax 40.01 172.97
Income tax - Prior period (5.62) (41.07)
Add: Balance brought forward from previous year 414.39 317.08
Appropriations 448.78 448.98
Transfer to general reserve - 34.59
Balance carried to Balance Sheet 448.78 414.39
Review of operations
The year under review was critical for your Company in view of the
severe liquidity constraints faced resulting from aggressive expansion
in the last two years; PCB cap on the production capacities; delay in
stabilising the operations at Unit 3; non-commencement of operations at
Unit 4 and unrest due to agitations in the State. All these factors
have contributed to mismatch of cash flows, which in turn resulted in
defaults to various stakeholders.
During the year, the material consumption as a percentage of income at
Rs.1767.48 million constituted 66.40% of income, while it was lower at
64.23% in 2010-11. With marginal increases in manufacturing and
employee costs, the operating margin was lower at 14.40% as against
17.17% reported in the previous year. Hence, the operating profit was
lower at Rs.383.30 million as against Rs.444.81 million in the previous
year.
Further, the year witnessed inflationary pressures which impacted raw
material prices, all of which could not be passed on to the customers.
The tight money policy followed by the central bank, tended to firm up
the interest rates affecting finance costs. Your Company incurred
finance costs of Rs.255.43 million, approximately 54% higher than the
previous year. The impact of the prevailing external challenging
conditions did impact your Company's business, and despite being
productivity oriented and raising the level of cost consciousness, the
profit after tax was Rs.34.39 million for the year, lower than Rs.131.90
million reported in 2010-11.
Sale of Unit 2
Your Company has taken systemic initiative to set right the tight cash
flow situation by deciding to dispose of Unit 2 situated at
Pashamylaram, Medak
Dist, Andhra Pradesh. A postal ballot process has already been
initiated in this regard for the approval of the Members and the result
will be announced on August 31, 2012. With the funds realised from sale
of Unit 2, your Company expects to ease the tight cash flow situation
and meet the various commitments to stakeholders and scale up the
production in the remaining two units. Your Company has drawn a
multipronged action plan to tackle the PCB issue and is confident of
resolving the same at the earliest.
The proceeds of sale shall be utilised to reduce debt burden; bring
idle assets to operation; and improve liquidity. These measures are
expected to make up for the loss of revenue by sale of Unit 2 through
higher capacity utilisation. Dividend
In order to conserve resources, your Board has decided not to recommend
dividend for the financial year 2011-12.
Exports
In 2011-12, your Company has achieved an export turnover of Rs.132.41
million. Your Company is trying to consolidate its presence in global
markets, while efforts to widen the depth and penetration of the
existing markets are being taken up and new markets are being explored.
Directors
In terms of the provisions of Sections 255 and 256 of the Companies
Act, 1956, Dr. K. Rajeswara Rao will retire at the ensuing Annual
General Meeting and being eligible, offers himself for re-appointment.
His re-appointment is proposed in the Notice convening the Annual
General Meeting of the Company. Mr. Sundarashyam Chakravarthi and Mr.
K. Ravindran Parthasarathi have resigned from the directorship
effective from August 14, 2012. The Board placed on record its
appreciation of the valuable services rendered by them during their
tenure as directors of the Company.
Cost audit
The Company has appointed Nageswera Rao & Co, Cost Accountants,
Hyderabad as the Cost Auditor of the Company for conducting cost audit
for the financial year 2011-12.
The Cost Audit Report for the financial year 2011-12 will be submitted
to the Central Government within the stipulated time.
Research & Development
The Company has incurred an expenditure of Rs.5.34 millions on R&D.
IPO update
Your Company had successfully concluded an initial public officer (IPO)
during the financial year 2008-09 to fund the project at Jawaharlal
Nehru Pharma City, Visakhapatnam to venture into the production of
active pharmaceutical ingredients (APIs) and intermediates. Your
Company has commissioned the plant and commenced production on March
25, 2010, with minor variation in respect of implementation of CRAM
project. A brief summary of the utilization of the IPO funds as on
March 31, 2012 is given below:
Rs. Million
Name of the project As per
prospectui Actuals
Setting up a new plant at Vizag for
manufacturing of drug intermediates 550.90 608.72
Setting up pilot plant for carrying out
CRAM at Vizag 83.44 32.62
Long-term working capital requirements 166.70 166.70
General corporate purpose 41.49 41.49
Issue expenses 79.66 79.66
A separate resolution is being proposed in the ensuing Annual General
Meeting under Section 61 of the Companies Act, 1956 for the approval of
the Members for the variation in the project implementation.
Corporate governance
Your Company is committed to maintaining the highest standards of
corporate governance. As required under Clause 49 of the Listing
Agreement with the stock exchange, the Report on Corporate Governance
as well as Auditors' Certificate on the Compliance of Corporate
Governance are annexed.
In order to strengthen the corporate governance framework, the Ministry
of Corporate Affairs had issued a set of Voluntary Guidelines in
December 2009 for adoption by companies. Your Company is already
complying with various requirements of the guidelines and has initiated
appropriate action for implementing the residual items.
Management Discussion and Analysis
A separate section titled 'Management's Discussion and Analysis Report'
forms part of the annual report.
Directors' Responsibility Statement
Pursuant to Section 217 (2AA) of the Companies Act, 1956 with respect
to Directors' Responsibility Statement, your Directors confirm that:
a. in the preparation of the accounts for the financial year ended
March 31, 2012, the applicable accounting standards have been followed
and there were no material departures;
b. the Directors have selected such accounting policies and applied
them consistently and made judgments and estimates which are reasonable
and prudent so as to give a true and fair view of the state of affairs
of the Company at the end of the financial year and of the profit of
the Company for the year under review;
c. the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of Companies Act, 1956 for safeguarding the assets of the
Company and for preventing and detecting fraud and other
irregularities.
d. the Directors have prepared the accounts for the financial year
ended March 31, 2012 on a 'going concern' basis.
Auditors
The Statutory Auditors of the Company, M/s. Karumanchi & Associates,
Chartered Accountants, Hyderabad retire at the conclusion of the
ensuing Annual General Meeting and being eligible offer themselves for
re-appointment. The Company has received a letter from them to the
effect that their appointment if made would be within the prescribed
limits under Section 224 (1-B) of the Companies Act, 1956.
Fixed deposits
The Company has not invited/accepted deposits from the public within
the meaning of Section 58A of the Companies Act, 1956.
Particulars of employees
During the year under review, the Company maintained the cordial
relations with the employees. Information pursuant to Section 217(1)(e)
read with Companies (Disclosure of Particulars in the Report of Board
of Directors) Rules, 1998 and forming part of report for the year ended
March 31, 2012 is furnished as an Annexure to this report.
Conservation of energy, technology absorption, foreign exchange
earnings and outgo
Particulars required under Section 217(1) (e) of the Companies Act,
1956 read with Rule 2 of the Companies (Disclosure of Particulars in
the Report of the Board of Directors) Rules are furnished in the
Annexure.
Acknowledgement
Your Directors wish to place on record their appreciation for the
valuable support and co-operation extended by IDBI Bank, SBI, Karur
Vysya Bank Limited, ING Vysya Bank, IFCI Venture Capital Funds, Andhra
Pradesh State Financial Corporation, state and central government
agencies.
Your Directors also wish to place on record their sincere appreciation
of the contribution made by the employees of the Company and are
thankful to the shareholders for their continued patronage and support.
For and on behalf of the Board
Hyderabad K. Hari Babu
August 14, 2012 Managing Director |