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Cipla Ltd(Industry :   Pharmaceuticals - Indian - Bulk Drugs & Formln)
 
BSE Code:500087NSE Symbol: CIPLAP/E  (TTM): 21.87205
ISIN Demat:INE059A01026Div & Yield %:0.4795EPS   (TTM) ( Cr.) :19.07
Book Value ( Cr.):93.93Market Cap ( Cr.):33488.959Face Value ( Cr.) :2
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The Directors take pleasure in presenting the Seventy-Fifth Annual Report of the Company along with the Audited Accounts for the financial year ended 31st March 2011.

Financial Summary

Year ended 31st March 2011 Year ended 31st March 2010
Sales and other income 6,483 5,765
Profit before exceptional item and tax 1,151 1,230
Add: Exceptional item - 95
Profit before tax 1,151 1,325
Profit after tax 960 1,081
Surplus brought forward from last balance sheet 1,699 955
Profit available for appropriation 2,659 2,036
Appropriations:
Interim dividend 64 -
Final dividend 160 160
Tax on dividend 37 27
Transfer to general reserve 100 150
Surplus carried forward 2,298 1,699
Rupees in crore

DIVIDEND

On the occasion of its 75th anniversary, Cipla declared a special interim dividend of 80 paise per equity share (face value of Rs 2 each) in August 2010 amounting to Rs 74.90 crore (inclusive of dividend tax).

The Directors recommend a final dividend of Rs 2 per share on 80,29,21,357 equity shares of Rs 2 each for the year 2010-11 amounting to Rs 160.58 crore.

The total dividend payout for the year 2010-11 inclusive of dividend tax would aggregate to Rs 261.53 crore.

MANAGEMENT REVIEW: 2010311

Industry Structure and Development

The financial year 2010-11 marked a resurgence in growth post the financial crisis. Higher investment spending, specially in the emerging markets, is pushing growth in the global economy. As a result, several countries are gradually returning to normal macroeconomic policies. However, the economic health in parts of Europe and the fiscal trends in some other countries is cause for concern and continues to impact the world economy.

The forecast for the Indian economy is positive with growth expected to touch 8.5 per cent in the current fiscal year. Yet, constant inflation in the country is taking its toll and rising global commodity prices is only compounding the problem.

The pharmaceutical industry in India retains its position of strength as the pharmacy capital of the world. It supplies an estimated one-third of all global pharmaceutical produce in terms of volume. In the financial year 2010-11, the Indian pharmaceutical industry grew more than 14 per cent, according to ORG IMS, though this growth was mainly driven by the top 50 companies.

A growing trend was that more Indian pharmaceutical companies focussed on semi-urban and rural markets for incremental growth opportunities. During the year, the industry also witnessed Indian pharma companies selling out to the multinationals.

Performance Review

During the year under review, the Company’s total income from operations increased by 12 per cent. Domestic turnover rose by 12 per cent while export income went up by 16 per cent. Profit after tax for the year was Rs 960 crore compared to Rs 1081 crore last year, excluding the one-time sale of the I-pill brand last year.

This year, there was a dip in operating margins of about 3 per cent, as a percentage of total revenue. This was mainly due to lower technical fees (Rs 60 crore compared to Rs 150 crore last year), as the development stage of several projects reached completion and the products have either been commercially launched or will be launched by the Company’s partners. Another major reason for the decline is that the Indore SEZ factory is in its first year of operations and is still to reach its optimum capacity levels. Besides, the Rupee has appreciated compared to the US dollar which has in turn reduced earnings by about 4 per cent.

Products

The Company introduced many new drugs and formulations during the year. Some significant products are mentioned below:

• Entavir (entecavir tablets) - antiviral for hepatitis B

• Febucip (febuxostat tablets) - drug for gout

• Flosoft (fluorometholone acetate ophthalmic suspension) - topical steroid for eye inflammation

• Foracort (formoterol and budesonide autohaler) - asthma controller therapy in a new easy-to-use breath actuated inhaler

• Furamist AZ (fluticasone furoate and azelastine hydrochloride nasal spray) - new combination nasal spray for allergic rhinitis

• Imudrops (cyclosporine eye drops) - immunomodulatory drug for severe dry eye

• Lacsyp (lactitol monohydrate liquid syrup) - lactulose analogue for constipation and hepatic encephalopathy

• Levolin (levosalbutamol tartarate autohaler) - asthma reliever in an easy-to-use breath actuated inhaler

• Montair FX (montelukast and fexofenadine tablets) - antiallergic combination for rhinitis

• Moxicip KT (moxifloxacin and ketorolac eye drops) - topical combination for eye inflammation

• Panstal (pancreatin capsules) - digestive enzyme for pancreatic insufficiency

• Paracip (paracetamol infusion) - for pain and fever management in intensive care units and hospitals

• Phosome (liposomal amphotericin injection) - high potency antifungal in a new targeted drug delivery system

• Pirfenex (pirfenidone tablets) - the first and only approved drug for idiopathic pulmonary fibrosis (IPF)

• Prandial M (voglibose and metformin tablets) - combination antidiabetic

• Prasuvas (prasugrel tablets) - antiplatelet drug

• Pulmopres (tadalafil tablets) - the first once-daily therapy for pulmonary arterial hypertension

• Rixmin (rifaximin tablets) - locally acting antibacterial for infectious diarrhoea

• Rokfos (zoledronic infusion) - once-yearly treatment for osteoporosis

• Rosulip-F (rosuvastatin and fenofibrate tablets) - combination drug for mixed dyslipidemia

• Soranib (sorafenib tablets) - breakthrough drug for liver cancer

• Sornip (boswellic acid cream) - topical non-steroidal formulation for psoriasis

• Synthivan (atazanavir sulphate and ritonavir tablets) - two-drug combination antiretroviral for HIV/AIDS

• Triohale (formoterol fumarate, ciclesonide and tiotropium bromide rotacaps) - world’s first triple-drug North, South dry powder inhalation for COPD

• VC-15(vitaminCserum)-antioxidantfordermatological conditions

• Vertipress (betahistine hydrochloride tablets) - therapy for vertigo

• Xovatra (travoprost eye drops) - prostaglandin analogue for glaucoma

• Zolmist (zolmitriptan nasal spray) - rapid-acting drug for migraine

Manufacturing Facilities

In April 2010, the Company commenced commercial production of pharmaceutical formulations at the Special Economic Zone (SEZ) project, at Indore, Madhya Pradesh. This project includes facilities for the manufacture of aerosols, respules, liquid orals, pre-filled syringes (PFS), nasal sprays, large volume parenterals (LVP), eye drops, tablets and capsules. The total investment for this project is about Rs 900 crore.

The Company is setting up API facilities at Bengaluru and Kurkumbh. It is also upgrading the API facilities at Patalganga. The total investment for these projects is about Rs 400 crore.

Regulatory Approvals

Several dosage forms and APIs manufactured at the Company’s plants continued to enjoy the approval of major international regulatory agencies. These agencies included the US FDA, MHRA (UK), PIC (Germany), MCC (South Africa), TGA (Australia), Department of Health (Canada), ANVISA (Brazil), SIDC (Slovak Republic), Ministry of Health (Kingdom of Saudi Arabia), the Danish Medical Agency and the WHO.

Opportunities

Domestic Markets

According to ORG IMS, Cipla is one of the largest pharmaceutical companies in India. New technology and new products, including dosage forms, which are being introduced every year, offer significant growth opportunities for the Company.

Cipla is increasing its focus in various segments to meet the growing market needs in the future. The Company is giving a renewed focus to two therapeutic segments namely, oncology and neuropsychiatry.

The Company’s venture on biotechnology products is making significant progress and the regulatory process is underway.

International Markets

Cipla’s international business continues to be a major revenue driver for the Company. During the year under review, almost 55 per cent of the total income originated from international markets. As a result, Cipla contributed significant net foreign exchange earnings to the tune of USD 420 million.

The Company is in the process of consolidating and rationalising its international business and strategies are being reviewed to optimize value for its technology and product range.

The Company continues to forge partnerships and alliances with large generic pharmaceutical companies for product development and supply in developed markets.

Cipla continues its humanitarian mission of making affordable medicines available to the entire world. It is today the largest single supplier of HIV and anti-malarial drugs in the world in terms of volume.

Threats, Risks, Concerns

Patents

The Company is currently involved in a number of patent litigations at the pre grant, post grant, appellate board and at the level of the judicial courts. As anticipated, the number of patent litigations has gone up dramatically post Patents Amendment Act, 2005 and more so because companies are filing frivolous patent applications and multiple applications with almost identical claims. The Appellate Board is saddled with a huge backlog of pending cases. Cipla, so far, has been successful in challenging a number of patent applications at different stages in the grant process.

The government is yet to decide conclusively on the issues of Data Exclusivity and Data Protection which are both "Trips Plus" measures. The European Union government is pushing for Trips Plus provisions and dilution of the Patents Act through bilateral agreements. There is a lot of uncertainty with regard to the government’s position on these two vital issues.

Taking advantage of the new patents regime, the Company is witnessing an increase in the number of patented products being launched in India by multinational companies. A number of these products have been launched at exorbitant prices. Cipla has sought a voluntary license on anti-HIV drugs, Raltegravir and Rilpivirine and will continue to pursue the in-licensing route to bring the latest products to the Indian consumers at affordable prices. The Government of India must also clearly spell out its policy on how it plans to control the prices of patented products which enjoys a monopoly.

India is considered the pharmaceutical hub of the world and the Government of India must try to preserve and promote the Indian industry in every which way.

In the light of these threats, Cipla is continuously fighting these issues on various fronts, not only to protect the interest of the Company but also of the Indian patients.

Drug Pricing

It is well over 15 years since the last drug policy was implemented which resulted in the Drugs Price Control Order 1995. The Government should re-haul the drug policy and bring it in line with the current market conditions. It must be fair, transparent and non-ambiguous. The drug policy should only seek to bring under price control, drugs which are not manufactured in India and those which enjoy 100 per cent monopoly.

The Indian market is highly dynamic and competitive and it is believed that market competition will ensure that drug prices are within the reach of the common man. Drug prices today in India are the lowest in the world even when compared to neighbouring countries like Bangladesh, Pakistan, etc.

As per newspaper reports, it appears that the Government of India is planning to bring under price control all the drugs which are listed in the National List of Essential Medicines. More than 350 drugs are expected to be covered. This will have an adverse impact on the Indian Pharmaceutical Industry which is already reeling under high inflationary pressures. The proposed move will destroy the country’s self-sufficiency in medicines.

Cipla has some pending legal cases on account of alleged overcharging in respect of certain drugs under the Drug Price Control Order. The aggregate amount of the demand notices received is about Rs 1230 crore (inclusive of interest). The Company has been legally advised that based on the directions given by the Supreme Court, there is no probability of the demand becoming payable by the Company. Any unfavourable outcome in these proceedings could have an adverse impact on the Company.

Regulatory Approvals

Our manufacturing facilities are regularly monitored and approved by various regulatory authorities across the globe. These authorities have become more vigilant and strict with respect to compliance. Periodically, the US FDA conducts routine audits of all approved facilities and accordingly several of our plants including Goa, Patalganga, Kurkumbh and Bengaluru were inspected by the US FDA. Currently, all facilities continue to be approved by the US FDA.

Exchange Rate Movements

During the year, the Indian Rupee appreciated by more than 3-4 per cent compared to the US Dollar. Such severe fluctuations in foreign currency exchange rates can have a significant impact on the Company’s operations and financial results.

Safety Measures

The Company believes in Safety first – whether for its patients, plants and employees. Periodical safety audits are conducted at all units and regular reviews are done by safety committees with an objective of enhancing safety measures.

As always, the Company kept up high standards of occupational health, safety and environment preservation practices at all its manufacturing units. Various health, safety and environment awareness programmes were organised for employees, villagers and school children living around the Company’s units at Sikkim, Baddi (Himachal Pradesh), Patalganga (Maharashtra), Kurkumbh (Maharashtra), Verna (Goa) and Bengaluru (Karnataka) with the objective of achieving and maintaining safety, health and environment standards. Training was imparted to school children, teachers and nearby villagers on road safety, home safety, hygiene and environment.

On World Environment Day and Earth Day, employees and government authorities went on a ‘Green Drive’ at the factory premises to plant trees and reduce pollution. The Company continued to maintain modern, well-designed effluent treatment plants at its factories. Treated water from these "zero discharge" facilities is used for maintaining a green belt at all the locations.

Internal Control Systems

The Company’s internal control procedures ensure compliance with various policies, practices and statutes in keeping with the organisation’s pace of growth and increasing complexity of operations. Cipla’s internal audit team carries out extensive audits throughout the year, across all functional areas and submits its reports to the Audit Committee of the Board of Directors .

Human Resources

Particulars of employees required to be furnished under section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975 as amended, form part of this report. Any shareholder interested in obtaining a copy may write to the Company Secretary at the Registered Office of the Company.

CORPORATE SOCIAL RESPONSIBILITY

On the occasion of Cipla’s Platinum Jubilee, the Company announced setting up of the Cipla Foundation by contributing a sum of Rs 5 crore. The Foundation will aim to provide care and financial support to people in need of healthcare in India.

The Cipla Palliative Care and Training Centre in Pune continues to provide care to terminally ill cancer patients. As of date, the Centre has provided comfort and solace to more than 7000 patients. The focus is on reaching out to more cancer patients who need palliative care and on integrating palliative medicine with curative therapy.

The Cipla Palliative Care and Training Centre is recognised as a training resource by the Indian Association of Palliative Care (IAPC). Besides an IAPC certified training course for doctors and nurses, learning modules in palliative care are available for caregivers, volunteers and other interested groups. The Centre also runs a school for training nursing assistants which is offered free-of-charge to young boys and girls from economically weaker sections with the objective of providing an opportunity for skill development, leading to gainful employment.

Being in the forefront of the crusade against HIV/AIDS, the Company has supported Manavya, a Pune based organization which runs a home for children with HIV infection. Manavya operates a mobile dispensary in villages on the outskirts of Pune and this project is fully funded by the Company.

In addition, the Company continued to support several community welfare, health and educational activities essentially in communities surrounding the Company’s factory locations, both directly and through its charitable trusts by providing healthcare education, improvement of community infrastructure, scholarships, etc.

CORPORATE MATTERS

Responsibility Statement

Pursuant to section 217(2AA) of the Companies Act, 1956 it is confirmed that the Directors have:

i. followed applicable accounting standards in the preparation of the annual accounts;

ii. selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year ended 31st March 2011 and of the Profit of the Company for that period;

iii. taken proper and sufficient care for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

iv. prepared the annual accounts on a going concern basis.

Subsidiary Companies

In accordance with circular no. 2/2011 dated 8th February 2011 issued by the Ministry of Corporate Affairs , the Balance Sheets, including annexures and attachments thereto of the Company’s subsidiaries, are not being attached with the Annual Report of the Company. The annual accounts of the subsidiary companies and the related detailed information will be made available to any member of the Company seeking such information. These documents will also be available for inspection by any member at the Registered Office of the Company and that of the respective subsidiary companies. The consolidated financial statements presented in this Annual Report include financial information of the subsidiary companies. A statement containing information on the Company’s subsidiaries is included in this Annual Report.

During the financial year ended 31st March 2011, the following companies were acquired as subsidiaries/step-down subsidiaries: Cipla (Mauritius) Limited, Cipla (UK) Limited, Cipla-Oz Pty Limited, Four M Propack Private Limited, Goldencross Pharma Private Limited, Medispray Laboratories Private Limited, Meditab Holdings Limited, Meditab Pharmaceuticals South Africa (Pty) Limited, Meditab Specialities New Zealand Limited, Meditab Specialities Private Limited, Sitec Labs Private Limited and STD Chemicals Limited.

Corporate Governance

The Company is committed to good corporate governance practices. The report on corporate governance as stipulated under Clause 49 of the Listing Agreement forms part of this report.

By and large, the Company is already complying with the recommendations of Corporate Governance Voluntary Guidelines 2009 issued by the Ministry of Corporate Affairs .

Disclosure of Particulars

As required by the Companies (Disclosure of Particulars in the Report of Board of Directors ) Rules, 1988, the relevant information and data are annexed to this report.

Directors

The Company deeply regrets the sad demise of Mr. Amar Lulla on 22nd April 2011. The Board of Directors would like to place on record its sincere gratitude to Mr. Amar Lulla and appreciate his pioneering efforts during his association with the Company for over three decades. He has been one of the key persons who played a significant role in enabling the Company to attain its current position.

Mr. S. Radhakrishnan was appointed as an Additional Director with effect from 12th November 2010 and holds office until the ensuing Annual General Meeting. He was appointed as Whole-time Director for a period of five years with effect from 12th November 2010, subject to the approval of shareholders at the ensuing Annual General Meeting. Mr. S. Radhakrishnan is a qualified Chartered Accountant, who has been with the Company for over 26 years and has vast experience in financial, commercial, legal and allied areas.

Mr. S.A.A. Pinto resigned from the Board of Directors effective 11th November 2010 due to health reasons. The Directors place on record their appreciation of his contribution as a member of the Board.

Mr. M.R. Raghavan and Mr. Pankaj Patel retire by rotation and, being eligible, offer themselves for re-appointment. A brief resume of the said directors is provided in the Notice.

Cost Auditors

Pursuant to the provisions of section 233B of the Companies Act, 1956 and with the prior approval of the Central Government, Mr. D.H. Zaveri (Fellow Membership No. 8971) practising Cost Accountant, has been appointed to conduct audit of cost records of bulk drugs and formulations for the year ended 31st March 2011. The Cost Audit Reports would be submitted to the Central Government within the prescribed time.

Pursuant to Rule 5 of the Cost Audit Report Rules, Cost Audit Reports for bulk drugs and formulations for the year ended 31st March 2010 were filed with the Central Government on 29th September 2010 and 30th September 2010 respectively.

Auditors

Messrs . V. Sankar Aiyar & Co and Messrs . R.G.N. Price & Co., joint statutory auditors of the Company, retire at the conclusion of the forthcoming Annual General Meeting and are eligible for re-appointment.

On behalf of the Board,
Y. K. Hamied
Mumbai, 29th June 2011 Chairman & Managing Director

Information under section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors ) Rules, 1988.

I. CONSERVATION OF ENERGY

a. The Company is striving continuously to conserve energy by adopting innovative measures to reduce wastage and optimize consumption. Some of the specific measures undertaken are:

i. Installed water meter and new water level sensors in Indian duo rapid plant tank to avoid overflow of water at Baddi factory.

ii. Energy efficient motors are installed at various factories.

iii. Installed new water chiller with capacity of 300 TR to avoid running of 500 TR capacity chillers resulting in energy saving during night and non-working days at Patalganga factory.

iv. Diesel generator sets have been replaced with government power supply at Baddi factory during peak period resulting in fuel cost reduction.

v. Motion sensors have been installed at Sikkim & Goa factories to reduce wastage of power.

vi. Installed & commissioned variable-frequency drive (VFD) for various equipments like cooling tower fans, brine secondary pump, etc. to reduce power wastage in Goa & Kurkumbh factories.

vii. Reduction in power costs by maintaining power factor at acceptable levels at Indore factory.

viii. Installation of auto timer which resulted in energy saving at various factories.

ix. Energy saving through use of compact fluorescent lamps and light-emitting diode instead of high voltage lamps at Bengaluru & Patalganga factories.

x. Installed condensers for energy saving and to keep equipment in good operating condition at Kurkumbh factory.

xi. Installation of economizer for boiler at Indore factory has led to fuel cost reduction.

xii. Gas kit has been installed on DG Sets to reduce fuel consumption at Indore factory.

b. Impact of the above measures for reduction of energy consumption and consequent impact on the cost of production of goods:

The adoption of the above energy conservation measures have helped to curtail the proportionate increase in total energy usage consequent to overall increase in production. This has made it possible to maintain cost of production at optimum levels.

c. Total energy consumption and energy consumption per unit of production as per Form A:

Considering that the Company has a multi-product, multi-facility production system, it is not possible to determine product-wise energy consumption. Therefore, the consumption is categorised under different classes of goods as shown below. The figures for the year are not exactly comparable with the previous year’s figures because of changes in the product mix.

A. Power and Fuel Consumption

1. Electricity 2011 2010
a. Purchased
Units kwh 149813673 91567258
Total amount Rs in crore 80.63 47.74
Rate/Unit Rs 5.38 5.21
b. Own generation
i. Through diesel generator
Units kwh 67698041 57331785
Units per litre of diesel oil kwh 3.70 4.16
Cost/Unit Rs 8.69 9.65
ii. Through steam turbine/generator
2. Others/Internal generation
Light diesel oil/diesel oil/furnace oil
Quantity kl 27396 21467
Total cost Rs in crore 91.94 76.12
Average rate Rs /kl 33563 35459
B. Consumption per Unit of Production
1. Electricity
Bulk drugs (kwh/mt) 69256 60374
2. Light diesel oil/diesel oil/furnace oil
Bulk drugs (kl/mt) 4.90 4.76

It is not feasible to classify energy consumption data of formulations on the basis of product categories, since the Company manufactures a large range of formulations with different energy requirements.

II. RESEARCH & DEVELOPMENT AND TECHNOLOGY ABSORPTION

A. Research & Development

1. Specific areas in which R&D work is carried out:

The focus of the Company’s R&D efforts was on the following areas:

i. Development of new innovative technology for the manufacture of existing APIs and their intermediates.

ii. Development of products related to the indigenous system of medicines.

iii. Patenting of newer processes/newer products/newer drug delivery systems/newer medical devices/newer usage of drugs for both local and international markets.

iv. Development of new products, both in the area of APIs as well as formulations, specifically for export.

v. Development of new drug formulations for existing and newer active drug substances.

vi. Development of agro technology, genetics and biotechnology for cultivation of medicinal plants and isolation of active ingredients from plant materials.

vii. Development of new drug delivery systems for existing and newer active drug substances as also newer medical devices.

viii. Development of methods to improve safety procedures, effluent control, pollution control, etc.

ix. Projects to develop APIs and formulations jointly with overseas companies.

2. Some of the major benefits derived as a result of R&D include:

i. Successful commercial scale up of several new APIs and formulations.

ii. Development of new drug delivery systems and devices.

iii. Improved processes and enhanced productivity in both APIs and formulations.

3. Future plan of action:

The Company will continue its R&D efforts in the various areas indicated in (1) above. The major thrust would be on developing new products and drug delivery systems.

4. Expenditure on R&D:

Rs in crore
a. Capital 25.06
b. Recurring 259.79
Total 284.85

The total R&D expenditure as a percentage of total turnover is around 5 per cent.

B. Technology Absorption, Adaptation and Innovation

1. Efforts, in brief, made towards technology absorption, adaptation and innovation:

i. Development and patenting of new molecular forms and methods of synthesis.

ii. Development of new drug delivery systems.

2. Benefits derived as a result of the above efforts:

i. Improvements in effluent treatment, pollution control and all-round safety standards.

ii. Improvement in operational efficiency through reduction in batch hours , increase in batch sizes, better solvent recovery and simplification of processes.

iii. Meeting norms of external regulatory agencies to facilitate more exports.

iv. Development of products for import substitution.

v. Maximum utilization of indigenous raw materials.

III. FOREIGN EXCHANGE EARNINGS AND OUTGO

1. Activities relating to exports, initiative taken to increase exports, development of new export markets for products and services and export plans:

Exports sales were Rs 3361 crore for the financial year 2010-11. Exports constituted more than 50 per cent of total turnover. In addition, the Company earned Rs 55 crore towards technical know-how/fees. The Company continues to leverage on its strategic marketing alliances and partnerships in more than 170 countries.

2. Total foreign exchange used and earned:

During the year, the foreign exchange outgo was Rs 1562 crore and the earnings in foreign exchange was Rs 3418 crore . Details of the same have been given in Notes 12 to 14 in Schedule S to the Accounts.

On behalf of the Board,
Y. K. Hamied
Mumbai, 29th June 2011 Chairman & Managing Director
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