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Directors Reports
Cipla Ltd.
 
March 2015

DIRECTORS' REPORT

The Directors take pleasure in presenting the Seventy-Ninth Annual Report of the Company along with the audited financial statements for the financial year ended 31st March 2015.

DIVIDEND

The Directors recommend a dividend of Rs.2 per equity share (100%) for the year 2014-15. The dividend, if sanctioned at the Annual General Meeting, will be paid to those members whose names appear in the Company's Register of Members on Wednesday, 12th August 2015. In respect of shares held in dematerialised form, the dividend will be payable on the basis of beneficial ownership as per details furnished by National Securities Depository Limited and Central Depository Services (India) Limited.

MANAGEMENT DISCUSSION AND ANALYSIS: 2014-15

Global Business Review

With a footprint across five continents, Cipla is moving fast towards its goal of making affordable healthcare available to all.

The Company's revenue from operations on a consolidated basis during the financial year 2014-15 amounted to Rs.11,345 crore against Rs.10,173 crore in the previous year, recording a growth of 11.5%. The income from operations for domestic business increased by 18%, from Rs.4,090 crore in the previous financial year to Rs.4,825 crore in the financial year under review. Total exports increased by 5.6% during the year to Rs.6,058 crore. During the year under review, operating margin reduced by 2.7%. This was primarily due to the change in product mix, higher investments in research and development, and talent acquisition. Profit for the year reduced by 15% to n,181 crore from Rs.1,389 crore in the previous financial year.

India Ratings and Research Private Limited, a Fitch Group Company, assigned a Long-Term Issuer Rating of IND AAA with a stable outlook to the Company. The rating is the highest assigned in Fitch's rating scale and indicates the highest degree of safety regarding timely servicing of financial obligations and lowest credit risk.

No material changes and commitments have occurred after the close of the year till the date of this Report, which affect the financial position of the Company.

India

As one of India's leading pharmaceutical companies, Cipla is in a strong position to fulfill its commitment to provide modern  and affordable medicines to patients. This year, despite the challenges, as per IMS Health data, Cipla's domestic business revenues grew by 20% compared to the industry growth of 12%.

India business contributed 42% to overall Company revenues, with new products contributing 3.2%. Market share of our branded generics currently stands at 5.27%.

Cipla continues to focus on  in-licensing opportunities.  In FY 2014-15, Cipla has in-licensed  darbepoetin.  Cipla successfully launched the generic drug sofosbuvir in India for the treatment of hepatitis-C under the brand name HepCvir. In India alone it is estimated that 12-18 million patients are infected with hepatitis-C, of which up to 2 million may need treatment. Sofosbuvir is a new antiviral drug which in combination therapy has shown to have higher cure rates. It represents a breakthrough in the treatment of hepatitis C.

In the coming years, the domestic business will continue to focus on these themes:

• Grow well ahead of market growth

• Execute plans for the priority business segments

• Strengthen our leadership in therapy and geography

• Focus on building current and future product pipeline

• Increase sales force productivity with the rollout of Customer Relationship Management (CRM) and Sales Force Automation (SFA) systems

South Africa

As one of the largest pharmaceutical companies in South Africa, Cipla has a market share of more than 5%. South Africa contributes 14% to the overall Cipla revenues on a consolidated basis. The South Africa business revenue has grown at 9% in the private market over the last three years. On a like-for-like basis, the South Africa business registered a revenue growth of 4% for the year. The Cipla brand inspires trust and has become a household name among consumers, pharmacies, prescribers and key opinion leaders.

The private market contributed 73% of revenues. Cipla also won Government tenders in antiretrovirals (ARV), respiratory and newer areas such as mental health, cardiovascular and women's health categories. The manufacturing facility at Durban provides the Company a competitive edge and is the first Pharmaceutical Inspection Convention (PlC)-compliant facility in the country. The manufacturing unit generated a profit, as compared to a loss last year, achieved by significantly improving utilization, improved efficiencies and cost control measures.

Capitalizing on its defined future portfolio, key development and in-licensing projects, and streamlined global organizational structure, Cipla South Africa will leverage synergies from its international family. Plans are on track and the integration across manufacturing supply chain, finance and human resources is complete. The Company has leveraged its skill and scale to drive down costs in areas such as procurement.

Aligning with Cipla's philosophy of providing South Africans with access to a broader range of affordable medicines and leveraging the leadership position in South Africa, Medpro Pharmaceutica (Pty) Ltd — a subsidiary company of Cipla Medpro — entered into a  sales and distribution arrangement with Teva Pharmaceuticals (Pty) Ltd, an affiliate of Teva Pharmaceutical lndustries Ltd. The collaboration will focus on the following therapeutic areas: oncology, central nervous system, women's health, cardiovascular, ophthalmology and other specialty products.

Europe

Cipla is making innovative, affordable medication accessible in over 20 countries across Europe. The European business contributed 4% to the overall Company revenues, recording a decline of 24% in revenues for the year. The drop was driven by a one-off event in the previous year, a decline in partner based business and some supply-related issues. Plans have been put in place to address these issues and regain business momentum.

Cipla is focused on adding innovative elements to products, services and information through research and partnerships. We now have seven different inhaler products in the market in at least one European country. Our flagship product, the salmeterol-fluticasone MDl, is now in the market in Croatia, Germany, Czech Republic, Slovakia, Belgium and Hungary. The pricing level is set in accordance with the rules set out by individual countries, our estimation of affordability per country and our cost of goods, so the price differs somewhat from country to country.

Cipla Europe NV signed a distribution agreement with Serum lnstitute of lndia Ltd. (Sll) to market pediatric vaccines in Europe and expects to commence filings in the near future.

Cipla also signed an exclusive partnership with BioQuiddity to market OneDose ReadyfusORTM in anesthetic applications for post-surgical pain management. Cipla intends to launch the CE Marked One Dose Readyfus ORTM pre-filled with ropivacaine under its own label in Europe in the next year. The ready-to-use infusion systems are non-electric, ambulatory, and should enable seamless transition between sites of care.

The Company initiated emergency supplies in Greece and Spain for ONCO BCG, a therapeutic product made from the BCG vaccine, indicated for the treatment of bladder cancer.

North America

The North American business contributed 8% to overall revenues and recorded 20% growth for the year. Cipla made 12 filings in North America in FY 2014-15 with a focus on respiratory, oncology and anti-infective therapies.

In the last quarter of FY 2014-15, the Company achieved a big milestone through the launch of its own label products in the market, including amlodipine, doxycycline, lamotrigine, meloxicam, topiramate and valacyclovir.

Cipla signed an agreement with Salix Pharmaceuticals, Inc., a US-based specialty pharmaceutical company. Under the agreement, Cipla has granted Salix exclusive rights under certain patent applications in the Rifaximin Complexes patent family controlled by Cipla. The grant is  on a worldwide basis, excluding the countries of Asia (other than Japan) and Africa. Salix is required to make an up-front payment and upon achievement, additional regulatory milestone payments to Cipla, in respect of the new license agreement regarding the Rifaximin Complexes patent rights. Salix will also pay a royalty on net sales of products covered by the Rifaximin Complexes patents licensed to Salix.

In the last quarter of financial year 2014-15, Teva Pharmaceutical Industries Ltd. announced the Food and Drug Administration (FDA) approval of the first generic equivalent to Nexium (esomeprazole magnesium) delayed-release capsules in the United States. Cipla is the supplier of the finished formulation to Teva.

Through a comprehensive partnership approach, Cipla has been dedicated to providing access to medicines to US patients for over 30 years. We have a strong team in place which is focused on executing our North America strategic plans.

International - Rest of the World

International is defined as all export markets for Cipla excluding North America, Europe and South Africa. With a diverse range of more than 1,000 products and 180 global  partners across 120 countries, Cipla has a presence in Africa, the Middle East, Latin America, Asia Pacific, China, and Russia. International contributes 25% of Company revenues and grew by 9% over the last year. Cipla's products are currently being used to treat more than 1.7 million HIV patients, 55 million malaria patients, and 300,000 patients in the area of reproductive and women's health.

Cipla implemented a business model change in 15 countries including Morocco, Algeria, Yemen, Sri Lanka and Uganda, adopting the direct-to-market (DTM) approach. This strengthening of the Company's front-end presence in markets was done through different entry modes such as acquisitions, joint ventures and Managed Sales Force (MSF). The Company will continue to build its front-end presence in select markets and will also continue to deepen its relationship with existing partners.

The Company's wholly-owned subsidiary, Meditab Holdings Ltd., Mauritius recently divested its 48.22% stake in CDYMAX, based in Jiangsu, China at a value of $18.5mn, which was the initial value of our investment in the entity. Cipla is currently evaluating opportunities which will aid the overall growth of the Company in China.

Active Pharmaceutical Ingredients (APIs)

Cipla was among the first Indian companies to develop and manufacture Active Pharmaceutical Ingredients (APIs), the vital raw materials for making drug products. We currently have over 200 APIs in our portfolio. Our state-of-the-art API plants meet stringent quality and current good manufacturing practice (cGMP) requirements as well as environmental and safety standards. Our API plants are approved by various international regulatory agencies including the US Food and Drug Administration  (US FDA).

During the year, Cipla manufactured APIs for more than 300 partners globally and a significant share was consumed internally to support Cipla's own formulation requirements.

Captive API requirements increased significantly owing to front-ending in several new markets and key launches globally, witnessing a more than 30% increase in captive consumption over the previous year, with the trend likely to continue in the coming year.

External API revenues contributed 6% to the overall revenues, with major contributions from the antiretroviral, gastroenterology, respiratory, neurology and oncology segments.

Cipla has established a robust portfolio selection process to build a future-ready pipeline of complex products which will help in providing early launch capabilities along with Intellectual Property (IP) advantages.

In the past year, we have added more than 70 new products to our development pipeline and are  continuously adding more with a view to expand our reach across the key therapeutic segments for the future as far as 2024. Although the effects of the new portfolio will be evident starting only in 2017, we are confident that the selected new products will invigorate our business both for APIs and for captive formulations across top markets.

Respiratory

Cipla has been at the forefront of innovation for inhalation therapy in India. The Company has played a leading role in educating the nation on inhalation therapy and over the coming years Cipla will continue to work on topics such as patient awareness, acceptance, compliance and usage, physician training, medical camps and counselling. Strongly focused on access and affordability, Cipla Respiratory continued to strengthen its efforts through the "BreatheFree" patient awareness and education programs across markets, dedicated to making a difference to both patients and medical practitioners.

Over the last 40 years, the Company has been focused on bringing this innovation to markets across the globe. Today, Cipla Respiratory products are available in over 100 countries. Cipla offers the world's largest portfolio of inhalation products, with 27 molecules and combinations across a range of devices, to suit individual patient needs. The Company manufactures metered dose inhalers (pMDIs), dry powder inhalers (DPIs), nasal sprays, nebulisers and a range of inhalation accessory devices. The company has five manufacturing facilities dedicated to respiratory products and is currently the third largest manufacturer of pMDIs in the world.

This year Cipla Respiratory launched several inhalation products across European markets. In parallel, significant progress has been made on the development of critical new products for the US and other priority markets. Cipla's team of world-class specialists continues to collaborate seamlessly across functions to drive Cipla Respiratory to new frontiers. Competition remains aggressive and the Company needs to continue to maintain its agility to retain leadership.

During the year under review, Cipla acquired a 60% stake in Jay  Precision Pharmaceuticals Private Limited, a leading respiratory device manufacturer. Cipla has a long history of collaboration with Jay Precision for device design and manufacturing. As Cipla aims to make a strong foray in overseas markets, de-risking the respiratory devices supply through backward integration is key to strengthen the foundation. The deal provides in-house access to technical know-how for current and future device design, development and manufacturing.  Cipla has end-to-end capability across respiratory care covering the value chain from API, formulation, device development and manufacturing to medical and patient education.

Cipla Global Access

Since its inception, Cipla's ethos has been firmly rooted in the vision "None shall be denied". The Company strongly believes that access to high quality, affordable medicines is a basic human right.

Cipla Global Access (CGA) is a tender-based institutional business that concentrates on four key therapy areas: HIV/AIDS, malaria, multidrug-resistant tuberculosis, and reproductive health. The Company aims to reach out to 80 million patients in these four therapies by 2020.

Cipla has developed and fostered robust relationships with all the major global organisations, regulatory bodies, public institutions and funding agencies that work towards this common cause. Additionally, Cipla has partnered with several global scientific research organisations to develop innovative, effective and affordable formulations for these four therapeutic areas.

Cipla is among the leading manufacturers of ARV drugs in the world. In 2001, Cipla was the first pharmaceutical company to supply ARVs to countries with a high HIV burden at less than a dollar a day. In the financial year 2014-15 alone, our ARV formulations covered nearly two million HIV patients in 100 countries. The Cipla ARV portfolio includes treatment for all age ranges of patients for effective management of HIV. Cipla has by far the highest number of ARV products approved for the treatment of both children and adults. In addition, newer molecules in novel dosage forms such as pellets are being developed to help optimise dosage for the current regimens, for the treatment of children and also to reduce the pill load, thereby offering better adherence and success of treatment. Cipla is adding new capacity for the growing demand for ARV products and expects the expansion to be completed in  FY 2015-16.

Cipla is also one of the largest suppliers of antimalarial drugs in the world. This portfolio covered treatment for more than 55 million malaria patients across all the affected countries. The coverage is increasing every year and thus saving millions of lives. Cipla anti-malarial treatment costs less than a dollar for the entire course. Cipla has always been at the forefront in initiatives to identify, develop, manufacture and supply low cost treatment with  the artemisinin-based combination therapy  (ACTs). All the ACTs  supplied by Cipla are approved by WHO. Cipla is endeavouring to expand its portfolio. It will be expanded with more potent and safer antimalarials, using novel drug delivery systems.

Cipla has a strong second  line TB drug (SLTB)  portfolio for treating multidrug-resistant TB (MDR TB). It is aggressively expanding its MDR TB portfolio to meet the challenges of resistance which develops among TB patients due to the high rate of dropout from treatment. Till now, Cipla's SLTB drugs catered to a moderate patient base globally, but this is likely to increase significantly with the use of new diagnostic methods of detection drug-resistant TB. Future development in the MDR TB therapy area will be focused on newer molecules which can significantly reduce treatment timelines. Currently, Cipla services around 70 countries in this area.

Reproductive health and family planning segment is an emerging segment in which Cipla currently caters to over 300,000 patients worldwide. Cipla has aligned its strategy with international development initiatives to provide safe and effective contraceptive drugs for 120 million more women  by 2020.

Cipla Global Access also provides medications for helminthic infections, schistosomiasis and kala azar, which pose major health threats in low and middle income countries (LMIC).

In FY 2014-15, Cipla signed a non-exclusive licensing agreement with Gilead for manufacturing and distribution of sofosbuvir mono, ledipasvir mono, the fixed-dose combination of ledipasvir with sofosbuvir and the combination of sofosbuvir or ledipasvir with other active substances, for the treatment of hepatitis C. Under this licensing agreement, Cipla will be allowed to manufacture and market sofosbuvir, and ledipasvir in 90+ countries including its home markets, India and South Africa, under Cipla's own brand names. It also covers countries like Egypt which have a high prevalence of hepatitis C. The countries within the agreement account for more than 100 million people living with hepatitis C, representing 54% of the total global infected population.

CIPLA NEW VENTURES

The pharmaceutical world is seeing significant shifts — towards biology-based medicine; towards finding new value in old drugs, with blockbuster research output dwindling; and towards prevention, wellness and self-care. Cipla launched Cipla New Ventures (CNV) last year, as its impact investment arm, to nurture and build innovation-led business streams for Cipla, distinct from the mainstream business of today and tomorrow.

Incubators of Growth

CNV has over the past year built up four independent and strong business streams, putting in place specific capabilities and technologies while building a clear roadmap for each business. Ranging across diverse and promising areas such as biologicals, small-molecule innovation, consumer healthcare, and regenerative medicine, CNV's investments are poised to shape the future of Cipla.

Cipla BioTec - driving disruptive impact in biologics

Earlier this year Meditab Specialities Private Limited, a wholly owned subsidiary of the Company acquired 75% stake in Mabpharm Private Limited ('Mabpharm'). Mabpharm has now become a 100% subsidiary of the Company. Cipla BioTec (formerly Mabpharm) focuses on research, development, manufacturing and marketing of biosimilars, in the fields of cancer, auto-immune diseases, respiratory diseases and diabetes. Through innovative technology and go-to-market solutions, it aims to create a transformational impact in the way these medicines are used.

CipTec Discovery Engine - the small-molecule innovation engine - finds new value in old drugs

Cipla believes that the potential of currently used drugs is not fully exploited, and with smart delivery technology and modern  repurposing tools available today, new value can be created that will enhance the patient experience. Towards this, the CipTec Discovery Engine (DE) was envisaged as the small-molecule innovation engine of Cipla. Today, the CipTec DE pipeline consists of exciting early stage ideas in central nervous system (CNS) and oncology therapies, including a strategic investment in the US-based R&D Company, Chase Pharmaceuticals, during the previous year. Chase Pharmaceuticals has two lead assets in the pipeline for the treatment of patients with Alzheimer's disease, of which the first, CPC-201, has progressed to Phase II trials which are expected to be completed over the following year. CipTec continues to focus on developing and extending its pipeline, partnering with other innovators on medically and commercially attractive opportunities.

Cipla Consumer Healthcare - a Cipla initiative towards improving the lives of Indian consumers

Through Cipla Consumer Healthcare (CHC), Cipla has entered the rapidly growing over-the-counter (OTC) healthcare market in India. The vision is to improve the lives of Indian consumers, making full use of Cipla's strengths in bringing good science to good medicine, while also leveraging its market outreach and equity with the Indian healthcare system. The business will focus on opportunities arising from the shift towards wellness and self-care.

Stempeutics - a first in innovative regenerative medicine in India

Stempeutics Research is a group company of Manipal Education and Medical Group and a joint venture with Cipla Ltd. This year, Stempeutics Research got its novel pool technology patent granted in the USA as well as an Advanced Therapy Medicinal Product ('ATMP') classification from the European Medicines Agency for its lead product, Stempeucel, for the treatment of various indications including Buerger's disease, critical limb ischemia and osteoarthritis. Stempeutics has also received its first commercial approval for Stempeucare for cosmetic applications in India.

INTEGRATED PRODUCT DEVELOPMENT (IPD)

Investing in knowledge

Cipla's Integrated Product Development (IPD) organisation includes formulations and API R&D, clinical, analytical, regulatory and pharmacovigilance functions. Cipla's R&D expense increased from 5.4% of total revenue in FY 2013-14 to 6.2% in FY 2014-15. The Company  has undertaken expansion of its R&D Centre with new buildings and facilities at Vikhroli, Mumbai.

Development projects, targeted filings and regulatory approvals have progressed well this year. Currently there are over 200 projects in development indicating a robust pipeline. In FY 2014-15, there were 70 submissions for formulations in Europe, 12 filings in North America, and over 1,000 filings in other international markets. The Company received more than 100 approvals in Europe, 5 in North America and more than 800 approvals in other International (rest of the world) markets.

Cipla completed a comprehensive 'Jaagruti' transformation programme aimed at increasing efficiency across all teams resulting in reduced timelines, development costs and more timely regulatory approvals. The process improvements in analytics, regulatory, procurement and project management continue to drive improved turnaround time and throughput levels.

The Company has expanded applications across multiple technology platforms including implants, microspheres, ready-to-use injections, cochleates, nanotechnology, preservative-free ophthalmics, nasal sprays, foams, and spray patches among others.

Cipla received tentative approval from US FDA for the world's first

pediatric lopinavir and ritonavir oral pellets for the treatment of AIDS in infants and young children. Cipla has long recognized the lack of access to life-saving child-friendly formulations for the treatment of HIV, which prompted the Company to develop an innovative formulation of lopinavir and ritonavir oral pellets. The pellets are produced by melt-extrusion technology and are enclosed in capsules. The pellets have to be sprinkled on sweetened porridge for infants and administered to them.

Cipla has made large strides in FY 2014-15 towards forging partnerships with global generic and innovator firms to fast track development of critical molecules in the areas of oncology, ARVs and respiratory, and has taken steps towards being a thought partner to key regulators on the policy and development fronts.

Cipla has forged linkages with novel technology firms. It has also established and strengthened in-house techno-commercial capabilities to identify and capture 505(b)(2) & biosimilar opportunities.

On the organizational capability front, IPD strengthened its team in FY 2014-15 in areas of quality by design, new drug delivery systems, device design and manufacturing. IPD also strengthened existing functions operationally to deliver superior value to Cipla in line with the Company's future aspirations.

Taking it to the next level

Cipla launched the second wave of the 'Jaagruti' transformation programme aimed at reducing business complexity and strengthening operations. Under this initiative the manufacturing divisions freed up valuable resources using strategies of network optimisation, energy efficiency, better management of human resources, and a review of capital and operational expenses.

Cipla's operations in Cipla QCIL, Uganda were also covered in the second phase of 'Jaagruti'.

During the year under review, the Company commissioned additional API manufacturing capacity of 60 MT/year at Kurkumbh. The Company scaled up 20 key APIs and undertook cycle time reduction and cost improvement projects.

Serviceability of formulation products was significantly improved by formula harmonisation, batch size scale-ups and unit balancing.

The Company is continuously upgrading all the manufacturing facilities in terms of technology, automation, safety, environment and systems as well as procedures for energy and water conservation.

Regulatory Approvals

Several dosage forms and APIs manufactured at the Company's facilities continue to enjoy the approval of major international regulatory agencies. These agencies include the US FDA, MHRA (UK), PIC (Germany), MCC (South Africa), TGA (Australia), APVMA (Australia), the Department of Health (Canada), ANVISA (Brazil), the Danish Medical Agency, and the WHO.

Threats, Risks, Concerns

The pharmaceutical industry has always been under intense scrutiny by various regulatory authorities, both Indian and international. This trend continues resulting in regulatory standards being upgraded all the time. An overview of the status of the industry is referred to in the Chairman's letter at the beginning of this report. The Company continues to track all these changes, increase vigilance, and strives to maintain the highest quality standards. It is close to two years since the new pricing regulation was enacted in the Indian market. Over the last one year, the Company took various steps to mitigate the initial impact of the decline in prices. Since the pricing regulatory authorities are reviewing the existing pricing mechanism and are considering expanding the scope, the threat of future decline in price remains.

Cipla has some pending legal cases related to alleged overcharging in respect of certain drugs under the Drugs (Prices Control) Order, 1995. The aggregate amount of the demand notices received is about Rs.1,768.51 crore (inclusive of interest). The Company has been legally advised that based on several High Court decisions and considering the totality of facts and circumstances that these demand notices may not be enforceable. However, any unfavourable outcome in these proceedings could have an adverse impact on the Company.

Cipla operates in a number of markets where geo-political risks exist. No significant or material orders have been passed by the Regulators or Courts or Tribunals which may impact the going concern status of the Company and its future operations.

Health, Safety & Environment (HSE)

HSE measures remain a priority for Cipla. During the year under review, no major hazardous accident at the workplace was recorded. The Company continues to upgrade HSE standards at all locations. ISO 50001 implementation is being taken horizontally across all our locations, to benchmark energy conservation threshold levels for a greener environment.

Cipla's manufacturing facilities including Goa, Bengaluru, Baddi, Indore, Kurkumbh, Patalganga and Sikkim, are certified for ISO 14001 and OHSAS 18001 standards. The Company continues to upgrade HSE standards at all locations. Specialized safety training programs such as process safety, road safety, and behavioral safety are regularly imparted to increase safety awareness at all working levels. Safety Week and Electrical Safety Day are celebrated and Fire Service Day is observed at the manufacturing units to create awareness among employees. Learning visits across different industrial sectors are conducted with a view to strengthen the HSE knowledge base and implement best HSE practices. Hazards and risks associated with site activities are identified across all manufacturing locations and risk control and mitigation measures are continuously implemented. Online systems are in place to monitor applicable legal compliance.

The Company's various locations have received HSE awards including Best Environment, Health and Safety Practices, Paryavaran Gaurav, and 5S Excellence.

Villagers and school children living around the Company's units across India also participate in HSE programs. Fire safety and  road safety training is conducted in schools. A well-equipped ambulance service has been made available to nearby villages for use in emergency situations. Medical camps for polio immunization, asthma, blood donation, and dental health are conducted in the surrounding villages. World Environment Day and Earth Day are celebrated by conducting a green drive program of mass tree plantation. The Company continues to maintain modern, well-equipped effluent treatment plants and effluent testing systems at its manufacturing facilities. Treated water from these zero-discharge facilities is recycled for utility purpose.

Internal Control Systems

The Company's internal control procedures are adequate to 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 supplemented by various internal auditors carries out extensive audits throughout the year across all functional areas, and submits its reports to the Audit Committee of the Board of Directors. During the year under review, no fraud was reported by the auditors to the Audit Committee/Board of Directors.

Corporate Social Responsibility (CSR)

The Board of Directors at its meeting held on 14th August 2014 approved the Corporate Social Responsibility (CSR) Policy as required under Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, on the recommendations of the CSR Committee. The CSR policy is available on the Company's website at <http://www.cipla.com/CiplaSite/>  Media/PDF/Corporate_Social_  Responsibility_Policy.pdf.

The Annual Report on CSR initiatives as required under Section 135 of the Companies Act,

2013 and Companies (Corporate Social Responsibility Policy) Rules,

2014 as amended from time to time forms part of this Report as Annexure I.

Business Responsibility Report

As mandated by the Securities and Exchange Board of India (SEBI), a standalone Business Responsibility Report (BRR) forms part of the Annual Report and is available on the Company's website at www.cipla.com  The BRR contains a detailed report on Business Responsibilities vis-a-vis the nine principles of the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business framed by the Union Ministry of Corporate Affairs. Any shareholder interested in obtaining a copy may write to the Company Secretary at the Registered Office of the Company.

CURRURALE IVIAIIERS

Directors' Responsibility Statement

Pursuant to Section 134(3)(c) of the Companies Act, 2013 it is confirmed that the Directors have:

i. followed applicable accounting standards in the preparation of the annual accounts and there are no material departures for the same;

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 2015 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, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

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

v. laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

vi. devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

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.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

As required under section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014, the relevant information and data are annexed to this report as Annexure II.

Disclosure under The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Company has in place a Policy on Prevention, Prohibition and Redressal of Sexual Harassment at workplace in line with the requirements of The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. An Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. The policy has set guidelines on the redressal and enquiry process that is to be followed by complainants and the ICC, whilst dealing with issues related to sexual harassment at the workplace towards any employees. All employees (permanent, temporary, contractual and trainees) are covered under this policy. All employees are treated with dignity with a view to maintain a work environment free of sexual harassment whether physical, verbal or psychological. A total of 17 cases were reported under the Prevention of Sexual Harassment Policy during financial year 2014-15, out of which 3 cases were under investigation at the end of financial year. Subsequently, all the cases were satisfactorily addressed and appropriate action was taken.

Employee Stock Option Scheme

As required under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, the applicable disclosures as on 31st March 2015 are annexed to this report as Annexure III.

There is no material change in the Employee Stock Option Schemes during the financial year under review and the Employee Stock Option Schemes are in compliance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations,  2014.

Human Resources

The Human Resources function contributes to Cipla's growth story by working as a strategic partner to the business. The technical and quality demands of pharma combined with our own vision to grow significantly over the next few years are driving the need for us to build an agile, engaged, and energized work force. While doing this, your Company continues to retain focus on Cipla values and its core philosophy of placing people before profits.

Our core objective has been to build organizational capability through skill enhancement across levels, sales force training and enhancing competencies in line with changing business needs. There has also been a focus on strengthening existing, middle and senior leadership.

The Company has institutionalized a robust performance management process; individual goals and key performance indicators have been aligned to organizational goals and imperatives.

In making "Caring for Life" translate to "Caring for employees", various employee centric interventions like people friendly policies  and work-life balance have been launched. While serving global customers, employing people across the globe is an equally important aspect of our vision thereby building a truly global company. Employees are motivated through various skill-development, engagement and voluntary programs. We also ensure that employees are aligned with our organizational culture and values whilst never losing sight of our business objectives.

Details of remuneration as required under section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed as Annexure IV.

Particulars of employee remuneration as required under Section 197 (12) of the Companies Act, 2013 read with Rule 5(2) and (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this Report. Having regard to the provisions of the first proviso to Section 136(1) of the Companies Act 2013, the Annual Report excluding the said information is being sent to the members of the Company. The said information is available for inspection at the registered office of the Company during working hours and any member interested in obtaining such information may write to the Company Secretary at the registered office of the Company. The said information is also available on the Company's website www.cipla.com

Particulars of loans, guarantees or investments

Particulars of loans, guarantees and investments under Section 186 of the Companies Act, 2013 are provided in Notes 39 and 13 to the financial statements.

Extract of Annual Return

Extract of Annual Return in the prescribed format under the Companies Act, 2013 forms part of this Report as Annexure V.

Secretarial Audit Report

The Board had appointed M/s. BNP & Associates as the secretarial auditor for the financial year 2014-15. The secretarial audit report for the financial year ended 31st March 2015 is annexed to this report as Annexure VI. The report does not contain any qualification, reservation or adverse remark.

Vigil Mechanism

The Company believes in upholding professional integrity and ethical behavior in the conduct of its business. To uphold and promote these standards, the Company has formulated a Vigil Policy which serves as a mechanism for its directors and employees to report genuine concerns about unethical behavior, actual or suspected fraud or violation of the Code of Conduct without fear of reprisal. The details of Vigil Policy is available on the Company's website at <http://www>. cipla.com/CiplaSite/Media/PDF/ code_of_conduct/Vigil_Policy.pdf.

Contract and Arrangements with Related Parties

All contracts / arrangements / transactions entered by the Company with related parties during the financial year 2014-15 were in the ordinary course of  business and on an arm's length basis. No material related party transactions were entered into by the Company during the year under review.

The policy on materiality of and dealing with related party transactions is available on the Company's website at <http://www>. cipla.com/CiplaSite/Media/PDF/ Policy/Policy_on_Related_Party_ Transactions.pdf.

Internal Financial Controls

The Company has in place adequate policies and procedures for ensuring the orderly and efficient conduct of its business, including adherence to the Company's policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial disclosures.

Risk Management

As required under Clause 49 of the Listing Agreement, the Company has constituted a Risk Management Committee comprising of executive directors under the Chairmanship of Mr. Subhanu Saxena. There are no risks which in the opinion of the Board threaten the existence of your Company. However, some of the risks which may pose challenges are set out in the Management Discussion and Analysis which forms part of this Report.

Deposits

During the financial year 2014-15, your Company has not accepted any deposit within the meaning of Sections 73 and 74 of the Companies Act, 2013 read together with the Companies (Acceptance of Deposits) Rules, 2014.

Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the Board has carried out an annual performance evaluation of its own performance, the directors individually and that of its Committees. The manner in which the evaluation has been carried out is stated in the Corporate Governance Report.

Subsidiaries, Associates and Joint Ventures

The Company had 62 subsidiaries/ step-down subsidiaries, Associates and Joint Ventures as on 31st March 2015. The consolidated financial statements presented in this annual report include financial results of the subsidiary companies.

The names of companies which have become or ceased to be Company's subsidiaries or associates or joint ventures during the year under review is attached as Annexure VII.

The policy for determining material subsidiaries is put up on the website at <http://www.cipla.com/CiplaSite/> Media/PDF/Policy/Policy_on_Material_ Subsidiary.pdf.

A report on the performance and financial position of each of the subsidiaries, associates and joint venture forms part of Consolidated Financial Statement.

The financial statement of the Company including consolidated financial statements, financial statements of subsidiary companies are available on Company's website www.cipla.com <http://www.cipla.com>. These documents will also be available for inspection by any member at the Registered Office of the Company during business hours. The copy of the said financial statements will be made available to any member of the Company seeking such information

Directors and Key Managerial Personnel

Mr. Pankaj Patel resigned from the Board of Directors effective 3rd September 2014 due to his increasing professional commitments. Dr. H. R. Manchanda resigned from the Board of Directors effective 13th November 2014 due to his advancing age. Mr. V. C. Kotwal resigned from the Board of Directors effective 13th November 2014 due to his commitments. The Directors place on record their appreciation of the contributions made by them as members of the Board.

During the year under review, the members approved the appointments of Mr. Ashok Sinha, Dr. Peter Mugyenyi and Mr. Adil Zainulbhai as Independent Directors who are not liable to retire by rotation.

The members through Postal Ballot approved appointment of Ms. Punita Lal and Dr. Nachiket Mor appointed as Independent Directors effective 13th November 2014 who are not liable to retire by rotation.

The following officers have been designated as the Key Managerial Personnel of the Company pursuant to section 203(1) of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:

• Mr. Subhanu Saxena - Managing Director and Global Chief Executive Officer

• Mr. Rajesh Garg - Executive Director and Global Chief Financial Officer

• Mr. Mital Sanghvi - Company Secretary

During the year under review, there was no change in the Key Managerial Personnel of your Company.

Mr. Rajesh Garg demitted office as a Director, Whole-time Director and Chief Financial Officer with effect from close of business hours on

12th June 2015.

Ms. Samina Vaziralli has been appointed as an Additional Director with effect from 10th July 2015 and holds office up to the date of the ensuing Annual General Meeting. She has been appointed as Whole-time Director designated as "Executive Director" for a period of five years with effect from 10th July 2015 subject to the approval of the members at the ensuing Annual General Meeting.

Mr. Subhanu Saxena retires by rotation and, being eligible, offer himself for re-appointment.

A brief resume of the Directors seeking appointment/re-appointment is provided in the Notice.

All Independent Directors of the Company have given declarations that they meet the criteria of independence as prescribed under Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement.

The details of familiarisation programme for Independent Directors are put up on the website at <http://www.cipla.com/CiplaSite/> Media/PDF/Policy/Familiarisation programme  for  Independent  Directors.pdf.

The Nomination and Remuneration Committee have also formulated criteria for determining qualifications, positive attributes and independence of a director. The said criteria is attached as Annexure VIII.

The Board of Directors approved the Remuneration Policy on the recommendation of the Nomination and Remuneration Committee. The salient aspects of Remuneration Policy have been outlined in the Report on Corporate Governance.

Neither the Managing Director nor the Whole-time Directors received any remuneration or commission from any of the Company's subsidiaries.

Number of meetings of the Board

During the year under review, 8 Board Meetings were held. The details of the Board Meetings are stated in the Report on Corporate Governance.

Composition of Audit Committee

The details pertaining to composition of Audit Committee are included in the Report on Corporate Governance.

Cost Auditor

Pursuant to the provisions of Section 148 of the Companies Act, 2013, Mr. D.H. Zaveri, a practising Cost Accountant (Fellow Membership No. 8971) has been appointed to conduct the audit of cost records of pharmaceutical products for the financial year ended 31st March 2015. The due date for filing Cost Audit Report for the year ended 31st March 2014 was 27th September 2014 and the same was filed on 27th September 2014.

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.

The Auditors' Report does not contain any qualification, reservation or adverse remark.

On behalf of the Board

Y. K. Hamied  

Chairman

Date : 9th July 2015

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