DIRECTORS' REPORT Dear Shareholders, Your Directors have immense pleasure in presenting their Sixteenth Annual Report on the business and operations of the Company and Audited Financial Statements for the Financial Year ended 31st March, 2016. 2. PERFORMANCE OVERVIEW: (Rs. in Lacs) Standalone Operations: During the year under review the total income of the Company increased from Rs. 131,761.77/-in 2014-15 to Rs.147,360.78/-in 2015-16. Profit Before Interest, Depreciation and Tax Increased from Rs. 13,225.69/- in 2014-15 to Rs.18,333.24/- in 2015-16. Net Profit After Tax Increased from Rs. 2,100.21/-in 2014-15 to Rs. 5677.72/- in 2015-16. Consolidated Operations: During the year under review the total income of the Company increased from Rs. 1, 37,158.58 /-in 2014-15 to Rs. 1, 61,769.60/-in 2015-16. Profit Before Interest, Depreciation and Tax Increased from Rs. 12,978.27/- in 2014-15 to Rs. 18,678.46/- in 2015-16. Net Profit After Tax Increased from Rs. (1,676.41)/- in 2014-15 to Rs. 1, 912.72/- in 2015-16. Your Company continued its focus on Quality Parameters, Patient Care and Welfare Service resulting in significant improvement in patient satisfaction levels. Your Company continues to place greater emphasis on managing its affairs with diligence, transparency, responsibility and accountability and aiming for higher level of governance. Your Company continues to strive hard to serve the interest of the stakeholders and society at large, resulting in creation of value and wealth for all stakeholders at all times. Business expansion: a. Acquisition of balance 26% stake in subsidiary company: The Company was holding 74% of shareholding in Narayana Hrudayalaya Surgical Hospital Private Limited (NHSHPL) and balance 26% was held by Infrastructure Development Corporation (Karnataka) Limited (IDECK). The Company has acquired the entire 26% from IDECK by paying Rs. 3,025.60 Lacs as total purchase consideration to make NHSHPL as its wholly owned subsidiary. b. Setting up of a project in Kenya through wholly owned subsidiary: The Company through its wholly owned subsidiary has entered into an agreement with prominent Kenyan doctors and couple of leading international financial institutions to establish a multi-specialty hospital in Nairobi, Kenya and the Company through its wholly owned subsidiary would initially own 26% equity stake in the operational entity for a consideration of USD 1.325 mn. The multi-specialty hospital will be a state of the art tertiary care facility poised to cater to patients across different specialties. The 130 bedded hospital will provide affordable quality care that Narayana stands for, to the patients from Kenya and neighbouring African countries. c. Establishment of Mata Vaishno Devi Superspeciality Hospital: The Company has launched Shri Mata Vaishno Devi Narayana Superspeciality Hospital at Kakryal, the base camp for tourists of Holy Shrine of Shri Mata Vaishno Devi. The hospital is established in partnership with Shri Mata Vaishno Devi Shrine Board 3. APPROPRIATIONS: a. Dividend and transfer of amounts to general reserves: Keeping in view the growth strategy of the Company, the Board of Directors of your Company have decided to plough back the profits and thus, not recommended any dividend for the financial year under review. Pursuant to Section 71 of the Companies Act, 2013, and the Companies (Share Capital and Debenture) Rules, 2014, the Company, in the year 2014-15 created Debenture Redemption Reserve (DRR) amounting to Rs. 2,500.00 Lacs for the purpose of redemption of debentures which is 25% of the value of debentures issued. The DRR was created out of the profits available for the payment of dividend. In the shareholders meeting on 01 December, 2015, a resolution was passed approving the conversion of debentures into equity shares of the Company. Hence, the amount in the Debenture Redemption Reserve has been transferred to General Reserve. b. NH Employees Stock Option Plan, 2015: The Company has adopted the Narayana Hrudayalaya Employee Stock Option Plan (NH ESOP), 2015 on 7th September, 2015, pursuant to the Board and Shareholders' resolutions of 12th September, 2015. The purpose of the NH ESOP, 2015 was to, inter alia, enable the Company, its subsidiaries, and associates to attract, retain and reward appropriate human talent. The Company may grant options under NH ESOP, 2015 in one or more tranches, to the employees, with each such option conferring a right upon the employee to apply for one Equity Share of the Company, in accordance with the terms and conditions of such issue. The maximum aggregate number of Equity Shares in respect of which the options may be granted under the NH ESOP, 2015 is 20,40,000 Equity Shares. The Plan is administered by the Nomination & Remuneration Committee through Narayana Health Employees Benefit Trust. c. Deposits: Your Company has not accepted any deposits within the meaning of Section 73 of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014. d. Particulars of Loans, Securities, Guarantees and Investments: The loans given, security provided, guarantees given and Investments made by the Company under Section 186 of the Companies Act, 2013 are given in the notes to the financial statements. 4. SUBSIDIARY AND ASSOCIATE COMPANIES: Review of performance of Subsidiaries and Associate Companies: Pursuant to Section 129 of the Companies Act, 2013 read with Regulation 33 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and applicable accounting standards, the consolidated financial statements of the Company, prepared in accordance with the relevant accounting standards specified under Section 133 of the Companies Act, 2013 read with the rules made there under, forms part of this Annual Report. In view of the same, the financial statements and other documents of each Subsidiaries and Associate Companies are not attached to this Report. Further, pursuant to proviso 3 and 4 of Section 136 (1) of the Companies Act, 2013: i. The Annual Report of the Company, containing therein its standalone and consolidated financial statements are available on the Company's website i.e., www.narayanahealth.org ii. The audited financial statements of Subsidiary Companies will be made available on the website of the Company i.e., www. narayanahealth.org, post approval by shareholders of the Company As on 31st March, 2016, the Company has 9 Subsidiary Companies and 1 Associate Company of which none are material subsidiaries. Pursuant to the provisions of the section 133, a statement containing the salient features of the financial statements of the Company's subsidiaries and associates in Form AOC-1, that forms part of this Report as Annexure-I. The brief details of all the Subsidiary and Associate Companies are as follows: 1. Narayana Hospitals Private Limited (NHPL): NHPL is authorised to engage in the business of operation of hospitals, clinics, health centers, nursing homes and other related activities. Further, other financial information is included in form AOC-1. 2. Narayana Institute for Advance Research Private Limited (NIARPL): NIARPL is authorised to engage in the business of research and development work connected with facilities of medicines and operation of hospitals, clinics, health centers, nursing homes and other related activities. Further, other financial information is included in form AOC-1. 3. Narayana Health Institutions Private Limited (NHIPL): NHIPL is authorised to engage in the business of running medical colleges and operation of hospitals, clinics, health centers, nursing homes and other related activities. Further, other financial information is included in form AOC-1. 4. Narayana Hrudayalaya Surgical Hospital Private Limited (NHSHPL): NHSHPL is authorised to engage in the business ofmaintaining hospitals, clinics, health centers, nursing homes and other related activities. Further, other financial information is included in form AOC-1. 5. Asia Healthcare Development Limited (AHDL): AHDL is authorised to engage in the business of operation of hospitals, clinics, health centers, nursing homes and other related activities. Further, other financial information is included in form AOC-1. 6. Meridian Medical Research and Hospital Limited (MMRHL): MMRHL is authorised to engage in the business of operation of hospitals, clinics, health centers, nursing homes and other related activities. Further, other financial information is included in form AOC-1. 7. Narayana Vaishno Devi Speciality Hospitals Private Limited (NVDSHPL): NVDSHPL is authorised to engage in the business of super specialty hospital, complexes consisting of hospitals of superior quality with latest advanced technology, clinics, health centers, diagnostic centers and other related activities. Further, other financial information is included in form AOC-1. 8. Narayana Hrudayalaya Hospitals Malaysia Sdn Bhd (Narayana Malaysia): Narayana Malaysia is authorised to engage in the business of hospitals, nursing homes, medical and other research centers, maternity homes and other related activities. Further, other financial information is included in form AOC-1. 9. Narayana Cayman Holdings Limited (Narayana Cayman Holdings): Narayana Cayman Holdings has the power and authority to carry out any object not prohibited by the Companies Law of the Cayman Islands. Further, other financial information is included in form AOC-1. Associate Company: Health City Cayman Islands Limited ("HCCI"): HCCI has the power and authority to carry out any object not prohibited by the Companies Law of the Cayman Islands. Further, other financial information is included in form AOC-1. 5. SHARE CAPITAL: a. As on 31st March 2016, the Authorized Share capital of the Company is Rs. 30,000.00 Lacs and Paid up Share Capital is Rs. 20,436.00 Lacs. b. The Company got its securities listed on BSE Limited and on National Stock Exchange of India Limited on 6th January, 2016. Hence question of variations in the market capitalization of the company, price earnings ratio as at the closing date of the current financial year and previous financial year does not arise. c. The question of percentage increase or decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer also does not arise. d. The variations in the net worth of the Company as at the close of the current financial year and previous financial year was Rs.16,563.54/- Lacs. 6. MANAGEMENT DISCUSSION AND ANALYSIS REPORT: A detailed analysis of the Company's Operational and financial performance as well as the initiatives taken by the Company in its key functional areas are separately discussed in Pages No. 32-47 7. CORPORATE GOVERNANCE: Your Company continues to place greater emphasis on managing its affairs with diligence, transparency, responsibility and accountability and is committed to adopting and adhering to best Corporate Governance practices. Your Company understands and respects its fiduciary role and responsibility towards stakeholders and the society at large, and strives hard to serve their interests, resulting in creation of value and wealth for all stakeholders at all times. The Board considers itself as a trustee of its shareholders and acknowledges its responsibilities towards them for creation and safeguarding their wealth. The Company has set itself the objective of expanding its capacities. As a part of its growth strategy, it is committed to high levels of ethics and integrity in all its business dealings that avoid conflicts of interest. In order to conduct business with these principles, the Company has created a corporate structure based on business needs and maintains a high degree of transparency through regular disclosures with a focus on adequate control systems. A report on Corporate Governance and a certificate from Mr. Swayambhu Kedarnath, Practicing Company Secretary (CP No. 4422 and FCS No. 3031), Bengaluru, affirming the compliance with the various provisions of the Corporate Governance as stipulated under Regulation 27 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 forms part of the Annual Report and is Annexed to Directors' Report as Annexure - II and Annexure IIA, respectively. 8. COMPANY'S POLICY ON APPOINTMENT AND REMUNERATION OF DIRECTORS: As on 31st March, 2016, the Board consists of 9 members, of which 5 are Independent and Non-Executive. An appropriate mix of Executive and Independent Directors ensures greater independence of Board. The Company has been following well laid down policy on appointment and remuneration of Directors, Key Managerial Personnels (KMPs) and Senior Management Personnels. The remuneration of executive directors comprises of basic salary and perquisites & adheres to the applicable provisions of the Companies Act, 2013 read with relevant rules as detailed in Corporate Governance Report which forms a part of this report. Remuneration to Non-executive Directors: The remuneration of Non-Executive Directors comprises of sitting fees and commission in accordance with the provisions of Companies Act, 2013 and reimbursement of expenses incurred in connection with attending the Board meetings, Committee meetings, General Meetings and in relation to the business of the Company and a brief of details of appointment and remuneration of Directors, KMPs and Senior Management Personnels is provided in the Corporate Governance Report which forms a part of this report. 9. DECLARATION BY INDEPENDENT DIRECTORS OF THE COMPANY: A declaration of independence in compliance with Section 149 (6) of the Companies Act, 2013, has been taken on record from all the independent directors of the Company. 10. PERFORMANCE EVALUATION OF DIRECTORS: Pursuant to the provisions of the Companies Act, 2013 and Regulations 19 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, evaluation of every Director's performance was done. The performance evaluation of Non-Independent Directors and Board as a whole, committees thereof and Chairman of the Company was carried out by the Independent Directors at their meeting held on 23rd March, 2016. Evaluation of Independent Directors was carried out by the entire Board of Directors, excluding the Director being evaluated. A structured questionnaire was prepared, covering various aspects of the evaluation such as adequacy of the size and composition of the Board and Committee thereof with regard to skill, experience, independence, diversity, attendance and adequacy of time given by the Directors to discharge their duties. The Directors expressed their satisfaction with the evaluation process. 11. BOARD OF DIRECTORS AND COMMITTEES THEREOF: Composition of Board of Directors and changes thereof: Your Company's Board of Directors comprises Executive Directors, Non-executive Directors and Independent Directors and same is detailed in Corporate Governance Report which forms a part of this Report. Committees and their Constitution: As required under the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements), 2015, the Board has formed four Committees viz. Stakeholders' Relationship Committee, Audit, Risk and Compliance Committee, Nomination and Remuneration Committee and Corporate Social Responsibility Committee. Keeping in view the requirements of the Companies Act, 2013, the Board decides the terms of reference of these Committees and the assignment of members to various committees. The recommendations, if any, of these Committees are submitted to the Board for approval. Details of Board and Committee Meetings: The meetings of the Board are scheduled at a regular intervals to decide and discuss on the business performance, policies, strategies and other matters of significance. The schedule ofthe meetings is circulated to ensure proper planning and effective participation in meetings. In certain exigencies, decisions of the Board are also accorded through circulation. The Board during the financial year under review met Twelve (12) times. Detailed information regarding the meetings of the Board and meetings of the committees of Board is included in the report on Corporate Governance which forms a part of Directors' Report. 12. RELATED PARTY TRANSACTIONS: The Company has taken necessary approvals as and when required as per the Companies Act, 2013 and the details of transactions entered into the Related Parties are stated in the notes to accounts and Form AOC-2 is annexed herewith as Annexure-III. 13. MATERIAL CHANGES AND COMMITMENTS, IF ANY, AFFECTING THE FINANCIAL POSITION OF THE COMPANY OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR TO WHICH THESE FINANCIAL STATEMENTS RELATE AND THE DATE OF THE REPORT: There are no other material changes affecting the financial position of the company between the end of the financial year to which this financial statements relate and the date of the report. 14. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO: The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3) (m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 is provided in Annexure -IV to this Report. 15. AUDITORS: a. Statutory Auditors: M/s. B S R & Co. LLP (Firm Registration Number: 101248W/W-100022), Chartered Accountants, who are the statutory auditors of the Company, hold office until the conclusion of the ensuing AGM and are eligible for re-appointment. Members of the Company at the 15th AGM held on 8th August, 2015 had approved the appointment of M/s. B S R & Co. LLP as the Statutory Auditors till the conclusion of 17th AGM. As required by the provisions of the Companies Act, 2013, their appointment should be ratified by members each year at the AGM. Auditor's Report: There are no observations made in the Auditors' Report and hence, do not call for any further comments under Section 134 of the Companies Act, 2013. b. Cost Auditors: Pursuant to the provisions of Section 148 of the Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2014, the Company is required to appoint a Cost Auditor to audit all the cost audit records of the Company, which is falling under the purview of Rule 3(B) the Companies (Cost Records and Audit) Rules, 2014. The Board has approved the appointment of M/s. PSV & Associates, Cost Accountants having Firm Registration Number 000304, as the Cost Auditor of the Company for the financial year 2016-17 at remuneration of Rs. 2, 50, 000/-(Rupees Two Lacs Fifty Thousand) only, exclusive of reimbursement of service tax and all out of pocket expenses incurred, if any, in connection with the cost audit. The remuneration of the cost auditor is required to be ratified subsequently by the Members of the Company. The Board of Directors of the Company proposes the ratification of remuneration of M/s. PSV & Associates, Cost Accountants, as the Cost Auditor of the Company at the ensuing General Meeting. c. Secretarial Auditor: Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rules made there under, the Company had appointed M/s. Ganapathi and Mohan, (CP No. 4520 and FCS No. 5659) Practicing Company Secretaries to undertake the Secretarial Audit of the Company (for FY 2015-16). The Report of the secretarial audit is annexed herewith as Annexure -V. There is no qualification, reservations or adverse remarks made by M/s. Ganapathi and Mohan, Practicing Company Secretaries, Secretarial Auditor of the Company in their Secretarial Audit Report. 16. INTERNAL AUDIT SYSTEMS: Your Company has continued its engagement with M/s. Ernst & Young LLP, Chartered Accountants, to conduct internal audit across the organization. We have also strengthened the in-house internal audit team to supplement and support the efforts of Ernst & Young. Your Company conducted 6 (Six) Audit Committee meetings during the year under review. 17. SIGNIFICANT OR MATERIAL ORDERS PASSED BY THE REGULATORS/ COURTS: There are no significant and material orders passed by the regulators or courts of tribunals impacting the going concern status and Company's operation in future. 18. THE EXTRACT OF ANNUAL RETURN: Pursuant to section 92(3) of the Companies Act, 2013 (the Act) and Rule 12(1) of the Companies (Management and Administration) Rules, 2014, extract of annual return is annexed herewith as Annexure -VI. 19. VIGIL MECHANISM/WHISTLE BLOWER POLICY: The Company has developed a Whistle Blower Policy with a view to provide a mechanism for Directors, employees and stakeholders of the Company to report their genuine concern and no personnel has been denied access to the Audit Committee. 20. PARTICULARS OF EMPLOYEES: The information required pursuant to Section 197 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company is detailed in Annexure -VII. 21. CORPORATE SOCIAL RESPONSIBILITY: Your Company is building a robust support structure to empower the less privileged sections of society. Through its community outreach programs, your Company is building the infrastructure necessary to bring about the changes to ensure improved health and well-being for the community. As a responsible corporate citizen, your Company undertook several social welfare initiatives. Annual report on CSR is annexed herewith as Annexure -VIII. 22. DISCLOSURES AS PER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013: The Company has in place a policy for Anti-Sexual Harassment of Women at workplace. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy. The Company has received, resolved some complaints during the year 2015-16 and same is detailed as below: 23. DIRECTORS RESPONSIBILITY STATEMENT: reasonable and prudent so as to give a true In terms of Section 134 (5) of the Companies Act, and fair view of the state of affairs of the 2013, the directors would like to state that: Company at the end of the financial year and i) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures ii) The directors have selected such accounting policies and applied them consistently and made judgments and estimates that were of the profit or loss of the Company for the year under review. iii) The directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities iv) The directors have prepared the annual accounts on a going concern basis. v) The directors had laid down internal financial controls to be followed by the company and such internal financial controls are adequate and were operating effectively. vi) The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. 24. RISK MANAGEMENT POLICY: During the year under review, the Board has constituted an Audit, Risk and Compliance Committee with well-defined roles and responsibilities of the Committee. The Audit, Risk and Compliance Committee evaluates internal financial controls and risk management systems. The Company has adopted Risk Management Policy. 25. DECLARATION FOR CODE OF CONDUCT: The Company has adopted Code of Conduct for all its employees and Senior Management Personnel and Directors and the same is affirmed by all the Board Members and Senior Management Personnel as required under Regulation 34 and Regulation 53 read with Part D of Schedule V of the SEBI (Listing Obligations and Disclosure Requirement), 2015. A declaration signed by Dr. Ashutosh Raghuvanshi, the Vice-chairman, Managing Director and Group Chief Executive Officer of the Company affirming the compliance with the Code of Conduct of the Company for the financial year 2015-16 has been annexed as part of this Report. 26. ACKNOWLEDGEMENT: Your Directors are grateful for all the help, guidance and support extended to them by patients, bankers, suppliers and investors. Your Directors would also wish to thank the medical professionals and employees at each level for their hard work, commitment and performance during the year. For and on behalf of the Board of Directors Dr. Devi Prasad Shetty Chairman DIN: 00252187 Place: Bengaluru Date: 30th May, 2016 |